CURRENT AFFAIRS – 16/01/2024

CURRENT AFFAIRS - 16/01/2024

CURRENT AFFAIRS – 16/01/2024

CURRENT AFFAIRS – 16/01/2024

Davos Summit: World Economic Forum

(General Studies- Paper III)

Source : The Indian Express

The World Economic Forum (WEF) was initiated and founded by German professor Klaus Schwab.

  • A mechanical engineering graduate with a Master of Public Administration degree from Harvard University, Schwab was a professor of business policy at the University of Geneva from 1972 to 2003.
  • He established the WEF in 1971, originally named the European Management Forum.
  • The forum introduced the concept of “stakeholder capitalism,” emphasizing long-term value creation and considering the interests of all stakeholders, not just shareholders.

Key Highlights

  • Stakeholder Capitalism:
    • The core philosophy of WEF, as articulated by Klaus Schwab, revolves around “stakeholder capitalism.”
    • This approach advocates that companies should not solely prioritize short-term profits for shareholders but should also take into account the needs of all stakeholders, including employees, suppliers, and the broader community.
    • The WEF website underscores the idea that a company’s responsibility extends beyond maximizing shareholder value to serving all its stakeholders and contributing positively to society.
  • Annual Meeting Overview:
    • The WEF Annual Meeting is a globally significant event held from January 15 to 19 in Davos, Switzerland.
    • The meeting gathers influential figures from various sectors, including political leaders, business executives, and representatives from international organizations.
    • Notable attendees include figures like AntónioGuterres (UN Secretary-General), Ajay Banga (President of the World Bank Group), TedrosAdhanom Ghebreyesus (Director-General of the World Health Organization), and political leaders from countries such as India, the US, China, France, and Sri Lanka.
    • The primary purpose of the WEF Annual Meeting is to provide a platform for leaders from business, government, and civil society to come together and address major global challenges.
    • Attendees engage in discussions, share insights, and collaborate on finding solutions to pressing issues.
    • The forum serves as a brainstorming session where participants explore innovative approaches to global problems.
    • The meeting encompasses a wide range of topics, reflecting the diverse challenges faced by the global community.
  • Global Issues and Solutions:
    • During the Annual Meeting, participants focus on a variety of global issues, considering economic, social, and environmental dimensions.
    • The collaborative nature of the forum encourages the exchange of ideas and the development of actionable strategies to tackle these challenges.
    • The goal is to foster a holistic perspective that goes beyond individual interests, emphasizing the interconnectedness of global issues and the need for cooperative solutions.
  • Activities at the World Economic Forum (WEF) Annual Meeting
    • Initially, the WEF, founded by Professor Klaus Schwab, concentrated on how European firms could catch up with US management practices.
    • However, events in 1973, including the collapse of the Bretton Woods fixed exchange rate mechanism and the Arab-Israeli War, prompted the Annual Meeting to expand its focus beyond management to encompass economic and social issues.
    • In 1975, the WEF introduced a membership system for the “1,000 leading companies of the world.”
    • This marked a pivotal step, and the forum became the first non-governmental institution to form a partnership with China’s economic development commissions in 1979, coinciding with the establishment of diplomatic ties between China and the US.
    • Davos, Switzerland, serves as the backdrop for the WEF Annual Meeting, bringing together approximately 3,000 participants.
    • This diverse group includes paying members and selected invitees, representing investors, business leaders, political figures, economists, celebrities, and journalists.
    • The gathering spans up to five days and features around 500 sessions.
  • Discussion of Global Issues:
    • The sessions cover economic, social, and environmental concerns, allowing participants to share insights, collaborate on solutions, and explore innovative approaches to address pressing challenges.
    • The forum’s collaborative nature encourages a holistic perspective on interconnected global issues.
  • Funding and Corporate Partners:
    • The WEF receives substantial funding from partnering corporations, typically global enterprises with annual turnovers exceeding $5 billion.
    • This financial support enables the organization to host and facilitate the Annual Meeting, bringing together influential individuals from various sectors to address critical global and regional socio-economic issues.
  • Diplomacy and Historical Milestones at WEF
    • The World Economic Forum (WEF) Annual Meeting serves not only as a forum for economic discussions but also as a location for pivotal international diplomacy.
    • Leaders often find Davos conducive for breaking tensions and engaging in diplomatic dialogues, leading to significant historical moments.
    • The WEF website highlights instances where Davos facilitated crucial diplomatic engagements.
    • Notably, North and South Korea held their first ministerial-level meetings in Davos.
    • Additionally, during the same meeting, East German Prime Minister Hans Modrow and German Chancellor Helmut Kohl met to discuss German reunification.
    • These diplomatic dialogues exemplify the town’s role in fostering discussions on geopolitical challenges.
    • Apartheid’s End:
      • In 1992, the Annual Meeting played a pivotal role in the political transition of South Africa.
      • South African President de Klerk, Nelson Mandela, and Zulu prince Mangosuthu Buthelezi had their first joint appearance outside South Africa at Davos.
      • This event marked a milestone in the country’s political transition and the end of apartheid.
    • Formation of G20:
      • In 1998, participants at the WEF Annual Meeting emphasized the need to include major developing countries in global decision-making.
      • This led to the idea of forming a body that included 20 countries, comprising both developed and developing economies.
      • The meeting of what became known as the G20 took place in Bonn, Germany, later that year.
      • Initially focused on global finance and restricted to finance ministers, the G20 eventually evolved into a summit, addressing broader global issues.
      • The elevation to a summit occurred in 2008 when the US hosted a G20 summit in Washington DC to address the impact of the global economic crisis.
    • Global Rankings and Indices:
      • Apart from facilitating diplomatic engagements, the WEF has played a role in shaping global discourse through the regular publication of influential reports.
      • Notable examples include the Global Competitiveness Report and the Global Gender Gap Report.
      • These publications provide valuable insights and rankings, contributing to discussions on economic competitiveness and gender equality worldwide.

