Editorial 1: Retail inflation drops to 6.44%, but still above RBI upper band
Recnet Context:
- Recently, As per data released by the National Statistical Office (NSO), Retail inflation is lower to 6.44 per cent in February from 6.52 per cent in January, even as it remained above the upper band of the 4+/- 2 per cent medium-term target of the Reserve Bank of India (RBI) for the second consecutive month
- While food inflation eased marginally to 5.95 per cent in February from the revised level of 6 per cent in January (earlier 5.94 per cent), inflation for cereals, milk and fruits picked up and Core inflation , non-food, non-fuel component continued to remain above 6 per cent mark for the fourth consecutive month
Role and Responsibilities of RBI in controlling in the Inflation:
- Under the Reserve Bank of India, Act,1934 (RBI Act,1934) (as amended in 2016, 2021), RBI is entrusted with the responsibility of conducting monetary policy in India with the primary objective of maintaining price stability (Inflation) while keeping in mind the objective of growth.
Note: Consumer Price Index (CPI) (combined) is used as the key measure of Retail inflation by RBIs.
What is the Inflation target?
- Under the Under Section 45ZA of RBI act1934 , the Central Government, in consultation with the RBI, determines the inflation target in terms of the Consumer Price Index (CPI), once in five years and notifies it in the Official Gazette
- Under which Central Government notified in the Official Gazette 4 per cent Consumer Price Index (CPI) inflation as the target for the period from August 5, 2016 to March 31, 2021 with the upper tolerance limit of 6 per cent and the lower tolerance limit of 2 per cent.
- On March 31, 2021, the Central Government retained the inflation target and the tolerance band for the next 5-year period – April 1, 2021 to March 31, 2026.
- Section 45ZB of the RBI Act provides for the constitution of a six-member Monetary Policy Committee (MPC) (which is headed by RBI governor) determine the policy rate required to achieve the inflation target.
- Therefore, Inflation target is set by central government and it is maintained by RBI through monetary policy tools.
What does Section 45ZN of the RBI Act say?
- This is the first time since the RBI adopted an inflation-targeting monetary policy regime in 2016 that an MPC meeting has been called under the provisions of Section 45ZN of the Act.
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The Central Government has notified the following as the factors that constitute failure to achieve the inflation target: (a) the average inflation is more than the upper tolerance level of the inflation target for any three consecutive quarters; or (b) the average inflation is less than the lower tolerance level for any three consecutive quarters.
- Where the Bank fails to meet the inflation target, it shall set out in a report to the Central Government:
- the reasons for failure to achieve the inflation target;
- remedial actions proposed to be taken by the Bank; and
- an estimate of the time-period within which the inflation target shall be achieved pursuant to timely implementation of proposed remedial actions.
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The Monetary Policy Committee and its composition:
- The Monetary Policy Committee (MPC) constituted by the Central Government under Section 45ZB RBI Act, 1934 determines the policy interest rate required to achieve the inflation target.
It has 6 Members
- The Governor of the Bank—Chairperson, ex officio;
- (b) Deputy Governor of the Bank, in charge of Monetary Policy—Member, ex officio;
- (c) One officer of the Bank to be nominated by the Central Board—Member, ex officio
- The three central government nominees of the MPC appointed by the search cum selection committee will hold office for a period of four years and will not be eligible for re-appointment
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Instruments of Monetary Policy
There are several direct and indirect instruments that are used for implementing monetary policy.
- Repo Rate: The interest rate at which the Reserve Bank provides liquidity under the liquidity adjustment facility (LAF) to all LAF participants against the collateral of government and other approved securities.
- Reverse Repo Rate: The interest rate at which the Reserve Bank absorbs liquidity from banks against the collateral of eligible government securities under the LAF. Following the introduction of SDF, the fixed rate reverse repo operations will be at the discretion of the RBI for purposes specified from time to time
- Cash Reserve Ratio (CRR): The average daily balance that a bank is required to maintain with the Reserve Bank as a per cent of its net demand and time liabilities (NDTL) as on the last Friday of the second preceding fortnight that the Reserve Bank may notify from time to time in the Official Gazette.
