Weekly Current Affairs Update for IAS Exam VOL. - 62 (02nd February 2015 TO 08th February 2015)

Weekly Current Affairs Update for IAS Exam

VOL. - 62 (02nd February 2015 TO 08th February 2015)

Issue : VOL. - 62 (02nd February 2015 TO 08th February 2015)


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Covered Topics:

:: Ministry of External Affairs ::

Keynote Address by External Affairs Minister Smt. Sushma Swaraj at the Inaugural Session of Delhi Dialogue VII in New Delhi

Following is the text of the Keynote Address by the External Affairs Minister Smt. Sushma Swaraj at the Inaugural Session of Delhi Dialogue VII in New Delhi today:

H. E. General Tanasak, Deputy Prime Minister and Minister of Foreign Affairs of Thailand,

H.E. Dr. Naron, Minister of Education, Youth and Sport of Cambodia,

H.E. Mr. Fachir, Vice Foreign Minister of Indonesia,

H.E. Mr. Lwin, Deputy Foreign Minister of Myanmar,

H.E. Dr. Mochtan, Deputy Secretary General of ASEAN

Hon'ble Chief Minister of Arunachal Pradesh, Shri Nabam Tuki

Hon'ble Chief Minister of Manipur, Shri Okram Ibobi Singh,

Hon'ble Minister for Planning and Development of Assam, Ms. Ajanta Neog,

Representatives from Brunei Darussalam, Lao PDR, Malaysia, Philippines, Singapore and Vietnam

Distinguished Guests,

Ladies and Gentlemen,

1. I extend a warm welcome to all of you to the seventh edition of the Delhi Dialogue.

2. Over the past six years, the Delhi Dialogue has emerged as India’s pre-eminent, ASEAN-centric Track 1.5 forum where we, the policy makers, along with stalwarts from academia and think tanks, from both India and ASEAN Member States, have been exchanging ideas and perspectives on how we can build upon the robust partnership that already exists between India and ASEAN. This has benefited us tremendously.

3. For ASEAN, the year 2015 is a key milestone in its journey towards establishing a close-knit ASEAN Community. It also coincides with a decade of the East Asia Summit process - an ASEAN-driven, Leaders-led forum, to address strategic, political and economic issues of regional and global import.

4. For us too, the year has started with a new development in our relationship with ASEAN. In January this year we established our independent Mission to ASEAN, which is reflective of our commitment to further intensify our engagement with the ASEAN. We also expect that the ASEAN-India Agreements on Trade in Services and Investment signed last September will enter into force later this year. This will complete our Free Trade Area with ASEAN and bring greater economic integration between our countries.

5. The new-found salience of our engagement with our eastern neighbourhood and beyond is evident from the fact that at the 12th India-ASEAN Summit and 9th East Asia Summit in Myanmar in November 2014, our Hon’ble Prime Minister, Shri Narendra Modi underscored our Government’s resolve to move with a great sense of priority and speed to transform India’s hitherto ‘Look East Policy’ into an ‘Act East Policy.’

:: National News ::

Section 66A a necessary deterrent, says government

  • The government argued before the Supreme Court that Section 66A of the Information Technology Act should be interpreted on a case by case basis.

  • In arguments which continued through the day before a Bench led by Justice J. Chelameswar, the government was addressing the court’s view that the penal provision was too vague. Section 66A prescribes a three-year jail term to a person found guilty of causing “annoyance or inconvenience” through social media.

  • The court had asked the government to explain what constituted “grossly offensive.” The government maintained that the provision was a necessary deterrent and could not be cast away on the apprehension that it would be misused to affect the freedom of speech and expression.

  • The court is hearing a bunch of petitions challenging the validity of certain provisions in the 2000 Act. One of the petitions filed is by Shreya Singhal, a law student, which deals with the arrest of two girls, Shaheen Dhada and Rinu Shrinivasan, in Thane, Maharashtra, in connection with a comment against the shutdown in Mumbai following Shiv Sena leader Bal Thackeray’s death.

Panel against trying juveniles as adults

  • A Parliamentary Standing Committee has taken on board civil society’s apprehensions of treating 16-to-18-year-olds as adults in cases of heinous crimes, and called for a review of this provision in The Juvenile Justice (Care and Protection of Children) Bill, 2014, introduced in the Lok Sabha in August.

