UPSC Key: The Presidential Reference, Supreme Court’s Advisory Jurisdiction and Khilafat movement

President asks SC on assent to Bills: Can court impose timelines to decide?

Syllabus:

Preliminary Examination: Indian Polity and Governance – Constitution, Political System, Panchayati Raj, Public Policy, Rights Issues

Mains Examination: General Studies II: Functions and responsibilities of the Union and the States, issues and challenges pertaining to the federal structure, devolution of powers and finances up to local levels and challenges therein

What’s the ongoing story: IN A reference to the Supreme Court, President Droupadi Murmu has posed 14 crucial questions over the top court’s April 8 verdict that fixed timelines for Governors and the President to act on Bills passed by state Assemblies.

Key Points to Ponder:

• Why President Droupadi Murmu has invoked the Supreme Court’s advisory jurisdiction?

• What is the advisory jurisdiction of the Supreme Court

• What is article 143(1) of the Constitution?

• Under Article 143(1) of the Constitution, the President may refer a “question of law or fact” to the Supreme Court for its opinion—is the opinion given by the Supreme Court of India is binding?

• Can the SC decline to answer a presidential reference?

• Can the SC overturn its April 8 decision through the presidential reference?

• What was the April 8 decision given by the Supreme Court?

• In the Tamil Nadu v. Governor case, what specifically has the Supreme Court said about the president’s power?

• What is Article 142 of the Constitution?

• Why Supreme Court invoked Article 142 in this case?

• Do you think that Supreme Court can undermined the President’s powers?

• What is Judicial encroachment and Judicial overreach?

• Judicial encroachment and Judicial overreach—Compare and Contrast

• ‘The recent Supreme Court orders involving the Tamil Nadu Governor is an example of Judicial encroachment’—How far you agree?

Key Takeaways:

• Seeking the Supreme Court’s opinion under Article 143(1), Murmu sought to know whether the actions of the Governors and President are justiciable and whether such timelines can be imposed on them in the absence of any such provision in the Constitution.

• The reference pointed out that “there are conflicting judgments of the Supreme Court as to whether the assent of the President of India under Article 201 of the Constitution of India is justiciable or not”.

• Under Article 145 (3), when the President makes a reference for the court’s opinion, it is placed before a five-judge bench. In the Ayodhya dispute, the apex court, citing pendency of the case, had declined to answer the question referred to it on whether a temple existed below the disputed structure.

• Article 143 (1), which was invoked by the President to seek the court’s opinion, says that “if at any time it appears to the President that a question of law or fact has arisen, or is likely to arise, which is of such a nature and of such public importance that it is expedient to obtain the opinion of the Supreme Court upon it, he may refer the question to that Court for consideration and the Court may, after such hearing as it thinks fit, report to the President its opinion thereon”.

• The top court had said that “in case of any delay beyond this period, appropriate reasons would have to be recorded and conveyed” to the state concerned.

• The court, in its ruling, declared the action of Tamil Nadu Governor R N Ravi as illegal and erroneous in reserving 10 Bills for consideration of the President in November 2023 after they had already been reconsidered by the Assembly.

• In her reference to the Supreme Court, President Murmu sought to know: “Is the exercise of constitutional discretion by the President under Article 201 of the Constitution of India justiciable? ?In the absence of a constitutionally prescribed timeline and the manner of exercise of powers by the President, can timelines be imposed and the manner of exercise be prescribed through judicial orders for the exercise of discretion by the President under Article 201 of the Constitution of India?”

• The President also asked: “Can the exercise of constitutional powers and the orders of/by the President / Governor be substituted in any manner under Article 142 of the Constitution of India?”

Do You Know:

• On April 8, the Supreme Court had set a timeline for Governors to act on pending Bills, and for the first time, prescribed that the President should take a decision on the Bills reserved for consideration by the Governor within three months from the date on which such reference is received. Under Article 201 of the Constitution, no timeframe has been set for a Presidential decision.

• Under Article 143(1) of the Constitution, the President may refer a “question of law or fact” to the Supreme Court for its opinion. The opinion, unlike a ruling, is not binding.

