Current based PRELIMS QUESTION 17 FEB 2020

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1. Consider the following statements regarding the Repo rate:
1. It is the rate at which the RBI lends money to commercial banks generally against the Government Securities.
2. It is the rate at which the RBI borrows money from the commercial banks against the Government Securities.
3. It is the rate at which the Commercial Banks keep deposits with the RBI.
Which of the above statements is/are correct?
(a) 1 only
(b) 2 only
(c) 2 and 3 only
(d) None of the above

2. Consider the following statements regarding the Monetary Policy Committee (MPC) of RBI:
1. MPC includes 6 members and is headed by RBI Governor.
2. MPC takes decisions on the basis of consensus.
3. MPC has only advisory power on monetary policy and the policy rate is set by Government of India.
4. MPC members appointed by the Central Government hold the office for a period of four years and also eligible for reappointment.
Which of the statements given above is/are correct?
(a) 1 only
(b) 1 and 4 only
(c) 1 and 3 only
(d) 2 and 4 only

3. Consider the following statements with respect to National Population Register (NPR).
1. The National Population Register (NPR) is a register of the usual residents of the country.
2. A usual resident is defined for the purposes of NPR as a person who has resided in a local area for the past 6 months or more or a person who intends to reside in that area for the next 6 months or more.
3. In India, NPR was prepared along with Census 2011 and first time it was updated in 2015.
4. It is being prepared at the local, sub-District, District, State and National level under provisions of the Citizenship Act 1955 and the Citizenship Rules, 2003.
Which of the statement(s) given above is/are correct?
(a) 1, 3 and 4 only
(b) 1, 2 and 4 only
(c) 1, 2 and 3 only
(d) 1, 2, 3 and 4

 

4. Consider the following statements with respect to Jammu & Kashmir Public Safety Act, 1978.
1. It permits for detention of a person without any prior charge and without trial.
2. It is very like to the National Security Act that is used by other state governments for preventive detention.
3. Unlike in police detention, a person who is detained under the JKPSA need not be presented before a magistrate within 24 hours of the detention.
Which of the statement(s) given above is/are correct?
(a) 2 and 3 only
(b) 1 and 2 only
(c) 1 and 3 only
(d) 1, 2 and 3

5. Consider the following statements with respect to Model Code of Conduct (MCC).
1. MCC is enacted through the Representation of the People Act, 1951.
2. During the period of MCC, Ministers must not combine official visits with election work.
3. It can be litigated in any of the high court’s if any candidate violates MCC, but within the period of operation of MCC.
Which of the statement(s) given above is/are correct?
(a) 2 only
(b) 1, 2 and 3 only
(c) 2 and 3 only
(d) 1 and 3 only

 

  1. Answer-a
    Explanation

    Monetary policy
    Monetary policy refers to the policy of the central bank with regard to the use of monetary instruments under its control to achieve the goals specified in the Act. The RBI is vested with the responsibility of conducting monetary policy. This responsibility is explicitly provides the legislative mandate under the Reserve Bank of India Act, 1934.
    The goal(s) of monetary policy
    The primary objective of monetary policy is to maintain price stability while keeping in mind the objective of growth. Price stability is a necessary precondition to sustainable growth.
    In May 2016, the RBI Act, 1934 was amended to provide a statutory basis for the implementation of the flexible inflation targeting framework.
    The amended RBI Act also provides for the inflation target to be set by the Government of India, in consultation with the Reserve Bank, once in every five years. Accordingly, the Central Government has notified in the Official Gazette 4 per cent Consumer Price Index (CPI) inflation as the target for the period from August 5, 2016 to March 31, 2021 with the upper tolerance limit of 6 per cent and the lower tolerance limit of 2 per cent.
    The Central Government notified the following as factors that constitute failure to achieve the inflation target:(a) the average inflation is more than the upper tolerance level of the inflation target for any three consecutive quarters; or (b) the average inflation is less than the lower tolerance level for any three consecutive quarters.
    The Monetary Policy Framework
    The framework aims at setting the policy (repo) rate based on an assessment of the current and evolving macroeconomic situation; and modulation of liquidity conditions to anchor money market rates at or around the


repo rate. Repo rate changes transmit through the money market to the entire the financial system, which, in turn, influences aggregate demand – a key determinant of inflation and growth.
Once the repo rate is announced, the operating framework designed by the Reserve Bank envisages liquidity management on a day-to-day basis through appropriate actions, which aim at anchoring the operating target – the weighted average call rate (WACR) – around the repo rate.
The Monetary Policy Process
Section 45ZB of the amended RBI Act, 1934 also provides for an empowered six-member monetary policy committee (MPC) to be constituted by the Central Government by notification in the Official Gazette. Accordingly, the Central Government in September 2016 constituted the MPC as under:
1. Governor of the Reserve Bank of India – Chairperson, ex officio;
2. Deputy Governor of the Reserve Bank of India, in charge of Monetary Policy – Member, ex officio;
3. One officer of the Reserve Bank of India to be nominated by the Central Board – Member, ex officio;
4. Shri Chetan Ghate, Professor, Indian Statistical Institute (ISI) – Member;
5. Professor Pami Dua, Director, Delhi School of Economics – Member; and
6. Dr. Ravindra H. Dholakia, Professor, Indian Institute of Management, Ahmedabad – Member.