Understanding the “collapse of the Bretton Woods fixed exchange rate mechanism”

  • The “collapse of the Bretton Woods fixed exchange rate mechanism” refers to a significant event in the early 1970s that marked the breakdown of the international monetary system established at the Bretton Woods Conference in 1944.
  • The Bretton Woods system was a set of rules and institutions designed to govern international monetary relations and promote economic stability in the aftermath of World War II.
  • Key components of the Bretton Woods system included fixed exchange rates, the gold standard, and the establishment of two major international institutions—the International Monetary Fund (IMF) and the World Bank.
  • Under the fixed exchange rate system, countries pegged their currencies to the value of gold or the U.S. dollar, which was convertible to gold at a fixed rate.
  • The collapse of the Bretton Woods fixed exchange rate mechanism unfolded as follows:
    • Convertibility Issues:
      • The U.S. dollar was a linchpin in the Bretton Woods system, serving as the primary reserve currency.
      • However, by the late 1960s, the U.S. faced economic challenges, including a growing trade deficit and an increasing supply of dollars in circulation.
      • This led to doubts about the U.S. government’s ability to maintain the gold convertibility of the dollar at the established rate.
    • Gold Drain:
      • As the U.S. faced pressure to maintain the dollar’s convertibility to gold, there was a significant drain on U.S. gold reserves.
      • Other countries, concerned about the stability of the dollar, started converting their dollar holdings into gold, further depleting U.S. gold reserves.
    • Nixon’s Response:
      • In August 1971, facing mounting economic challenges and a diminishing gold supply, U.S. President Richard Nixon took a historic step.
      • In what became known as the Nixon Shock, he announced a series of measures that included suspending the convertibility of the U.S. dollar into gold.
      • This decision essentially severed the link between the U.S. dollar and gold, marking the end of the Bretton Woods fixed exchange rate system.
    • Floating Exchange Rates:
      • With the collapse of the fixed exchange rate system, major currencies were allowed to float against each other.
      • This meant that exchange rates were determined by market forces, such as supply and demand, rather than being fixed by government agreements.

What is Bretton Woods?

  • The term “Bretton Woods” refers to the Bretton Woods Conference, a landmark international gathering held in July 1944 at the Mount Washington Hotel in Bretton Woods, New Hampshire, USA.
  • The conference laid the foundation for the post-World War II international monetary and financial system.
  • The primary goal of the conference was to establish a framework for economic cooperation and stability among the major industrialized nations.
  • The conference led to the creation of two major international institutions:
    • the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD), which later became part of the World Bank Group.
  • The Bretton Woods institutions were designed to foster economic cooperation and provide financial assistance for the reconstruction of war-torn economies.
  • The IMF aimed to stabilize exchange rates and facilitate the growth of international trade, while the IBRD focused on providing financial resources for the reconstruction and development of member countries.

What is Fixed Exchange Rate System?

