Current based PRELIMS QUESTION 19 MARCH 2020

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1. Consider the following statements with respect to Kambala.
1. It is an annual traditional sport festival of Malabar region of Kerala.
2. It was considered a thanksgiving gesture to the gods for a good harvest or rain and protecting their animals against diseases.
3. It takes place typically from November to March.
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

2. Consider the following statements regarding the National Company Law Appellate Tribunal (NCLAT).
1. It is the Appellate Tribunal for hearing appeals against the orders of National Company Law Tribunal(s) (NCLT), Insolvency and Bankruptcy Code, 2016 (IBC) and the Competition Commission of India (CCI).
2. NCLAT was constituted under Section 410 of the Companies Act, 2013.
Which of the statement(s) given above is/are correct?
(a) 1 only

(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2

3. Consider the following statements regarding Fiscal Deficit.
1. It is a measure of how much the government needs to borrow from the market to meet its expenditure when its resources are inadequate.
2. As government borrows from RBI which meets this demand by deficit financing may cause inflationary pressure in the economy.
3. It is advantageous to an economy if it creates new capital assets.
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

4. Consider the following statements regarding Long Term Repo Operations (LTRO).
1. Under this banks can avail one year and three-year loans at the same interest rate of one day repo.
2. Under LTRO, funds are provided at low interest rate of the repo rate, thus, there will be pressure on the banking system to reduce their lending rates.
3. According to the RBI, the LTRO scheme will be in addition to the existing LAF and MSF which will enhance liquidity in the banking system by Rs 1 lakh crore.
4. In the case of over-subscription of the notified amount, the allotment of fund will be done on pro-rata basis.
Which of the statement(s) given above is/are correct?
(a) 1, 2 and 4 only
(b) 2 and 3 only
(c) 2, 3 and 4 only
(d) 1, 2, 3 and 4

5. Consider the following statements with respect to the Telecom Disputes Settlement and Appellate Tribunal (TDSAT).
1. TDSAT exercises jurisdiction over Telecom, Broadcasting, IT and Airport tariff matters under the TRAI Act, the IT Act, 2008 and the Airport Economic Regulatory Authority of India Act, 2008.
2. TDSAT was set by amending the TRAI Act of 1997.
Which of the statement(s) given above is/are correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2

 

1.Answer-a
Explanation
Kambala
There are multiple versions to the history of Kambala, while some believe that the kings of more than 1,000 years back started this tradition as a royal pastime, others believe that the farmer community started the tradition.
The traditional Kambala festival was considered a thanksgiving gesture to the gods for a good harvest or rain. Some even say it is in thanks to the higher powers for protecting their animals against diseases.
It was initially organised primarily by the kings and landlords in the various villages.
It is an annual buffalo race conducted in Coastal belt of Karnataka. It is a traditional bull sport similar to Jallikattu in Tamil Nadu.
The traditional Kambala is a non-competitive sport, where the buffalos are made to run one after another through the fields of slush.
However, the tradition evolved into a rural sport that pits buffalo teams against each other to race in what is one of the most rustic and spectacular settings in India. Both competitive and non-competitive Kambala take place through the year.
The ‘track’ used for Kambala is a slushy paddy field. It is conducted in both competitive and non-competitive manner.
The Kambala season generally starts in November and lasts till March in the following year.
The festival involves the traditional buffalo race, a popular and unique sport among the farming community of the state.
Supreme Court in 2014 had banned Kambala based on a petition filed by various animal rights organisations.
Following the massive protest against the ban, Karnataka government passed “The Prevention of Cruelty to Animals (Karnataka Amendment) Ordinance 2017” to legalize the bull sport. Recently, People for the Ethical Treatment of Animals (PETA) have challenged the ordinance but SC refuses to stay ordinance.

