News: Multiple forces have been pulling the Indian rupee down, including the exit of foreign portfolio investors, the rising cost of international crude oil prices, and a strong dollar. Mint explains the implications of the decline in the Indian currency.
About Foreign Portfolio Investment:
Foreign portfolio investment (FPI) consists of securities and other financial assets held by investors in another country.
It does not provide the investor with direct ownership of a company’s assets and is relatively liquid depending on the volatility of the market.
Along with foreign direct investment (FDI), FPI is one of the common ways to invest in an overseas economy. FDI and FPI are both important sources of funding for most economies.
Foreign portfolio investment (FPI) involves holding financial assets from a country outside of the investor’s own.
FPI holdings can include stocks, ADRs, GDRs, bonds, mutual funds, and exchange traded funds.
Unlike FDI, FPI consists of passive ownership; investors have no control over ventures or direct ownership of property or a stake in a company.
2. WEAKENING RUPEE AND CURRENT ACCOUNT DEFICIT
News: Current account deficit (CAD), or when the imports are more than exports, is expected to worsen. For a net importer like India, a weak currency isn’t good news. This worsens CAD especially at a time of heavy FPI outflows.
About Weak currency:
A weak currency refers to a nation’s money that has seen its value decrease in comparison to other currencies.
Weak currencies are often thought to be those of nations with poor economic fundamentals or systems of governance.
A weak currency may also be encouraged by a country seeking to boost its exports in global markets.
Fundamentally weak currencies often share some common traits. This can include a high rate of inflation, chronic current account and budget deficits, and sluggish economic growth.
Nations with weak currencies may also have much higher levels of imports compared to exports, resulting in more supply than demand for such currencies on international foreign exchange markets—if they are freely traded.
Merits and Demerits of a weak currency:
A weak currency may help a country’s exports gain market share when its goods are less expensive compared to goods priced in stronger currencies.
The increase in sales may boost economic growth and jobs while increasing profits for companies conducting business in foreign markets. For example, when purchasing American-made items becomes less expensive than buying from other countries, American exports tend to increase.
In contrast, when the value of a dollar strengthens against other currencies, exporters face greater challenges selling American-made products overseas. Currency strength or weakness can be self-correcting.
Because more of a weak currency is needed when buying the same amount of goods priced in a stronger currency, inflation will climb as nations import goods from countries with stronger currencies.
Eventually, the currency discount may spur more exports and improve the domestic economy, provided there are no systematic issues weakening the currency.
In contrast, low economic growth may result in deflation and become a bigger risk for some countries. When consumers begin expecting regular price declines, they may postpone spending, and businesses may delay investing.
A self-perpetuating cycle of slowing economic activity begins and that will eventually impact the economic fundamentals supporting the stronger currency.
Firms have been borrowing from the offshore dollar market, and the stock of commercial borrowing. Fund-raising through external commercial borrowing is likely to moderate too.
Options before RBI:
India’s central bank has been selling dollars from its reserves and buying rupee, which leads to the supply of dollar going up and that of the rupee falling.
RBI cannot keep selling dollars as its forex reserves will deplete at a faster pace. Since October last year, India’s forex reserves have fallen by around $40 billion.
RBI has also increase Repo Rate in India to make loans costlier and lower the credit fuelled demand.
3. EQUALISATION LEVY
News: India’s equalization levy, or the so-called Google tax on offshore digital economy firms, is set to stay beyond 2023, as a global tax deal which was to replace such levies by individual nations by then faces implementation challenges.
About Equalisation Levy:
Equalisation Levy was introduced in India in 2016, with the intention of taxing the digital transactions i.e. the income accruing to foreign e-commerce companies from India.
It is aimed at taxing business to business transactions.
Equalisation Levy is a direct tax, which is withheld at the time of payment by the service recipient.
The two conditions to be met to be liable to equalisation levy:
The payment should be made to a non-resident service provider;
The annual payment made to one service provider exceeds Rs. 1,00,000 in one financial year.
About Global Tax Agreement:
Following a July 2021 announcement by countries involved in negotiations at the Organisation for Economic Co-Operation and Development (OECD), in October there was a further agreement on an outline for the new tax rules by more than 130 jurisdictions.
Large companies would pay more taxes in countries where they have customers and a bit less in countries where their headquarters, employees, and operations are.
