26TH OCTOBER CURRENT AFFAIRS

1. India’s Forex Reserve

News: India’s foreign exchange reserves touched a lifetime high of $555.12 billion, according to RBI data.

Why forex are increasing?

  • The rise in total reserves was due to a sharp rise in Foreign Currency Assets (FCAs),a major component of the overall reserves. FCA jumped by USD 3.539 billion to USD 512.322 billion.

Foreign Currency Assets

  • FCA are assets that are valued based on a currency other than the country’s own currency. FCA is the largest component of the forex reserve. It is expressed in dollar terms. FCA includes the effect of appreciation or depreciation of non-US units like the euro, pound and yen held in the foreign exchange reserves.
  • Currency appreciation refers to the increase in value of one currency relative to another in the forex markets. Currency depreciation is a fall in the value of a currency in a floating exchange rate system.
  • In a floating exchange rate system, market forces (based on demand and supply of a currency) determine the value of a currency.

What are Forex Reserves?

  • Reserve Bank of India Act and the Foreign Exchange Management Act, 1999 set the legal provisions for governing the foreign exchange reserves. RBI accumulates foreign currency reserves by purchasing from authorized dealers in open market operations.
  • The Forex reserves of India consist of below four categories:
  • Foreign Currency Assets
  • Gold
  • Special Drawing Rights (SDRs)
  • Reserve Tranche Position
  • The IMF says official Forex reserves are held in support of a range of objectives like supporting and maintaining confidence in the policies for monetary and exchange rate management including the capacity to intervene in support of the national or union currency.
  • It will also limit external vulnerability by maintaining foreign currency liquidity to absorb shocks during times of crisis or when access to borrowing is curtailed.

Management of Forex Reserve in India

  • The RBI Act, 1934 provides the overarching legal framework for the deployment of reserves in different foreign currency assets and gold within the broad parameters of currencies, instruments, issuers and counterparties. As much as 64 per cent of the foreign currency reserves is held in the securities like Treasury bills of foreign countries, mainly the US.
  • 28 per cent is deposited in foreign central banks and 7.4 per cent is also deposited in commercial banks abroad. In value terms, the share of gold in the total foreign exchange reserves increased from about 6.14 per cent as at end-September 2019 to about 6.40 per cent as at end-March 2020.

Rising above the 1991 crisis

  • Unlike in 1991, when India had to pledge its gold reserves to stave off a major financial crisis, the country can now depend on its soaring Forex reserves to tackle any crisis on the economic front.
  • The level of Forex reserves has steadily increased by 8,400 per cent from $5.8 billion as of March 1991 to the current level.

Special Drawing Rights

  • The SDR is an international reserve asset, created by the International Monetary Fund (IMF) in 1969 to supplement its member countries’ official reserves. The SDR is neither a currency nor a claim on the IMF. Rather, it is a potential claim on the freely usable currencies of IMF members. SDRs can be exchanged for these currencies. The value of the SDR is calculated from a weighted basket of major currencies, including the U.S. dollar, the euro, Japanese yen, Chinese yuan, and British pound.
  • The interest rate on SDRs or SDR is the interest paid to members on their SDR holdings.

Reserve Position in the International Monetary Fund

  • A reserve tranche position implies a portion of the required quota of currency each member country must provide to the International Monetary Fund (IMF) that can be utilized for its own purposes.
  • The reserve tranche is basically an emergency account that IMF members can access at any time without agreeing to conditions or paying a service fee.

2. Pakistan to remain in FATF Grey List

News: The Financial Action Task Force (FATF) has decided to keep Pakistan on the “greylist” till the next review of its compliance to the recommendations in February 2021. The decision was taken after a three-day virtual plenary session.