 

2.Answer-c
Explanation
National Company Law Appellate Tribunal
NCLAT was constituted under Section 410 of the Companies Act, 2013.
Functions-
1. It hears appeals against the orders of National Company Law Tribunal(s) (NCLT), with effect from 1st June, 2016.
2. It is the Appellate Tribunal for hearing appeals against the orders passed by NCLT(s) under Section 61 of the Insolvency and Bankruptcy Code, 2016 (IBC).
3. It is the Appellate Tribunal for hearing appeals against the orders passed by Insolvency and Bankruptcy Board of India under Section 202 and Section 211 of IBC.
4. It is the Appellate Tribunal to hear and dispose of appeals against any direction issued or decision made or order passed by the Competition Commission of India (CCI).
Composition-
The President of the Tribunal and the chairperson and Judicial Members of the Appellate Tribunal shall be appointed after consultation with the Chief Justice of India.
The Members of the Tribunal and the Technical Members of the Appellate Tribunal shall be appointed on the recommendation of a Selection Committee consisting of:
1. Chief Justice of India or his nominee—Chairperson.
2. A senior Judge of the Supreme Court or a Chief Justice of High Court— Member.
3. Secretary in the Ministry of Corporate Affairs—Member.
4. Secretary in the Ministry of Law and Justice—Member.
5. Secretary in the Department of Financial Services in the Ministry of Finance— Member.
National Company Law Tribunal (NCLT)
NCLT is a quasi-judicial body in India that adjudicates issues relating to Indian companies.
The NCLT was established under the Companies Act 2013 and constituted in 2016, based on the recommendation of the justice Eradi committee on law relating to insolvency and winding up of companies.
All proceedings under the Companies Act, including proceedings relating to Arbitration, Compromise, arrangements and reconstruction and winding up of companies shall be disposed of by the National Company Law Tribunal.

 

3.Answer-d
Explanation
Fiscal deficit target realistic: FM
A fiscal deficit target of 3.5% for next fiscal is the real picture.
Fiscal Deficit:
Fiscal deficit is defined as excess of total budget expenditure over total budget receipts excluding borrowings during a fiscal year. In simple words, it is amount of borrowing the government has to resort to meet its expenses. A large deficit means a large amount of borrowing. Fiscal deficit is a measure of how much the government needs to borrow from the market to meet its expenditure when its resources are inadequate.
In the form of an equation:
Fiscal deficit = Total expenditure – Total receipts excluding borrowings = Borrowing
If we add borrowing in total receipts, fiscal deficit is zero. Clearly, fiscal deficit gives borrowing requirements of the government. Let it be noted that safe limit of fiscal deficit is considered to be 5% of GDR Again, borrowing includes not only accumulated debt i.e. amount of loan but also interest on debt, i.e., interest on loan. If we deduct interest payment on debt from borrowing, the balance is called primary deficit.
Fiscal deficit = Total Expenditure – Revenue receipts – Capital receipts excluding borrowing
A little reflection will show that fiscal deficit is, in fact, equal to borrowings. Thus, fiscal deficit gives the borrowing requirement of the government.
Can there be fiscal deficit without a Revenue deficit?
Yes, it is possible
(i) When revenue budget is balanced but capital budget shows a deficit or
(ii) When revenue budget is in surplus but deficit in capital budget is greater than the surplus of revenue budget.
Implications:
(i) Debt traps:
Fiscal deficit is financed by borrowing. And borrowing creates problem of not only (a) payment of interest but also of (b) repayment of loans. As the government borrowing increases, its liability in future to repay loan amount along with interest thereon also increases. Payment of interest increases revenue expenditure leading to higher revenue deficit. Ultimately, government may be compelled to borrow to finance even interest payment leading to emergence of a vicious circle and debt trap.
(ii) Wasteful expenditure:
High fiscal deficit generally leads to wasteful and unnecessary expenditure by the government. It can create inflationary pressure in the economy.
(iii) Inflationary pressure:
As government borrows from RBI which meets this demand by printing of more currency notes (called deficit financing), it results in circulation of more money. This may cause inflationary pressure in the economy.
(iv) Partial use:
The entire amount of fiscal deficit, i.e., borrowing is not available for growth and development of economy because a part of it is used for interest payment. Only primary deficit (fiscal deficit-interest payment) is available for financing expenditure.
(v) Retards future growth:
Borrowing is in fact financial burden on future generation to pay loan and interest amount which retards growth of economy.

