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

Last Updated: Feb 2023

Monetary Policy

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


Demand – Supply Theory

Suppose, at a particular time, equilibrium is reached for the price of any product, say wheat.

Demand - Supply Theory

Now, the government decides to print a lot of Currency and distribute it to the public as an election gimmick to win elections. Will this practice end poverty in India? The answer is negative because although the money supply has increased, the number of goods in the economy hasn’t increased in the same proportion. It will lead to inflation as too much money is chasing a few goods. The wheat that was sold at Rs 100 will now sell at Rs 1000 (hypothetical amounts).

Demand - Supply Theory (Part 2)

If we want to cope with this situation, there are two ways 

  1. Either increase the supply of wheat (can be done by the government by asking FCI to overflow the market with wheat) or 
  2. Reduce the supply of money (can be done by RBI via Monetary Policy) 
Demand - Supply Theory (part 3)

What can RBI do to control inflation or deflation?

Combat Inflation   Combat Deflation
Reduce consumption by making the loans expensive. Encourage consumption by making loans cheaper.
For this, RBI should decrease the money supply. For this, RBI should increase the money supply.
RBI should follow
TIGHT MONEY POLICY
DEAR MONEY POLICY
HAWKISH MONEY POLICY
RBI should follow
EASY MONEY POLICY
CHEAP MONEY POLICY
DOVISH MONEY POLICY

Combating Inflation

Combating Inflation using Monetary Policy

Combating Deflation

Combating Inflation using Monetary Policy

What is Monetary Policy?

In any economy, there are the following actors 

Monetary Policy
  • The Central Bank of the nation formulates monetary policy to control the money supply in the economy.
  • Objectives of monetary policy can be (depending on the economy)
    1. Control inflation 
    2. Accelerating the growth of the economy
    3. Exchange rate stabilization
    4. Balance savings & investments
    5. Generating employment 

Monetary policy can be

1. Expansionary

  • Expansionary Monetary Policy increases the total money supply in an economy.
  • E.g. 
    • In 2008, all countries, including India, used this to beat the recession.
    • During the Covid crisis, all the countries, including India, used this to spur the demand in the economies.
  • Traditionally Expansionary Monetary Policy is used to combat unemployment in a recession by lowering the interest rate.

2. Contractionary

  • Contractionary Monetary Policy decreases the total money supply in the economy.
  • E.g. 
    • 2010 onwards, India & many other countries used it.
    • Post Covid Crisis, almost all the countries, including India, used it to remove excess liquidity from the economy. 
  • Traditionally Contractionary Monetary Policy is used to combat inflation in the economy.

When is the Monetary policy announced in India?

1. Till 1988-89

It was announced twice a year according  to agricultural cycles

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

2. After 1989

  • Since the economy became more dynamic, RBI reserved its right to alter it from time to time, depending upon the state of the economy.
  • Additionally, the share of credit toward industry has increased, which was earlier dominated by agriculture. So aligning the Monetary Policy with agriculture doesn’t make sense. 
  • The major policy was announced in April & reviews took place every quarter. But within a quarter at any time, RBI could make any major change in policy depending upon the need.

3. Now

  • Changes can be made at any time when RBI feels 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, Standing Deposit Facility, Marginal Standing Facility etc.)

b. Qualitative /Selective/Direct Tools

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

We will discuss all this in detail.


Quantitative tools

Quantitative Tools of Monetary Policy

Side Topic: Net Demand & Time Liabilities (NDTL)

Before proceeding further, we will look into the concept of Net Demand & Time Liabilities(NDTL)

Net Demand & Time Liabilities(NDTL)
Current or Saving Account
Fixed Deposit Account
Demand Liabilities Time Liabilities
Demand liabilities are those liabilities on the banks which depositors can demand at any time. Time Liabilities are those which mature after some time. If withdrawn before that, then some penalty is charged.  
Demand Liabilities are more liquid as the depositor can easily convert them into cash without penalty. Relatively less liquid as a person will have to pay the penalty if withdrawn before the maturity.
Consist of money deposited in Current Account & Saving Account   Consist of money deposited in 
1. Fixed deposits
2. Recurring Deposits
3. Cash Certificate
4. Staff security deposit 
Banks pay less interest on demand liabilities. Banks pay more interest on demand liabilities. (= people tend to place money here because of more interest)  

The sum of both Demand & Time Liabilities is known as Net Demand & Time Liabilities.


