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Emergency award

Note4Students

From UPSC perspective, the following things are important :

Prelims level: Emergency award

Mains level: Paper 3- Improving the arbitration in India

Context

The judgment delivered by the Supreme Court in the legal tussle between Amazon and the Future Group has laid the foundation for recognition and enforcement of emergency awards under the Indian arbitration law.

What is an emergency award?

  • It is an award rendered by an emergency arbitrator, appointed prior to the formal constitution of an arbitral tribunal by an arbitral institution.
  • It is a recent mechanism introduced by arbitral institutions to encourage parties to seek urgent interim relief from an arbitral institution rather than from a court.
  • Many leading arbitral institutions such as SIAC, ICC, and LCIA have provisions for the appointment of an emergency arbitrator.
  • As far as India is concerned, the 246th Law Commission Report had recommended an amendment in the Arbitration and Conciliation Act, 1996 (‘Indian Arbitration Act’) to grant statutory recognition to an emergency award.
  • Some of the indigenous arbitral institutions though, such as the Delhi International Arbitration Centre, have made provisions for emergency arbitration.

What is the tussle between Amazon and Future Group about?

  • In August 2020, Biyani Group and the Reliance Industries Group decided to amalgamate Future Retail Ltd. (FRL) with Reliance Industries and complete disposal of its retail assets in favor of the Group.
  • However, prior to the said transaction, Amazon had invested an amount of Rs 1,431 crores in Future Coupons Pvt. Ltd. (FCPL) based on rights granted to FCPL with regard to FRL.
  • So, Amazon initiated arbitration against the Biyani Group, including FRL, under Singapore International Arbitration Centre (SIAC) Rules.
  • Amazon made an application seeking urgent interim reliefs under SIAC rules and the appointment of an emergency arbitrator.
  • The emergency arbitrator appointed, made an award in favor of Amazon in October 2020, restricting the Biyani Group from proceeding ahead with the disputed transaction.
  • However, the Biyani Group proceeded with the disputed transaction, construing the emergency award as a nullity.

Issue of enforcement of the emergency award in India

  • Amazon filed an application before the Delhi High Court for enforcement of the award.
  • The court had the task of answering two novel legal questions —
  • 1) Whether the emergency award is an interim order under section 17(1) of the Indian Arbitration Act,
  • 2) Whether it can be enforced under section 17(2).
  • The Delhi High Court gave judgment in March 2021 against the Biyani Group.
  • The case eventually reached the Supreme Court.
  • Party autonomy: The Supreme Court judgment emphasized party autonomy in arbitration, which includes the right of the parties to choose institutional rules as the governing rules of arbitration.
  • Once chosen, the parties are bound by such rules.
  • The Supreme Court also held that the Indian Arbitration Act does not prohibit the parties from agreeing to a provision providing for an emergency arbitrator.
  • The Supreme Court also held that the term “during the arbitral proceedings” is wide enough to encompass emergency arbitration proceedings.
  • The Court ultimately held the emergency award to be an interim order under section 17(1) of the Indian Arbitration Act and enforceable under section 17(2).

Significance of the judgment for arbitration in India

  • This judgment has contributed to the development of Indian arbitration law.
  • In the broader scheme of things, it is a victory for Indian arbitration and a sigh of relief for arbitral institutions.

Conclusion

The judgment is a reaffirmation of the fact that India is gradually stepping towards being an “arbitration-friendly” jurisdiction.

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Insolvency and Bankruptcy Code

Getting the perfect haircut from the IBC

Note4Students

From UPSC perspective, the following things are important :

Prelims level: IBC 2016

Mains level: Paper 3- Right timing in the use of IBC matters

Understanding the role of IBC 2016

  • For reasons sometimes a company may experience stress, that is, is unable to repay the debt in time — implying that it has assets less than claims against it.
  • So, when a company has inadequate assets, the claim of an individual creditor may be consistent with its assets while claims of all creditors put together may not.
  • In such a situation, creditors may rush to recover their claims before others do, triggering a run on the company’s assets.
  • The IBC provides for reorganisation that prevents a value-reducing run on the company.
  • It aims to rescue the company if its business is viable or close it if its business is unviable, through a market process.
  • Restructuring: The claims of creditors are restructured, which may be paid to them immediately or over time.
  •  In case of closure, the assets of the company are sold, and proceeds are distributed to creditors immediately as per the priority rule.
  • Reorganisation by financial creditor: The IBC entrusts the responsibility of reorganisation to financial creditors as they have the capability and the willingness to restructure their claims.

