GS Paper 3

Forest Conservation Amendment Bill 2023

Context: Lok Sabha has passed the Forest Conservation (Amendment) Bill without any changes from the first version introduced on March 29. The contentious Bill was introduced to amend the Forest Conservation Act, 1980.

What is Forest conservation amendment bill 2023?

  • The Bill amends the Forest (Conservation) Act, 1980 to make it applicable to certain types of land. These include land notified as a forest under the Indian Forest Act, 1927 or in government records after 
  • the 1980 Act came into effect.  The Act will not be applicable for land converted to non-forest use before December 12, 1996.

Forest Conservation Act 1980 is a unique piece of legislation and regulatory mechanism that reflects the collective will of the nation to protect its rich forests, biodiversity and natural heritage and resources. The act permits only unavoidable use of forest land for various development purposes. It embodies the firm commitment of the Government and the Department to balance the conservation of forests with the sustainable developmental need of the society contributing to better environment, health and economy. This act is regulatory in nature and not prohibitory.

Key features of the bill:

  • Exemptions - It exempts certain types of land, for e.g. land within 100 km of India’s border needed for national security projects, small roadside amenities, and public roads leading to a habitation.
  • Approval from centre - The state government requires prior approval of the central
    government to assign any forest land to a private entity.  The Bill extends this to all entities, and allows the assignment to be made on terms and conditions specified by the central government.
  • Activities in forests - The Act specifies some activities that can be carried out in forests, such as establishing check posts, fencing, and bridges.  The Bill also allows running zoos, safaris and eco-tourism facilities.
  • Power to issue directions:  The Bill adds that the central government may issue directions for the implementation of the Act to any authority/organisation under or recognised by the centre, state, or union territory (UT).

Key Issues and Analysis:

  • The Bill excludes two categories of land from the purview of the Act: land recorded as forest before October 25, 1980 but not notified as a forest, and land which changed from forest-use to non-forest-use before December 12, 1996.  This provision may go against a 1996 Supreme Court judgement on preventing deforestation.
  • Exempting land near border areas for national security projects may adversely impact the forest cover and wildlife in north-eastern states. 
  • A blanket exemption for projects like zoos may adversely affect forest land and wildlife. The Supreme Court (2023) has remarked that they do not appreciate the necessity of having a zoo inside tiger reserves or national parks.
  • Activities like silvicultural operations, safaris, and eco-tourism facilities may help in economic development, and may even contribute to national priorities such as energy security and industrial growth.  However, there may be a need to balance economic benefits of such activities with that of conserving forests.  It is not clear why the requirement of a case-by-case examination by the central government to determine such balance is being replaced by a blanket exemption.

T+1 Settlement System

Context: The Securities and Exchange Board of India (SEBI) is working to implement instantaneous settlements in secondary market trades, and is likely to complete the process next fiscal year.

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What is a Settlement Process?

  • The settlement refers to the official transfer of shares from the seller's account to the buyer's account. 

Recent Developments

  • Indian capital market regulator SEBI (Securities and Exchange Board of India) announced on Monday to move to T+1 settlement cycle for all scripts from 1st October 2023. This means effective from first October 2023, all trades will be settled one day after the date of trade instead of the current T+2 settlement cycle. 
  • Earlier, India was following T+2 settlement and has now adopted T+1 settlement.
  • T+1 means that trade-related settlements must be done within one day of the transaction's completion. 
  • Trades on Indian stock exchanges are currently settled in two working days after the transaction is completed (T+2). For example, if you buy shares on Wednesday, they will be credited to your Demat account by the next day, which is Thursday.
  • Now, with the adoption of (T+1) settlement, the trade gets settled within one day. 

Significance

  • Most large stock markets, like in the US, Europe, Japan, still follow the T+2 settlement cycle of trade settlement. India has now become the second country after China to go for T+1 settlement.
  • The move is expected to increase volume in the cash segment as one would be able to move from one stock to another on the same date instead of waiting for settlement of one's trade after one day or two days.
  • Instant settlement would also mean that one won't be able to trade if they have no money available in their demat account. This is a positive development for the brokerages as their risk management to contain chances of fraud or default would go down after this move.

Rain triggers flash floods, landslips in J&K; 1 killed

Context: Recently several regions of India including J&K have been marred by cascading effect of natural disasters. This makes it important to understand the relevance of Early Warning System.

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Early warning systems (EWS) can improve resilience against climate-related hazards by providing information for early action. However, to be effective, EWS must incorporate aspects of resilient systems.
Components:

  • Disaster risk knowledge based on the systematic collection of data and disaster risk assessments.
  • Detection, monitoring, analysis and forecasting of the hazards and possible consequences.
  • Dissemination and communication, by an official source, of authoritative, timely, accurate and actionable warnings and associated information on likelihood and impact.
  • Preparedness at all levels to respond to the warnings received.

