UPSC CURRENT AFFAIRS SIMPLIFIED

17 May 2024 13:00

Q1. Consider the following:

1.  Investigate cases of money laundering

2.  Summon any person for evidence or record production

3.  Confiscate property
involved in money laundering

How many of the above are the powers of the Enforcement Directorate under the Prevention of Money Laundering Act (PMLA)?

UPSC CURRENT AFFAIRS SIMPLIFIED

17 May 2024 12:58

ENFORCEMENT DIRECTORATE (ED)

Syllabus: POLITY AND GOVERNANCE

Context: The Supreme Court of India has recently made a significant ruling regarding the powers of the Enforcement Directorate (ED) under the Prevention of Money Laundering Act (PMLA).  The court held that the ED cannot arrest an accused under Section 19 of the PMLA after a special court has taken cognisance of the complaint of money laundering.

Learning Points:

* The Enforcement Directorate (ED) is India’s financial watchdog, serving as both a law enforcement agency and an economic intelligence unit.

* The ED traces its origins back to May 1, 1956.

* The ED operates under the Department of Revenue within the Ministry of Finance.

* Its headquarters are in New Delhi, led by the Director of Enforcement. Regional offices exist in Mumbai, Chennai, Chandigarh, Kolkata, and Delhi.

* Recruitment includes officers from various backgrounds, such as IRS (Indian Revenue Services), IPS (Indian Police Services), and IAS (Indian Administrative Services).

* The ED investigates and tackles economic crimes such as money laundering, foreign exchange violations, and corruption.

* It enforces economic laws and regulations, ensuring compliance and addressing violations related to financial transactions.

* Recent amendments allow extending the tenure of ED directors from two years to up to five years.

Objectives and Key Acts:

* The ED enforces three critical acts:

  Foreign Exchange Management Act, 1999 (FEMA)

  Prevention of Money
Laundering Act, 2002 (PMLA)

  Fugitive Economic Offenders Act, 2018 (FEOA)

* The PMLA aims to combat money laundering by:

  Preventing and controlling money laundering.

  Confiscating and seizing proceeds obtained from laundered money.

  Addressing other issues related to money laundering in India.

Powers and Responsibilities:

* Under the PMLA, the ED has the authority to:

  Investigate cases of money laundering.

  Summon any person for evidence or record production.

  Confiscate property
involved in money laundering.

UPSC CURRENT AFFAIRS SIMPLIFIED

16 May 2024 09:20

Q2. With reference to the Insurance Surety Bonds (ISBs), consider the following statements:

1.  Insurance Surety Bonds are financial instruments where insurance companies act as a ‘Surety’ to provide a guarantee that the contractor will fulfil its obligations as per the agreed terms.

2.  These bonds serve as a third-party guarantee issued by insurance companies on behalf of the applicant to beneficiaries and authorities.

3.  ISBs often have lower costs compared to traditional bank guarantees.

How many of the statements given above are not correct?

UPSC CURRENT AFFAIRS SIMPLIFIED

21 Feb 2023 05:58

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UPSC CURRENT AFFAIRS SIMPLIFIED

10 Feb 2023 14:22

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UPSC CURRENT AFFAIRS SIMPLIFIED

07 Feb 2023 19:08

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UPSC CURRENT AFFAIRS SIMPLIFIED

02 Mar 2022 09:51

KEY TERMS TO KNOW FROM COP26

* NET-ZERO

Net-zero emissions pertain to achieving an overall balance between greenhouse gas (GHG) emissions produced, and GHG emissions removed from the atmosphere.

A country can be said to be net-zero when it produces no emissions, either because it has actually phased out all emissions or because it is removing enough from the atmosphere to offset the emissions it releases.

The latter can be achieved by restoring or increasing forest cover or through technologies such as carbon capture.

* CARBON NEUTRALITY

Carbon neutrality is a state of net-zero carbon dioxide (CO2) emissions. It is achieved when anthropogenic CO2 emissions are balanced globally by anthropogenic CO2 removals over a specified period.