• The Constitution extended the provision in the Government of India Act, 1935 to seek the opinion of the Federal Court on questions of law to questions of fact as well, including certain hypotheticals.

• A question under Article 143 may be referred if it “has arisen, or is likely to arise”, and “which is of such a nature and of such public importance that it is expedient to obtain the opinion of the Supreme Court”.

• Article 145(3) requires any such reference to be heard by five judges, after which the SC returns the reference to the President with the majority opinion.

• Under the Constitution, the President acts on the aid and advice of the Cabinet. The advisory jurisdiction allows her the means to seek independent advice to act on certain constitutional matters. It is a power that the President has invoked on at least 15 occasions since 1950.

Other Important Articles Covering the same topic:

📍The President’s reference

📍Before Murmu, other Presidents and their references to SC

Previous year UPSC Prelims Question Covering similar theme:
1. Consider the following statements: (2010)
1. In appellate jurisdiction, the Supreme Court has exclusive power to adjudicate upon disputes involving elections of the President and the Vice President.
2. In advisory jurisdiction, the President has the power to seek an opinion from the apex court under Article 143 of the Constitution
3. In original jurisdiction, the Supreme Court hears appeals from lower courts.
Which of the statement(s) given above is/are correct?
(a) 1 and 2 only
(b) 2 only
(c) 3 only
(d) 2 and 3 only

After flagging Istanbul help to Pak, Delhi defers its envoy’s acceptance

Syllabus:

Preliminary Examination: Current events of national and international importance.

Mains Examination: General Studies II: Bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests.

What’s the ongoing story: CITING “scheduling” issues, the Ministry of External Affairs postponed indefinitely the Thursday event at Rashtrapati Bhavan where Turkish Ambassador-designate Ali Murat Ersoy was to present his Letter of Credence to the President of India.

Key Points to Ponder:

• What does Ambassador-designate mean?

• India and Turkey—Know bilateral relations between the two countries?

• India and Turkey—Know historical background

• India extended support in the 1920s to Turkey’s War of Independence and the formation of the Turkish republic—Discuss

• The Khilafat Movement, a significant event in Indian history—What you know about the same?

• Was the Khilafat movement associated with Turkey?

• Why India participated in the Khilafat movement?

• Why India-Turkey ties are in crisis now?

Key Takeaways:

• The Ambassador-designate of Thailand and High Commissioner-designate of Bangladesh were also scheduled to present their credentials at the event. A Letter of Credence is a formal document appointing a diplomat as Ambassador or High Commissioner to another sovereign state.

• The postponement comes the day the Bureau of Civil Aviation Security (BCAS), India’s aviation security regulator, revoked the security clearance of an Indian arm, Çelebi Airport Services India, of Turkey-headquartered airport ground handling major Çelebi Aviation Holding in the interest of “national security” with immediate effect.

• On May 12, the government said it had taken note of Turkey’s support to Pakistan before and during Operation Sindoor, including its diplomatic and defence assistance.

• Turkish Ambassador-designate Ersoy was appointed this March. When contacted, officials at the Embassy of Turkey said personnel dealing with the matter were not immediately available to comment.

• An official of the Thai embassy in New Delhi said that they received a communication from the MEA conveying the postponement. “The event was to take place at 4 this afternoon, but has been deferred. The communication did not give any reason. We are waiting for more clarity and a new schedule,” he said.

• An official of the Bangladesh High Commission also confirmed receiving a communique from the MEA. “We don’t know why the event was cancelled at the last meeting and why no fresh date has been assigned,” he said.

• Bangladesh appointed Riaz Hamidullah as High Commissioner to India in February, but he arrived in New Delhi only in April.

• Most recently, President Droupadi Murmu accepted diplomatic credentials on February 27 when the Ambassadors and High Commissioners of Panama, Guyana, Sudan, Denmark and Palestine presented their Letter of Credence during a ceremony at Rashtrapati Bhavan.

Do You Know:

• Turkey was the only Pakistani ally in West Asia to explicitly condemn Operation Sindoor. Other Gulf countries have not only refrained from backing Pakistan, but have also shown greater sensitivity to India’s position on Kashmir.