1. Reserve Ratios

1.1 Cash Reserve Ratio (CRR)

  • CRR is the percentage of public deposits (Net Demand and Time Liabilities (NDTL)) that banks have to keep with the RBI in cash at any point in time. Usually, RBI doesn’t give any interest in this.
  • CRR provisions apply to Scheduled Banks, Non-Scheduled Banks & Cooperative Banks.
  • RBI get these powers to impose CRR from RBI Act. 
  • Present Rate (Feb 2023): 4.5% of Net Demand and Time Liabilities

1.2 Statutory Liquidity Ratio (SLR)

  • SLR is the percentage of NDTL that banks must maintain with themselves in the form of specified liquid assets (like cash, gold & government securities, or RBI-approved securities) at any point in time. 
  • It is mandated under RBI Act.
  • SLR applies to all Scheduled Banks, Non-Scheduled Banks, Cooperative Banks and NBFC deposit-taking. RBI can prescribe different levels for each.
  • Although not used as Monetary Policy Tool, but if decreased, a large amount of capital is infused into the economy.  
  • Present Rate (Feb 2023): 18% of Net Demand and Time Liabilities 

Trends of CRR and SLR

Note: Previously, CRR & SLR were very high (53% combined). As a result, banks had significantly less money to lend. It impacted the Indian Economy because the rate of loans was high, and businesses were not expanding. It was one of (the many) reasons for the 1990 Balance of Payment Crisis. Narasimhan Committee & other experts recommended reducing this. As a result, it was gradually reduced.

CRR Trends

CRR Trends

The  RBI’s move to hike the  CRR by 50 bps resulted in a withdrawal of primary liquidity to the tune of ₹87,000 crore from the banking system.

SLR 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 runs.


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 the Government wants extra money to fund its projects, it asks RBI to arrange it (as RBI is the Government’s Debt Manager). The Government gives the required cash to the Government and prints equivalent Government Securities (G-Secs). 
  • Government Security (G-Sec) is a tradeable instrument issued by RBI on behalf of the Central Government or the State Governments. It acknowledges the Government’s debt obligation. It promises 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. E.g. to absorb the excess liquidity from the market etc. 
  • In India, the Central Government can issue Treasury Bills (or T-Bills) and Dated Securities, while State Governments can only issue Dated Securities to raise funds. 


Types of G-Secs

1. T- Bills

  • T-bills are the short-term debt instruments issued by the Union Government. Presently, they are issued in three tenors, i.e., 91-day, 182-day and 364-days. 
  • They are zero-coupon securities, i.e. Government pays no interest. Instead, they are sold at a discount on face value and redeemed at face value.

2. Dated G-Secs

  • Dated G-Secs have a fixed interest rate on the face value and a tenor ranging from 5 to 40 years.

2. Policy Rates/ Liquidity Adjustment Facility (LAF)

  • Under LAF, Central Bank tends to reduce short-term liquidity fluctuations (money supply) in the economy through Repo and Reverse Repo transactions.  
  • The official policy rate in India is REPO RATE (i.e. RBI announces Repo Rate only).
  • Repo & Reverse Repo operations can only be done in Mumbai & through securities as approved by RBI.

2.1 Repo Rate

  • Repo Rate is a short form for Repurchase Rate.
  • In this, Bank borrows immediate funds from the RBI for the short term (up to 14 days) with Government Securities as collateral and simultaneously agrees to repurchase the same Securities after a specified time at a specified price. For example, when a bank borrows, it will give its securities worth, say, ₹ 100 crores, & agree to repurchase it back at a rate of ₹ 104 crores ( if the repo rate is 4).
Repo Rate
  • The amount that can be borrowed under this facility is: From 5 crores to unlimited. 
  • All Banks, Central & State Governments and Non-Banking Financial Institutions are eligible for Repo Operations.  
  • But during the whole operation, the Bank has to maintain its SLR, i.e. Collateral securities can’t be from the SLR quota. 
  • Present Repo Rate is 6.50% (Feb 2023)

Recent Trends

  • RBI was reducing the rates during the Covid pandemic to spur economic activity. RBI has kept the Repo Rate at 4% to increase the demand in the market.
  • But Easy Money policy led to excessive liquidity in the economy. Additionally, Russia-Ukraine War increased the price of commodities, especially oil and food grains. Hence, RBI changed its stance and started to increase the Repo Rate to remove excess liquidity from the economy. 
Trends in Repo Rate

