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GS 2

India and neighbors

The Manila envelope:


  • India has decided to provide a financial assistance of $5,00,000 (Rs. 3.2 crore) to the Philippines to aid its fight against the Islamic State (IS) affiliated terror groups in the troubled Mindanao province.

Emerging Security Provider

  • For the first time India is sending assistance to another nation to help it fight terrorism, thereby becoming an important marker as an emerging security provider to the wider Asian region.

Under the present government, India has taken a tough stand on Pakistan’s support for terrorism by underscoring its concerns at various international fora.

  • In this context, India’s support to Manila shows a newfound sense of urgency in standing shoulder to shoulder with other victims of terror, even when the source of the problem is different.

The siege of Marawi

  • The siege of Marawi, about 800 km south of the capital Manila, began in May with the Philippine security forces launching an attack to capture Isnilon Hapilon, leader of the IS-affiliated Abu Sayyaf group.
  • Despite the military invasion, militants remain in control of Marawi which is viewed as key to their efforts to create an IS province.
  • The civilian toll has been rising, with more than 500 people killed and nearly 4,00,000 civilians displaced.
  • Philippine President Rodrigo Duterte has taken a hard line, vowing to “crush” the militants and declaring martial law over the entire southern Philippines. Yet, the end of the conflict is not in sight.

How is India helping Philippines?

  • India has expressed its concerns at the situation and used this crisis to enhance its anti-terror and de-radicalization partnership with the Philippines.
  • India is also conducting cybersecurity training for the Philippine security forces, focusing on de-radicalization.
  • Providing the financial aid, India has emerged as the largest supporter in efforts to contain the crisis.

India – Philippines equation

  • India’s engagement with the Philippines is also key to highlighting its growing role in Southeast Asia where China’s rise has already created serious challenges for the wider region.
  • The regional security architecture is under strain as China’s divide-and-rule policy has made it difficult for regional states to put up a united front.
  • Many states have suggested that India needs to play a larger role.
  • As India and the Association of Southeast Asian Nations (ASEAN) celebrate 25 years of their partnership this year, it is a politically opportune moment to upgrade India’s regional profile.
  • The Philippines has also been trying to recalibrate its ties with China, under stress because of a suit brought by Manila to the Permanent Court of Arbitration in The Hague challenging Beijing’s claim to almost all of the South China Sea.
  • Though Manila won the case last year, it has not been able to push Beijing to restrain its stance on the maritime dispute.
  • Meanwhile, Mr. Duterte visited China last October and signed deals worth $24 billion in infrastructure investment and loan pledges.
  • India cannot easily match China’s growing economic profile but it has other means to build partnership with a very important region in its foreign policy matrix.
  • The recent outreach to Manila is an important step in that direction.

GS 3

Pollution and conservation

5 chemicals banned in firecrackers:


  • The Supreme Court prohibited the use of five chemicals, labelled as toxic by the Central Pollution Control Board (CPCB) ahead of the festive seasons of Dussehra and Deepavali.

Judicial remark

  • A Bench of Justices Madan B. Lokur and Deepak Gupta gave the order, that no firecrackers manufactured by the respondents shall contain antimony, lithium, mercury, arsenic and lead in any form whatsoever.
  • The court asked the CPCB to clarify the use of strontium, another chemical branded toxic by the pollution body, in firecrackers. However, Manufacturers denied using strontium.
  • The court gave the CPCB time till 15th September to entail all detailed information on the environmental impact, especially air pollution, caused by firecrackers, private manufacturers.
  • Manufactures, on their defense, tried reasoning that firecrackers are not the only source of pollution.
  • Petroleum and Explosive Safety Organization (PESO) will be responsible to ensure compliance particularly in Sivakasi.
  • The order came after the court heard the submissions from officials of the CPCB and PESO, Firework Research and Development Centre at Sivakasi in Tamil Nadu

Indian Economy. Planning, Growth and Employment

The Reserve Bank is off target:


One of the significant actions of the government of the day is to have moved monetary policy in India onto a “modern “plane.


  • The RBI has been reconfigured as an ‘inflation-targeting’ central bank. As part of this arrangement, it has been set an inflation target of 4%.
  • Consumer price inflation has now declined to 1.5% in June, though only 0,.5% below its lower bound, this inflation rate is far below the targeted 4%.