• Their shared Islamic identity has long provided the underpinnings for a strong partnership between Turkey and Pakistan.

• During the Cold War, Turkey and Pakistan were together in groupings such as the Central Treaty Organization (CENTO) and the Regional Cooperation Development (RCD). The two countries have almost always supported each other during times of crisis.

• For instance, Pakistan has consistently backed Turkey’s claims against Greece in Cyprus. Pakistani leaders committed to militarily assisting Ankara in the Cyprus crises of both 1964 and 1971. In 1983, Pakistan’s military dictator General Zia-ul-Haq famously declared that his country would be the first to recognise Turkish Cyprus if it declared independence.

• Since 2003, when he became Prime Minister, Erdogan has visited Pakistan at least 10 times. His most recent visit came in February this year when Erdogan, now the President, co-chaired the 7th Session of the Pakistan-Türkiye High-Level Strategic Cooperation Council.

• Geopolitically, Turkey (with Qatar) is locked in competition with its Gulf Arab rivals, led by Saudi Arabia and the UAE. To curb Saudi-Emirati influence, Ankara has looked for alternative architectures of cooperation with non-Gulf Muslim states such as Pakistan and Malaysia.

Other Important Articles Covering the same topic:

📍Expert Explains: The Pakistan-Turkey nexus and where India stands

EXPRESS NETWORK

Restore forest near Hyderabad university or have officers sent to jail, SC tells Telangana

Syllabus:

Preliminary Examination: Current events of national and international importance.

Main Examination: 

• General Studies II: Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

• General Studies III: Conservation, environmental pollution and degradation, environmental impact assessment.

What’s the ongoing story: The Supreme Court Thursday slammed the Telangana government for deforestation in the Kancha Gachibowli area in Hyderabad, saying it appeared to be “pre-planned” and that the state should decide whether it wants to restore the greenery or have its officers sent to jail.

Key Points to Ponder:

• What is Kancha Gachibowli land issue?

• Who owns the Kancha Gachibowli land—the government, UoH or forest department?

• Although the 400 acres in question were a part of the 2,300 acre parcel allotted to the UoH when it was established in 1974, legally, the state government is the sole owner of the entire land—So, what is the issue?

• ‘The 400 acres have never been demarcated, nor has it been notified as a forest’—What have you understood by the same?

• What is “forest”?

• The 1996 Godavarman judgment—What you know about the same?

• ‘Any land with forest cover qualifies as “forest land”, even if the land is not notified as a forest’—True or false?

• How exactly did the Supreme Court define ‘forest’ for the purposes of the Act?

• To what extent did the SC’s 1996 judgment really expand the ambit of the FCA, 1980?

• What about the argument that following the T N Godavarman judgment, the FCA was impeding the government’s welfare agenda?

Key Takeaways:

• The Supreme Court was hearing a suo motu case initiated after the Telangana government began large-scale felling of trees at a 400-acre parcel of land in Kancha Gachibowli village near the University of Hyderabad (UoH) to build IT parks. On March 30, the state government sent at least 50 earthmovers to the UoH campus to clear the forested land for auction.

• On being told that the state, in its counter affidavit, had not proposed any plan to restore the area but had instead defended itself, the CJI Thursday said, “If you want the chief secretary and half a dozen officers to shift to a temporary prison, we can do that… We are always advocates of sustainable development, the question here is felling of 1,000 trees, taking wrong advantage of the long vacation (used for deforestation).”

• On April 3, the Supreme Court directed the Telangana government to stop its “alarming deforestation activities” in the Kancha Gachibowli forested area. The apex court in earlier hearings had warned state officials of contempt of court proceedings. It had also asked the Telangana wildlife warden to take immediate steps to protect wildlife affected by the deforestation and sought a reply from the state to the spot inspection report by the court-appointed Central Empowered Committee (CEC).

Do You Know:

• The global standard for “forest” is provided by the Food and Agriculture Organisation (FAO) of the United Nations: at least 1 hectare of land with a minimum of 10% per cent tree canopy cover. While the FAO does not include areas “predominantly under agriculture or urban land use” in a forest, India counts all 1-hectare plots with 10% canopy cover “irrespective of land use” as forest. The FSI is not the only one looking at India’s forest cover. Over the years, several independent studies have reported significant loss of forests in India. According to Global Forest Watch, a World Resources Institute platform, India lost 1,270 sq km of natural forest between 2010 and 2021.