Why so much variation in haircut?

  • Where the company does not have adequate assets, realisation for financial creditors, through a rescue, may fall short of their claims known as haircut.
  • The IBC process yields a zero haircut (100% recovery of claimed amount) in one case and 100 per cent haircut (i.e. 0% recovery) in another.
  • Factors: It depends on several factors, including the nature of business, business cycles, market sentiments, and marketing effort.
  • It critically depends on at what stage of stress, the company enters the IBC process.
  • If the company has been sick for years, and its assets have depleted significantly, the IBC process may yield a huge haircut or even liquidation.
  • A haircut is typically the total claims minus the amount of realisation/amount of the claims.
  • But this formulation may not tell the complete story.
  • The realisation often does not include the amount that would be realised from equity holding post-resolution, and through the reversal of avoidance transactions and the insolvency resolution of guarantors — personal and corporate.
  • It also does not include realisations made in other accounts.
  • The amount of claim often includes NPA, which may be completely written off, and the interest on such NPA.
  • These understate the numerator and overstate the denominator, projecting a higher haircut.

Significance of IBC

  • A haircut should be seen in relation to the assets available and not in relation to the claims of creditors.
  • The market offers a value in relation to what a company brings on the table, not what it owes to creditors.
  • Value maximisation: So, the IBC maximises the value of existing assets, not of assets that probably existed earlier.
  • Market determined value: The IBC enables and facilitates market forces to resolve stress as a going concern.
  • Resolution applicants, who have many options for investment, including in stressed companies, compete to offer the best value.
  • If the best value offered by the market is not acceptable to creditors, the company is liquidated.
  • Maximum realisation: In addition to rescuing the company, the IBC realises, of the available options for creditors, the highest in percentage terms.

Conclusion

It is a tool in the hands of stakeholders to be used at the right time, in the right case, in the right manner.

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Back2Basics: Avoidable Transactions in IBC 2016

  • The UNCITRAL Legislative Guide on Law of Insolvency defines avoidance proceedings as “provisions of the insolvency law that permit transactions for the transfer of assets or the undertaking of obligations prior to insolvency proceedings to be cancelled or otherwise rendered ineffective and any assets transferred, or their value, to be recovered in the collective interest of creditors.”
  • It is very important for the Resolution Professional (RP) or the liquidator to identify such transaction and file applications to avoid it so that creditors can collect their claims.
  • The Insolvency and Bankruptcy Code, 2016 (IBC) contains four types of avoidable transactions- preferential, undervalued, defrauding creditors and extortionate transactions.
  • Usually, the avoidable transactions should be made within the prescribed relevant time or look back period.
  • Look back period is the relevant time up to which an RP or a liquidator can go back to scrutinize an expected avoidable transaction.

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Parliament – Sessions, Procedures, Motions, Committees etc

Role of Speaker

Note4Students

From UPSC perspective, the following things are important :

Prelims level: Power of the Speaker

Mains level: Paper 2- Need to make Speakers independent and impartial

Context

The decline in the functioning of India’s Parliament — and state assemblies as well — is caused by one primary reason: The lack of independence and impartiality of the Speaker.

Important role of the Speaker

  • Our Constitution, after extensive debate, adopted the Westminster model of governance.
  • In the Lok Sabha, as in the United Kingdom, the Speaker is the supreme authority; he has vast powers and it is his primary duty to ensure the orderly conduct of the business of the House.
  • Constitutional law points out the two essential qualities of a Speaker: Independence and impartiality.
  • As the principal spokesperson of the Lok Sabha, the Speaker represents its collective voice.
  • Indeed, the supremacy of Parliament is emphasised by Article 75(3) of the Constitution: “The Council of Ministers shall be collectively responsible to the House of the People”.
  •  Pandit Nehru referred to the Speaker as “the symbol of the nation’s freedom and liberty” and emphasised that Speakers should be men of “outstanding ability and impartiality”.

