1. RBI surprises with 40 bps rate increase, amid inflation ‘alarm’
‘Inflationary pressures becoming acute’
The Reserve Bank of India (RBI), in a sudden move on Wednesday, raised the repo rate by 40 basis points (bps) to 4.4% citing inflation that was globally “rising alarmingly and spreading fast”. The repo rate increase was the first since August 2018.
In an unscheduled announcement, RBI Governor Shaktikanta Das said the Monetary Policy Committee (MPC) had in an off-cycle meeting reviewed the latest economic developments including the impact of the war in Ukraine and decided to increase the policy interest rates in a bid to curb accelerating inflation.
“As the war draws on and sanctions and retaliatory actions intensify, shortages, volatility in commodity and financial markets, supply dislocations and, most alarmingly, persistent and spreading inflationary pressures are becoming more acute with every passing day,” Mr. Das noted.
Observing that domestic inflation in April was also expected to be elevated, he said, “The MPC judged that the inflation outlook warrants an appropriate and timely response… to ensure that the second-round effects of supply side shocks on the economy are contained and long-term inflation expectations are kept firmly anchored”.
The MPC, however, retained its ‘accommodative’ policy stance even as it focuses on withdrawal of accommodation to keep inflation within the target range while supporting growth.
As part of the withdrawal of accommodation, the RBI also raised the Cash Reserve Ratio (CRR) by 50 basis points to 4.5% with effect from May 21 so as to drain surplus liquidity of about ₹87,000 crore.
Asserting that the fundamentals of the Indian economy remained strong, Mr. Das said, “Our monetary policy actions… will strengthen and consolidate the medium-term growth prospects of the economy”.
He pointed out that sustained high inflation “inevitably hurts savings, investment, competitiveness and output growth”.
As part of the increases, the standing deposit facility (SDF) rate would become 4.15% and the marginal standing facility (MSF) and bank rate would be 4.65%.
“These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4% within a band of +/- 2%,” the MPC noted.
Definition of Inflation
Inflation refers to the rise in the prices of most goods and services of daily or common use, such as food, clothing, housing, recreation, transport, consumer staples, etc. Inflation measures the average price change in a basket of commodities and services over time. The opposite and rare fall in the price index of this basket of items is called ‘deflation’. Inflation is indicative of the decrease in the purchasing power of a unit of a country’s currency. This is measured in percentage.
Types of Inflation
There are two types of inflation –
- Demand Pull Inflation: Demand pull inflation arises when aggregate demand in the economy becomes more than aggregate supply.
- Cost push inflation: when there is decrease in aggregate supply of goods and services results into increase in cost of production.
Factors causing Inflation
- Demand Side inflation is caused by high demand and low production or supply of multiple commodities create a demand-supply gap, which leads to a hike in prices due to increase in consumption; Also, Increase in exports which undervalues rupee; Also, the excess circulation of money leads to inflation as money loses its purchasing power With people having more money, they also tend to spend more, which causes increased demand.
- Cost Pull inflation is caused by shortage of factors of production like labour, land, capital etc. and also due to artificial scarcity created due to hoarding. For example, Brent crude prices crossed $65 per barrel in May 2021, more than double of what it was a year ago. Price of vegetable oils, a major import item, shot up 57% to reach a decadal high in April 2021. Metals prices are near the highest in 10 years and international freight costs are escalating.
Inflation Targeting in India
- Inflation is measured by a central government authority, which is in charge of adopting measures to ensure the smooth running of the economy. In India, the Ministry of Statistics and Programme Implementation measures inflation.
- RBI through its Monitory Policy Committee Controls Inflation with its tools to control Money supply in the market.
- The Central Government has notified 4 per cent Consumer Price Index (CPI) inflation as the target for the period from August 5, 2016, to March 31, 2021, with the upper tolerance limit of 6 per cent and the lower tolerance limit of 2 per cent.
2. The status of GST compensation dues
Why are funds owed to the States delayed? Are cess collections not growing fast enough? Will the compensation period be extended beyond five years?
Last week, Prime Minister Narendra Modi said that several non-BJP ruled States had failed to cut taxes on fuel products. Some of the States countered that due to pending dues from the Centre including that of compensation for implementing GST it made it difficult for them to lower fuel taxes.
