Prelims Booster

8th June – Prelims Booster

Foreign Portfolio Investment

In just under a week in June, the quantum of foreign flows into the equity market has surpassed that of any other month in the current calendar year.

Details –

  • Foreign portfolio investors (FPIs) bought shares worth ₹20,814 crore in just five trading sessions in the current month. This is the highest in any month of 2020, with the previous high registered in May at ₹14,569 crore.
  • The current rally has seen money flow into sectors like automobiles, private banks and pharmaceuticals as there is continued hope of the worst being left behind.

What is Foreign Portfolio Investment?

  • Foreign Portfolio Investment or FPI refers to the investment made in the financial assets of an enterprise, based in one country, by the foreign investors.
  • In other words, FPI involves the purchase of securities that can be easily bought or sold.
  • The intent with FPI is generally to invest money into another country’s stock market with the hope of generating a quick return.
  • Such an investment is made with the aim of making short term financial gain and not for obtaining significant control over managerial operations of the enterprise.
  • These include investments via equity instruments (stocks) or debt (bonds) of a foreign enterprise which does not necessarily represent a long-term interest.

What is Foreign Direct Investment?

  • Foreign direct investment or FDI pertains to international investment in which the investor obtains a lasting interest in an enterprise in another country.
  • Most concretely, it may take the form of buying or constructing a factory in a foreign country or adding improvements to such a facility, in the form of property, plants, or equipment.
  • In other words, FDI connotes a cross-border investment, by a resident or a company domiciled in a country, to a company based in another country, with an objective of establishing a lasting interest in the economy.
  • The investment may result in the transfers of funds, resources, technical know-how, strategies, etc.
  • There are several ways of making FDI i.e. creating a joint venture or through merger and acquisition or by establishing a subsidiary company. The investor company has a substantial amount of influence and control over the investee company. Moreover, if the investor company obtains 10% or more ownership of equity shares, then voting rights are granted along with the participation in the management. For example, Walmart acquiring 77% stake in India’s biggest online retailer, Flipkart, is an FDI investment. 

Key differences between FDI and FPI –

  • With FDI, investors are able to exert control over their investments and are typically actively involved in the management of the companies they invest in. Conversely, in FPI the degree of control is less as the investors obtain only ownership right. Therefore, they do not get a say in how their investments pan out because they’re not actively involved in the management or operations of the companies that they’re invested in.
  • One of the most important distinctions between portfolio and direct investment to have emerged in the era of globalisation is that portfolio investment can be much more volatile. Changes in the investment environment in a country can lead to swift changes in portfolio investment. In contrast, FDI is more difficult to pull out or sell off as it implies a controlling stake in a business, and often connotes ownership of physical assets such as equipment, buildings and real estate.
  • FDI investors invest in financial and non-financial assets like resources, technical know-how along with securities. This is contrary to FPI, where investors invest only in financial assets.
  • For an economy as a whole, FDI creates productive assets by investing in factories, machinery & skill and superior technology. In that sense, FDI brings in long-term capital for an economy. FPI doesnt aid productive asset creation directly. It is just a financial investment. The FPI investment pours funds generally into capital or bond markets for a short period of time, usually enough to make profits. Its destination period is small and its funds are generally considered short term capital.
FDI FPI
Active Investment Passive Investment
Direct Investment Indirect investment
Long term capital Short Term capital
Invests in financial & non-financial assets Invests only in financial assets
Ownership and managerial control Only ownership
Stable Volatile
Entry & exit barriers exist Entry & exit very easy

Nasopharyngeal Swabs

In the current pandemic scenario, global supplies of nasopharyngeal (NP) swabs are not dependable resulting in supply chain delays, escalating prices and variable quality.

What is the solution?

CSIR-National Chemical Laboratory (CSIR-NCL), Pune, has developed an indigenous NP swab for collecting samples from the throat cavity of COVID-19 patients.

What is a nasopharyngeal swab?