There are several actions that an emitter can take to achieve this balance, such as reducing energy consumption and emissions-producing activities, improving energy efficiency processes, and consumption of renewable sources of energy.

A nation or an organization can also achieve carbon neutrality through carbon offsetting, a process of compensating for CO2 emissions it generates by participating in, or funding efforts to remove CO2 from the atmosphere.

Offsetting usually involves paying another party, somewhere else, to save emissions equivalent to those produced by the emitter.

* CARBON FOOTPRINT

A carbon footprint measures the amount of CO2 equivalent a country, an industry, an individual, or a product emits or is responsible for.

The footprint is calculated in both direct emissions (from the burning of fossil fuels, heating, and transportation), and indirect emissions during the whole lifecycle of products.

It also includes emissions of other greenhouse gases, such as methane, nitrous oxide, or chlorofluorocarbons (CFCs).

It is expressed as a measure of weight, as in tons of CO2 or CO2 equivalent per year.

* CARBON CREDITS

Carbon credits are a system of purchasing and trading carbon emissions to mitigate the growth in concentrations of global atmospheric CO2 levels.

The term carbon credit usually refers to a tradable certificate or permit that shows a company, industry, or country, has paid to remove a certain amount of CO2 from the atmosphere.

This certificate gives them the right to emit 1 tonne of CO2 or the equivalent of different greenhouse gas. It is used by individuals or businesses to reduce their carbon footprint through investing in an activity that reduced, removed, or sequestered greenhouse gases at another site.

The trading of carbon credits has turned them into a type of climate currency, subject to supply and demand, just like fiat currencies.

UPSC CURRENT AFFAIRS SIMPLIFIED

02 Mar 2022 09:40

* Private Finance: Private financial institutions and central banks announced moves to realign trillions of dollars towards achieving global net-zero emissions. Among them is the Glasgow Financial Alliance for Net Zero, with over 450 firms across 45 countries that control $130 trillion in assets, requiring its member to set robust, science-based near-term targets.

UPSC CURRENT AFFAIRS SIMPLIFIED

02 Mar 2022 09:30

TG-Data replaces the Task
Group on Data and Scenario Support for Impact and Climate Analysis (TGICA) whose mandate was
to facilitates the distribution and application of climate change-related data and scenarios.

IPCC Assessment Reports cover the full scientific, technical and socio-economic assessment of climate
change, generally in four parts – one for each of the Working Groups plus a Synthesis Report. Special Reports are assessments of a specific issue.

Methodology Reports provide practical guidelines for the
preparation of greenhouse gas inventories under the UNFCCC.

UPSC CURRENT AFFAIRS SIMPLIFIED

02 Mar 2022 09:22

A cautionary tale: On warning of the IPCC report - The Hindu
https://www.thehindu.com/opinion/editorial/a-cautionary-tale/article65144683.ece

UPSC CURRENT AFFAIRS SIMPLIFIED

01 Mar 2022 11:14

STAGFLATION

Stagflation refers to the situation of coexistence  of stagnation and inflation in the economy.

Stagnation means low National Income growth and high unemployment.

The Philips curve shows that at high rate of inflation, there is low rate of unemployment. But stagflation proves the contrary.

Before 1970s, it was considered that at the time of inflation, the economy will be booming. 1970s scenario proved contrary with the existence of inflation and stagnation.

DEFLATION

Deflation is opposite to that of inflation. The persistent  and  appreciable fall in the general level of prices is called as deflation.

DISINFLATION

The rate of inflation at a slower rate is called disinflation.

For example, if the inflation of last month was 6% and rate of inflation in the current month is 5% it is termed as disinflation.

REFLATION

Reflation means deliberate action of government to increase rate of inflation to stimulate economy.

It is usually done to redeem the economy from deflationary situation.

UPSC CURRENT AFFAIRS SIMPLIFIED

01 Mar 2022 11:06

# MEASURES TO CONTROL INFLATION

The control of inflation needs a multi-pronged strategy. All the strategies need cooperation and harmony among them. 