2.2 Marginal Standing Facility (MSF)

  • Marginal Standing Facility was introduced in 2010. 
  • Suppose the Bank is in dire need of cash but doesn’t have spare securities. Under such conditions, the Bank can borrow overnight under MSF without any collateral. But they will have to pay 0.25% higher than Repo Rate (say as punishment)

MSF= Repo + 0.25%

(Presently (as of Feb 2023) = 6.75%)

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

2.3 Reverse Repo Rate

In this, RBI takes money from banks & gives them securities (opposite of the Repo Rate)  (explained in the Infographic below)

Reverse Repo Rate
  • RBI pledges securities in the form of G-Secs. 
  • All clients eligible in the Repo rate are eligible here as well. 
  • The current Reverse Repo is 3.35%.

2.4 Standing Deposit Facility (SDF)

Timeline

  • 2013: Urjit Patel Committee on Monetary policy proposed a standing deposit facility (SDF)
  • 2018: The government included Standing Deposit Facility as a Monetary Policy Tool 
  • 2022: RBI’s Monetary Policy Committee introduced Standing Deposit Facility as Monetary Policy Tool 

About SDF

  • Under SDF, RBI can absorb the excess liquidity from banks without the necessity of collateral in the form of government securities.
Standing Deposit Facility (SDF)
  • It is helpful in situations when RBI has to absorb excessive liquidity in situations such as demonetisation. 
  • SDF is the direct opposite of MSF. SDF is used for liquidity absorption, while MSF is used for liquidity injection.

SDF = Repo – 0.25%

(Presently (as of Feb 2023) = 6.25%)


Policy Corridor/ Liquidity Adjustment Facility (LAF) Corridor

  • Policy corridor is the difference between Marginal Standing Facility (Repo + 0.25%) and Standing Deposit Facility (Repo-0.25%)
  • The formula has changed recently,
    • Before April 2022: Policy Corridor = total width between MSF <—> REPO <—> Reverse
    • After April 2022: Policy Corridor = Total width between MSF <—> REPO <—> SDF  
  • Hence, SDF has replaced the Reverse Repo Rate as the floor of the Policy corridor.
Reverse Repo 
(z Repo -0.25%) 
MSF 
(z Repo + 0.55%) 
civilspedia.com 
Corridor Width is 0.90%

2.4 Bank Rate

  • Bank Rate is the interest rate at which the central bank lends for the long term to commercial banks.  
  • No collateral is required under these operations. 
  • Presently: 6.75% (Feb 2023) (although Bank Rate = MSF, but both are declared separately)
Bank Rate

Although RBI doesn’t use this tool to control the money supply, if it does, the same theory applies here as well.

Inflation Fight Increase Bank Rate
Deflation Fight Decrease Bank Rate
  • It is not the primary tool to control the money supply these days but acts as a penal rate charged to banks for shortfalls in meeting their reserve requirements. How is it done? 
  • If a bank is not maintaining its SLR or CRR, it is fined a penalty on whatever amount is less than the amount to be maintained. Rate Charged is determined as:-
    • First time: Bank rate +3% 
    • Second Time: Bank Rate +5% and so on


3. Open Market Operations (OMO)

  • In Open Market Operations (OMO), the Central Bank (RBI) buys and sells Government Securities to influence the money supply in the economy.
  • It is different from Repo and Reverse Repo Rates because there is no promise by either party to repurchase it back. RBI will pay the interest rate to the holder of the security, but there is no repurchasing agreement.

How does the government use this to control the money supply?

  • Case 1: When there are inflation trends in the market, RBI issue these securities. Banks buy these securities & the money supply decreases.
How to fight Inflation
  • Case 2: When the government wants to increase the money supply, it starts buying these securities at a high price.
How to fight Deflation

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

  • A lot of money keeps on lying idle with banks. Banks don’t earn any interest on that. Hence, investing those in govt securities & earn ~8% interest on them is a better option. 