• Kancha Gachibowli is one of Hyderabad’s last remaining urban forests. It is rich in biodiversity, home to numerous bird, mammal and reptile species, and beautiful rock formations. Protests against the government’s decision to auction the land off stem from the need to preserve existing carbon sinks in the city. Urban forests such as Kancha Gachibowli help regulate local climates by providing shade, reducing temperatures, and increasing humidity.

• For the government, the forest lies bang in the middle of Hyderabad’s Financial District. Auctioning the land would not only fill government coffers, but also attract potential investments of Rs 50,000 crore, and generate as many as 5 lakh jobs, the government says. Notably, the Gachibowli IT corridor is one of the most expensive localities in Hyderabad, boasting extremely high property rates.

• Although the 400 acres in question were a part of the 2,300 acre parcel allotted to the UoH when it was established in 1974, legally, the state government is the sole owner of the entire land. Over the years, it has allocated pockets of land from this 2,300 acres for various purposes: constructing a bus depot, a telephone exchange, a IIIT campus, the Gachibowli sports stadium, a shooting range, etc.

• The disputed 400 acres were handed over by the then united Andhra Pradesh government to a private sports management firm in 2003, only to be reclaimed in 2006 due to non-use. This triggered a lengthy legal battle, which eventually saw the SC reiterate that the Telangana government was the sole owner of the land. But the 400 acres have never been demarcated. Nor has it been notified as a forest, even though it is a part of the UoH’s larger forest ecosystem. This is at the heart of the current issue.

• Students and activists protesting against the Telangana government cite the SC’s landmark verdict in T N Godavarman Thirumulpad v Union of India (1996). The apex court had held that any land with forest cover qualifies as “forest land”, even if the land is not notified as a forest.

• On March 30, the government sent at least 50 earthmovers to the UoH campus to begin clear the forested land for auction. The east campus was barricaded to keep students out.
This triggered massive protests in the campus. As many as 53 students were detained, and two others were arrested and remanded in judicial custody. Several students were injured. The Students’ Union declared an indefinite strike even as the earthmovers continued with their work.

Other Important Articles Covering the same topic:

📍Top court to states, UTs: Form SITs, probe status of land reserved for forests

Previous year UPSC Prelims Question Covering similar theme:
2. Consider the following statements:
Statement 1: The United Nations Capital Development Fund (UNCDF) and the Arbor Day Foundation have recently recognized Hyderabad as 2020 Tree City of the World.
Statement 2: Hyderabad was selected for the recognition for a year following its commitment to grow and maintain the urban forests.
Which one of the following is correct in respect of the above statements?
(a) Both Statement 1 and Statement 2 are correct and Statement 2 is the correct explanation for Statement 1
(b) Both Statement 1 and Statement 2 are correct but Statement 2 is not the correct explanation for Statement 1
(c) Statement 1 is correct but Statement 2 is not correct
(d) Statement 1 is not correct but Statement 2 is correct

Pumped hydropower project in Nilgiris gets preliminary approval

Syllabus:

Preliminary Examination: General issues on Environmental ecology, Bio-diversity and Climate Change

Main Examination: General Studies III: Conservation, environmental pollution and degradation, environmental impact assessment.

What’s the ongoing story: An expert panel of the Ministry of Environment, Forest and Climate Change has granted preliminary permissions to carry out an environmental impact assessment (EIA) study for a proposed 1,000 MW Upper Bhavani pumped hydropower project in the Nilgiri Hills, located in the ecologically fragile Western Ghats.

Key Points to Ponder:

• What is the Upper Bhavani Pumped Storage Project?

• What is environmental impact assessment?

• When was environmental impact assessment introduced?

• Environmental Impact Assessment (EIA) and Environment Protection Act, 1986-How they are related with each other?

• Why Environmental Impact Assessment (EIA) is Important?