  • In a fixed exchange rate system, the value of a country’s currency is tied or pegged to the value of another major currency, a basket of currencies, or a commodity like gold.
  • The central bank or monetary authority of a country commits to maintaining the exchange rate of its currency within a narrow band or at a specific value against the chosen benchmark.
  • This commitment often involves direct intervention in the foreign exchange market by buying or selling currencies to keep the exchange rate stable.

What is Floating Exchange Rate System?

  • In a floating exchange rate system, the value of a country’s currency is determined by the market forces of supply and demand in the foreign exchange market.
  • The exchange rate fluctuates based on various factors, including economic conditions, inflation rates, interest rates, and geopolitical events.
  • Governments and central banks do not actively intervene to peg their currency to a specific value, allowing the exchange rate to adjust freely.

What latest Inflation data say?

(General Studies- Paper III)

Source : The Indian Express

The release of Consumer Price Index (CPI) inflation data holds crucial significance for fiscal policy, especially considering its timing as the last inflation data release before the presentation of the Union Budget on February 1.

  • The CPI inflation figures provide policymakers with insights into the current inflationary environment, influencing decisions related to government spending, taxation, and economic policies outlined in the upcoming budget.

Key Highlights

  • Relevance for Monetary Policy Decision-Making:
    • From the perspective of monetary policy, the CPI inflation data is of paramount importance as it represents the most recent information available to the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI).
    • This information plays a key role in shaping decisions related to interest rates, liquidity management, and other monetary policy measures.
    • The MPC, reconvening in later February, relies on this data to assess inflation trends and formulate appropriate monetary policy responses.
  • The timing of this CPI inflation data release is particularly noteworthy as it marks the first release in the election year.
    • In election years, economic indicators, especially those related to inflation, can carry heightened political significance.
    • Inflation data has the potential to influence public perceptions of economic well-being and can be a critical factor in political discussions and debates.
  • Understanding CPI Inflation:
    • CPI inflation, as distinct from the wholesale price index-based inflation rate, measures the rate of inflation that consumers face.
    • The Consumer Price Index reflects changes over time in the general level of prices of a basket of selected goods and services that households acquire for consumption.
    • The basket of goods and services is designed to represent the typical consumption patterns of households.
    • Calculation Method:
      • The base year for the current series of CPI indices is 2012.
      • The index is assigned a value of 100 for the base year, and changes in price levels for individual goods and services are then calculated to determine inflation rates.
      • The CPI basket comprises 299 items at an all-India level, and separate indices are constructed for both rural and urban consumers.
    • Data Collection:
      • The National Statistical Office (NSO) within the Ministry of Statistics and Programme Implementation collects monthly price data from 1181 villages and 1114 urban markets across the country.
      • This comprehensive data collection, conducted on a weekly basis by NSO field staff, contributes to the accuracy and reliability of the CPI inflation figures.
    • Components of CPI:
      • The Consumer Price Index (CPI) in India comprises six main components, each assigned different weights in the overall index. The main components are as follows:
        • Food and Beverages
        • Pan, Tobacco, and Intoxicants
        • Clothing and Footwear
        • Housing
        • Fuel and Light
        • Miscellaneous (includes services such as education and healthcare)
      • Food articles hold the highest weight of 54% in the total CPI, making them a significant contributor to the overall inflation index.
      • Within the food category, cereal prices have the most substantial impact, accounting for 12.4% of the total CPI.
    • Data Analysis:
      • Year-on-Year (YoY) vs. Month-on-Month (MoM):
        • In analyzing inflation data, two approaches are commonly used.
        • The YoY method compares the price level in December of the current year with that of December in the previous year.
        • The MoM approach, on the other hand, compares the prices in December to those in November of the same year.
      • Trends in 2023:
        • The data indicates a rise in the YoY inflation rate towards the end of 2023.
        • However, the MoM data for December shows deflation, indicating a decrease in prices from November to December.
        • It’s important to note that deflation is distinct from disinflation, which refers to a slowdown in the rate of inflation.
      • Inflation Drivers:
        • Among the various components, a notable factor contributing to the YoY inflation increase in December was a relative spike in food prices.
        • Specifically, vegetable prices surged by almost 28%, pulses became costlier by 21%, and spices saw a 20% increase.
        • Cereals, accounting for 12.4% of the total CPI, also contributed to the inflation rise, being 10% costlier.
        • The inflation rate exhibited regional variation, with Odisha registering the highest inflation at 8.7%, while Delhi experienced the lowest at 2.9%.

