Daily Current Affairs 1st June and 2nd June

Internationalisation of Indian Rupee

Why in news?

Recently, the RBI allowed the opening of rupee accounts outside India as part of its strategic action plan to internationalise Indian Rupee.

More about the news

• The RBI said it has finalised a strategic action plan for 2024-25.
  • It envisaged liberalisation of external commercial borrowing (ECB) framework, 
  • It also envisaged 'Go-live' for phase I of a software platform for ECBs and trade credits reporting and approval (SPECTRA) project.
• The RBI will permit opening of rupee (INR) accounts outside India by persons resident outside India (PROIs) as part of the 2024-25 agenda for internationalisation of the domestic currency.
• Rationalisation of the Liberalised Remittance Scheme (LRS) and review of the IFSC regulations under FEMA also are part of the agenda for the current financial year.
• The report also said, the liquidity operations would continue to be in sync with the stance of the monetary policy, while the foreign exchange operations would be guided by the objective of ensuring orderly movements in the exchange rate of the rupee.

What is Internationalisation of Rupee

• Internationalisation is a process that involves the use of a currency for more and more cross-border transactions. For the rupee, it means that more and more international payments start taking place in the Indian currency.
• This involves promoting the rupee for current account transactions and foreign trade.
• These transactions will have to take place between resident and non-resident Indians.
• Currently, the US dollar, the Euro, the Japanese yen and the pound sterling are the leading reserve currencies in the world.
• Key Requirements:
  • It requires a further opening up of the currency settlement and a strong currency swap and forex market.
  • It would also require full convertibility of the currency and a restriction-free cross-border transfer of funds. 
  • India only allows full convertibility on current accounts. To make the rupee more international, it will also have to open it for capital accounts.

Key Benefits: 

• Mitigates Currency Risk: The use of the rupee in cross-border transactions mitigates currency risk for Indian businesses. Protection from currency volatility not only reduces the cost of doing business, it also enables better growth of business, improving the chances for Indian businesses to grow globally.
• Reduce Exchange Rate Volatility: Internationalisation of the rupee reduces the need for holding foreign exchange reserves. Reducing dependence on foreign currency will make India less vulnerable to external shocks.
• Reduce Current Account Deficit: The settlement of international-trade transactions in Indian rupees with oil-exporting countries or countries with which India has trade deficits will lead to reductions in India’s current account deficit.
• Strengthen India’s Global Stature: As the use of the rupee becomes significant, the bargaining power of Indian businesses would improve, adding weight to the Indian economy and enhancing India’s global stature and respect.
• Integration with the world economy: The internationalisation of the rupee would help to integrate India more deeply into the global economy.

Challenges

• Triffin dilemma: internationalisation would have monetary implications as the obligation of a country to supply its currency to meet the global demand may come in conflict with its domestic monetary policies, popularly known as the Triffin dilemma. 
• Lack of Payment Structure: Although, India’s centralized payment systems, such as real-time gross settlement (RTGS) and National Electronic Funds Transfer (NEFT), have gained significance in global payment systems. However, they are not accepted as it is required to be accepted globally. 
• Rupee is not fully convertible: The Indian rupee is not convertible on capital account. The quest for internationalisation involves providing greater frictionless freedom to transact in the rupee.
• Acceptability of INR: India has local currency settlement agreements with 18 countries. However, some countries raised concerns in the past to accept INR, for instance: Russia prefers the yuan or the dirham as a medium of transaction, because of a lack of imports from India, it’s not enough to use the rupee. 
• India’s share in global exports: India’s share of global exports of goods is just about 2 per cent, which means that it is not a significant player on the global trade scene, yet. Therefore, exporting countries are unlikely to consider the INR as an invoicing currency for settlement of international-trade transactions.
• Current Account Deficit: India usually suffers from Current Account Deficit. A rising current account deficit leads to an increased supply of a nation's currency in the foreign exchange markets thus depreciates the value of currency.

