Current Affairs for UPSC IAS Exam – 5 May 2021

Contents

1. G7 seeks common front on China
2. India receives COVID-19 aid from Taiwan
3. PMI services drops to three-month low in April
4. MFIs flag rural borrower distress to RBI

G7 seeks common front on China

Context:

The Group of Seven wealthy democracies discussed how to form a common front towards an increasingly assertive China in the Foreign Ministers’ first in-person talks in two years.

Relevance:

GS-II: International Relations (Important International Groupings, Foreign Policies and conferences affecting India’s Interests)

Dimensions of the Article:

1. Group of Seven (G7)
2. G7: First in-person talks Highlights

Group of Seven (G7)

The Group of Seven (G7) is an international intergovernmental economic organization consisting of the seven largest developed economies (International Monetary Fund IMF- advanced economies) in the world.

G-7 Countries are:

1. Canada,
2. France,
3. Germany,
4. Italy,
5. Japan,
6. The United Kingdom and
7. The United States.

The European Union is sometimes considered an eighth member of the G-7, since it holds all the rights and responsibilities of full members except to chair or host the meeting.

• G7 Summit is an event conducted annually where world leaders from seven powerful economies of the world come together to discuss burning issues happening around the globe.
• The major purpose of the G-7 is to discuss and deliberate on international economic issues.
• G7 is capable of setting the global agenda because decisions taken by these major economic powers have a real impact. Thus, decisions taken at the G7 are not legally binding, but exert strong political influence.
• It sometimes acts in concert to help resolve other global problems, with a special focus on economic issues.

G7: First in-person talks Highlights

• Backing U.S. President Joe Biden’s calls for a deeper alliance of democracies, host Britain invited guests, including India, South Korea and Australia, for talks in central London.
• The G7 devoted its first session to China, whose growing military and economic clout, and willingness to exert its influence at home and abroad have increasingly unnerved Western democracies.
• Japan has historic tensions with China but has held off on joining Western nations with sanctions.
• Italy has been seen as one of the most Beijing-friendly nations in the West, in 2019 signing up for China’s massive infrastructure-building Belt and Road Initiative (BRI) but Italy joined EU peers in summoning the Chinese Ambassador in a row triggered by concerns over treatment of the Uighurs.

-Source: The Hindu

India receives COVID-19 aid from Taiwan

Context:

India received assistance from Taiwan including oxygen concentrators and cylinders, with more batches of medical equipment set to follow from Taipei.

A first batch, consisting of 50 oxygen concentrators and 500 oxygen cylinders, landed in New Delhi on Sunday on a Boeing 747 of China Airlines, the government-owned airline of Taiwan.

Relevance:

GS-II: International Relations (India’s Neighbors, International Developments and Policies affecting India’s Interests)

Dimensions of the Article:

1. About Taiwan
2. India’s Taiwan Dilemma
3. China’s Position on Taiwan
4. India’s Position on Taiwan
   • About Taiwan’s Assistance

About Taiwan

• Taiwan, officially the Republic of China (ROC), is a state in East Asia.
• The island of Taiwan has the People’s Republic of China (PRC) to the north-west, Japan to the north-east, and the Philippines to the south.
• Taipei is the capital of Taiwan.

India’s Taiwan Dilemma

• The U.S. has, in the recent past, accused WHO of acting as a “PR agency” for China during the pandemic.
• A seven-nation virtual meeting of Foreign Ministers was convened by U.S. which appeared to be part of Washington’s efforts to gain support for its move to effect changes at the WHO.
• U.S. Senate passed an act to regain observer status for Taiwan in the World Health Organization.
• India is likely to hold the post for the next three years. The timing of the appointment is crucial, given the worldwide debate on the role of the WHO during the pandemic, and criticism of the current WHO Director.

China’s Position on Taiwan

• China has also stepped-up warnings on any attempt to include or support Taiwan’s role at the WHA.
• Chine referred to the “One-China” principle as “a widely accepted universal consensus of the international community including the Indian government.”
• China asserts that there is only “One China” and that Taiwan is an inalienable part of it.
• China put forward a formula, known as “one country, two systems”, under which both Beijing and Taipei agree that Taiwan belongs to China, while the two still disagree on which entity is China’s legitimate governing body.
• China also stated its right to use “non-peaceful means” against Taiwan if it tried to secede from China.