  • Significance of Food Prices:
    • The prominence of food articles in the CPI, with a considerable weight of 54%, underscores the impact that fluctuations in food prices can have on consumer inflation.
    • As a significant portion of Indian consumers allocates a substantial portion of their income towards meeting their food demand, changes in food prices can disproportionately influence the overall CPI.
  • Significance of Latest Inflation Data in India
    • Expectations of Inflation Easing:
      • Analysts anticipate a potential easing of the inflation rate in the upcoming months.
      • Factors contributing to this expected decline include the Kharif harvest and government interventions aimed at mitigating food inflation.
      • For the full financial year, a projected inflation rate of 5.5% is anticipated, with the expectation that by March 2024, the inflation rate will be around 5%.
    • Impact on Monetary Policy:
      • Despite the anticipation of easing inflation, the latest inflation data is likely to delay the possibility of a cut in interest rates by the Reserve Bank of India (RBI).
      • The inflation trend, reversing in November and December, has shifted expectations for an early rate cut.
      • Previously, there were hopes for a rate cut as early as April, but now it appears unlikely that the RBI will implement such measures before August.
      • The core inflation rate, which excludes food and fuel inflation, has been on a downward trend.
    • Implications for Fiscal Policymakers:
      • Higher inflation poses challenges for fiscal policymakers, not only due to its potential political ramifications close to elections but also because of the uncertainty it introduces into the budget-making process.
      • The impact of inflation on various sectors of the economy, coupled with the need for fiscal prudence, makes it a crucial factor in shaping fiscal policy decisions.

About the Monetary Policy Committee (MPC)

  • The MPC in India was constituted under the framework of the Reserve Bank of India Act, 1934, which was amended in 2016 to introduce a statutory basis for the committee.
  • The formation of the MPC marked a shift from the earlier practice where the Governor of the Reserve Bank of India (RBI) had the sole authority to determine monetary policy.
  • Composition:
    • The MPC consists of six members, including three members from the RBI and three external members appointed by the central government.
    • The composition is as follows:
      • RBI Governor (Chairperson of the committee)
      • Deputy Governor of RBI in charge of Monetary Policy (Member)
      • One officer of RBI (usually an executive director) nominated by the RBI Board (Member)
      • Three external members appointed by the central government.
    • Term of Office:
      • The external members of the MPC serve a term of four years.
      • The term is renewable based on the central government’s discretion.
    • Decision-Making Process:
      • The MPC operates on a principle of majority decision.
      • Each member has one vote, including the RBI Governor, who acts as the chairperson. In case of a tie, the Governor has the casting vote.
    • Role and Tasks:
      • The primary task of the MPC is to set the policy interest rate, known as the repo rate, which influences short-term interest rates in the economy.
      • The committee aims to achieve the government’s inflation target, which is set in terms of the Consumer Price Index (CPI).
      • The MPC is mandated to submit a report to the central government if inflation deviates from the target, along with the reasons for the deviation and the remedial actions proposed.
      • Inflation Targeting Framework:
        • The MPC operates under a flexible inflation targeting framework, where it aims to maintain consumer price inflation within a specified target range.
        • The current mandate of the committee is to maintain 4% annual inflation until 31 March 2026 with an upper tolerance of 6% and a lower tolerance of 2%.

About National Statistical Office (NSO)

  • The NSO was established to enhance the efficiency and coordination of statistical activities in India.
  • It operates as a part of the Ministry of Statistics and Programme Implementation (MoSPI).
  • The ministry oversees the planning, development, and execution of statistical programs in the country.
  • The primary functions of the NSO include the collection and publication of key economic, demographic, and social indicators.
    • It conducts nationwide surveys, censuses, and sample surveys to gather data on various aspects of the economy and society.
    • The NSO’s responsibilities extend to both macroeconomic indicators and sector-specific data.
  • Major Statistical Surveys and Reports:
    • Consumer Price Index (CPI): Measures inflation by tracking changes in the prices of a basket of goods and services.
    • Index of Industrial Production (IIP): Indicates the growth in the industrial sector.
    • National Accounts Statistics (NAS): Provides comprehensive information on the country’s economic performance.
    • Employment and Unemployment Surveys: Offers insights into the labor market dynamics.
    • Periodic Labour Force Survey (PLFS): Focuses on employment and unemployment patterns in the country.

India’s multidimensional poverty rate down to 11.28% in 2022-23

(General Studies- Paper II)

Source : The Indian Express

According to a discussion paper released by NITI Aayog, India has witnessed a significant reduction in the share of its population living in multidimensional poverty, dropping from 29.17% in 2013-14 to 11.28% in 2022-23.