Multi Hazard Early Warning System

Multi-hazard early warning systems address several hazards and/or impacts of similar or different type in contexts where hazardous events may occur alone, simultaneously, cascadingly or cumulatively over time, and taking into account the potential interrelated effects. A multi-hazard early warning system with the ability to warn of one or more hazards increases the efficiency and consistency of warnings through coordinated and compatible mechanisms and capacities, involving multiple disciplines for updated and accurate hazards identification and monitoring for multiple hazards. 

The United Nations Office for Disaster Risk Reduction (UNISDR) and the World Meteorological Organization (WMO) Secretariat, along with other international and national agencies, established the International Network for Multi-Hazard Early Warning Systems (IN-MHEWS). 

This multi-stakeholder partnership will facilitate the sharing of expertise and good practice on strengthening multi-hazard early warning systems as an integral component of national strategies for disaster risk reduction, climate change adaptation, and building resilience. In doing so, it will support the implementation of the Sendai Framework for Disaster Risk Reduction 2015-2030, especially the achievement of its global target G on multi-hazard early warning systems, and the United Nations Plan of Action on Disaster Risk Reduction for Resilience.

The Sendai Framework for Disaster Risk Reduction 2015–2030 – the successor instrument to the Hyogo Framework for Action 2005–2015: Building the Resilience of Nations and Communities to Disasters – recognizes the benefits of multi-hazard early warnings systems and enshrines them in one of its seven global targets:

substantial reductions

Read also:

Urban FloodingForest fire in India
Floods - Causes & ImpactDisaster management Notes

Evergreening of Patent

Context: Bedaquiline has now become the cornerstone to cure drug-resistant tuberculosis (DR-TB). Last week, a major barrier for drug-resistant TB care ended, when Johnson & Johnson’s patent on bedaquiline expired in July.

Evergreening of Patent

Bedaquiline is an antibiotic drug used in the treatment of tuberculosis (TB), particularly in cases of multidrug-resistant tuberculosis (MDR-TB) and extensively drug-resistant tuberculosis (XDR-TB).

About Patent

  • It is an exclusive right granted by the Government to the inventor to exclude others to use, make and selling an invention for 20 years.
  • It is granted for:
    • new invention 
    • involves an inventive step that did not exist before
    • such a thing has not existed before and has industrial applications.
  • When a patent is granted on a particular invention, it means that no other person can either produce or sell those inventions in the market for commercial purposes without the approval of the creator of such invention.
  • India grants legal protection to various inventions through the Patents Act, 1970. 
  • The main aim to enact patent law is to encourage inventors to contribute more in their field by awarding them exclusive rights for their inventions. 
  • An invention is considered new if, on the date of filing the application, any such invention is not known to the public in any form, i.e. oral, writing, or any other form.
  • It is a territorial right, so it can only be applied in the country where it has been granted.
  • Any legal action against infringement or infringement of patent rights can only be taken in that country. To obtain patent protection in different countries, each country must apply for a patent.
  • The Patent Cooperation Treaty (PCT) provides a way to file an international patent application in which a patent can be filed through a single patent application in a large number of countries.
  • A patent owner has the right to grant a license for use or even sell the ownership of a patent.
  • The Patents Act, 1970 was amended by the Patents (Amendment) Act, 2005 regarding extending product patents in all areas of technology including food, medicine, chemicals and microorganisms.

Working of Pharmaceutical Patent System

  • The drug patent system was created to reward pharma companies for innovation, ensure returns on investment, and ultimately promote innovations that make human life better and easier. This monopoly right was given only for a certain number of years to the inventor of the patent, which, after the expiration of this duration, is taken away from them and the technology or the product becomes easily accessible to any other person and he may not earn any more profit from his own creation. 

Ever-green patenting

  • Ever-greening of patents is a process whereby the time of the rights in the patent is extended without any enhancement in the therapeutic efficacy of the Drug. 
  • This is done by making minor changes to the original drug, such as a new formulation or a slight modification in dosage, and then filing for a new patent.
  • This allows the company to maintain its exclusive right to manufacture and sell the drug, even if it is essentially the same as the original.
  • This can limit competition from generic manufacturers and keep drug prices high, making access to essential medicines difficult for those who cannot afford them.

Indian law about the evergreening of patents in India

  • Section 3(d) of the Indian Patents Act states that the mere discovery of a new form of a known substance that does not result in the enhancement of the efficacy of that substance, or the mere discovery of any new property or new use for a known substance, or the mere use of a known process, the machine, or apparatus unless such known process results in a new product or employs at least one new reactant, is not considered to be an invention.
  • Section 3(e) of the Indian Patents Act states that a substance obtained by a mere admixture resulting only in the aggregation of the properties of the components thereof or a process for producing such substance is not patentable.

New Scorpene class submarines for the Navy

Context: The Defence Acquisition Council, the apex decision-making body for the acquisition of military equipment, cleared proposals to buy three additional Scorpene.