The Finance Ministry responded that outstanding GST compensation dues to States for 2021-22 stood at ₹78,704 crore. It said that it was unable to pay the dues owing to ‘inadequate balance’ in the compensation cess collections fund.
If States get a larger share of the higher GST collections clocked in April and May, (₹1.42 lakh crore and over ₹1.67 lakh crore respectively) it would help them push capital spending to plan and execute public infrastructure projects quicker.
The story so far: At a meeting with Chief Ministers last week, Prime Minister Narendra Modi said that several non-BJP ruled States had failed to cut taxes on fuel products whose prices have surged sharply since March and urged them to do so in the interest of giving relief to the people facing high inflation. Most of the States he referred to — West Bengal, Tamil Nadu, Maharashtra, Kerala, Telangana, Jharkhand and Andhra Pradesh — countered the PM’s pitch bluntly. West Bengal and Tamil Nadu said they had already reduced their VAT levies once. Maharashtra and Kerala pointed to States’ resource constraints and pending dues from the Centre. The Mamata Banerjee administration said slashing State levies on petrol and diesel will be possible only if the Centre clears its outstanding dues of over ₹97,000 crore, which includes compensation for implementing the Goods and Services Tax (GST).
What is the status of the outstanding GST compensation due to the States?
The GST regime entailed doing away with multiple State and Central levies to create a simplified tax system for businesses. As this meant that States had to give up several taxation powers in the process, they were assured that revenue losses will be compensated for five years. The compensation was to be calculated by assuming a 14% year-on-year growth over revenues in 2015-16 from the State taxes subsumed in GST, and remitted from a compensation cess fund backed by cess levies on sin and luxury goods like pan masala, tobacco, coal and cars.
Hours after the meeting, to counter these States’ arguments about pending dues, the Finance Ministry said that outstanding GST compensation dues to States for 2021-22 stood at ₹78,704 crore, equivalent to four months of such accruals. This means that dues have been remitted to States for the eight-month period of April 2021 till November 2021. The ministry, which had last released GST compensation of ₹18,252 crore to States and Union Territories during March, indicated its inability to pay the dues immediately owing to ‘inadequate balance’ in the compensation cess collections fund. “Normally, compensation for 10 months from April-January of any financial year is released during that year and the compensation for February-March is released only in the next financial year. The pending amount will also be released as and when amount from cess accrues in the compensation fund,” the Ministry assured.
On top of the ₹78,704 crore due to States, ostensibly for the period of December 2021 to March 2022, compensation for the April to June period — the last quarter for which such dues will accrue — also need to be arranged. Chief economist of rating agency ICRA Aditi Nayar has estimated that this could be another ₹60,000 crore, taking total dues that remain to be paid to States close to ₹1.4 lakh crore.
How much GST compensation has been paid so far to States and when will this cess levy end?
From July 2017 when the GST regime kicked off till now, about ₹7.35 lakh crore has been released as GST compensation to States. It had nearly doubled from ₹83,000 crore in 2018-19 to ₹1.65 lakh crore in 2019-20, before the pandemic hit the economy and revenue collections across the board. The Finance Ministry said that ₹2.78 lakh crore of compensation has been released to States for the year 2020-21 itself. Because GST as well as compensation cess inflows had dried up due to the COVID-19 lockdowns, as much as ₹1.1 lakh crore was financed through special borrowings from the market. In effect, the Centre borrowed these funds and lent them onwards to States as ‘back-to-back’ loans staggered through the year. Similarly, ₹1.59 lakh crore was raised in 2021-22 to pay States’ compensation dues as per estimated shortfalls in the cess fund collections, and these funds were disbursed entirely by October by resorting to front-loading of the borrowings during the financial year. At the time, the Finance Ministry had expected the overall compensation payouts for the year to be ₹2.59 lakh crore, which it said would exceed the amount of compensation accruing to States in 2021-22, indicating it included pending compensation shortfalls for 2020-21.