  • This amendment to the JJ Act is among the slew of changes that the UPA Government had initiated in various laws of the country following the huge public outcry over the Delhi gang rape.

  • A juvenile was among the accused and the brutality of his actions prepared the ground for proposing differential treatment to juveniles in the 16-18 age group in case of heinous crimes.

  • In its report in the Lok Sabha, the Parliamentary Standing Committee on Human Resource Development recommended that all relevant clauses dealing with Children’s Courts, and differential treatment of children between 16 and 18 years need to be reviewed as subjecting them to an adult judicial system goes against Articles 14 and 15(3) of the Constitution.

Mufti, Modi to seal deal

  • Peoples Democratic Party patron Mufti Mohammad Sayeed will meet Prime Minister Narendra Modi in New Delhi to formally seal the PDP-BJP deal to form the next government in Jammu and Kashmir.
  • Sources confirmed that the swearing-in ceremony will be held in Jammu on March 1.
  • After reports of last-minute hitches between the two parties, there were rumours that the Mufti-Modi meeting might be rescheduled, but PDP and BJP sources confirmed that all issues have been sorted out.
  • The two parties, formerly seen as poles apart, have decided to come together on an ‘agenda of alliance.’
  • Both the parties have climbed down from their stated positions to form the alliance amid criticism from various quarters.
  • More than the BJP, it is the PDP that has been criticised in the Valley for first asking the people to vote against the BJP and then allying with it.
  • Jammu and Kashmir has been under the Governor’s rule for almost two months now, and with the new coalition, the BJP will taste power in the State for the first time.
  • While Mr. Sayeed will be the Chief Minister for the entire term of six years, BJP’s Nirmal Singh is likely to be the deputy Chief Minister.

Govt. digs in heels on land ordinance

  • A day after Surface Transport Minister Nitin Gadkari sought to make out a case for the government’s land ordinance at a press briefing, Finance Minister Arun Jaitley made a spirited defence of the land reforms that have been denounced as “anti-farmer” and “pro-corporate” by a united Opposition and civil society groups.

  • Mr. Jaitley’s speech in the Rajya Sabha is being read as the government’s definitive stand, the position that Prime Minister Narendra Modi has decided to take on this controversial issue.

  • Sources said Mr. Modi is absolutely clear that he will not allow major changes to what he sees as one of his key reforms.

  • In discussions with Cabinet colleagues on how to tackle the dissent, Mr. Modi indicated that an all-party meeting would serve little purpose since the Opposition had shown no signs of softening.

  • Worse, BJP allies Shiromani Akali Dal, Shiv Sena and Lok Janshakti Party also expressed their reservations. Now it is learnt that another NDA partner, the Rashtriya Lok Samata Party, is poised to do the same.

  • Against this backdrop of a hardened stand, Mr. Jaitley made a frontal attack on the Congress, under whose watch the Land Acquisition Act — that this government is seeking to amend — was enacted in 2013.

President clears Amitava Roy’s elevation as SC judge

  • Flagging it as proof that there is no friction between the government and the highest judiciary in appointment of judges, the government has acted quickly to get the President’s approval for the elevation of Chief Justice of Orissa High Court Amitava Roy as a Supreme Court judge.
  • The notification on his appointment would be issued as soon as the papers reached the Law Ministry from the President’s office.
  • Union Law Minister V. Sadananda Gowda said the judicial appointments through the collegium system would continue for the time being.
  • The apex court had two more vacancies and there were several vacancies to fill in the various High Courts.
  • With the appointment of 62-year-old Justice Roy, the strength of judges in the Supreme Court climbs to 29. The sanctioned strength is 31.

Bureaucrats reshuffled

  • The Narendra Modi-led Appointments Committee of the Cabinet approved a series of Secretary-level transfers.

  • Secretary, Department of Health and Family Welfare, Bhanu Pratap Sharma, has been given additional charge of Department of Health Research for three months, whereas Siraj Hussain has been shifted as Secretary, Department of Agriculture and Cooperation from the Ministry of Food Processing Industries.

  • Special Secretary, Department of Agriculture and Cooperation, Ranglal Jamuda, has been appointed Secretary, Ministry of Food Processing Industries, in place of Mr. Hussain.

