RBI Suddenly Raised Repo Rate By 40 bps
Context:
Interest rates in the banking system are set to go up after the Reserve Bank of India (RBI) jacked up the Repo rate, the main policy rate, by 40 basis points to 4.40 per cent and the cash reserve ratio (CRR) by 50 basis points to 4.50 per cent to suck out liquidity and bring down the elevated inflation.
- However, the central bank retained the accommodative monetary policy in an unscheduled meeting of the Monetary Policy Committee (MPC).
Relevance:
GS III- Indian Economy
Dimensions of the Article:
- Instruments of Monetary Policy
- What will be the impact?
- What does the Repo rate hike mean?
- What will be the impact of the CRR hike?
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 Reserve Bank 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 Reserve Bank 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 Reserve Bank 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 Reserve Bank 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 Reserve Bank of India 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 mobilised is held in a separate government account with the Reserve Bank.
What will be the impact?
- Equated monthly instalments (EMIs) on home, vehicle and other personal and corporate loans are likely to go up.
- Deposit rates are also set to rise after the Repo rate hike that came after nearly four years.
- By hiking the Repo rate and CRR, the RBI is aiming to keep inflation – which is already close to 7 per cent — at its desired level, and control and monitor money flow into the banking system at a time when the global economy is facing turbulent times.
What does the Repo rate hike mean?
- The hike in Repo rate – the key policy rate of RBI or the rate at which it lends to banks – means the cost of funds for banks will go up.
- This will prompt banks and NBFCs to raise the lending and deposit rates in the coming days.
- However, analysts say that consumption and demand can be impacted by the Repo rate hike.
- The RBI last hiked the Repo rate by 25 bps to 6.50 per cent in August 2018.
What will be the impact of the CRR hike?
- CRR is the percentage of depositors’ money that commercial banks have to mandatorily park with the Reserve Bank.
- The 50 bps hike in CRR will suck out Rs 87,000 crore from the banking system.
- The lendable resources of banks will come down accordingly.
- It also means the cost of funds will go up and banks’ net interest margins could get adversely impacted.
- If the RBI wants to infuse more liquidity into a system, it lowers the CRR and leaves banks with more liquidity to lend.
- If the RBI wants to suck out liquidity from the system, it increases the CRR rate.
Office of Profit
Context:
The Election Commission has sent a warning to Jharkhand’s chief minister, alleging that he held a “office of profit” by granting himself a mining lease in 2021.
- The chief minister is accused of violating a provision of the Representation of the People Act.
Relevance:
GS II- Polity and Governance
Dimensions of the Article:
- What is the concept of ‘office of profit’?
- Article 102(1)
- According to the definition, what constitutes an ‘office of profit’?
- Protection against disqualification
What is the concept of ‘office of profit’?
- MPs and MLAs, as members of the legislature, hold the government accountable for its work.
- The essence of disqualification under the office of profit law is if legislators holds an ‘office of profit’ under the government, they might be susceptible to government influence, and may not discharge their constitutional mandate fairly.
- The intent is that there should be no conflict between the duties and interests of an elected member.
- Hence, the office of profit law simply seeks to enforce a basic feature of the Constitution- the principle of separation of power between the legislature and the executive.
Article 102(1)
A person shall be disqualified for being chosen as, and for being, a member of either House of Parliament:
- if he holds any office of profit under the Government of India or the Government of any State, other than an office declared by Parliament by law not to disqualify its holder;
- if he is of unsound mind and stands so declared by a competent court;
- if he is an undischarged insolvent;
- if he is not a citizen of India, or has voluntarily acquired the citizenship of a foreign State, or is under any acknowledgement of allegiance or adherence to a foreign State;
- if he is so disqualified by or under any law made by Parliament Explanation For the purposes of this clause a person shall not be deemed to hold an office of profit under the Government of India or the Government of any State by reason only that he is a Minister either for the Union or for such State.
Article 191(1) provides for disqualification of a Member of Legislative Assembly or Legislative Council of a State with the same clauses from a through e (except in clause a – “parliament” is replaced by “Legislature of the State”.
According to the definition, what constitutes an ‘office of profit’?
- The law does not clearly define what constitutes an office of profit but the definition has evolved over the years with interpretations made in various court judgments.
- An office of profit has been interpreted to be a position that brings to the office-holder some financial gain, or advantage, or benefit.
- The amount of such profit is immaterial.
- In 1964, the Supreme Court ruled that the test for determining whether a person holds an office of profit is the test of appointment.