The levy of the compensation cess, which was to cease on June 30 this year, has been extended till March 2025-26 with a view to use the receipts to repay the principal and interest on these special loans. Several States, worried about income sources falling off a cliff once the assured compensation ceases to accrue from July 1, have urged the Centre to extend the GST compensation period beyond the five-year promise. But these demands have been stymied so far, citing the legal provisions enabling GST, and are unlikely to gain traction.
Will the record GST collections in recent months help?
To the extent that States get a larger share of higher GST collections, of course. With April and May both clocking fresh highs in GST revenues of ₹1.42 lakh crore and over ₹1.67 lakh crore, the Centre and States’ share, after making adjustments, was a robust ₹1.32 lakh crore and ₹1.36 lakh crore, respectively, over the two-month period. However, GST compensation cess collections are still not growing as rapidly as the overall kitty. Giving States some clarity on when outstanding GST compensation dues will be released, will help them plan their borrowings for the year, which will be particularly tricky from July. While the expected step-down in GST compensation flows from July 2023 may enlarge State borrowings this year, the timing of the release of the pending funds would impact their plans significantly, Ms. Nayar noted.
Moreover, with States expected to aggressively push capital spending this year, which is critical to spur growth, an early release of funds, be it the devolution of other tax collections, or GST compensation, would help them plan and execute public infrastructure projects quicker.
3. India’s position on the World Press Freedom Index
On what indicators are countries ranked in the index? Which countries have improved their ranking?
India’s ranking in the 2022 World Press Freedom Index has fallen to 150 out of 180 countries, according to the latest report released by Reporters Without Borders.
Countries are evaluated on five contextual indicators: political context, legal framework, economic context, socio-cultural context, and safety.
The report describes India as “one of the world’s most dangerous countries for the media.” It highlights that “supporters of Hindutva, the ideology that spawned the Hindu far-right, wage all-out online attacks on any views that conflict with their thinking.”
The story so far: India’s ranking in the 2022 World Press Freedom Index has fallen to 150 out of 180 countries, according to the latest report released by the global media watchdog, Reporters Without Borders (RSF). In last year’s report, India was ranked 142. The top three positions for countries with the highest press freedom were taken by the Nordic trio of Norway (a score of 92.65), Denmark (90.27) and Sweden (88.84).
What is RSF and what’s the objective of this Index?
RSF is an international NGO whose self-proclaimed aim is to defend and promote media freedom. Headquartered in Paris, it has consultative status with the United Nations. The objective of the World Press Freedom Index, which it releases every year, “is to compare the level of press freedom enjoyed by journalists and media in 180 countries and territories” in the previous calendar year. The RSF defines press freedom as “the ability of journalists as individuals and collectives to select, produce, and disseminate news in the public interest independent of political, economic, legal, and social interference and in the absence of threats to their physical and mental safety.”
What is the methodology used by RSF to assess and rank countries?
Countries are ranked after being assigned a score ranging from 0 to 100, with 100 representing the highest possible level of press freedom and 0 the worst. The scoring has two components: a quantitative one, that tallies abuses against journalists and media outlets, and a qualitative analysis based on the responses of press freedom specialists (journalists, researchers, human rights defenders) to an RSF questionnaire.
Countries are evaluated on five contextual indicators: political context, legal framework, economic context, socio-cultural context, and safety. For instance, the political context indicator considers, among other things, “the degree of support for the media in their role of holding politicians and government to account in the public interest”. A ‘subsidiary score’ ranging from 0 to 100 is calculated for each indicator, and all the subsidiary scores together contribute to the ‘global score’. India, which had a global score of 53.44 in the 2021 Index, could muster only 41 this time.
What are the findings with regard to world press freedom?
In terms of global trends, the report flags a “two-fold increase in polarisation amplified by information chaos — that is, media polarisation fuelling divisions within countries, as well as polarisation between countries at the international level.” It notes that “within democratic societies, divisions are growing” due to the spread of “opinion media” modelled on Fox News, and the rise of “disinformation circuits” amplified by how social media functions.
While singling out Moldova (40th) and Bulgaria (91st) for drastic improvements in press freedom “thanks to a government change”, it has classified the situation in 28 countries including Russia (155) and Belarus (153), as “very bad”. The world’s 10 worst countries for press freedom include Myanmar (176th), China (175), Turkmenistan (177th), Iran (178th), Eritrea (179th) and North Korea (180th).