  • Nasopharyngeal swab is a medical device with stringent specifications of quality, polymer grade, dimensions and sterilisation.
  • An NP swab consists of a cylindrical plastic stick with a brush-like tip of synthetic bristles/flocks.
  • The flocking process helps align the fine bristles in a parallel orientation on the stick head, much like a tooth brush, except that this has round uniform geometry and the NP swab bristles are of micron diameter.

Task Force to examine women related issues

The Government of India has set up a Task Force to examine matters pertaining to age of motherhood, imperatives of lowering MMR, improvement of nutritional levels and related issues.

Background –

  • Women’s age of marriage was increased from fifteen years to eighteen years in 1978, by amending erstwhile Sharda Act of 1929.
  • As India progresses further, opportunities open up for women to pursue higher education and careers.
  • There are imperatives of lowering MMR as well as improvement of nutrition levels. Entire issue about age of a girl entering motherhood needs to be seen in this light.

Terms of Reference of task force –

  • To examine the correlation of age of marriage and motherhood with (a) health, medical well-being and nutritional status of mother and neonate/infant/child, during pregnancy, birth and thereafter, (b) key parameters like Infant Mortality Rate (IMR), Maternal Mortality Rate (MMR), Total Fertility Rate (TFR), Sex Ratio at Birth (SRB), Child Sex Ratio (CSR) etc. and (c) any other relevant points pertaining to health and nutrition in this context.
  • To suggest measures for promoting higher education among women.
  • To suggest suitable legislative instruments and/or amendments in existing laws to support the recommendations of the Task Force.

National Green Tribunal

The Southern Bench of the National Green Tribunal has taken suo moto cognisance of the death of a pregnant elephant in Kerala and appointed a joint committee to ascertain the facts and to recommend the steps to be taken to prevent man-animal conflict in the future.

What is the issue?

  • An elephant died in the Velliyar stream at Ambalappara near Thiruvizhamkunnu forest station recently apparently after having sustained wounds in its mouth a few days earlier. The wound was presumably caused by some explosives set as a trap by local farmers against wild animals.
  • On postmortem, the elephant was found to have been pregnant and that its jaw bone was broken. When the incident came to light about a week later, a nationwide hue and cry was raised over the killing of the animal.

Can NGT intervene in this case?

  • Even though, NGT does not have a direct jurisdiction over the Wildlife Protection Act, 1972, it has the power to be guided by the principles of natural justice to wield justice under Environment Protection Act and Biological Diversity Act.
  • In its order, the green tribunal felt that its intervention was needed to provide some long-term strategy to minimise the man-animal conflict in protected areas and fringe villages adjoining forests.

About National Green Tribunal –

  • It is a specialised body set up under the National Green Tribunal Act (2010) for effective and expeditious disposal of cases relating to environmental protection and conservation of forests and other natural resources.
  • The Tribunal comprises of the Chairperson, the Judicial Members and Expert Members. They shall hold office for term of five years and are not eligible for reappointment.
  • The Chairperson is appointed by the Central Government in consultation with Chief Justice of India (CJI).
  • The Tribunal has jurisdiction over all civil cases involving substantial question relating to environment (including enforcement of any legal right relating to environment).
  • The Tribunal is not bound by the procedure laid down under the Code of Civil Procedure 1908, but shall be guided by principles of ‘natural justice’.
  • The NGT deals with civil cases under the seven laws related to the environment, these include – The Water (Prevention and Control of Pollution) Act, 1974; The Water (Prevention and Control of Pollution) Cess Act, 1977; The Forest (Conservation) Act, 1980; The Air (Prevention and Control of Pollution) Act, 1981; The Environment (Protection) Act, 1986; The Public Liability Insurance Act, 1991 and; The Biological Diversity Act, 2002.
  • The NGT has not been vested with powers to hear any matter relating to the Wildlife (Protection) Act, 1972, the Indian Forest Act, 1927 and various laws enacted by States relating to forests, tree preservation etc.

About Wildlife Protection Act, 1972 –

The Wildlife Protection Act, 1972 is an Act of the Parliament of India enacted for protection of plants and animal species. Among other reforms, the Act established schedules of protected plant and animal species; hunting or harvesting these species was largely outlawed.