Members referred to at 4 to 6 above, will hold office for a period of four years or until further orders, whichever is earlier: there will not be eligible for reappointment.

Instruments of Monetary Policy
There are several direct and indirect instruments that are used for implementing monetary policy.
 Repo Rate: The (fixed) interest rate at which the RBI provides overnight liquidity to banks against the collateral of government and other approved securities under the liquidity adjustment facility (LAF).
 Reverse Repo Rate: The (fixed) interest rate at which the RBI absorbs liquidity, on an overnight basis, from banks against the collateral of eligible government securities under the LAF.
 Liquidity Adjustment Facility (LAF): The LAF consists of overnight as well as term repo auctions. Progressively, the RBI has increased the proportion of liquidity injected under fine-tuning variable rate repo auctions of range of tenors. The aim of term repo is to help develop the inter-bank term money market, which in turn can set market based benchmarks for pricing of loans and deposits, and hence improve transmission of monetary policy. The RBI also conducts variable interest rate reverse repo auctions, as necessitated under the market conditions.
 Marginal Standing Facility (MSF): A facility under which scheduled commercial banks can borrow additional amount of overnight money from the Reserve Bank by dipping into their Statutory Liquidity Ratio (SLR) portfolio up to a limit at a penal rate of interest. This provides a safety valve against unanticipated liquidity shocks to the banking system.
 Corridor: The MSF rate and reverse repo rate determine the corridor for the daily movement in the weighted average call money rate.
 Bank Rate: It is the rate at which the Reserve Bank is ready to buy or rediscount bills of exchange or other commercial papers. The Bank Rate is published under Section 49 of the RBI Act, 1934. This rate has been aligned to the MSF rate and, therefore, changes automatically as and when the MSF rate changes alongside policy repo rate changes.
 Cash Reserve Ratio (CRR): The average daily balance that a bank is required to maintain with the Reserve Bank as a share of such per cent of its Net demand and time liabilities (NDTL) that the Reserve Bank may notify from time to time in the Gazette of India.
 Statutory Liquidity Ratio (SLR): The share of NDTL that a bank is required to maintain in safe and liquid assets, such as, unencumbered government securities, cash and gold. Changes in SLR often influence the availability of resources in the banking system for lending to the private sector.
 Open Market Operations (OMOs): These include both, outright purchase and sale of government securities, for injection and absorption of durable liquidity, respectively.
 Market Stabilisation Scheme (MSS): This instrument for monetary management was introduced in 2004. Surplus liquidity of a more enduring nature arising from large capital inflows is absorbed through sale of short-dated government securities and treasury bills. The cash so mobilized is held in a separate government account with the Reserve Bank.
Open and Transparent Monetary Policy Making
The MPC is required to meet at least four times in a year. The quorum for the meeting of the MPC is four members. Each member of the MPC has one vote, and in the event of an equality of votes, the Governor has a second or casting vote. The resolution adopted by the MPC is published after conclusion of every meeting of the MPC in accordance with the provisions of Chapter III F of the RBI Act, 1934. On the 14th day, the minutes of the proceedings of the MPC are published which include:
 The resolution adopted by the MPC;
 The vote of each member on the resolution, ascribed to such member; and
 The statement of each member on the resolution adopted.
Once in every six months, the Reserve Bank is required to publish a document called the Monetary Policy Report to explain:
 The sources of inflation; and
 The forecast of inflation for 6-18 months ahead.

 

2. Answer-a
Explanation
The Monetary Policy Process
Section 45ZB of the amended RBI Act, 1934 also provides for an empowered six-member monetary policy committee (MPC) to be constituted by the Central Government by notification in the Official Gazette. Accordingly, the Central Government in September 2016 constituted the MPC as under:
1. Governor of the Reserve Bank of India – Chairperson, ex officio;
2. Deputy Governor of the Reserve Bank of India, in charge of Monetary Policy – Member, ex officio;
3. One officer of the Reserve Bank of India to be nominated by the Central Board – Member, ex officio;
4. Shri Chetan Ghate, Professor, Indian Statistical Institute (ISI) – Member;
5. Professor Pami Dua, Director, Delhi School of Economics – Member; and
6. Dr. Ravindra H. Dholakia, Professor, Indian Institute of Management, Ahmedabad – Member.
(Members referred to at 4 to 6 above, will hold office for a period of four years or until further orders, whichever is earlier: there will not be eligible for reappointment.)