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Scorpene Submarines 

  • The Scorpene submarines are conventional attack submarines, meaning that they are designed to target and sink adversary naval vessels. 
  • Capable of launching a large array of torpedoes and missiles. 
  • Equipped with a range of surveillance and intelligence-gathering mechanisms.
    • They have a state-of-the-art SONAR suite and sensor suite permitting outstanding operational capabilities.
  • They have a length of 220 feet and height of approximately 40 feet. 
  • They can reach the top speeds of 11 knots (20 km/h) when surfaced and 20 knots (37 km/h) when submerged.
  • Scorpene class submarines use diesel electric propulsion systems.
    • This propulsion system alternates between using diesel (for functioning on the surface) and electric (for functioning underwater).
    • They can operate independently without refuelling for approximately 50 days, after that they need to come on surface to recharge batteries.

Scorpene Vs Nuclear Submarine

Scorpene Submarine Nuclear Submarine 
conventional submarines are restricted in submerged endurance as per their battery capacity which powers them, they need to resurface to recharge.  Nuclear submarines theoretically have unlimited endurance. A nuclear reactor on a submarine has an operational life of up to 30 years.
As refueling is required they come to surface more often.These submarines only need to come to the surface for replenishing supplies for the crew.
Diesel electric technology has improved the range of conventional submarines as well as their stealth. But they are slower than the nuclear submarine.They are able to move much faster than conventional submarines.
Cost of building and operating of conventional submarine is almost half in comparison to Nuclear Submarine.Nuclear submarines are expensive and require a significant amount of specialised experience to operate.
These submarines are almost silent, with the only noise coming from the shaft bearings, propeller, and flow around the hull.They are comparatively noisy, the reactor is always running, creating steam noise, which can be heard on sonar.

Project 75(I)

Project-75 (India), also known as P-75(I), is a military acquisition initiative by the Ministry of Defence (MoD). The initiative aims to procure diesel-electric attack submarines with fuel cells and Air-Independent Propulsion System (AIP) for the Indian Navy to build India's naval strength and develop indigenous submarine-building capabilities.

  • Conventional diesel-electric submarines such as the Scorpene etc. are under this project.
  • Under this program six conventional submarines are to be built with air-independent propulsion (AIP) systems that will allow them to stay underwater for longer.

Genetically Modified Mustard at the Supreme Court

Context: A long drawn PIL has prevented Centre from permitting Genetically Modified mustard to be cultivated commercially.

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GM Mustard

It is an Herbicide Tolerant (HT) mustard variety that has undergone genetic modification. It has two alien genes —"barnase" and "barstar"; isolated from a soil bacterium called Bacillus, amyloliquefaciens. It enables the breeding of high-yielding commercial mustard hybrids.

  • The first gene (‘barnase’) codes for a protein that impairs pollen production and renders the plant into which it is incorporated male-sterile. 
  • This plant is then crossed with a fertile parental line containing, in turn, the second ‘barstar’ gene that blocks the action of the barnase gene. 
  • The resultant F1 progeny is both high-yielding and also capable of producing seed/ grain, due to the barstar gene in the second fertile line.
Science behind DMH-11

Genetically Modified Crops

GM is a technology that involves inserting DNA into the genome of an organism. To produce a GM plant, new DNA is transferred into plant cells. Usually, the cells are then grown in tissue culture where they develop into plants. The seeds produced by these plants will inherit the new DNA.

  • Biotechnologists insert select genes at a location in the DNA of a plant to develop a GM crop. 
  • The insertion makes a GM crop express traits that it ordinarily would not. 
  • For instance, GM mustard has been altered to withstand the broad-spectrum plant-killer or herbicide Glufosinate. 
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Some methods used in Genetic Modification

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Conventional Breeding Vs Genetic Modification 

Conventional Breeding Vs Genetic Modification 

Benefits of GM Crops 

  • GM crops have reduced chemical pesticide use by 37%, increased crop yields by 22%, and increased farmer profits by 68% (As per Klumper and Qaim, 2014). 
  • GM crops have also reduced Carbon dioxide emissions (mostly through no-till farming practices) by 24.5 million kg per annum (As per the study by Graham Brookes and Peter Barfoot, 2020).
  • As per FAO study done in 2022, The long and safe track record of GM crop cultivation and consumption of foods derived from them over the past 28 years (1994 to 2022) attest the safety of GM foods to Humankind. 
  • Global cultivation of GM Crops which shows the benefit of the GM crops
    • GM crops are cultivated in 29 countries in an area of 190 million hectares. 
    • Forty-three countries import foods, oils and feed derived from GM crops. 
    • Nine non-food GM crops and twenty-two GM food and feed crops are cultivated and consumed globally.
  • India commercialized insect pest-resistant Bt-cotton in 2002 that brought about a significantly positive change in cotton production, export and textile industry.
    • It has greatly reduced the use of toxic pesticides. 
    • As a result of the adoption of Bt cotton, India is now the largest cotton producer in the world.
  • Food and nutritional security can be ensured in growing population of India.