Way Forward

• Strengthen Export Competitiveness: To enhance its export competitiveness, India needs to focus on diversifying its export basket, improving its infrastructure, reducing trade barriers, and enhancing the ease of doing business.
• Adoption of a standardised approach: There is a need to adopt a standardised approach for examining the proposals on bilateral and multilateral trade arrangements for invoicing, settlement and payment in the rupee and local currencies
• Opening of the Rupee Accounts: The non-residents both in India and outside India should be encouraged for the opening of the rupee accounts and integrating Indian payment systems with other countries for cross-border transactions.
• Review payment structure: There is a need to review taxes on masala (rupee-denominated bonds issued outside India by Indian entities) bonds, international use of Real Time Gross Settlement (RTGS) for cross-border trade transactions and inclusion of Indian Government Bonds in global bond indices.
• Inclusion of the rupee in IMF’s SDR: 
• Efforts should be made for the inclusion of the rupee in IMF’s (International Monetary Fund) SDR (special drawing rights). 
• The SDR is an international reserve asset created by the IMF to supplement the official reserves of its member countries. 
• The value of the SDR is based on a basket of five currencies — the U.S. dollar, the euro, the Chinese renminbi, the Japanese yen, and the British pound sterling.

RBI Transfers of Gold to India

Why in news?

Recently, the Reserve Bank of India (RBI) moved 100 metric tonnes of its gold stored in the UK to domestic vaults in FY24.

More about the news

• This is the first time since 1991 that India has undertaken such a large-scale transfer of gold reserves.
• More than half of the RBI’s gold reserves are held overseas in secure custody with the Bank of England and the Bank of International Settlements, while approximately a third is stored domestically.
• This move is part of a broader strategy to diversify foreign exchange reserves and hedge against inflation and currency volatility.
• The RBI's strategy of holding and managing gold reserves, both domestically and internationally, is driven by logistical considerations, market strategies, and geopolitical risks. The recent repatriation of gold from the UK underscores the dynamic nature of the RBI's approach to safeguarding and utilizing its gold assets.
• As of March 2024, the RBI's total gold reserves stand at 822.10 metric tonnes. The movement of 100 metric tonnes into India has taken the overall quantity stored locally to over 408 metric tonnes of gold.
• According to a World Gold Council report, global central banks hold about 17% of all the gold ever mined, with reserves reaching 36,699 metric tons by the end of 2023.

Why does the RBI store its gold abroad?

• Gold stored abroad can be easily used for trading, entering into swaps, and earning returns. The RBI also buys gold from international markets and storing it overseas facilitates these transactions.
• Storing gold internationally comes with risks, particularly during geopolitical tensions.
• The freezing of Russian assets by Western nations has heightened concerns about the safety of assets held abroad. The RBI's recent move to repatriate gold from the UK likely reflects these concerns.

Foreign Direct Investment

Why in news?

According to the government data, Foreign direct investment (FDI) equity inflows in India declined 3.49 per cent to USD 44.42 billion in 2023-24.

More about the news

• The total FDI, which includes equity inflows, reinvested earnings and other capital, declined marginally by one per cent to USD 70.95 billion during 2023-24 from USD 71.35 billion in 2022-23.
  • It happened due to lower infusion in sectors such as services, computer hardware and software, telecom, auto and pharma.
• Sectorally, inflows contracted in services, computer software and hardware, trading, telecommunication, automobile, pharma and chemicals.
• In contrast, construction (infrastructure) activities, development and power sectors registered healthy growth in inflows during the period under review.
• The data also showed that Maharashtra received the highest inflow followed by Gujarat, Tamil Nadu, Telangana and Jharkhand.
• Singapore continued to be the top investor followed by Mauritius, the United States, Netherlands, Japan, the United Kingdom, the United Arab Emirates, Cyprus, Germany, and Cayman Islands.

About Foreign Direct Investment

• Foreign direct investment (FDI) is when a company takes controlling ownership in a business entity in another country. With FDI, foreign companies are directly involved with day-to-day operations in the other country. This means they aren’t just bringing money with them, but also knowledge, skills and technology.
• Generally, FDI takes place when an investor establishes foreign business operations or acquires foreign business assets, including establishing ownership or controlling interest in a foreign company.

