The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) decided to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged. This is for the second time since the RBI started hiking Repo rate in May 2022 to check inflation. 

About the Monetary Policy Committee (MPC) -

The Committee —

Ø  Under Section 45ZB of the amended RBI Act, 1934, the central government is empowered to constitute a six-member Monetary Policy Committee (MPC).

Ø  MPC will determine the policy interest rate required to achieve the inflation target. The first such MPC was constituted in September 2016.

Members of MPC —

Ø  As per the amended RBI act, the MPC shall consist of

Ø  the RBI Governor as its ex officio chairperson,

Ø  the Deputy Governor in charge of monetary policy,

Ø  an officer of the Bank to be nominated by the Central Board, and

Ø  three persons to be appointed by the central government.

Functions of MPC —

Setting Policy Interest Rates — The primary function of the MPC is to determine the policy interest rates, specifically the repo rate.

Inflation Targeting — The current inflation target set by the government is a Consumer Price Index (CPI) inflation target of 4% with a tolerance band of +/- 2%.

Economic Analysis and Forecasting — The MPC conducts thorough analysis and forecasting of various economic indicators, including inflation, GDP growth, employment, fiscal conditions, and global economic developments.

Decision-Making — The MPC meets at least four times a year to review the monetary policy stance.

Key rates after the announcement -

Repo Rate — The repo rate now stands at 6.50 per cent.

Repo rate is the rate at which the Reserve Bank of India lends money to commercial banks in the event of any shortfall of funds.

The standing deposit facility (SDF) — This rate stands at 6.25%.

Ø  The SDF is a liquidity window through which the RBI will give banks an option to park excess liquidity with it.

Ø  It is different from the reverse repo facility in that it does not require banks to provide collateral while parking funds.

Ø  The idea of an SDF was first mooted in the Urjit Patel Monetary Policy Committee report in 2014.

Ø  It later received the government’s nod following an amendment to the RBI Act in 2018, videm the Finance Bill.

Ø  The marginal standing facility (MSF) rate – It stands at 6.75%.

Ø  MSF is a window for banks to borrow from the central bank in an emergency situation when inter-bank liquidity dries up completely.

The Bank Rate – It is now 6.75%.

Ø  Bank rate is the rate charged by the central bank for lending funds to commercial banks.

Ø  There is a slight difference between Bank Rate and Repo Rate. In Repo Rate, RBI lends money to the banks against securities for the short term only.

Other highlights of the MPC announcements -

Retained the policy stance as “withdrawal of accommodation” —

Ø  The MPC decided to remain focused on withdrawal of accommodation.

Ø  An accommodative stance means the central bank is prepared to expand the money supply to boost economic growth.

Ø  Withdrawal of accommodation means reducing the money supply in the system which will rein in inflation further.

Ø  This is to ensure that inflation progressively aligns with the target, while supporting growth.

Inflation outlook —

Ø  The headline inflation trajectory was likely to be shaped by food price dynamics.

Ø  Milk prices, on the other hand, are likely to remain under pressure due to supply shortfalls and high fodder costs.

Ø  Crude oil prices have eased but the outlook remains uncertain.

Ø  Taking into account these factors and assuming a normal monsoon, CPI inflation has been projected at 5.1% for 2023-24.

Growth forecast —

Ø  Higher rabi crop production in 2022-23, the expected normal monsoon, and the sustained buoyancy in services should support private consumption and overall economic activity in the current year.

Ø  The government’s thrust on capital expenditure, moderation in commodity prices and robust credit growth are expected to nurture investment activity.

Ø  Weak external demand, geo-economic fragmentation, and protracted geopolitical tensions, however, pose risks to the outlook.

Ø  Taking all these factors into consideration, real GDP growth for 2023-24 has been projected at 6.5%.

Why is the RBI in pause mode on raising interest rates?

Retail inflation within comfort zone of RBI — Retail inflation declined to an 18-month low of 4.7 per cent in April, remaining under the RBI’s comfort zone of 2-6 per cent for two consecutive months.

Expansion of GDP — India’s gross domestic product (GDP) expanded at 6.1 per cent JanuaryMarch 2023 quarter, in turn pushing up the growth estimate for the full year (2022-23) to 7.2 percent.

The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) decided to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged. This is for the second time since the RBI started hiking Repo rate in May 2022 to check inflation. 

About the Monetary Policy Committee (MPC) -

The Committee —

Ø  Under Section 45ZB of the amended RBI Act, 1934, the central government is empowered to constitute a six-member Monetary Policy Committee (MPC).

Ø  MPC will determine the policy interest rate required to achieve the inflation target. The first such MPC was constituted in September 2016.

