Humidity, Condensation, Clouds and Precipitation

Humidity, Condensation, Clouds and Precipitation

This article deals with ‘Humidity, Condensation, Clouds and Precipitation’ This is part of our series on ‘Geography’ which is important pillar of GS-1 syllabus . For more articles , you can click here

Humidity

  • Water vapour present in the air is known as humidity. 
  • It is expressed quantitatively in different ways like 
Actual Humidity Actual amount of the water vapour present in the atmosphere.
Relative Humidity The ability of the air to hold water vapour depends entirely on its temperature. The percentage of moisture present in the atmosphere as compared to its full capacity at a given temperature is known as the relative humidity .
Specific Humidity Ratio of weight of water vapour to weight of dry air.
Vapour pressure Part of barometric pressure that is caused by water vapour alone.
  • The air containing moisture to its full capacity at a given temperature is said to be saturated. It means that the air at the given temperature is incapable of holding any additional amount of moisture at that stage.
  • The temperature at which saturation occurs in a given sample of air is known as dew point.

Evaporation & Condensation

1 . Evaporation

  • Evaporation is a process by which water is transformed from liquid to gaseous state.
  • It can occur in three conditions
    • High temperature
    • Low Pressure conditions
    • Fast moving wind

2. Condensation

  • Condensation is process of conversion of water vapours present in air into water droplets .
  • Condensation is caused by the loss of heat. When moist air is cooled, it may reach a level when its capacity to hold water vapour ceases. Then, the excess water vapour condenses into liquid form.
  • Condensation takes place:
    • When the temperature of the air is reduced to dew point  or When moisture is added to the air  
    • Surface : Which may be natural like grass etc (making dew) or Hygroscopic Surface/ Nuclei

3. Sublimation

  • If water vapour directly condenses into solid form, it is known as sublimation.

Dew, frost, fog and clouds

After condensation, the water vapour or the moisture in the atmosphere takes one of the following forms — dew, frost, fog and clouds.

1 . Dew

  • When the moisture is deposited in the form of water droplets on cooler surfaces of solid objects such as stones, grass blades and plant leaves, it is known as dew.
  • The ideal conditions for its formation are calm air, high relative humidity, and cold and long nights.
  • For the formation of dew, it is necessary that the dew point is above the freezing point (otherwise frost will form) .

2. Frost

  • Frost forms on cold surfaces when condensation takes place below freezing point (0 C).

3. Fog

  • When temperature of an air mass containing a large quantity of water vapour falls all of a sudden below dew point, condensation happens and subsequent cloud  is formed at ground level. This is known as fog.
  • Fogs are mini clouds in which condensation takes place around nuclei provided by the dust, smoke, and the salt particles.
Radiation fog Associated with temperature inversion & formed at cold night when temperature of air near ground falls below dew point .
Most common type in winter season.
Frontal fog When cold air masses converge against warm humid air masses , cold air being heavy remains at bottom while warm air is pushed over leading to cooling & formation of fog
Famous fog of Newfoundland is formed like this.
  • In fog, visibility is less than 1 km.

4. Smog

  • Fog + Smoke = Smog.
  • In urban and industrial centres, smoke provides plenty of nuclei which help in the formation of fog . Such a condition when fog is mixed with smoke, is described as smog.
  • It is associated with very low visibility and health hazard.

There are two type of Smog

a . Sulphurous Smog

  • Aka London Smog
  • Results from high concentration of Sulphur Oxides in the air caused by use of Sulphur containing fossil fuels , particularly Coal .
  • Occur in cool humid climate
  • Chemically reducing hence called reducing smog
  • Characterised by blue coloured skies aka blue haze.

b. Photochemical Smog

  • Occurs in warm, dry & sunny climate
  • Results from the action of sunlight on unsaturated Hydrocarbons & oxides of Nitrogen produced from factories and automobiles.
  • Chemically Oxidising and hence called Oxidising Smog
  • Ozone, PAN (Peroxyacetyl Nitrate), Acrolein & Formaldehyde are produced in it which can cause serious health problems .

5. Mist

  • The only difference between the mist and fog is that mist contains more moisture than the fog.
  • In mist, each nuclei contains a thicker layer of moisture.
  • Mists are frequent over mountains as the rising warm air up the slopes meets a cold surface.
  • Visibility is more than 1 Km but less than 2 km.

Visibility Comparison : Mist > Haze  > Fog > Smog.

6. Cloud

  • Cloud is a mass of minute water droplets formed by the condensation of the water vapour in free air at considerable elevations.
  •  As the clouds are formed at some height over the surface of the earth, they take various shapes

Clouds

  • Clouds are tiny water droplets suspended in the air formed due to the condensation.
  • To understand the nomenclature of Clouds, one must be aware of the meaning of some Latin words.
Cirrus Curl of hair/ high .
Cumulus Heap or pile of cotton.
Strato Sheet or layer.
Nimbo Rain.
Alto Middle altitudes.

Classification of Clouds

The clouds can be classified based on their form, height and appearance as follows:

Classification of Clouds

1 . High Clouds

Different types of Cirrus clouds are present above height of 6Km

1.1 Cirrus Clouds

  • They look like curl of hair
  • It indicates fair weather and gives brilliant sun set.

1.2 Cirro Cumulus 

  • This appears as white globular masses, forming a mackerel sky.

1.3 Cirro Stratus 

  • This resembles a thin white sheet. The sky looks milky and the sun and moon shines through this clouds and form a ‘halo’

2. Middle Clouds

Different types of  Alto clouds  are found between 2 km to 6 km above the ground.

2.1 Altocumulus

  • These are woolly, bumpy clouds arranged in layers appearing like waves in the blue sky.
  • They indicate fine weather.

 2.2 Altostratus

  • These are denser and have watery look.

3. Low Clouds

Mainly Stratus or sheet clouds below 2 km height.

3.1 Stratocumulus

  • This is rough and bumpy clouds with wavy structure.

3.2 Stratus

  • This is very low cloud, uniformly grey and thick, appears like highland fog.
  • It brings dull weather and light drizzle. It reduces the visibility and is a hindrance to air transportation.

3.3 Nimbostratus

  •  This is dark dull cloud, clearly layered, as it brings gentle rain, snow and sleet and it is called as rainy cloud.

4. Clouds with vertical extend

These are mainly cumulus clouds whose  height extend from 2 km to 10 km approximately.

4.1 Cumulus

  •  This is vertical cloud with rounded top and horizontal base, associated with convectional process in the tropical region.

4.2 Cumulonimbus

  • This is over grown cumulus cloud with great vertical extent, with black and white globular mass.
  • This is formed due to heavy convection in the tropical regions. It is accompanied by lightning, thunder and heavy rainfall

Precipitation

Precipitation is the process by which all forms of water particles fall from the atmosphere and reach the ground.

Conditions necessary for precipitation

  • Air parcel must be cooled below dew point.
  • Presence of condensation nuclei(i.e. minute hygroscopic particles serving as nuclei for water particles) in the air . Eg salt, smoke & dust particles=> if they aren’t present, precipitation will not occur even if relative humidity is above 100% .
  • Condensation must occur rapidly & for fairly long time . If occur for small time  , then it may not reach to earth as it would be absorbed by unsaturated air present in lower parts .

Forms of precipitation

1 . Rainfall

  • Most common type of precipitation in temperate & tropical regions.
  • When water droplets of more than 0.5 mm diameter falls from the atmosphere to the ground it is called as ‘Rainfall’.
  • If the diameter is less than 0.5mm, it is called as ‘Drizzle’.

2. Hail

  • When condensed moisture in form of raindrops is carried to great heights by strong convection currents & they get frozen due to low temp at greater heights=> when they come down they gather more water around them & size of pellets become large.
  • Ice pellets has size of 5 to 50 mm or some times more. 

3. Snowfall

  • Precipitation occurs at below freezing point and falls as thin ice flakes or powdery ice, called  ‘Snow’.

4. Sleet

  • Precipitation in the form of mixture of raindrops  & ice pellets less than 5 mm in diameter.
Forms of precipitation

Types of  Rainfall

Since rainfall is the major type of precipitation, we will look of type of rainfalls. It can be of various types depending upon process of rising up of air

1 . Convectional Rainfall

  • As a result of heating of the surface air, the warm moist air expands and is forced to rise to a great height. As the air rises, it cools, reaches dew point and condenses to form clouds.
  •  Cumulonimbus clouds are formed in this .
  • This type of rainfall occurs
    1. Throughout the year near the equator in the afternoon. It is called as 4 ‘O’ clock rainfall region.
    2. In middle latitudes, convectional rainfall occurs in early summer in the continental interiors
Convectional Rainfall

2. Orographic Rainfall

  • Air is forced to move up by landform features like   mountain, plateau , escarpment etc and air thus rising may cool below dew point causing rain.
  • Windward side gets heavy rain whereas leeward side is rain shadow area.
  • Most of rain occurring in India and world is orographic . In India, Western coast & North East India gets rainfall by this process.
Orographic Rainfall

3. Cyclonic Rainfall

  • This type of precipitation is associated with a cyclonic activity (Tropical and Temperate cyclones)
  • Cyclonic rainfall is associated with Cumulo-Nimbus  clouds. The rainfall is very heavy and accompanied with lightning and thunder and high speed winds which has the potential to cause damage.

4. Frontal Rainfall

  • ‘Frontal rainfall’ is associated with fronts which form due to collision of different air masses.
  • It can be of two types
    1. Warm Air Front Rainfall : In this , warm air invades cold air leading to formation of Nimbostratus clouds and gentle rainfall.
    1. Cold Air Front Rainfall : In this, cold air invades warm air leading to formation of Cumulonimbus cloud and violent rainfall with lightening.

Wind Systems

Wind Systems

This article deals with ‘Wind Systems’ This is part of our series on ‘Geography’ which is important pillar of GS-1 syllabus . For more articles , you can click here

Winds

  • Wind is the horizontal movement of air molecules from areas of high pressure to areas of low pressure to maintain the atmospheric equilibrium.
  • Nomenclature of Winds
    • Winds are named easterly, westerly, northerly etc on basis of direction of their origin.
    • Easterly wind is that which originate in east & blow from east to west.
  • Wind direction is identified by an instrument called Wind Vane and wind speed is measured by Anemometer.

Factors affecting direction & velocity of wind

1 . Pressure Gradient

  1. If pressure gradient is more, velocity will be more in magnitude because differences in atmospheric pressure produces a force.
  2. The wind always moves perpendicular to isobars.

2. Frictional Force

  • Lower is frictional force, greater will be the speed .
  • Over the sea surface the friction is minimal.

3. Coriolis Force

  • If the earth did not rotate, the winds would blow in a straight path. Then the rotation of the earth results in Coriolis effect and it deflects the direction of the wind.
Northern Hemisphere Deflect towards Right or Clockwise (NCR)
Southern Hemisphere Towards Left or Anticlockwise.
  • Coriolis force is directly proportional to the angle of latitude. It is maximum at the poles and is absent at the equator.

Type of Winds

Type of Winds

1 . Primary / Global/ Permanent Winds

Pressure belts lead to the formation of primary wind system resulting in Trade Winds, Westerlies and Polar Easterlies

1.1 Trade Winds

  • The winds blow from the sub tropical high pressure belt towards the equatorial low pressure belt.
  • Due to Coriolis Effect, these winds are deflected to the right in the northern hemisphere and to the left in the southern hemisphere.
  • As winds are named after the direction from which they originate they are called as the North East and South east trade winds.
  • As the winds favoured trading ships they are called as ‘Trade winds’.

Side Topic : Tropic Deserts & Trade Winds (aka Trade Wind Deserts or Trade Deserts)

  • Tropical easterlies/ Trade Winds flow from east to west  . Hence, windx becomes dry when they reaches the western coast of continent as all the moisture  is already shed in form of rainfall on eastern coast .As a result, in tropical region, deserts are found on western coasts of continents .They are also known as Trade Deserts.
  • Apart from that, Cold Currents near the western coasts of continents also provides desiccating imapct on the surrounding lands leading to more dryness .

1.2 Westerlies

  • Westerlies flow towards the Sub Polar High from Sub-Tropic Low
  • They turn towards right and left in northern and southern hemisphere respectively due to Coriolis force.
  • As they flow from West to East, they are called Westerlies
  • Ocean is dominant in the southern hemisphere between the latitudes 40º and 60ºS. Hence the westerlies are so powerful and persistent that the sailors used such expressions as “Roaring Forties”, “Furious Fifties” and “Screeching Sixties” for these high velocity winds in the latitudes of 40º, 50º and 60º respectively.

1.3 Polar Easterlies 

  • Polar Easterlies  flow towards the Sub Polar High from Polar High .
  • They turn towards right and left in northern and southern hemisphere respectively due to Coriolis force.
  • As they flow from East to West, they are called Easterlies

2 . Secondary / Regional / Seasonal Winds

Monsoon and Cyclones are considered to be Secondary or Seasonal Wind

2.1 Monsoons

  • Monsoons are seasonal winds which reverse their direction due to various reasons .
  • These winds bring rainfall in India and are the major climatic feature of climate of Indian Sub-continent.
  • We will detail with these winds in Indian Climate .
Monsoons

2.2 Cyclones

  • Wind blowing in circular manner around an area of low pressure 
  • Due to Coriolis effect – blow in anticlockwise direction in Northern hemisphere & clockwise direction in southern hemisphere.
  • Cyclones are of two types.
Tropical cyclones Develop over oceans in summers in tropical regions . Eg : in Bay of Bengal, China sea , Caribbean sea etc.
Temperate / Extra tropical Develop in middle latitudes in winter season

More about cyclones in separate article

3. Tertiary / Local Winds

Tertiary winds are formed due to pressure gradients which may develop on a local scale because of differences in the heating and cooling of the earth’s surface.

