Current Affairs 28 January 2025

Daily Current Affairs Quiz
28 January, 2025

National Affairs

1. India-China Relations

Context:

Three months after negotiating an end to the military stand-off at the Line of Actual Control (LAC), India and China agreed to concrete measures to resume direct flights, visas, people-to-people exchanges, and the Mansarovar Yatra for pilgrims this summer. They agreed to resume the dialogue on trans-border rivers and sharing of hydrological data that China has withheld for years.

Critical Accomplishments and Actions

• Flights and Visa
  • India and China have decided to restart direct flights and the resumption of the issue of visas in order to further facilitate ease of movement and travel.
• Mansarovar Yatra
  • The Mansarovar Yatra will restart during the summer, marking an important milestone in religious and cultural dialogue.
• Hydrological Cooperation
  • Both sides agreed to resume talks on transborder rivers, including the resumption of sharing hydrological data that. China had earlier refused to share.
• Celebratory Events 75th Anniversary of Diplomatic Ties
  • India and China are planning to celebrate the milestone with various celebratory events aimed at rebuilding trust and fostering goodwill Strategic Dialogue
• HighLevel Meetings
  • The talks were part of a wider bilateral dialogue mechanism between Indian Foreign Secretary Vikram Misri and Chinese Vice Foreign Minister Sun Weidong, following the impetus from the ModiXi meeting in Kazan.
• Economic Cooperation
  • Both sides addressed specific trade and economic concerns to enhance transparency and policy predictability.
• India’s Concerns
  • Restrictions on APIs and hightech exports delayed critical equipment such as TBM.
• China’s Concerns
  • India imposes barriers to investing in the country denial of business visas and raids on Chinese telecom companies.

Geopolitical Implications

• LAC Tensions
  • These steps are taken three months after the de-escalation of tensions along the Line of Actual Control (LAC), which is a step towards stability and dialogue.
• Shanghai Cooperation Organisation (SCO)
  • India has assured support to China’s leadership of the SCO with PM Modi likely to attend the summit in June.
• Ongoing Challenges
  • Hydropower Issues: China’s hydropower project on the Yarlung Zangpo, Brahmaputra continues to raise strategic concerns in India.
  • Future Summits: Even though dialogue mechanisms have resumed, no confirmation has been made regarding an informal Modi-Xi summit in 2025.

India-China Relations Significance

• Economic and Trade Dependences
  • Trade ties China is the largest trading partner for India despite border frictions with two way commerce at USD 1184 billion in FY 2023-24.
• Industry LMPs
  • Import dependency is more than 70 in the sector of APIs or active pharmaceutical ingredients received from China which makes the pharmaceutical a super dependent industry.
  • India imported more than USD 12 billion worth of electronic components from China in 2023-24.
  • Almost 80 of India’s solar equipment is imported and of that more than 60 comes from China.

Technology and Digital Infrastructure

• Smartphones
  • Chinese companies lead India’s smartphone market with a 75 market share
• Telecom Equipment
  • Although there are some restrictions, Chinese components are still part of critical telecom equipment.
• Electric Vehicles
  • China is a significant contributor to India’s electric vehicle industry which provides battery technology and other necessary components.

Investment and Expertise

• Unicorn Startups
  • Many Indian startups have seen substantial Chinese investments which have been vital for their growth.
  • In 2020, 18 unicorn companies in India had over USD 3500 million in Chinese investments.
• Trade Route Dependency
  • More than 55% of India’s trade goes through the South China Sea and Malacca Straits, where China has a near monopoly.
  • Most of Indias Southeast Asian trading partners are economically integrated with China.

Key Areas of Conflict Between India and China

Border Conflicts and Territorial Claims

• Line of Actual Control (LAC)
  • The 3488 km Line of Actual Control (LAC) often becomes a point of contention as India and China have tense military standoffs particularly since May 2020.
  • China already occupies 38000 sq km in Aksai Chin and claims 90,000 sq km of Arunachal Pradesh South Tibet.
  • The development of dual use villages and military infrastructure along the LAC by China exacerbates the situation.

