Daily Current Affairs 25.05.2023 ( Ties that bind , The fundamental value of the rupee , GDP growth expected to exceed 7% estimate in FY23, says RBI Governor , Independence of judiciary is part of basic structure of Constitution: SC , How a letter to PMO set off search for Sengol , India set to triple speed of its fastest supercomputers )

Daily Current Affairs 25.05.2023 ( Ties that bind , The fundamental value of the rupee , GDP growth expected to exceed 7% estimate in FY23, says RBI Governor , Independence of judiciary is part of basic structure of Constitution: SC , How a letter to PMO set off search for Sengol , India set to triple speed of its fastest supercomputers )


1. Ties that bind

The Modi visit to Australia adds to the bipartisan strength of growing bonds

Prime Minister Narendra Modi’s three-day visit to Australia this week coincided with a year since Labour Party leader Anthony Albanese was elected Prime Minister, and gave a fillip to growing bipartisan ties. While his visit was originally planned for a multilateral event, the meeting of the Quad, it transformed into a purely bilateral visit after the U.S. President pulled out over domestic political constraints; Japanese Prime Minister Fumio Kishida followed suit, and a shortened Quad Summit was held in Hiroshima. As a result, Mr. Modi’s Sydney sojourn was much more in the spotlight, particularly his address to the Indian community which Mr. Albanese joined in, as well as the address to business groups. In what was their sixth such meeting in the past year, the announcements from the Modi-Albanese meet included opening an Australian consulate in Bengaluru and an Indian consulate in Brisbane, an agreement on Migration and Mobility, and the finalisation of terms of reference for an India-Australia Green Hydrogen Task Force. Defence and security ties, cooperation on renewable energy, and critical minerals were also part of the substantive agenda, as was the need to sign a Comprehensive Economic Cooperation Agreement by December. On international issues, despite their differing stances on Russia’s invasion of Ukraine and western sanctions, they found continuing and common cause on maintaining a free and open Indo-Pacific, and dealing with an aggressive China.

However, it was the celebration as well as the concerns of the Indian-origin community that appeared to overshadow all else. While both leaders exulted in the mammoth crowd at Sydney’s SuperDome, Mr. Modi said that the “real reason, the real power” behind the bilateral relations came from people of Indian-origin in Australia. On the subsequent morning, activities of other groups and conflicts also tracing back to people of Indian origin were discussed as Mr. Modi repeated his concerns over vandalism and attacks defacing community centres and temples with pro-Khalistani, anti-India and anti-Modi graffiti. These had been raised during Mr. Albanese’s visit to India in March. While any attack on an Indian consulate is a valid bilateral concern, New Delhi must consider how much attention it wishes to pay to attacks by Australian citizens on Australian citizens and Australian property. While the growing incidents may be cause for worry, it is by no means clear that giving them centre-stage during such visits is conducive to strengthening the common understanding between both countries, or in the best interests of the “three D’s” Mr. Modi said bind the two countries today — Democracy, Diaspora and Dosti [Friendship].

2. The fundamental value of the rupee

Pulapre Balakrishnan is an economist.

The first thing that comes to mind when speaking of the value of a currency is the exchange rate it commands in international transactions. For instance, we may ask how many cents is the rupee worth. Another is its purchasing power within an economy, i.e., whether it can buy the same basket of goods over time. Inflation erodes the value of a currency over time. But there is a more fundamental sense in which the value of a currency is to be understood, and it has nothing to do with prices. It has to do with the confidence that citizens have in its continued acceptance as a medium of exchange and store of value. This confidence is based on the trust that they repose in their monetary authority, which is the central bank.