3.1 Sea and Land Breezes

  • Sea Breeze :  During daytime, land heats up much faster than water. The air over the land warms and expands leading to formation of low pressure. At the same time, the air over the ocean remains cool because of water’s slower rate of heating and results in formation of high pressure. Air begins to blow from high pressure over ocean to the low pressure over the land. This is called as ‘Sea breeze’.
  • Land Breeze : During night time, the wind blows from land to sea and it is called as ‘Land breeze’
Sea and Land Breezes

Note :  Sea breeze and land breeze influence the movement of boats near the coastal region and fisher men use these winds for their daily fish catching. Fishermen go for fishing at early morning along the land breeze and return to the shore in the evening with the sea breeze.

Sea and Land Breezes

3.2 Mountain and Valley Breezes

  • Valley Breeze / Anabatic Winds  : During the day, mountain hillslopes are heated intensely by the Sun, causing the air to expand and rise. This draws in air from the valley below, creating a valley breeze.
  • Mountain Breeze / Katabatic Winds  :  During the night the hillslopes get cooled and the dense air descends into the valley as the mountain wind

3.3 Warm and Cold Local  Winds

Warm and Cold Local  Winds

Cold Local Winds

  • High Pressure  conditions are created in areas situated in high latitudes due to cold weather. As a result,   air starts to come down and diverge into different directions (forming anti-cyclones) blowing as ‘Cold and Dry Local Winds’ and reducing temperature of surrounding regions as well.
  • In Siberia such anti cyclonic winds are created and diverge in different directions  . These winds are called Buran
Buran Explained above
Mistral (Europe) Cold northerly from central France and the Alps to Mediterranean
Bora (Eastern Europe) North easterly wind from eastern Europe to north eastern Italy
Blizzard (USA & Canada) Cold and dry snowy winds blowing in USA and Canada
Pampero (Argentina) Cold and dry wind blowing in Pampas of Argentina
Southern Bursters Cold and dry wind blowing in  Australia

Warm Local Winds

  • Low  pressure develops  over Deserts and low latitudes in summers due to excessive heating of land . The air starts to move upward and diverges in different directions blowing as upper tropospheric wind. They carry sand and dust with them and raises temperature of regions over which they flow. These winds are known with different names in different regions like
Loo India (Punjab, Haryana, Rajasthan, UP, Delhi etc)
Sirocco From Sahara desert to Italy and Spain after crossing Mediterranean Sea
Khamsin Egypt
Harmattan From Sahara desert to Gulf of Guinea
  • Other  type of warm and local winds like Chinook winds develop when warm, moist air blows from the adjoining ocean ( Pacific Ocean in this case) towards the Mountain range situated near the coast (Rockies in this case). In such situation, dry and warm air over the mountain will descend in the adjoining valley on the leeward side of wind .  Other such type of winds are Fohn and Zonda
Chinook US and Canada Rockies
Fohn Europe Alps
Zonda Argentina & Uruguay Andes
Santa Ana California Santa Ana Mountains
Chinook , Fohn , Conda

Upper Atmospheric / Meridional  Circulations

Hadley cycle Air from equator being lighter move up & diverges toward poles & descends at subtropical areas causing higher pressure there. That wind is again carried by trade winds to equator.
Ferrel Cycle Same  thing between subtropical & subpolar pressure belts
Polar cell  Between polar & subpolar pressure belts
Meridional  Circulations

Side Topic : Upper Tropospheric Winds and Geostrophic Winds

To understand formation of Jetstreams, it is important to know what are Geostrophic winds.

  • Unlike air moving close to the surface, an air parcel in the upper troposphere moves without a friction force because it is so far from the source of friction—the surface. So, there are only two forces on the air parcel, the pressure gradient force and the Coriolis force.
  • A useful heuristic (i.e. theoretical model) is to imagine that air parcel in the upper troposphere is starting from rest under the influence of ‘Pressure Gradient Force ”  moving from point of High Pressure to Low Pressure .
  • Due to pressure gradient force and absence of friction force , speed of wind will  keep on increasing . Since, Coriolis force increases with increase in speed and acts perpendicular to Pressure Gradient Force,  situation will be reached when Pressure Gradient Force equals Coriolis Force  & these winds will deflect 90° (clockwise) . At this point, the flow is no longer  from high to low pressure, but parallel to the isobars. Such winds are called Geostrophic winds
Geostrophic Winds
  • These are also known as Upper Tropospheric Westerlies
  • Jetstreams are an example of Geostrophic winds .

Direction of Geo Strophic winds

Always move from WEST TO EAST  (hence called Westerlies)

Northern Hemisphere Geostrophic winds deflect clockwise .
Move from West to East.
Southern Hemisphere Geostrophic winds deflect Anti Clockwise.
Move from West to East.

Jetstreams

  • Jet streams are special type of Geostrophic winds .
  •  These are strong and narrow bands of meandering wind blowing at height of 6 to 14 km ( just below Tropopause) at very high speed of upto 450 Km/hr. They occur at points where atmospheric pressure gradients are strong and friction force acting on moving air is absent.
  • Jetstreams flow in wavy fashion and create alternate   High Pressure & Low Pressure zones .

Location of Jet Streams

  • They aren’t found arbitrarily . They are situated at typical positions like  where two Meridional Circulations meet. (Reason : Point where  two air masses of different temperatures meet, the resulting pressure difference is highest.  Only in such condition, Pressure Gradient Force can increase the speed of wind to such an extend that Coriolis Force can balance the Pressure Gradient Force and rotate it by 90°) (I know it is hard to understand. To properly understand what is happening, you can refer this useful video What is the jet stream and how does it affect the weather?)
  • Hence , 4 permanent Jet streams are always found .
2 Polar Jet  Between Polar cell & Ferrel cell.
2 Sub Tropical Westerly Jet  (STWJ) Between Ferrel cell & Hadley cell.
Jetstreams
Jet Streams

Apart from that, there are some temporary Jet-streams like

  • Tropical Easterly Jetstream
  • Somali Jetstream

Speed of Jetstreams

  • Cause of Jetstreams is the pressure difference (due to temperature difference) in the upper atmosphere. Hence , higher the pressure gradient (or temperature gradient) higher will be speed of Jetstream.
  • Temperature variations are more in winters (lowest ~ -70 C & highest ~ 15 C) compared to summers (lowest ~ 20 C & highest ~ 55 C) . Hence, Jetstreams are faster in winters of the respective hemisphere.

Importance of Jetstreams

1 . Sub Tropical Westerly Jet Stream (STWJ) & Indian Weather

  • It is centred around 25° N & S at altitude of 12 km & is strong in winter season with velocity of 40 mph.
  • It greatly determines the weather of Indian Sub continent .
    1. During summer until it is present over Indian subcontinent , High Pressure is maintained over there & monsoon can’t start. Only when STWJ moves above Himalayas & low pressure is created over Indian subcontinent  , monsoon hits India.
    2. Western Disturbances : STWJ comes to India after passing over Mediterranean Sea where rainfall occurs during  winter. STWJ bring those cyclonic disturbances to north India along with it. This results in winter rain & hailstorms in North India  & occasional high snowfall in hilly areas  .

2. Jetstreams and Frontal / Temperate Cyclones

  • Jetstreams play important role in formation of Temperate Cyclones which are important feature of the climate of temperate regions like Britain etc .

3. Tropical Easterly Jet and Somali Jetstream

  • These Jetstreams play important role in the Indian Monsoon.
  • More about this can be read in (chapter) Indian Climate .

4. Role in Aviation Industry

  • If aeroplanes moves in the direction of Jetstream, it can lead to large fuel savings and vice-versa

Impact of Climate Change on Jetstreams

Due to Climate change and Global warming, Earth’s Polar regions are warming more rapidly than other parts . This has resulted in weakening of Polar Jet Streams because temperature contrast that drives Jetstreams has decreased.

Pressure and Pressure Belts

Pressure and  Pressure Belts

This article deals with ‘Pressure and  Pressure Belts’ This is part of our series on ‘Geography’ which is important pillar of GS-1 syllabus . For more articles , you can click here

Atmospheric Pressure

  • Atmospheric pressure is defined as the force per unit area exerted against a surface by the weight of the air molecules above the earth surface.
  • Atmospheric pressure is measured by an instrument called ‘Barometer’
  • The atmospheric pressure is not distributed uniformly over the earth. The  amount of pressure increases or decreases, according to the amount of molecules, that exerts the force on the surface.
    1. When temperature of air increases, the air expands and reduces the number of molecules over unit area leading to reduction in pressure.
    2. Similarly, when the temperature falls, the air contracts and the pressure increase.
Atmospheric Pressure

Factors affecting Atmospheric Pressure of area

1 . Temperature

  • As the temperature increases, air expands because of which its density decreases resulting in low pressure over area.
  • On the other hand, cold climate makes air denser resulting in high pressure over area.
  • Equatorial regions have low pressure because of high temperatures. On the other hand Polar regions have high pressure due to low temperature.

2. Height from Sea

  • The pressure at sea level is highest and keeps on decreasing rapidly with increasing altitude because of the progressive reduction of the mass above the point where it is measured.
Impact of height on pressure

3. Humidity

  • Water vapours are light in weight therefore pressure of humid air is less compared to dry air.

4. Gravitation of Earth

  • Atmosphere glues around the Earth due to its gravitation
  • Due to shape of earth,  Polar regions are nearer to core of the Earth as compared to Equatorial regions and hence have higher air pressure.

5. Rotation of Earth

  • Rotation of Earth results in centrifugal force.  Centrifugal force pushes things away from its core.
  • Centrifugal force is highest over equator and zero over poles. Hence,  air pressure will decrease in Equatorial regions as compared to that in polar regions.

Distribution of Atmospheric Pressure

Horizontal distribution of pressure is studied by drawing isobars . Isobars are lines connecting places having equal pressure. In order to eliminate the effect of altitude on pressure, it is measured at  sea level. These distributions change with season as well.

Distribution of Atmospheric Pressure

Pressure Belts of Earth

Atmospheric pressure belts envelope on the surface of the earth. They are equatorial low pressure belt, sub tropical high pressure belts, sub polar low pressure belts and polar high pressure belts

Pressure Belts of Earth

1 . Equatorial Low Pressure Belt

  • Region extending between 5° N latitude  to 5° S
  • Following are the reasons creation of low pressure belt over this region :
    1. Rays of sun fall vertically => High temperature creates low pressure.
    2. Owing to high temperature, evaporation process is also very fast => large amount of water vapours decrease the weight and density of air resulting in reduction of air pressure.
    3. Rotation of Earth and resulting centrifugal force has its maximum magnitude on Equator 
  • When air moves upward , it leads  to formation of clouds . Hence, it rains heavily in these  areas  (Cumulonimbus clouds & Convectional rainfall) . There is single  season throughout the year ie high temperature & high rainfall .
  • Advection is absent in this region because gradient of pressure is low  . Hence known as Belt of Calm / Doldrum .

2. Sub-Tropical High Pressure Belt

  • At about 30°N and 30°S latitudes on both sides of equator
  • Air which rises in equatorial region begins to cool when it reaches higher altitude over equatorial region and flows towards the poles. This wind collides with the wind coming from the polar region at higher altitude and subsides down over sub tropical latitudes. This leads to formation of high pressure belt
  • It is said that to avoid the slowing down of ship due to high pressure, the horses were thrown into the sea. So this belt is called as ‘Horse latitude’.

3. Sub Polar Low Pressure Belt

  • These are low pressure belts found at 60°N and 60°S latitudes on both sides of equator
  • The warm westerly wind from sub tropical region moves towards the pole and collide with the cold polar easterly wind from polar high pressure region and raises up to form sub polar low pressure belt.

4. Polar High Pressure Belt

  • Region at poles on both sides of equator
  • In this region, high pressure is formed because temperature remains low for whole of the year.

 Side Note : Basis of formation of pressure belts

Pressure belts can be created because of two reasons

1 . Temperature / Thermally formed

  • The Equatorial Low Pressure Belt and Polar High Pressure Belt are formed due to high and low temperature respectively. Hence, these are ‘thermally formed pressure belts’

2.  Dynamically formed

  • The Sub Tropical High and Sub Polar Low pressure belts are formed due to movement and collision of wind systems. Hence, they are called ‘Dynamically formed pressure belts’.

Temperature and Heat Budget of Earth

Temperature and Heat Budget of Earth

This article deals with ‘Temperature and Heat Budget of Earth’ This is part of our series on ‘Geography’ which is important pillar of GS-1 syllabus . For more articles , you can click here

Air Temperature

  • Air temperature of a particular place denotes the degree of hotness or coldness of air at a given place. It is generally measured in Celsius

Heating  process of Atmosphere

There are different ways of heating & cooling of the atmosphere.

  • Conduction :The air in contact with the land gets heated by conduction . Conduction is important in heating the lower layers of the atmosphere.
  • Convection : The air in contact with the earth rises vertically on heating in the form of currents and further transmits the heat of the atmosphere. This process of vertical heating of the atmosphere is known as convection. The convective transfer of energy is confined only to the troposphere.
  • Advection : The transfer of heat through horizontal movement of air is called advection.  (In northern India, during summer season local winds called ‘loo’ is the outcome of advection process).
  • Radiation (Green House effect)  : The insolation received by the earth is in short wave form and it heats up  surface. The earth after being heated itself becomes a radiating body and it radiates energy to the atmosphere in long wave form. The long wave radiation is absorbed by the atmospheric gases particularly by carbon dioxide & other Green House Gases. Thus, the atmosphere is indirectly heated by the earth’s radiation.
Green House Effect

Heat Budget of Earth

The earth as a whole does not accumulate or loose heat. It maintains its temperature. This can happen only if the amount of heat received in the form of insolation equals the amount lost by the earth through terrestrial radiation. This is known as Heat Budget of Earth

This is done in following way

Suppose 100 units are coming to earth

Heat Budget of Earth
Temperature and Heat Budget of Earth

Factors affecting  Horizontal temperature distribution

1 . Latitude of the place

  • Insolation received by any place depend upon latitude because when we move from equator towards pole, sun-rays become slanted . In slanted sun-rays, same energy is diffused over large area
  • Conclusion : Temperature decreases from the equator to the poles.