Concerns over GM crops in India

  • Long-term research suggests that Bt cotton has provided only fleeting benefits to farmers, while enormously increasing their costs of cultivation and risk.
  • Use of Termination technology which shuts off the reproductive abilities of seeds, making second generation seeds sterile. 
  • Due to the royalty charges to multinational corporations, genetically modified seeds are expensive.
  • Technical Expert Committee (TEC) appointed by Supreme Court found HT crops completely unsuitable in the Indian context and warned of serious harm to the environment, rural livelihoods and sustainable agriculture if they were released.
  • A Parliamentary standing committee report exposes gaps in which government ignores several things like biosafety, biodiversity and food and seed sovereignty and farmers livelihoods.
  • According to activists and farmers, GM mustard is an herbicide-tolerant crop and toxic chemicals sprayed on the plant would impact the health of the people consuming it.  
  • According to critics GM Crops are environmentally unsustainable and does not suit Indian agricultural conditions.  
  • There are no separate regulatory guidelines and protocols for HT crops.  
  • The parliamentary standing committees unanimously highlighted major weaknesses in the regulatory system.
    • The committee found that GM crops have an impact on health and environment and these aspects were overlooked while approving Bt Brinjal trials in India. 
  • Excessive production of genetically engineered crops will eventually render them useless as the pest will generate immunity to the toxin.

Mechanism to get approval for Genetically Modified Crops in India

  • There is a well-established regulatory framework for approval of Genetically Modified (GM) crops as per “Rules for the Manufacture/Use/Import/Export and Storage of Hazardous Microorganisms, Genetically Engineered Organisms or Cells, 1989” under the Environment (Protection) Act, 1986 in the Country.
  • Evaluation of each application of GM crop is done mandatorily on a case-to-case basis after a thorough examination of health, environment, food and feed safety assessment studies undertaken in a systematic and scientific manner as per prescribed guidelines, manuals and standard operating procedures stipulated by various regulatory agencies under the Rules, 1989 from time to time. 
  • The data generated by the applicants is reviewed at every step in the development process of GM crops by various Statutory Committees under the Rules, 1989 such as Institutional Biosafety Committee, Review Committee on Genetic Manipulation and Genetic Engineering Appraisal Committee.
  • Ministry of Environment, Forests and Climate Change is the final authority to pass the GM crop for cultivation and use.

Way Forward 

  • A rapidly developing country like India with a burgeoning population cannot afford to ignore sustainable technologies like GM crops for drought tolerance, nutrient use efficiency, especially that of nitrogen, and thermotolerance.
  • The concerns about the development of antibiotic resistance, horizontal gene transfer, “terminator gene”, adverse effects on health etc., should be dispelled convincingly by various global scientific committees and experts and accordingly the crops should be introduced.  
  • The GMO regulatory System in India formulated well-defined protocols and procedures to subject a GM organism to a plethora of tests that often takes several years. The procedure should be made more effective using technological improvements with separate regulations for HT crops.

There is an urgent need of GM labelling laws in India as mentioned by the parliamentary standing committee.

Rupee-Dirham Settlement System

Context: The Reserve Bank of India (RBI) and the Central Bank of the UAE have agreed to establish a framework for enabling the use of the two countries’ local currencies for cross-border transactions.

About the Rupee-Dirham Agreement

  • The MoU on establishing a framework for the use of local currencies for transactions between India and the UAE. This MoU aims to put in place a Local Currency Settlement System (LCSS) to promote the use of INR (Indian Rupee) and AED (UAE Dirham) bilateral. 
  • The creation of the LCSS would enable exporters and importers to invoice and pay in their respective domestic currencies.
  • Further, the MoU covers all current account transactions and permitted capital account transactions.

Benefits

  • Optimise Transaction Costs: The use of local currencies would optimise transaction costs and settlement time for transactions, including for remittances from Indians residing in UAE.
  • Reduces Dependence on Dollar: The move towards permitting payments in the Indian rupee and the UAE dirham is aimed at promoting their use bilaterally, thus reducing the dependence on a third country’s currency such as the U.S. dollar as an intermediary for settling transactions. 
  • Development of a Rupee-Dirham Foreign Exchange Market: An immediate beneficial consequence of the establishment of the settlement mechanism would be the development of a rupee-dirham foreign exchange market that would help in pricing the two currencies independent of their exchange rates with other currencies such as the dollar and the euro. 
  • Hedge Exchange Rate Risks: Indian and Emirati businesses would not need to factor in exchange rate risks when quoting to supply goods or services to buyers in the other country, improving the ease of doing business and boosting trade.
  • Promote Internationalisation of Rupee: The India-UAE local currency settlement system could also potentially serve as a precursor for other bilateral currency accords which could act as an important first step for the internationalisation of the rupee. 
  • Investments in Indian Markets: Emirati businesses may see remunerative avenues to deploy the potential rupee flows in case they opt to receive payments in the Indian currency. This may result in stepped up investment by UAE-based firms. 
  • Serve as Currency Entrepot: UAE may emerge as a currency entrepôt. This will enable Indian businesses to deal with suppliers from other countries e.g. Russia, to use the West Asian country and dirham as a gateway for such transactions.