Members of MPC —

Ø  As per the amended RBI act, the MPC shall consist of

Ø  the RBI Governor as its ex officio chairperson,

Ø  the Deputy Governor in charge of monetary policy,

Ø  an officer of the Bank to be nominated by the Central Board, and

Ø  three persons to be appointed by the central government.

Functions of MPC —

Setting Policy Interest Rates — The primary function of the MPC is to determine the policy interest rates, specifically the repo rate.

Inflation Targeting — The current inflation target set by the government is a Consumer Price Index (CPI) inflation target of 4% with a tolerance band of +/- 2%.

Economic Analysis and Forecasting — The MPC conducts thorough analysis and forecasting of various economic indicators, including inflation, GDP growth, employment, fiscal conditions, and global economic developments.

Decision-Making — The MPC meets at least four times a year to review the monetary policy stance.

Key rates after the announcement -

Repo Rate — The repo rate now stands at 6.50 per cent.

Repo rate is the rate at which the Reserve Bank of India lends money to commercial banks in the event of any shortfall of funds.

The standing deposit facility (SDF) — This rate stands at 6.25%.

Ø  The SDF is a liquidity window through which the RBI will give banks an option to park excess liquidity with it.

Ø  It is different from the reverse repo facility in that it does not require banks to provide collateral while parking funds.

Ø  The idea of an SDF was first mooted in the Urjit Patel Monetary Policy Committee report in 2014.

Ø  It later received the government’s nod following an amendment to the RBI Act in 2018, videm the Finance Bill.

Ø  The marginal standing facility (MSF) rate – It stands at 6.75%.

Ø  MSF is a window for banks to borrow from the central bank in an emergency situation when inter-bank liquidity dries up completely.

The Bank Rate – It is now 6.75%.

Ø  Bank rate is the rate charged by the central bank for lending funds to commercial banks.

Ø  There is a slight difference between Bank Rate and Repo Rate. In Repo Rate, RBI lends money to the banks against securities for the short term only.

Other highlights of the MPC announcements -

Retained the policy stance as “withdrawal of accommodation” —

Ø  The MPC decided to remain focused on withdrawal of accommodation.

Ø  An accommodative stance means the central bank is prepared to expand the money supply to boost economic growth.

Ø  Withdrawal of accommodation means reducing the money supply in the system which will rein in inflation further.

Ø  This is to ensure that inflation progressively aligns with the target, while supporting growth.

Inflation outlook —

Ø  The headline inflation trajectory was likely to be shaped by food price dynamics.

Ø  Milk prices, on the other hand, are likely to remain under pressure due to supply shortfalls and high fodder costs.

Ø  Crude oil prices have eased but the outlook remains uncertain.

Ø  Taking into account these factors and assuming a normal monsoon, CPI inflation has been projected at 5.1% for 2023-24.

Growth forecast —

Ø  Higher rabi crop production in 2022-23, the expected normal monsoon, and the sustained buoyancy in services should support private consumption and overall economic activity in the current year.

Ø  The government’s thrust on capital expenditure, moderation in commodity prices and robust credit growth are expected to nurture investment activity.

Ø  Weak external demand, geo-economic fragmentation, and protracted geopolitical tensions, however, pose risks to the outlook.

Ø  Taking all these factors into consideration, real GDP growth for 2023-24 has been projected at 6.5%.

Why is the RBI in pause mode on raising interest rates?

Retail inflation within comfort zone of RBI — Retail inflation declined to an 18-month low of 4.7 per cent in April, remaining under the RBI’s comfort zone of 2-6 per cent for two consecutive months.

Expansion of GDP — India’s gross domestic product (GDP) expanded at 6.1 per cent JanuaryMarch 2023 quarter, in turn pushing up the growth estimate for the full year (2022-23) to 7.2 percent.

In its 279th report, the Law Commission of India has recommended the retention of Section 124A of the IPC, which contains the law of Sedition. It has also recommended enhanced punishment for this offence in the name of national security.

Section 124A of IPC; The Sedition Law -

The IPC Section 124 A says, “Whoever, by words/signs/otherwise, brings or attempts to bring into hatred or contempt, or excites or attempts to excite disaffection towards the Government estab­lished by law in India shall be punished —

Ø  with im­prisonment for life, to which fine may be added, or

Ø  with impris­onment which may extend to three years, to which fine may be added, or

Ø  with fine.

Ø  Disaffection includes disloyalty and all feelings of enmity.

Ø  It is a non-bailable law that is punishable with imprisonment from three years up to life, along with a fine.

Ø  Individuals charged under the law will be barred from a government job passport will be seized by the government.

Recommendations of the Law Commission -

Inclusion of Kedar Nath ruling in the sedition law provision — The words "with a tendency to incite violence or cause public disorder" should be added to the provision.