2. Distribution of Land and Water

  • Compared to land, the sea gets heated slowly and loses heat slowly. Land heats up and cools down quickly.
  • So more land mass in northern hemisphere leads to higher average temperature than the southern hemisphere

3. Presence of warm & cold current

  • Places located on the coast where the warm ocean currents flow record higher temperature than the places located on the coast where the cold currents flow.

4. Air mass circulation

  • The passage of air masses also affects the temperature. The places, which come under the influence of warm air-masses experience higher temperature and the places that come under the influence of cold airmasses experience low temperature.

5. Cloudiness

  • Cloudy  sky obstructs the solar radiation from the sun to reach earth. Hence, clear sky increases the temperature of place.
  • Due to this, Maximum insolation is received over the subtropical deserts, where the cloudiness is the least. Equator receives comparatively less insolation than the tropics because of clouds.

6. Nature of Surface

  • Albedo ie ability of surface to reflect the sunrays also impact temperature of place.
  • Fresh snow has albedo of upto 90% and  more reflection from the snow surface leads to low temperature accumulation compared to bare land.

7. Local aspects

  • Depend on position to position.

Factors affecting  vertical  temperature distribution

  • The temperature decreases with increasing altitude from the surface of the earth.
  • Reason : Atmosphere is indirectly heated by terrestrial radiation  from below. Therefore, the places near the sea-level record higher temperature than the places situated at higher elevations.
  • The vertical decrease in temperature of troposphere is called as ‘Normal Lapse Rate’ which is 6.5 C per 1000 meter of ascent.

Temperature Inversion

  • Normally , within Troposphere, temperature decreases with increase in  height . But if  reverse happens,  it is called Temperature Inversion .
  • Since cold air is denser/heavier than warm air , in case of temperature inversion, air will not be able to move upward .
temperature inversion

When Temperature Inversion can happen

  • At Tropopause :  Temperature starts to increase from here . As a result,  air  packets reach  till Tropopause & then starts moving downward . There is  no vertical air movement after that
  • A cool winter night with no clouds and stable air : Air above cold surface gets cold but layer  above cold air is still warmer & hence it cant move upward . This phenomenon is prominent till 400 m above earth’s surface.
temperature inversion
  • Valley Inversion/Air Drainage  :  In winter, mountain top becomes cold quickly compared to  valley . As a result, cold air  comes down to occupy valley . This  uplifts warm air of valley & situation is created when lower layer is cold & upper layer is warm 
valley inversion
  • Frontal inversion occurs when a cold air mass undercuts a warm air mass and lifts it 

Implications of Temperature Inversion

1 . Formation of Fog

  • As we have seen in currents ,  where ever warm & cold current meet , fog is created
  • In same way , when warm air & cold air meets , fog is created . This lowers the visibility in region.

2. Atmospheric Stability

  • Temperature Inversion prevents upward & downward movement of air.
  • Hence, it discourages rainfall.

3. Impact on Agriculture

  • Frost formed due to valley inversion damages crops in foothills, whereas trees and vegetation at top of hills and mountains are not damaged. The valley floors in the hills of Brazil are avoided for coffee cultivation because of frequent frosts.
  • (Beneficial Case : Though generally fog (caused due to temperature inversion) is unfavourable for many agricultural crops such as grams, peas, mustard plants, wheat etc. but sometimes they are also favourable for some crops such as coffee plants in Yemen hills of Arabia where fog protect coffee plants from direct strong sun’s rays. )

4. Environmental problem

  • In winters, concentration of pollutants raises to very high levels in cities as due to temperature inversion, air gets trapped . Eg : Delhi’s pollution levels are more in winters than summers.
impact of temperature inversion

Urban Heat Island

An urban heat island is an urban area or metropolitan area that is significantly warmer than its surrounding rural area due to high concentration of high rise concrete buildings, metal roads, sparse vegetation cover and less exposure of soil. These factors cause urban regions to become warmer than their rural surroundings, forming an “island” of higher temperatures.

Urban Heat Island

Composition and Structure of Atmosphere

Composition and Structure of Atmosphere

This article deals with Composition and Structure of Atmosphere’ This is part of our series on ‘Geography’ which is important pillar of GS-1 syllabus . For more articles , you can click here

Introduction

  • Atmosphere is combination of two words ‘Atmo’ and ‘sphere’. It means that region of Earth which has ‘air’.
  • Atmosphere is present as life saving layer between outer space and land surface. It is the source of important gases which are important for the existence and continuity of life. It also filters the harmful rays travelling towards Earth

Composition of Atmosphere

  • Earth’s atmosphere is composed of a mixture of various gases .
  • It is held to earth by gravitational forces
  • Atmosphere is denser at sea level & thins or gets  rarefied rapidly upward . It should be noted that, 99% of the mass of atmosphere is confined to height of 32 km
  • Percentage of different gases (by volume) in atmosphere is as follows :-
Composition of Atmosphere
  • Atmospheric gases don’t interact with each other chemically & don’t lose their own property.
  • These gases can be divided into two groups based on their distribution horizontally
Permanent Gases Nitrogen , Oxygen, Hydrogen & Argon.
Their quantity remain same on all places .
Variable Gases Water Vapour , Carbon dioxide & Ozone
Their quantity vary from region to region. Eg : In coastal areas, there will be more water vapours and in cities, there will be more Carbon dioxide. 
– They can absorb heat & hence known as Green House Gases.
  • Based on vertical distribution, they can also be grouped into two groups. Heavy gases like Nitrogen , Oxygen and Methane have high composition near earths surface. While going up, composition of lighter gases keep on increasing but since there is high turbulence, no effective separation occurs in most of gases except for  two gases.
Water Vapour Near surface of earth, they are upto 2% by volume but no trace present above 10-12km.  
Ozone Found mainly between  10-50 km in stratosphere.

Side Note : Important gases in Atmosphere ( not on basis of percentage but function )

1 . Nitrogen

  • Present in atmosphere in highest proportion (78%)
  • It is very important for living organisms because it is an important element of Amino acids which form protein

2 . Oxygen

  • Second most abundant gas in atmosphere (21%)
  • All the living organisms use it for breathing

3. CO2

  • Meteorologically very important gas .
  • It is transparent to incoming solar radiation but opaque to outgoing terrestrial radiation . Hence, it is mainly responsible for Green House effect.

4. O3

  • Ozone gas is found between 10-50 km
  • It act as filter and absorb UV rays .
  • But scientists are very concerned about the depletion of ozone layer due to action of chlorofloro carbons on Ozone

5. Water Vapour

  • Variable gas
    1. Can be upto 4% by volume in wet tropics
    2. In dry & cold areas of desert & polar deserts it can be less than 1% of air .
  • It also absorbs parts of the insolation from the sun and preserves the earth’s radiated heat.

6. Dust

  • May originate from different sources & include sea salts, fine soil, smoke-soot, ash, pollen, dust & disintegrated particles of meteors.
  • It is concentrated in lower parts , yet convectional air currents can take them to great heights .
  • They perform two very important functions
    1. It provides Hygroscopic nuclei around which water vapour condenses to produce clouds .
    2. They absorb  and reflect small amount of radiation rays of sun.

Structure of Atmosphere

Structure of Atmosphere

Atmosphere can be divided into five distinct layers   based on the thermal characteristics and temperature variations (note : these divisions are based on thermal characteristics)

1 . Troposphere

  • Troposphere is the  lowest layer of atmosphere and it is very important for all the living organisms
  • Name has been derived from Greek word ‘Tropos’ which means mixing  and ‘sphere’ which means ‘region’. Hence, ‘troposphere’ means ‘region of mixing’
  • Troposphere is zone of air turbulence because in this zone,   convectional air currents rise due to heating of earth surface
  • Thermal Characteristic of Troposphere
    1. Temperature decreases with increase in height (reaches  – 60 degree Celsius at tropopause).
    2. In normal conditions,  the rate of decrease of temperature is (ie lapse rate) is 6.5 degree Celsius per kilometre . This happens because of decrease in gases with increase in height 
    3. However, due to local reasons, at some places this phenomena reverses also (called Temperature Inversion).
  • Height of Troposphere
    1. on Equator, it is 18 km (gases are heated up and rises upward from strong convectional currents)
    2. on poles, it is 8 km (gases are cold and settles down)
    3. At average its height is upto 12 kilometre from ground.
  • All weather phenomena occur in this layer as it has dust particles and water vapour. This layer has clouds which produce precipitation on the earth.

Tropopause

  • It is the region between Troposphere and Stratosphere which is 1.5 kilometre high
  • The fall in temperature comes to an end in this region
  • Turbulent mixing of gases, winds, and radiation etc. none of the weather activities take place in this region

2. Stratosphere

  • Stratosphere  extends from  end of Tropopause up to a height of 50 km from the earth’s surface.
  • The lower part of this layer  is highly concentrated with ozone gas which is called as ‘ozonosphere’. It prevents the harmful ultra-violet rays from the Sun to enter into the lower part of the atmosphere
  • Thermal Characteristics of Stratosphere
    1. Temperature increases with height (ie from – 60 degree Celsius at start to 0 degree Celsius at Stratopause) .
    2. Temperature increases because of absorption of ultra violent rays by ozone gas
  • It is turbulence free zone . Hence, it is ideal for flying jet aircraft.(important prelims question)

3. Mesosphere

  • Mesosphere lies above the stratosphere, which extends up to a height of 80 km from earth’s surface .
  • Thermal characteristics of Mesosphere
    1. In this layer, once again, temperature starts decreasing with the increase in altitude
    2. From 0 degree Celsius at start, it reaches up to minus 100°C at the height of 80 km.
  • Most of the shooting stars get burned in Mesosphere .Luminous noctilucent clouds form here due to the presence of cosmic dust. ( important prelims question)
  • It is the coldest layer of earth .

4. Ionosphere /Thermosphere

  • It extends from 80 km to 400 km above Earths Surface  ..
  • It is called ionosphere due to presence of electrically charged ions that reflect radio waves back and thermosphere because it is at very high temperature.
  • Thermal characteristics of Ionosphere
    1. Temperature increases rapidly  with height  .
    2. The temperature increases rapidly up to 1,000 degree Celsius. This is due to absorption of high energy solar radiation and cosmic waves ( which break molecules to ions).
  • How Ionosphere is formed ?
    1. High energy sun rays  and cosmic rays break atoms of gases in this region .
    1. Molecules become ionised (positive charged ).
    2. These are highly energised particles & behave as free particle .
  • Luminous phenomenon called auroras at higher latitudes  when Solar Winds are able to reach ionosphere and collide with ions present in this layer  (Aurora Borealis (Arctic Zone ) & Aurora Australis(Antarctic Zone) )
  • Use of Ionosphere in radio communication : It is useful in radio communication  because ions can reflect radio waves.

5. Exosphere

  • Outermost layer of atmosphere and lies from 400 km  to 1000 km from earth’s surface.
  • This is the highest layer but very little is known about it.
  • It has rarefied contents. It contains mainly oxygen and hydrogen atoms. These atoms can travel hundreds of kilometres without colliding with one another. Hence, matter in exosphere doesn’t behave like gases.
  • It gradually merges with outer space.

Magnetosphere/ Van Allen Radiation Belt

  • Magnetosphere lies above Atmosphere and extends from 1000 km to 36000 km from earth’s surface
  • Although it isn’t  part of atmosphere but plays important part in shielding earth from solar & other cosmic winds .
  • Magnetosphere is formed due to earth’s magnetic field and it prevents most of  solar winds(highly energised particles) from reaching earth .
Magnetosphere

Polar cusps: regions above geomagnetic poles where solar wind can enter relatively easy to earth’s atmosphere.

Magnetospheric Storms

  • Magnetospheric storms are temporary disturbances in earths magnetic field  caused by occurrence of  magnetic flares & sunspot. In this process,  material from solar  coronal mass ejection  hits earth
  • Major effect in such event is global disruption of radio & telegraphic communication.

Aurora

  • Luminous  phenomenon observed in high latitude regions .
  • May appear as rolling lights or coloured streaks .
  • Produced by entry of charged particles from sun into earths atmosphere  &  collision of these charged particles with ionised particles in ionosphere .  They emit energy on interaction leading to formation  of aurora.
  • Entry of these charged particles occur at Cusp . Hence, formed at particular places on earth (& not everywhere)
  • Occur in Ionosphere.
  • Most frequent during intense period / solar minimum of sun spot cycle(sun spots have cycle of 11yr).

Side Topic : Sunspot , Sunspot Cycle & Solar Minimum

  • Sun-spots are the regions on the sun where the solar magnetic field is very strong (and as a result, it doesn’t allow solar streams to escape the sun)
  • Sun-spot cycle is the solar magnetic activity cycle with the average time period of eleven years.
  • Solar minimum is the period of least solar activity in the eleven year solar cycle. During this time, sunspot activity diminishes. According to NASA and other agencies, a solar minimum is about to occur in 2020-21. 

Impact of Solar Minimum

  • During the solar minimum, coronal holes can last for a longer time. Coronal holes are vast regions in the sun’s atmosphere where the sun’s magnetic field opens up and allows streams of solar particles to escape the sun.
  • It could enhance  events of  geomagnetic storms & auroras, potentially disrupting communications and navigation systems.
  • Sun’s magnetic field weakens and provides less shielding from the cosmic rays. This can pose an increased threat to astronauts travelling through space.