What does the Index say about India?
The report states that in India, “the violence against journalists, the politically partisan media and the concentration of media ownership all demonstrate that press freedom is in crisis”. Describing India as “one of the world’s most dangerous countries for the media”, the report notes that “journalists are exposed to all kinds of physical violence including police violence, ambushes by political activists, and deadly reprisals by criminal groups or corrupt local officials.” It highlights that “supporters of Hindutva, the ideology that spawned the Hindu far-right, wage all-out online attacks on any views that conflict with their thinking.”
What are the report’s observations on India under various indicators?
Under ‘political context’, it states: “Originally a product of the anti-colonial movement, the Indian press used to be seen as fairly progressive but things changed radically in the mid-2010s, when Narendra Modi became prime minister and engineered a spectacular rapprochement between his party, the BJP, and the big families dominating the media.” It highlights that “very early on, Modi took a critical stance vis-à-vis journalists, seeing them as ‘intermediaries’ polluting the direct relationship between himself and his supporters.”
With regard to ‘legal framework’, the report notes that “Indian law is protective in theory but charges of defamation, sedition, contempt of court and endangering national security are increasingly used against journalists critical of the government”. Under ‘economic context’, the report, describing Indian media as a “colossus with a feet of clay”, points out that “media outlets largely depend on advertising contracts with local and regional governments” and “at the national level, the central government has seen that it can exploit this to impose its own narrative, and is now spending more than ₹130 billion (5 billion euros) a year on ads in the print and online media alone. “Finally, on the socio-cultural indicators of press freedom, the report, noting that “the enormous diversity of Indian society is barely reflected in the mainstream media,” states that “for the most part, only Hindu men from upper castes hold senior positions in journalism or are media executives — a bias that is reflected in media content.”
4. SC is loud and clear on noise pollution
It interferes with right to life: court
The Supreme Court judgments which govern the use of loudspeakers were intended to protect citizens from becoming “forced audience” to noise.
Recent days have seen tensions rise over the use of loudspeakers in temples and mosques.
However, the court, while interpreting the law on the use of loudspeakers in 2005, had made it clear that it was not concerned with “any religion or religious practices”.
The court had made it clear that its judgments regulating the use of loudspeakers and timings were based on the legal principle that “freedom from noise pollution is a part of the right to life under Article 21 of the Constitution”.
“Noise interferes with the fundamental right of citizens to live in peace and to protect themselves against forced audience… We are not concerned with any religion or religious practices; we are concerned only with the fundamental right of the citizens and the people to protect themselves against noise pollution and forced audiences,” the court had made its intentions clear in its 2005 judgments. The top court had made it clear that nobody, whatever be the religion or purpose, “can claim a right to create noise even in his own premises which would travel beyond his precincts and cause nuisance to neighbours or others”.
“No one can claim a fundamental right to create noise by amplifying the sound of his speech with the help of loudspeakers,” the court explained.
‘Not a must’
On the use of loudspeakers in religious practices, the top court, in one of the judgments, reproduced parts of a newspaper column which said the objective of any religion was not to force anyone to listen to its expressions of faith. The court had said the logic that loudspeakers were not a must to spread religious devotion appealed to it.
5. Highest sex ratio at birth in Ladakh
Manipur has lowest followed by Dadra and Nagar Haveli, Daman and Diu in 2020
Vijaita Singh New Delhi
Ladakh recorded the highest sex ratio at birth in the country in 2020, followed by Arunachal Pradesh, Andaman and Nicobar Islands, Tripura and Kerala, according to the annual report on Vital Statistics based on 2020 Civil Registration System report.
“Highest Sex Ratio at Birth (SRB) based on registered events has been reported by Ladakh (1,104) followed by Arunachal Pradesh (1,011), A&N Islands (984), Tripura (974), and Kerala (969),” the report released by the Registrar-General of India on Tuesday said. Sex ratio at birth is the number of females per thousand males.