How is fiscal deficit met? (By borrowing).
Since fiscal deficit is the excess of govt. total expenditure over its total receipts excluding borrowings, therefore borrowing is the only way to finance fiscal deficit. It should be noted that safe level of fiscal deficit is considered to be 5% of GDR.
(i) Borrowing from domestic sources:
Fiscal deficit can be met by borrowing from domestic sources, e.g., public and commercial banks. It also includes tapping of money deposits in provident fund and small saving schemes. Borrowing from public to deal with deficit is considered better than deficit financing because it does not increase the money supply which is regarded as the main cause of rising prices.
(ii) Borrowing from external sources:
For instance, borrowing from World Bank, IMF and Foreign Banks
(iii) Deficit financing (printing of new currency notes):
Another measure to meet fiscal deficit is by borrowing from Reserve Bank of India. Government issues treasury bills which RBI buys in return for cash from the government. This cash is created by RBI by printing new currency notes against government securities. Thus, it is an easy way to raise funds but it carries with it adverse effects also. Its implication is that money supply increases in the economy creating inflationary trends and other ills that result from deficit financing. Therefore, deficit financing, if at all it is unavoidable, should be kept within safe limits.
Is fiscal deficit advantageous?
It depends upon its use. Fiscal deficit is advantageous to an economy if it creates new capital assets which increase productive capacity and generate future income stream. On the contrary, it is detrimental for the economy if it is used just to cover revenue deficit.
Measures to reduce fiscal deficit:
(a) Measures to reduce public expenditure are:
(i) A drastic reduction in expenditure on major subsidies.
(ii) Reduction in expenditure on bonus, LTC, leaves encashment, etc.
(iii) Austerity steps to curtail non-plan expenditure.
(b) Measures to increase revenue are:
(i) Tax base should be broadened and concessions and reduction in taxes should be curtailed.
(ii) Tax evasion should be effectively checked.
(iii) More emphasis on direct taxes to increase revenue.
(iv) Re-structuring and sale of shares in public sector units.

http://www.arthapedia.in/index.php?title=Deficit_Measurement_in_India

 

4.Answer-d
Explanation-
Long Term Repo Operations (LTROs)
RBI has announced a new liquidity facility under LTRO to inject liquidity in the banking system.
The new policy tool comes in the context of the RBI’s limitations in cutting its policy rate as well as its desire to enhance liquidity of the banking system and promote lending activities of banks.
An interesting feature of the RBI’s new effort is that the central bank will be injecting Rs 1 lakh crore into the banking system through auctions with long term maturity periods (compared to one day repos) of 1 year and 3 year.
Funds through LTRO will be provided at the repo rate. This means that banks can avail one year and three-year loans at the same interest rate of one day repo.
Usually, loans with higher maturity period (here like 1 year and 3 years) will have higher interest rate compared to short term (repo) loans.
If the RBI is ready to give one-year and three year loans at the low repo rate, then there will be a clear pressure on banks to reduce their lending rates. Hence, the most important effect of the LTRO in the system will be a decline in short term lending rates of banks. There are two clear effects of LTROs:
(a) It will enhance liquidity in the banking system by Rs 1 lakh crore
(b) Since the interest rate is comparatively low, there will be a downward pressure on short term lending rates.
These two will bring the effect of a slightly easy monetary policy.
According to the RBI, the LTRO scheme will be in addition to the existing LAF and MSF (Marginal Standing Facility) operations. The LAF and MSF are the two sets of liquidity operations by the RBI with the LAF having a number of tools like repo, reverse repo, term repo etc.
Objectives of LTRO
To assure banks about the availability of durable liquidity at reasonable cost relative to prevailing market conditions.
Further encourage banks to undertake maturity transformation smoothly and seamlessly so as to augment credit flows to productive sectors.
While announcing the LTRO, the RBI also hinted that the current liquidity framework may be revised soon. The current liquidity framework involves LAF family instruments like repo, reverse repo, term repo etc and the Marginal Standing Facility.
RBI announced a timetable for undertaking the LTRO.
Features of Long-Term Repo Operations (LTRO)
Following are the features of the LTRO:
Maturity period (tenor): One-year and three-year tenors
Total funds to be injected: Up to Rs 1, 00,000 crores
Interest rate: at the prevailing policy rate (Repo rate).
Method of fund injection: CBS (E-KUBER) platform. The operations would be conducted at a fixed rate.
Banks would be required to place their requests for the amount sought under LTRO during the window timing at the prevailing policy repo rate. Bids below or above policy rate will be rejected.
If there is over-subscription of the notified amount, the allotment will be done on pro-rata basis. RBI will, however, reserve the right to inject marginally higher amount than the notified amount due to rounding effects.
The minimum bid amount would be Rupees one crore and multiples thereof. There will be no restriction on the maximum amount of bidding by individual bidders.
The eligible collateral and the applicable haircuts for LTRO will remain the same as applicable for LAF.
All other terms and conditions as applicable to LAF operations for the LTRO.
Potential effects of the LTRO
Since, under LTRO, funds are provided at low interest rate of the repo rate, the overall short-term interest rate may come under pressure to register a decline. Similarly, the short-term yield also may fall. Altogether, there will be pressure on the banking system to reduce their lending rates.
How the LTRO is different from the existing term repo?
Already, the RBI is having term repo instrument to inject money into the banking system by providing higher than one day loans. The term structure is higher but less than 28 days. Interest rate will be higher than repo rate. In this context, following is a comparison between the term repo and LTRO.

