Current based PRELIMS QUESTION 22 April 2020

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1. Consider the following statements the Foreign Portfolio Investment (FPI).
1. FPI is investment by non-residents in Indian securities including shares, government bonds, corporate bonds, convertible securities, infrastructure securities etc.
2. FPI is induced by differences in equity price scenario, bond yield, growth prospects, interest rate, dividends or rate of return on capital in India’s financial assets.
3. Foreign Portfolio Investors includes investment groups of Foreign Institutional Investors, Qualified Foreign Investors, and NRIs etc.
NRIs don’t come under FPI.
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

  1. Answer-b
    Explanation
    Foreign Portfolio Investment (FPI)
    Foreign Portfolio Investment (FPI) is investment by non-residents in Indian securities including shares, government bonds, corporate bonds, convertible securities, infrastructure securities etc. The classes of investors who make investment in these securities are known as Foreign Portfolio Investors.
    FPI is induced by differences in equity price scenario, bond yield, growth prospects, interest rate, dividends or rate of return on capital in India’s financial assets.
    SEBI has recently stipulated the criteria for Foreign Portfolio Investment. According to this, any equity investment by non-residents which is less than or equal to 10% of capital in a company is portfolio investment. While above this the investment will be counted as Foreign Direct Investment (FDI).
    Investment by a foreign portfolio investor cannot exceed 10 per cent of the paid up capital of the Indian company. All FPI taken together cannot acquire more than 24 per cent of the paid up capital of an Indian Company.
    As per SEBI regulations, FPIs are not allowed to invest in unlisted shares and investment in unlisted entities will be treated as FDI.
    Who are Foreign Portfolio Investors?
    Foreign Portfolio Investors includes investment groups of Foreign Institutional Investors (FIIs), Qualified Foreign Investors (QFIs) and subaccounts etc.
    NRIs don’t come under FPI.
    After the new SEBI guidelines, the RBI stipulated that Foreign Portfolio Investors include Asset Management Companies, Banks, Pension Funds, Mutual Funds, and Investment Trusts as Nominee Companies, Incorporated / Institutional Portfolio Managers or their Power of Attorney holders, University Funds, Endowment Foundations, Charitable Trusts and Charitable Societies etc. Sovereign Wealth Funds are also regulated as FIIs.
    Who is a Foreign Institutional Investor?
    FII is an institution like a mutual fund, insurance company, pension fund etc. According to SEBI, “an FII is an institution established or incorporated outside India which proposes to make investments in India in securities”. FII is an institution who is registered under the Securities and Exchange Board of India (Foreign Institutional Investors) Regulations, 1995. FIIs comprised of a pension fund, a mutual fund, investment trust, insurance company or a reinsurance company.
    Who is a Qualified Foreign Investor?
    QFI is an individual, group or association which is a resident in a foreign country. The QFI should compliant with the Financial Action Task Force standard and should be a signatory to the International Organisation of Securities Commission.
    The FIIs are big and hence they have the capacity to make large-scale investment. On the other hand, small investors and individuals under QFI category can’t match FIIs in terms of business volume. So, often when we hear about foreign investment in the share market, it is the FIIs who steal the attention.


