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Current Affairs – 29 May 2021

Current Affairs (29th May 2021)

Costlier edible oils

Context:

  • According to the data by the Department of Consumer Affairs, the prices of six edible oils — groundnut oil, mustard oil, vanaspati, soya oil, sunflower oil, and palm oil — have risen between 20% and 56% at all-India levels in the last one year.
  • In fact, the monthly average retail prices of all six edible oils soared to an 11-year high in May 2021. The sharp increase in cooking oil prices has come at a time when household incomes have been hit due to COVID-19.

Consumption of edible oils:

  • With rising incomes and changing food habits, consumption of edible oils has been rising over the years. While mustard oil is consumed mostly in rural areas, the share of refined oils —sunflower oil and soyabean oil — is higher in urban areas.
  • A steady rise in the per capita availability of vegetable oils, through domestic sources as well as imports, indicates that demand has continued to rise.
  • According to the Ministry of Agriculture and Farmers’ Welfare, the per capita availability of vegetable oils in the country has been in the range of 19.10 kg to 19.80 kg per annum during the last five years.

How much is produced domestically and how much is imported?

  • In 2019-20, domestic availability of edible oils from both primary sources (oilseeds like mustard, groundnut etc.) and secondary sources (such as coconut, oil palm, rice bran oil, cotton seed) was only 10.65 million tonnes against the total domestic demand of 24 million tonnes — a gap of over 13 million tonnes.
  • Thus, India depends on imports to meet its demand. In 2019-20, the country imported about 13.35 million tonnes of edible oils worth Rs 61,559 crore, or about 56% of the demand.
  • This mainly comprised palm, soyabeanand sunflower. The major sources of these imports are Argentina and Brazil for soyabean oil; Indonesia and Malaysia palm oil; and Ukraine and Argentina again for sunflower oil.

Why are prices rising?

  • The increase in domestic prices is basically a reflection of international prices because India meets 56% of its domestic demand through imports.
  • In the international market, prices of edible oils have jumped sharply in recent months due to various factors.
  • One of the reasons behind this rising price is the thrust on making biofuel from vegetable oil.
  • There is a shifting of edible oils from food basket to fuel basket, there has been a thrust on making renewable fuel from soyabean oil in the US, Brazil, and other countries.
  • He said that despite the Covid-19, the global demand for edible oils has been high.
  • Other factors include buying by China, labour issues in Malaysia, the impact of La Niña on palm and soya producing areas, and export duties on crude palm oil in Indonesia and Malaysia.

What are the options before the government?

  • One of the short-term options for reducing edible oil prices is to lower import duties.
  • The policy for import of crude palm oil is “free”, while for RBD palm oil it is “restricted.” If the government reduces import duty on refined palm oil, prices will come down immediately.
  • However, the edible oil industry is not in favour of reducing duties. If import duties are reduced, international prices will go up, and neither will the government get revenue, nor will the consumer benefit.
  • Government can also subsidise edible oils and make available these to the poor under the Public Distribution System.

 

Bangla-Lanka currency swap 

Context:

  • Bangladesh’s central bank has approved a $200 million currency swap facility to Sri Lanka.

What is the arrangement?

  • Bangladesh’s central bank has in principle approved a $200 million currency swap agreement with Sri Lanka. It will help Colombo tide over its foreign exchange crisis.
  • Sri Lanka, staring at an external debt repayment schedule of $4.05 million this year, is in urgent need of foreign exchange. Its own foreign exchange reserves in March year stood at $4 million.
  • The two sides have to formalise an agreement to operationalise the facility approved by Bangladesh Bank.

What is a currency swap?

  • In this context, a currency swap is effectively a loan that Bangladesh will give to Sri Lanka in dollars, with an agreement that the debt will be repaid with interest in Sri Lankan rupees.
  • Central banks and Governments engage in currency swaps with foreign counterparts to meet short term foreign exchange liquidity requirements or to ensure adequate foreign currency to avoid Balance of Payments (BOP) crisis till longer arrangements can be made.
  • Sri Lanka, this is cheaper than borrowing from the market, and a lifeline as is it struggles to maintain adequate forex reserves even as repayment of its external debts looms.
  • The period of the currency swap will be specified in the agreement.