NITI Aayog report says 13.5-cr. people lifted out of multidimensional poverty

Context: India has registered a significant decline of 9.89 percentage points in the number of multidimensionally poor, from 24.85% in 2015-16 to 14.96% in 2019-2021, says the “National multidimensional poverty index: a progress review, 2023”, released by NITI Aayog recently.

Findings of the report

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  • The study says nearly 13.5 crore people came out of multidimensional poverty during the period, assessed by identifying “acute deprivations in health, education and standard of living” using United Nations-approved parameters.
  • The report said rural areas witnessed the fastest decline in poverty from 32.59% to 19.28%, mainly due to a decrease in the number of multi-dimensionally poor in States such as Bihar, Uttar Pradesh, Madhya Pradesh, Odisha, and Rajasthan.
  • Delhi, Kerala, Goa, and Tamil Nadu have the least number of people facing multidimensional poverty, along with the Union Territories.
  • Bihar, Jharkhand, Meghalaya, Uttar Pradesh, and Madhya Pradesh top the chart where the percentage of the population which is multidimensionally poor is high.
  • Multidimensional poverty in urban areas, during the same period, saw a decrease from 8.65% to 5.27%.
  • Uttar Pradesh registered the largest decline in the number of poor with 3.43 crore people escaping multidimensional poverty.

About National Multidimensional Poverty Index (MPI)

  • The report has been prepared based on the latest National Family Heath Survey of 2019-21 and is the second edition of the National Multidimensional Poverty Index (MPI).
  • The broad methodology followed is in consonance with the global methodology.
  • It said 12 parameters of health, education, and standard of living are examined in the report.

China event raises concern over India’s only ape

Context: The conservation status of India’s only ape (hoolock gibbon) was a cause for concern at a global event on gibbons held a week ago in China.

More about the news:

  • Gibbons, the smallest and fastest of all apes, live in tropical and subtropical forests in the south eastern part of Asia. 
  • The hoolock gibbon, unique to India’s northeast, is one of 20 species of gibbons on Earth.
  • Over the decades, zoologists thought the northeast housed two species of the ape — the eastern hoolock gibbon (Hoolock leuconedys) found in a specific region of Arunachal Pradesh and the western hoolock gibbon (Hoolock hoolock) distributed elsewhere in the northeast. 
  • A study led by Hyderabad-based Centre for Cellular and Molecular Biology (CCMB) in 2021 proved through genetic analysis that there is only one species of ape in India. It debunked earlier research that the eastern hoolock gibbon was a separate species based on the colour of its coat. 
  • The CCMB study concluded that two populations of the western hoolock gibbon and the assumed eastern hoolock gibbon split 1.48 million years ago. It also estimated that the gibbon divergence from a common ancestor occurred 8.38 million years ago.

The Western Hoolock Gibbon 

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Description

  • It is an ape found in the tropical forest canopy in India, Bangladesh and Myanmar.
  • Tailless like other apes, they are nonetheless set apart by their long arms and dense hair.
  • The loud and musical calls of Western Hoolock Gibbons can be heard from far away in the forest. Males and females often sing in unison, a series of duet calls that helps the pair to mark their territory.
  • Behaviour
    • These gibbons are arboreal and only come to the ground in exceptional circumstances.
    • They are omnivorous, consuming over 100 species of plants and some invertebrates and birds’ eggs, with a diet that can greatly vary based on location.
    • Western Hoolock Gibbons form small, monogamous family groups and usually give birth to a single offspring. Babies typically spend their first months of life tightly clung around the mother’s waist, followed by gradual weaning over two years. The young gibbon will then stay with his parents until sexual maturity.
  • Threats and Conservation
    • They are one of Asia’s most endangered primates(ER), with populations expected by the IUCN to at least halve over three generations (2001-2015, 2016-2030 and 2031-2045). 
    • Threats such as hunting for food and medicine and habitat loss have put this species at risk, and habitat protection is critical for their survival.

The Eastern Hoolock Gibbon

  • It is one of two species of Hoolock Gibbon.  
  • This species is found particularly east of the Chindwin River in Myanmar and in southwest Yunnan (China).  
  • Indian records of the species likely to actually represent the Western Hoolock.
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Difference between Eastern and Western Hoolock

  • Both Hoolock Gibbon species are separated by the Chindwin River in western Myanmar, which flows into the Irrawaddy
  • The two species differ in their fur coloration and DNA sequences, and may have diverged about 1.42 million years ago.
  • The Red List maintained by the International Union for Conservation of Nature categorises the eastern hoolock gibbon as vulnerable.