2. Consider the following statements regarding the Asian Development Bank (ADB).
1. India was a founding member of ADB and is now the bank’s fourth-largest shareholder and top borrower.
2. ADB was established in the year 1966, with head office at Manila (Philippines).
3. Under Strategy 2030, ADB will sustain its efforts to eradicate extreme poverty and expand its vision to achieve a prosperous, inclusive, resilient, and sustainable Asia and the Pacific.
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. Answer-d
Explanation-
Asian Development Bank (ADB)
It is a regional development bank
It established on 19 December 1966.
Headquartered — Manila, Philippines
Official United Nations Observer
The bank admits the members of the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP, formerly the Economic Commission for Asia and the Far East or ECAFE) and non-regional developed countries.
Japan holds the largest share in ADB with 15.677%, followed by U.S.A (15.567%), China (6.473%), and India (5.812%).
Voting rights:
It is modeled closely on the World Bank, and has a similar weighted voting system where votes are distributed in proportion with members’ capital subscriptions.
Roles and functions:
ADB defines itself as a social development organization that is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth, and regional integration.
This is carried out through investments – in the form of loans, grants and information sharing – in infrastructure, health care services, financial and public administration systems, helping nations prepare for the impact of climate change or better manage their natural resources, as well as other areas.
ADB gave two dimensions to governance:
1. Political – Democracy, Human Rights
2. Economic – Efficient management of public resources
ADB has identified four basic elements of good governance:
Accountability
Public officials should be answerable for government behaviour and responsive to the entity from which they derive authority.
The accountability of public sector institutions is facilitated by an evaluation of their economic performance.
The suggested specific areas of action would be in the building of government capacity through, for example, public-sector management, public-enterprise management and reform, public financial management and civil-service reform.
Participation
Government structures should be flexible enough to offer beneficiaries and others affected the opportunity to improve the design and implementation of public programmes and projects.
The specific areas of action would be in the development of participatory development processes through, for example, the participation of beneficiaries, a public/private-sector interface, decentralization/empowerment of local government and cooperation with non-governmental organizations (NGOs).
Predictability
Laws and policies should exist that regulate society and that are applied fairly and consistently.
Predictability requires the state and its subsidiary agencies to be bound by and answerable to the legal system in the same way as private enterprises and individuals.
The specific area of action could be the development of predictable legal frameworks for private-sector development.
Transparency
Information should be made available to the general public and there should be clarity as to rules and regulations.
Access to timely information on the economy can be vital to economic decision-making by the private sector and can also serve to inhibit corruption.
What is Strategy 2030 for ADB?
Strategy 2030 sets the course for the Asian Development Bank (ADB) to respond effectively to the region’s changing needs. Under Strategy 2030, ADB will sustain its efforts to eradicate extreme poverty and expand its vision to achieve a prosperous, inclusive, resilient, and sustainable Asia and the Pacific.
India and ADB
India was a founding member of ADB in 1966 and is now the bank’s fourth-largest shareholder and top borrower. ADB commenced operations in India in 1986 and has since committed 229 sovereign loans totalling $38.9 billion. The current portfolio includes 79 sovereign loans amounting to $13.5 billion, of which $9.9 billion has been awarded and $6.1 billion disbursed. In 2018, ADB committed a record $3.03 billion for 19 sovereign projects to help India develop infrastructure and services in transport, energy, urban development, agriculture and natural resources, finance, and education and training.
Cumulative loan and grant disbursements to India amount to $29.24 billion. These were financed by regular ordinary capital resources, and other special funds.

3. Consider the following statements with respect to the Masala bonds or rupee-denominated bonds.
1. If the rupee weakens by the time the bonds come up for redemption, the borrower will need to shell out more rupees to repay the dollars.
2. The rupee denominated bonds is attractive as it will give higher interest rate compared to the standard interest rate prevailing in their markets.
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. Answer-c
Explanation
Rupee Denominated Bonds or Masala Bonds
A rupee denominated bond is a bond issued by an Indian entity in foreign markets and the interest payments and principal reimbursements are denominated (expressed) in rupees.
The peculiarity of rupee denominated bond is that buying of bonds, interest payments and repayment all are expressed in rupees. All payments are converted into corresponding dollar values at the time of payment. The term ‘masala bond’ is also used to describe rupee denominated ever since the first issuer of rupee-denominated bonds used the name masala bonds in its first issue. RBI in its August 2016 regulations also used this name.
What is the case of conventional foreign currency denominated bonds?
In the case of a traditional foreign currency bond issued by an Indian entity, if $1000 bond is issued overseas, its 10% interest rate should be made in dollars ($100). Here, it is the responsibility of the issuer to give $100 (instead of in Rs in the case of rupee-denominated bonds). If the dollar’s exchange rate goes up, or rupee depreciates, the burden of repayment goes up for the bond issuer. If the Rupee depreciates from Rs 50/1$ to Rs 75/1$, the cost of bond issuer in terms of rupee goes up as he hast to pay more rupees to get dollar from the market.
Here, the exchange rate risk is with the Indian issuer.
How the masala bonds or rupee denominated bond works?
For example, if an Indian financial entity issues Rs 1000 rupee denominated bond overseas, the buyer in overseas can buy the bond, paying equivalent amount of dollar/sterling.
Why the masala bonds are attractive for foreign investors?
For the foreign investor, the rupee denominated bonds is attractive as it will give him higher interest rate compared to the standard interest rate prevailing in their markets. On an average, the rupee denominated bonds has an interest rate of 2 to 3 % higher compared to the standard LIBOR (London Interbank Offer Rate).
An additional benefit of rupee denominated bonds is that it will encourage foreign buyers to deal more in rupees (and products that help them to reduce exchange rate risks). Hence, internationalization of rupee can be promoted by rupee denominated bonds.
The International Finance Corporation (IFC) – a World Bank affiliate is the first major issuer of rupee denominated bonds in the name tag of ‘masala bonds’. Later, in September 2015, the RBI came out with detailed regulatory guidelines for the issue of rupee denominated bonds. As per the RBI’s regulation on masala bonds, the money can be used only for infrastructure financing purposes. In August 2016, the RBI allowed banks to issue masala bonds to procure money to meet their capital needs and to collect fund to finance infrastructure projects. The overall guidelines for rupee denominated bonds will be same as that for External Commercial Borrowings.