  • S.M. Vijayanand, Special Secretary in the Department of Rural Development, has been made Secretary, Ministry of Panchayati Raj, whereas Jugal Kishore Mohapatra, Secretary, Department of Fertilisers, has been appointed Secretary, Department of Rural Development.

:: International News ::

U.K. mulls proposal to raise new Sikh regiment

  • The British Army is examining proposals to re-establish a Sikh Regiment, along the lines of the erstwhile British Indian Army.
  • Chief of the general staff, General Sir Nicholas Carter, is looking into the feasibility of a Sikh unit, including the possibility of a reserve company, and it “may well have merit,” U.K. armed forces minister Mark Francois told the House of Commons recently.
  • A new unit would inherit many of the “proud traditions of Sikh regiments” from the army’s past, he said.
  • Latest figures show the British armed forces have around 160 Sikhs in their ranks, including 130 in the army.
  • Thousands of Sikhs had served in the British Indian Army during the two World Wars. They were known for their bravery and gallantry and won as many as 10 Victoria Crosses, the highest British battlefield honour.
  • In 2007, the U.K.’s Ministry of Defence had scrapped a similar plan after the Commission for Racial Equality warned it could be seen as divisive and perceived as “segregation“.
  • The Network of Sikh Organisations said it was in favour of a Sikh unit.

Iranian wins award for ‘giving voice to the voiceless’

  • An Iranian journalist has received a human rights award in Geneva for creating a Facebook page inviting women in Iran to post pictures of themselves without their headscarves in defiance of rules requiring them to wear a hijab .

  • Masih Alinejad (38) launched Stealthy Freedoms of Iranian Women last year, attracting more than half a million likes on Facebook in a matter of weeks. Thousands of women took off their veils in public and sent in their photos to be published.

  • The Geneva Summit for Human Rights and Democracy, a group of 20 non-governmental organisations, gave Ms. Alinejad its women’s rights award for “giving a voice to the voiceless and stirring the conscience of humanity to support the struggle of Iranian women for basic human rights, freedom and equality.”

  • Ms. Alinejad’s campaign, reported in the Guardian last May, irritated Iranian authorities, and state-affiliated media launched a smear campaign accusing her of using recreational drugs or being perverse.

  • Ms. Alinejad said she was delighted to win the award and hoped it would raise awareness about Iranian women demanding basic rights.

  • Ms. Alinejad, who lives in exile, told the Guardian last year that she was not opposed to the hijab and that her mother was veiled, but she had created the page because she wanted people to have the freedom to choose.

  • A year after it was created, the Facebook page has more than 760,000 followers and still receives photos from Iran.

  • Many Iranian men have also supported the campaign. One man took a picture of himself along with his mother while she was without veil last week, saying they were both against compulsory hijab .

China’s draft anti-terrorism law high on privacy and human rights

  • China is drafting an ambitious counterterrorism law, which seeks to address concerns over privacy and human rights, without losing the sting to target international terror groups.
  • The draft law has taken into account the Charlie Hebdo terror incident in France, the Copenhagen strike, as well as the essence of the Global War on Terror (GWOT) led by the United States.
  • Besides, the legislation has been sensitised by last year’s deadly terror attack, at Kunming station, in the country’s Yunnan province, which left 29 people dead, and scores injured
  • The draft advocates establishing mechanisms that would ensure that access to private phone and Internet records goes through a strict approval procedure.
  • The information that is gathered should also be used solely for the purpose of counterterrorism and not otherwise. A similar approval must also be obtained to inquire into, seal up, seize or freeze assets.
  • The new law is being drafted at a time when Chinese President Xi Jinping has been calling for firmly implanting the rule of law as the anchor for China’s national rejuvenation.
  • Chinese state-media has been reporting that the President has been advocating, “Four Comprehensives” — a moderately prosperous society, reform, rule of law, and Party discipline — as the blueprint for China's future.
  • It challenges the western narrative on counterterrorism and human rights by pointing to a more rational Chinese alternative.
  • Besides, it hopes to shore up CPC’s legitimacy, especially among China’s cyber connected youth. President Xi is well aware of the dangers of a widening legitimacy gap in his country.