Several factors are considered in this determination including factors such as:
- whether the government is the appointing authority?
- whether the government has the power to terminate the appointment?
- whether the government determines the remuneration?
- what is the source of remuneration?
- what is the power that comes with the position?
Protection against disqualification
- Provisions of Articles 102 and 191 also protect a legislator occupying a government position if the office in question has been made immune to disqualification by law.
- In the recent past, several state legislatures have enacted laws exempting certain offices from the purview of office of profit.
- Parliament has also enacted the Parliament (Prevention of Disqualification) Act, 1959, which has been amended several times to expand the exempted list.
- There is no bar on how many offices can be exempted from the purview of the law. (This raises an important concern. If a large number of legislators are appointed to such offices, their role in scrutinising the work of the government may be impaired.)
TN NEET Exemption Bill
Context:
The CM informed the Tamil Nadu Legislative Assembly that Governor has forwarded the NEET exemption Bill to the Union Home Ministry to be sent to the President of India for his assent.
Relevance:
GS-II: Social Justice and Governance (Issues related to Education, Government Policies and Initiatives), GS-II: Polity and Governance (Centre-State Relations)
Dimensions of the article:
- The provisions of Permanent Exemption Bill for NEET in Tamil Nadu
- What is NEET and Arguments against NEET
- Why is it going for President’s assent?
The provisions of Permanent Exemption Bill for NEET in Tamil Nadu
- The Permanent Exemption Bill for NEET exempts medical aspirants in Tamil Nadu from taking NEET examination for admission to UG degree courses in Indian medicine, dentistry and homeopathy.
- Instead, it seeks to provide admission to such courses on the basis of marks obtained in the qualifying examination, through “Normalisation methods”.
- The aim of the Bill is to ensure “social justice, uphold equality and equal opportunity, protect all vulnerable student communities from being discriminated”, the government said.
- The Bill seeks to bring vulnerable student communities to the “mainstream of medical and dental education and in turn ensure a robust public health care across the state, particularly the rural areas”.
- The Bill opposes NEET because it “undermined the diverse societal representation in MBBS and higher medical studies, favouring mainly the affordable and affluent sections of the society and thwarting the dreams of underprivileged social groups”, it said.
- NEET is not a fair or equitable method of admission since it favoured the rich and elite sections of society, the preamble of the Bill to override NEET said.
- The preamble added that the high-level committee making a detailed study on NEET concluded that if it continued for a few more years, the health care system of Tamil Nadu would be severely affected and there may not be enough doctors for Primary Health Centres or state-run hospitals and that the rural and urban poor may not be able to pursue medical courses.
- Admissions to medical courses are traceable to entry 25 of List III, Schedule VII of the Constitution and therefore the state legislature is competent to regulate the same, the Statement of Objects and Reasons (SoOAR) of the Bill.
What is NEET and Arguments against NEET
- The Indian Medical Council (IMC) Act states that there shall be a uniform entrance examination to all medical educational institutions at UG level and PG level through such designated authority.
- Union government issued an Ordinance in 2016 postponing the introduction of NEET to 2017 due to the opposition from many quarters.
- The Tamil Nadu state assembly says the National Eligibility-cum-Entrance Test is not a fair or equitable method of admission since it favoured the rich and elite sections of society who can afford coaching.
- Some argue that NEET ‘undermined the diverse societal representation’ in MBBS and higher medical studies, favouring mainly the affluent class.
- It is argued that the social groups most affected were the students of Tamil medium, having a rural background of government schools, those having a parental income of less than Rs 2.5 lakh per annum.
- It was also said that if NEET continued, the health care system of the state would be severely affected and there may not be enough doctors for Primary Health Centres or state-run hospitals.
Why is it going for President’s assent?
- The point is not whether the State government can change a Concurrent List law, but whether it can exempt Section 10D of the IMC Act, which is a parliamentary law that falls within the Central List (Entry 66).
- In addition, the Supreme Court maintained NEET as a prerequisite.
- Statistics indicating that the majority of stakeholders in Tamil Nadu oppose NEET are insufficient to justify the exam’s exemption.
President Has No Role To Play in Perarivalan’s Plea: SC
Context:
The Supreme Court has disagreed with the Central government’s suggestion that the court should wait till the President took a call on former PM’s assassination case convict A.G. Perarivalan’s mercy plea referred to him by the Tamil Nadu Governor for a decision.
Relevance:
GS-II: Polity and Governance
Dimensions of the Article:
- Why in news now?