FDI in India

• FDI is an important monetary source for India's economic development. 
• Economic liberalisation started in India in the wake of the 1991 crisis and since then, FDI has steadily increased in the country. 
• India, today is a part of the top 100-club on Ease of Doing Business (EoDB) and globally ranks number 1 in the greenfield FDI ranking.
• Routes through which India gets FDI
  • Automatic route: The non-resident or Indian company does not require prior nod of the RBI or government of India for FDI.
  • Govt route:
    • The government's approval is mandatory. The company will have to file an application through Foreign Investment Facilitation Portal, which facilitates single-window clearance. 
    •  The application is then forwarded to the respective ministry, which will approve/reject the application in consultation with the Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce FDI prohibition
• There are a few industries where FDI is strictly prohibited under any route, like: 
  • Atomic Energy Generation
  • Any Gambling or Betting businesses
  • Lotteries (online, private, government, etc)
  • Investment in Chit Funds/Nidhi Company
  • Agricultural or Plantation Activities (although there are many exceptions like horticulture, fisheries, tea plantations, Pisciculture, animal husbandry, etc)
  • Housing and Real Estate (except townships, commercial projects, etc)
  • Trading in TDR’s
  • Cigars, Cigarettes, or any related tobacco industry

Millet Production in India

Why in news?

According to the Reserve Bank of India’s annual report for 2023-24, India grapples with stagnation in the production of millets.

More about the news 

• The report attributed the stagnation to incentives for the cultivation of fine cereals through MSP-backed procurement schemes.
  • Visible shift in consumer preferences towards fine cereals is another reason for stagnation.
• The report noted that labour, fertiliser and machine usage are also negatively and significantly related to the yield gap. The adoption of hybrid seeds improves yields.
• The productivity of millets in India remains lower than those of major producers around the world. India’s productivity of millets was 1.4 tonnes per hectare. 
  • According to the report, China’s productivity was 3 tonnes/ha, followed by Ethiopia’s at 2.5 tonnes, and Russia’s 1.5 tonnes. This excluded jowar.
  • India accounts for almost 80 percent of Asia’s and 20 percent of global millet production.

About Millets

• Millets in India comprise cereal grains along with minute seed grasses. 
• Most millets such as Jowar, Ragi, Bajra, Sorghum, etc. are grown as Kharif crops i.e. as monsoon or autumn crops cultivated between June to November, as their moisture and rainfall requirements are such.
• The sustainable temperature for millet growth is 20-30 degrees Celsius.
• Usually, minor millets require below 35 cm of rainfall, while a few other major millets require at least 40 cm of rainfall for a good harvest.
• Millet has wide adaptability to different soil from very poor to very fertile and can tolerate a certain degree of alkalinity. The best soils are alluvial, loamy and sandy soil with good drainage.
• The main millet-growing states in India are Rajasthan, Maharashtra, Karnataka, Andhra Pradesh, and Madhya Pradesh.
• Challenges in Millet Production
  • Low productivity of millets, area under millet is declining, resistance to pests and diseases, challenges in millet processing and low investment in research and development.
• Steps taken by GOI to promote production of millet
  • National and International year of millets observed in 2018 and 2023 respectively.
  • Millets are included by the Ministry of Women and Child Development under Poshan Mission Abhiyan.
  • The Government of India has hiked the Minimum Support Price of Millet to incentivize its production for farmers.
  • In order to provide a steady market for millet, the government has also included it in the public distribution system.
  • The government has also encouraged the marketability of millets by building value chains through Farmer Producer Organization.

Variable Repo Rate Auction 

Why in news?

Recently, the Reserve Bank of India (RBI) conducted another variable rate repo auction (VRR) auction to ease the liquidity deficit in the system.