Dollar-Rupee swap

  • To manage liquidity in the market, RBI has developed a new tool. It was started in 2019. 
  • Under this, RBI purchases dollars from banks in exchange for rupees.
    • Increasing liquidity = Buy $ from Banks and give them ₹
    • Decreasing liquidity = Give $ to Banks and take ₹ from them
Dollar-Rupee swap

For example: In March 2022, RBI conducted a swap of $5 billion by infusing dollars and sucking rupees equivalent to $5 billion from the Indian economy.


Incomplete Transmission of Rate Cut by Banks

Monetary policy transmission refers to how changes in the RBI’s policy rates  (such as  Repo) lead to commensurate changes in the rates of  Interest of the  Banks.

Issue

Earlier, when RBI decreased Repo Rate, Banks didn’t reduce their interest rates proportionately.

Incomplete Transmission of Rate Cut by Banks

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

1. Banks don’t depend on RBI

  • In India (& all developing countries), RBI is not the primary source of money for banks. Ordinary people are the main supplier(mainly because people don’t have many options to invest money in alternate investment facilities, e.g. mutual funds etc.) 

2. Small saving schemes  rate not reduced

  • High small savings rates also limit transmission as banks worry that if they cut their deposit rates, customers will flee to small savings instruments such as PPF, NSC etc.

3. High Statutory Liquidity Ratio

  • Significant money must be kept idle as SLR, which banks can’t lend. It reduces their ability to pass the benefit to consumers.

4. Banks increasing their Spread

  • Due to losses incurred by banks due to high NPAs, banks increased their Spread to maintain their profits in absolute terms. 

5. Higher NPAs

  • Indian banks face the issue of huge NPAs, which reduces banks’ profitability.

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


External Benchmark System

How Banks decide their Interest Rate: Timeline

External Benchmark System
1969 The government began nationalising 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 a methodology to banks.
2003 RBI introduced Benchmark Prime Lending Rate (BPLR).
2010 RBI introduced the BASE Rate + Spread system; update frequency was at individual banks’ discretion. 
2016-17 RBI introduced the Marginal Cost of Funds based Lending Rate (MCLR) +Spread system
Banks to calculate the lending rate on a monthly basis. 
Lending Rate to be calculated using of CRR Cost, Operating Cost, and Marginal cost of funds (calculated using Repo Rate) (don’t need to go into detail. Just remember, MCLR has Repo Rate as a component in it).

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. So banks keep on increasing  Spread based on their discretion.  

Hence, a new method was introduced.

External Benchmark System

  • Applicable from April 2019 (on recommendations of Dr Janak Raj Committee).
  • All New Loans are to be linked with the External Benchmark system. 

In this system

  • Banks have been asked to choose any of the following 4 benchmarks 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 at least every 3 months. 
  • The Lending Rate of the Bank will be External Benchmark + Spread (e.g. 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.

Qualitative / Selective / General tools

These measures are used to regulate the money supply in specific sectors (i.e. these are sector-specific measures).

1. Marginal Requirements/LTV (Loan to Value)

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

2. Consumer Credit Regulation

  • In this, RBI can make various regulations on credit.
  •  E.g
    • Increase down payment from 10% to 30% (it will force some people to delay buying vehicles financed through bank loans).
    • Decrease the least EMI for the automobile sector, say, from ₹ 5,000 to 3,000.

3. Selective Credit Control

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

Negative  Restrictions

3.1 Ceiling to big loans

  • It was operational from 1965 to 1989.
  • Under this, all Commercial Banks had to obtain prior approval from RBI before giving loans greater than ₹ 1 crore to a single borrower.

3.2 Ceiling on Non-Food Loans

  • It started in 1973.
  • To boost Green Revolution
  • So that more loans go towards the agriculture sector

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

Positive Restrictions

3.3 Priority Sector Lending/Rationing 

  • Rationing is the main feature of the communist economy. E.g. in the Soviet Union, they used to make provisions like giving a particular amount of loan to a specific sector. PSL is a form of Rationing. 
  • PSL means giving a specific minimum amount of loans to some Priority Sectors. In India, 40% of loans are given to Priority Sectors. 
  • Government can increase the supply of money to that sector by increasing its limit. 

4. Moral Suasion

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

5. Direct Action

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


Money Supply

Money Supply

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


Introduction

It is the total stock of all types of money (currency and deposits) held by the public at any time. The term public includes all economic entities other than the government and banking system.