  • The paper highlights substantial progress, estimating that approximately 24.82 crore individuals have escaped multidimensional poverty over the past nine years.

Key Highlights

  • Regional Impact:
    • States such as Uttar Pradesh, Bihar, Madhya Pradesh, and Rajasthan experienced the most notable decline in the number of people classified as poor based on the Multidimensional Poverty Index (MPI).
    • The MPI considers twelve indicators across health, education, and standard of living.
  • Severity of Deprivation and Reduction data:
    • The severity of deprivation, measuring the hardships faced by the average multidimensionally poor person, showed a declining trend.
    • However, the reduction rate was slightly lower between 2015-16 and 2019-21 compared to the period from 2005-06 to 2013-14.
    • The share of MPI poor in India’s total population witnessed a faster reduction after 2015-16, compared to the decade before.
    • In 2005-06, the share of MPI poor was 55.34% of the total population.
    • Data Sources:
      • The discussion paper relies on previously released MPI data based on National Family Health Surveys (NFHS) conducted in 2015-15 and 2019-21.
      • Additionally, NFHS-3 data from 2005-06 is utilized to analyze long-term poverty trends.
    • Assessment Methodology:
      • NITI Aayog, in collaboration with Oxford Policy and Human Development Initiative (OPHI) and United Nations Development Programme (UNDP), utilized three National Family Health Surveys (NFHS) datasets to estimate the share of Multidimensional Poverty Index (MPI) poor in India for the years 2013-14 and 2022-23.
    • Impact of COVID-19 Pandemic:
      • It was noted that the share of MPI poor in 2022-23, without the impact of the coronavirus pandemic, would have been even lower.
      • The paper acknowledges that the data may not fully capture the pandemic’s economic impact, as part of the NFHS-5 data was collected before the onset of the pandemic.
    • Achievement of SDG Target 1.2:
      • NITI Aayog CEO BVR Subrahmanyam expressed optimism that India is likely to achieve Sustainable Development Goals (SDG) Target 1.2 well before the 2030 deadline.
      • This particular SDG target aims to reduce the proportion of individuals living in poverty in all its dimensions by at least half.
    • Indicators and Deprivation Levels:
      • The discussion paper released by NITI Aayog sheds light on the evolution of multidimensional poverty in India, focusing on various indicators across different dimensions.
      • Standard of Living Dimension:
        • Indicators related to the standard of living dimension exhibited the highest levels of deprivation in 2005-06.
        • Deprivation in cooking fuel decreased from 74.4% in 2005-06 to 43.9% between 2019-21.
        • Deprivation in adequate sanitation facilities reduced from 70.92% in 2005-06 to 30.93% between 2019-21.
      • Access to Bank Accounts:
        • The indicator measuring deprivation of access to bank accounts showed the sharpest decline, falling to 9.66% in 2013-14 from 58.11% in 2005-06.
      • Regional Declines:
        • Bihar recorded a substantial 53% drop in the share of MPI poor, decreasing from 56.3% in 2013-14 to 26.59% in 2022-23.
        • Jharkhand experienced a 50% decline, moving from a 47.13% share of MPI poor to 23.34%.
        • Uttar Pradesh, with a lower share of MPI poor than Bihar, Jharkhand, and Meghalaya in 2022-23, saw a decline to 17.4% from 42.59% in 2013-14.

  • Definition of Multidimensional Poverty:
    • In 2010, the Multidimensional Poverty Index (MPI), pioneered by Sabina Alkire and James Foster, was endorsed by the United Nations Development Programme (UNDP).
    • Building on this global framework, NITI Aayog, in collaboration with the United Nations Development Programme (UNDP) and the Oxford Poverty and Human Development Initiative (OPHI), developed the National Multidimensional Poverty Index (MPI) for India.
    • India’s definition of multidimensional poverty encompasses twelve indicators, including nutrition, child and adolescent mortality, maternal health, years of schooling, school attendance, drinking water, electricity, housing, and assets.
      • India’s national MPI retains 10 indicators from the Global MPI and introduces 2 new indicators—Maternal Health (in the dimension of Health) and Bank Account (in the dimension of Standard of Living).
    • The National MPI contributes to measuring progress for Sustainable Development Goals (SDGs), specifically targeting SDG Target 1.2.
      • This goal aims to reduce “at least by half the proportion of men, women, and children of all ages living in poverty in all its dimensions according to national definitions” by 2030.