Economic Imbalances and Trade Deficit

• Trade Deficit
  • India incurs a 85 billion trade deficit with China during 2024 with imports soaring despite antidumping measures.
• Backdoor Entry
  • Chinese products often enter India through ASEAN and bilateral FTAs.

Water Resource Disputes

• China dominates the upper reaches of the mighty rivers like Brahmaputra Yarlung Tsangpo flowing through India.
• The absence of a watersharing treaty has led to conflict particularly following Chinas stoppage of releasing hydrological data in 2017.

Cyber Threats

• Cybersecurity
  • China linked hackers targeted Indian power hubs and orchestrated attacks such as the AIIMS Delhi ransomware attack.
• App Bans
  • More than 300 Chinese apps have been banned since 2020 due to security concerns.

Regional Influence Competition

• Chinas Belt and Road Initiative (BRI)
  • Especially in Pakistan, Sri Lanka and Myanmar challenges India’s regional influence.
  • The strategic military alliances China is forging with Pakistan and its increasing influence over Nepal, Sri Lanka and Bangladesh.

Strategic Alliances and Regional Tensions

• India’s proximity to the US and the QUAD is an anathema for China.
• Chin’as military presence in the Indian Ocean and its increasing naval deployments even in strategic ports like Hambantota in Sri Lanka is a matter of concern for India.

Diplomatic and Global Forum Tensions

• China shields Pakistan based terrorists from UN forums, it also never relents over India’s ambitions for the UN Security Council seat and Nuclear Suppliers Group membership.

Ways for India to Maintain Parity with China

• Diversification of Indian Economy and Auto Dependency
  • Scaling up PLI plans to diminish its dependence on imported Chinese products.
  • Developing Production capabilities for domestic manufacturing in areas such as, APIs, electronic equipment, solar equipment by forming Semi conductor Mission.
  • Build cooperation ties with Japan, South Korea and the EU on investment in key sectors and transfer technologies.
• Strategic Military Modernization
  • Rush to construct military infrastructure in the LAC like roads and forward operating bases.
  • Develop more robust surveillance with a focus on the use of satellite and drone capabilities.
  • Reinforce mountain warfare as well as the quick reaction force.
• Strengthen Regional Leadership
  • Develop stronger ties with the neighbors through developmental aid and projects on infrastructure.
  • BIMSTEC and Indian Ocean Rim Association (IORA) initiatives to be enhanced to counter the influence of China.
• Diplomatic Engagement Strategy
  • Continued engagement through multilateral forums like SCO and BRICS with enhanced QUAD partnerships.
  • Coalitions with like minded countries on specific challenges to be developed with strategic autonomy in global diplomacy.
• Economic Leverage Development
  • Utilization of India’s market strength for better trade terms with China.
  • Redirect global supply chains to India through initiatives like China1 and the PM Gati Shakti program.
  • Strengthen India’s position in global trade through free trade agreements FTAs with the UK, EU and other markets.
• Maritime Strategy Enhancement
  • Strengthen India’s naval presence and capabilities in the Indian Ocean Region.
  • Improve port infrastructure and connectivity through the Sagarmala Project.
  • Increase maritime cooperation with QUAD nations and ASEAN countries and thereby monitor strategic maritime routes better.

2. Uttarakhand adopts Uniform Civil Code

Context:

Uttarakhand Chief Minister Pushkar Singh Dhami rolled out the Uniform Civil Code (UCC) for all residents of the State, except the Scheduled Tribes and natives who have migrated out of the State.

Uniform Civil Code (UCC)

3. Copyright Case Against OpenAI

Context:

• DNPA’s Role: The Digital News Publishers Association (DNPA), representing the digital arms of major TV and print organizations in India, has intervened in the ongoing copyright lawsuit against OpenAI.

Concerns on Copyright Infringement

• Unauthorized Content Use: DNPA has raised concerns regarding the unauthorized use of Indian copyrighted content in the training of OpenAI’s GPT models. The association believes that this constitutes a breach of intellectual property rights.