External Benchmark System

External Benchmark System

This article deals with ‘External Benchmark System .’ This is part of our series on ‘Economics’ which is important pillar of GS-3 syllabus . For more articles , you can click here

Issue

When RBI decreases Repo Rate, Banks don’t decrease their interest rates proportionately.

Incomplete Transmission of Rate Cut by Banks

Why banks don’t transmit Repo Rate cuts to borrowers?

a. Banks don’t depend on RBI

  • In India(& all developing countries ) ,RBI is not the main source of money to banks . Common people are main supplier(mainly because people don’t have much option to invest money in alternate investment facilities eg mutual funds etc )

b. Small saving schemes  rate not reduced

  • Transmission is limited by high small savings rates. Banks worry that if they cut their deposit rates, customers will flee to small savings instruments. 

c. High Statutory Liquidity Ratio

  • Large money has to be kept idle as SLR which banks cant lend
  • This reduces their ability to pass the benefit to consumers .

d. Banks increasing their Spread

  • Due to losses incurred to banks as a result of high NPAs & lowering of Credit Demand , Banks are increasing their Spread  in order to maintain their profits in absolute term.
  • This has reduced the capacity of banks to decrease Lending Rates.

To deal with inadequate transfer of Repo Rate cuts by banks to borrowers , RBI Came up with MCLR and External Benchmark  Rate System 

How Banks decide their Interest Rate

Timeline

How Banks decide their Interest Rate
1969 Government began nationalization of private banks, and ‘administered interest rates’ on them.  
1991 M.Narsimhan suggested deregulation: Government should not dictate / administer individual banks’ interest rates & RBI should only give methodology to banks.  
2003 RBI introduced Benchmark Prime Lending Rate  (BPLR).  
2010 RBI introduced BASE Rate + Spread system; update frequency was on individual banks’ discretion.  
2016-17 RBI introduced Marginal Cost of Funds based Lending Rate  (MCLR) +Spread system.
2019RBI introduced External Benchmark Rate System.

Marginal Cost of Funds based Lending Rate  (MCLR)

  • Banks to calculate lending rate on monthly basis.
  • Lending Rate to be calculated using CRR Cost, Operating Cost, Marginal cost of funds (calculated using Repo Rate) (don’t need to go into detail. Just remember, MCLR has Repo Rate as component)

Lending Rate = MCLR + Spread (to be decided by banks)

Benefits?

  • Better transmission of Monetary Policy
  • Transparency & accountability to borrowers.

RBI’s Janak Raj internal study group(2017) showed MCLR did not yield all benefits . Banks keep on increasing ‘Spread’ based on their discretion .

So new method  was introduced

External Benchmark System

  • Applicable from April 2019 (on recommendations of Dr. Janak Raj Committee)
  • NEW loans to be linked with External Benchmark  system.

In this system

  • Bank will be asked to choose any benchmark like
    • Repo rate   or
    • 91-day T-bill yield  or
    • 182-day T-bill yield   or
    • any other benchmarks by Financial Benchmarks India Pvt. Ltd.
  • It has to be updated atleast every 3 months.
  • Lending Rate of Bank will be External Benchmark + Spread (eg if Bank choose Repo Rate as External Benchmark, then Interest Rate will be Repo Rate + Spread)

Benefits?

  • Better transmission of Monetary Policy
  • Better transparency and accountability

Monetary Policy

Monetary Policy

This article deals with ‘Monetary Policy .’ This is part of our series on ‘Economics’ which is important pillar of GS-3 syllabus . For more articles , you can click here

Introduction

In any economy

Financial Intermediaries
  • Monetary Policy is  made by Central Bank of nation to control money supply in the economy.
  • Objectives of monetary policy can be (depending on economy)
    1. Inflation control
    2. Accelerating growth of economy
    3. Exchange rate stabilisation
    4. Balance saving & investments
    5. Generating employment

Monetary policy can be

Expansionary – Increases total money supply in an economy
Eg in 2008, all countries including India used this to beat recession
Traditionally used to combat unemployment in recession by lowering interest rate
Contractionary – Decreases total money supply in economy
Eg 2010 onwards India & many other countries used it
Traditionally to combat inflatory trends in economy

When Monetary policy is announced in India?

a. Till 1988-89

Was announced twice a year according  to agricultural cycles

Slack season policy April -September
Busy season policy October -March

b. After 1989

  • Since monetary policy has become dynamic in nature, RBI reserve its right to alter it from time to time , depending upon state of economy
  • Share of credit toward industry increased  (earlier was agriculture)
  • Major policy was announced in April & review take place every quarter . But within quarter at any time RBI can make any major change in policy depending upon need

c. Presently

Changes can be done at any time when RBI feels it is required but announced  necessarily after two months

Tools used by RBI for Monetary Policy

RBI implements it using two tools

a. Quantitative /Indirect/General Tools

  • Reserve Ratios (CRR,SLR)
  • OMO (Open Market Operation)
  • Rates (Repo, Reverse Repo ,Bank rate, Marginal Standing Facility etc.)

b. Qualitative /Selective/Direct Tools

  • Margin /Loan to Value Ratio
  • Consumer Credit Control
  • Rationing
  • Moral suasion
  • Direct Action

1 . Quantitative tools

Quantitative Tools of Monetary Policy

1.1 Reserve Ratios

a. Cash Reserve Ratio (CRR)

  • It is the Cash that is kept by the Bank with RBI
  • Bank cant lend it to anyone. Bank earns no interest or profit on this
  • RBI get these powers from RBI Act 
  • Presently (July 2020)  –  3% of Net Demand and Time Liabilities
  • Applicable on Scheduled Banks , Non-Scheduled Banks & Cooperative Banks

b. Statutory Liquidity Ratio (SLR)

  • A bank has to set aside this much money in cashgold & government  securities or RBI approved very secure Securities like those of PSUs  (liquid assets)
  • Some profit is earned
  • It is mandated under RBI Act.
  • Although not used as Monetary Policy Tool but if decreased, large amount of capital is infused in economy
  • Presently(July 2020) –  18% of Net Demand and Time Liabilities 
  • SLR is applicable on following Institutions all commercial banks ,  Cooperative Banks and NBFC deposit taking  . RBI can prescribe separate levels for each.

Trends of CRR and SLR

Note – Earlier , CRR & SLR used to be very high (53% combined) . As a result, banks had very less money to lend . This impacted Indian Economy because rate of loans were high and businesses were not expanding as a result. This was one of (the many) reasons of 1990 Balance of Payment Crisis. Narsimhan Committee & other experts asked government to reduce this. As a result it was gradually reduced

CRR Trends

SLR Trends

Use of CRR and SLR

  • CRR and SLR can be used to fight Inflation and Deflation
  Inflation Fight Deflation Fight
Method Tight | Dear Policy Easy | Cheap Policy
CRR,SLR Increase Decrease
  • They also act as security in case of bank run.

Side Topic : CRR Exemption 

  • Feb 2020 : RBI has announced that banks will not have to maintain CRR for all the loans they have given to three sectors namely automobile sector, residential sector and loans to MSME industries for next 5 years.
  • This will boost loans to these sectors.

Side Topic : What are G-Secs

  • Concepts like Repo, Reverse Repo and Open Market Operations involve the concept of G-Secs ( or Government Securities). Hence, we will first deal with the concept of G-Secs
  • When Government wants  extra money for their schemes, they ask RBI to print that much Government Securities (G-Secs) and give equivalent cash in return. G-Secs are the  promissory notes in which it is promised that Government will pay interest of x% to the holder for y years and pay principal at the end of tenure .
G-Secs
  • Now RBI can use these G-Secs for various operations . Eg :  to absorb the excessive liquidity from market etc

1.2 Policy Rates/ Liquidity Adjustment facility (LAF)

  • LAF  includes both Repo Rate & Reverse Repo Rate
  • RBI adjusts the liquidity of market using these tools
  • Repo & Reverse Repo operations can only be done at Mumbai & in securities as approved by RBI (T Bills , Central/state Govt securities)

a. Repo rate

  • Repo Rate is short form for Repurchase Rate
  • In this , Bank borrow immediate funds from the RBI for short term ( upto 14 days) with Government Securities as collateral and simultaneously agrees to repurchase the same Securities after a specified time at a specified price.
  • Amount that can be borrowed : minimum  5 crore to unlimited
  • All  Banks , Central & State Governments and Non Banking Financial Institutions are eligible 
  • When bank borrow, it will give its securities worth say ₹ 100 crore & agree to repurchase it back  at rate of ₹ 104 crore ( if Repo rate is 4)
Repo Rate
  • But during whole operation, bank has to maintain its SLR ie Collateral securities can,t be from SLR quota
  • Present Repo Rate is  4%  (May 2020)

Recent Trends  

RBI is reducing the rates continuously to spur economic activity by providing cheap money to the banks to lend it to public.

Long Term Repo Operations (LTRO)

  • RBI has introduced new instrument called Long Term Repo Rate (LTRO).
  • It is for long tenure of 1 to 3 years .
  • All the concepts are same as Repo Rate but interest is charged annually .
  • Total plan is to loan Rs 1 lakh crore to banks via LTRO which will increase the loanable funds with banks to boost the demand in economy.

b. Marginal Standing Facility (MSF)

  • Marginal Standing Facility introduced in  2010
  • Suppose bank is in dire need of cash but doesn’t have spare securities. Under such conditions, bank can borrow under MSF by pledging SLR securities
  • But they will have to pay 0.25% higher than Repo Rate (as punishment say)

MSF= Repo + 0.25%

  • Only Scheduled Commercial Banks can avail this facility within range of minimum 1 crore  & Maximum 1% of Net Time and Demand Liabilities. 
  • It helps to solve short term crunch
  • It is also necessary because Repo operations are limited to specific period during day

c. Reverse Repo Rate

  • In this RBI takes money from banks & give them securities (opposite of Repo Rate) 
  • RBI borrower & Banks /Union & State Governments / NBFI etc lenders
  • Collateral =  Yes
  • All clients which were eligible in Repo rate are eligible here too
  • Reverse Repo = Repo -0.25%  (Current Rate : 3.75 % (ie Repo (4%) -0.25%))

Policy Corridor

Policy Corridor

Tri-Party Repo Agreement

Until now, such facility was not available to Corporate Houses where they could issue Corporate Bonds to lenders and agree to repurchase these Bonds at later date at pre-determined rate . They also wanted to use this route to raise funds .

But there is issue of trust in this case . Hence, there is need of Intermediary who can assure lenders that Corporate House will surely buy back these bonds at decided rate   . In case, borrowers refuses to pay,  intermediary Custodian will pay that amount to Lender. Custodian will charge fee for providing this service .

Tri-Party Repo Agreement
  • In ordinary repo, there are two parties- borrower vs. lender (RBI).
  • In Tri-party Repo, there are 3 parties 1) borrowers 2) lenders 3) Tri-Party Agent ( presently 2 – BSE and NSE) who, acts as an intermediary between the two parties to facilitate collateral custody, payment and guaranteed settlement.
  • RBI issued guidelines for this in 2017
  • This is not a tool of Monetary Policy. It helps deepening Corporate Bond market.

d. Bank Rate

  • When banks borrow long term funds from RBI , they would pay this interest to RBI
  • Presently-4.25 % (May 2020)  ( although Bank Rate = MSF but both are declared separately)
  • Collateral = Nothing(can borrow without pledging securities)
Bank Rate
  • Although RBI don’t use this tool to control money supply , but if it does, same theory apply here as well
Inflation Fight Increase Bank Rate
Deflation Fight Decrease Bank Rate
  • It is not the main tool to control money supply these days  but act as penal rate charged on banks for shortfalls in meeting their reserve requirements. How it is done?
    • If Bank is not maintaining its SLR or CRR,  then bank is fined penalty on whatever amount is less from amount to be maintained . Rate Charged is  determined as :-
      1. First  time : Bank rate +3%
      2. Second Time : Bank Rate +5% and so on

1.3 Open Market Operations (OMO)

  • In Open Market Operations (OMO) ,  RBI starts buying/selling government securities to control money supply.
  • It is different than Repo and Reverse Repo Rate because here there is no promise by either party to repurchase it back. RBI will pay the interest rate to the holder of Security but there is no repurchase agreement.

How govt use this to control money supply

Case 1 : When there are inflatory trends in market , RBI issue these securities . Banks buy these securities & money supply decreases

 Open      Market Operations

Case 2 : When government wants to increase money supply , it starts buying these securities at high price

 Open      Market Operations

Why banks go for OMO although there are no compulsions on this ??

  • Lot of money keep on lying idle with banks .
  • Banks don’t earn any interest on that . Hence, it is better to invest those in govt securities & earn ~8% interest on it

Dollar-Rupee swap

  • To manage liquidity in the market, RBI has come up with new tool.
  • March -April 2019 : three-year currency swap scheme = RBI will purchase $5 billion from banks in exchange for rupees.

Currently , in Repo and Reverse Repo, RBI uses G-Secs . But there is issue of higher Bond Yields . To address this issue , Dollar –  Rupee Swap comes to scene

  1. Increasing Liquidity = Buy $ from Banks and give them money
  2. Decreasing Liquidity = Give $ to Banks and take ₹ from them
Dollar-Rupee swap

Benefit

  • Issue of higher Bond Yields on G-Secs addressed.
  • Government can increase Forex Reserve via this.
  • Banks can earn some interest out of the forex reserves lying idle in their kitty.
  • Dollar – ₹ exchange rate = ₹ will become strong and fall of ₹ against $ can be arrested

Operation Twist

  • 1961: “Operation Twist” was first used by the USA.
  •  Jan 2020 : RBI also used this route . It is officially called “Special Open Market Operation (OMO) wherein the Central bank simultaneously buys and sells G-sec of varying maturities to adjust their yields. This will help to  reduce interest rates on corporate bonds and they can raise money for their expansion at favourable rates .
Operation Twist

2. Qualitative / Selective / General tools

2.1 Marginal Requirements/LTV(Loan to Value)

  • If Spice Airlines  wants to borrow money from SBI and pledges ₹100 crore collateral but RBI prescribe margin (Loan to Value ration) of say 65%, then SBI can give only 65crore loan.
  • It is obligatory for SBI to obey directives of RBI in this context (unlike base rate)
  • Hence, it is Selective direct tool.