How role of Speaker matters in functioning Legislature

  • Power to allow debate or discussion: It is the Speaker’s duty to decide what issues will be taken up for discussion.
  • He has the sole discretion to permit an adjournment motion to be tabled or to admit a calling attention notice, if the issue is of urgent public importance.
  • The present practice of the Speaker continuing to be an active member of the ruling party has the inevitable result of his refusing to allow any debate or discussion that may be essential in national interest but may embarrass the ruling party.
  • This inevitably leads to constant disruption of Parliament by the Opposition.
  • The stalling of parliamentary proceedings has led to the passing of important bills in several sessions without any discussion.
  • Violation of separation of power between legislature and executive: The most dangerous consequence is the vastly increased powers that the executive — the bureaucracy — begins to command by default.
  • In 1951, a nine-judge bench of the Supreme Court (In Re Delhi Laws Act Case) held that essential legislative functions cannot be delegated to the bureaucracy; law-making must remain the domain of the legislature.
  • This constitutional mandate is now increasingly and consistently being violated by issuing rules and notifications that have far-reaching consequences.
  • The new rules on information technology and electronic commerce are clear instances of changes that should have come about by a parliamentary law.
  • And worse still is the power given to the executive to issue retrospective notifications — a step unknown to any civilised democracy.
  • Partisan conduct in anti-defection law issues: Several judgments on the anti-defection law have been rendered by the Supreme Court.
  • A common factor that shows up in these rulings is the blatant, partisan conduct of speakers in state assemblies.

Way forward

  • Speaker should resign from Party: It should be made mandatory that the Speaker ought to resign from his party and his sole allegiance must be to the Constitution and to maintaining the dignity of the House.
  • The separation of powers is part of the basic structure of our Constitution.
  • It is imperative that the Speaker of every legislature resigns from his party to honour his constitutional obligation of independence and impartiality. 
  • This must be accepted as the primary responsibility of every ruling party, both at the Centre and in each state, and made into a constitutional convention.

Conlcusion

The option is a binary: Either allow Parliament and state legislatures to descend into terminal decline or make the Speaker truly independent and let every legislature perform its constitutional function.

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Judicial Appointments Conundrum Post-NJAC Verdict

Collegium recommends nine judges for Supreme Court

Note4Students

From UPSC perspective, the following things are important :

Prelims level: Collegium system, NJAC

Mains level: Not Much

The Supreme Court Collegium, led by Chief Justice of India (CJI) N.V. Ramana has recommended to the government nine names for appointment as apex court judges.

Significant appointments

  • The Collegium has for the first time, in one single resolution, recommended three women judges.
  • It has thus sent a strong signal in favor of the representation of women in the highest judiciary.
  • The process scripted history by naming Karnataka High Court judge B.V. Nagarathna, who may become India’s first woman CJI.

What is Collegium System?

  • The Collegium of judges is the Indian Supreme Court’s invention.
  • It does not figure in the Constitution, which says judges of the Supreme Court and High Courts are appointed by the President and speaks of a process of consultation.
  • In effect, it is a system under which judges are appointed by an institution comprising judges.
  • After some judges were superseded in the appointment of the CJI in the 1970s, and attempts made subsequently to effect a mass transfer of High Court judges across the country.
  • Hence there was a perception that the independence of the judiciary was under threat. This resulted in a series of cases over the years.

Evolution: The Judges Cases

  • First Judges Case (1981) ruled that the “consultation” with the CJI in the matter of appointments must be full and effective.
  • However, it rejected the idea that the CJI’s opinion, albeit carrying great weight, should have primacy.
  • Second Judges Case (1993) introduced the Collegium system, holding that “consultation” really meant “concurrence”.
  • It added that it was not the CJI’s individual opinion, but an institutional opinion formed in consultation with the two senior-most judges in the Supreme Court.
  • Third Judges Case (1998): On a Presidential Reference for its opinion, the Supreme Court, in the Third Judges Case (1998) expanded the Collegium to a five-member body, comprising the CJI and four of his senior-most colleagues.

The procedure followed by the Collegium

Appointment of CJI

  • The President of India appoints the CJI and the other SC judges.
  • As far as the CJI is concerned, the outgoing CJI recommends his successor.
  • In practice, it has been strictly by seniority ever since the supersession controversy of the 1970s.
  • The Union Law Minister forwards the recommendation to the PM who, in turn, advises the President.