The lowest sex ratio was reported by Manipur (880), followed by Dadra and Nagar Haveli and Daman and Diu (898), Gujarat (909), Haryana (916) and Madhya Pradesh (921).
In 2019, the highest sex ratio at birth was reported by Arunachal Pradesh (1,024), followed by Nagaland (1,001), Mizoram (975) and A&N Islands (965), and the lowest sex ratio was reported by Gujarat (901), Assam (903), Madhya Pradesh (905) and Jammu & Kashmir (909).
The report said that the requisite information from Maharashtra, Sikkim, Uttar Pradesh and Delhi on sex ratio was “not available.” They had not provided the said data in 2019 as well.
“The sex ratio at birth of registered events is an important indicator to map the sex differential of the population at the beginning of their life. The sex ratio at birth has been calculated after deducting the delayed registration of more than one year for the year 2020,” the report said. None of the States or UTs have recorded sex ratio at birth below 880.
The report noted that 1,43,379 infant deaths were registered in 2020 and the share of rural areas was only 23.4%, while that of urban areas was 76.6% in total registered infant deaths. “Non-registration of infant deaths in rural areas was a cause of concern,” it stated.
6. Haflong Hindi, a fluent example of give and take
Of 19th century vintage, the pidgin follows Tibeto-Burman grammar and includes Bengali, Nepali words
A “nativised” Hindi associated with Assam’s only hill station is trying to hold its own amid a row over the Centre’s move to make Hindi compulsory in high schools across Northeast India.
Hindi reached Dima Hasao, a district formerly called North Cachar Hills, in the late 1800s primarily through merchants and construction workers who worked on a mountain railway system. By the time the railway line was completed in 1899, the non-tribal settlers and diverse indigenous communities across the hills had developed a pidgin to communicate among themselves.
It came to be known as Haflong Hindi, named after the headquarters of the district where the Dimasa people are the dominant community. The other tribes are Hmar, Kuki, Zeme (Naga), Biate, Vaiphei, Hrangkhol, Khelma, Rongmei, Karbi and Jaintia.
“Haflong Hindi follows the Tibeto-Burman grammar, not the Hindi grammar, and has lexical additions from Nepali and Bengali. It has a generic plural marker and does not use numbers as in Hindi,” Monali Longmailai, who teaches linguistics at Assam University in Silchar, told The Hindu.
For instance, the plural of ladki (girl)in Haflong Hindi is ladkiluk or ladkilukun and not ladkiyaan (girls) as in “mainland” Hindi. Likewise, a tree in Haflong Hindi is gachchhi borrowed from Nepali and not ped as in Hindi, while most sound changes follow the Bengali form, she explained.
“The problem now is that with so much of migration and immigration, the younger generation of locals and Hindi-speakers from outside are mixing it up. They assume it is a wrong form of Hindi and needs to be corrected,” Ms. Longmailai said.
Though Haflong Hindi has not found its way into literature, she has been researching on a project to be published.
More than four decades ago, a Hindi teacher named Somnath Upadhyaya had attempted a Haflong Hindi dictionary that is no longer in circulation. Educationist Vanlal Bapui had brought out a Haflong Hindi primer for the Education Department of the North Cachar Hills Autonomous Council (NCHAC) in the early 1990s, but it was shelved. NCHAC chief Debolal Gorlosa declined to comment on the status of the primer.
Some linguists feel pushing the standardised Hindi as a compulsory subject in school could affect the “earthiness” of variants in the Northeast such as Shillong Hindi, which is not pidgin but informal Hindi, and the “purer” Arunachalee Hindi with tribal intonations.
“The urge to correct or find fault with the local Hindi is like tutoring a Naga person to speak more of Assamese than Nagamese,” Ms. Longmailai said.
7. ‘Star rating for food may mislead buyers’
Experts call for warning label system
The nutrition labelling system for food packets recommended by the Food Safety and Standards Authority of India (FSSAI) will not only fail to enable consumers to make healthy choices but also mislead them about their nutritional value, warn experts who have called for the need to “insulate” policy-making from the influence of the food industry.