Factors affecting Money Supply

Season For example, during November & April, crops are harvested, and industries also buy their raw material leading to more money in the hands of a farmer. Hence, the Money supply will increase. 
Trade cycle Boom: Money supply increases.
Depression: Money supply falls.
Fiscal policy Money supply decreases with higher taxation and the sale of G-sec and vice-versa.
People’s choice If people deposit more of their income in banks (instead of storing it in their lockers), the bank can expand loans. The money supply rises in such cases. 
Monetary policy If RBI follows a dear money policy = the money supply decreases.
If RBI follows a cheap money policy = the money supply increases.

Why should we measure the money supply?

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

Types of Money

M0 (Reserve Money or High Powered Money)

  • It is the total stock of currency held by the public and banks.
  • Mo is the base for creating a Broad Money supply (M3) 
  • Mo is the sum of the following things
    • Currency held by the Public and Banks
    • Bankers’ deposits with RBI plus

Basically, it is the Total Currency Printed by RBI. RBI prints money equivalent to bonds or G Secs it gets from Government. 


M1 (Narrow Money)

  • M1 includes
    • Currency with public
    • Demand deposit in all banks (i.e. Deposit in the current account and savings account)
  • Basically, it denotes a situation when a person has money; he can do two things to maintain liquidity. He can keep that money in its hard form or deposit it in the bank in a Current or Savings Account (not a Fixed Account). 


M2 (Narrow Money )

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

M3 (Broad Money or Money Aggregate)

  • M3 = M1 + Time deposits with Commercial Banks  
  • M3 includes 
    1. Currency and Coins with public
    2. Demand deposit in all banks 
    3. Time deposits with banks 
  • M3 is most commonly used to measure money and is regarded as the primary indicator of money supply in the economy. 
  • M3 is the Net Demand and Time Liabilities (NDTL).

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 with which an asset can be converted 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

Before looking into the concept of Money Multiplier, we will look at the concept of the velocity of Money Circulation.


Side Topic: Velocity of Money Circulation

The average number of times money passes from one person to another during a given period.

Velocity of Money Circulation

Factors affecting Velocity of Money Circulation

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

Money Multiplier – 1st Approach 

  • The Money Multiplier is the Ratio of Broad Money & Reserve money, i.e. M3 / Mo

M3 = Mo X Money Multiplier

  • Its value depends on the credit creation capacity of banks, which depends on the following
    1. Banking habits of the public
    2. Monetary Policy
  • In India, Money Multiplier generally revolves around 5. So, for example, in Dec 2021, India’s Money Multiplier was 5.3. 

Money Multiplier – 2nd Approach 

Money Multiplier is 1/R  (R= Cash Reserve Ratio)

Explanation of the above formula?

Consider a situation in which a Person deposited ₹ 100 hard currency in the bank. Let’s assume that Cash Reserve Ratio (CRR) fixed by RBI is 10%. First Bank will keep aside ₹10 & give ₹90 as a loan to some person. Then the person who got the loan again paid another person through the bank by depositing money in the person’s bank account. This bank will keep ₹9 (10% of 90) aside and give 81 as a loan to some other person. And the game keeps on going like this. So, ₹ 100 printed by the RBI generated a value of ₹ 1000 (i.e. 100 X (1/10%)) if the CRR was 10% and money was used through the banking system up to its full potential.

Money Supply

Note: Presently, Money Multiplier is around 5. But considering the 4.5% Cash Reserve Ratio, it should be 22.22. 


Reason for low Money Multiplier than theory  

  1. Since Financial Inclusion is low, there might be a case that either banks have money, but people are not available to take loans, or people cannot keep their money in banks. 
  2. Along with that, Banks aren’t always willing to give loans. 
  3. Significant cash in India is stored as Black Money and is never stored in Banking System.

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 an important pillar of the 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 exchanged goods and services with each other through the barter system. E.g., 

  • 1 kg rice for 200 grams of tomatoes
  • 1 kg tomatoes for 50 gm almonds and so on

Problems with Barter System

  • It can happen only with a Double-Coincidence of wants.
  • Search Cost / Cost of Transaction is high. 
  • Don’t favour Division of Labour / Specialization: Due to the above problems, all persons will try to become Jack of all trades but master none. 
  • Don’t favour Industrialization: Industrialists will have to find a large supply line with every person having a double coincidence of demands.  
  • Don’t favour concentration of wealth: Since all the wealth is perishable. E.g., one can’t store tomatoes for an extended period.
  • The problem of Divisibility of Value: In Barter System, you cannot always divide the value to buy whatever you want. 
  • Not always Fungible: In Fungible items, division & mutual substitution is possible, e.g. Gold bars, Currency Notes & Coins. But barter goods are not always fungible. E.g., if a diamond is cut into smaller pieces, the summation of all the smaller parts will not equal one bigger diamond. Hence, diamond isn’t fungible.