A flawed model:

  • A model underlying inflation targeting is that inflation reflects output being greater than the economy’s potential. The task now is to bring output back to its potential level via an interest rate hike.
  • The problem with the model is that the potential level of output is unobservable.

Key points:

  • The Reserve Bank of India (RBI) is expected to reduce the key policy rate or the repo rate by 25 basis points (bps) to 6% in its monetary policy review meeting scheduled for August 2 while maintaining neutral stance on interest rates
  • The Inflation for June was lower than the RBI’s target band of 2-6%.
  • During the last policy review in June, the RBI revised its inflation projection downwards to 2-3.5% in the first half of the year and 3.5-4.5% in the second half-opening up the possibility of a rate reduction.
  • The earlier projection for retail inflation in the first half of the fiscal was 4.5% and 5% in the second half.
  • The Asian Development Bank’s latest estimate puts India’s average inflation in fiscal year 2018 at 4%, some 70 basis points lower than its estimate at the beginning of the year.
  • Inflation based on the wholesale price index, or WPI, slipped to an 11-month low of 0.9% in June, with food inflation remaining negative and prices of manufactured items rising at a weak pace. Wholesale inflation has been on a downward trend since February
  • The Wholesale Price Index also eased to 0.9 per cent from 2.17 %.
  • Developing countries like India have an economic structure different from the developed ones of the West for which inflation targeting was first devised.
  • Under inflation targeting, the response to rising agricultural prices would be to raise the rate of interest
  • This may have some desirable impact on inflation but it can come only at the cost of output loss in the non-agricultural sector
  • The output loss can only be rationalized as necessary by holding on to the assertion that inflation reflects actual output being greater than potential.

Role of agriculture:

  • The role of agricultural prices in driving inflation in India is evident presently.
  • The overall consumer price index is rising at 1.5% that for agricultural commodities is actually falling, reflecting the fall in the relative price of agricultural goods we have referred to.
  • As agriculture price inflation continues to fall, driving down the overall inflation rate, the real rate of interest rises.

An embarrassment of riches: (Indian Express, Editorial)


The finance minister, in a written reply to the Rajya Sabha on July 25, said that the bank is in the process of reconciling the notes to obviate any errors.

Key points:

  • According to media reports, by early January 2017, more than 90 per cent of the demonetised currency notes had returned to the banks.
  • RBI’s data on currency in circulation with the public implies that 98.8 per cent of the notes had been returned.
  • It was reported in November 2016 itself that all the notes surrendered are being shredded and given to a company in Kerala to be converted into briquettes.
  • If this process has been going on, then recounting is meaningless and reconciliation impossible.
  • There is a case pending in the Supreme Court asking that one more chance be given to change old notes for new ones to those who still have some demonetised notes left with them.
  • The government has opposed this on the ground that this relaxation would lead to the failure of the entire scheme of unearthing black money via demonetisation

What can be achieved by recounting the remaining notes which are not shredded?

  • Recounting seems to be posing an acute problem since the RBI governor, appearing before the Rajya Sabha Committee on July 13, said that counting is going on and information will be provided at the earliest.
  • The RBI had 59 machines and had hired seven more and has floated tender to buy more machines.
  • According to reports, the delay is also due to notes from Nepal and those lying with the cooperative banks, which were earlier not allowed to deposit them with the RBI.
  • By January 13, only Rs 18,000 crore worth of notes had not been returned.
  • Reports indicate that the cooperative banks have Rs 8,000 crore of the old notes which they can now return.
  • Further, between January 1 and March 31, certain specified category of people could deposit their old notes.

Data on notes:

Data on notes returned and the new notes issued was regularly given up to December 12, 2016. This could have been extended up to March 31, 2017 which was the last date for NRIs and some specified category of people to return the notes they could not deposit earlier.

How it is possible that more notes are returned than were issued?

  • Only if the fake currency floating around has been accepted by the banks. There has been speculation that counterfeit currency in large amounts was also returned to the banks and they could not control/check that due to the extraordinary pressure of work.
  • Collusion is also possible. It is not going to be easy to check which banks or their branches colluded in accepting the counterfeit notes since currency was flooding at an extraordinary rate.

How much of the counterfeit currency was in circulation?

  • According to a government commissioned study, reported in Parliament, there was Rs 400 crore of counterfeit currency in circulation.
  • The RBI in its annual reports mentions the amount of fake currency notes caught every year.


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