Other SC Judges

  • For other judges of the top court, the proposal is initiated by the CJI.
  • The CJI consults the rest of the Collegium members, as well as the senior-most judge of the court hailing from the High Court to which the recommended person belongs.
  • The consultees must record their opinions in writing and it should form part of the file.
  • The Collegium sends the recommendation to the Law Minister, who forwards it to the Prime Minister to advise the President.

For High Courts

  • The CJs of High Courts are appointed as per the policy of having Chief Justices from outside the respective States. The Collegium takes the call on the elevation.
  • High Court judges are recommended by a Collegium comprising the CJI and two senior-most judges.
  • The proposal, however, is initiated by the Chief Justice of the High Court concerned in consultation with two senior-most colleagues.
  • The recommendation is sent to the Chief Minister, who advises the Governor to send the proposal to the Union Law Minister.

Does the Collegium recommend transfers too?

  • Yes, the Collegium also recommends the transfer of Chief Justices and other judges.
  • Article 222 of the Constitution provides for the transfer of a judge from one High Court to another.
  • When a CJ is transferred, a replacement must also be simultaneously found for the High Court concerned. There can be an acting CJ in a High Court for not more than a month.
  • In matters of transfers, the opinion of the CJI “is determinative”, and the consent of the judge concerned is not required.
  • However, the CJI should take into account the views of the CJ of the High Court concerned and the views of one or more SC judges who are in a position to do so.
  • All transfers must be made in the public interest, that is, “for the betterment of the administration of justice”.

Loopholes in the Collegium system

  • Lack of Transparency: Opaqueness and a lack of transparency, and the scope for nepotism are cited often.
  • Judges appointing Judge: The attempt made to replace it by a ‘National Judicial Appointments Commission’ was struck down by the court in 2015 on the ground that it posed a threat to the independence of the judiciary.
  • Criteria: Some do not believe in full disclosure of reasons for transfers, as it may make lawyers in the destination court chary of the transferred judge.

Scope for transparency

  • In respect of appointments, there has been an acknowledgment that the “zone of consideration” must be expanded to avoid criticism that many appointees hail from families of retired judges.
  • The status of a proposed new memorandum of procedure, to infuse greater accountability, is also unclear.
  • Even the majority opinions admitted the need for transparency, now Collegium’s resolutions are now posted online, but reasons are not given.

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Back2Basics:

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RBI Notifications

Government Securities Acquisition Programme (GSAP 2.0)

Note4Students

From UPSC perspective, the following things are important :

Prelims level: G-Secs

Mains level: Not Much

The Reserve Bank of India (RBI) has announced that it will conduct an open market purchase of government securities of ₹25,000 crore under the G-sec Acquisition Programme (G-SAP 2.0).

Answer this PYQ in the comment box:

Q.Consider the following statements:

  1. The Reserve Bank of India manages and services the Government of India Securities but not any State Government Securities.
  2. Treasury bills are issued by the Government of India and there are no treasury bills issued by the State Governments.
  3. Treasury bills offer are issued at a discount from the par value.

Which of the statements given above is/are correct?

(a) 1 and 2 only

(b) 3 Only

(c) 2 and 3 only

(d) 1, 2 and 3

 

Post your answers here:

What are Government Securities?

  • These are debt instruments issued by the government to borrow money.
  • The two key categories are:
  1. Treasury bills (T-Bills) – short-term instruments which mature in 91 days, 182 days, or 364 days, and
  2. Dated securities – long-term instruments, which mature anywhere between 5 years and 40 years

Note: T-Bills are issued only by the central government, and the interest on them is determined by market forces.

Why G-Secs?

  • Like bank fixed deposits, g-secs are not tax-free.
  • They are generally considered the safest form of investment because they are backed by the government. So, the risk of default is almost nil.
  • However, they are not completely risk-free, since they are subject to fluctuations in interest rates.
  • Bank fixed deposits, on the other hand, are guaranteed only to the extent of Rs 5 lakh by the Deposit Insurance and Credit Guarantee Corporation (DICGC).

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Nuclear Energy

Nuclear Fusion and the recent breakthrough

Note4Students

From UPSC perspective, the following things are important :

Prelims level: Nuclear Fusion Reaction

Mains level: Cleaner energy resources

California based researchers have announced that their experiment has made a breakthrough in nuclear fusion research.