Key Legal Issues

• Legal Questions in Focus: The Delhi High Court has framed important legal questions, including:
  • The unlawful ingestion of Indian copyrighted content by OpenAI.
  • The implications for intellectual property rights in both the digital and news sectors.

Global Context

• International Reactions: News organizations worldwide are reacting to the use of large language models (LLMs) trained on content scraped from the internet without explicit agreements, highlighting the growing concerns over copyright infringement.

OpenAI’s Response

• Commitment to Engagement: OpenAI has stated its commitment to engaging with news organizations, expressing appreciation for the efforts to build partnerships with the news industry, including that in India.

Impact on Indian News Industry

• Intellectual Property Rights: The case underscores the growing importance of intellectual property rights in the age of digitization, as AI models increasingly rely on vast datasets for training.
• Industry Cooperation: The case could lead to clearer and more defined legal frameworks regarding the use of copyrighted materials by AI companies and content creators.

Alcoholic Tinctures as Homeopathic Remedies: Regulatory and Public Health Concerns

Regulatory Challenges

• Complex Framework: Alcohol regulation falls under State jurisdiction (Schedule VII, List II), while medicinal alcohol taxation is a Union matter (Entry 84, List I). This creates a complex regulatory framework.
• Post-GST Ambiguities: The imposition of 18% GST on medicinal alcohol has created ambiguities, as the taxation rate is lower than that of alcoholic beverages taxed by states.

Taxation Loopholes

• Homeopathic Tinctures: These tinctures are taxed lower than alcoholic beverages, which makes them a more affordable substitute for those seeking intoxication.
• Alcohol Content Regulation: The Drugs and Cosmetics Act permits tinctures to contain up to 12% alcohol, while strong beer is limited to 7%. This creates public health concerns as tinctures can serve as an inexpensive alternative to alcoholic beverages.

Public Health Hazards

• Health Risks: Many consumers unaware of the high alcohol content in tinctures consume them regularly under the belief that they have health benefits. This can lead to serious health conditions such as alcoholic hepatitis.
• Spurious Products: In states like Gujarat and Bihar, where alcohol prohibition laws exist, spurious tinctures have led to fatalities.

Regulatory Weakness

• Ineffective Enforcement: Rule 106B (introduced in 1994) limits the alcohol content in tinctures and restricts bottle sizes, but it has faced constant legal challenges, preventing effective enforcement.
• Protracted Litigation: The homeopathy industry has filed numerous litigations, challenging the constitutional validity of Rule 106B. High courts have granted interim stays, leading to a lack of enforcement.

Industry Lawfare and Bureaucratic Delays

• Litigation Trends: From 1994 to 2014, the homeopathy industry challenged Rule 106B. A second wave of litigations (since 2015) contends that Rule 106B is unconstitutional for not being tabled in Parliament.
• Government’s Role: The Union government has failed to resolve procedural lapses and delays, with cases still pending in the Supreme Court since 2017, demonstrating inefficiency in addressing public health concerns.

Key Questions and Solutions

Public Health vs Industry Interests

• Effectiveness of Alcohol in Remedies: Should alcohol be allowed in homeopathic and ayurvedic remedies, especially considering their questionable effectiveness in treating health conditions?
• Stricter Regulations: Would stronger regulations, including clear alcohol content labeling and health warnings, help reduce misuse and minimize health risks?

Policy Recommendations

• Labeling and Awareness: Enforce stricter labeling requirements and consumer awareness measures for tinctures to reduce misuse.
• Taxation Reforms: Revisit taxation policies to eliminate the incentive for substituting tinctures with alcoholic beverages.
• Legal Streamlining: Streamline legal procedures to minimize delays in enforcing public health protections and ensure effective enforcement of regulations.