Pakistan Remains on Grey List:

  • The FATF had issued the27-point action plan after placing Pakistan on the ‘Grey List’ in June 2018. The action plan pertains to curbing money laundering and terror financing. Recently, the task force’s International Cooperation Review Group (ICRG) noted that Pakistan had complied with 21 points.
  • Since 2007,the ICRG has analysed high-risk jurisdictions and recommended specific action to address the money laundering/terror financing risks emanating from them. At the recent plenary session, the FATF observed that Pakistan has made progress across all action plan items and has largely addressed 21 of 27 action items. Keeping Pakistan on the ‘Grey List’, the FATF strongly urged Pakistan to swiftly complete its full action plan by February 2021.
  • The points on which Pakistan failed to deliver included its lack of action against the non-profit organisations linked to the terror groups banned by the UN Security Council (UNSC); and delays in the prosecution of banned individuals and entities like Lashkar-e-Taiba (LeT) chief Hafiz Saeed and LeT operations chief, Zaki Ur Rahman Lakhvi, as well as Jaish-e- Mohammad chief Masood Azhar.
  • While Saeed was sentenced in February 2020 to 11 years in prison for terror financing, the Pakistan government claims that others are “untraceable”. Further, Pakistan was found non-compliant in cracking down on terror financing through narcotics and smuggling of mining products including precious stones.
  • The FATF process also showed concern about the 4,000 names that were on Pakistan’s Schedule-IV list under the Anti-Terrorism Act up to January, but went missing in September 2020.

Implications:

  • With Pakistan’s continuation in the ‘Grey List’, it will be difficult for the country to get financial aid from the IMF, the World Bank, the ADB and the European Union.
  • This will further enhance problems for the nation which is in a precarious economic situation. Also, there is every possibility that FATF may put the country in the ‘Black List’.

About FATF:

  • It is an inter- governmental body established in 1989 on the initiative of the G7. Its Secretariat is located at the Organisation for Economic Cooperation and Development (OECD) headquarters in Paris.
  • There are 39 member of FATF, representing most financial centres around the world. This includes 2 regional organisations- GCC and EC. The FATF Plenary is the decision making body of the FATF. It meets three times per year.

What is blacklist and grey list?

  • Black List: Countries known as Non-Cooperative Countries or Territories (NCCTs) are put in the blacklist. These countries support terror funding and money laundering activities.
  • Grey List: Countries that are considered safe haven for supporting terror funding and money laundering are put in the FATF grey list. This inclusion serves as a warning to the country that it may enter the blacklist.

3. South Asian Flash Flood Guidance System 

News: Recently, the India Meteorological Department (IMD) has launched the South Asian Flash Flood Guidance System (FFGS), which is aimed at helping disaster management teams and governments make timely evacuation plans ahead of the actual event of flooding. A dedicated FFGS centre will be established in New Delhi, where weather modelling and analysis of rainfall data observations from member countries will be done.

Why IMD?

  • Recognizing that flash floods have a particularly disastrous impact on lives and properties of the affected populations, the Fifteenth WMO Congress had approved the implementation of a Flash Flood Guidance System (FFGS) project with global coverage. This was developed by the WMO Commission for Hydrology jointly with some others.
  • Further, WMO has entrusted India with the responsibility of Regional Centre of South Asia Flash Flood Guidance System for coordination, development, and its implementation.

What are Flash Floods?

  • These are sudden surges in water levels during or following an intense spell of rain. These are highly localised events of short duration with a very high peak and usually have less than six hours between the occurrence of the rainfall and peak flood. The flood situation worsens in the presence of choked drainage lines or encroachments obstructing the natural flow of water.

Concerns about forecasting:

  • Forecasting flash floods is very difficult as an event can occur within three to six hours and the water run-off quantity is very high. Frequency of extreme rainfall events has increased due to climate change and south Asia is highly prone to flash floods.
  • Data suggest that across the world, about 5,000 people die annually due to flash floods. Despite such high mortality, there was no robust forecasting or warning system for flash floods.