The RBI’s reputation

On May 19, the Reserve Bank of India (RBI) announced that the ₹2,000 note is being withdrawn from circulation but that it will remain legal tender. At the same time, it advised the public to hand over their ₹2,000 notes, to be exchanged for lower denomination notes, by September 30. This advice is pregnant with the suggestion that the note would cease to be legal tender after that date. The explanation for the move is that it is part of a ‘Clean Note Policy’. This does not wash, for if the objective was to remove soiled notes from circulation, the existing ₹2,000 note should have been made convertible into a fresh note of the same denomination. Economists who align with the government of the day have rushed to support the RBI’s latest move. One argument is that a note of such high denomination is used only by a miniscule section of the population. The other is that it will ensure that black money hoards will be extinguished. Actually, these arguments do not enhance the RBI’s reputation. First, it should not have taken much for the RBI to recognise in 2016 that the ₹2,000 note, issued after notes of much lower denominations had been demonetised, was likely to be used by few people for the majority of transactions in India are of far lower monetary value. With hindsight, it is believable that at the time there were not enough new currency notes to be exchanged for the demonetised notes, i.e., there was an unconscionable lack of preparation. The government had likely wanted to demonstrate that it had restored the money stock quickly. The hardship that high denomination notes cause to a very large section of the population needing to transact in notes of much lower value seems not to have been considered. At the time of demonetisation, the official argument had been that it was a way to end counterfeit currency. We now know that this did not happen, as almost all the demonetised notes were returned to the banks. If now the government’s economists say that black money hoards will be extinguished with the ₹2,000 note withdrawn, they must accept as folly the printing of these very notes immediately after the demonetisation in 2016. The Harvard Professor Kenneth Rogoff had lashed out at high denomination currency notes for their role in enabling illegal economic activity, money laundering and terrorism. The RBI, which mostly mimics economic ideas from the West, seems to have missed this one. If the chosen form for hoarding unaccounted wealth today was indeed the ₹2,000 note, then it can be said that the RBI facilitated its accumulation by issuing a higher denomination note in 2016.

The demonetisation of 2016 had led to a slowing of growth within half a year. It is unlikely that the withdrawal of the ₹2,000 note will result in anything similar, for it is still legal tender. But surely the uncertainty it gives rise to cannot be good for business. People undertake economic activity with a view to incurring a gain, whether in the form of profits or wages. When some part of the currency in circulation is suddenly withdrawn for no convincing reason, it has a dampening effect, for economic actors are kept guessing about the money value of their future earnings. India has witnessed a stagnant private investment rate for close to a decade. This could hardly have been a good moment to tamper with the currency.

Poor judgment

A central bank sits at the pinnacle of a country’s financial system. The public expects of it the highest standard of probity. But apart from probity, the central bank must also convey competence, transparency and fairness. For over 50 years, the RBI had mostly lived up to this expectation. In particular, the public saw it as having transitioned from being a handmaiden to Britain’s colonial interest in India to being a relatively independent central bank of an independent country with high economic ambitions. The demonetisation of 2016 dented this reputation. And now, within just a few years, the RBI has come up with another action of dubious worth. By undoing its own action of introducing the ₹2,000 note, it draws attention to poor judgment on its part.

In 2016, the government amended the RBI Act of 1933 to redefine monetary policy as the control of inflation. The RBI has not had great success in its new avatar. It has missed the targeted inflation rate of 4% for 14 quarters in a row. Its relentless messaging however gives the impression that it is singularly devoted to the task of controlling inflation. Perhaps it is. But by casting a shadow on the public’s perception of what is legal tender in India it destabilises their confidence in the rupee. In The Importance of Being Earnest, Oscar Wilde spoke of how the cynic knows the price of everything and the value of nothing. We have been given proof of it.

By casting a shadow on the public’s perception of what is legal tender, the RBI is destabilising confidence in the rupee

3. GDP growth expected to exceed 7% estimate in FY23, says RBI Governor

India’s GDP growth in 2022-23 may well surpass the 7% estimate, while retail inflation is likely to go below the 4.7% mark this month, Reserve Bank of India (RBI) Governor Shaktikanta Das said on Wednesday.

He added that gross non-performing assets in the banking system are likely to have dipped further in the January to March 2023 quarter.

“I will not be surprised if India’s GDP growth last year turns out to be higher than the 7% estimated earlier,” the Governor said, noting that almost all of the 70 high-frequency indicators monitored by the central bank have maintained growth momentum through the last quarter of 2022-23. The National Statistical Office will release the GDP data for 2022-23 next week.

