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The government introduced a Bill in Rajya Sabha that seeks to replace the Chief Justice of India with a Cabinet Minister nominated by the Prime Minister in the committee for selection of the Chief Election Commissioner and Election Commissioners. It also makes the Leader of Opposition in Lok Sabha a member of the selection committee.
This comes five months after the Supreme Court ruled that a three-member panel, headed by the Prime Minister and comprising the Leader of the Opposition in Lok Sabha and the Chief Justice of India, will select the CEC and ECs until a law is enacted by Parliament on their appointments.
Ruling on petitions seeking an independent mechanism to appoint the CEC and ECs, a five-judge Constitution Bench also said where no Leader of Opposition is available, the committee will include the leader of the largest Opposition party in Lok Sabha in terms of numerical strength.
As the Opposition raised slogans over the Manipur issue in Rajya Sabha, Union Law Minister Arjun Ram Meghwal introduced the Bill “to regulate the appointment, conditions of service and term of office of the Chief Election Commissioner (CEC) and other Election Commissioners (ECs), the procedure for transaction of business by the Election Commission and for matters connected therewith or incidental thereto”.
Eye on inflation EBI keeps repo rate unchanged (Page no. 3)
(GS Paper 3, Economy)
On expected lines, the Reserve Bank of India (RBI) left the repo rate unchanged at 6.5 per cent for the third time in a row amid concerns over rise in inflation.
The six-member Monetary Policy Committee (MPC) revised its FY’24 consumer price index (CPI) inflation projection to 5.4 per cent from an estimate of 5.1 per cent announced in June, even as it retained its forecast for real gross domestic product (GDP) growth at 6.5 per cent.
The MPC decided to keep the policy repo rate unchanged at 6.5 per cent with preparedness to act, should the situation so warrant.
The MPC remains resolute in its commitment to aligning inflation to the 4 per cent target and anchoring inflation expectations,” said RBI Governor Shaktikanata Das while announcing the monetary policy.
The repo rate is the rate at which the RBI lends money to banks to meet their short-term funding needs.
The MPC, in a 5:1 majority, decided to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns with the target, while supporting growth.
The RBI directed banks to maintain an incremental cash reserve ratio (I-CRR) of 10 per cent for banks in order to manage surplus liquidity in the banking system.
The measure, which is temporary, will suck out above Rs 1 lakh crore of excess liquidity from the banking system.
Govt & Politics
J&K sovereignty transfer to India was absolute: SC (Page no. 10)
(GS Paper 2, Judiciary)
Transfer of sovereignty to the dominion of India by acceding states, including Jammu and Kashmir, was not conditional but absolute, as is reflected in Article 1 of the Indian Constitution.
The court is hearing petitions challenging changes made to Article 370 of the Constitution, which granted special status to the erstwhile state of J&K.
Chief Justice of India D Y Chandrachud, heading a five-judge Constitution Bench hearing the petitions, said The Constitution (Application to Jammu and Kashmir) Second Amendment Order, 1972, which amended Article 248 in relation to its application to J&K “makes it now beyond the pale of doubt that sovereignty vested exclusively in India and, therefore, no vestige of sovereignty was retained post the Instrument of Accession (IoA)”.
Article 248 provides for residuary powers of legislation in respect of all other states.
One thing which is very clear is that there was no conditional transfer of sovereignty to the dominion of India. The surrender of sovereignty was absolutely complete. Once the sovereignty was unquestionably and fully vested with the dominion of India, the only restraint which would apply would be on the power of Parliament to enact legislation.
Editorial
Shoring up resistance (Page no. 14)
(GS Paper 3, Economy)
Sometimes, all it takes for central banks to achieve their objectives is to do things differently, rather than to do different things.
Monetary policy decision only underlines this. The decisions will cement the building blocks of a resistant Indian economy, well placed to tackle any external shocks.
The global macroeconomic environment remains uncertain. Central banks in advanced economies are continuing to raise rates amidst a sticky inflationary environment, characterised by uncertain signals from noisy job markets.
This is creating its own complications, including the fast-vanishing arbitrage between jurisdictions. Recently, Fitch Ratings downgraded the US from AAA to AA+ on the back of a deterioration in the fiscal matrices over the next three years.
This was reminiscent of a similar downgrade by S&P in 2011. Fitch’s downgrade was soon followed by Moody’s downgrading 10 select banks for increased use of wholesale funding.
Apart from such macro developments, events such as the escalating tech-related standoff between the US and China — new screening measures blocking future US investments in semiconductor and quantum computing, and artificial intelligence companies from operating in China — are further complicating the geopolitical landscape.
The move has support from other major stakeholders in this critical supply chain like the Netherlands (whose ASML is the most critical machine manufacturer for advanced chips) and Japan.
China’s faltering export/import numbers are signalling the stress. One of the biggest property developers Country Garden is defaulting on coupon payments on dollar bonds raised, triggering probably another vicious cycle reminiscent of Evergrande in the not-so-distant past.
Ideas Page
The EC’s guardrails (Page no. 15)
(GS Paper 2, Governance)
The day before the Monsoon Session is set to end, the government tabled the Chief Election Commissioner and other Election Commissioners (Appointments, Conditions of Service, Term of Office) Bill in the Rajya Sabha.
This comes after the Supreme Court’s landmark verdict in March on the appointment process of polling officials. The proposed Bill effectively stands to dilute the SC verdict and many of the concerns that the SC verdict had warned against. This Bill is also not part of the 31 bills listed for passage during the session.