* MONETARY MEASURES

CREDIT CONTROL

It is performed by Reserve Bank of India.

DEMONETIZATION OF CURRENCY

Demonetization of currency means declaring that hereafter currencies of particular denominations are invalid. It suddenly reduces the money to the extent of money kept in those particular denominations. It is resorted to only in extreme cases.


* FISCAL MEASURES

REDUCTION IN UNNECESSARY EXPENDITURE

Reduction of unnecessary government expenditure means less demand from government side. It brings down the price level.

INCREASE IN DIRECT TAXES

Increase in direct taxes like income tax reduces the disposable income available with people. It means low demand from households. Less demand leads to lower price.

DECREASE IN INDIRECT TAXES

Decrease in indirect taxes like excise duty, sales tax brings the prices down.

SURPLUS BUDGET

Surplus budget means less expenditure than receipts. It reduces the money supply and government demand for goods and services. The price level is brought down due to this.

TRADE MEASURES

Trade measures refer to export and import of goods and services. In case of shortage of goods in domestic market the supply can be increased through import of goods from foreign countries at low or nil import duty. The restriction in the form of import licenses has to be eased to increase import. The higher supply helps to bring down the price.

* ADMINISTRATIVE MEASURES

RATIONAL WAGE POLICY

Rational wage policy helps to keep the cost of production under control. The cost control means price control.

PRICE CONTROL

Direct price control also helps in inflation control. Price can be controlled by fixing maximum price limits through administered price system and subsidy from the government.

RATIONING

Rationing of goods in short supply keeps the demand under control so that price comes under control.

UPSC CURRENT AFFAIRS SIMPLIFIED

01 Mar 2022 10:52

# FACTORS AFFECTING DEMAND

Increase in Money Supply

Increase in money supply leads to price rise. More money available with people induces people to purchase more goods and services. It means there is an increase in demand. So, prices move upward.

Increase in Disposable Income

The increase in the disposable income leads to higher spending on the part of households. It hikes the level of price.
 

Cheap Monetary Policy

Cheap monetary policy means loan availability at very low interest rate and at easy terms. It leads to more investment by investors with loaned money. It pushes up the demand for capital goods and rise in price of the same.

Increase in Public Expenditure

Increase in government expenditure over its income, leads to deficit budget. Increase in government spending increases the demand for consumption and capital goods and services. It increases the price of both goods and services.

Repayment of Public Debt

The repayment of public debt borrowed by government to public leaves people with more money. It induces people to spend more. It ultimately leads to increase in price of goods and services.

# FACTORS AFFECTING SUPPLY

Shortage of Factors of production

The shortage in the factors of production viz., land, labour, and capital increases the cost of production. For example, shortage in the labour leads to higher wages. It increases the cost of production and price of goods and services.

Industrial Disputes

Industrial disputes lead to strike or lay off. It affects the production and supply of goods.  It results in increased prices.

Natural Calamities

Natural calamities like earth quake, land slide and tsunami, affect production and supply of goods and services. The end result is price rise.

Artificial Scarcities

Artificial scarcities created by activities like hoarding and speculative trading in commodities in the commodities future market, results in price hike.

Increase in Exports

Increase in export of a particular commodity leads to shortage of goods in the domestic market. It pushes up prices.

International Factors

International factors like oil price hike, shortage in production of certain commodities leads to higher import prices.

UPSC CURRENT AFFAIRS SIMPLIFIED

01 Mar 2022 10:35

Society for Worldwide Interbank Financial Telecommunication (SWIFT)

Recently, in a move to counter Russia’s war over Ukraine, the US and the European Commission issued a joint statement to exclude some Russian banks from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) messaging system.

SWIFT provides the trusted messaging platform that enables financial institutions to exchange information about global monetary transactions such as money transfers.

While SWIFT does not actually move money, it operates as a middleman to verify information of transactions by providing secure financial messaging services to more than 11,000 banks in over 200 countries.