:: Business and Economy ::

Rajan warns against ‘Appellate Raj’

  • In a veiled attack on suggestions made by the government-appointed Financial Sector Legislative Reforms Commission (FSLRC) panel for overhaul of financial sector laws, Reserve Bank of India Governor Raghuram Rajan, said the country should not end up in ‘Appellate Raj’ after escaping the ‘License Permit Raj.’
  • The comments assume significance in the wake of the high-profile FSLRC having suggested creating a single appellate authority for all financial sector watchdogs, including the RBI.
  • The proposal, which was aimed at providing checks and balances for decisions made by the regulators, has been hanging fire for a long time due to opposition from various quarters, including the RBI.

New accounting standard rules notified

  • Moving closer to the implementation of new accounting norms, the government has notified the rules for the Indian Accounting Standards (Ind AS), which will be mandatory for companies from April 1, 2016.
  • Ind AS norms, which are converged with global standards IFRS, can be followed by corporates on a voluntary basis from April 1, this year.
  • For companies having net worth of Rs.500 crore or more, the new norms would be mandatory from April 1, 2016. In a notification, the Corporate Affairs Ministry said the ‘Companies (Ind AS) Rules 2015’ would come into force with effect from April 1. Last month, the ministry had announced the Ind AS roadmap.

Industrialist Bhadrashyam Kothari passes away

  • Mr. Bhadrashyam Kothari, prominent industrialist and Chairman and Managing Director, Kothari Sugars and Chemicals, died at Houston, in the U.S., after a brief illness. His passing was peaceful, surrounded by his family members. He was 53.
  • As an industrialist, he brought to bear a visionary leadership to his group and displayed a pioneering spirit in venturing into new areas opened up by the economic reforms. He was also deeply involved in philanthropy and the promotion of education.

Common Floor launches new solution

  • Online real estate platform CommonFloor launched its virtual reality application CommonFloor Retina.
  • The application, available for customers using Android platforms, will allows buyers to view and assess builder properties.
  • According to a press release, the solution offers ‘real’ property experience for the seekers allowing them to view or review and assess multiple properties from anywhere at any point of time.
  • At present, the feature is only available on Android phones like Nexus 4, MotoG 2nd Gen, Samsung Galaxy 4, MotoX, One Plus and Xiaomi Mi3.

Cabinet approves agreement on BRICS development bank

  • The Union Cabinet, chaired by Prime Minister Narendra Modi, gave approval for establishing the New Development Bank (NDB) and the BRICS Contingent Reserve Arrangement (CRA).

  • Heads of the five nation BRICS group — Brazil, Russia, India, China and South Africa — decided at their sixth summit in Fortaleza in July last year to create a development bank as well as a reserve fund to finance infrastructure projects and other sustainable development projects.

  • The $100 billion BRICS CRA would help countries deal with short-term liquidity pressures, provide mutual support and further strengthen financial stability.

  • The agreement will enter into force and the Bank begin operations only after all member-countries deposit their instruments of ratification with Brazil.

  • The release added that signing of the agreement for the establishment of the New Development Bank was expected to allow India to raise and obtain more resources for the much-needed infrastructure development, the lack of which was coming in the way of inclusiveness and growth.

  • Besides, the governance structure and decision-making in the Bank would be equitable unlike the existing multilateral development banks, it added.

  • India will hold the Presidency of the New Development Bank for the first six years. The Bank will be based in Shanghai, China’s financial hub.

:: Science and Technology ::

Too many waiting for blood stem cell transplants: Study

  • Over a million people have received blood and marrow stem cell transplants for life-threatening diseases in the past 57 years, but too many are still waiting, a study said.

  • Haematopoietic stem cell transplantation (HSCT) often offers the only possibility of a cure for blood diseases and rare cancers like myeloma or leukaemia.

  • The procedure involves taking healthy stem cells from the blood or marrow of the patient or from a healthy donor, with which to boost the system of someone whose blood-manufacturing bone marrow or immune system is damaged or defective.

  • By 1985, 28 years after the first experimental marrow transplant, about 10,000 such procedures had been performed, rising to 500,000 by 1995, said a study in The Lancet Haematology journal.

  • By December 2012, that number had risen to almost a million at 1,516 transplant centres in 75 countries.