The RBI’s growth expectation of 6.5% for this year — which Mr. Das noted is higher than the 5.9% projected by the International Monetary Fund — is based on the hope of agriculture doing well, a normal monsoon and a sustained uptick in the services sector, though geopolitical risks, slowing world trade and goods exports remain a risk.

Mr. Das, who was speaking at the annual session of the Confederation of Indian Industry, said that there was a private investment revival under way which was noticeable in sectors such as steel and cement. He added that the industry body’s surveys suggest that capacity utilisation in manufacturing is higher than the 75% level last estimated by the RBI.

“Inflation has moderated to 4.7% in the last print and the next print could be even lower but there us no room for complacency. In February last year, the outlook was very benign, but then we had the big surprise from the Ukraine war. Nobody expected it to happen with such intensity,” Mr. Das said.

Evolving situation

On whether the coming monetary policy review could see another pause in rate hikes, Mr. Das said: “It’s not in my hands. It depends on the situation on the ground as it evolves.”

While some central banks have hit a pause on rate hikes in recent meetings, the Governor pointed out that the Bank of New Zealand had raised interest rates by 25 basis points earlier on Wednesday, while Canada — which had paused hikes — opted to increase rates again recently.

“So, therefore, global monetary policy is still settling down because the inflationary conditions are fast evolving and all central banks are watching it,” he said.

Mr. Das alluded to unaudited fourth quarter results (Jan-March 2023) from banks that suggested gross non-performing assets at the systemic level were even lower than the 4.4% recorded as of December 31, 2022. “But I would not like to mention the number because they are unaudited and we would rather wait for the audited figures,” he added.

4. Independence of judiciary is part of basic structure of Constitution: SC

Judiciary must possess the power to compel payment of money which is necessary to carry out its mandated responsibilities

The Supreme Court has held that the independence of district judiciary is part of the basic structure of the Constitution and judicial independence from the executive and the legislature requires the judiciary to have a say in matters of finances.

“The independence of the district judiciary must also be equally a part of the basic structure of the Constitution. Without impartial and independent judges in the district judiciary, justice, a preambular goal, would remain illusory. The district judiciary is, in most cases, also the court which is most accessible to the litigant,” a three-judge Bench of Chief Justice D.Y. Chandrachud, Justices V. Ramasubramanian and P.S. Narasimha observed in a judgment.

The judgment, based on a petition filed by the All India Judges Association, gave a series of directions to amend the service rules of the district judiciary and for payment of arrears of pension, additional pension, gratuity and other retiral benefits.

The directions were based on the recommendations made in the report of the court-appointed Second National Judicial Pay Commission headed by Justice P.V. Reddi (retired) as its chairman with senior advocate R. Basant as its member.

Crucial role

The judgment records the crucial role played by the district judiciary in the justice administration system by recording the submissions made by its amicus curiae, advocate K. Parameshwar, that “on a single day, the district judiciary handled nearly 11.3 lakh cases”.

Justice Narasimha said the district judiciary was the backbone of the judicial system. “Vital to the judicial system is the independence of the judicial officers. To secure their impartiality, it is important to ensure their financial security and economic independence,” the top court noted.

The judgment highlighted the doctrine that the “judiciary must possess the inherent power to compel payment of those sums of money which are reasonable and necessary to carry out its mandated responsibilities”.

“This doctrine is only the logical conclusion of separation of powers and ensures that the independence of the judiciary is secured,” the court said.

5. How a letter to PMO set off search for Sengol

A letter to the Prime Minister’s Office by dancer Padma Subrahmanyam set off meticulous research into the Sengol leading to the installation of the golden sceptre in the new Parliament building when it is inaugurated on May 28.

Sources in the Culture Ministry said that Dr. Subrahmanyam had quoted an article in the Tamil magazine Thuglak which had carried details of the ceremony in 1947.

The article had appeared in May 2021 and the dancer and researcher had requested the government to make this information public on the occasion of Independence Day that year.