Fungibility of Money
Non-Fungibility of Money

Benefits of the Barter System

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

Money

  • Money is anything that is generally accepted as a means of payment.
  • The money System was invented to answer the above limitations of the Barter System. 
  • Money serves the following functions 
Functions of Money

a. Primary Functions

Measure of Value Money serves as a measure of value. E.g., 
Labour’s value in Money System is Wage 
Land’s value in Money System is Rent  
Medium of Exchange It is the medium of exchange because it has generalized purchasing power. 
E.g., a person earns money from his labour, and that money is used to buy food.

b. Secondary Functions

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

Store of Value The value of labour paid in the form of money can be stored for later use 
E.g., A person can store the value of his labour, i.e. wage, for later use.
Transfer of Value The value paid in the form of money can also be transferred to another place.
E.g., A person earning in Bangalore can transfer it to his Parents in Punjab.
Deferred Payment It serves as a standard for the settlement of future monetary obligations. We can make deferred payments like paying in advance (like Paying Rent of Dish TV at once) or Paying later (e.g. taking the car on loan).
It is possible because we can measure the Time value of Money using an Interest Rate.

Benefits of the 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 the Redistribution of National Income (via a taxation system).

Evolution of Money

Evolution of Money

1. Commodity Money

  • It is the first stage in the Evolution of Money. 
  • In this, a particular commodity is used to measure the value.
  • E.g., 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

Traders and Kings used to stamp their marks on the coins to ensure that the metal was of uniform quantity and quality.


Benefits

  • It has intrinsic value.
  • It is non-perishable
  • It is divisible & fungible.
  • Even foreign trade is possible

Full-Bodied Coin vs Token Coin

1. Full-Bodied Coin

  • It is the money whose intrinsic value is equal to or greater than face value.
  • It is also known as good money.
  • E.g., One Rupee Coin of British India (shown below) had a face value of 1 ₹, but if somebody melted the silver and sold that in the market, it was greater than 1 ₹.

2. Token Coin

  • It is money whose intrinsic value is lower than its face value. 
  • It is also known as Bad Money.
  • E.g., 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 the coin and use it for other things. (The same thing was seen in the recent past in Indian Coinage too. Indian ₹5 coins were sent to Bangladesh, where the cost of metal was more than the face value of the coin. People used to melt the coin and make blades out of that. Cupro-Nickel coins were introduced to tackle such activities.)
  • Apart from that, to adjust to inflation, the government keeps on reducing the metal content in the coins to keep the intrinsic value of the coin lesser than its face value. 

Note: It should be noted that melting coins for other purposes is a punishable offence. 


3. Paper Currency

  • The genesis of paper currency can be traced back to Hundis, where traders used to pay using metal at one place and take Hundi to avoid any theft while carrying metal during an extensive voyage. Later, the State started to do the same work and introduced Paper Currency. 
  • It is called Fiduciary Money, i.e. although the paper has no intrinsic value, it is circulated because of trust in issuing authority. 

Types of Fiduciary Money

1. Non-Legal Tender

  • It is not issued by the government 
  • E.g., Bill of Exchange, Cheque, Bank Draft, Postal Orders etc.
  • It is also called Optional Money because its acceptance is optional.

2. Legal Tender/Fiat Money

  • It is issued by the government and acts as money on the fiat or order of the national government.
  • It can be classified as Coin and Currency. 
  • Its acceptance is not optional within the boundary of the country. It can’t be denied for settlement of any monetary obligation.

Types of Legal Tenders

1. Limited Legal Tender (Coin)

  • It can be used to settle a limited amount of debt.
  • According to the Coinage Act of 2011 
    1. Using 50 paisa Coins, a maximum debt of ₹10 can be settled.
    2. Using ₹1 coin or above, a maximum debt of ₹1,000 can be settled. 
    3. All coins below 50 paise are not legal tenders (since 2011).