  • The analysis found huge discrepancies between rich and poor countries. Of the HSCTs performed, 52.5 per cent were in Europe, 31 per cent in the Americas, 15 per cent in southeast Asia and the western Pacific, and less than two per cent in the eastern Mediterranean and Africa.

  • The study found that transplant material came from donors in 42 per cent of cases.

  • The number of countries with donor registries increased from two in 1987 to 57 in 2012, and volunteer donors from 3,072 to over 22 million in the same period.

:: Sports ::

ATP & WTA Rio Open: Gilles Simon takes title

  • Fabio Fognini stuns Rafael Nadal in semifinals. Gilles Simon won the Marseille Open title for the second time on Sunday defeating fellow Frenchman Gael Monfils in three sets in the final.

Kerala wins overall title

  • Kerala won the overall championship in the 67th National track cycling championship which concluded at the LNCPE Velodrome here .
  • Kerala came first with 143 points, while Maharashtra finished second with 78.
  • Amrit Singh of RSPB was chosen the ‘best cyclist’ among men, while Deborah of Andaman and Nicobar was ‘best cyclist’ among women.

Sports awards scheme revamped

  • In order to do away with controversies surrounding the selection process for the annual National sports awards in future, the Union Sports Ministry has revamped the scheme.

  • According to the new provisions, the selection committee for the Arjuna Award will be headed by a retired Supreme Court or High Court judge, and not more than one sportsperson/coach from a particular discipline shall be a member of the panel to avoid any bias towards any particular discipline.

  • A sportsperson of eminence/sports administrator/sports expert belonging to para sports will now be a member of the Arjuna Award selection panel.

  • Besides, the new provisions want the nomination agencies to send nominations of deserving sportspersons and coaches, irrespective of whether they have applied to these agencies for this purpose.

  • The ministry, which has accepted most of the suggestions given by last year’s Arjuna Award selection committee headed by Kapil Dev, has said that more marks will be given for medals won in individual events.

  • The ministry has reduced marks for weightage of performances from 90 to 80 per cent in case of Rajiv Gandhi Khel Ratna, Arjuna and Dronacharya awards.

  • From now, the proceedings of the selection committees will be video-graphed, a detailed internal Standard Operating Procedures (SOPs) will be followed to deal with nominations received from National Sports Federations and views of experts of various disciplines will be obtained for shortlisted nominations in team games.

India to host world bridge

  • For the first time, India will play host to the biggest event of bridge event — the 42nd world team championships (WBTC) at ITC Grand Chola here from September 26 to October 10.
  • HCL is the title sponsor for the tournament. Sixty-six teams, 660 players from 40 countries will vie for the prestigious Bermuda Bowl Trophy.
  • Giannarigo Rona, President, World Bridge Federation, who is in the city to oversee the preparations for the WBTC 2015, said he was very impressed with the top class infrastructure available in Chennai to host such a big event.

:: Selected Editorials of Importance ::


Development was a key issue in the 2014 Lok Sabha election. In his very first speech after taking over as Prime Minister, Narendra Modi asserted that his government is committed to carrying on development as a people’s movement. This, he has asserted, will draw upon India’s democratic, demographic and demand dividends. But are we genuinely moving towards organising development as a people’s movement while building on these strengths? To cater to India’s massive population of consumers, people should have adequate purchasing power, such as that enjoyed by people employed in the industries or services sector. Unfortunately, as the malnourishment statistics indicate, a vast majority of Indians are poor, with barely 10 per cent employed in the organised sector. We are being convinced that vigorous economic growth is generating substantial employment. But this is not so.

When our economy was growing at 3 per cent per year, employment in the organised sector was growing at 2 per cent per year. As the economy began to grow at 7-8 per cent per year, the rate of growth of employment in the organised sector actually declined to 1 per cent per year since most of the economic growth was based on technological progress, including automation. At the same time, the increasing pressure of the organised sector on land, water, forest and mineral resources has adversely impacted employment in farming, animal husbandry and fisheries sectors. People who are being pushed out of these occupations are now crowding in urban centres. This is in turn leading to a decline in the productivity of the organised industries and services sector. Evidently, the ship of our development is sadly adrift.

