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Q.1) Recently, the Reserve Bank of India’s monetary policy committee decided to maintain status quo on the policy repo rate as it saw inflationary pressure building up in the economy. In this context discuss the factors which are responsible for an uptick in the rates of inflation.(GS-3)

The Reserve Bank of India’s monetary policy committee decided to maintain status quo on the policy repo rate as it saw inflationary pressure building up in the economy. The Monetary Policy Committee (MPC) was headed by RBI Governor Urjit Patel .The decision comes at a time when inflation as measured by the CPI has been accelerating and has topped 4%, the central bank’s medium-term target, for two consecutive months.

Key rates unchanged to:

The repo rate remains at 6.0%, the reverse repo at 5.75% and the bank rate at 6.25%.
The marginal standing facility (MSF) rate and the Bank Rate at 6.25 per cent.
The GVA (gross value added) growth for 2018-19 has been projected at 7.2 per cent .

Factors which might see an uptick in the rates of inflation are given below:

  • Fuel inflation has been on an upward trajectory since July. This acceleration was seen due to an increase liquefied petroleum gas (LPG), kerosene, coke and electricity prices.
  • The staggered impact of Housing and Rent Allowance (HRA) by the various state governments may push up headline inflation further with ripple effects for the year ahead.
  • Due to rise in food prices in November and lower than expected moderation of winter food prices and as well the increase in HRA.
  • There was also the domestic rise in the prices of petrol and diesel rose in January. The prices rose due to the earlier increase in international crude oil prices which are being reflected in the country’s fuel prices.
  • The inflation outlook also factored an increase in the industrial raw material prices. This would lead to the rising costs passed on to consumers as the economy grows.
  • The increase in customs duty and the increase in fiscal slippage could impinge on the inflation outlook.
  • Revised guidelines for minimum support prices of kharif crops.
  • The MPC also noted that further risks to inflation in India could come from the broader financial volatility in global market. The volatility index (VIX) has climbed to its highest level since Brexit.
  • The impact of fiscal developments and normalisation of monetary policy by major advanced economies.

Q.2) The Union Budget has reinforced the correction of the Inverted Duty Structure (IDS) which has adversely impacted manufacturing for decades. In this context discuss the meaning of Inverted duty structure and also highlight the concern areas from this structure.(GS-3)

The Union Budget has reinforced the correction of the Inverted Duty Structure (IDS) which has adversely impacted manufacturing for decades.

Inverted duty structure:

  • An IDS means higher duty on intermediate as opposed to final/finished goods, with the latter often enjoying concessional custom duty under some schemes.
  • Inverted duty structure is a situation where import duty on finished goods is low compared to the import duty on raw materials that are used in the production of such finished goods.
  •  For example, suppose the tariff (import tax) on the import of tyres is 10% and the tariff on the imports of natural rubber which is used in the production of tyres is 20%; this is a case of inverted duty structure.

Concerns associated with IDS:

  • When the import duty on raw materials is high, it will be more difficult to produce the concerned good domestically at a competitive price.
  • Several industries depend on imported raw materials and components.
  • High tax on the raw materials compels them to raise price.
  • Foreign finished goods will be coming at a reduced price because of low tax advantage.
  • Manufactured goods by the domestic industry becomes uncompetitive against imported finished goods.
  • The disadvantage of the inverted duty structure increases with the increased use of imported raw materials.
  • An inverted duty structure discourages domestic value addition.

Key concerns:

  • Chinese/other imports have swamped India’s small- and medium-sized enterprises and large manufacturing companies, raising the import-intensity of manufacturing as well as dampening job growth by raising capital intensity.
  • The goods and services tax (GST), especially the IGST or Integrated GST component, has begun to erode the advantage that the IDS was giving to foreign exporters in Indian markets.
  • Customs duties have been raised on capital goods and electronics, and silica for use in manufacture of telecom grade optical fibre.
  • These have been among the sectors adversely impacted by the IDS in the past 10 years or so.

Q.3)Write a short note on any two of the following:

a) Agni-1

b) Development of Solar Cities scheme:

c)  Prime Minister’s Research Fellows (PMRF) Scheme

Agni-1

India successfully test-fired its short-range nuclear capable ballistic missile Agni-1 with a strike rang of over 700 km from a test range off the Odisha coast.

Key facts about Agni-1

  • The 15-metre-long Agni-I weighing 12 tonne can carry payloads up to 1,000 kg.
  • The Strategic Forces Command of the Army conducted the user trial of the 700 km range missile from launch pad-4 of the Integrated Test Range (ITR) at Abdul Kalam Island in Balasore.
  • The missile was inducted into service in 2004.
  • The surface-to-surface, single stage missile, powered by solid propellants, was launched as part of a regular training exercise by the armed forces.
  • The sophisticated Agni-I missile is propelled by a solid rocket propellant system
  • It was also equipped with a specialised navigation system that ensures it reaches the target with a high degree of precision.
  • It has proved its excellent performance in terms of range and accuracy.
  •  The last trial was successfully conducted on November 22, 2016 from the same base.

Development of Solar Cities scheme:

  • The Ministry of New and Renewable Energy is implementing a programme on ‘Development of Solar Cities’.
  • The programme aims to reduce a minimum of 10% of the projected demand of conventional energy of the city through renewable energy installations and energy efficiency measures.
  • Sixty Cities are proposed to be developed as Solar Cities during the Eleventh Plan period including four Model Solar Cities and 10 Pilot Solar Cities.
  • The Master plan for each Solar City is being prepared to assess and utilize various renewable sources including Solar, Wind, Municipal Waste etc.
  • The criteria set by the ministry for the identification of cities include a city having population between 50,000 to 50 lakh (with relaxation given to special category states including northeast states), initiatives and regulatory measures already taken along with a high level of commitment in promoting energy efficiency and renewable energy.

Why in news?

The Ministry of New and Renewable Energy under its scheme “Development of Solar Cities” has approved/sanctioned 60 Cities including 13 Pilot and 5 Model Cities up to 12th Five-year Plan period.

Prime Minister’s Research Fellows (PMRF) Scheme:

In news:

The Union Cabinet has approved implementation of Prime Minister’s Research Fellows (PMRF) Scheme for doctoral students pursuing research in areas related to technology.

Prime Minister’s Research Fellows (PMRF) Scheme:

  • The fellowship scheme was announced in the Budget Speech 2018-19.
  • It will be implemented for period of for period of seven years beginning 2018-19
  • Each selected fellow students will be also provided research grant of Rs.2.00 lakh for period of 5 years to cover their foreign travel expenses for presenting research papers in international conferences and seminars.
  • The scheme will help tapping talent pool of country for carrying out research indigenously in cutting edge science and technology domains.
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