2. Unlimited Legal Tender (Currency)

  • It can be used to settle the unlimited debt binding by the government’s command. 
  • Every bank note is legal tender in India.

Who Issues what?

Government

  • The government issues all coins. Government can issue any amount of coin (even 1,000 ₹ coins).
  • The government issues ₹ 1 Note with the sign of the Finance Secretary on it. 

RBI

  • Under RBI Act, all Notes except ₹1 can be issued by RBI with the sign of the RBI Governor.

How Fiat Money is issued?

a . Earlier Times

  • Gold Standard System: Earlier, Bank Notes were backed by an equivalent amount of gold. Notes amounting to the equal reserve of gold were issued. E.g., 
    • 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 an equivalent amount of gold in return.  
  • But later, due to various problems like printing more cash during wars, the cold war and depressions, this system was discarded. 

b. Indian System

Earlier, the following system was used

1935 to 56

  • RBI used to maintain 40% gold to the value of currency issued. 

1956 to 95

  • India abandoned the old system and moved to the ‘Minimum Foreign Reserve System.’
  • Under this, RBI was required to maintain a total reserve of at least Rs. 200 crores, with at least Rs.115 crore in the form of gold and the rest in the form of Foreign Securities. 

1995 to Present

  • India is following the ‘ Managed Paper Currency Standard‘.
  • Under this system, the Government of India can print any amount of money under the backing of gold, foreign securities and Government of India-backed Securities. 
  • Hence, if the government wants to print more money (than gold and foreign currency), the government will issue securities (G-Secs) to RBI, and RBI, in return, will print equivalent money with the backing of those securities.
 Managed Paper Currency Standard

What does it mean?

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. 


Demonetisation

  • Demonetisation is the wholesale withdrawal of currency from circulation. 
  • Although every banknote is “legal tender”, but on the RBI Board’s recommendation, the Government of India can notify that Specific Bank Notes (SBN) are no longer legal tender (i.e. Demonetized).
  • On 8th Nov 2016, ₹500 & ₹1000 notes were demonetised. 
  • Specified Bank Notes (Cessation of Liabilities) Act 2017: The government passed this Act to give legislative backing to Demonetisation. RBI was not required to honour the promise written on old banknotes. 

4. Bank Money

  • The backend of Bank Money is Fiat Money as well.
Bank Money

Examples of Bank Money

  • Cheques
  • Demand Draft: Can’t be dishonoured because the amount is prepaid. 
  • Overdraft: When a person’s bank account has an insufficient balance, he is still allowed to draw more money than is 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 a long distance.
  • The exact amount can be transferred
  • Hard to counterfeit
  • Can freeze if stolen
  • Leave behind a digital trail
  • Legally recognized for high-value payment

Types of Accounts

1. Saving Account

  • These are opened by households.
  • There are some restrictions on transactions.
  • Banks offer low interest on these accounts.
  • It has demand and time liability.

2. Current Account

  • These are opened by business entities (firms or businessmen).
  • There are no restrictions on transactions.
  • Banks offer no interest on these accounts.
  • It has demand liability.

3. Fixed Deposit Account and Recurring Deposit Account

  • Anyone can open this account (but generally, these are opened by households because they are the savers in the economy).
  • There are some restrictions as banks are not liable to pay back until the end of the period for which money was deposited in the bank.
  • Banks offer a relatively high-interest rate on these deposits (6 to 10%). 
  • It has time liability. 

Digital Currency

Central Bank Digital Currency (CBDC)

Budget 2022 announced that RBI would issue a digital rupee using blockchain technology. It will be a digital form of India’s fiat currency.

Central Bank Digital Currency (CBDC)

CBDC will be a legal tender in India. The definition of banknote under the RBI Act 1934 is also amended to broaden the banknote. “Banknote” now means a bank note issued by the bank either in physical or digital form. It will allow the introduction of CBDC from the RBI.


Issuing digital currency has many benefits, such as 

  1. Cheaper: Significant cost is incurred on printing money in India (more than ₹4900 crores in 2020-21).  
  2. Efficient management of currency
  3. It will break the monopoly of crypto-currencies, which are not backed by any sovereign authority.
  4. It will give impetus to the development of the fintech sector.

But there are issues as well.

  1. Encroaches privacy as every transaction will be known to the government
  2. It goes against the traditional banking system.
  3. It makes the financial sector vulnerable to cyber attacks