• Environmental Impact Assessment (EIA) and India-connect the Dots

• Environmental Impact Assessment (EIA) Rules Amendment, 2006-Key features

• Environmental Impact Assessment (EIA) notification 2020-Key Highlights

• Environmental Impact Assessment-Know its achievements, issues and challenges

• Supreme court of India on Environment Impact Assessment (ex-post facto environmental clearance)-Know in detail

• What is Pumped storage or pumped hydropower projects?

Key Takeaways:

• Developed by NTPC Tamil Nadu Energy Company Limited, a joint venture of National Thermal Power Corporation Limited and Tamil Nadu Generation and Distribution Corporation Limited (TANGEDCO), the pumped hydropower or pumped storage project aims to harness the waters of the Upper Bhavani Dam and Avalanche-Emerald reservoirs in the Nilgiris to generate 1,000 MW of power.

• The project will require 167.85 hectares of land, of which 56.35 hectares is forest land, while 111.50 hectares is non-forest land, and it is located within a 1 km distance from Mukurthi National Park. The national park is known for the flagship Nilgiri Tahr, an endangered species endemic to this part of the Western Ghats.

• The ministry’s expert appraisal committee (EAC) on river valley and hydroelectric projects – one of the 11 sectoral panels that scrutinise projects before granting prior environmental clearances – granted the preliminary approval on April 15, minutes of the meeting show.

• The preliminary permission, technically known as a grant of terms of reference (ToR), spells out the scope of an EIA study and forms the basis for a public hearing and the eventual environmental clearance.

• While granting the ToR, the EAC has specified that the company should assess the project’s impact on aquatic and terrestrial ecosystems, and noted in its minutes that a site visit shall be carried out by a subcommittee before granting final environmental clearance.

• The EAC granted the preliminary permission even though it had in February expressed concerns regarding the “ecological and environmental sensitivity of the region, emphasising that it forms part of the Western Ghats, a globally recognised biodiversity hotspot”. Given the area’s rich biodiversity and fragile ecosystem, the EAC had stressed on conducting comprehensive environmental assessments and had asked the developers to find alternative sites.

Do You Know:

• Pumped storage or pumped hydropower projects typically involve the utilisation of the elevation difference between two large reservoirs, one at a higher elevation and the other at a lower elevation. Water is pumped up from the lower reservoir and released back through turbines to generate electricity. Central and state governments have promoted pumped hydropower projects as part of India’s plans to achieve its non-fossil fuel energy targets.

• TANGEDCO has also proposed the Kundah and Sillahalla pumped hydro projects in the Nilgiris, and the latter has faced protests by locals for the environmental harm it may potentially cause in the region.

• Earlier in October, the Centre’s EAC on river valley and hydroelectric projects had expressed concern about another pumped hydropower project proposed in the Western Ghats in Maharashtra. It had noted that 15 such projects had been granted ToRs or preliminary permissions in the Western Ghats and that site visits would be important to make project-specific assessments before granting final environmental clearances.

Other Important Articles Covering the same topic:

📍Express View on the balance between environment and industry: Greening growth

Previous year UPSC Mains Question Covering similar theme:

📍How does the draft Environment Impact Assessment (EIA) Notification,2020 Differ from the existing EIA Notification, 2006? (2020)

ECONOMY

First monthly labour force survey: April unemployment rate at 5.1%

Syllabus:

Preliminary Examination: Economic and Social Development-Sustainable Development, Poverty, Inclusion, Demographics, Social Sector Initiatives, etc.

Mains Examination: 

• General Studies I: Social empowerment

• General Studies II: Welfare schemes for vulnerable sections of the population by the Centre and States and the performance of these schemes; mechanisms, laws, institutions and Bodies constituted for the protection and betterment of these vulnerable sections.

• General Studies II: Issues relating to development and management of Social Sector/Services relating to Health,
Education, Human Resources.

• General Studies‐ III: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment

• General Studies III: Inclusive growth and issues arising from it

What’s the ongoing story: India’s unemployment rate stood at 5.1 per cent in April for persons aged 15 years and above, with the rate for males at 5.2 per cent and for females at 5.0 per cent, the first monthly bulletin of Periodic Labour Force Survey (PLFS) released on Thursday by the National Statistics Office (NSO) under the Ministry of Statistics and Programme Implementation showed.