4. Alcoholic Solution as Homeopathic Remedies

Regulatory Challenges

• Complex Legal Framework: Alcohol regulation is primarily a State subject (Schedule VII, List II of the Indian Constitution), but taxation of medicinal alcohol falls under the Union domain (Entry 84, List I).
• Post-GST Ambiguities: Following the implementation of GST, the taxation of medicinal alcohol became ambiguous. While the Union imposed an 18% GST, this is lower than the taxes on alcoholic beverages imposed by states, creating a potential taxation loophole.
• Concurrent List Confusion: Although drugs are on the Concurrent List, amendments to the Drugs and Cosmetics Act, 1940 require presidential assent, further complicating the regulatory process.

Taxation Loopholes

• Lower Tax on Tinctures: Homeopathic tinctures are taxed at a lower rate than alcoholic beverages, making them a more affordable alternative for individuals seeking intoxication.
• Alcohol Content Regulation: The Drugs and Cosmetics Act permits tinctures to contain up to 12% alcohol, whereas strong beer is limited to 7% alcohol, leading to public health and revenue concerns for states.

Public Health Hazards

• Unaware Consumers: Many consumers are unaware of the high alcohol content in tinctures, consuming them regularly with the belief that they have health benefits. This can lead to serious health conditions, such as alcoholic hepatitis.
• Spurious Products: In states with alcohol prohibition laws (like Gujarat and Bihar), the availability of spurious tinctures has led to fatalities, posing a serious public health threat.

Regulatory Weakness

• Enforcement Challenges: Rule 106B (introduced in 1994) limits the alcohol content in tinctures and restricts bottle sizes. However, it has faced continuous legal challenges from the homeopathy industry. Due to prolonged litigation and bureaucratic delays, enforcement of the rule has been ineffective.

Industry Lawfare and Bureaucratic Delays

• Litigation Strategies:
  • The first wave of litigations (1994–2014) challenged the constitutional validity of Rule 106B.
  • The second wave (since 2015) argued that Rule 106B was unconstitutional because it was not tabled in Parliament.
  • Interim stays granted by high courts have allowed the rule to remain largely unenforced.
• Government Inaction: Instead of resolving procedural lapses, the Union government initiated transfer petitions in 2017, consolidating multiple cases in the Supreme Court. These cases remain unresolved, highlighting inefficiency in addressing public health concerns.

Key Questions and Solutions

Public Health vs Industry Interests

• Effectiveness of Alcohol in Remedies: Should alcohol be permitted in homeopathic and ayurvedic remedies, especially considering their limited effectiveness in treating health conditions?
• Stricter Regulations: Would introducing stricter laws and clear labeling requirements on alcohol content serve as an effective preventive measure to reduce misuse and associated health risks?

Policy Recommendations

• Labeling and Awareness: Enforce stricter labeling requirements and increase consumer awareness about the alcohol content in tinctures to prevent misuse.
• Revisit Taxation Policies: Reevaluate taxation policies to close the loopholes that incentivize substituting tinctures for alcoholic beverages.
• Streamline Legal Procedures: Streamline legal processes to avoid delays in enforcing public health protections, ensuring the prompt implementation of regulations such as Rule 106B.

Banking/Finance

1. RBI Measures to Curb Digital Frauds

Key Highlights

• RBI Governor’s Urging:
  • Sanjay Malhotra, the RBI Governor, highlighted the rising concern of digital frauds and called on banks to establish robust and proactive systems to combat such activities.
  • He emphasized the need for increased vigilance, especially in the context of IT risk management and cybersecurity.

Key Actions Suggested for Banks

• Strengthening Oversight of Third-Party Providers:
  • The RBI Governor stressed the importance of enhanced oversight of third-party service providers. This includes addressing the risks associated with outsourced services, which have become increasingly crucial in the digital banking ecosystem.
• Collaboration and Information Sharing:
  • Malhotra underscored the importance of collaboration between the RBI and banks to combat fraud, emphasizing the need for a unified approach. He also called on banks to provide suggestions on improving the ease of doing business, ensuring that new measures are both effective and practical.
• Core Focus Areas for Banks:
  • Cybersecurity and IT Risk Management: A top priority is strengthening cybersecurity infrastructure to prevent breaches and data theft.
  • Financial Stability and Inclusion: Ensure that efforts to maintain financial stability are balanced with expanding financial inclusion, particularly for underserved populations.
  • Digital Literacy and Customer Awareness: Enhance digital literacy among customers to help them identify fraud and protect their personal data.
  • Improved Customer Service: Strengthen grievance redress mechanisms to ensure customers have clear avenues for resolving disputes and reporting fraud.