Most of the world trade takes place with financial messaging passing through SWIFT.

It was established in 1973 and is based in Belgium.

It is overseen by the central banks from eleven industrial countries: Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, Switzerland, the United Kingdom, and the United States, besides Belgium.

India’s financial system has access to the SWIFT.

Prior to SWIFT, the only reliable means of message confirmation for international funds transfer was Telex.

It was discontinued due to a range of issues such as low speed, security concerns, and a free message format.


# Other Global Alternatives to SWIFT

There are financial technology companies like Ripple, which has been offering its platform based on interledger protocol (the same technology behind cryptocurrencies) as an alternative.

Cryptocurrencies are another avenue for cross border remittances. Russia has also been working on a 'digital' rouble, which is still not launched.

UPSC CURRENT AFFAIRS SIMPLIFIED

08 Feb 2022 13:03

Crowding Out Effect

This refers to a phenomenon where increased borrowing by the government to meet its spending needs causes a decrease in the quantity of funds that is available to meet the investment needs of the private sector.

In other words, when the government is increasing its expenditure, private expenditure comes down.

• Sometimes, government adopts an expansionary fiscal policy stance and increases its spending to boost the economic activity. This leads to an increase in interest rates. Increased interest rates affect private investment decisions. A high magnitude of the crowding out effect may even lead to lesser income in the economy.

With higher interest rates, the cost for funds to be invested increases and affects their accessibility to debt financing mechanisms. This leads to lesser investment ultimately and crowds out the impact of the initial rise in the total investment spending.

Usually the initial increase in government spending is funded using higher taxes or borrowing on part of the government.

• Some believe that government spending does not always lead to a crowding out of private investment in the economy. They instead argue that government demand for funds can compensate for the lack of private demand for funds during economic depressions, thus helping to prop up aggregate demand.

UPSC CURRENT AFFAIRS SIMPLIFIED

17 May 2024 12:59

PRACTICE QUESTIONS

UPSC CURRENT AFFAIRS SIMPLIFIED

17 May 2024 12:55

ARMENIA AND AZERBAIJAN

Syllabus: INTERNATIONAL EVENTS

Context: Armenia and Azerbaijan reached an agreement regarding disputed sections of their shared border. This marks a significant step toward normalizing relations between the two historic rivals. The deal involves the return of four border villages that were previously seized by Armenia during the 1990s. These villages—Baghanis Ayrum, Ashaghi Askipara, Kheyrimli, and Ghizilhajili—will now be under Azerbaijani control.

Learning Points:
 
* Armenia and Azerbaijan are located in the South Caucasus region, which is at the crossroads of Eastern Europe and Western Asia.

* Both countries have been involved in territorial disputes, particularly over the Nagorno-Karabakh region.
Key geographical details of both countries:

Armenia:

* Landlocked country with no access to the world’s oceans.

* Bordered by Georgia to the north, Azerbaijan to the east, Iran to the southeast, and Turkey to the west.

* The capital and largest city is Yerevan.

Azerbaijan:

* Located to the east of Armenia, with a significant coastline along the Caspian Sea.

* Bordered by Russia to the north, Georgia to the northwest, Armenia to the west, Iran to the south, and the Caspian Sea to the east.

* The capital and largest city is Baku.

UPSC CURRENT AFFAIRS SIMPLIFIED

16 May 2024 09:18

Q1. Consider the following states in India:

1.  Nagaland
2.  Assam
3.  Mizoram
4.  Tripura
5.  Sikkim
6.  Arunachal Pradesh

How many of the above- mentioned states share a border with Manipur?

UPSC CURRENT AFFAIRS SIMPLIFIED

17 Feb 2023 19:28

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UPSC CURRENT AFFAIRS SIMPLIFIED

07 Feb 2023 19:09

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UPSC CURRENT AFFAIRS SIMPLIFIED

02 Mar 2022 09:58

PARIS CLIMATE ACCORD

 It is a legally binding international treaty on climate change.

 It was adopted by 196 countries at Conference of the Parties COP 21 in Paris in December 2015.