More about the news

• The VRR is a tool in the central bank’s toolkit to infuse short-term liquidity into the banking system.
• The banks participate in the auction by bidding for the notified amount offered by the RBI at variable rates.
• The RBI then fixes a cut-off rate which has been around the repo rate in recent auctions.
• In a variable rate reverse repo (VRRR) auction, the RBI sucks liquidity from the system if it sees money market rates distancing from the repo rate, which is now at 6.50 per cent. 
• The RBI sets the VRRR higher than the reverse repo rate but lower than the repo rate to attract surplus funds from banks, thereby regulating the liquidity in the market.
• The VRRR auction affects the overnight money market rates, such as call money, CBLO and market repo rates. These rates tend to move in tandem with the VRRR rates. As the VRRR rates increase, the money market rates also increase, reflecting tighter liquidity conditions.
• Higher VRRR rates lead to increased bond yields, indicating elevated borrowing costs and reduced demand for bonds. This relationship between VRRR and bond yields highlights the interconnectedness of various financial markets.
• This is the second VRR such auction this week.

Global Food Policy Report 2024

Why in news?

Recently, the International Food Policy Research Institute (IFPRI) released the global food policy report 2024.

Key highlights of the report

• A new global report has raised concerns about dietary habits in India, the report says, at least 38 per cent of the Indian population ate unhealthy foods.
• It highlights a significant increase in the consumption of unhealthy foods compared to nutritious options. 
• More people in India consume unhealthy foods such as salty or fried snacks, compared to those consuming vegetables, fruits and other micronutrient-rich-foods.
• The report found, as a result of poor diet, 16.6 per cent of the country’s population suffers from malnutrition.
• The report found; many countries were facing a double burden of malnutrition.
  • This means that undernutrition and micronutrient deficiencies coexist with overweight and obesity, or diet-related noncommunicable diseases (NCD), within individuals, households, and communities and across the life course.
• In the South Asian region, the report highlighted that micronutrient-rich foods were expensive, whereas cereals, fats and oils, sugar, and sugary and salty snacks were relatively inexpensive.

Gangetic Dolphin

Why in news?

Recently, Scientists have identified stretches of the Ganga River for priority long-term conservation programmes to help revive the Gangetic Dolphin.

More about the news

• The study is conducted by the scientists from Wildlife Institute of India and the government agency National Mission for Clean Ganga.
• The study has assessed the distribution, numbers and habitat suitability of the Gangetic dolphin in the small rivers of the Ganga basin and proposed a basin-wide river conservation strategy for the species.
• The study also identifies environmental factors such as river channel geomorphology and human-induced stresses that affect dolphin presence. 
• The scientists surveyed the tributaries and sub-tributaries of the Ganga River, covering a total linear stretch of 1,290 km.
• They observed that the Gangetic dolphin inhabited most tributaries and sub-tributaries of the river and plotted priority conservation stretches along the Ganga basin.
  • The lesser-known rivers harbour more than 15% of the Gangetic dolphins and contribute to habitat diversity.
  • The study has provided new data on the species’ habitat, such as the population status in some of the smaller rivers such as Rapti, Babai and Bagmati
• The primary measures to conserve the Gangetic dolphin include habitat protection and restoration, and mitigation of threats such as overfishing and net entanglement.
• The collaboration with stakeholders such as government agencies, NGOs, and local communities are essential to ensure effective implementation and long-term sustainability of conservation efforts.

About Gangetic Dolphin

• The Ganges River dolphin (Platanista Gangetica) is a species of freshwater dolphin classified in the family Platanistidae. 
• It lives in the Ganges and related rivers of South Asia, namely in the countries of India, Nepal, and Bangladesh.
• It is the national aquatic animal of India.
• The Ganges River dolphin can only live in freshwater and is essentially blind. 
• They hunt by emitting ultrasonic sounds, which bounces off of fish and other prey, enabling them to “see” an image in their mind.
• The Gangetic Dolphin plays a crucial role in stabilising the ecosystem, regulating the energy flow of the river and maintaining the fish and crustacean populations.
• It is listed as endangered in the IUCN Red List, Schedule I of the Indian Wildlife (Protection) Act 1972 and Appendix I of Convention on International Trade in Endangered Species (CITES)
• Project Dolphin is a wildlife conservation movement initiated in India to protect the riverine and oceanic dolphins. 
  • The project was initiated in 2021 by the Ministry of Environment, Forest and Climate Change of the Government of India.

Mahua Tree

Why in news?