Acknowledgement of Banks’ Role

• The RBI Governor also acknowledged the significant role played by banks in building resilience within the domestic financial system while recognizing global vulnerabilities that may pose risks.

Context of the Meeting

• The meeting, attended by RBI’s senior officials and MDs/CEOs of public and private sector banks, was part of continuous engagement between the central bank and its supervised entities.

2. Liquidity in the Banking System

Context:

RBI took some steps to Enhance Liquidity in the Banking System.

Major Announcements

• Bond Purchase
  • The RBI will purchase central government bonds valued at DC billion in III auctions to inject liquidity into the banking system.
• Variable Rate Repo Auction
  • A Variable Rate Repo Auction will be conducted on February VII for D billion to further ease liquidity pressure.
• USDINR Swap Auction
  • A buy-sell swap auction of 5 billion with a six-month tenor is scheduled for January 31, to manage forex reserves and stabilize the rupee.

Context: Addressing Liquidity Deficit

• Liquidity Shortfall
  • India’s banking system has recently experienced its highest liquidity shortfall in a year, necessitating RBI intervention.

Expected Impact of RBI Measures

• Ease Liquidity Stress
  • The bond purchases and repo auctions are designed to inject liquidity, alleviating pressure on the banking system.
• Stabilize Currency
  • The USDINR swap auction will help in managing foreign exchange reserves, contributing to rupee stability.

3. Peer-to-Peer (P2P)

Context:

RBI Steps Up Examination of P2P Lending Platforms to Ensure Compliance.

Peer-to-peer (P2P)

Peer-to-peer (P2P) banking is a way to transfer money between individuals without using banks as intermediaries. P2P banking can be done through digital apps or online. 

How does P2P banking work?

• Users link their bank accounts or cards to a P2P app.
• Users can send money to other users by entering their mobile number or email address. 
• Users can also scan a QR code to send money. 
• P2P apps may charge fees for instant transfers or international transactions. 

What can P2P banking be used for?

• Sending money: Reimbursing friends or family, splitting bills, or sending cash gifts 
• Collecting money: Collecting money for group gifts 
• Sharing expenses: Sharing expenses with roommates 
• P2P lending: Also known as crowd lending or social lending, P2P lending can offer higher interest rates than traditional bank loans 

How can you use P2P banking? 

• You can use P2P banking through apps like Cash App, Zelle, and Paytm.
• You can initiate P2P transactions by linking your bank account to the app.

RBI Moves at a Glance

• The Reserve Bank of India (RBI) has intensified its examination process for Peer-to-Peer (P2P) lending platforms following a revision of guidelines.
• The RBI has sent out a detailed questionnaire to eight major P2P companies, including LiquiLoans, Monexo, i2iFunding, and IndiaP2P.
• The examination aims to assess the level of compliance with the updated regulations.

Key Areas Covered in the Questionnaire

• Compliance with Revised P2P Guidelines
  • The platforms are required to specify whether they are following the updated guidelines, particularly in operational processes, fund transfers, and borrower-lender matching.
• T1 Timeline Adherence
  • The RBI is monitoring adherence to the T1 timeline, ensuring that funds stay in escrow accounts for no more than one business day.
• Fund Flow Representations
  • Visual documentation has been requested to ensure transparency in the flow of funds within the platforms.
• Advertising and Cross-Selling Practices
  • The RBI seeks illustrative advertisements for P2P loan products and clarification on whether they are being marketed as investment products, which would be against the guidelines. The scrutiny also includes cross-selling practices to prevent misleading consumer representations.

