CURRENT-AFFAIRS

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• An analysis conducted by the Associated Press has revealed a staggering surge in the prevalence of "zombie" companies, reaching nearly 7,000 worldwide, with 2,000 of these entities located within the United States.
• About Zombie Companies:
  • A "zombie" company is characterized by its scant cash flows, merely adequate to service interest payments on its debts but insufficient to repay the principal amounts borrowed. Its revenue stream merely covers fixed operational expenses such as wages, rent, and interest payments, leaving no room for growth, innovation, or substantial enhancements.
  • Often dubbed the "living dead" or "zombie stocks," these companies rely heavily on external financing, primarily from banks. They grapple with elevated borrowing costs and hover on the brink of insolvency or necessitate a bailout, vulnerable to market disruptions or a single poor quarter.
  • Operating as "uncompetitive survivors," they contribute to diminished productivity on a global scale, tying up resources that could be better utilized by healthier, more inventive firms. Consequently, they pose a systemic risk to the broader economy.

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• The Arun III Hydropower Project, a collaborative effort between Nepal and India, recently reached a significant milestone with the breakthrough of its tunnel, marking a crucial step forward in its construction.
• About Arun-III Hydro Power Project:
  • Situated in the Sankhuwasabha District of Eastern Nepal, the Arun III Hydropower Project is a monumental endeavor aiming to harness the energy potential of the Arun River, a tributary of the Koshi River.
  • This project encompasses a 70-meter-tall concrete gravity dam and an 11.74 km Head Race Tunnel (HRT), leading to an underground power house housing four generating units of 225 MW each on the left bank. Funded with Indian assistance at a cost of Rs. 144 billion, it stands as a testament to the collaborative efforts between the two nations.
  • Upon completion, it will emerge as Nepal's largest hydroelectric facility, underscoring its pivotal role in the region's energy landscape. Developed under a Build-Own-Operate-and-Transfer (BOOT) framework by Satluj Jal Vidyut Nigam (SJVN) Arun-III Power Development Company (SAPDC), a joint venture between the Indian and Himachal Pradesh governments, the project signifies a commitment to sustainable energy development.
  • SAPDC will oversee operations for 25 years, following a construction period of five years, before transferring ownership to the Nepal government. During this initial operational phase, Nepal will receive 21.9% of the electricity generated as free power, enhancing energy accessibility and bolstering socio-economic development.
  • The power generated by this project will be transmitted to Muzaffarpur in India through a 317 km-long 400 kV double circuit transmission line, further facilitating regional energy integration and cooperation.

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• SEBI recently imposed a hefty fine of Rs 7.75 crore on 11 individuals accused of orchestrating a ‘pump and dump’ scheme, shedding light on illicit activities within the securities market.
• About Pump and Dump Scheme:
  • A pump and dump scheme is a manipulative tactic prevalent in the stock market, characterized by artificially inflating stock prices through dissemination of false and deceptive information. This scheme aims to entice investors to purchase stocks at inflated prices, only for perpetrators to swiftly sell off their holdings, leaving unsuspecting investors with substantial losses.
  • Such schemes are particularly rampant in the micro-cap and small-cap sectors, where limited public information and lower trading volumes provide fertile ground for manipulation.
• The mechanics of a pump and dump scheme entail several steps:
  • Acquisition of a significant volume of stock in a thinly traded company, often referred to as ‘penny stocks’ due to their low prices and susceptibility to manipulation.
  • Aggressive promotion of the stock through various channels, including mass emails, newsletters, and misleading social media posts, to generate hype and attract investors.
  • Increased demand for the stock leads to a surge in its price, fueled by the illusion of high potential created by promoters.
  • Upon reaching artificially inflated prices, perpetrators execute a mass sell-off, causing the stock price to plummet and inflicting significant losses on investors.
• Impact:
  • Investors who succumb to the hype and purchase stocks at inflated prices are left grappling with substantial financial losses when the stock price inevitably crashes.
  • Moreover, pump and dump schemes erode confidence in financial markets, casting doubts on the integrity of investment opportunities and dissuading legitimate investors.
  • SEBI has taken a firm stance against pump and dump schemes, banning such manipulative practices under its regulatory purview. This punitive action underscores the regulatory commitment to safeguarding the integrity and fairness of the securities market.

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• RBI is set to streamline the Guidelines for Export and Import of Goods and Services under the purview of the Foreign Exchange Management Act (FEMA), 1999, reflecting the evolving economic landscape.
• About Foreign Exchange Management Act (FEMA), 1999:
  • FEMA, enacted on June 1, 2000, succeeded the Foreign Exchange Regulation Act (FERA) of 1973, adapting to the changing dynamics of a post-liberalization India.
  • The primary objective of FEMA is to facilitate seamless external trade and payments while fostering the orderly development and sustenance of India's foreign exchange market.
  • FEMA encompasses provisions governing the procedures, formalities, and transactions pertaining to foreign exchange within India, regulating diverse aspects such as acquisition, holding, payment, settlement, export, and import of currency, among others.
  • Empowering the Reserve Bank of India (RBI) to frame rules and regulations to execute the provisions of the act, FEMA deems violations as civil offenses, subjecting perpetrators to penalties and fines.
  • The Enforcement Directorate, headquartered in Delhi, oversees the enforcement of FEMA, ensuring compliance with its provisions.
• Applicability:
  • FEMA holds jurisdiction over the entirety of India and extends its reach to agencies and offices abroad, owned or managed by Indian citizens.
  • It governs various entities and transactions, including foreign exchange, securities, export and import of goods and services, banking, financial, and insurance services, among others.
  • Furthermore, FEMA mandates the RBI to play a pivotal role in managing foreign exchange transactions, delegating this responsibility to "Authorized Persons," such as authorized dealers, money changers, offshore banking units, or any entity authorized by the RBI to engage in foreign exchange or securities dealings.