Goal: To limit global warming to well below 2° Celsius, and preferably limit it to 1.5° Celsius, compared to pre-industrial levels.

Objective: To achieve the long-term temperature goal, countries aim to reach global peaking of greenhouse gas emissions as soon as possible to achieve a climate-neutral world by mid-century.

UPSC CURRENT AFFAIRS SIMPLIFIED

02 Mar 2022 09:45

INDIA AT COP26

* India is the 3rd largest emitter in terms of net emissions whereas it has the lowest per capita emission among the major economies of the world (17% of the world population emitting just 5% of total).

* India has announced its net-zero targets in COP26 accordance with the Paris agreement of 2015.

* Under the Paris agreement, countries were bound to submit carbon-cutting plans and updates by the end of 2020.

# INDIA’S 5 POINT PLEDGE OR PANCHAMRIT:

Net-zero by 2070

To increase its non-fossil fuel energy capacity to 500 GW by 2030.

Increase the share of renewables in the energy mix to 50% by 2030.

Reduce the emissions intensity of its economy by 45%.

Reduce emissions by 1 billion tonnes of CO2.

India also supported the Africa Group’s demand for $1 trillion in climate action that the developed countries should make available for climate action in developing nations.

# INDIA’S EFFORTS AT PRESENT:

India’s renewable energy capacity is 4th in the world as of now and growing at a rapid rate.

India has seen an increase of about 25% in renewable energy capacity in the last four years.

Indian railways, one of the largest emitters has promised to reach net-zero by 2030– this alone will reduce 60 million tonnes of emissions.

India has launched international institutions for climate action such as International Solar Alliance (ISA), Coalition for Disaster Resilient Infrastructure (CDRI),

India along with UK and Australia will launch the Infrastructure for Resilient Island States (IRIS) for the island nations and developing countries.

India will also be part of the launch of the Green Grids Initiative.

UPSC CURRENT AFFAIRS SIMPLIFIED

02 Mar 2022 09:40

COP26: UN CLIMATE CHANGE CONFERENCE 2021

COP26 was the 26th UN Climate change conference held in Glasgow, the United Kingdom in 2021.

The Conference of Parties (COP) is a well-known annual event that sees nations come together to discuss measures to reduce anthropomorphic global warming and steps to tackle Climate Change.

The COP26 summit brought parties together to accelerate action towards the goals of the Paris Agreement and the UN Framework Convention on Climate Change (UNFCCC).

# THE GLASGOW CLIMATE PACT:

The following were agreed upon in the Glasgow Climate Pact by the nations of the world:

* Recognizing The Emergency

Countries reaffirmed the Paris Agreement goal of limiting the increase in the global average temperature to well below 2°C above pre-industrial levels and pursuing efforts to limit it to 1.5 °C.

* Accelerating Action

Countries stressed the urgency of action when carbon dioxide emissions must be reduced by 45 percent to reach net-zero around mid-century. But with present climate plans and the Nationally determined Contributions are falling far short. Hence the Glasgow Climate Pact calls on all countries to present stronger national action plans next year, instead of in 2025, which was the original timeline.

* Moving Away From Fossil Fuels

The countries agreed to a provision calling for a phase-down of coal power and a phase-out of fossil fuel subsidies – two key issues that had never been explicitly mentioned in decisions of UN climate talks before.

* Delivering On Climate Finance

Developed countries came to Glasgow falling short on their promise to deliver US$100 billion a year for developing countries and expressed confidence that the target would be met in 2023.

* Stepping Up Support For Adaptation

The Glasgow Pact calls for a doubling of finance to support developing countries in adapting to the impacts of climate change and building resilience.

* Completing The Paris Rulebook

Countries reached an agreement on the remaining issues of the so-called Paris rulebook, the operational details for the practical implementation of the Paris Agreement.

* Focusing On Loss & Damage

Acknowledging that climate change is having increasing impacts on people especially in the developing world, countries agreed to strengthen a network— known as the Santiago Network, that provides vulnerable countries with technical assistance, knowledge, and resources to address climate risks.