- Background: Timeline of the legal battle for Perarivalan’s release
- President’s Pardoning Power: Article 72
- Governor’s Pardoning Power: Article 161
- Types of Pardon’s by the Governor
- Difference between Pardoning Powers of Governor and the President
Why in news now?
- The Bench of the Supreme Court said that the Centre had missed the obvious question posed by the court by a mile.
- The pertinent question was whether the Governor had, in the first place, the authority to refer the mercy plea to the President.
- Under Article 161 of the Constitution, the Governor was bound by the aid and advice given by the TN Council of Ministers in September 2018.
- The Governor prima facie had no authority to transfer the mercy plea to the President.
Background: Timeline of the legal battle for Perarivalan’s release
- A pardon plea was filed by Perarivalan before the Tamil Nadu Governor in 2015.
- In 2018, the SC asked the Governor to decide the pardon plea as he “deemed fit”.
- The Tamil Nadu Cabinet had recommended to the Governor to release Perarivalan and six others in 2018 itself.
- The cabinet decision to remit sentences of all seven convicts, including Perarivalan, was welcomed by all political parties in the state.
- But the Governor chose to take time and hence the cabinet’s decision is pending.
- In 2020, the Madras High Court said that Tamil Nadu Governor cannot sit on the state government’s recommendation for so long and reminded that there is no time limit prescribed for the constitutional authority (Governor) to decide on such issues only “because of the faith and trust attached to the constitutional post”.
President’s Pardoning Power: Article 72
- Under Article 72 of the Constitution, the President shall have the power to grant pardons, reprieves, respites or remissions of punishment or to suspend, remit or commute the sentence of any person convicted of any offence where the sentence is a sentence of death.
Important Points regarding Pardoning power of the President of India
- The President cannot exercise his power of pardon independent of the government.
- In several cases, the Supreme Court (SC) has ruled that the President has to act on the advice of the Council of Ministers while deciding mercy pleas. These include Maru Ram vs Union of India in 1980, and Dhananjoy Chatterjee vs State of West Bengal in 1994.
- Although the President is bound by the Cabinet’s advice, Article74 (1) empowers him to return it for reconsideration once. If the Council of Ministers decides against any change, the President has no option but to accept it.
Governor’s Pardoning Power: Article 161
Similar to the Pardoning Power of the President, pardoning power of the Governor grants the following:
- Pardon
- Respite
- Remission
- Reprieve
- Commute
Article 161:
The Governor of a State shall have the power to grant pardons, reprieves, respites or remissions of punishment or to suspend, remit or commute the sentence of any person convicted of any offence against any law relating to a matter to which the executive power of the State extends.
Types of Pardon’s by the Governor
Pardon
- When the Governor pardons, both the sentence and the conviction of the convict completely absolve the sentences, punishments and disqualifications.
- The Governor cannot pardon the punishment by court-martial.
- The Governor cannot pardon the death sentence which only the Indian President can do.
Respite
- When the Governor uses his pardoning power of ‘Respite’, he chooses to award a lesser sentence in place of one originally awarded to the convict.
- For example, due to some special fact, such as the physical disability of a convict or the pregnancy of a woman offender, the President can use this power.
Reprieve
- When the Governor chooses the pardoning power of ‘Reprieve’; he stays the execution of a sentence (especially that of death) for a temporary period.
- By doing this, he enables the convict to have time to seek pardon or commutation from him.
Remit
- When the President chooses the pardoning power of Remit, he acts to reduce the period of the sentence but the character of the sentence remains the same.
- For example, a sentence of rigorous imprisonment for two years may be remitted to rigorous imprisonment for one year but the imprisonment remains rigorous.
Commute
- Governor can commute the punishment or sentence of any person convicted of any offence against a state law or he can commute a death sentence.
Difference between Pardoning Powers of Governor and the President
| PARDONNING POWER OF THE PRESIDENT | PARDONING POWER OF THE GOVERNOR |
| He can pardon a sentence of the convict given by the court-martial or the military court | Governor does not have the power to pardon the sentence inflicted by the court-martial on the convict |
| The President can also pardon the death sentence through commutation or in its entirety. | Governor cannot pardon the death sentence even if the said sentence has been prescribed under the state law. However, he can suspend, remit or commute the death sentence by using these pardoning powers. |
| His pardoning powers are granted for the cases where the convict has committed an offence against a Union law | His pardoning powers are granted for the cases where the convict has committed an offence against a state law |
Hence, the scope of the pardoning power of the President under Article 72 is wider than the pardoning power of the Governor under Article 161