Additionally, the agreement sets up the adoption of a global minimum tax of 15 percent, which would increase taxes on companies with earnings in low-tax jurisdictions.
The OECD proposal follows an outline that has been under discussion since 2019.
There are two “pillars” of the reform: Pillar 1 changes where large companies pay taxes (impacting roughly $125 billion in profits); Pillar 2 includes the global minimum tax (increasing tax revenues by an estimated $150 billion, globally).
4. NATIONAL INITIATIVE FOR PROMOTING UPSKILLING OF NIRMAN WORKERS (NIPUN)
News: The Union minister of housing and urban affairs Hardeep Singh Puri on Monday launched an initiative for skill training of construction workers — the National Initiative for Promoting Upskilling of Nirman workers.
The project NIPUN is an initiative of the ministry of housing & urban affairs (MoHUA) under its flagship scheme of the Deendayal Antyodaya Yojana-National Urban Livelihoods Mission (DAY-NULM) to train over 100,000 construction workers, through fresh skilling and upskilling programmes and provide them with work opportunities in other countries also.
Addressing the launch event, the minister said that the transformational impact of the National Urban Livelihoods Mission (NULM) has reduced the vulnerability of urban poor households by providing upskilling and employment opportunities to urban dwellers, especially the youth.
This initiative will enable Nirman workers to be more proficient and skilled while making them adopt future trends in the construction industry by increasing their capabilities and diversifying their skill sets.
The construction industry has been investing in skilling but it has not spread horizontally across the industry, the initiative taken by ministry in this regard should expand to cover larger number of construction workers.
The National Skill Development Corporation (NSDC), the nodal agency under the Ministry of Skill Development & Entrepreneurship (MSDE) will be the Implementation partner for NIPUN.
The project implementation is divided into three parts – training through recognition of prior learning (RPL) at construction sites, training through fresh skilling and international placement through industries, builders and contractors. Onsite skill training will be provided to around 80,000 construction workers through industry associations under the RPL certification, co-branded with MoHUA, while about 14,000 candidates will receive fresh skilling through plumbing and infrastructure Sector Skill Council (SSC) in trades having promising placement potentials.
The courses are aligned with the National Skills Qualifications Framework (NSQF) and will be imparted at accredited and affiliated training centres. Under NIPUN, it is also envisaged that NSDC will place around 12,000 people in Saudi Arabia, UAE and other countries in the Gulf.
Project NIPUN will also facilitate and support convergence with related line ministries.
About Deen Dayal Antodaya Yojana:
Deen Dayal Antyodaya Yojana – National Livelihoods Mission (NRLM) was launched by the Ministry of Rural Development (MoRD), Government of India with effect from 01st April 2013 as a restructured version of Swarna Jayanti Gram Swarozgar Yojna (SGSY).
The Mission aims at creating efficient and effective institutional platforms of the rural poor enabling them to increase household income through sustainable livelihood enhancements and improved access to financial services.
NRLM has set out with an agenda to cover 7 Crore rural poor households, across 600 districts, 6000 blocks, 2.5 lakh Gram Panchayats and 6 lakh villages in the country through self-managed Self Help Groups (SHGs) and federated institutions and support them for livelihoods collectives in a period of 8-10 years.
In addition, the poor would be facilitated to achieve increased access to their rights, entitlements and public services, diversified risk and better social indicators of empowerment.
NRLM believes in harnessing the innate capabilities of the poor and complements them with capacities (information, knowledge, skills, tools, finance and collectivization) to participate in the growing economy of the country.
“To reduce poverty by enabling the poor households to access gainful self-employment and skilled wage employment opportunities, resulting in appreciable improvement in their livelihoods on a sustainable basis, through building strong grassroots institutions of the poor.”
Poor have a strong desire to come out of poverty, and they have innate capabilities
Social mobilization and building strong institutions of the poor is critical for unleashing the innate capabilities of the poor.
An external dedicated and sensitive support structure is required to induce the social mobilization, institution building and empowerment process.
Facilitating knowledge dissemination, skill building, access to credit, access to marketing, and access to other livelihoods services underpins this upward mobility.