2.2 Consumer Credit Regulation

  • In this, RBI can make various regulations on credit
  •  Eg
    1. Can increase  down payment from say 10% to 30% (it will force some persons to delay their decision to buy vehicles financed through bank loans)
    2. Can decrease  least EMI for automobile sector say from ₹ 5,000 to 3,000

2.3 Selective Credit Control

  • In this , RBI can instruct Banks to not extend loans to particular sector (Negative / Restrictive Tools) or give minimum %age to particular sector (positive) .
  • These are Qualitative and Direct Tools.

2.3.1 Negative  Restrictions

a. Ceiling to big loans

  • From 1965 to 1989
  • Under this, all Commercial Banks had to obtain prior approval of RBI before giving loans greater than ₹ 1 Crore to single borrower.

b. Ceiling on Non Food Loans

  • Started in 1973
  • To boost Green Revolution
  • So that more loans go towards agriculture sector

These tools were used before LPG Reforms, but they weren’t effective because these can be easily flouted using loopholes.

2.3.1 Positive Restrictions

a. Priority Sector Lending (PSL) / Rationing 

  • Rationing is main feature of Communist Economy. Eg In Soviet Union,  they used to make provisions like they will give particular amount of loan to particular sector. PSL is form of Rationing.
  • PSL means Giving specific minimum amount of loans to some Priority Sectors. In India, 40% loans are given to Priority Sector.
  • Government can increase supply of money to that sector by increasing its limit.
  • Dealt in detail in Banking Sector .

2.4 Moral Suasion

  • “Persuasion” without applying punitive measures. RBI governor tries this tactic via conferences, informal meetings, letters, seminars, convocation, panel discussion, memorial lectures. 
  • Eg
    1. Please reduce giving automobile loans, instead invest your money in government securities.
    2. I have reduced repo rate , now you also decrease your base rate.
  • It is not obligatory on part of bank to follow orders but generally  they do follow.

2.5 Direct Action

  • RBI can take direct action against any bank for going against the rules. RBI gets this power under Banking Regulation Act, RBI Act, Foreign Exchange Management Act , Prevention of Money Laundering Act etc.
  • Eg : if bank is not maintaining CRR or SLR , RBI can scrap its license
Direct Action

Money Supply

Money Supply

This article deals with ‘Money Supply .’ This is part of our series on ‘Economics’ which is important pillar of GS-2 syllabus . For more articles , you can click here

Factors affecting Money Supply

Season Nov &  April: Crops harvest and Industries buy their raw material leading to more money in the hands of farmer. Hence, Money supply  will rise.
Trade cycle Boom: Money supply increases
Depression: Money supply falls
Fiscal policy Money supply will decrease if there is higher taxation and sale of G-sec and vice-versa.
 
People’s choice If people deposit higher portion of their income in banks ( instead of storing in their lockers)  , then  bank can expand loans .  Money supply rises in such cases.  
Monetary policy 1. If RBI follows dear money policy = supply decreases
2. If RBI follows cheap money policy = supply rise

Why should we measure money supply?

  • Job of RBI is to control inflation through qualitative & quantitative tools (ie Repo Rate, Cash Reserve Ratio etc)
  • But for this, RBI must first know how much money supply is there in system . Only then RBI can make policy to control money supply.

Side Topic : Why people don’t simply store Value in Bonds, Gold ?

  • Famous Economist John Maynard Keynes( 1883-1946) answered this question in his book – The General Theory of Employment , Interest & Money.
  • He argued that although if person will invest in Bonds or Gold, Value of his assets will surely increase but even after that people don’t invest and keep cash  because of three reasons
    • Transaction motive – Cash acts as medium of exchange
    • Precautionary motive – In case of sudden expenditure, cash is required .
    • Speculative motive – waiting for  price of anything to fall , then using cash  to buy that.

Types of Money

Money Supply

M0 : Reserve money or High Powered Money

  • Mo is base for creating Broad Money supply(M3)
  • Mo is sum of following things
    • Currency held by Public
    • Bankers’ deposits with RBI plus
    • ‘other’ deposits with RBI

Basically it is Total Currency Printed by RBI . RBI prints money equivalent to Bonds it get from Government.

M1 : Narrow Money

  • M1 includes
    1. Currency and Coins with public
    2. Demand deposit in banks

Basically , it denotes situation when person has money , he can do two things to maintain the liquidity of that. Either he can keep that money in its hard form or can deposit in Bank in Current or Saving Account (not Fixed Account) .

M2 : Narrow Money

  • M2= M1 + Demand Deposits in Post Office
  • M2 includes
    1. Currency and Coins with public
    2. Demand deposit in banks
    3. Demand Deposits in Post Office

M3 : Broad Money or Money Aggregate

  • M3 = M1 + Time deposits with Banks
  • M3 inludes
    1. Currency and Coins with public
    2. Demand deposit in banks
    3. Time deposits with banks
  • M3 is most commonly used for measuring money and is regarded as main indicator of money supply in the economy.

M4 : Broad Money

  • M4 = M3 + Total Post office Deposits
  • M4 includes
    1. Currency and Coins with public
    2. Demand deposit in banks
    3. Time deposits with banks
    4. Demand deposit in post-offices
    5. Time deposits with post-offices

Ranking of Liquidity

Liquidity is the ease of converting an asset into cash .

Name Liquidity Liquidity Rank
M1 highest 1
M2 less than M1 2
M3 less than M2 3
M4 lowest liquidity 4

Liquidity Ranking : M1 > M2 > M3 > M4

Money Multiplier

There are two approaches to look into this concept

a. 1st Approach

  • Money Multiplier is Ratio of Broad Money & Reserve  money ie M3 / Mo

 M3 = Mo X Money Multiplier

  • When  Reserve Money increase , Broad money will also increase
  • In 2018 , India’s Money Multiplier was ~ 6

b. 2nd Approach

  • Money Multiplier is 1/R  (R= Cash Reserve Ratio)
  • Every ‘R’ Cash Reserve Ratio generates ‘1/R’ new money.

Explanation of above formula?

  • Consider a situation in which Person deposited ₹ 100 hard currency in Bank. Let’s assume that , Cash Reserve Ratio (CRR) fixed by RBI was 10%. First Bank will keep aside ₹10 & give ₹90 as loan to some person. Then person who got loan again paid some other person through bank by depositing money in person’s bank account . This Bank will  keep ₹9 (10% of 90) aside and gave 81 as Loan to some other person. And this game keeps on going like this .
Money Multiplier
With 100 rupee of "reserve", banking system generates 
Rs.1000..hence money multiplier is (lox)

Hence , Money Multiplier is 1/R (where R is Cash Reserve Ratio).

Money Multiplier

Note : Presently , Money Multiplier is around 6 but if we consider 4% Cash Reserve Ratio, it should be 25.

Reason for low Money Multiplier than theory = for practical purpose , we cant achieve above series upto end.

  • Since Financial Inclusion is low, there might be case that either Banks  have money but people are not available to take loan or people will not be able to keep their money in banks .
  • Along with that, Banks aren’t always willing to give loans
  • Large number of cash in India is stored as Black Money and is never stored in Banking System.

From Economic Survey (2020) : India’s Money Multiplier has been decreasing since 2017

Velocity of Money Circulation

  • Average number of times, money passes from one person  to another during given time period
Velocity of Money

Factors affecting Velocity of Money Circulation

  • Poor people immediately use their money. Hence, money in the hands of poor has higher velocity.
  • Booming period = higher velocity
  • If more people use EMI loans for purchase, then higher velocity
  • Low financial inclusion means less velocity, because banking penetration is low. People tend to save more in physical assets . Hence, money doesn’t change hands much

Reformist Movements

Reformist Movements

This article deals with ‘Reformist Movements – UPSC.’ This is part of our series on ‘Modern History’ which is important pillar of GS-1 syllabus . For more articles , you can click here

Introduction

  • Main reason why Britain emerged as powerful nation was it accepted modern civilization first among all nations . But in India , intentionally they followed the policy to stall the change in society . Changes did occur & Indian society did try to change but not due to British policies but due to efforts by some progressive Indians
  • These efforts happened first in Bengal  because it came under British control first . First lot of Indians who studied in Western English knowledge were also created  in Bengal at the end of 18th Century. New intellectual stirrings created reformed mentality . They didn’t reject Indian tradition but sought to change certain unreasonable aspects of Hindu society which didn’t conform to their rationalist ideas. Later , British officials also joined the race &  this provided legitimacy to the reform agenda of the Utilitarian reformers like Bentinck .
  • But problem was , this mentality was confined to a small circle of English Educated elite.  Series of reforms followed but they remained on paper . They faced problem because they never attempted to develop modern social consciousness from below . They should have followed ‘bottom up approach’ instead of ‘top down approach’ .  Reform forced from above remained ineffective .
  • Untouchability  as an issue of social reform had to wait until the beginning of the twentieth cen­tury and the arrival of Mahatma Gandhi in Indian  public life  after World War One .
  • Lacking in a broad social base, the reformers of the early nineteenth century thus exhibited an intrinsic faith in the benevolent nature of colonial rule and relied more on legislation  for imposing reform  from above. There was very little or no attempt to create a reformist social conscious­ness at the grass-roots level, where religious revivalism later found a  fertile ground.

The reform movement broadly fell under two categories

Reformist Movement Eg : Brahmo Samaj, Prarthana Samaj & Aligarh Movement
– Relied on reason & conscience. They wanted to purge outdated elements from the religion which didn’t pass on the scale of  reason .
Revivalist Movement Eg : Arya Samaj, Ramakrishna Mission & Deoband Movement
– Relied upon traditions & wanted to go back to their self made golden past
Reformist Movements

Side Topic : Why Britishers tried to reform Indian Society in 19th Century? 

There were various reasons for this

  • Several ideological influences in Britain, such as Evangelicalism, Utilitarianism and free trade thinking.
  • For renewal of Charter of company
  • Pro socio-religious reform thrust in contemporary England => because Progressive Whig Party came into power back in Britain. 
  • Role of Christian missionaries was also noticeable.

But the Company’s government was still tentative about interfering for fear of adverse Indian reaction unless a section of the Indian society was prepared to support reform. Such a group was soon to emerge through the introduction of English education

Status of Woman  & Civilizational Critique

Status of Woman  & Civilizational Critique
  • Status of woman became the main focus of the reforming activities of colonial state as well as educated Indians
  • At that time, way in which  civilisations were ranked , position of woman was one of the important criteria & here Indians were increasingly under attack by western observers from missionaries to civilians . Indian civilisation was  despised because it assigned such a low status to women .
  • Hence, Indian Intelligentsia responded to this civilisation critique by advocating & supporting reforms to improve status of woman in Indian society.
  • But such reforms remained very restricted to only few women belonging to high class because women remained  recipient of male patronage & never became involved in these reformist projects as conscious subjects of their own history .

Upper Class Women vs Peasant Women

  • Peasant woman were better compared to Upper caste woman during that time
  • They didn’t practice Purdah System , Right to Remarry was there  & Sati was also not that widespread among Peasant class unlike Higher caste

Reformist Movements

We have seen the reasons why Social Reform movements were started in India. Now we will look in detail into one strand of these movements known as Reformist Movements .

Features of reformist social  movements

a. Confined only to narrow social group

  • Reformist spirit appealed only to a small elite group who were primarily the economic & cultural beneficiaries of the colonial  rule .
In Bengal – Small number of western educated elite known as Bhadralok
– Socially they were mostly Hindus &  although caste wasn’t a major criteria for membership, they were mostly higher caste  Brahmin, Kayastha & Baidya   
Western India – Members of Prarthna Samaj were mainly English educated Chitpavan & Saraswat Brahmins along with Merchants from Gujarat
  • Indeed the high caste  character of the early 19th century explains to a large extent the relative silence on caste question & untouchability which had to wait till Gandhi

b. Faith in benevolent nature of colonial rule

  • They had great faith in the benevolent nature of colonial rule & infact existence of these classes depended on Colonial rule .
  • Because of faith , they relied more on legislation for imposing reform from the above

c. Colonial Character of the reforms

  • Dominant colonial assumption was religion was the basis for Indian society &  this religion was encoded in the scriptures . Social evils were thought to be result of the distortion of scriptures by self seeking people , in this case the cunning Brahmins who had the monopoly over this textual knowledge .
  • Civilising mission of the colonial state thus seen to lie in giving back the natives the truth of their own little read & even less understood shastras .
  • Whole debate over Sati was grounded in scriptures & its abolition was not based on fact that it is  morally & ethically wrong but when government was convinced that custom was not enjoyed by the scriptures .
  • As the colonial rulers gave supreme importance to scriptures, the Indian reformers too, as well as their detractors, referred to ancient religious texts to argue their respective cases. The brutality or the irrationality of the custom, or the plight of women, whom the reform was intended for, were lesser concerns in a debate

Note : The intellectuals did not however attacked the social system as a whole; their attack centred only on the perversions and distortions that had crept into it. They did not advocate a sharp rupture in the existing social structure of the country. They did not stand for structural transformation; changes were sought within the framework of the very structure. They were advocates of reform and not revolution.