Context of the RBI’s Scrutiny

• This questionnaire marks a significant shift from the previous practice of submitting quarterly data.
• Issues flagged include
  • Lack of reporting on lender losses.
  • Lender complaints about disbursal of loans without approval.
• The RBI has warned platforms against operating as deposit-takers or lenders, emphasizing their role as intermediaries.

4. Marginal Cost of Funds-based Lending Rate (MCLR)

Context:

With the interest rate cut cycle around the corner, Bank of India (BoI) is tweaking its lending strategy to enhance the share of the marginal cost of funds-based lending rate (MCLR)-linked loans from about 29 per cent now to 35 per cent in the next two to three years.

Marginal Cost of Funds-based Lending Rate (MCLR)

The Marginal Cost of Funds-based Lending Rate (MCLR) is the minimum interest rate that a bank can charge for a loan. It’s based on the cost of borrowing funds, the bank’s operating costs, and other factors. The Reserve Bank of India (RBI) implemented MCLR on April 1, 2016. 

How MCLR works?

• MCLR is a tenor-linked rate, meaning it varies based on the length of the loan. 
• Banks use MCLR to determine the interest rate for loans. 
• MCLR is the minimum interest rate that banks can charge, except in certain cases. 
• MCLR is fixed for borrowers unless the RBI revises it. 

Factors that affect MCLR

• Marginal cost of funds: The cost of borrowing funds, such as from savings deposits, term deposits, or other banks 
• Operating costs: The cost of generating cash, including service charges 
• Statutory liquidity ratio (SLR): The reserve that banks are required to keep 

Benefits of MCLR 

• MCLR ensures that banks charge interest rates that are true to the consumers.
• MCLR improves the openness of the structure used by banks to calculate interest rates.

5. Financial Inclusion Initiative

Context:

PSBs Lag in Meeting Insurance Targets Under Financial Inclusion Initiative.

Key Schemes Overview

• Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY)
  • Launched in 2015 for individuals aged 18-50 with a bank or post office account.
  • Provides life insurance worth ₹2 lakh with an annual premium of ₹436 until the individual turns 55.
• Pradhan Mantri Suraksha Bima Yojana (PMSBY)
  • Offers accidental insurance for individuals aged 18-70, renewable annually.
  • Premium set at ₹12 per annum for coverage up to ₹2 lakh.

PMJJBY Performance

• Target: 40.74 million enrolments
• Achievement: 51% of the target met by December 2024 with 20.78 million enrolled.
  • Top Performers:
    • State Bank of India (SBI)
    • Indian Bank
    • Punjab Sind Bank
  • Lagging Performers:
    • Indian Overseas Bank
    • Central Bank of India

PMSBY Performance

• Target: 63.4 million enrolments
• Achievement: 64% of the target met by December 2024 with 40.7 million enrolled.
  • Top Performers:
    • SBI
    • Punjab National Bank (PNB)
    • Indian Bank

Action Required

• Underperformance in PMJJBY: The nine public sector banks (PSBs) have not met the 50% target, with some banks significantly lagging.
  • The Union Finance Ministry has called for stronger efforts, particularly for underperforming banks, to ensure targets are met and improve financial inclusion.

6. Open Market Operations (OMO)

Context:

 RBI announced open market operation (OMO) purchase auctions aggregating to RS 60,000 crore.

What Are OMOs?

• OMOs are a tool used by the Reserve Bank of India (RBI) to manage liquidity in the economy by buying and selling government securities (G-Secs) in the open market.
• These operations help the RBI achieve its monetary policy objectives such as controlling inflation, promoting economic growth, and stabilizing bond yields.

How OMOs Work?

• Selling G-Secs
  • When there is excess liquidity in the economy, the RBI sells G-Secs to absorb the excess cash, reducing the money supply.
• Buying G-Secs
  • When there is a liquidity shortage, the RBI buys G-Secs from the market, thereby injecting liquidity and increasing the money supply.