Koya tribe faces brewing conflict over sacred Mahua flower.

About

• Madhuca longifolia is an Indian tropical tree found largely in the central, southern, north Indian plains and forests, Nepal, Myanmar and Sri Lanka.
• Mauwa is also found at altitudes of 1000-3000 m.
• It is commonly known as mahuwa, Butter Tree, mahua, mahwa, mohulo, Iluppai, Mee or vippa chettu.
• Mauwa is a tree identified by fissured bark, compound leaves with leaflets opposite, and winged nuts. It is a deciduous tree that grows up to 20 m tall. Bole is straight.
• It grows well where annual rainfall is between 500 mm to 1500 mm, and where temperatures are in the range of 2-46°C.
• Mahua does better on deep loamy or sandy-loam soils with good drainage, but it also occurs on shallow stony, clayey and calcareous soils
• Mahua flowers, fruits and leaves are edible and used as vegetables in India and other Southern Asian countries.
• Mahua is reported to have many applications in traditional medicine, and to provide several environmental benefits

Antarctic Treaty

Why in news?

Recently, the 46th Antarctic Treaty Consultative Meeting (ATCM-46) and the 26th Committee on Environmental Protection (CEP-26) concluded in Kochi, Kerala.

More about the news

• It was organized by the Ministry of Earth Sciences through the National Centre for Polar and Ocean Research (NCPOR).
• The meetings focused on the theme “Vasudhaiva Kutumbakam,” meaning “one Earth, one family, one future,” reflecting the Antarctic Treaty’s goals of peace, scientific cooperation, and environmental preservation.
• During the meetings, delegates reaffirmed the Antarctic Treaty (1959) and the Madrid Protocol (1991).
  • The Protocol on Environmental Protection to the Antarctic Treaty, also known as the Madrid Protocol, is a complementary legal instrument to the Antarctic Treaty signed in Madrid on October 4, 1991.
  • The Madrid Protocol designates Antarctica as a "natural reserve, devoted to peace and science".
  • It complements and reinforces the Antarctic Treaty in order to increase the protection of the Antarctic environment and dependent and associated ecosystems.
• Parties discussed liability, biological prospecting, exchange of information, education and awareness, a multi-year strategic work plan, safety, inspections, science, future science challenges, scientific cooperation, climate change implications and tourism management.
• No decision was taken on a proposal to designate the emperor penguin as a Specially Protected Species within the Antarctic Treaty System.
• Parties were quite supportive of minimal regulation or of adapting regulations to the practices developed by the industry.

About Committee on Environmental Protection (CEP-26) 

• The CEP was established in 1991 under the Protocol on Environmental Protection to the Antarctic Treaty (the Madrid Protocol).
• The CEP advises the Antarctic Treaty Consultative Meeting (ATCM) on matters related to environmental protection and conservation in Antarctica.
• The CEP-26 focused on issues such as sea ice change, environmental impact assessments, emperor penguin protection, and creating an international framework for environmental monitoring. 
• The committee adopted 17 management plans for Antarctic Specially Protected Areas (ASPAs) and updated the list of historic and monument sites.

About Antarctic Treaty Consultative Meeting (ACTM)

• ACTM is an annual meeting that encourages international collaboration on scientific research and sustainable resource management in the icy continent, along with discussing the principles and objectives of the Antarctic Treaty, which went into effect in 1961. 
• The Treaty, which has provisions for using the icy continent for only peaceful purposes, freedom of scientific investigation, and exchange of scientific information.
• It currently has 56 parties, including India.

Koya Tribe

Why in news?

In Godavari valley, the Koya tribe faces a cultural crisis as raids by the Special Enforcement Bureau threaten their cherished tradition of Mahua liquor consumption.