Key Provisions of the Wildlife Protection Act –

  • Schedule I and II are the most potent sections of the act. This section covers animals which are in the category of endangered species. The sections in this schedule give absolute protection to certain species and these cannot be infringed on any account.
  • Schedule III and IV – These also have roughly the same provisions of Section I and II, but cover animals that are not in danger of becoming extinct. The penalties under this section are also less than Schedule I and II.
  • Schedule V delineates animals that can be hunted like ducks and deer’s. For this purpose the hunter has to apply for a license to the District Forest Officer who will allow a hunter to shoot during a specific season and restricted area. Any infringement can lead to cancellation of the hunting license.
  • Schedule VI concerns cultivation and plant life and gives teeth to setting up more protected animal parks.

Unmanned Aircraft System Rules, 2020

The Ministry of Civil Aviation notified the draft rules, known as Unmanned Aircraft System Rules, 2020, on June 2 for importing, manufacturing and owning drones as well as for drone ports, or airports for drones. It has invited comments from stakeholders within 30 days, following which the rules will be finalised.

Details –

  • The Centre has notified draft rules prohibiting “carriage of payload” as well as “dropping of articles” by unmanned aerial vehicles.
  • The rules come at a time the DGCA has permitted food startups like Zomato and Swiggy to conduct trials for drones beyond the visual line of sight (BVLOS).

Key features of the Unmanned Aircraft System Rules, 2020 (Draft) –

  • The rules look set to allow beyond visual line of sight (BVLOS) operations and bring drone traders under its ambit.
  • Anyone in the business — manufacturer, importer, trader, owner or operator — must take approval from the Directorate General of Civil Aviation (DGCA).
  • An importer or manufacturer can sell drones only to an authorised trader or owner. The draft rules propose establishing dedicated drone ports and corridors in permitted areas, which have not been specified. Licenses will have to be obtained for operations.
  • A drone can capture images as long as it is not flying over non-permissible areas and after “ensuring the privacy of an individual and his property”.
  • The DGCA will have the powers to inspect a manufacturing or maintenance facility before granting any authorisation.
  • Operators must have a third party insurance policy, while they will carry only such materials as permitted by the DGCA.
  • Only nano class drones, which are less than 250 grams, will be allowed to operate.
  • A “qualified remote pilot” will be permitted to operate the heavier drones.
  • The draft rules have three categories of drones: Remotely Piloted Aircraft System (RPAS), Model Remotely Piloted Aircraft System and Autonomous Unmanned Aircraft System.
  • Unmanned aircraft are further classified on the basis of maximum all-up-weight, including payload, as nano (up to 250 gram); micro (250 gram to 2 kg); small: (2-25 kg); medium (25-150 kg) and large (over 150 kg).
  • The draft has made it very clear that no drone in India will be allowed to fly without a Unique Identification Number (UIN).

Sunderbans

About 28% of the Sunderbans have been damaged by Cyclone Amphan, Chief Minister Mamata Banerjee said recently at the launch of a drive for planting mangroves and trees to mark World Environment Day.

Details –

She said 1,200 sq km of the 4,263 sq km forests had been “destroyed”. The Indian Sunderbans, an area south of the Dampier Hodges line, is spread over 9,630 sq km, of which the mangrove forest accounts for 4,263 sq km.

About Sunderbans –

  • It comprises hundreds of islands and a network of rivers, tributaries and creeks in the delta of the Ganga and the Brahmaputra at the mouth of the Bay of Bengal in India and Bangladesh.
  • Located on the southwestern part of the delta, the Indian Sunderbans constitutes over 60% of the country’s total mangrove forest area.
  • It is the 27th Ramsar Site in India, and with an area of 4,23,000 hectares is now the largest protected wetland in the country.
  • Indian Sunderban is a UNESCO World Heritage Site, is home to the Royal Bengal Tiger.