Unusual for Bangladesh:

  • Bangladesh has not been viewed so far as a provider of financial assistance to other countries. It has been among the most impoverished countries of the world, and still receives billions of dollars in financial aid.
  • But over the last two decades, its economy has pulled itself up literally by the bootstraps, and in 2020, was the fastest growing in South Asia.
  • The country has managed to pull millions out of poverty. Its per capita income just overtook India’s.
  • This may be the first time that Bangladesh is extending a helping hand to another country, so this is a landmark of sorts.
  • It is also the first time that Sri Lanka is borrowing from a SAARC country other than India.

India-Sri Lanka

  • Last year, Sri Lankan President knocked on Indian Prime Minister’s door for a $1 billion credit swap, and separately, a moratorium on debts that the country must repay to India.
  • But India-Sri Lanka relations have been tensed over Colombo’s decision to cancel a valued container terminal project at Colombo Port.
  • Earlier, in July 2020, the Reserve Bank of India (RBI) extended a USD 400 million credit swap facility to Sri Lanka, which the Central Bank of Sri Lanka settled in February. The arrangement was not extended.
  • With the tourism industry destroyed since the 2019 Easter attacks, Sri Lanka had lost one of its top foreign exchange pullers even before the pandemic.
  • The tea and garment industries have also been hit by the pandemic affecting exports. Remittances increased in 2020 but are not sufficient to pull Sri Lanka out of its crisis.
  • The country is already deep in debt to China. In April, Beijing gave Sri Lanka a $1.5 billion currency swap facility.
  • Separately, China, which had extended a $1 billion loan to Sri Lanka last year, extended the second $500 million tranche of that loan. According to media reports, Sri Lanka’s owes China up to $5 billion.

RBI framework

  • Last July, the Reserve Bank of India did extend a $400 million credit swap facility to Sri Lanka, which Central Bank of Sri Lanka settled in February. The arrangement was not extended.
  • RBI has a framework under which it can offer credit swap facilities to SAARC countries within an overall corpus of $2 billion.
  • According to RBI, the SAARC currency swap facility came into operation in November 2012 with the aim of providing to smaller countries in the region “a backstop line of funding for short-term foreign exchange liquidity requirements or balance of payment crisis till longer term arrangements are made”.
  • The presumption was that only India, as the regional group’s largest economy, could do this. The Bangladesh-Sri Lanka arrangement shows that is no longer valid.

 

Lakshadweep Crisis

Context:

  • Policies introduced by Lakshadweep Administrator Praful Khoda Patel in Lakshadweep have sparked protests in the union territory.
  • Patel was made administrator of Lakshadweep in December 2020.
  • He took over as the Administrator after the passing of Dineshwar Sharma, former Director, Intelligence Bureau.

About:

  • The draft Lakshadweep Development Authority Regulation (LDAR), 2021 will require ratification from the Union Home Ministry and the Cabinet before it is implemented.
  • The Union Home Ministry is the administrating authority for the Union Territory of Lakshadweep.
  • Any proposed change to the laws in Lakshadweep is to be brought through regulationsinstead of a Bill as is the case in other UTs with a legislature such as Delhi and Puducherry.
  • These regulations are then put up for public consultation and once the response is received, it is sent to the Union Home Ministry.
  • The Ministry will examine the regulations, and only after it clears them will the draft be sent to the Union Cabinet for approval.

Issues:

  • The Draft Lakshadweep Development Authority Regulation 2021 (LDAR) gives the administrator powers to remove or relocate islanders from their property, for town planning or any developmental activity.
  • The draft regulation proposes seven years’ imprisonment for the consumption or the sale of beef.
  • Under the Prevention of Anti-Social Activities Act (PASA), introduced in January 2021, a person can be detained without any public disclosure for a period of up to one year.
  • As per a draft panchayat notification, a member with more than two children is disqualified from being a member.
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