- Statutory Liquidity Ratio (SLR): Every bank shall maintain in India assets, the value of which shall not be less than such percentage of the total of its demand and time liabilities in India as on the last Friday of the second preceding fortnight, as the Reserve Bank may, by notification in the Official Gazette, specify from time to time and such assets shall be maintained as may be specified in such notification (typically in unencumbered government securities, cash and gold).
- Standing Deposit Facility (SDF) Rate: The rate at which the Reserve Bank accepts uncollateralised deposits, on an overnight basis, from all LAF participants. The SDF is also a financial stability tool in addition to its role in liquidity management. The SDF rate is placed at 25 basis points below the policy repo rate. With introduction of SDF in April 2022, the SDF rate replaced the fixed reverse repo rate as the floor of the LAF corridor.
- Marginal Standing Facility (MSF) Rate: The penal rate at which banks can borrow, on an overnight basis, from the Reserve Bank by dipping into their Statutory Liquidity Ratio (SLR) portfolio up to a predefined limit (2 per cent). This provides a safety valve against unanticipated liquidity shocks to the banking system. The MSF rate is placed at 25 basis points above the policy repo rate.
- Liquidity Adjustment Facility (LAF): The LAF refers to the Reserve Bank’s operations through which it injects/absorbs liquidity into/from the banking system. It consists of overnight as well as term repo/reverse repos (fixed as well as variable rates), SDF and MSF. Apart from LAF, instruments of liquidity management include outright open market operations (OMOs), forex swaps and market stabilisation scheme (MSS).
- LAF Corridor: The LAF corridor has the marginal standing facility (MSF) rate as its upper bound (ceiling) and the standing deposit facility (SDF) rate as the lower bound (floor), with the policy repo rate in the middle of the corridor.
- Bank Rate: The rate at which the Reserve Bank is ready to buy or rediscount bills of exchange or other commercial papers. The Bank Rate acts as the penal rate charged on banks for shortfalls in meeting their reserve requirements (cash reserve ratio and statutory liquidity ratio). The Bank Rate is published under Section 49 of the RBI Act, 1934. This rate has been aligned with the MSF rate and, changes automatically as and when the MSF rate changes alongside policy repo rate changes.
- Open Market Operations (OMOs): These include outright purchase/sale of government securities by the Reserve Bank for injection/absorption of durable liquidity in the banking system.
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Conlcusion:
- Monetary policy alone may not be as effective in the Indian case. Therefore, is need to revise its CPI basket with the latest consumption survey weights.
- Fiscal policy is also to be collaborated so that monetary policy transmission is carried out in right direction.
- along with it to remove the supply side there is requirement to improve the supply side by increasing the production of basket of commodities, effective and efficient utilization of resources, better setup of supply chain management along with logistic support
Editorial 2: Antiquities abroad: What Indian, international laws say
Recent Context:
- Recently, International Consortium of Investigative has found that the catalogue of the Metropolitan Museum of Art, New York, includes at least 77 items with links to Subhash Kapoor, who is serving a 10-year jail term in Tamil Nadu for smuggling antiquities.
What is an antiquity?
- The Antiquities and Art Treasures Act, 1972, implemented on April 1, 1976, defined “antiquity” as
- “Any coin, sculpture, painting, epigraph or other work of art or craftsmanship;
- any article, object or thing detached from a building or cave;
- any article, object or thing illustrative of science, art, crafts, literature, religion, customs, morals or politics in bygone ages;
- any article, object or thing of historical interest” that “has been in existence for not less than one hundred years.”
- For “manuscript, record or other document which is of scientific, historical, literary or aesthetic value”, this duration is “not less than seventy-five years.”
What do international conventions say?