Key Points to Ponder:

• What is called unemployment rate?

• What is India’s unemployment rate?

• What is the unemployment rate formula?

• Employment Rate (ER) and Unemployment Rate (UER)-Know in Detail

• What first monthly bulletin of Periodic Labour Force Survey (PLFS) released by the National Statistics Office (NSO) says?

• What do you understand by Labour Force and Labour Force participation rate (LFPR)?

• What latest findings says about Female Labour Force Participation Rate?

• What is Periodic Labour Force Survey (PLFS)?

• Who publishes Periodic Labour Force Survey (PLFS)?

• What is the Significance of PLFS reports?

Key Takeaways:

• In urban areas, the unemployment rate stood at 6.5 per cent, while in rural areas, the unemployment rate for persons aged 15 years and above was recorded to be 4.5 per cent. Females saw a higher unemployment rate at 8.7 per cent than 5.8 per cent for males in urban areas. In rural areas, however, the unemployment rate for females was lower at 3.9 per cent than 4.9 per cent for males in April. Experts said the rural-urban divide is indicative of the job creation pressures in the urban areas.

• The monthly estimates are based on current weekly status (CWS) approach, which measures activity status of persons surveyed based on reference period of last seven days preceding the date of survey.

• The unemployment rate for youth, aged 15-29 years, stood at 13.8 per cent in April, with the rate in urban areas at 17.2 per cent and at 12.3 per cent in rural areas. Overall, the youth unemployment rate for females was higher at 14.4 per cent than for males at 13.6 per cent. In urban areas also, the youth unemployment rate was higher for females at 23.7 per cent than for males at 15.0 per cent. However, in rural areas, the youth unemployment rate for females was lower at 10.7 per cent than for males at 13.0 per cent. “This could be due to (a) higher female preferences for education in urban areas than rural areas and (b) low employment opportunities in urban areas than rural areas for females,” Paras Jasrai, Economist and Associate Director, India Ratings and Research said.

• The Labour Force Participation Rate for persons aged 15 years and above in the country stood at 55.6 per cent in April, with the rate for urban areas at 50.7 per cent and for rural areas at 58.0 per cent. The gender-wise split showed the low labour force participation rate of females at 34.2 per cent as against 77.7 per cent for males.

• The female LFPR was lower for urban areas at 25.7 per cent than 38.2 per cent in rural areas for the age group 15 years and above. In comparison, the male LFPR stood at 75.3 per cent in urban areas and 79.0 per cent in rural areas.

Do You Know:

• Labour force participation rate refers to the part of the population which supplies or offers to supply labour for pursuing economic activities for the production of goods and services and therefore, includes both ‘employed’ and ‘unemployed’ persons. Under the CWS approach, labour force refers to the number of persons either employed or unemployed on an average in a week before the date of survey.

• The Worker Population Ratio (WPR), which indicates the employment rate, was recorded at 52.8 per cent for persons of age 15 years and above in April. The WPR for persons aged 15 years and above stood at 47.4 per cent in urban areas and 55.4 per cent in rural areas.

• Under the CWS, the WPR refers to the number of persons who worked for at least one hour on any day during the days preceding the date of survey.

• Under the revamped PLFS, 3.80 lakh persons and 89,434 households were surveyed for the monthly bulletin of April. The sample design of the PLFS has been revamped from January 2025, under which there is a monthly rotational panel scheme for both rural and urban areas wherein each selected household is visited four times in four consecutive months – one with first visit schedule and other three with the revisit schedule in the following three months.

• Unemployment rate is defined as the percentage of persons unemployed among the persons in the labour force. The urban unemployment PLFS is based on current weekly status approach, under which a person is considered unemployed if he/she did not work even for one hour on any day during the week but sought or was available for work at least for one hour on any day during the period.

• Labour force is the number of persons either employed or unemployed on an average in a week preceding the date of survey.