Internationalisation of Rupee

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What is an International Currency?

  • An international currency is used and held beyond the borders of the issuing country for transactions between residents and non-residents, and between residents of two countries other than the issuing country. 
  • An international currency is supposed to perform three international functions:
    • Store of value: The governments can use them in their international reserves.
    • Medium of exchange: International currency is used for invoicing of trade and in financial transactions.
    • Unit of account: They are used as an anchor for pegging local currency or for denominating trade and financial transactions.
  • In the current international monetary system, the US dollar is the most important international reserve currency. While the US dollar’s 50-year long dominance remains unchallenged for now, it has started to erode slowly, and the economic order will have to evolve to look beyond the US dollar in the future.
  • Meanwhile, the international monetary and financial system has moved towards being multipolar. This is apparent as the share of USD in foreign exchange reserves of countries is steadily decreasing. On the other hand, we can see the increasing usage of other currencies in trade invoicing and settlement, and the emergence of various bilateral and regional economic cooperation agreements. 
  • This, along with recent geopolitical developments, has set the stage for the emergence of various other currencies, including the Indian National Rupee (INR), as prospective currencies for use in international transactions.

Benefits Associated with Internationalisation of Rupee

  • Limits Exchange Rate Risk: As the internationalisation of a country’s currency broadens and deepens its financial market, domestic firms may be able to invoice and settle their exports/imports in their currency, thus shifting exchange rate risk to their foreign counterparts. It also permits domestic firms and financial institutions to access international financial markets without assuming exchange rate risk. 
  • Reduces the Cost of Capital and widens the set of financial institutions that are willing and able to provide capital. This would boost capital formation in the economy thereby increasing growth and reducing unemployment.
  • Financing Deficits in Domestic Currency: It allows a country’s government to finance part of its budget deficit by issuing domestic currency debt in international markets rather than issuing foreign currency instruments. It may, likewise, allow a government to finance its current account deficit without drawing down its official reserves. 
  • Reduces the Requirement for Maintaining Large Forex Reserves: The authorities maintain and depend on large foreign exchange reserves in convertible currencies to manage external vulnerabilities. 
  • Lowers the Impact of Capital Outflows: At the macroeconomic level, internationalisation of a currency results in lowering the impact of sudden stops and reversals of capital flows and enhances the ability to repay external sovereign debt.

Past and Current Initiatives Towards the Internationalisation of Rupee

  • Bilateral Swap Arrangements (BSA): India currently has a BSA with Japan for an amount up to USD 75 billion as a backstop line of support in case of any balance of payments issue. RBI also provides liquidity to South Asian Association for Regional Cooperation (SAARC) countries under the SAARC swap framework. Under the SAARC swap agreement, the requesting central bank can make withdrawals in USD, Euro and also in INR.
  • Developments in the GIFT City: Gujarat International Finance Tec-City (GIFT City), Gandhinagar was set up as India’s first International Financial Service Centre (IFSC) with a vision to bring to the Indian shores, those financial services/markets and transactions, relating to India, that are currently done outside India. GIFT IFSC has the potential to develop as a competitor to international financial centres for Rupee products. It also provides an opportunity for Indian entities to raise foreign capital through masala bonds and list the same on the exchanges in the IFSC.
  • Indo-Iran Agreement: An agreement was signed between India and Iran for undertaking eligible trade transactions using INR. In terms of the existing Arrangement for Bilateral Trade Payments between India and Iran (2018), it was decided that Indian Rupee vostro accounts may be opened by designated Iranian banks. Under the arrangement, the Indian Rupee vostro accounts of Iranian banks are credited 100 per cent in INR by Indian importers, against invoices payable for the supply of goods and services from entities in Iran, without the requirement of any additional certification or authorization.
  • Asian Clearing Union (ACU): The idea of initiating the use of domestic currencies within the ACU mechanism is to facilitate the process of internationalisation of INR on a pilot basis in a closed environment where the framework can be tested, and various operational glitches and roadblocks could be addressed. Accordingly, RBI had proposed the use of local currencies of members for settlement of ACU transactions thus mooting the idea of INR also being included as one of the settlement currencies under the ACU.
  • INR as a Designated Foreign Currency in Sri Lanka: An arrangement for payment and settlement of exports/imports in INR has been put in place. This has been done to promote the growth of Indian trade with partner countries with an emphasis on export promotion and to support the increasing interest of the global trading community in INR. In 2022, Sri Lanka also made Rupee a designated foreign currency. These steps have paved the way for INR-based bilateral trade between Sri Lanka and India.
  • Use of Indian Payment Infrastructure: RBI in collaboration with the GoI and National Payments Corporation of India (NPCI) is reaching out to jurisdictions to increase the global outreach of the UPI system to facilitate cross-border transactions, including remittances. The linkages between fast payment systems across jurisdictions can enhance cross-border payment arrangements and ensure faster remittances.