- The UNESCO 1970 Convention on the Means of Prohibiting and Preventing the Illicit Import, Export and Transfer of Ownership of Cultural Property defined
- “cultural property” as the property designated by countries having “importance for archaeology, prehistory, history, literature, art or science.”
- The Declaration further said that “the illicit import, export and transfer of ownership of cultural property is one of the main causes of the impoverishment of the cultural heritage of the countries of origin of such property and
- international co-operation constitutes one of the most efficient means of protecting each country’s cultural property.”
- In order to protect it, in 2000, the General Assembly of the UN and the UN Security Council in 2015 and 2016 also raised concerns on the issue.
- An INTERPOL report in 2019 said that almost 50 years after the UNESCO convention, “the illicit international traffic of cultural items and related offences is sadly increasingly prolific.”
What do Indian laws say?
- In India, Item-67 of the Union List, Item-12 of the State List, and Item-40 of the Concurrent List of the Constitution deal with the country’s heritage.
- Before Independence, an Antiquities (Export Control) Act had been passed in April 1947 to ensure that “no antiquity could be exported without license.”
- In 1958, The Ancient Monuments and Archaeological Sites and Remains Act was enacted. Then in 1971, Parliament saw an uproar over the theft of a bronze idol from Chamba and some important sandstone idols from other places.
- This, along with the UNESCO convention, prompted the government to enact The Antiquities and Art Treasures Act, 1972 (AATA), implemented from April 1, 1976.
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Antiquities and Art Treasures Act, 1972 (AATA), states that
“it shall not be lawful for any person, other than the Central Government or any authority or agency authorised by the Central Government in this behalf, to export any antiquity or art treasure… No person shall, himself or by any other person on his behalf, carry on the business of selling or offering to sell any antiquity except under and in accordance with the terms and conditions of a licence
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How is ownership proved?
- The UNESCO 1970 declaration stated that, “The requesting Party shall furnish, at its expense, the documentation and other evidence necessary to establish its claim for recovery and return.”
- The first thing in order to prove the ownership is the complaint (FIR) filed with the police. In India, the problem with missing antiquities is that in many cases, there is no FIR. But other proof, like details mentioned by reputed scholars in research papers etc., also work.
How to check for fake antiquities?
- Under section 14(3) of the AATA, “Every person who owns, controls or is in possession of any antiquity” shall register such antiquity before the registering officer “and obtain a certificate in token of such registration.”
- So far, the National Mission on Monuments and Antiquities, launched in March 2007, has registered 3.52 lakh antiquities among the 16.70 lakh it has documented, to help in “effective check” of illegal activities.
- This is a very small portion of the total number of antiquities in the country, which the government estimates to be around 58 lakh, according to a statement by the Ministry of Culture in Parliament in July 2022.
Can India bring back antiquities?
- There are three categories to take note of:
- antiquities taken out of India pre-independence;
- those which were taken out since independence until March 1976, i.e. before the implementation of AATA; and
- antiquities taken out of the country since April 1976.
- For items in the first two categories, requests have to be raised bilaterally or on international fora. For instance, the Maharashtra government on November 10, 2022 announced it was working to bring back the sword of Chhatrapati Shivaji Maharaj from London.
- This sword was given to Edward, the Prince of Wales (the later King Edward VII) by Shivaji IV in 1875-76.
- Several antiquities, from Vagdevi of Dhar (MP), to the Kohinoor diamond, to Amaravati marbles to the Sultanganj Buddha to antiquities related to Rani Laxmibai and Tipu Sultan, are currently abroad.
- Antiquities in the second and third categories can be retrieved easily by raising an issue bilaterally with proof of ownership and with the help of the UNESCO convention.
Conclusion:
- Antiquities represent the rich heritage and culture of a nation which are to be protected with domestic laws and international cooperation.
- Along with nations should come forward at international platform to raise the concern for exchange of these priceless objects which explains historical art and literature along with aesthetic beauty of nation.