21st June Current Affairs
June 21, 2022
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22nd June Current Affairs

The absurdity of the anti-defection law

(GS-II: Parliament and state legislature structure, functioning and conduct of business)

In News:

In light of the events unfolding in Maharashtra, with the government facing internal dissent from a block of 22 MLAs, the anti-defection law has again come into the spotlight.

The events in Puducherry highlight, yet again, the absurdity of the anti-defection law.

Anti-defection law:

The Tenth Schedule – popularly known as the Anti-Defection Act – was included in the Constitution via the 52nd Amendment Act, 1985 and sets the provisions for disqualification of elected members on the grounds of defection to another political party.

It was a response to the toppling of multiple state governments by party-hopping MLAs after the general elections of 1967.

However, it allows a group of MP/MLAs to join (i.e. merge with) another political party without inviting the penalty for defection. (At least two-thirds of the members of a party have to be in favour of a “merger” for it to have validity in the eyes of the law).

It does not penalize political parties for encouraging or accepting defecting legislators.

The decision on questions as to disqualification on the ground of defection is referred to the Chairman or the Speaker of such House, which is subject to ‘Judicial review’.

India’s emerging twin deficit problem

(GS-III: Government Budgeting)

In News:

RBI in its ‘Monthly Economic Review’ report highlighted two key areas of concern for the Indian economy: the fiscal deficit and the current account deficit (or CAD).

What does the report say?

On Fiscal deficit: Fiscal deficit may be high due to cuts in excise duties on diesel and petrol.

On Current account deficit

Higher import bills may increase CAD: Costlier imports such as crude oil and other commodities will not only widen the CAD but also depreciate the rupee.

A weaker rupee will, in turn, make future imports costlier.

Pulling out of funds from emerging markets: Rupee can also weaken if, in response to higher interest rates in the western economies especially the US, foreign portfolio investors (FPI) continue to pull out money from the Indian markets, which too will hurt the rupee and further increase CAD.

Impact of twin deficit:

Although no cause of worry in the short term, the twin deficit may in the long-term reduce the savings, depreciate the rupee and imbalance the financial investments of the government for social purposes.

What needs to be done:

Trim revenue expenditure (or the money government spends just to meet its daily needs)

Rationalizing non-Capex (capital) expenditure to avoid fiscal slippages

Use tight monetary policy to achieve fiscal consolidation

Import cut of non-essential goods and make exports of Indian goods competitive

Reforming the Indian market to make it attractive for FDI and FIIs.

Desert In Tamil Nadu

(GS-I: Geomorphology)

In News:

Recent news has highlighted the desert in Tamil Nadu. It has dunes that are red. The red dunes are called theri in Tamil. They consist of sediments dating back to the Quaternary Period and are made of marine deposits.

Features of the dunes:

They have very low water and nutrient retention capacity.

The dunes are susceptible to aerodynamic lift.

Reason for Red colour: The iron-rich heavy minerals like ilmenite, magnetite, garnet, hypersthene, and rutile present in the soil had undergone leaching by surface water and were then oxidized because of the favourable semi-arid climatic conditions giving them distinct red colour.

Theories behind their formation:

Theory 1: The present-day theris might have been formed by the confinement of beach sand locally, after the regression of the sea. When high-velocity winds from the Western Ghats blew east, they induced migration of sand grains and accumulation of dunes.

Theory 2: Another view is that these are geological formations that appeared in a period of a few hundred years.

Theory 3: The red sand is brought from the surface of a broad belt of red loam in the plains of the Nanguneri region by southwest monsoon winds during May-September.

The southwest monsoon winds, after draining the moisture behind the Mahendragiri hill and the Aralvaimozhi gap of the Western Ghats, become dry and strike the plains in the foothills, where vegetation is sparse. This churns red loam and is driven east in huge columns of red sand, till they are met by sea breeze near the coastal tract of Tiruchendur and get deposited there.

The sand deposited thus also forms a further obstruction, causing more sand to be deposited and the process goes on. Thus, in the due course of time, a dune is formed.

Aeolian Process: These processes of erosion, transport, and deposit of sediments that are caused by wind at or near the surface of the earth, are called Aeolian processes. They lead to continual sand redistribution.

What is the link between rising food prices and central banks raising interest rates?

(GS-III: Indian Economy and issues relating to planning, mobilisation of resources, growth, development and employment)

In News:

Last week the US central bank (Fed) announced that it will raise interest rates by 75 basis points (or 0.75 percentage points) to bring down inflation to its target rate of 2% from 9%. However, there is a fear that such as a move may lead to the US going into recession and thus impacting India and the world.

What is inflation?

Inflation is the rate at which prices rise. A 2% inflation implies the general price level in April this year was 2% more than what it was in April last year.

Inflation rate in India has steadily gone up from close to 4% in September last year to almost 8% in April this year.

Why is inflation bad?

It makes commodities costly.

It essentially erodes the basis on which one makes economic decisions– meaning it reduces the value of money.

What is a recession?

A recession is said to occur if an economy contract for two consecutive quarters (a quarter is a period of three months).

On a side note: US president Ronald Reagan (who succeeded Jimmy Carter as the US President in 1981) remarked about the Recession:

“Recession is when your neighbour loses his job. Depression is when you lose yours. And recovery is when Jimmy Carter loses his.”

Why is a recession bad?

Recession essentially leads to a low growth rate thereby starting a vicious circle wherein the country experiences low production and high unemployment.

Fed and RBI increasing interest rates may cut inflation to some extent but may not help in reducing food and fuel price-led inflation, but raising interest rates may bring about a recession. Then why are all these central banks still trying to do this? The answer lies in something called “inflation expectations”.

What are inflation expectations?

Inflation expectations refer to people’s (or households’ expectation of what the inflation rate will be in the future). And they matter because this expectation is what determines people’s economic behaviour.

If people expect higher inflation in the future, they may start purchasing things in present times to be used in future.

The net effect of these individual decisions to advance or postpone purchases or ask for higher wages etc. determine the course of a country’s economy.

For example, if people expect higher inflation and advance their purchases, all of a sudden there will be a spike in demand, far in excess of the supply, thus causing higher inflation.

As such, policymakers try to gauge what is happening to inflation expectations.

Impact of Inflation expectation:

Reduced investment: Businesses will hold back fresh investment as costs (such as wages) go up. This, in turn, hurts the country’s competitiveness.

Increase in Gold Demand: People pull out money from their savings and put it into non-productive assets such as gold. In India’s case, since 98% of all gold demand is met from imports, this essentially implies capital going to other countries.

How raising the interest rate will bring down inflation expectations?

Inflation expectations tend to be “backwards-looking”: (Households) tend to look at a recent food and fuel prices which are salient items in the average consumption basket and they form their opinion about what inflation would be in the future, say three months or a year from now. If RBI/Fed starts taking preventive measures then households will have confidence that inflation will be controlled in future and thus stabilize ‘inflation expectations’.

Dampen demand-side inflation: While high-interest rates may not affect the supply-side inflation, it does dampen the demand for other goods and services (by disincentivizing borrowing (because it is now costlier))

It reduces inflation by bringing down demand.

It gives time for the supply to catch up with the demand.

Core argument: Ensuring inflation expectations stay “anchored” is the essential goal for monetary policy. Reducing inflation is a way to achieve that goal and raising interest rates is a way to achieve lower inflation.

India’s RBI is also trying to achieve the same goal: keeping inflation expectations anchored. (Target rate is 4-6% in the case of India). But as central banks try to achieve this goal, more interest rate hikes in the coming months are expected, which, in turn, will dampen economic activity all around.