Defining the tendency to incite violence — The definition must emphasise that proof of actual violence or imminent threat to violence is not necessary.

Enhancing punishment — Currently, Section 124A of the sedition law provides for a jail term of up to three years or life imprisonment. The Law Commission's report proposes enhancing the jail term to up to seven years or life imprisonment.

Preventing misuse of the law — As per the recommendation, an FIR for sedition shall not be registered unless a police officer, not below the rank of Inspector, conducts a preliminary inquiry. It further proposes that based on the report submitted by the said police officer, the Central/the State Government, depending on the jurisdiction, grants permission for registering the FIR.

Rationale behind the retention of Sedition Law -

To safeguard the unity and integrity of India —

The report cited threats to India’s internal security, including Maoist extremism, militancy, etc., for retaining the law on sedition.

It justified criminalising sedition, saying it is a reasonable restriction under Article 19(2) of the Constitution.

Realities differ in every jurisdiction —

Jurisdictions like the US, the UK, etc. had their own history, geography, population, diversity, laws, etc. These are not compatible with Indian circumstances.

Also, some of these countries have merged their sedition law with counter-terror legislation.

Anti-terror legislations do not by cover all elements of the Section 124A — Any expression that incites violence against the government, would invariably be tried under the special laws and counter terror legislation.

Merely ascribing the term ‘colonial’ to a law/institution does not by itself, make it outdated/ irrelevant.

Drawbacks of Law Commissions’ recommendations -

Ø  It gives significant power to law enforcement officials, allowing them to subjectively determine whether a speech or article has the potential to incite disorder.

Ø  The recommendation for the enhancement of punishment defies common sense when there is a universal demand for the scrapping of this law.

Ø  The commission could not see the absurdity of a law which punishes citizens of a democratic country for making comments which may cause disaffection towards a government which they have the power to remove.

Is Sedition law constitutionally valid?

Ø  Equating the government with the state is illogical in a democratic republic and that disaffection towards a government should not be criminalised.

Ø  Words like disaffection towards the government, visible representation are vague and provide enough scope for its misuse.

Ø  Sedition violates the fundamental right to freedom of speech and expression guaranteed under Article 19(1)(a) of the Indian Constitution.

Ø  Therefore, the attempt to bring sedition within the framework of reasonable restriction under Article 19(2) is constitutionally impermissible.

Ø  In 2022, the SC ordered to stay all existing proceedings and registration of fresh cases under the sedition law upon the Union Government assurance to review the law at the earliest. The Court’s stay order was in consideration of the fact that this law was widely misused by the law enforcement authorities.

Conclusion -

Misuse of the Sedition law can be curbed by reconsidering the law in a manner that will balance national security on one hand and freedom of citizens on the other.

Ministry of Cooperation issued a statement that Primary Agricultural Credit Societies (PACS) can also be employed as drone entrepreneurs for spraying fertilisers and pesticides.

Ø  Ministry of Cooperation issued a statement that Primary Agricultural Credit Societies (PACS) can also be employed as drone entrepreneurs for spraying fertilisers and pesticides.

Ø  The statement also said that the PACS which are not currently functioning as Pradhan Mantri Kisan Samridhi Kendras will be brought under their ambit.

About Pradhan Mantri Kisan Samriddhi Kendras (PMKSK) -

Ø  The Central government launched 600 Pradhan Mantri Kisan Samriddhi Kendras in 2022.

Ø  These Kendras are one-stop solutions to farmers in the form of crop advisories, soil- and seed-testing facilities, retailing seeds and pesticides, and even custom hiring of agricultural equipment and machines.

Ø  PMKSK function under the Ministry of Chemicals & Fertilisers.

About the ‘Primary Agricultural Credit Societies’ -

Ø  The PACS constitute the lowest tier of the three-tier Short-term cooperative credit in the country comprising 13 crore farmers as its members, which is crucial for the development of the rural economy.

Ø  PACS account for 41% (3.01 crore farmers) of the Kisan Credit Card (KCC) loans. 95% of these KCC loans (2.95 crore farmers) are to the Small and Marginal farmers.

Ø  PACS are outside the purview of the Banking Regulation Act, 1949 and hence not regulated by the RBI.

Ø  Objectives — To provide short and medium-term loans only to its members, the repayment schedule of which can be decided on the basis of the purpose and tenure for which the members take the loan.

Ø  Roles — Its main role is to deal with agricultural borrowers of the village by giving agricultural, short-term and medium-term purpose loans to the borrowers then collecting the repayments against those loans. They act as a link between the country!s higher financial agencies and the ultimate borrowers.

Features -

Ø  PACS are the association of farmers, which confers an equal level of rights on all members of society without considering their holding of share and their social standing.