Other Important Articles Covering the same topic:

📍New monthly PLFS: Additional info on rent income, land possession, remittances

Previous year UPSC Prelims Question Covering similar theme:
3. Increase in absolute and per capita real GNP do not connote a higher level of economic development, if(2018)
(a) industrial output fails to keep pace with agricultural output.
(b) agricultural output fails to keep pace with industrial output.
(c) poverty and unemployment increase.
(d) imports grow faster than exports.

RBI Board reviews Economic Capital Framework; surplus transfer to govt may rise up to `3 lakh crore

Syllabus:

Preliminary Examination: Economic and Social Development

Mains Examination: General Studies III: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.

What’s the ongoing story: The central board of directors of the Reserve Bank of India (RBI) on Thursday reviewed the Economic Capital Framework (ECF), which is used to determine risk provisioning and surplus distribution by the central bank to the government.

Key Points to Ponder:

• What do you understand by ‘RBI dividend’ or ‘RBI surplus’?

• What are the rules regarding payment of dividend?

• How does RBI pay dividend to government?

• How much excess does RBI have now?

• Why RBI gives dividend to government?

• How does the RBI earn profits?

• What RBI will do in the case of any emergency requirement?

• The RBI had transferred the highest-ever surplus transfer of Rs 2.11 lakh crore to the government—What makes it highest ever surplus?

• What is Currency and Gold Revaluation Account (CGRA) and Investment Revaluation Account-Foreign Securities (IRA-FS)?

Key Takeaways:

• Based on the ECF, the RBI transfers dividend to the government every year. According to various estimates, the RBI may transfer Rs 2.5 lakh crore to Rs 3 lakh crore as surplus to the government for the accounting year 2024-25. This would be a fresh record dividend transfer by the RBI to the government. For the accounting year 2023-24, the RBI had transferred the highest-ever surplus transfer of Rs 2.11 lakh crore to the government.

• The central board of the RBI is likely to meet on May 23 to determine the dividend amount to be transferred to the government for FY25, in line with the revised Economic Capital Framework.

• “The 615th meeting of the Central Board of Directors of the RBI was held today in Mumbai under the Chairmanship of Sanjay Malhotra, Governor. As part of the agenda, the Board reviewed the Economic Capital Framework (ECF) of the RBI,” the central bank said on Thursday. Higher dividend payout by the RBI will help the government in managing the fiscal deficit. The higher surplus transfer is also likely to improve liquidity conditions in the system.

• The RBI transfers surplus to the government from its profit after setting aside Contingency Risk Buffer (CRB). The RBI’s CRB is the country’s savings for a ‘rainy day’ (a financial stability crisis) which the central bank consciously maintained in view of its role as Lender of Last Resort (LoLR).

• In FY25, the central bank’s earnings in FY25 were robust, led mainly by sale of dollars to curb volatility in the rupee and sharp rise in gold prices and appreciation in prices of government securities held by the RBI.

Do You Know:

• Based on the Economic Capital Framework (ECF), the RBI transfers dividend to the government every year. An expert committee led by Bimal Jalan, former RBI Governor, had recommended that the framework may be periodically reviewed every five years. Accordingly, the ECF review was scheduled for August 2024.

• The RBI is a “full service” central bank — not only is it mandated to keep inflation or prices in check through monetary policy, it is also supposed to manage the borrowings of the Government of India and state governments; supervise or regulate banks and non-banking finance companies; and manage the currency and payment systems.

• The RBI isn’t a commercial organisation like the banks or other companies that are owned or controlled by the government – it does not, as such, pay a “dividend” to the owner out of the profits it generates.

• What the central bank does, therefore, is transfer the “surplus” – that is, the excess of income over expenditure – to the government, in accordance with Section 47 (Allocation of Surplus Profits) of the Reserve Bank of India Act, 1934: “After making provision for bad and doubtful debts, depreciation in assets, contributions to staff and superannuation fund [and for all other matters for which] provision is to be made by or under this Act or which are usually provided for by bankers, the balance, of the profits shall be paid to the Central Government.”

Other Important Articles Covering the same topic:

📍Why and how does the RBI transfer ‘surplus’ to the government?

 

PRELIMS ANSWER KEY

1.(b) 2.(d) 3.(c)

  

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