India’s Position on Taiwan

• The MEA declined to comment on whether Taiwan was discussed during the meeting, or whether India has decided on supporting the US on its move to include Taiwan as a WHA participant.
• India recognises only the People’s Republic of China (in mainland China) and not the Republic of China’s claims of being the legitimate government of Mainland China, Hong Kong, and Macau – a conflict that emerged after the Chinese Civil War (1945–49).
• The United States, Canada, the United Kingdom, India, Pakistan and Japan have formally adopted the One China policy, under which the People’s Republic of China is theoretically the sole legitimate government of China.
• India and Taiwan do not have formal diplomatic relations but since 1995, both sides have maintained representative offices in each other’s capitals that function as de facto embassies. India has backed the “one-China policy”.
• India finds it difficult to realise the full potential of its bilateral relationship with Taiwan. At present, about 15 countries worldwide continue to recognise Taiwan as an independent state. India is not among the sixteen countries.
• Taiwan is an important geographical entity in the Indo-Pacific region. India’s vision of the Indo-Pacific is inclusive and it must encourage the participation of Taiwan and other like-minded countries.
• India is already a major focus country in Taiwan’s New Southbound Policy, launched in 2016. Under this, Taiwan aims to increase its international profile by expanding political, economic, and people-to-people linkages.
• Taiwan’s reputation as the world leader in semiconductor and electronics complements India’s leadership in ITES (Information Technology-Enabled Services).

About Taiwan’s Assistance

• The aid reflects the growing engagement between India and Taiwan, especially against the backdrop of the standoff with China on the Line of Actual Control (LAC) and China’s aggressive actions across the region, including repeated violations of Taiwan’s airspace.
• India, meanwhile, has not yet accepted China’s offers of aid and assistance and has preferred to source medical supplies from China on a commercial basis.

-Source: The Hindu

PMI services drops to three-month low in April

Context:

India’s services activity slowed to a three-month low in April 2021, with an escalating second wave of coronavirus pandemic and localized lockdowns across the country forcing services firms to curtail operations.

Relevance:

GS-III: Indian Economy (Growth and Development of Indian Economy, Mobilization of Resources)

Dimensions of the Article:

1. What is Purchasing Managers’ Index (PMI)?
2. Understanding PMI

What is Purchasing Managers’ Index (PMI)?

• The Purchasing Managers’ Index (PMI) is an index of the prevailing direction of economic trends in the manufacturing and service sectors.
• It consists of a diffusion index that summarizes whether market conditions, as viewed by purchasing managers, are expanding, staying the same, or contracting.
• The purpose of the PMI is to provide information about current and future business conditions to company decision makers, analysts, and investors.
• In simple words, Purchasing Managers Index (PMI) is a measure of the prevailing direction of economic trends in manufacturing.
• PMI is a survey-based measure that asks the respondents about changes in their perception about key business variables as compared with the previous month.
• The purpose of the PMI is to provide information about current and future business conditions to company decision makers, analysts, and investors.
• It is calculated separately for the manufacturing and services sectors and then a composite index is also constructed.
• PMI is compiled by IHS Markit for more than 40 economies worldwide – IHS Markit is a global leader in information, analytics and solutions for the major industries and markets that drive economies worldwide.

Understanding PMI

The PMI is a number from 0 to 100.

1. A print above 50 means expansion, while a score below that denotes contraction.
2. A reading at 50 indicates no change.

• If PMI of the previous month is higher than the PMI of the current month, it represents that the economy is contracting.
• It is usually released at the start of every month. It is, therefore, considered a good leading indicator of economic activity.

It is different from the Index of Industrial Production (IIP), which also gauges the level of activity in the economy.

1. IIP covers the broader industrial sector compared to PMI.
2. However, PMI is more dynamic compared to a standard industrial production index.

-Source: Livemint

MFIs flag rural borrower distress to RBI

Context:

The pandemic’s second wave is affecting rural households far more than 2020, with a large number of microfinance staffers, borrowers and their families hit by COVID-19, impacting many more livelihoods than during the first wave.

