7th Sep Current Affairs News Analysis | Prelims & Mains 2020
Development Finance Institution
Development Finance Institution (DFI)
WHY IN NEWS:
The government is planning to set up a new Development Finance Institution (DFI) essentially to fill the gap in long-term finance for infrastructure sectors.
SYLLABUS COVERED: GS 3: Funds
DEVELOPMENT FINANCE INSTITUTION (DFI)
- It will be used to finance both social and economic infrastructure projects identified under the National Infrastructure Pipeline (NIP).
- It had drawn up projects totalling investments of Rs. 111 lakh crore across roads, railways, energy and urban sectors.
- The task force on NIP was headed by economic affairs secretary.
The DFI can have two types of character:
- Either it should be promoted by the government.
- Or it should be given a private sector character with the government restricting its holding to 49%.
- The securities from the DFI could be made Statutory Liquidity Ratio (SLR) eligible.
- This will encourage banks to subscribe to the securities issued by DFI and fulfil their SLR obligations.
- The Reserve Bank of India (RBI) requires banks to set aside 18% of their net demand and time liabilities towards SLR.
- A DFI with a private sector character will require the government to believe and trust the private sector.
- This will require the government to maintain some distance from the private sector DFI institution and let it implement and execute projects aimed at improving the quality of life of all citizens.
- The institution can also work without fear of the CBI, CVC or the CAG.
ISSUES IN INFRASTRUCTURE FUNDING
- FUNDING GAP: Banks are unable to provide long-term finance to infrastructure projects.
- NPA : However, due to rising non-performing assets in the banking sector driven by declining asset quality in the infrastructure sector, the share has declined to 12% in FY19.
- MISMATCH: The absence of a deep bond market to borrow from has resulted with funds of 2-year maturity. This leads to a mismatch in the maturities of assets and liabilities for the lender.
DEVELOPMENT FINANCE INSTITUTIONS
- DFIs provide long-term credit for capital-intensive investments spread over a long period and yielding low rates of return.
- DFIs often lend at low and stable rates of interest to promote long-term investments with considerable social benefits.
- DFIs are also known as Development banks.
- Soon after independence, the institutional framework for development banking began- IFCI (1948), IDBI (1964), IIBI (1972), NABARD and EXIM Bank (1982), SIDBI (1990), etc.
- DFIs such as ICICI, IDBI and IDFC have transformed into universal banks as they did not have the advantage of low-cost funding for long term projects.
- Currently, DFIs are sector-specific, such as Rural Electrification Corp. Ltd (REC) for the power sector.
- The issue involved in this is that the senior management of the DFI may be hounded by investigative agencies such as the Central Bureau of Investigation (CBI).
- These can be subject to the scrutiny of the Comptroller and Auditor General (CAG) and the Central Vigilance Commission (CVC).
- If India has to grow 8-10% continuously, credit growth for infrastructure must be 12-14%.
- Compared with banks, a DFI provides long-term finance for social and economic infrastructure.
- However, DFIs involve higher risk than what the ordinary financial system may be willing to bear.
SOURCES: IE | 7th Sep Current Affairs News Analysis
- Chandrayaan-1 suggest that the moon may be rusting along the poles.
WHY IN NEWS:
- The recent images sent by Chandrayaan-1 suggest that the moon may be rusting along the poles.
- Chandrayaan-1, India’s first mission to the moon, was launched by the Indian Space Research Organisation (ISRO) in 2008.
SYLLABUS COVERED: GS 3:Space
- Data from the Mineralogy Mapper (M3), one of the instruments on Chandrayaan-1, indicates the presence of hematite at the lunar poles.
- Hematite (Fe2O3) is a mineral which is a form of iron oxide, or rust, produced when iron is exposed to oxygen and water.
- The sign of this finding is that even though the surface of the moon is known to have iron-rich rocks, it is not known for the presence of water and oxygen, which are the two elements needed to interact with iron to create rust.
POSSIBLE REASONS BEHIND RUSTING
- As per scientists at NASA, earth’s oxygen could be driving the formation of hematite.
- Earth’s magnetotail (elongated region of the magnetosphere of the earth) ferries oxygen to the moon and also blocks 99% of solar wind during certain periods of the moon’s orbit.
- Hydrogen makes it harder for hematite to form. It is a reducer, meaning it adds electrons to the materials it interacts with.
- That’s the opposite of what is needed to make hematite or iron to rust, which requires an oxidizer, which removes electrons.
- Chandrayaan-1 Moon data indicates that the moon’s poles are home to water that scientists are trying to decipher.
- Chandrayaan is likely to be launched in early 2021.
- It will be a mission repeat of Chandrayaan-2 and will include a Lander and Rover similar to that of Chandrayaan-2, but will not have an orbiter.
- Planned to land on the South Pole of the Moon, Chandrayaan-2 was launched on 22th July in 2019. However, the lander Vikram hard-landed on 7th September 2019, crashing India’s dream to become the first nation to successfully touch down on the lunar surface in its maiden attempt.
- India’s first ever human space mission Gaganyaan aims to send a three-member crew to space for a period of five to seven days by 2022 when India completes 75 years of Independence.
- The findings will reshape scientists’ knowledge about the moon’s polar regions.
- It also suggests that the Earth may have played an important role in the evolution of moon’s surface.
- However, more data is needed to determine exactly how the water is interacting with rock.