Social problems and Reformist efforts to reform them

Social Reforms in India Modern History

a. Female Infanticide

  • It was most common in Western & Northern India .
  • There landowning high caste families , practising hypergamy found it difficult to find suitable grooms for their daughters or pay high demands of dowry . Hence, they killed their female offsprings at birth .
  • British authorities tried to persuade them & after 1830 sought to coerce them to desist from practice but  no tangible effect was observed. 
  • In  1870,  Female Infanticide Act was passed . But even after that, condition didn’t change because abject neglect of female children resulted in high mortality .

b. Sati Abolition

Sati Abolition
  • Sati Abolition was the greatest achievement of Lord Bentinck .
  • Sati is self immolation of wife on funeral pyre of dead husband. 
  • According to social reformers , it has always been there much the exception rather than a rule in Hindu life & during Mughal period, it was practiced in Rajputs & Kingdom of Vijayanagara . But during British period, it revived on much larger scale & experienced highest rate of development.

Reasons for practice of Sati

  • Earlier it was practiced by Upper Caste Hindus but during British rule, it started in peasant families of lower & intermediate  caste who achieved social mobility & then sought to legitimize their new status by imitating their caste superiors.
  • Greed of the relatives –   Child marriage was widespread at that time & many a times bride who has not even lived with groom was forced to perform Sati in order to get property of that man.
  • Sati was widespread in areas where Dayabhaga school of personal Hindu law was applicable  . Areas where ] Mitakshara school was applicable, it was less prevalent because Mitakshara school gives lesser rights to wife to inherit property

Campaign against it

  • First started by Christian Missionaries
  • But very strong campaign under Raja Rammohan Roy gave real momentum
  • Finally  in 1829 , Governor General Bentinck prohibited Sati by Govt Regulation Act XVII. Pressure was also put by the Court of Directors because they wanted to present credible image of Company’s rule in India in the British Parliament before renewal of Charter pending in 1833.

Although it reduced very much after that but the idea & myth of Sati persisted in popular culture & was continually reaffirmed through epics, ballads & folktales . Case of surfaced even in 1987 ( Roop Kanwar Case of village Deorala in Rajasthan).

c. Widow Remarriage

  • Main protagonist was Ishwarchandra Vidyasagar . But he too, like Raja Rammohan Roy looked to colonial state for piece of legislation for this .
  • In 1856 , Hindu Remarriage Act was passed but this couldn’t make the practice socially acceptable . Along with that, Act was intrinsically conservative in nature because on remarriage , widow disinherited her deceased husband’s property .
  • Movement ended with its unavoidable death . Vidyasagar failed to see widows remarried because this needed social consent which could not be generated by piece of legislation .  Practise of Widow Remarriage  remained rare & exceptional among the educated class & within few years taboo universalised & penetrated to lower castes.

Western India

  • 1860s : Movement to promote widow remarriage spread among educated class & debate  became sharp between reformers & detractors.
  • 1866 : Vishnushastri Pandit started a Society for Encouragement of Widow Remarriage while opponents started rival organisation .
  • Movement ended in whimper . By end of century only 38 such marriages happened & in that cases too couples were subjected to enormous social pressure & ostracism .

Madras Presidency

  • In Telegu speaking areas , movement was started by Veersalingum Pantulu . In 1878 , Society for Social Reforms was founded by him for this.
  • 1881 : first widow remarriage officiated by him in 1881 in face of stiff opposition but till 1891 , support increased & he formed Widow Remarriage Association with patronage of prominent citizens .

North India : Haryana

  • Here practice of widow remarriage was already there& new act provided  such marriage with legitimacy & further social acceptance

d. Child Marriage

  • Vidyasagar continued his campaign against Polygamy & later Child Marriage .
  • In 1860 , finally he was able to secure an Age Of Consent Act, 1860 that fixed age of consent for consummation of marriage at 10 years which was raised to 12 years in 1891.
  • But census showed that it continued to be practiced widely among all castes. 

e. Thugee

  • Various  peripatetic groups were stereotyped into the colonial construct called Thugs who were believed to have been members of a fraternity traditionally involved in robbery & ritual killings in the name of religion
  • Campaign against thugee was initiated in 1830s  by Lord Bentinck
  • Thugee Act (XXX) , 1836 was passed & Thugee Dept. was created for prosecuting gangs seen as perpetrating a crime in the name of religion but it’s elimination proved to be a difficult task. 
  • In 1839 , Sir William Sleeman as head of Department claimed that thugee had been exterminated but in reality he begun to realise difficulty in doing this and it was just a face-saving measure.

f. Slavery

  • Laws were even more ineffective against less organised social customs that remained part of everyday life from centuries .  Slavery  was such an example .
  • Slavery was abolished in Britain in 1820 & in India too Charter of 1833 instructed government to abolish slavery & Parliamentary pressure continued till it was abolished .
  • But problem was, they tried to see slavery in India through lens of their British idea of Slavery but in India where agrarian relations were complex & marked by numerous structures of labour dependencies it was almost impossible to stop it
  • Process was failure in India

Bengal Renaissance

  • Renaissance literally means ‘rebirth’. It refers to the revival of Graeco-Roman (classical) learning in 15th-16th century after long winter of dark ages. In Indian context , intellectual revolution that took place in the nineteenth century in the fields of philosophy, literature, science, politics and social reforms is often known as Indian Renaissance. An important part of this Renaissance was reforming Hinduism from within on the basis of Post Enlightenment Rationalism.
  • Very much like the Italian Renaissance, it was not a mass movement; but instead restricted to the upper classes. 
  • Response of the educated Indian elite to civilisational critique was to reform  Hinduism from within,  in  the boundary  of post enlightenment rationalism . Such phenomenon is known as Bengal Renaissance
  • Movement was started in Bengal by Raja Rammohan Roy who is often described as Father of Modern India .
Bengal Renaissance

Raja Rammohan Roy (1772-1833)

Raja Rammohan Roy

Personal life 

  • He was Hindu Brahmin and was born  in Hooghly ,Bengal
  • He fought against the stagnant society .
  • He was one of those upper caste gentry whose power & position had been enhanced by Permanent Settlement & other opportunities opened by the Colonial rule.
  • He studied Persian and Arabic at  a Madrasah in Patna . He was proficient in Arabic, Persian, Sanskrit & European languages like English, French, Latin , Greek & Hebrew
  • At a time when Bengali youth under the influence of western learning was drifting towards Christianity, Roy proved to be the champion of Hinduism . Although, he defended Hinduism against the hostile criticism of the missionaries , he sought to purge Hinduism of the abuses that had crept into it.
  • Then he studied Vedantic monism & after his migration to Calcutta in 1815, he  was exposed to the Christian Unitarianism . Such intellectual influences motivated him to contest the missionary claim of superiority of Christians . His  answer to this was to reform Hinduism using  reason by going back to its purest form as enshrined in Vedanta texts
  • Raja Rammohan Roy accepted the concept of ‘One God’ as propounded by Upanishads . For him God was shapeless , invisible & omnipresent but the guiding shape of the universe . He declared his opposition to idol worship & was of view that worship to be performed through prayers & meditation & readings from Upanishads . He translated Upanishads into Bangla to demonstrate that ancient Hindu scriptures themselves propagated monotheism
  • He published his first  philosophical work, Tuhfat-ul-Muwahhiddin in 1805 in which he analysed the major religions of the world wrt ‘reason’ and ‘social comfort’. He denied that religion was merely a matter of faith outside reason and attempted to expose the  myth of miracles associated with it.
  • Later, he started English Hindu college at Calcutta in 1816
  • He was great exponent of the Bengali language .
  • He also started Persian newspaper  MIRAT UL AKHBAR ( mirror of news)  and Bengali newspaper Samvad Kaumudi.
  • He was given the title of Raja by Mughal Emperor Akbar II ,  who sent him to England in 1831 as Ambassador of the king to ensure that Bentinck’s Regulation of banning the practice of Sati is not overturned and also to overturn the  decision to make Mughals Princes & taking royal titles from them
  • He died there at Stapleton ,Bristol in 1833 (due to Meningitis)

Social ideas

  • Worked for the emancipation of the women
  • Sati System was abolished on account of his efforts . Government passed Anti Sati legislation in 1829 declaring sati as a criminal offence
  • He condemned polygamy, early marriage and opposed the subjugation of women and their inferior status in society. He related their problems to the root cause of absence of property  rights. To him, female education was another effective method to free Indian Society from social stagnation
  • To propagate his message against Sati he started a Bengali newspaper SAMVAD KAUMUDI (moon of intelligence )
  • Worked against the rigidity of the Caste System

Education

  • He favoured maximum age of Civil services to be 22 years
  • Favoured Jury system
  • Founded Hindu College(1817)  along with David Hare , Radhakant Deb, Maharaja Tejchandra Ray of Burdwan , Prasan Kumar Tagore , Babu Budhinath Mukherjee & Justice Sir Edward Hyde ( Hindu College  later became Presidency College( in 1855) &  Presidency University  (in 2010)
  • He supported Macaulay in favouring English language
  • In 1825 , he started Vedanta College which offered both Indian &  western knowledge
  • He also compiled Bengali Grammar

Political views

  • He raised not only social issues but political and economic issues too
  • He stood for 
    1. Indianisation of services
    2. Trial by jury
    3. Separation of Powers between the executive and the judiciary
    4. Freedom of the Press
    5. Judicial equality between Indians and Europeans
    6. Criticised the Zamindari System for its oppressive practices
  • He was progenitor of nationalist consciousness, and ideology in India. His every effort of social and religious reform was aimed at nation-building.
  • In particular, he attacked the rigidities of the caste system which, according to him, had been the source of disunity among Indians. He held that the monstrous caste system created inequality and division among the people on the one hand, and ‘deprived them of patriotic feeling‘ on the other.
  • Rammohan was an internationalist, libertarian and democrat in his orientation. He took active interest in international affairs and wanted amity among nations. His concern for the cause of liberty, democracy and nationalism led him to cancel all his social engagements when he came to know of the failure of the Revolution in Naples in 1821. By giving a public dinner, he celebrated the success of the Revolution in Spanish America in 1823.

Newspaper and Books

Roy started following newspapers and pamphlets

  • Sambad Kaumudi – Bengali Newspaper
  • Mirat ul Akhbar –  Persian Newspaper
  • Pamphlet –  An Exposition of Revenue & Judicial System in India (urged government that administration & judiciary should be separated among other things ) 

Along with that , he wrote following books

  • Gift to Monotheists (1809)
  • Percepts of Jesus (1820)
  • Tuhfat-ul-Muwahhiddin in 1805
  • Mahanirvana Tantra (1797)

Religious ideas

  • Propagated MONOTHEISM   and Vedantic Monism.
  • He opposed the idol worship

Organisations

a. Atmiya Sabha – Calcutta

  • Started in 1815
  • It was a philosophical discussion circle
  • Discussed monotheism in Hindu Vedantism
  • It was also attended by Dwarkanath Tagore (Grandfather of Rabindranath)
  • Opposed worship of idols
  • Against rigidity of caste & meaning less religious rituals
  • He blamed the Brahman priests for perpetuating religious evils by keeping people ignorant about the true teachings of the  scriptures.

b. Brahmo Samaj

  • Started as Brahmo Sabha in 1828 (later became Brahmo Samaj)
  • Founded by Dwarkanath & Raja Rammohan Roy
  • Main Theme – rid Hinduism of its evils & preach monotheism 
  • Purpose was  to purify Hinduism of all evils which had crept into it
  • Opposed idolatry
  • It vehemently opposed Sati System.

Brahmo Samaj

Started at Calcutta
Year 1828
By Raja Ram Mohan Roy   & Dwarkanath Tahore
Brahmo Samaj

Works done by Brahmo Samaj

  • It propagated Monotheism (discarded the faith in divine Avataras) .
  • It was against  idolatry and idol worship
  • It attacked Casteism & Untouchability
  • Any scripture could enjoy the status of ultimate authority transcending reason & conscience .
  • It took no definite stand on the Doctrine of Karma & Transmigration of soul & left it to the individual Brahmos to believe either way.
  • Worked for respectable position of the women in the society and for this
    1. Condemned Sati
    2. Favoured abolition of Purdah System
    3. Discouraged Child Marriages & Polygamy
    4. Crusaded for widow remarriage etc
  • After Roy’s death in 1833, the leadership of the Brahmo movement was taken over by Debendranath Tagore who provided the movement with a better organisational structure and ideological consistency
  • But the movement was actually taken out of the limited elite circles of Calcutta literati into the district towns of east Bengal by Bijoy Krishna Goswami and Keshub Chandra Sen in the 1860s.
    1. Goswami bridged the gap between Brahmoism and the popular religious tradition of Vaishnavism
    2. Sen’s specific focus was to reach larger numbers of non-Westernised Bengalis in the eastern Gangetic plains and to take the movement outside Bengal to other provinces of India

Schisms & other Developments

First schism in the Samaj in 1866

Brahmo Samaj for India Led by more radical Keshav Chandra Sen, Anandamohan Bose & Shiv Narayan Shastri .
Reverted away from the Hindu components and accepted the teachings of all religions
Adi Brahmo samaj Under Debendranath Tagore (Father of Rabindranath) 
Remained in a more inclusive and Hindu sphere of influence

Basically, as Meredith Borthwick has shown, it was a schism between Keshav’s followers, for whom social progress and reform were more important than anything else, and the followers of Debendranath, who preferred to maintain their identification with Hindu society.This rift was, as it became clear soon, more about an identity crisis than about any fundamental difference of ideology: while some of the Brahmos wanted to define themselves as separate from the Hindus, others began to seek a position within the great tradition of Hinduism.