Ø  Share of the societies is of small value so that poor farmers can also become its members.

Ø  Its area of operation is limited to the village (to which it belongs) and its membership should be given only to those located at the village where the credit society is established.

Functions —

Ø  Borrowing an adequate amount of funds from central financial agencies in order to help its members in a timely manner.

Ø  To make the arrangement of supplying the agricultural inputs including seeds, fertilizers, insecticides, etc.

Ø  Maintaining the supply of the light machinery for the agricultural purpose.

Ø  It helps its members by providing marketing facilities that could enhance the sale of their agricultural products in the market at the proper prices.

Advantages —

Ø  It helps the farmers to get credit for agricultural purpose and government-related funds distribution to eligible farmers at their place.

Ø  It helps in promoting savings habits among its members.

Ø  It helps in implementing any government schemes which are related to farmers at their level and also to observe whether these schemes are attaining their intended purpose or not.

Challenges —

Ø  Organisational weakness — Though PACS covers the major portion of the villages, still villages in the northeastern states are not covered.

Ø  Over dues — The larger overdues come from landowners rather than small cultivators, implying that a few farmers who are relatively stronger in the village took unfair advantage of these PACS.

Ø  Lack of resources — The PACS's resources are far too limited in relation to the rural economy's short- and medium-term credit needs. This is largely due to insufficient funds provided by higher-level funding agencies.

Ministry of Cooperation issued a statement that Primary Agricultural Credit Societies (PACS) can also be employed as drone entrepreneurs for spraying fertilisers and pesticides.

Ø  Ministry of Cooperation issued a statement that Primary Agricultural Credit Societies (PACS) can also be employed as drone entrepreneurs for spraying fertilisers and pesticides.

Ø  The statement also said that the PACS which are not currently functioning as Pradhan Mantri Kisan Samridhi Kendras will be brought under their ambit.

About Pradhan Mantri Kisan Samriddhi Kendras (PMKSK) -

Ø  The Central government launched 600 Pradhan Mantri Kisan Samriddhi Kendras in 2022.

Ø  These Kendras are one-stop solutions to farmers in the form of crop advisories, soil- and seed-testing facilities, retailing seeds and pesticides, and even custom hiring of agricultural equipment and machines.

Ø  PMKSK function under the Ministry of Chemicals & Fertilisers.

About the ‘Primary Agricultural Credit Societies’ -

Ø  The PACS constitute the lowest tier of the three-tier Short-term cooperative credit in the country comprising 13 crore farmers as its members, which is crucial for the development of the rural economy.

Ø  PACS account for 41% (3.01 crore farmers) of the Kisan Credit Card (KCC) loans. 95% of these KCC loans (2.95 crore farmers) are to the Small and Marginal farmers.

Ø  PACS are outside the purview of the Banking Regulation Act, 1949 and hence not regulated by the RBI.

Ø  Objectives — To provide short and medium-term loans only to its members, the repayment schedule of which can be decided on the basis of the purpose and tenure for which the members take the loan.

Ø  Roles — Its main role is to deal with agricultural borrowers of the village by giving agricultural, short-term and medium-term purpose loans to the borrowers then collecting the repayments against those loans. They act as a link between the country!s higher financial agencies and the ultimate borrowers.

Features -

Ø  PACS are the association of farmers, which confers an equal level of rights on all members of society without considering their holding of share and their social standing.

Ø  Share of the societies is of small value so that poor farmers can also become its members.

Ø  Its area of operation is limited to the village (to which it belongs) and its membership should be given only to those located at the village where the credit society is established.

Functions —

Ø  Borrowing an adequate amount of funds from central financial agencies in order to help its members in a timely manner.

Ø  To make the arrangement of supplying the agricultural inputs including seeds, fertilizers, insecticides, etc.

Ø  Maintaining the supply of the light machinery for the agricultural purpose.

Ø  It helps its members by providing marketing facilities that could enhance the sale of their agricultural products in the market at the proper prices.

Advantages —

Ø  It helps the farmers to get credit for agricultural purpose and government-related funds distribution to eligible farmers at their place.

Ø  It helps in promoting savings habits among its members.

Ø  It helps in implementing any government schemes which are related to farmers at their level and also to observe whether these schemes are attaining their intended purpose or not.

Challenges —

Ø  Organisational weakness — Though PACS covers the major portion of the villages, still villages in the northeastern states are not covered.

Ø  Over dues — The larger overdues come from landowners rather than small cultivators, implying that a few farmers who are relatively stronger in the village took unfair advantage of these PACS.

Ø  Lack of resources — The PACS's resources are far too limited in relation to the rural economy's short- and medium-term credit needs. This is largely due to insufficient funds provided by higher-level funding agencies.