Challenges Associated with Internationalisation of a Currency

  • Volatility of Exchange Rate: It may result in the potential increase in volatility of its exchange rate in the initial stages. 
  • Monetary Policy Implication: This would further have monetary policy 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 objectives. This is popularly known as the Triffin dilemma (impossible trinity) - meaning no country can simultaneously reach the policy goals of free capital movement, exchange rate stability, and independent monetary policy.
  • Accentuate External Shocks: The internationalisation of a currency may accentuate an external shock, given the open channel of the flow of funds into and out of the country and from one currency to another.
  • Uncertainty in Estimation of Foreign Demands: The costs also emanate from the additional demand for money and also an increase in the volatility of the foreign demand for domestic currency in the international market. Despite advances in statistical reporting, there remains an uncertainty associated with demand estimation.

Way Forward

Internationalisation of Rupee has significant benefits but to achieve it successfully, would require some prerequisites:

  • Capital Account Convertibility: Internationalisation of rupee would require continued efforts to improve macroeconomic fundamentals and financial market infrastructure with an enhanced risk management framework. Hence, it is essential to continue on a calibrated path towards current account convertibility.
  • Liquidity in Indian National Currency: Encouraging the international usage of rupee requires that sufficient rupee liquidity is available at the government and central bank levels (both domestic and foreign). This will provide the requisite confidence to all stakeholders, economic agents and market participants for settling cross-border transactions in Indian Rupee.
  • Cross-border Payment Infrastructure: Availability of a robust INR-denominated payment mechanism for cross-border transactions and providing timely inter-bank transfers and settlement is an important step towards the internationalisation of INR. This ensures a seamless flow of cross-border transactions in local currencies. It may also reduce our dependence on international payment systems based on the SWIFT messaging system.
  • Easing Regulatory Hurdles: Easing of Foreign Exchange Management Act, 1999; revisiting regulatory guidelines to remove frictions in the current Financial Action Task Force (FATF) and Prevention of Money Laundering Act (PMLA) provisions would be very important in this regard. Further, procedural and documentation roadblocks faced by foreign portfolio investors need to be reviewed. These roadblocks not only add to transaction and compliance costs but also affect the overall ease of doing business in India.
  • Deepening Indian Financial Markets: Well developed and sophisticated domestic financial markets give confidence to foreign investors to take exposure in the underlying currency.
  • Making Rupee the “Vehicle Currency”: As we progress and achieve a higher level of trade linkages with other countries, along with greater capital account convertibility, deep and liquid financial markets and strong macroeconomic indicators, it is expected that Rupee would be used by other economies for pegging their currencies, which will fulfil the requirement of Rupee being used as a “vehicle currency” by other jurisdictions in their forex intervention to maintain the value of their currency. Inclusion of Rupee in the International Monetary Fund’s (IMF) SDR basket will further help in attaining the objective of INR as a “vehicle currency”.

ConclusionAs the internationalisation of a currency is a long-drawn process involving continuous change and incremental progress, it would enable timely redressal of the associated concerns and challenges as we move forward.

AI’s disruptive economic impact, an India check

Context: In a study called “Generative AI at Work” (involving over 5,000 customer support agents in the Philippines), Massachusetts Institute of Technology (MIT) economists showed that AI tools boosted worker productivity by 14% and improved consumer satisfaction, leading to better treatment of customer service agents and increased employee retention.  

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Artificial Intelligence (AI)

Artificial intelligence (AI) refers to the simulation of human intelligence in machines and is concerned with developing computer-operated machines that can complete tasks that typically require human intelligence.

Generative AI Generative artificial intelligence (AI) is a form of AI that can autonomously generate new content, such as text, images, audio, and video.  

Benefits of AI 

  • AI through automated decision-making by can reduce error in decision making.    
  • AI can automate repetitive tasks and with generative AI, even creative tasks can be done efficiently and fast.
  • In health sector with the help of AI patient monitoring including elderly patient monitoring, early diagnosis and process simplification can be done efficiently. 
  • AI will "augment" the productivity of the labour force with the help of technologies and by automating some tasks and roles.
  • We can solve complex problems by leveraging AI's ability to analyse massive volumes of data quickly and spot patterns that we wouldn't otherwise be able to.
  • Intelligent automation (AI) can help by establishing a new virtual workforce that is capable of problem-solving and self-learning while increasing labour productivity. 
  • Personalization enabled by AI will improve customer satisfaction and experience, which in turn will boost engagement and assist businesses in better consumer targeting and economic growth.
  • AI can assist early warning systems and disaster management by analysing historical data, patterns, and trends and monitoring real-time data to identify potential dangers.
  • Through assistive-personalised technology, monitoring of environmental changes, etc., AI can enhance people's quality of life.