Second Schism in 1878

  • A band of Keshub Chandra Sen followers left him
  • On account of
    1. Marriage of Sen’s minor daughter to Prince of Cooch Bihar
    2. Also because he became devout follower of Ramakrishna and tried to bridge Brahmanism and Brahmo Samaj.
  • They Started  Sadharan Brahmo Samaj and worked mainly for the social work & female education and famine relief . Consisted of Anand Mohan Bose & SN Shastri
  • Thus Brahmo samaj also contributed prominent nationalists who later formed the backbone of the moderate phase of congress

In 1881, Sen formed his Naba Bidhan (New Dispensation) and started moving towards a new universalist religion. But by this time , successive ideological rifts and organisational divisions had weakened the Brahmo movement, confining it to a small elite group.

Limitations

  • Limited to urban areas only
  • Lot of internal rivalries

Achievements of Brahmo Samaj

  • Abolition of Sati : Pressure was  put by the samajis & as a result Anti Sati legislation was passed  by Lord William Bentinck in 1829
  • Worked for
    1. Abolition of the caste system and dowry system
    2. Emancipation of the women
    3. Improving educational system
  • Brahmo Samaj ultimately failed and emerged as sectarian religious order after continuous schisms but nevertheless , its achievements were huge
    1. Rabindranath Tagore  admitted the failure of Samaj but also recognised the very important role played by Samaj of providing a shock to static Indian society and made it to think on rationalist lines.
    2. According to Bipin Chandra Pal , main impact of Samaj  was on Political Culture . It was from Brahma Samaj that idea of free thinking individual emerged who would be able to absorb democratic & western ideals.

Henry Vivian Derozio & Young Bengal Movement

  • Derozio (Anglo-Indian Teacher at Hindu College) started Young Bengal Movement
  • At age of 17, he started Young Bengal Movement.
  • He was much more modern than Raja Ram Mohan Roy.
  • He was a free thinker and a rationalist, helped promoting  a radical & critical outlook among his students who questioned authority, loved liberty and worshipped truth.
  • Most radical at that time & was inspired by French Revolution
  • First nationalist poet of Modern India
  • Derozians, the followers of Derozio, were staunch rationalists; they measured everything on the yardstick of reason. He organised debates where ideas and social norms were freely debated. In 1828, he motivated them to form a literary and debating club called the Academic Association.
  • In  1838, they formed ‘Society for the Acquisition of General Knowledge‘, where they discussed various aspects of Western science, and stood for a number of social reforms, such as the prohibition of caste taboos, child marriage,  polygamy etc.
  • Young Bengal followed classical economics, and was composed of free traders who took inspiration from Jeremy Bentham, Adam Smith, and David Ricardo.
  • They were passionate advocates of women’s rights and demanded education for them.
  • He  was dismissed from the Hindu College in 1831 because of his radical views, and shortly afterwards he died of Cholera at the young age of 22.
  • Derozians carried forward Rammohan’s tradition of educating the people in social, economic and political questions through newspapers, pamphlets and public associations. They carried on public agitation on public questions such as the revision of the Company’s Charter, the Freedom of the Press, better treatment for Indian labour in British colonies abroad, Trial by Jury, Protection of the Ryots from oppressive Zamindars, and Employment of Indians in the higher grades of government services

Why they didn’t succeed?

  • Social conditions were not yet ripe for their ideas to flourish. The common people , who were not acquainted  with those ideologies, considered those young as arrogant. 
  • Their total faith in the British and in English education, their rationalism and scientism derived from the west, set them apart from the masses of Indians and they never succeeded in organising any social movement in support of their proposed reforms.

Book by Derozio (GK for prelims)

To India – My Native Land In this , he wrote about pain given by British  rule

Debendranath Tagore

  • He was son of Dwarkanath Tagore , father of Rabindra Nath Tagore and a close friend of Raja Ram Mohan Roy .
  • In 1839 , he started Tattvabodhini Sabha to disseminate the knowledge of the Upanishads
  • Tattvabodhini Patrika was the principal organ of the Sabha to propagate the ideas .
  • After death of Raja Rammohan Roy, he became the main organiser of Brahmo Samaj.
  • In 1850 , he wrote  book called Brahmo Dharma where he
    • Emphasised on monotheism
    • Supported rationality and reject scriptural infallibility
    • Rejected Caste distinctions and idolatry
  • Inspired his sons into reform movement ,most famous being Rabindranath Tagore
  • He was part of Landholders Society and played important role in formation of British India Association

IC Vidyasagar

Ishwarachandra Vidyasagar

Introduction

  • His original name was Ishwarachandra Bandopadhyay.
  • He was born on 26 September 1820 in the Paschim Midnapore District of West Bengal to impoverished Brahmin parents.
  • During the period from 1829 to 1841, Ishwar Chandra studied Vedanta, Vyakaran, Literature, Rhetorics, Smriti and Ethics in Sanskrit College. And in 1839 the title ‘Vidyasagar’ was conferred on him for his unusual talent.
  • In 1841, at the age of twenty one years, Ishwar Chandra joined the Fort William College as a head of the Sanskrit department. In 1851 , Vidyasagar became a professor and later on the Principal of the Sanskrit College

Works toward Education

  • He firmly believed that the regeneration of India was possible only through education.
  • His work was aimed at extending the benefits of learning to common people. He stressed upon instruction through vernacular language.
  • He also opened the doors of the colleges and other educational institutions to lower caste students, which was earlier reserved only for the Brahmins. For his immense generosity and kind-heartedness, people started addressing him as “Daya Sagar” (ocean of kindness).
  • Having spent his early life in village Ishwar Chandra could realize the sorrowful condition of the womenfolk. He rightly believed that the emancipation of women was not possible as long as they remained ignorant. Ishwar Chandra, therefore, took upon himself the task of promoting the cause of female education.

Pioneer in the women upliftment

  • Started girls schools in Bombay and Calcutta
  • Encouraged women to study in the colleges
  • He also collaborated with Drinkwater Bethune in establishing the Hindu Female School (at present known as Bethune School and College) in 1849.
  • Took initiative in pushing the Widow Remarriage Act ,1856
  • Instrumental in passing the Special Marriages Act of 1872.
  • Wrote book for women emancipation titled BAHUVIVAH

Social Reforms

  • He initiated the concept of widow remarriage and raised concern for the abolition of child-marriage and polygamy. He demonstrated that the system of polygamy  was not sanctioned by the ancient Hindu Shastras.
  • He took the initiative in proposing and pushing The Hindu Widow Remarriage Act XV of 1856 in India during Governor-Generalship Lord Canning.

Bengali Connoisseur

  • He brought a revolution in the education system of Bengal. In his book, “Barno-Porichoy” (Introduction to the letter), Vidyasagar refined the Bengali language and made it accessible to the common strata of the society.
  • Vidyasagar invented Bengali prose through translation as well as own writings. 

Social Reform Movements in western India

Main reform movements in western India were as follows :-

Reform Movements in Western India

Paramhans Mandali / Samaj

  • It was started in 1849
  • By Dadoba Pandurang . Other important leader was  (Lokhitwadi) Gopal Hari Deshmukh
  • It was first socio religious movement of Maharashtra
  • Paramhansa Sabha’s principal objective was the demolition of all caste distinctions. Each new recruit to the Sabha had to undergo initiation ceremony, and take the pledge that he would not observe any caste distinctions. He had to eat a slice of bread baked by a Christian and drink water at the hands of a Muslim.
  • The Sabha was, however, a secret society; its meetings were conducted in the strictest secrecy for fear of facing the wrath of the orthodox. The challenge to the caste system and other social evils thus remained limited to the participation of its few members only.

Prarthana Samaj

  • Paramhans Mandali’s transformation into Prarthana Samaj was the direct consequence of two visits of KC Sen to Bombay in 1864 & 1867
  • It was founded by Atmaram  Pandurang in 1867 inspired from the Brahmo Samaj & the main spirit behind formation was MG Ranade who was ably assisted by KT. Telang & Bhandarka
  • All leading members were Western educated Maratha Chitpavan Brahmins .
  • It’s ideology was almost similar to Brahmo Samaj
    • Preached Monotheism
    • Denounced idolatry & priestly domination
    • Denounced caste distinctions
    • Favoured Widow Remarriage & raising age of marriage for both males & females . 
  • Later they connected themselves with Maharshtrian Bhakti Tradition .
  • Prarthana Samaj maintained distinction from Brahmo Movement of Bengal & the most notable distinction was they were moderate & more accommodative. They didn’t signal a sharp break & this gradualist approach made it more acceptable
  • It’s branches were opened in Surat, Ahmedabad , Poona & reached even in South India where leader was Veerasalingum Pantulu
  • It faced crisis in 1875 when  Swami Dayanand visited Gujarat & Maharashtra & offered possibilities of a more radical & self assertive religious program .  A group of Samaj members under SP Kelkar broke & felt attracted to Arya Samaji ideology of Dayanand .

Side Topic : MG Ranade

  • He was co-founder of Prarthana Samaj
  • He was a product of the Elphinstone College, Bombay & was Judge of the Bombay High Court during 1891- 1901.
  • He held that the caste distinction was the main blot on Indian social system. 
  • Under his guidance the Paramhans Sabha was reorganised in 1867 under the name Prarthana Samaj. 
  • He was the founding member of Indian National Congress , member of Bombay Legislative Council and founding member of Indian Social Conference (1887)
  • He was the editor of the Anglo Marathi paper – Induprakash

Jyotirao Phule and Satyashodak Samaj

  • He was from Satara , Maharashtra
  • In 1873, Phule established the Satyashodhak Samaj, an organization for challenging Brahmanic supremacy.
  • He promoted  women education along with his wife Savitribai Jyotirao Phule  by opening women schools.
  • He also worked for widow remarriage and to prevent female infanticide, he opened homes for newborn infants.
  • He wrote book titled  GULAMGIRI

Ideology of Satyashodak Samaj

  • It was against  untouchability & caste system  
  • It opposed idolatry and  Brahmin’s role as intermediary between person and god 
  • Promotion of rational thinking
  • It also rejected Vedic supremacy

Servants of India Society

  • Started by Gopal Krishna Gokhale in 1905
  • Aims
    • Create a band of dedicated workers for nation building
    • Carry out activities for the upliftment of Indians 

Sri Narayan Guru & SNDP Yogam

Sri Narayan Guru and SNDP
  • Sri Narayan Guru was social reformer born in 1854 in Kerala into Ezhava family
  • He championed
    • bhakti for spiritual freedom
    • social equality
    • rejected casteism
    • Rejected divisiveness based on caste, religion etc
  • He was a pioneer reformer who rejected the caste system and stressed on the equality of man. He gave the universal message, “One caste, one religion, one God”
  • He was influenced by Vedanta.
  • He supported Temple entry  movements.
  • Sri Narayana Guru  condemned animal sacrifice
  • He urged the Ezhavas to leave the toddy tapping profession and even to stop drinking liquor.
  • Dr. Palpu, a devotee of Guru established the Sree Narayana Dharma Paripalana Yogam (SNDP Yogam) in 1903 to further Narayana Guru’s message

Money

Money

This article deals with ‘Money.’ This is part of our series on ‘Economics’ which is important pillar of GS-2 syllabus . For more articles , you can click here

Barter System

  • People have been trading with each other even before the advent of money, coin, cash, currency, rupee, dollar, euro or Yuan. They simply exchanged goods and services with each other through barter system. Eg
    • 1 kg rice for a 200 grams tomatoes
    • 1 kg tomatoes for 50 gm almonds and so on

Problems with Barter System

  • It can happen  only with Double Coincidence of wants
  • Search Cost / Cost of Transaction is high.
  • Don’t favour Division of Labour / Specialization : Due to above problems, all persons  will try to become Jack of all trades but master of none.
  • Don’t favour Industrialisation : Industrialist will have to find large supply line with every person having double coincidence of demands 
  • Don’t favour Concentration of wealth : Since all the wealth is perishable. Cant store tomatoes  for long period of time
  • Problem of Divisibility of Value : In Barter System , you cannot always divide the value to buy whatever you want to.
  • Not always Fungible

(Fungible items = Division & Mutual substitution possible e.g. Gold bars, Currency Notes & Coins . Eg : if diamond is cut into smaller pieces , summation of all the smaller parts will not be equal to one bigger diamond . Hence, diamond isn’t fungible)

Fungibility

Benefits of Barter System

  • Promotes Joint Family
  • Food Inflation will be lower in Barter Economy compared to Money Economy.

Money

  • To answer above limitations of Barter System, Money System was invented
  • Money serves following functions
Functions of Money

a. Primary Functions

Measure of Value Money serves as measure of value.

Eg :
1. Labour’s value in Money System is Wage
2. Land’s value in Money System is Rent etc
Medium of Exchange It is the medium of exchange.
Eg : Person earns money from his labour and that money is used to buy food 

b. Secondary Functions

Due to above Primary Functions, it can be used for various Secondary Functions as well

Store of Value Value of labour paid in form of money => person can store the value for later use 
Eg : Person can store value of his labour ie wage for later use.
Transfer of Value Value paid in form of money   can be transferred to other place as well
Eg : Person earning in Bangalore can transfer it to his Parents in Punjab
Deferred Payment We can make deferred payments like paying in advance (like Paying Rent of Dish TV at once) or Paying later (eg taking car on loan)
This is possible because we can measure the time value of Money using Interest Rate

Benefits of Money Economy

  • Due to Money’s Primary and Derivative Functions, it can be used for Social Empowerment, Dalit Entrepreneurship etc. Labour and Service of each kind can be paid which wasn’t possible in Barter Economy.
  • It also helps in Redistribution of National Income (via System of Taxation)

Evolution of Money

Evolution of Money

1 . Commodity Money

  • This is the first stage in Evolution of Money
  • In this, a particular commodity is used to measure the value .
  • Eg : Cocoa Beans (used by Aztecs) . Cowry Shells (in India) , Cigarettes (in Jails) etc
  • Note – Commodity Money has Intrinsic Value too

Different Examples of Commodity Money 

Examples of Commodity Money

2. Metallic Money

  • In this, Traders and Kings used to stamp their marks on Coins to ensure that metal is of uniform quantity and quality.