Export Credit Guarantee Corporation of India

Export Credit Guarantee Corporation of India (ECGC) plans to clear all pending claims of apparel exporters in four months.

About Export Credit Guarantee Corporation of India –

  • ECGC Ltd is wholly owned by the Ministry of Commerce and Industry.
  • The Government of India had initially set up Export Risks Insurance Corporation in 1957.
  • After the introduction of insurance covers to banks during the period 1962-64, the name was changed to Export Credit & Guarantee Corporation Ltd in 1964. It was changed to ECGC Ltd in August 2014.
  • Its objective was to promote exports from the country by providing credit risk insurance and related services for exports.

Gross Value Added

As per the NSO, real GDP (Gross Domestic Product) in the full fiscal year was estimated to have expanded by 4.2% from a year earlier, the slowest pace of growth in 11 years.

What is Gross Value Added (GVA)?

  • As per the United Nations System of National Accounts (SNA), gross value added, is defined as the value of output minus the value of intermediate consumption and is a measure of the contribution to GDP made by an individual producer, industry or sector.
  • At its simplest it gives the rupee value of goods and services produced in the economy after deducting the cost of inputs and raw materials used.
  • GVA can be described as the main entry on the income side of the nation’s accounting balance sheet, and from an economics perspective represents the supply side.
  • While India had been measuring GVA earlier, it had done so using ‘factor cost’ and GDP at ‘factor cost’ was the main parameter for measuring the country’s overall economic output till the new methodology was adopted.
  • In the new series, in which the base year was shifted to 2011-12 from the earlier 2004-05, GVA at basic prices became the primary measure of output across the economy’s various sectors and when added to net taxes on products amounts to the GDP.

How is it measured?

  • As part of the data on GVA, the NSO provides both quarterly and annual estimates of output — measured by the gross value added — by economic activity.
  • The sectoral classification provides data on eight broad categories that span the gamut of goods produced and services provided in the economy.
  • These are: 1) Agriculture, Forestry and Fishing; 2) Mining and Quarrying; 3) Manufacturing; 4) Electricity, Gas, Water Supply and other Utility Services; 5) Construction; 6) Trade, Hotels, Transport, Communication and Services related to Broadcasting; 7) Financial, Real Estate and Professional Services; 8) Public Administration, Defence and other Services.

What are the drawbacks in using GVA to measure economic growth?

  • As with all economic statistics, the accuracy of GVA as a measure of overall national output is heavily dependent on the sourcing of data and the fidelity of the various data sources in capturing the vast labyrinth of activities that constitute a nation’s economic life.
  • To that extent, GVA is as susceptible to vulnerabilities from the use of inappropriate or flawed methodologies as any other measure.
  • In a June 2019 research paper titled ‘India’s GDP Mis-estimation: Likelihood, Magnitudes, Mechanisms, and Implications,’ former Chief Economic Adviser Arvind Subramanian of Harvard University and the Peterson Institute for International Economics posited that the change in methodology and data sources when India switched its base year to 2011-12 had led to a significant overestimation of growth.
  • Specifically, he argued that the value based approach instead of the earlier volume based tack in GVA estimation had affected the measurement of the formal manufacturing sector and thus distorted the outcome.
  • The paper triggered much debate and prompted the Ministry of Statistics & Programme Implementation to assert in a response that the Ministry’s GDP estimates were based on “accepted procedures, methodologies and available data and objectively measure the contribution of various sectors in the economy”.
  • The GVA data is crucial to understand how the various sectors of the real economy are performing. The output or domestic product is essentially a measure of GVA combined with net taxes.

Prelims Facts

Petrapole – It is the Indian side of Petrapole-Benapole border checkpoint between India and Benapole of Bangladesh, on the Bangladesh-India border, near Bongaon in North 24 Parganas district of West Bengal. Petrapole border is the only land port in south Bengal. It is also the largest land customs station in Asia.