The core values which guide all the activities under NRLM are as follows:
Inclusion of the poorest, and meaningful role to the poorest in all the processes
Transparency and accountability of all processes and institutions
Ownership and key role of the poor and their institutions in all stages – planning, implementation, and, monitoring
Community self-reliance and self-dependence
Universal Social Mobilisation – At least one woman member from each identified rural poor household, is to be brought under the Self Help Group (SHG) network in a time bound manner. Special emphasis is particularly on vulnerable communities such as manual scavengers, victims of human trafficking, Particularly Vulnerable Tribal Groups (PVTGs), Persons with Disabilities (PwDs) and bonded labour. NRLM has devised special strategies to reach out to these communities and help them graduate out of poverty.
Participatory Identification of Poor (PIP) –The inclusion of the target group under NRLM is determined by a well-defined, transparent and equitable process of participatory identification of poor, at the level of the community. All households identified as poor through the PIP process is the NRLM Target Group and is eligible for all the benefits under the programme. Target Group is identified through the Participatory Identification of Poor (PIP) method. The NRLM Target Group (NTG) derived through the PIP is de-linked from the BPL.
Community Funds as Resources in Perpetuity –NRLM provides Revolving Fund (RF) and Community Investment Fund (CIF) as resources in perpetuity to the institutions of the poor, to strengthen their institutional and financial management capacity and build their track record to attract mainstream bank finance.
Financial Inclusion –NRLM works on both demand and supply sides of financial inclusion. On the demand side, it promotes financial literacy among the poor and provides catalytic capital to the SHGs and their federations. On the supply side, the Mission coordinates with the financial sector and encourages use of Information, Communication & Technology (ICT) based financial technologies, business correspondents and community facilitators like ‘Bank Mitras’. It also works towards universal coverage of rural poor against risk of loss of life, health and assets. Further, it works on remittances, especially in areas where migration is endemic.
Livelihoods – NRLM focuses on stabilizing and promoting existing livelihood portfolio of the poor through its three pillars – ‘vulnerability reduction’ and ‘livelihoods enhancement’ through deepening/enhancing and expanding existing livelihoods options and tapping new opportunities in farm and non-farm sectors; ‘employment’ – building skills for the job market outside; and ‘enterprises’ – nurturing self-employed and entrepreneurs (for micro-enterprises).
Convergence and partnerships
Convergence:NRLM places a high emphasis on convergence with other programmes of the MoRD and other Central Ministries. Convergence is also sought with programmes of state governments for developing synergies directly or indirectly with institutions of the poor.
Partnerships with NGOs and other CSOs:NRLM has been proactively seeking partnerships with Non-Government Organizations (NGOs) and other Civil Society Organizations (CSOs), at two levels – strategic and implementation. The partnerships are guided by NRLM’s core beliefs and values, and mutual agreement on processes and outcomes. Partnership guidelines to partner with NGOs, CSOs have been finalized and approved this year.
Linkages with PRIs:In view of the eminent roles of Panchayat Raj Institutions (PRIs), it is necessary to consciously structure and facilitates a mutually beneficial working relationship between Panchayats and institutions of the poor, particularly at the level of Village Panchayats. Formal platforms would be established for regular consultations between such institutions and PRIs for exchange of mutual advice, support and sharing of resources.
About National Skills Qualification Framework:
The National Skills Qualifications Framework (NSQF) is a quality assurance framework which organizes qualifications according to a series of levels of knowledge, skills and aptitude.
These levels are defined in terms of learning outcomes which the learner must possess regardless of whether they were acquired through formal, non-formal or informal learning.
This will enable a person to acquire desired competency levels, transit to the job market and, at an opportune time, return for acquiring additional skills to further upgrade their competencies.
The NSQF was notified on 27th Dec 2013, and all other frameworks, including the NVEQF (National Vocational Educational Qualification Framework) released by the Ministry of HRD, have ceased to exist, and have been superseded by the NSQF.
5. ANTI – GRAVITY BODY SUIT
News: Experts at the All India Institute of Medical Sciences (AIIMS-Delhi) have developed an anti-gravity body suit that will allow astronauts to perform yoga in space, AIIMS doctors said on the eve of International Yoga Day on 21 June.
The anti-gravity gear will help astronauts strengthen muscles and prevent loss of bone density minerals.
This is India’s first bodysuit for astronauts and that it will increase their weight by more than 70% in space to prevent them from floating.