Benefits

  • It has Intrinsic Value
  • It is Non Perishable
  • It is divisible & fungible
  • Even Foreign Trade possible

Full Bodied Coin vs Token Coin

Full Bodied Coin In this , Intrinsic Value of Coin is equal to or greater than face value
Eg : One Rupee Coin of British India (shown below) had face value of 1 ₹ but if somebody melted the Silver and sold that silver in the market, it was of greater than 1 ₹ .
Token Coin In this, Intrinsic Value of Coin is lower than its face value
Eg : Present 1 ₹ Coin
FUll Bodies Coin vs Token Coin

Issues with Full Bodied coin

  • Full Bodied coins result in various problems . People start to melt metal from Coin and use it for other things.
  • Same thing was seen in recent past in Indian Coinage too. Indian ₹5 Coins were send to Bangladesh where cost of  metal was more . They used to melt the coin and make blades out of that.  To tackle this, Cupro-Nickel coins were introduced so that such activities can be stopped .
  • Apart from that, in order to adjust to inflation, government keep on reducing the metal content in the coins to keep the intrinsic value of coin lesser than its face value. Along with that, Melting Coins to use it for other purpose is punishable offence .

Issue of Debasement in Coins

  • In historical studies of coinage system , issue of Debasement is important. 
  • Eg: During the regime  of Akbar , 1 Dam (copper coin) had 20 gram of metallic copper . But due to economic problems of empire during the times of Aurangzeb, Dam consisted of  just 13 grams of metallic copper.
Debasement of Coins
  • But debasement leads to other problems. Since in those times, people had confidence in the Coinage System because of the intrinsic value of the coin , reduction in Metallic content  reduces the confidence of people in the coinage system and they start to move towards Barter System of payment. As a result, state’s tax income decreases. Along with that, state used to take commission for minting coin. Reduction in use of coinage system further weakens the economy and vicious circle ultimately leads to collapse of whole economy 

3. Paper Currency

  • Genesis of paper currency can be found in Hundis in which traders used to pay metal at one place and take Hundi in order to avoid any theft while carrying metal during large voyage. Later , State started to do the same work and introduced Paper Currency.
  • Hence, it is called Fiduciary Money i.e. although paper has no intrinsic value of its own but it is circulated because of trust in issuing authority.

Types of Fiduciary Money

a. Non-Legal Tender

  • Not issued by the Government
  • Eg : Bill of Exchange , Cheque , Bank Draft, Postal Orders
  • Also called Optional Money because its acceptance is optional

b. Legal Tender / Fiat Money

  • It is issued by the Government
  • Can be classified as Coin and Currency
  • It’s acceptance is not optional (have to accept) within the boundary of nation

Types of Legal Tender

b.a Limited Legal Tender (coin)

  • It can be used to settle limited amount of Debt
  • According to Coinage Act , 2011
    • Using 50 paisa Coins , maximum debt of ₹10 ( can be settled)
    • Using ₹1 coin or above, maximum debt of ₹1,000 can be settled.
    • All coins below 50 paisa are not legal tenders now (since 2011) (asked in UPSC – CDS)

b.b Unlimited Legal Tender (Currency)

  • Can be used to settle unlimited amount of debt binding by the command of Government
  • Every Bank Note is legal tender in India.

Who Issues what ?

Government – All coins are issued by Government. Government can issue any amount of Coin (even 1,000 ₹ coin)
– ₹ 1 Note is issued by Government with sign of Finance Secretary on it
‘Anna system’ was changed to ‘Decimal system’ by amending Coinage Act in 1955 
RBI Under RBI Act , all Notes except ₹1 can be issued by RBI with sign of RBI Governor on it

How Fiat Money is issued ?

a . Earlier Times

  • Gold Standard System : Earlier , Bank Notes were  backed by equivalent amount of gold . Notes amounting to equivalent reserve of gold were issued. Eg
    • 1 US dollar was issued against 22 grain gold
    • 1 British Pound was issued against 113 grain gold
Gold Standard System
  • If this note was taken to Central Bank, it paid equivalent amount of Gold in return. 
  •  But later due to various problems like printing more cash during wars, cold war and depressions,  this system was discarded.

b . Indian System

1935 to 56 RBI used to maintain 40% gold to value of currency issued .  
1956 to 95 India abandoned old system and moved to ‘Minimum Foreign Reserve System
Under this, RBI was required to maintain 115 crore worth of gold and Rs. 400 Crore worth of Foreign Currency Security.  
1995 to Present India is following ‘ Managed Paper Currency Standard‘ .
It means that, if any person with any bank note issued by RBI goes to RBI to exchange that note, RBI is bound to give him other notes and Token coins of equal face value.  
Managed Paper Currency Standard

Side Note : Mahatma Gandhi New Series Notes and portraits on them

₹ 10 Sun Temple, Konark, Odisha.
₹20 Ellora Caves
₹50 Humpi Chariot of Vittala Temple 
₹100 Rani ki Vav on Saraswati river, Patan
₹200 Sanchi Stupa, Madhya Pradesh
₹500 Red Fort, Delhi
₹2000 Mangal Yaan / Mars Orbiter Mission

(In Arts and Culture, prepare about these sites with care)

Other Information about Indian Currency

  • ₹ sign designed by  D.Udaya Kumar (Associate Professor @IIT Guwahati)
  • While 8th Schedule has 22 languages, but currency note has only 17

Demonetisation

  • Wholesale withdrawal of currency from the circulation
  • Every bank note is a “legal tender” . But on RBI Board’s recommendation, Government of India notifies that Specific Bank Notes (SBN) are no longer legal tender (ie Demonetized)
  • 8/Nov / 2016 : ₹500 & ₹1000 notes were demonetised
  • Specified Bank Notes (Cessation of Liabilities) Act 2017: Government passed this Act to give legislative backing to Demonetisation .RBI was not required to honour the promise written on old bank notes. Limited number of Old notes can’t be kept except for research or numismatics or museum

4. Bank Money

  • Backend of Bank Money too has Fiat Money .
Bank Money

Examples of Bank Money

  • Cheques
  • Demand Draft : can’t be dishonoured because amount is prepaid.
  • Overdraft : When person’s bank account has  insufficient balance, still he is  allowed to draw more money than available in his bank (as a loan).
  • Debit and Credit Cards
  • Net Banking System
  • Unified Payment Interface (UPI) System

Advantages of Bank Money

  • Easy to transfer over long distance
  • Exact amount can be transferred
  • Hard to counterfeit
  • Can freeze if stolen
  • Leave behind digital trail
  • Legally recognised for high value payment

5. Crypto Currency

Genesis of Crypto Currency

  • During Sub-prime crisis, Central Bank of US & other developed countries adopted Easy Money Policy & as a result purchasing power of $ decreased. Main cause of Subprime Crisis was Banks who had given loans to Subprime Borrowers. Hence, anarchists argued that Banks who were earning by charging fees , after their failure made common people to suffer by reducing the purchasing power of their hard earned money.
  • Cyber Anarchists decided to withdraw from Banking System and start currency of their own which will not depend on Central Bank of any country .

Timeline

  • 2008 : Satoshi Nakamoto (name of online user but no body know who he is) issued Online Paper .
  • 2009 : Operation of Bitcoins started
  • 2016: Australian businessman Craig Wright claimed he is Satoshi Nakamoto (but majority don’t believe this)
  • 2020 : Price of Bitcoin started to rise amidst Corona crisis due to fear that governments will print money in excessive amounts to cover the fall in tax collections and to cover unemployment benefits.

What is Crypto-Currency

  • Cryptocurrency is a digital currency created, stored and transacted using blockchain technology.
  • Examples : Bitcoin, Digicoin, Litecoin, Etherium, Laxmicoin etc.
  • Bitcoin invented by  Satoshi Nakomoto (anonymous) is the most popular.
Crypto-Currencies

How Bitcoins work ?

a. Technically Incorrect Example

  • Suppose there is gold mine and person started to mine it with  tools. All the gold that is mined is converted to coin with serial number on it by person sitting at exit of mine and registered  in Ledger
  • The Coin that is produced can be broken into smaller coins in order to pay for smaller transactions. But each time bigger coin is broken to smaller coins, separate Registration number is given to it and it is registered in Ledger again.
working of bitcoin

b. Working of Bitcoin

  • Instead of Gold Mine , Satoshi Nakamoto has generated Cryptographic ‘Data Cube’  with algorithm . This Cube can be mined using computer . When whole of ‘Data Cube’ will be mined, total of 21 million bitcoins will be generated .
  • Basic condition is same here as well. Each and every coin that is generated has to be registered in Public Ledger.
  • Bitcoin is divisible upto 10^8 Satoshi. But each time Bitcoin is divided, it has to be registered in Public Ledger. Hence. every transaction is registered in Public Ledger. For updating Ledger, Blockchain Technology is used (more on this later)
Working of Bitcoins

Bitcoin Wallet

  • Bitcoin Wallet looks like other Wallets (like PayTM Wallet)
  • One can send money to any person using his Bitcoin-wallet’s Address and Password (Wallet address is random alpha-numeric)
  • But there is no requirement of Name, Mobile Number and KYC Norms. One can send Bitcoins to other person without knowing identity of other. Hence , it is very anonymous .
Bitcoin Wallet

Benefits of Cryptocurrency

  • Cost-effectiveness in International Use : Electronic transactions to other countries are expensive due to currency conversion & processing fee levied by banks. Cryptocurrencies solve this problem, as they have single valuation globally
  • Privacy Protection: The use of pseudonyms conceals the identities, information and details of the parties to the transaction
  • They are difficult to counterfeit compared to physical currency because they use Blockchain Technology
  • Immunity from Government’s Financial Retribution:  For citizens in repressive countries, where governments can easily freeze or seize the bank accounts, cryptocurrencies are immune to any such seizure by the state.

Problem with Bitcoins

  • Used in carrying Illegal Activities because of Anonymity it offers
    • Various sites selling Drugs and other banned substances through Bitcoins like Silk Road came up 
  • Bitcoins are used by criminals in case of cyber attacks . Eg Wannacry episode
  • Bitcoins also started to be used for Tax Evasion and Terror Finance etc
  • Government is deprived of it’s taxes. Eg :On selling gold , government charges Capital Gains Tax  but Bitcoin transactions are difficult to trace
  • Climate Change  : Experts estimate that cryptocurrency mining related electricity consumption generates 20 megatonne CO2 annually
  • Due to Bitcoin mining, demand of  Graphic cards has increased and consequently price of graphic card has been doubled . Along with that, this is resulting of generation of tons of e-waste bad for ecology.
  • Uncertain Regulatory Environment
  • Uncertainty over Consumer Protection and Dispute Settlement Mechanisms: as Cryptocurrencies are decentralised
  • Highly Volatile : Explained Below
  • No intrinsic value : Explained below

Bitcoin Bubble / High Volatility ?

Bitcoin Bubble

Whether this is Bubble or not ?

  • Enthusiasts argue that cryptocurrencies like bitcoin are rapidly transforming into mainstream money that will offer serious competition to national currencies issued by central banks. Therefore they see bitcoin’s current price rise as merely a reflection of its bright future as a stateless currency. 
  • Skeptics have pointed to the Tulip Bubble of the 17th century and Internet stocks of the late 1990s as cautionary examples.  Bitcoins have no intrinsic value and their exponential rise is driven by emotion rather than value .

India and Bitcoin

  • Budget 2018 on Cryptocurrencies
    • Finance Minister clarified  that Crypto-currencies are not legal tenders in India. 
    • Government will eliminate the use of cryptocurrencies as part of the payment systems. 
    • BUT, India will use block-chain technology on which cryptocurrencies are based for encouraging the digital economy.
  • 2019 : Draft bill made by Finance Ministry wrt Cryptocurrencies
    •  Finance Ministry has made Draft bill called ‘Banning of Cryptocurrency and Regulation of Official Digital Currency Bill, 2019’ which bans the use of all types of cryptocurrencies issued by private operators and has provision of jail upto 10 years.
    • However, it permits RBI to launch Blockchain based digital currency
  • RBI on Cryptocurrencies
    • RBI has notified all the regulated entities (like Banks, Card Companies etc) that they can’t help anyone to buy/sell bitcoins or any other Virtual Currency
    • April 2018 Monetary Policy update : Cryptocurrencies  are dangerous wrt consumer protection and can be used for money laundering.

Virtual Currencies  & World

Different countries have different stance

Some countries have restricted and prohibited the use of Virtual Currencies (India, China, Bolivia etc)  while others allow it’s use in regulated form (Japan, US, Australia, South Africa etc)

Virtual Currencies and Blockchain Based things started by various countries

Bond-i Bond issued by the World Bank in Australia which is based on Blockchain technology .  
UNICEF and Bitcoins In October of 2019 , UNICEF announced that they will accept donations through Bitcoins along will all the other sovereign currencies of the world .  
China October 2019 : People’s Bank of China announced that they will launch their own Crypto-currency  
Petro In 2018 – January, President Nicolas Maduro announced the following: 1. Government of Venezuela decided to issue 100 million Petro coins – a type of cryptocurrency.
2. Price of 1 Petro coin = market price of one oil barrel from Venezuela.
 
SOV  – Marshall Island’s legal tender is US Dollar.
In 2018-February, they launched a sovereign cryptocurrency, called “Digital Sovereign” or SOV. However, unlike BITCOINS, this SOV will not have any anonymity.
 
Libra Cryptocurrency announced by Facebook .
Unlike other Cryptocurrencies, Mark Zuckerberg has announced that it will be backed by assets in reserve. But countries like France have openly rejected Libra as it will set precedent of currencies of MNCs and challenge the sovereignty of nation states .  


Side Topic : Stable Coins
Cryptocurrencies backed by assets like Libra