What exactly is Nuclear Fusion?

  • Nuclear fusion is defined as the combining of several small nuclei into one large nucleus with the subsequent release of huge amounts of energy.
  • The difference in mass between the reactants and products is manifested as either the release or the absorption of energy.
  • Nuclear fusion powers our sun and harnessing this fusion energy could provide an unlimited amount of renewable energy.
  • An example of nuclear fusion is the process of four hydrogens coming together to form helium.

What was the experiment?

  • In the experiment, lasers were used to heat a small target or fuel pellets.
  • These pellets containing deuterium and tritium fused and produced more energy.
  • The team noted that they were able to achieve a yield of more than 1.3 megajoules of heat energy.
  • This megajoule of energy released in the experiment is indeed impressive in fusion terms.

How was the new breakthrough achieved?

  • The team used new diagnostics, improved laser precision, and even made changes to the design.
  • They applied laser energy on fuel pellets to heat and pressurize them at conditions similar to that at the center of our Sun. This triggered the fusion reactions.
  • These reactions released positively charged particles called alpha particles, which in turn heated the surrounding plasma.
  • At high temperatures, electrons are ripped from an atom’s nuclei and become a plasma or an ionized state of matter. Plasma is also known as the fourth state of matter.
  • The heated plasma also released alpha particles and a self-sustaining reaction called ignition took place.

Future prospects: Benefits

  • It is expected that fusion could meet humanity’s energy needs for millions of years.
  • Fusion fuel is plentiful and easily accessible: deuterium can be extracted inexpensively from seawater, and tritium can be produced from naturally abundant lithium.
  • Future fusion reactors will not produce high activity, long-lived nuclear waste, and a meltdown at a fusion reactor is practically impossible.
  • Importantly, nuclear fusion does not emit carbon dioxide or other greenhouse gases into the atmosphere, and so along with nuclear fission could play a future climate change mitigating role as a low carbon energy source.

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Climate Change Negotiations – UNFCCC, COP, Other Conventions and Protocols

India ratifies Kigali Amendment to the Montreal Protocol

Note4Students

From UPSC perspective, the following things are important :

Prelims level: Kigali Agreement

Mains level: Ozone depletion and its threat

The Union Cabinet has given its approval for ratification of the Kigali Amendment to the Montreal Protocol on Substances that Deplete the Ozone Layer for phase down of Hydrofluorocarbons (HFCs) by India.

What is Montreal Protocol?

  • The Montreal Protocol on Substances that Deplete the Ozone Layer is an international agreement made in 1987.
  • It was designed to stop the production and import of ozone-depleting substances and reduce their concentration in the atmosphere to help protect the earth’s ozone layer.
  • It sits under the Vienna Convention for the Protection of the Ozone Layer.

Objectives

  • The convention was adopted in 1985 and has highlighted the adverse effect of human activity on ozone levels in the stratosphere and the discovery of the ‘ozone hole’.
  • Its objectives are to promote cooperation on the adverse effects of human activities on the ozone layer.
  • It has since undergone nine revisions, in 1990 (London), 1991 (Nairobi), 1992 (Copenhagen), 1993 (Bangkok), 1995 (Vienna), 1997 (Montreal), 1998 (Australia), 1999 (Beijing) and 2016 (Kigali).

India and the Protocol

  • India became a Party to the Protocol on 19 June 1992 and since then has ratified the amendments.

What is the Kigali Amendment?

  • It is an international agreement to gradually reduce the consumption and production of hydrofluorocarbons (HFCs).
  • It is a legally binding agreement designed to create rights and obligations in international law.
  • While HFCs do not deplete the stratospheric ozone layer, they have high global warming potential ranging from 12 to 14,000, which has an adverse impact on climate.

What are the Ozone Depleting Substances?

Ozone-depleting substances are chemicals that destroy the earth’s protective ozone layer. They include:

  • chlorofluorocarbons (CFCs)
  • halons
  • carbon tetrachloride (CCl4)
  • methyl chloroform (CH3CCl3)
  • hydro Bromo fluorocarbons (HBFCs)
  • hydrochlorofluorocarbons (HCFCs)
  • methyl bromide (CH3Br)
  • bromochloromethane (CH2BrCl)

Where are they used?