Daily MCQs

1. Which of the following statement(s) is/are incorrect? 1. Foreign Direct Investment is aimed to exert control over the management of the companies while the degree of such control in Foreign Portfolio Investment is less. 2. Foreign Direct Investment is more difficult to sell off while the Foreign Portfolio Investment can be much more volatile. 3. Foreign Direct Investment creates more productive assets directly but Foreign Portfolio Investment does not create productive assets directly.

Correct! Wrong!

All statements are correct. With FDI, investors are able to exert control over their investments and are typically actively involved in the management of the companies they invest in. Conversely, in FPI the degree of control is less as the investors obtain only ownership right. Therefore, they do not get a say in how their investments pan out because they're not actively involved in the management or operations of the companies that they're invested in. One of the most important distinctions between portfolio and direct investment to have emerged in the era of globalisation is that portfolio investment can be much more volatile. Changes in the investment environment in a country can lead to swift changes in portfolio investment. In contrast, FDI is more difficult to pull out or sell off as it implies a controlling stake in a business, and often connotes ownership of physical assets such as equipment, buildings and real estate. FDI investors invest in financial and non-financial assets like resources, technical know-how along with securities. This is contrary to FPI, where investors invest only in financial assets. For an economy as a whole, FDI creates productive assets by investing in factories, machinery & skill and superior technology. In that sense, FDI brings in long-term capital for an economy. FPI doesn’t aid productive asset creation directly. It is just a financial investment. The FPI investment pours funds generally into capital or bond markets for a short period of time, usually enough to make profits. Its destination period is small and its funds are generally considered short term capital.

2. Which of the following statement(s) is/are correct about ‘National Green Tribunal’? 1. The Chairperson of NGT is appointed by the Central Government in consultation with the Supreme Court of India. 2. The tribunal has jurisdiction over all the criminal cases involving substantial question relating to environment (including enforcement of any legal right relating to environment).

Correct! Wrong!

NGT comprises of the Chairperson, the Judicial Members and Expert Members. They shall hold office for term of five years and are not eligible for reappointment. The Chairperson is appointed by the Central Government in consultation with Chief Justice of India (CJI). The Tribunal has jurisdiction over all civil cases involving substantial question relating to environment (including enforcement of any legal right relating to environment). The Tribunal is not bound by the procedure laid down under the Code of Civil Procedure 1908, but shall be guided by principles of 'natural justice’.

3. Which of the following statement(s) is/are correct about Sunderbans? 1. It is a UNESCO World Heritage Site and is home to the Royal Bengal Tiger. 2. It is also one of the Ramsar Sites in India. 3. It is the largest protected wetland in the country.

Correct! Wrong!

Sunderbans comprise hundreds of islands and a network of rivers, tributaries and creeks in the delta of the Ganga and the Brahmaputra at the mouth of the Bay of Bengal in India and Bangladesh. Located on the southwestern part of the delta, the Indian Sunderbans constitutes over 60% of the country’s total mangrove forest area. It is the 27th Ramsar Site in India, and with an area of 4,23,000 hectares is now the largest protected wetland in the country. Indian Sunderban is a UNESCO World Heritage Site, is home to the Royal Bengal Tiger.

4. Which of the following statement(s) is/are correct about ‘Export Credit Guarantee Corporation of India’? 1. It is an autonomous body set up under the Ministry of Commerce and Industry. 2. It aims to promote exports from the country by providing interest free loans to the exporters.

Correct! Wrong!

ECGC Ltd is wholly owned by the Ministry of Commerce and Industry. The Government of India had initially set up Export Risks Insurance Corporation in 1957. After the introduction of insurance covers to banks during the period 1962-64, the name was changed to Export Credit & Guarantee Corporation Ltd in 1964. It was changed to ECGC Ltd in August 2014. Its objective was to promote exports from the country by providing credit risk insurance and related services for exports.

5. 'Petrapole' is situated in -

Correct! Wrong!

Petrapole is the Indian side of Petrapole-Benapole border checkpoint between India and Benapole of Bangladesh, on the Bangladesh-India border, near Bongaon in North 24 Parganas district of West Bengal. Petrapole border is the only land port in south Bengal. It is also the largest land customs station in Asia.

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