Undoubtedly, people aspire for development. But what is development? Joseph Stiglitz, a recipient of the Nobel Prize in Economics and one-time chairman of Bill Clinton’s Economic Advisory Council, offers an insightful analysis, asserting that development should result in an enhancement of the totality of a nation’s four-fold capital stocks: the capital of material goods, natural capital such as soil, water, forests and fish, human capital including health, education and employment, and social capital comprising mutual trust and social harmony. Our current pattern of economic development is by no means a balanced process resulting in the overall enhancement of the totality of these stocks.

Thus, for instance, mining in Goa has severely damaged the State’s water resources and caused high levels of air and water pollution. The ever-increasing content of metals in drinking water reservoirs has adversely impacted health. When thousands of trucks were plying ore on the roads of Goa, the resulting chaos in traffic and accidents seriously disrupted social harmony. Evidently, the single-minded focus on industrial growth is not leading to sustainable, harmonious development, but merely nurturing a money-centred violent economy.

In Chandrapur and Gadchiroli districts of Maharashtra, both of which are Naxal-torn, there are hopeful examples emerging of how development may be nurtured as a people’s movement. A number of tribal and other traditional forest-dwelling communities of these districts now have management rights over Community Forest Resources under the Forest Rights Act. The state retains ownership over such resources, and these cannot be diverted to other purposes. But now these resources are being managed holistically with a fuller involvement of the people. The citizens of Pachgaon, for instance, have, through two full-day meetings of their entire Gram Sabha, decided upon 40-odd regulations. Tendu leaves are a major forest produce, but their harvest entails extensive lopping and setting of forest fires.

So, Pachgaon has decided to forego this income and instead focus on marketing the edible tendu fruit. By stopping the collection of tendu leaves, the trees are healthier and both fruit yield and income from its marketing have gone up. Incomes from bamboo harvest have also gone up manifold, and for the first time the people are moving out of the earlier precarious existence. Notably, they have on their own initiated protecting part of these forests as newly constituted sacred groves. Such community management of forest resources is the only sane way to combat extremism, and I have every hope that the new government, with its commitment to making development a people’s movement, will wholeheartedly support these initiatives.

Furthermore, Goa could revive its currently stagnating mining business through novel people-oriented initiatives such as the proposal from the tribals in Caurem village in Goa’s Quepem taluka. There, extensive community lands that harbour a large sacred grove — lands that ought to have been assigned as Community Forest Resources — have been encroached upon by palpable illegal mining, which has damaged water resources, affected farming, and created social dissonance. The mines are currently closed because of the illegalities, and the Gram Sabha has unanimously resolved that if they are to be restarted, this should be done through the agency of their multi-purpose cooperative society.


Inflation targeting is back in the news and this is welcome. I have always held the view that the dominant objective of monetary policy is the maintenance of price stability. Inflation targeting gives precision to the concept of price stability. In any monetary policy framework, a key ingredient is an enunciation of its objectives. This aspect has assumed increased significance in the context of the stress being laid on the autonomy of central banks. Autonomy goes with accountability, and accountability in turn requires a clear statement of goals. The case of price stability as the major objective of economic policy rests on the assumption that volatility in prices creates uncertainties in decision-making. Rising prices adversely affect savings while making speculative investments more attractive. These apart, there is a crucial social dimension, particularly in developing countries. Inflation adversely affects those who have no hedges against it, and this includes all poorer sections of the community. This is indeed a very strong argument in favour of the maintenance of price stability in emerging economies. A crucial question that arises in this context is whether the pursuit of the objective of price stability by monetary authorities undermines the ability of the economy to attain other objectives such as growth. In short, the question is whether there is a trade-off between inflation and growth. There is a general consensus that over the medium and the long term, there is no such trade-off and an environment of low inflation is most conducive to faster economic growth. However, there could be such a possibility in the short term. By injecting greater demand and thereby generating higher inflation, higher growth may be achieved. However, to sustain this growth, the authorities may have to generate higher and higher inflation. This will end up as a self-defeating exercise.

What then is the tolerable level of inflation? At very low levels of inflation, there may not be any adverse consequences on the economy. However, in every economy, given its structure, there is always a certain level of inflation beyond which costs of inflation begin to rise steeply. It is this inflation threshold which can provide guidance to policymakers. Interestingly, the Chakravarty Committee, of which I was a member, regarded the acceptable rise in prices as 4 per cent. Several studies in the Indian context have estimated that the threshold level of inflation may be around 6 per cent.