The main uses of ozone-depleting substances include:

  • CFCs and HCFCs in refrigerators and air conditioners,
  • HCFCs and halons in fire extinguishers,
  • CFCs and HCFCs in foam,
  • CFCs and HCFCs as aerosol propellants, and
  • Methyl bromide for fumigation of soil, structures and goods to be imported or exported.

Now answer this PYQ:

Q.Consider the following statements:

Chlorofluorocarbons, known as ozone-depleting substances are used:

  1. In the production of plastic foams
  2. In the production of tubeless tyres
  3. In cleaning certain electronic components
  4. As pressurizing agents in aerosol cans

Which of the statements given above is/are correct? (CSP 2012)

(a) 1, 2 and 3 only

(b) 4 only

(c) 1, 3 and 4 only

(d) 1, 2, 3 and 4

Post your answers here.

Why phase them out?

Implementation strategy and targets:

  • India will complete its phase-down of HFCs in 4 steps from 2032 onwards with a cumulative reduction of 10% in 2032, 20% in 2037, 30% in 2042, and 80% in 2047.

Major Impact

  • HFCs phasedown is expected to prevent the emission of up to 105 million tonnes of carbon dioxide equivalent of GHGs, helping to avoid up to 0.5 degrees Celsius of global temperature rise by 2100, while continuing to protect the ozone layer.
  • It will achieve energy efficiency gains^ and carbon dioxide emissions reduction – a “climate co-benefit,”
  • HFCs phrase-down implementation will involve synergies to maximize the economic arid social co-benefits, besides environmental gains.
  • There would be scope for domestic manufacturing of equipment as well as alternative non-HFC and low-global warming potential chemicals to enable the industry to transition to the low global warming potential alternatives as per the agreed HFC phase-down schedule.
  • In addition, there would be opportunities to promote domestic innovation for new generation alternative refrigerants and related technologies.

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Capital Markets: Challenges and Developments

[pib] International Bullion Exchange

Note4Students

From UPSC perspective, the following things are important :

Prelims level: International Bullion Exchange

Mains level: Not Much

The International Financial Services Centres Authority (IFSCA) has inaugurated the pilot run/soft launch of the International Bullion Exchange scheduled to go live on October 1, 2021.

What is Bullion?

  • Bullion is gold and silver that is officially recognized as being at least 99.5% and 99.9% pure and is in the form of bars or ingots.
  • Bullion is often kept as a reserve asset by governments and central banks.
  • To create bullion, gold first must be discovered by mining companies and removed from the earth in the form of gold ore, a combination of gold and mineralized rock.
  • The gold is then extracted from the ore with the use of chemicals or extreme heat.
  • The resulting pure bullion is also called “parted bullion.” Bullion that contains more than one type of metal, is called “unparted bullion.”

The Bullion Market

  • Bullion can sometimes be considered legal tender, most often held in reserves by central banks or used by institutional investors to hedge against inflationary effects on their portfolios.
  • Approximately 20% of mined gold is held by central banks worldwide.
  • This gold is held as bullions in reserves, which the bank uses to settle the international debt or stimulate the economy through gold lending.
  • The central bank lends gold from their bullion reserves to bullion banks at a rate of approximately 1% to help raise money.
  • Bullion banks are involved in one activity or another in the precious metals markets.
  • Some of these activities include clearing, risk management, hedging, trading, vaulting, and acting as intermediaries between lenders and borrowers.

What is International Bullion Exchange?

  • This shall be the “Gateway for Bullion Imports into India”, wherein all the bullion imports for domestic consumption shall be channelized through the exchange.
  • The exchange ecosystem is expected to bring all the market participants to a common transparent platform for bullion trading.
  • It would provide efficient price discovery, assurance in the quality of gold, enable greater integration with other segments of financial markets and help establish India’s position as a dominant trading hub in the World.

Answer this PYQ:

What is/are the purpose/purposes of the Government’s ‘Sovereign Gold Bond Scheme’ and ‘Gold Monetization Scheme’?

  1. To bring the idle gold lying with India households into the economy
  2. To promote FDI in the gold and jewellery sector
  3. To reduce India’s dependence on gold imports

Select the correct answer using the code given below:

(a) 1 only

(b) 2 and 3 only

(c) 1 and 3 only

(d) 1, 2 and 3

 

Post your answers here.

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