Challenges of AI 

  • Labour replacement by AI technologies. E.g., Chatbot replaced human assisted consumer support
  • A research paper titled “Robots and Jobs: Evidence from US Labor Markets” of MIT and Boston University found that robot adoption has a negative effect on workers, on average — it reduces the labour share, employment and wages.  
  • The adverse effects of AI primarily affect blue-collar workers and individuals with lower levels of education as they lack the required skill in AI driven economy.
  • “Tasks, Automation, and the Rise in U.S. Wage Inequality”, report document that between 50% and 70% of changes in the U.S. wage structure over the last four decades can be attributed to relative wage declines of worker groups specialised in routine tasks in industries experiencing rapid automation
  • Automation by AI may reduce labour share and wages, especially when productivity gains from automation are small.
  • There are distributional concerns of over automation due to AI which may cause inequality among workers and possible serious negative impacts on social welfare. E.g., tax challenge in AI   
  • McKinsey Global Institute’s research suggests that AI may intensify competition and deepen the technological divide among firms.
    • Early adopters of AI may gain significant advantages, leading to a winner-takes-all scenario.
  • AI could be highly disruptive as it is more likely to displace middle-class, white-collared jobs which constitute the major proportion of Indian population; in comparison to earlier technological advancements displaced people from lower-paid farm jobs to higher-paid factory floor jobs.
  • AI could create deep challenges for society, including in the labour market, politics, data privacy, crime and warfare; these challenges are difficult to anticipate and plan for.

Opportunities for India

  • The PwC report suggests that the greatest economic gains from AI will come from China, with a projected 26% boost to GDP by 2030. Thus, India should focus more on education and training in AI to take advantage of the demographic dividend and new opportunities that emanate from it.
  • Governments should step up their cyber regulations with respect to the new challenges posed by AI and may also need tax capital to balance the returns from capital and labour to reduce the displacement and distributional effects. 
  • Artificial intelligence (AI) can transform the productivity and GDP potential of the Indian economy. Strategic investment in different types of AI technology is needed to make that happen.

Way Forward

  • Regulation on the use of AI should be balanced and provide ample opportunities for the required investments in AI.
  • With ever-growing advancements in AI are now a reality and equipping ourselves with the latest tools will help us forge ahead along with everyone else.

First French long-range missiles already in Ukraine

Context: France has already made a delivery of a number of SCALP long-range cruise missiles to Ukraine, a military source told after President Emmanuel Macron announced the supplies.

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Types of Missiles 

Ballistic Missiles 

Ballistic missiles are powered initially by a rocket or series of rockets in stages, but then follow an unpowered trajectory that arches upwards before descending to reach its intended target. Ballistic missiles can carry either nuclear or conventional warheads. 

There are four general classifications of ballistic missiles based on their range, or the maximum distance the missile can travel: 

  • Short-range: less than 1,000 kilometers (approximately 620 miles), also known as “tactical” ballistic missiles.
  • Medium-range: between 1,000 and 3,000 kilometers (approximately 620-1,860 miles), also known as “theater” ballistic missiles. 
  • Intermediate-range: between 3,000 and 5,500 kilometers (approximately 1,860-3,410 miles) 
  • Long-range: more than 5,500 kilometers (approximately 3,410 miles), also known as intercontinental or strategic ballistic missiles.
    • Intercontinental ballistic missiles (ICBMs) can fly much further than the minimum range; for example, Russia could hit Chicago with an ICBM launched from the Krasnoyarsk ICBM base, which is located 9,156 kilometers (5,689miles) away.

Cruise Missiles

Cruise missiles are unmanned vehicles that are propelled by jet engines, much like an airplane. They can be launched from ground, air, or sea platforms. 

  • Cruise missiles remain within the atmosphere for the duration of their flight and can fly as low as a few meters off the ground. Flying low to the surface of the earth expends more fuel but makes a cruise missile very difficult to detect. 
  • Cruise missiles are self-guided and use multiple methods to accurately deliver their payload, including terrain mapping, global positioning systems (GPS) and inertial guidance, which uses motion sensors and gyroscopes to keep the missile on a pre-programmed flight path. 
  • As advanced cruise missiles approach their target, remote operators can use a camera in the nose of the missile to see what the missile sees. This gives them the option to manually guide the missile to its target or to abort the strike.

Storm Shadow Cruise missile aka SCALP long-range cruise missiles  

Storm Shadow is a long-ranged, air-launched, conventionally armed, deep-strike supersonic missile, which is manufactured by the France-based MBDA Missile Systems. 

  • Range: More than 250 km.
  • It is capable of being operated day and night in all weathers and is designed to destroy high-valued stationary targets such as airbases, radar installations, communications hubs and port facilities. 
  • It is equipped with fire-and-forget technology and offers high-precision deep strike capability as it features a sophisticated navigation system that includes inertial navigation (INS), a global positioning system (GPS) and terrain reference navigation for better control over the path. 

The missile features the BROACH (Bomb Royal Ordnance Augmented Charge) warhead — a high-technology warhead, which first cuts the surface of the target, penetrates into it and then explodes.