This set the tone for a relook at the historical event and a Culture Ministry team, assisted by experts from the Indira Gandhi National Centre for the Arts (IGNCA), began the research into the reports.

The Sengol ceremony seemingly took place minutes before India’s first Prime Minister Jawaharlal Nehru hoisted the National Flag and made his famous “Tryst with destiny” speech on August 15, 1947. It had been kept at his Prayagraj residence-turned-museum till now.

It was found to have been widely reported in Indian and foreign media at that time including in the Time magazine along with photographs.

“With the nation ravaged by Partition and violence, the ceremony had to be arranged post-haste and it not being a legal or formal matter, remained unrecorded. As a result, the sacred Sengol and its vesting ceremony seem to have disappeared from the institutional memory of the Indian state,” Sachidanand Joshi, Member-Secretary of the IGNCA, told The Hindu.

It was in 2017 that reports again began appearing in the Tamil media about how minutes before Mr. Nehru addressed the nation as the Prime Minister, the Government of India had followed the sacred Sengol-vesting model of Chola kings of Tamil Nadu for transfer of power from the British to Indians.The then Prime Minister had been handed over the Sengol with the Nandi (bull deity) finial amid the singing of the sacred Tamil text Thevaram — symbolic of divine blessings and command to rule justly and fairly.

They found that the golden sceptre was studded with jewels and worth ₹15,000 at that time and was made by Vummidi Bangaru Chetty and Sons, jewellers and diamond merchants of Chennai.

The Vummidi Bangaru Chetty family confirmed that they made the Sengol. Though the eldest member of the family who made it is over 95 years old and is unable to recollect the details, the photograph of the event is kept at their house, the sources said.

6. India set to triple speed of its fastest supercomputers

Pratyush, one of India’s most powerful civilian supercomputers, is housed at the Indian Institute of Tropical Meteorology, Pune.

Processing power to such a degree eases complex mathematical calculations required for accurate weather forecasting

India is set to dramatically scale up its supercomputing prowess and install an 18-petaflop system over the course of this year, Earth Sciences Minister Kiren Rijiju said on Wednesday.

Flops (floating point operations per second) are an indicator of processing speed of computers and a petaflop refers to a 1,000 trillion flops. Processing power to such a degree greatly eases complex mathematical calculations required, for, among other things, forecasting how the weather will be over the next few days all the way up to two or three months ahead.

Currently India’s most powerful, civilian supercomputers — Pratyush and Mihir — with a combined capacity of 6.8 petaflops are housed at the Indian Institute of Tropical Meteorology, Pune, and the National Centre for Medium Range Weather Forecasting (NCMRWF), Noida, respectively. They were made operational in 2018 at an investment of ₹438 crore. Both these organisations are affiliated to the Ministry of Earth Sciences (MoES).

The new supercomputers too will be housed at the two institutes, M. Ravichandran, Secretary, MoES, said at an event on Wednesday when Mr. Rijiju visited the NCMRWF. This was Mr. Rijiju’s first official visit to an MoES institution since taking charge as MoES Minister on May 18.

Imported from France

The new supercomputers, yet to be named, are imported from French corporation, ATOS — an information technology service and consulting company. The Narendra Modi government had signed a deal in December 2018 with France to procure high-performance computers worth ₹4,500 crore by 2025.

The new MoES computers are likely to cost ₹900 crore.

“Every four or five years systems have to be upgraded. Our current high-performance computers allow us to map weather and climate changes to a resolution of 12X12 km,” Mr. Ravichandran said. “With the new system, we can improve resolution to 6X6 km.” This translates to greater clarity and more accurate local forecast. “The goal is eventually to be able to represent an area by 1 km-square grids and that can be used to warn of cloudburst and such rapidly evolving weather systems,” he added.

The fastest high-performance computing system in the world is currently the Frontier-Cray system at Oakridge National Laboratory, United States. This has a peak speed of one exa-flop (or about 1,000 petaflops).

The top 10 other systems, based on speed, range from about 400 petaflops to 60 petaflops.

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