The MPC is required to meet at least four times in a year. The quorum for the meeting of the MPC is four members. Each member of the MPC has one vote, and in the event of an equality of votes, the Governor has a second or casting vote. The resolution adopted by the MPC is published after conclusion of every meeting of the MPC in accordance with the provisions of Chapter III F of the RBI Act, 1934. On the 14th day, the minutes of the proceedings of the MPC are published which include:
 The resolution adopted by the MPC;
 The vote of each member on the resolution, ascribed to such member; and
 The statement of each member on the resolution adopted.
Once in every six months, the Reserve Bank is required to publish a document called the Monetary Policy Report to explain:
 The sources of inflation; and
 The forecast of inflation for 6-18 months ahead.

3.Answer-d
Explanation-
National Population Register (NPR)
 The National Population Register (NPR) is a register of the usual residents of the country.
 A usual resident is defined for the purposes of NPR as a person who has resided in a local area for the past 6 months or more or a person who intends to reside in that area for the next 6 months or more.
 It is mandatory for every usual resident of India to register in the NPR.
 It is being prepared at the local (Village/sub-Town), sub-District, District, State and National level under provisions of the Citizenship Act 1955 and the Citizenship Rules, 2003.
 The database under the NPR will be maintained by the Registrar General of India and Census Commissioner of India, Ministry of Home Affairs.
 The NPR database contains demographic as well as biometric details.
 As per the provisions of the NPR, a resident identity card (RIC) will be issued to individuals over the age of 18. This will be a chip-embedded smart card with the UID number (Aadhaar) printed.
 In India, NPR was prepared along with Census 2011. It was updated in 2015.
 The new and latest NPR is planned to be conducted across India (except Assam) between April 1, 2020, and September 30, 2020 along with next census enumeration.
 NPR is not a citizenship enumeration drive; it would also include a foreigner staying in an area for more than six months.

 

4.Answer-d
Explanation-
 The Jammu & Kashmir Public Safety Act, 1978 is a preventive detention law, under which a person is taken into custody to prevent him or her from acting in any manner that is prejudicial to “the security of the state or the maintenance of the public order”.
 It is very similar to the National Security Act that is used by other state governments for preventive detention.
 The PSA allows for detention of a person without a formal charge and without trial. Detention can be up to two years.
 Unlike in police custody, a person who is detained under the PSA need not be produced before a magistrate within 24 hours of the detention.
 The detained person does not have the right to move a bail application before a criminal court, and cannot engage any lawyer to represent him or her before the detaining authority.
 The only way this administrative preventive detention order can be challenged is through a habeas corpus petition filed by relatives of the detained person.
 The High Court and the Supreme Court have the jurisdiction to hear such petitions and pass a final order seeking quashing of the PSA. However, if the order is quashed, there is no bar on the government passing another detention order under the PSA and detaining the person again.

 

5.Answer-a
Explanation-
Model Code of Conduct
MCC is a document from the Election Commission of India (ECI). It lays down the minimum standards of behaviour for political parties and their candidates contesting elections. The MCC comes into effect as soon as the EC announces the election schedule.
The MCC was first proposed by Kerala in its 1960 assembly elections. It was later adopted by the ECI during mid-term elections in 1968 and 1969. It has since been updated many times based on cases fought in courts. The Code has evolved over the years to include behaviour norms for the party in power and the public servants who report to it.
The MCC lays down good behaviour norms covering 8 areas of electioneering including, among many, –
 general conduct of candidates
 candidates’ meetings/processions
 appointment of observers
 maintenance of polling booths on D-Day
 Contents in election manifestos
Under “general conduct‟, the Code mainly regulates the candidates who –
 Incite communal tensions
 Use caste or religion to appeal for votes
 canvass within 100 meters of polling stations and in the 48 hours preceding the polls
For meetings and processions, parties are required to obtain advance permissions from local authorities and seek police help to contain unruly elements. Effigy burning is expressly prohibited.
On the day of election, political parties are expected to –
 Identify their party workers with badges
 Stay off the polling booths
 Keep their camps near the booths free of propaganda material
 Refrain from distributing goodies or liquor to voters
Election manifestos of political parties should not contain any unreasonable and impractical promises. EC directs parties to stick only to those promises that are financially feasible.
Ruling party – There are elaborate rules to ensure that the party in power plays fair and the Code has the longest list of don’ts for the ruling party.
The Code ensures that the –
 Party in power does not gain an unfair advantage in campaigning
 Ministers are barred from mixing their official visits with political rallies
 Ruling party does not use government vehicles, aircraft or machinery
 Ruling party does not issue public advertisements promoting the party or its leaders at the cost of the exchequer
The party in power is also directed not to “monopolies‟ public places or government rest houses and bungalows for political rallies. Once elections are announced, ministers cannot announce financial grants or large projects or make ad-hoc government appointments in a way that could influence voter behaviour.
Is it legally binding?
The Model Code of Conduct does not have any statutory backing. But the Code has come to acquire significance in the past decade, because of its strict enforcement by the EC. Some of the more serious offences listed in the Code have also found their way into the statute books. So for some of the offences mentioned, candidates can be tried under the Indian Penal Code or the Representation of the People Act 1951.