About the Flash Flood Guidance:

  • It is a robust system designed by the India Meteorological Department (IMD)to provide the necessary products in real-time to support the development of warnings for flash floods about 6-12 hours in advance at the watershed level with a resolution of 4kmx4km for the Flash Flood prone South Asian countries — India, Nepal, Bhutan, Bangladesh, and Sri Lanka.
  • India’s National Disaster Management Authority(NDMA) and the Central Water Commission (CWC) partnered in developing the system.
  • Based on the rainfall and potential flooding scenario, flash flood warnings will be issued to respective nations. Flash flood threat warning will be issued six hours in advance, whereas flood risk warning will be issued 24 hours in advance. Warnings about watershed level will be issued 12 hours in advance.

4. India and ILO

News: After 35 years, India has assumed the Chairmanship of the Governing Body of International Labour Organization (ILO).

Details:

  • Labour & Employment Secretary Apurva Chandra has been elected as the Chairperson of the Governing Body of the ILO for the period October 2020-June 2021. The Chairperson of the Governing Body of ILO is a position of international repute. The Governing Body (GB) is the apex executive body of the ILO.
  • GB meets thrice a year, in March, June and November. It takes decisions on ILO policy, decides the agenda of the International Labour Conference, adopts the draft programme and budget of the organisation for submission to the conference, and elects the Director-General. The broad policies of the ILO are set by the International Labour Conference, which meets once a year in June, in Geneva,
  • Chandra will be presiding over the upcoming Governing Body’s meeting, to be held in November 2020.
  • It will provide a platform to apprise participants of the transformational initiative taken by the government in removing the rigidities of the labour market, besides making intention clear about the universalisation of social security to all workers in the organised or unorganised sector.
  • The four codes on wages, industrial relations, social security and occupational safety, health and working conditions are expected to improve ease of doing business and safeguard the interest of workers.

About the International Labour Organization

  • The ILO is a UN agency whose mandate is to advance social and economic justice through setting international labour standards. Founded in 1919 under the League of Nations, it is the first and oldest specialised agency of the UN. The ILO has 187 member states: 186 out of 193 UN member states plus the Cook Islands.
  • The ILO’s international labour standards are broadly aimed at ensuring accessible, productive, and sustainable work worldwide in conditions of freedom, equity, security and dignity.

About its Governing Body

  • The Governing body is the apex executive body of the ILO which decides policies, programmes, agenda, budget and elects the Director-General.

India and ILO:

  • India, a Founding Member of the ILO, has been a permanent member of the ILO Governing Body since 1922. The first ILO Office in India started in 1928. India has ratified 41 Conventions of the ILO, which is much better than the position existing in many other countries.
  • India has ratified six out of the eight-core/fundamental ILO conventions. These conventions are:
  • Forced Labour Convention (No. 29)
  • Abolition of Forced Labour Convention (No.105)
  • Equal Remuneration Convention (No.100)
  • Discrimination (Employment Occupation) Convention (No.111)
  • Minimum Age Convention (No.138)
  • Worst forms of Child Labour Convention (No.182)
  • India has not ratified the two core/fundamental conventions, namely Freedom of Association and Protection of the Right to Organise Convention, 1948 (No. 87) and Right to Organise and Collective Bargaining Convention, 1949 (No. 98).
  • The ILO expressed deep concern at the changes that many Indian states made to labour laws to boost economic activities, which slowed down due to the Covid-19 outbreak.

5. India’s journey in United Nations

Three phases of India’s presence at the UN

  • Seven and a half decades of India at the UN may be viewed with reference to roughly three distinct phases.

First phase: From independence to 1989

  • The first phase lasted until the end of Cold War in 1989.
  • During this phase, India had learnt to explore and enhance its diplomatic influence in easing armed conflicts in Asia and Africa by disentangling them from the superpower rivalry. India also leaned that the UN could not be relied upon to impartially resolvevital security disputes such as Jammu and Kashmir.
  • India strove to utilise the UN only to focus on common causes such as anti-colonialism, anti-racism, nuclear disarmament, environment conservation and equitable economic development.
  • India seemed to claim the moral high ground by proposing, in 1988three-phase plan to eliminate nuclear weapons from the surface of earth. But it resisted attempts by neighbouring countries to raise bilateral problems. Defeat in 1962 war against China meant a definitive redesign of the country’s diplomatic style to privilege bilateral contacts over the third party role by the UN.