Does the focus on inflation targeting by monetary authorities mean a neglect of other objectives such as growth and financial stability? Hardly so. What inflation targeting demands is that when inflation exceeds the threshold level, the primary focus of monetary policy must be to bring it back to the desired level. It is sometimes claimed that the financial crisis of 2008 in the United States and western Europe sounded the death knell for inflation targeting. There is continuing debate on whether the crisis was precipitated by monetary policy failure or regulatory failure. Countries like Canada and Australia, which were committed to inflation targeting, were not caught in the crisis.

Can the Reserve Bank of India (RBI) or for that matter any central bank effectively implement an inflation mandate? Do they have enough instruments to achieve the goal? The ability of the central banks to control inflation when such inflation stems from excess demand is normally conceded. It is when inflation is triggered by supply shocks that some doubts are raised. Such supply shocks are most common in countries like India where agricultural production is subject to the vagaries of nature. Even when inflation is triggered by food inflation, monetary policy and fiscal policy have a role to play. If food inflation lasts long, it gets generalised. Wages rise leading to a general cost push inflation. If head line inflation exceeds the acceptable level, monetary policy must act at least to ensure that the return on financial assets is positive in real terms. In a situation of supply shocks, it may take longer for monetary policy to bring down inflation. The recent experience with inflation in our country is a good example of this. That is why the inflation mandate must provide for a range and a time frame for adjustment which should not be too short. Nevertheless, monetary policy must act irrespective of what triggered inflation. Obviously, supply side management is needed in situations of supply stock and that should be the responsibility of the government. The second issue relates to an appropriate price index which should be used to monitor inflation. In India, we have monitored inflation by mostly looking at the wholesale price index. That was because of the easy availability of this index. Until recently, we have had no composite retail price index. Since the objective of inflation targeting is to minimise the impact of price rise on people, the appropriate index will be retail inflation.

The third issue relates to institutional arrangements within the monetary authority to take policy decisions consistent with an inflation mandate. In several countries, a technical monetary policy committee is constituted with members drawn from the central bank, from the government and from outside experts. My preference would be to constitute a committee of the board of the RBI to do this. This is what was done when the Board for Financial Supervision was set up. While constituting the central board of the RBI, this aspect of the work of the bank must also be kept in view. Inflation targeting re-emphasises the primacy of price stability as the objective of monetary policy. Given the rigidities in the economy and the lags in policy impact, it must be operated with flexibility.

:: MCQs ::

:: National ::

Q. 1

1. The Law Commission recommended that the government to set up special commercial courts for the speedy disposal of “high value commercial suits” and suggested “substantial” changes in the Civil Procedure Code.
2. The Commission has also included a draft Bill, “the Commercial Division and Commercial Appellate Division of High Courts and Commercial Courts Bill, 2015” and suggestions for substantive procedural changes in the form of amendments to the Civil Procedure Code, 1908.

Which of the following statements is/are true-?

a) Only 1
b) Only 2
c) Both 1 & 2
d) Neither 1 nor 2

Q. 2

1. The Supreme Court issued notice to the government and the CBSE on a plea to make ‘Moral Science’ compulsory from Class 1 to 12.
2. Moral Science should be made compulsory to “include moral values and nurture national character in the national interest.”

Which of the following statements is/are true-?

a) Only 1
b) Only 2
c) Both 1 & 2
d) Neither 1 nor 2

Q. 3

1. The Maharashtra Cabinet approved the proposal to purchase the three-storey bungalow of Babasaheb Ambedkar in London.
2. The house will be converted into an international memorial and will be maintained by the Union government.

Which of the following statements is/are true-?

a) Only 1
b) Only 2
c) Both 1 & 2
d) Neither 1 nor 2

Q. 4

1. The Supreme Court refused to interfere with the CBI investigation into the Saradha chit-fund scam in which top Trinamool Congress leaders are accused.
2. The court refused to entertain a contempt plea filed against Ms. Banerjee and a Minister for allegedly preventing the CBI from conducting its probe.

Which of the following statements is/are true-?

a) Only 1
b) Only 2
c) Both 1 & 2
d) Neither 1 nor 2

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