The anti-gravity gear will help astronauts to strengthen antigravity musculature and will also prevent atrophy (a health condition in which the size of body part decreases) in microgravity environment.
No country in the world has this unique kind of body suit for astronauts which has the facility of grounding and loading.
It is known that when we reach space, our body weight becomes zero.
When an astronaut wears this body gear, his body weight can be increased in a controlled manner and he will become comfortable and further stick to the surface of the defined ground in space by velcro-magnetic force.
6. BLACK SWAN EVENT
News: The article, titled ‘Capital Flows at Risk: India’s Experience’ published in RBI’s latest bulletin, further said in a ‘black swan’ event comprising a combination of shocks, portfolio outflows can rise to 7.7% of GDP, highlighting the need to maintain liquid reserves to quell such potential bouts of instability.
About Black Swan Event:
A black swan is a rare, unpredictable event that comes as a surprise and has a significant impact on society or the world.
These events are said to have three distinguishing characteristics – they are extremely rare and outside the realm of regular expectations; they have a severe impact after they hit; and they seem probable in hindsight when plausible explanations appear.
The black swan theory was put forward by author and investor Nassim Nicholas Taleb in 2001, and later popularised in his 2007 book – The Black Swan: The Impact of the Highly Improbable. The Sunday Times described his work as one of the 12 most influential books since World War II.
The term itself is linked to the discovery of black swans. Europeans believed all swans to be white until 1697, when a Dutch explorer spotted the first black swan in Australia. The metaphor ‘black swan event’ is derived from this unprecedented spotting from the 17th century, and how it upended the West’s understanding of swans.
News: India may spend ₹1.13 trillion ($14.5 billion) to build the 10 GW Upper Siang multi-purpose storage project at Yingkiong in Arunachal Pradesh, a project that is central to counter China’s ambitious water diversion scheme of the Siang river that feeds downstream into the Brahmaputra.
The north-east assumes significance because it has four major river basins — Subansiri, Lohit, Dibang and Siang.
In each of these basins, one reservoir is required. With the completion of each of the four reservoirs, water levels of the Brahmaputra at Pandu, a flood-prone area in Guwahati, will be lower by 1.8-2 metres during peak flood.
If you lower the water level by two metres, you will not have floods. This is very important for flood control and to save lives.
Rivers of North – East India:
8. EU TO GRANT UKRAINE ‘CANDIDATE STATUS’ TO BECOME MEMBER STATE
News: EU officials said on Tuesday that there was no opposition within the 27-nation bloc to granting war-torn Ukraine “candidate status”, ahead of a summit expected to green light the move.
The bloc’s executive arm last week proposed taking the symbolic first step to put Ukraine on the years-long path towards EU membership in a strong sign of support for Kyiv.
A two-day summit from Thursday looks set to approve the move to formally name Ukraine and Moldova “candidates” to start negotiations on joining.
The EU is expected to impose conditions on over judicial reforms and tackling corruption, among other issues, before they could move on to formal entry negotiations.
It would then take years — if not decades — of painstaking evaluations before Ukraine would get close to becoming an actual member.
Momentum has picked up for the EU to open the door to Ukraine after the leaders of heavyweights France, Germany and Italy threw their heft behind the move.
About European Union:
The European Union (EU) is a political and economic union of 27 member states that are located primarily in Europe.
The union has a total area of 4,233,255.3 km2 (1,634,469.0 sq mi) and an estimated total population of about 447 million.
An internal single market has been established through a standardised system of laws that apply in all member states in those matters, and only those matters, where the states have agreed to act as one.
EU policies aim to ensure the free movement of people, goods, services and capital within the internal market; enact legislation in justice and home affairs; and maintain common policies on trade, agriculture, fisheries and regional development.
Passport controls have been abolished for travel within the Schengen Area.
The eurozone is a monetary union established in 1999, coming into full force in 2002, that is composed of the 19 EU member states that use the euro currency.
The EU has often been described as a sui generis political entity (without precedent or comparison) with the characteristics of either a federation or confederation.
The union and EU citizenship were established when the Maastricht Treaty came into force in 1993.
9. STRAIT OF HORMUZ
News: A U.S. Navy warship fired a warning flare to wave off an Iranian Revolutionary Guard speedboat coming straight at it during a tense encounter in the strategic Strait of Hormuz.