Second phase: 1990s

  • The 1990s were the most difficult decade for India in the UN.
  • The 1990s were marked by the sudden end of the Cold War, the disintegration of the Soviet Union and the emergence of the United States as the unrivalled power.
  • Besides, the uncertain political climate along with the balance of payments crisis constrained the country’s capability to be active in various bodies, especially in the Security Council (UNSC) and the General Assembly. There was a change in India’s foreign policy: At the UN as India showed pragmatism in enabling the toughest terms on Iraq even after Gulf War or in reversing position on Zionism as racism.
  • At the same time, growing militancy in Kashmir in the early 1990s helped Pakistan to internationalise the dispute with accusations about gross human rights violations by India.
  • India to seek favours from Iran and China in the Human Rights Commission to checkmate Pakistan.
  • The violation of the sovereignty principle by NATO intervention against Yugoslavia in 1999 without the authorisation of the UNSC deeply disturbed India.
  • At the same time call for an end to aerial attacks on Yugoslavia did not garner much support in the UNSC.
  • India’s diplomatic difficulties was exposed when it suffered a defeat in the hands of Japan in the 1996 contest for a non-permanent seat in the UNSC.
  • India resolutely stood against indefinite extension of the Non-Proliferation Treaty in 1995. India strongly rejected the backdoor introduction for adoption of the Comprehensive Test Ban Treaty in 1996.
  • It is against this background that India surprised the world in 1998 with its Pokhran nuclear weapon tests, ignoring the likely adverse reaction from the nuclear club.

Third phase: Rise in influence in 21st century

  • The impressive economic performance in the first decade of the 21st century due to economic liberalisation and globalisation policies, helped a great deal in strengthening profile.
  • This is only aided by its reliable and substantial troop contributions to several peacekeeping operations in African conflict theatres. India has emerged as a responsible stakeholder in non-traditional security issue areas such as the spread of small and light weapons, the threat of non-state actors acquiring weapons of mass destruction, and the impact of climate change.
  • India has scaled up its contributions to development and humanitarian agencies, while India’s share to the UN assessed budget has registered a hike from 0.34% to 0.83%.
  • India’s successful electoral contests for various prestigious slots in the UNSC, the Human Rights Council, the World Court, and functional commissions of the Economic and Social Council indicates its growing popularity

Major unsuccessful initiatives by India

  • Two major initiatives India has heavily invested in are stuck:
  • The draft Comprehensive Convention on International Terrorism it drafted and revised with the hope of helping consensus. It encountered reservations on provisions regarding definition of terrorist and the convention’s application to state armed forces.
  • Second is the question of equitable expansion of the UNSC to enable India to attain permanent membership along with other claimants from Asia, Africa and Latin America.
  • The move has been stuck for more than 25 years because of a lack of unity among the regional formations.
  • It also includes opposition from some 30 middle powers such as Italy and Pakistan which fear losing out to regional rivals in the event of an addition of permanent seats.
  • The only realistic possibility seems to settle for a compromise, i.e. a new category of members elected for a longer duration than the present non-permanent members without veto power.

Priorities at the UNSC as a non-permanent member

  • India’s future role will depend on its ability to deal  economic slowdown and a troubled relationship with China. This is pertinent as India will soon begin its two-year term as a non-permanent UNSC member (January 1, 2021).
  • Its areas of priority will continue to be the upholding of Charter principles, act against those who support, finance and sponsor terrorists, besides striving for securing due say to the troop contributing countries in the management of peace operations. It is reasonable to assume (based on earlier patterns) that India will work for and join in consensus on key questions wherever possible.
  • But it may opt to abstain along with other members including one or two permanent members.

Conclusion

  • As a non-permanent UNSC member now, India needs to uphold the Charter principles in the backdrop of a turbulent world.