https://rbidocs.rbi.org.in/rdocs/PressRelease/PDFs/PR19088B77113C682E4D4AA9E01851C939219E.PDF

 

5.Answer-c
Explanation-
TDSAT
In order to bring in functional clarity and strengthen the regulatory framework and the disputes settlement mechanism in the telecommunication sector, the TRAI Act of 1997 was amended in the year 2000 and TDSAT was set up to adjudicate disputes and dispose of appeals with a view to protect the interests of service providers and consumers of the telecom sector and to promote and ensure orderly growth of the telecom sector.
In January 2004, the Government included broadcasting and cable services also within the purview of TRAI Act. After coming into force of the relevant provisions of the Finance Act 2017, the jurisdiction of TDSAT stands extended to matters that lay before the Cyber Appellate Tribunal and also the Airport Economic Regulatory Authority Appellate Tribunal.
Composition of TDSAT
The Tribunal consists of a Chairperson and two Members appointed by the Central Government.
The Chairperson should be or should have been a Judge of the Supreme Court or the Chief Justice of a High Court.
A Member should have held the post of Secretary to the Government of India or any equivalent post in the Central Government or the State Government for a period of not less than two years or a person who is well versed in the field of technology, telecommunication, industry, commerce or administration.
Powers and Jurisdiction
The Tribunal exercises jurisdiction over Telecom, Broadcasting, IT and Airport tariff matters under the TRAI Act, 1997 (as amended), the Information Technology Act, 2008 and the Airport Economic Regulatory Authority of India Act, 2008.
The Tribunal exercises original as well as appellate jurisdiction in regard to Telecom, Broadcasting and Airport tariff matters.
In regard to Cyber matters the Tribunal exercises only the appellate jurisdiction.
Procedure
i. The Tribunal is not bound by the procedure laid down by the Code of Civil Procedure, 1908;
ii. It has the power to regulate its own procedure;
iii. It is to be guided by the principles of natural justice;
Tribunal has the same powers as are vested in a civil court under the CPC in respect of:
i. summoning and enforcing the attendance of any person and examining him on oath;
ii. Requiring the discovery and production of documents;
iii. Receiving evidence on affidavits;
iv. Subject to the provisions of sections 123 and 124 of the Indian Evidence Act, 1872, requisitioning any public record or document or a copy of such record or document, from any office;
v. issuing commissions for the examination of witnesses or documents;
vi. Reviewing its decisions;
vii. Dismissing an application for default or deciding it ex parte;
viii. Setting aside any order of dismissal or any application for default or any order passed by it ex parte; and
ix. Any other matter which may be prescribed.
Nature of proceedings
The Tribunal is the Court of first instance except cyber matters. Tribunal’s Orders are executable as a decree of civil court. Appeals In respect of Telecom, Broadcasting and Airport tariff matters, the Tribunal’s orders can be appealed to the Supreme Court but only on substantial questions of law. However, no appeal lies against an interlocutory order or against any decision or order made by the Tribunal with the consent of the parties. In regard to Cyber matters, the Tribunal’s order can be appealed before High Court.