They also launched a new “Glasgow dialogue” to discuss arrangements for the funding of activities to avert, minimize and address loss and damage associated with the adverse effects of climate change.

# NEW ANNOUNCEMENTS AT COP26:

There were many other significant deals and announcements which can have major positive impacts if they are implemented. These include:

* Forests: 137 countries took a landmark step forward by committing to halt and reverse forest loss and land degradation by 2030. The pledge is backed by $12bn in public and $7.2bn in private funding.

* Methane: 103 countries, including 15 major emitters, signed up to the Global Methane Pledge, which aims to limit methane emissions by 30 percent by 2030, compared to 2020 levels. Methane, one of the most potent greenhouse gases, is responsible for a third of current warming from human activities.

* Cars: Over 30 countries, six major vehicle manufacturers, and other actors, like cities, set out their determination for all new car and van sales to be zero-emission vehicles by 2040 globally and 2035 in leading markets, accelerating the decarbonization of road transport, which currently accounts for about 10 percent of global greenhouse gas emissions.

* Coal: Leaders from South Africa, the United Kingdom, the United States, France, Germany, and the European Union announced a ground-breaking partnership to support South Africa – the world’s most carbon-intensive electricity producer— with $8.5 billion over the next 3-5 years to make a just transition away from coal, to a low-carbon economy.

UPSC CURRENT AFFAIRS SIMPLIFIED

02 Mar 2022 09:29

Intergovernmental Panel on Climate Change (IPCC)

The Intergovernmental Panel on Climate Change (IPCC) is the international body for assessing the science related to climate change.

The IPCC was set up in 1988 by the World Meteorological
Organization (WMO) and United Nations Environment Programme (UNEP) to provide policymakers
with regular assessments of the scientific basis of climate change, its impacts and future risks, and
options for adaptation and mitigation.

IPCC assessments provide a scientific basis for governments at all levels to develop climate related policies, and they underlie negotiations at the UN Climate Conference – the United Nations Framework
Convention on Climate Change (UNFCCC).

The assessments are policy-relevant but not policy- prescriptive: they may present projections of future climate change based on different scenarios and
the risks that climate change poses and discuss the implications of response options, but they do not
tell policymakers what actions to take.

The IPCC embodies a unique opportunity to provide rigorous and balanced scientific information to
decision-makers because of its scientific and intergovernmental nature.

Participation in the IPCC is
open to all member countries of the WMO and United Nations. It currently has 195 members.

The Panel, made up of representatives of the member states, meets in Plenary Sessions to take major
decisions.

The IPCC Bureau, elected by member governments, provides guidance to the Panel on the
scientific and technical aspects of the Panel’s work and advises the Panel on related management
and strategic issues.
.
IPCC assessments are written by hundreds of leading scientists who volunteer their time and expertise
as Coordinating Lead Authors and Lead Authors of the reports. They enlist hundreds of other experts
as Contributing Authors to provide complementary expertise in specific areas. The authors may work
with Chapter Scientists who cross-check between findings presented in different parts of the report,
carry out additional fact-checking, and work on reference management among other things. Chapter
Scientists are usually early career scientists.


IPCC reports undergo multiple rounds of drafting and review to ensure they are comprehensive and
objective and produced in an open and transparent way. Thousands of other experts contribute to
the reports by acting as reviewers, ensuring the reports reflect the full range of views in the scientific
community. Teams of Review Editors provide a thorough monitoring mechanism for making sure that
review comments are addressed.

The IPCC works by assessing published literature . It does not conduct its own scientific research.

For all findings, author teams use defined
language to characterize their degree of certainty in assessment .

IPCC assessments point
to areas of well-established knowledge and of evolving understanding, as well as where multiple
perspectives exist in the literature.

The authors producing the reports are currently grouped in three working groups –
Working Group I:
the Physical Science Basis;

Working Group II: Impacts, Adaptation and Vulnerability; and

Working Group III: Mitigation of Climate Change – and the Task Force on National Greenhouse Gas Inventories
(TFI).