4. Consider the following statements regarding the State of India’s Birds Report 2020.
1. It is released by Bird Life International and Bombay Natural History Society.
2. The State of India’s Birds Report 2020 represents the first collective attempt in India to understand and assess how the avifauna is doing.
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

4. Answer-c
Explanation
The State of India’s Birds (SoIB) Report 2020, a new scientific report on bird species was released recently.
This report was produced as a partnership between the 10 organisations shown here:
Ashoka Trust for Research in Ecology and the Environment (ATREE)
Bombay Natural History Society (BNHS)
Foundation for ecological Security (FES)
Nature Conservation Foundation
National Biodiversity Authority (NBA)
National Centre for Biological Sciences (NCBS)
Salim Ali Centre for Ornithology and Natural History (SACON)
Wetlands International
Wildlife Institute of India (WII)
World Wide Fund for Nature (WWF)
What are some findings?
• This assessment raises the alarm that several birds face a growing threat from loss of habitat due to human activity, widespread presence of toxins, hunting and trapping for the pet trade.
• It warned that diminishing population sizes of many birds because of one factor brings them closer to extinction because of the accelerated effects of others.
• For every bird species that was found to be increasing in numbers over the long term, 11 have suffered losses, some catastrophically.
• Of 101 species categorised as being of High Conservation Concern, endemics such as the Rufous-fronted Prinia, Nilgiri Pipit and Indian vulture were confirmed as suffering current decline.
• All these species except 13 had a restricted or highly restricted range, indicating greater vulnerability to man-made threats.
What are some suggestions in the report?
• Forward-looking actions suggested by the report include an update to the IUCN Red List of endangered species using the SoIB.
• There should be a collaborative research by scientists and citizens aided by policy with special emphasis on removing gaps in data.
• An urgent emphasis on habitats of species of high concern, notably grasslands, scrublands, wetlands and the Western Ghats.

5. Consider the following statements regarding the Yakshagana.
1. It is a temple art form which originated in Karnataka that depicts mythological stories and Puranas.
2. It is performed with massive headgears, elaborate facial make-up and vibrant costumes and ornaments.
3. Usually recited in Kannada, it is also performed in Malayalam as well as Tulu.
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. Answer-d
Explanation-
Yakshagana
Yakshagana is a traditional theatre form of Karnataka. It is a temple art form that depicts mythological stories and Puranas.
It is performed with massive headgears, elaborate facial make-up and vibrant costumes and ornaments.
Usually recited in Kannada, it is also performed in Malayalam as well as Tulu (the dialect of south Karnataka).
It is performed with percussion instruments like chenda, maddalam, jagatta or chengila (cymbals) and chakratala or elathalam (small cymbals).
Yakshagana is a traditional theatre form that combines dance, music, dialogue, costume, make-up, and stage techniques with a unique style and form.
Name: Yakshagana literally means the song (gana) of the yaksha (nature spirits).
Region: It developed in Udupi, in the state of Karnataka. It is popular in the Karnataka districts of Dakshina Kannada, Kasaragod, Udupi, Uttara Kannada and Shimoga.
Background: This folk art is believed to have originated somewhere in between the 10th and 16th century.
Theme: Yakshagana is strongly influenced by the Vaishnava Bhakti movement. Its stories are mainly drawn from Ramayana, Mahabharata, Bhagavata and other Hindu epics.
Key Features:
A typical Yakshagana performance consists of background music played by a group of musicians (known as the himmela); and a dance and dialog group (known as the mummela), who together enact poetic epics on stage.
Yakshagana is traditionally presented from dusk to dawn.
Types:
The tenkutittu style: It is prevalent in Dakshina Kannada. Tenkutittu is noted for its incredible dance steps; its high flying dance moves; and its extravagant rakshasas (demons).
The Badagutittu style: It is prevalent in Uttara Kannada District and places more emphasis on facial expressions, matugarike (dialogues), and dances appropriate for the character depicted in the episode.