About Koya Tribes 

• Koya are an Indian tribal community found in the states of Andhra Pradesh, Telangana, Chhattisgarh, and Odisha.
• The Koya are one of the few multi-racial and multi-lingual tribal communities in India. Most Koya speak either Gondi or Telugu, in addition to Koyi.
• All Koya belong to one of five subdivisions called gotras. Every Koya is born into a clan, and he cannot leave it.
• The Koya practice their own ethnic religion, but also worship a number of Hindu gods and goddesses. Many Koya deities are female, the most important being the "mother earth".
• The Koyas adopted Bison horns to discover their two cultural forms: the Kommu Koya dance, during which two Bison horns are adorned on the head as part of the attire, and the Permakore flute, which is made of a single horn.
• The Koya are primarily farmers. They once shifted from one plot to another, farming various areas. 
  • However, the government has now restricted their movement and has encouraged them to farm on fixed plots. They showed the Koya how to farm coconut and coffee.
• The Koya resent the restrictions that have been placed on their use of reserve forests, hydroelectric projects and distillation of liquor, for instance manufacturing and consumption of Mahua liquor. 

UN Peacekeeping Forces

Why in news?

Recently, the Indian Army commemorated the 76th International Day of United Nations (UN) Peacekeepers.

More about the news

• In 1948 the first UN Peacekeeping Mission, “UN Truce Supervision Organisation (UNTSO)” began operations in Palestine.
• India has a rich legacy of contribution to UN Peacekeepers operations and is one of the largest contributors of troops.
• India has contributed services of approximately 2,87,000 troops to peacekeeping missions.
• Indian Army personnel have operated under difficult, challenging terrain and operational conditions and have displayed exemplary courage and valour, to the extent of making the supreme sacrifice to uphold the UN mandates.
• It is noteworthy that 160 Indian Army soldiers have made the supreme sacrifice to ensure peace across the globe.
• Presently, Indian Armed Forces are deployed across nine countries in peacekeeping missions.

About UN Peacekeeping Forces

• UN Peacekeeping is one of the UN’s broader efforts to build and sustain global peace.
• Peacekeepers monitor and observe peace processes in post-conflict areas and assist ex-combatants in implementing the peace agreements they may have signed.
• In addition, they give help through confidence-building measures, electoral support, improving law and order and bolstering social development that will bring positive economic changes.
• Chapter VII of the United Nations Charter gives the United Nations Security Council the power and responsibility to take collective action to maintain international peace and security.
• The Peacekeeping Forces are subordinate to the leadership of the United Nations. UN peacekeeping operations are deployed with the consent of the main parties to the conflict.
• Peacekeepers are impartial in their dealings with the parties to the conflict, but not neutral in the execution of their mandate.
• The financial resources of UN Peacekeeping operations are the collective responsibility of UN Member States.
• The UN Peacekeeping Forces were awarded the 1988 Nobel Prize for Peace.

Funan Techno Canal

Why in news?

Recently, Cambodia has announced plans to commence construction on the Funan Techo Canal.

About the canal 

• The Funan Techo Canal is a proposed 180 km long canal in Cambodia, connecting Phnom Penh Autonomous Port with Kep and the Gulf of Thailand.
• The canal is set to connect the Cambodia’s coast to the Mekong River via a system of lock gates
• The project is funded by China under the Belt and Road initiative.
• The current plan includes constructing three dams with sluices and eleven bridges.
• Strategic Implications for the region:
  • The locks on the Funan Techo Canal can create the necessary water depths for military vessels to enter from the Gulf of Thailand, or from Ream Naval Base.
  • The Chinese vessels could travel deep into Cambodia and approach the (Cambodia-Vietnam) border.

Senkaku Islands

Why in news?

Recently, for the 158th consecutive day, Chinese ships were spotted near the Japanese-controlled Senkaku Islands in the East China Sea.

About the Island

• The Senkaku Islands are a group of uninhabited islands in the East China Sea, administered by Japan.
• The islands are located northeast of Taiwan, east of China, west of Okinawa Island, and north of the southwestern end of the Ryukyu Islands.
• The islands are the focus of a territorial dispute between Japan and China and between Japan and Taiwan.
• Islands are close to strategically important shipping lanes, offer rich fishing grounds and are thought to contain oil deposits.
• The Senkaku Islands are important nesting sites for seabirds, and are one of two remaining nesting sites in the world for the short-tailed albatross, alongside Tori-shima, Izu Islands.