As part of the IPCC, a Task Group on Data Support for Climate Change Assessments (TG-Data)
provides guidance to the Data Distribution Centre (DDC) on curation, traceability, stability, availability
and transparency of data and scenarios related to the reports of the IPCC.

UPSC CURRENT AFFAIRS SIMPLIFIED

01 Mar 2022 11:21

Headline Inflation

As it includes all aspects within an economy that experience inflation, headline inflation is not adjusted to remove highly volatile figures, including those that can shift regardless of economic conditions.

Headline inflation is often closely related to shifts in the cost of living, which provides useful information to consumers within the marketplace.

The headline figure is not adjusted for seasonality or for the often-volatile elements of food and energy prices, which are removed in the core Consumer Price Index (CPI).

Headline inflation is usually quoted on an annualized basis, meaning that a monthly headline figure of 4% inflation equates to a monthly rate that, if repeated for 12 months, would create 4% inflation for the year. Comparisons of headline inflation are typically made on a year-over-year basis, also known as top-line inflation.


CORE INFLATION

Core inflation is a measure of inflation that excludes certain items that face volatile price movements.

Core inflation eliminates products that can have temporary price shocks because these shocks can diverge from the overall trend of inflation and give a false measure of inflation.

Skewflation

Economists usually distinguish between inflation and a relative price increase.

‘Inflation’ refers to a sustained, across-the-board price increase, whereas ‘a relative price increase’ is a reference to an episodic price rise pertaining to one or a small group of commodities. This leaves a third phenomenon, namely one in which there is a price rise of one or a small group of commodities over a sustained period of time, without a traditional designation.

‘Skewflation’ is a relatively new term to describe this third category of price rise.

Built-in Inflation

Expectations of future inflation cause built-in inflation.

That means, when prices rise, workers expect (and demand) higher wages to maintain their cost of living.

However, higher wages result in higher costs of production, which leads to higher prices, and the spiral begins. Because of this circular dependency, built-in inflation is sometimes also referred to as the wage-price spiral.

At this point, it is important to note that the expectations that cause built-in inflation always originate from either persistent demand-pull or significant cost-push inflation in the past. In other words, built-in inflation doesn’t occur on its own. It always needs a catalyst or a trigger to kick it off.

BASE EFFECT

Base effect refers to the phenomenon of current year index being influenced by very low or high previous year index.

UPSC CURRENT AFFAIRS SIMPLIFIED

01 Mar 2022 11:08

PHILIPS CURVE

Philips curve shows the relationship between rate of inflation and rate of unemployment. 

It shows that the relationship is negative. That is at high rate of inflation the unemployment rate is low.

UPSC CURRENT AFFAIRS SIMPLIFIED

01 Mar 2022 10:59

EFFECTS OF INFLATION

Inflation has impact on all the economic units. It has favorable impact on some and unfavorable impact on others. The effects are discussed under three different heads as under:

* REDISTRIBUTION OF INCOME OF WEALTH

It redistributes income from one hand to another. It leads to loss to some group of people and gain to another group of people.

DEBTORS VS CREDITORS

In case of debtor and creditor, debtor is gainer and creditor is loser.

PRODUCERS VS CONSUMERS

In inflationary situation, the producers stand to gain and consumers stand to lose. The producer’s profit will increase as a result of inflation.

The purchasing power of money held by consumer declines. So, they have to pay more money to purchase the same amount of goods and services what they bought before inflation. Here, the income of consumer gets transferred from consumers to producers.

FLEXIBLE INCOME GROUP VS FIXED INCOME GROUP

The flexile income groups like sellers, self employed, and employees of private concerns whose salary is adjusted according to inflation do not get affected, but fixed income groups like daily wage earners lose as the purchasing power of their income diminishes.

DEBENTURES OR BOND HOLDERS AND SAVERS VS EQUITY HOLDERS

The Debentures or Bond holders and Savers receive fixed periodical income from their financial assets. The purchasing power of their asset remains intact only if interest rate is more than rate of inflation.