At a meeting in February, the FSSAI decided that when preparing the draft regulations for a Front of Package Labelling (FoPL) system, it will propose the health star rating system, which rates the overall nutritional profile of packaged food and assigns it a rating from half a star to five stars. The decision was based on an Indian Institute of Management (IIM), Ahmedabad study commissioned by the FSSAI. The move has upset public health experts who favour the warning label system such as a black-and-white stop symbol used in Chile or the red warning symbol in Israel for each of the three ingredients — salt, sugar and fat.
“Warning signs educate consumers about harmful ingredients present in a food product and help them make healthy choices. They also give a repetitive educational message so that even for domestic cooking or buying street food that warning bell goes off. This educational component of a properly constructed warning system is missing in the health star [rating] system, which are like a movie rating system and are of no use,” K. Srinath Reddy, president, Public Health Foundation of India (PHFI), said at a press conference.
He said that the system being proposed by the food regulator was “devious” as it misled consumers about a product’s nutrition profile.
Under the health star rating system, an algorithm assigns a product a certain number of stars based on “positive” components (fibre, protein, and fruit, vegetable, nut and legume content) balanced against other components (energy, sugars, sodium, and saturated fat). He was launching a position statement endorsed by 21 organisations, including the Centre for Science and Environment, Consumer Voice, Cuts International, Indian Academy of Paediatrics, and the PHFI.
In the statement, the 21 organisations have demanded that warning labels should be made mandatory when the draft regulation is made public for stakeholder consultations; that “decisions on public health issues should be made without any conflicts of interest even at a consultative level”; and that while interactions with the food industry may happen on different platforms, they should not be part of meetings on policy decisions.
In the February meeting, of the 26 external participants, 17 were from the industry, including Dabur, Nestle, Hindustan Unilever and PepsiCo.
8. EU proposes phased Russian oil embargo, more sanctions
The European Union proposed its toughest sanctions yet against Russia on Wednesday, including a phased oil embargo, as Ukraine came under further heavy Russian bombardment and nervously monitored large-scale Army drills in neighbouring Belarus, a close Moscow ally.
Piling pressure on Russia’s already battered $1.8 trillion economy, the European Commission proposed phasing out supplies of Russian crude oil within six months and refined products by the end of 2022. The plan, if agreed by EU governments, would be a watershed for the world’s largest trading bloc, which remains dependent on Russian energy and must find alternative supplies. Hungary and Slovakia want to be exempted from the ban for now, sources said.
“(President Vladimir) Putin must pay a price, a high price,for his brutal aggression,” Commission chief Ursula von der Leyen told the European Parliament in Strasbourg, to applause from lawmakers.
Ms. der Leyen also announced sanctions targeting Russia’s largest bank Sberbank, two other lenders, three state broadcasters and Army officers and other individuals accused of war crimes.
The EU has yet to target Russian natural gas, used to heat homes and generate electricity across the bloc.
9. ‘Off-cycle move hints at more aggressive rate increases’
Economists see RBI moving resolutely to slow inflation in the coming months
The RBI’s surprise move to raise the repo rate on Wednesday is a clear signal that it will embark on a series of rate increases in the coming months to counter inflation, said economists at banks.
“Today’s surprise move is perhaps instigated by the upcoming April inflation print, which could come in higher — we currently estimate a print of 7.6%,” said Abheek Barua, chief economist, HDFC Bank. The sharper-than-expected rate hike “paves the way for a more aggressive rate hike cycle than we earlier expected,” he added.
Madan Sabnavis, chief economist at Bank of Baroda said while the increase in the repo rate would help to ‘quell the build-up of excess demand pressures and hence slow down inflation’, it would have little effect on the components that were being driven by global factors.
“The overarching focus on inflation is significant as it goes back to the normal mandate of the MPC which is to curb inflation as growth seems to be better placed today,” Mr. Sabnavis observed. “But not tackling inflation now, growth can be jeopardised. This will be the main message from the so-called interim policy,” he added.
‘Brake on auto sales’
Meanwhile, automobile retailers said the move would likely dampen auto sales.
“This move will curb excess liquidity in the system and will make auto loans expensive,” said FADA President Vinkesh Gulati.
“Certainly, this move will apply certain amount of brakes on auto retail and dampen the sentiments further,” he asserted.
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