The trend, which poses a higher risk of loan delinquencies if the rising infections don’t taper off by the end of May along with mobility restrictions, was flagged by microfinance institutions (MFIs) to the Reserve Bank of India Governor.

Relevance:

GS-III: Indian Economy (Growth and Development of Indian Economy, Banking Sector)

Dimensions of the Article:

1. What are Micro Finance Institutions (MFIs)?
2. Microfinance in India
3. Micro Finance Associated Challenges
4. RBIs flagging of MFI distress signal

What are Micro Finance Institutions (MFIs)?

• Micro finance Institutions, also known as MFIs, a microfinance institution is an organisation that offers financial services to low-income populations.
• Usually, their area of operations of extending small loans are rural areas and among low-income people in urban areas.
• MFIs provide the much-needed aid to the economically underprivileged who would have otherwise been at the mercy of the local moneylender and high interest rates.
• The model had its genesis as a poverty alleviation tool, focused on economic and social upliftment of the marginalised sections through lending of small amounts of money without any collateral to women for income-generating activities.
• Some of the MFIs, that qualify certain criteria and are non-deposit taking entities, come under RBI wings for Non-Banking Financial Company (NBFC) Regulation and supervision. These “Last Mile Financiers” are known as NBFC MFI.
• The objective of covering them under RBI was to make these NBFC MFIs healthy and accountable.

History of Microfinance

• The term “microfinancing” was first used in the 1970s during the development of Grameen Bank of Bangladesh, which was founded by the microfinance pioneer, Muhammad Yunus.
• Since, in the developing countries, a large number of people still depends largely on subsistence farming or basic food trade for their livelihood, therefore, smallholder agriculture in these developing countries has been supported by the significant resources.

Microfinance in India

• SEWA Cooperative Bank was initiated in 1974 in Ahmedabad, Gujarat, by Ela Bhatt which is now one of the first modern-day microfinance institutions of the country.
• The National Bank for Agriculture and Rural Development (NABARD) offered financial services to the unbanked people, especially women and later decided to experiment with a very different model, which is now popularly known as Self-help Groups (SHGs).
• The SHG-Bank linkage programme in India has savings accounts with 7.9 million SHGs and involves the participation of regional rural banks (RRBs), commercial banks and cooperative banks in its operations. The origin of SHGs in India can be traced back to the establishment of the Self-Employed Women’s Association (SEWA) in 1972.
• In 2013, a loan of $144 million was provided by Grameen Capital India to the microfinance groups. Apart from the Grameen Bank, another microfinance organization named Equitas was developed in Tamil Nadu. The Southern and Western states of India are the ones attracting the greatest number of microfinance loans.

Micro Finance Associated Challenges

1. Inadequate Data: While overall loan accounts have been increasing the actual impact of these loans on the poverty-level of clients is sketchy as data on the relative poverty-level improvement of MFI clients is fragmented.
2. Impact of COVID-19: It has impacted the MFI sector, with collections having taken an initial hit and disbursals yet to observe any meaningful thrust.
3. Social Objective Overlooked: In their quest for growth and profitability, the social objective of MFIs—to bring in improvement in the lives of the marginalized sections of the society—seems to have been gradually eroding.
4. Loans for Conspicuous Consumption: The proportion of loans utilized for non-income generating purposes could be much higher than what is stipulated by RBI. These loans are short-tenured and given the economic profile of the customers, it is likely that they soon find themselves in the vicious debt trap of having to take another loan to pay off the first.

RBIs flagging of MFI distress signal

• Urging the RBI to grant forbearance for borrowers unable to pay instalments with some flexibility for the MFIs to restructure affected loans, industry representatives observed that while collections had been normal till early April 2021 (in the wake of the gradual recovery) they had slowed down since then.
• A larger proportion of borrowers and their families are affected by the illness, even in rural areas, in contrast to 2020.
• The official said that a significant section of MFI staff working with borrowers had also been infected, triggering fear among employees.
• RBI said that the Governor had discussed the current economic situation and the outlook on potential stress on MFIs’ balance sheets, as well as credit flows to their borrowers.
• ICRA cautioned that MFIs face a ‘high risk’ perception amid the sharp surge in infections. Though some States have classified the industry as an essential activity, borrowers’ cash flows may be affected due to restrictions.

-Source: The Hindu