The security holder’s income depends on the profit of the company. In inflationary situation, the companies earn more profit. So, the equity holders also earn more income.

* EFFECTS ON PRODUCTION AND CONSUMPTION

The inflation may lead to fall in the demand for goods and services. It may curtail the amount of production. Inflation also leads to reallocation of resources. Sometimes, only few goods may experience price rise. In that case, the investment from other sectors may shift to these sectors.

In packaged items, in order to maintain same price per package, the producers reduce the quantity or quality or both instead of raising price. It means, less production  and consumption.

* OTHER EFFECTS

BALANCE OF PAYMENT (BOP)

High price reduces the amount of export and increases import from other countries where goods are available at cheaper rate. It results in unfavorable balance of payment.

EXCHANGE RATE

High import and low export means high demand for foreign currencies compared to domestic currency. This depreciates domestic currency.

SOCIAL AND POLITICAL

Higher rate of inflation leads to social and political tension. The political parties and organized group of people call for strike, hartals and stage dharnas.

UPSC CURRENT AFFAIRS SIMPLIFIED

01 Mar 2022 10:47

INFLATION

Inflation is a quantitative measure of the rate at which the average price level of a basket of selected goods and services in an economy increases over some period of time.

It is the rise in the general level of prices where a unit of currency effectively buys less than it did in prior periods. Often expressed as a percentage, inflation thus indicates a decrease in the purchasing power of a nation’s currency.

Inflation can be contrasted with deflation, which occurs when prices instead decline.

# Understanding Inflation

As prices rise, a single unit of currency loses value as it buys fewer goods and services. This loss of purchasing power impacts the general cost of living for the common public which ultimately leads to a deceleration in economic growth. The consensus view among economists is that sustained inflation occurs when a nation’s money supply growth outpaces economic growth.

# TYPES OF INFLATION

Inflation can be classified on the basis of rate of rise in prices and on the basis of causes.

* DIFFERENT INFLATION BASED ON RATE OF RISE IN PRICES

CREEPING INFLATION

Price rise at very slow rate (less than 3%) like that of a snail or creeper is called Creeping inflation. It is regarded safe and essential for economic growth.

WALKING OR TROTTING INFLATION

Price rise moderately at the rate of 3 to 7% (or) less than 10% is called Walking or trotting inflation. It is a warning signal to the government to be prepared to control inflation. If the inflation crosses this range, it will have serious implication on the economy and individuals.

RUNNING INFLATION

Running inflation means price rise rapidly like the running of a horse at a rate of 10-20%. It affects the economy adversely.

HYPERINFLATION (OR) RUNWAY (OR) GALLOPING INFLATION

The price rise at very fast at double or triple digit rate from 20 to 100% or more is called Hyperinflation (or) Runaway (or) galloping inflation. Such a situation brings total collapse of the monetary system because of the continuous fall in the purchasing power of money.

*DIFFERENT INFLATION BASED ON CAUSES

DEMAND PULL INFLATION

Demand pull inflation arises due to higher demand for goods and services over the available supply.

Higher demand for goods and services arises due to increase in income of the people, increase in money supply and change in the taste and preference of people etc.

In other words, demand pull inflation takes place when increase in production lags behind the increase in money supply.

COST PUSH INFLATION

Price rise due to increased input costs like raw material, wages, profit margin etc., is called Cost push inflation.

Both demand pull inflation and cost push inflation are affected by forces of demand and supply.

UPSC CURRENT AFFAIRS SIMPLIFIED

01 Mar 2022 10:32

Counting the costs: On ceasefire talks and sanctions on Russia - The Hindu
https://www.thehindu.com/opinion/editorial/counting-the-costs/article65094903.ece

UPSC CURRENT AFFAIRS SIMPLIFIED

08 Feb 2022 13:01

https://www.thehindu.com/business/public-borrowing-wont-crowd-out-private-investment-fm/article38393694.ece