In March, in a unanimous verdict, a five-judge constitution bench headed by Justice K M Joseph ruled that a panel comprising the Prime Minister (PM), the Leader of the Opposition (LoP), and the Chief Justice of India shall appoint CEC and ECs until Parliament brings a law, underlining that the independence of the Election Commission requires a collegium.
The court had said that the purity of the election process must be maintained to preserve democracy, else it “would lead to disastrous consequences”. The presence of the CJI was required to usher in impartiality and insulate the appointment process from the Executive’s interference.
The Bill now proposed by the Union government, seeks to replace the CJI with a Cabinet Minister nominated by the Prime Minister. However, it proposes a welcome addition — a search committee, headed by the Cabinet Secretary, with two other members not below the rank of secretary to the government, to prepare a panel of five members for the consideration of the Selection Committee.
Economy
With inflation set to remain above 5%, rate cut unlikely this fiscal (Page no. 17)
(GS Paper 3, Economy)
The Reserve Bank of India’s inflation projection has belied hopes for a reduction in the interest rates in the current financial year (2023-24) as retail inflation is expected to remain elevated due to high vegetable and foodgrain prices.
Inflation which is expected to remain above the five per cent till the first quarter of 2024-25 is likely to hit the 6.2 per cent level in the ongoing quarter (July-September), according to the RBI projection.
The benchmark Sensex fell by 308 points to 65,688.18 amid worries about a delay in the rate cut and 10 per cent increment cash reserve ratio for banks.
On Thursday, the RBI, while retaining the repo rate at 6.50 per cent, revised its FY24 inflation projection to 5.4 per cent from 5.1 per cent announced in June. It said CPI inflation is expected to touch 6.2 per cent in the second quarter, 5.7 per cent in the third quarter and 5.2 per cent in the fourth quarter of FY 2023-24.
This means the high policy rates will remain high for long and, therefore, a rate cut can be expected only in Q1 FY25,” said VK Vijayakumar.
Explained
The CEC-ECs bill and how it overturns the effect of an SC order (Page no. 18)
(GS Paper 2, Governance)
With the view of overturning the effect of the Supreme Court verdict on the appointment of the Chief Election Commissioner (CEC) and Election Commissioners (ECs), a Bill was listed to be introduced in the Rajya Sabha on Thursday (August 10).
The Centre’s Bill seeks to establish a committee of the Prime Minister, the Leader of Opposition in the Lok Sabha and a Cabinet Minister nominated by the PM for selecting members of the Election Commission of India (ECI).
On March 2, a five-judge bench of the Supreme Court unanimously ruled that a high-power committee consisting of the Prime Minister, Leader of Opposition in Lok Sabha, and the Chief Justice of India must pick the CEC and ECs.
The judgement by a bench led by Justice KM Joseph came in a 2015 public interest litigation, challenging the constitutional validity of the practice of the Centre-appointed members of the Election Commission.
In 2018, a two-judge bench of the SC referred the case to a larger bench since it required a close examination of Article 324 of the Constitution, which deals with the role of a Chief Election Commissioner.
Floating rates loans: Why RBI wants proper lending conduct by banks (Page no. 18)
(GS Paper 3, Economy)
The Reserve Bank of India (RBI) has decided to stop the rampant elongation of the tenor of floating rate loans and resetting of the tenor by banks without informing borrowers.
The RBI announced that it will bring a framework of transparency and proper rules while resetting equated monthly instalments- (EMI-) based floating rate loans.
Supervisory reviews by the central bank, and feedback and references from the public have revealed several instances of unreasonable elongation of tenor of floating rate loans by lenders without proper communication and consent from borrowers.
Banks can change the interest rate by changing the internal benchmark rate and the spread during the term of the loan — potentially harming borrowers’ interests and impairing monetary transmission.
Borrowers have complained that banks change or reset EMIs arbitrarily, and extend tenors without informing them.
Borrowers are also not informed about foreclosure charges.
The RBI has also observed that unduly long elongation of tenors has camouflaged stress in banks. The borrower can in theory refinance the floating rate loan by going to another bank, but this does not work well in practice.
Floating rate loans of different banks with internal benchmarks are not identical even if spreads are identical at loan origination and in the future, given that different banks change or reset internal benchmarks differently.
World
Biden issues order to block US investment in Chinese technology (Page no. 21)
(GS Paper 2, International Relation)
President Joe Biden signed an executive order to block and regulate high-tech U.S.-based investments going toward China — a move the administration said was targeted but it also reflected an intensifying competition between the world's two biggest powers.
The order covers advanced computer chips, micro electronics, quantum information technologies and artificial intelligence.
Senior administration officials said that the effort stemmed from national security goals rather than economic interests, and that the categories it covered were intentionally narrow in scope.
The order seeks to blunt China's ability to use U.S. investments in its technology companies to upgrade its military while also preserving broader levels of trade that are vital for both nations' economies.
The Chinese Ministry of Commerce responded in a statement that it has “serious concern” about the order and “reserves the right to take measures.
The United States and China appear to be increasingly locked in a geopolitical competition with a conflicting set of values. Biden administration officials have insisted that they have no interest in “decoupling” from China, yet the U.S. also has limited the export of advanced computer chips and kept the expanded tariffs set up by President Donald Trump.
And in its response, China accused the U.S. of “using the cover of risk reduction' to carry out decoupling and chain-breaking.'” China has engaged in crackdowns on foreign companies.