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31st October Current Affairs

How RBI fell behind the curve in containing inflation

(GS-III: Indian Economy and issues)

In News:

Very soon, the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) will convene to formulate its response to the Government of India about the high rate of inflation in the country.

What is inflation?

The general rise in the price level of goods and services is called inflation. The Reserve Bank of India is the authority to control inflation under RBI Act 1934.

Inflation targeting by RBI: The RBI is by law responsible for maintaining price stability.

Under the “inflation-targeting” regime that began in 2016, RBI has to retain the inflation target of 4%, with a tolerance band of +/- 2 percentage.

Thus, for any given month, RBI’s comfort zone for inflation lies between 2 per cent and 6 per cent.

Under the RBI Act, 1934, if the central bank fails to meet the inflation target for three consecutive quarters, it is required to provide the following information to the government:

reasons for the failure to achieve the inflation target;

remedial actions proposed to be taken; and

an estimate of the period within which the inflation target shall be achieved pursuant to the timely implementation of the proposed remedial actions.

How does the MPC target inflation?

Composition of MPC: The MPC has six members including the RBI Governor — three each nominated by the RBI and the government, who meet every two months (starting from February every year).

What is the repo rate and How does movement in the repo-rate influence inflation?

Repo rate; – (it is the rate at which RBI lends money to commercial banks).

For instance, at times of high inflation RBI increases the repo rate (“dear money policy”) which results in costlier borrowing both for consumers and producers and effectively slows down economic activity in the economy.

How did RBI fail to check inflation?

Time lag: MPC’s knowledge of inflation typically lags by two months — which means as it deliberates in October, it works with data until August.

Accommodative stance of RBI (growth more priority than inflation control): RBI despite being aware about the inflation level has kept the repo rate unchanged at 4 per cent and to continue with an accommodative stance as long as necessary to revive and sustain growth on a durable basis.

Limitation of monetary policy in curbing inflation:

Incomplete transmission; – it means that the cumulative easing in policy rates by RBI is not being reflected in the lowering of their lending rates by banks.

Policy rates are not market linked; – the repo rates decided by monetary policy committees are not truly market linked which results in banks many times negating these policy rates set by RBI.

Cost-push inflation; – due to disruption in the supply chain of the produce e.g. Russian-Ukrain war.

Ineffective against supply shocks; – RBI’s policies can stabilize inflation only caused due to demand shocks and they are ineffective against supply shocks.

For instance, food inflation is prone to supply-side bottlenecks and is out of the scope of any remedy under the aegis of the monetary policy of RBI.

Limited financial inclusion; – India suffers from limited financial inclusion. Indians, unlike Americans, earn before spending and do not live by credit. This limits the success of RBI’s credit control policy.

Fiscal policy; – The Central and State Governments can play a progressively active role to help curb inflation by framing new policies or altering the old ones.

Many times there is no synchronisation between monetary and fiscal policy.

Globalisation; –

With the current uncertainty about the global economy, especially in the United States of America and the Eurozone due to the Russia –Ukraine war, RBI should not rely on monetary tools alone to combat inflation.

Pasumpon Muthuramalinga Thevar

In News:

Prime Minister Narendra Modi paid tributes to the freedom fighter — Pasumpon Muthuramalinga Thevar — on the occasion of his guru pooja.

Pasumpon Muthuramalinga Thevar:

Born on October 30, 1908, in Pasumpon in the Ramanathapuram district of Tamil Nadu, he was a freedom-fighter cum spiritual leader and was seen as a deity among the Mukulathor community.

He did not accept traditional Hinduism because it supported the ‘Varnashrama’.

He regularly fought against the evils of the Hindu religion.

Membership of congress: Thevar became a full-time member of the Congress party and attended the 1927 Congress session at Madras as a volunteer when he was just 19.

Aide of Netaji: He became a close aide of Netaji Subhas Chandra Bose.

He was elected three times to the national parliamentary constituency of the All India Forward Bloc.

He supported the temple entry movement and he helped the activist Vaidyanatha Iyer take Dalits to Meenakshi Temple in Madurai.

He was instrumental in getting the Criminal Tribes act repealed after continuous efforts in 1946.

Criminal Tribes Act criminalized entire communities by designating them as habitual criminals.

Amendments to the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules 2021

In News:

The Ministry of Electronics and IT notified amendments to IT Rules, 2021 aimed at protecting the rights of Digital Nagriks (citizens).

Details:

Towards an Open, Safe & Trusted and Accountable Internet.

Key Amendments:

Legal obligation on intermediaries: Take reasonable efforts to prevent users from uploading content that intentionally communicates any misinformation or information that is patently false or untrue.

72-hour time frame for content removal instead of 24 hours.

Regional languages: For effective communication of the rules and regulations of the intermediary, communication should be done in regional Indian languages as well.

Removing the words ‘defamatory’ and libellous.

Whether any content is defamatory or libellous will be determined through judicial review.

To deal particularly with misinformation, and content that could incite violence between different religious/caste groups.

Respect rights: The rules have made it explicit for the intermediary to respect the rights accorded to the citizens under Articles 14, 19 and 21.

Grievance Appellate Committee(s):

It will be established to allow users to appeal against the inaction or decisions taken by intermediaries on user complaints.

Users have the right to approach courts for any remedy.

The appellate committee shall consist of:

  • A chairperson
  • Two whole-time members appointed by the Center
  • One shall be a member ex-officio and two shall be independent members

Need for amendment:

Digital users: To make the internet open, safe, and accountable for all digital users.

Constitutional rights: To make intermediaries (Twitter, Facebook) respect constitutional rights granted to citizens under articles 14, 19 & 21.

Criticism:

Grievance Appellate Committee (GAC): It will give the government greater powers in content moderation.