Why Are OMOs Important?

• Liquidity Management
  • OMOs help the RBI control the amount of liquidity in the financial system.
• Government Borrowing Costs
  • By keeping bond yields low, OMOs help reduce the government’s borrowing costs.
• Inflation Control
  • OMOs enable the RBI to regulate inflation by influencing the money supply in the economy.
• Smoothing Liquidity Conditions
  • OMOs help maintain stable liquidity conditions throughout the year, facilitating smoother functioning of the financial markets.

Overall, OMOs are crucial for the RBI to manage the economy’s liquidity effectively, ensuring stability in the financial system and helping achieve broader economic goals.

7. Systematic Investment Plans (SIPs)

Context:

Sebi Proposes Sachetisation of Systematic Investment Plans (SIPs).

Systematic Investment Plan (SIP)

A Systematic Investment Plan (SIP) is a method of investing where you regularly invest a fixed amount of money at set intervals (like monthly) into a mutual fund scheme, essentially allowing you to average out the cost of your investment by buying units when the market is high and low, benefiting from the power of compounding over time. It’s a disciplined way to build wealth gradually instead of making a single lump-sum investment. 

Overview of the Proposal

• Objective: Sebi has proposed allowing SIPs with a minimum monthly investment of ₹250 to make mutual fund investments more accessible, especially for lower-income segments.
• Analogy to Sachets: Similar to how shampoo sachets made the product accessible to rural and low-income consumers, Sebi aims to open up investment opportunities for people in Tier-III towns and rural areas.

Current Situation vs Proposed Change

• Current SIP Minimum
  • Most SIPs currently require a minimum of ₹500 per month.
• New SIP Feature
  • The proposal would allow SIPs starting at ₹250 per month, enabling investors to have up to three sachet SIPs at a low cost from different schemes.

Potential Benefits

• Broader Outreach
  • The change is aimed at reaching underpenetrated geographies and income groups, particularly in rural and lower-income urban areas, where access to equity products is limited.
• Affordability
  • A lower SIP ticket size is expected to make the investment product more affordable for a larger section of the population, especially for individuals at the bottom of the rural and lower-income urban pyramid.

Constraints for Asset Management Companies (AMCs)

• Transaction Charges
  • Each ₹250 SIP might incur a transaction charge of ₹2, which is about 0.8% of the total amount. This could be higher than the expense ratio of direct investments in mutual funds.
• Distribution Costs
  • AMCs will need to create distribution networks to reach these target audiences, raising their costs further. Promotion and publicity of schemes will also be challenging without additional funds.

Profitability Concerns

• Big AMCs
  • Larger AMCs could use sachet SIPs as a loss leader to penetrate new markets, possibly leading to reduced profitability in the short term.
• Smaller AMCs
  • Smaller funds may struggle to compete due to higher operating costs, potentially resulting in market asymmetry where big AMCs dominate.

Regulatory Considerations

• Subsidies
  • Sebi could consider offering initial subsidies to support the scheme, but long-term subsidies could distort the market.
• Cost Reduction
  • Sebi might focus on reducing transaction costs for AMCs rather than providing long-term subsidies, ensuring the feasibility of sachet SIPs while balancing the interests of all stakeholders.

Economy

1. Indian Stock Market Faces Steep Decline

Market Overview

• Sensex and Nifty Performance
  • Sensex dropped 824 points.
  • Nifty 50 fell by 263 points.

Market Participants’ Sentiment and FPIs

• FPIs
  • Foreign Portfolio Investors (FPIs) continued their selling spree, contributing to the market downturn, driven by concerns about an impending slowdown in earnings growth.
• Market Capitalisation
  • The overall market capitalization of companies listed on the Bombay Stock Exchange (BSE) declined to ₹410 trillion, losing ₹9.2 trillion.

Global Developments Influencing the Market

• Global Volatility
  • Global market concerns were heightened by uncertainty surrounding U.S. policies.
  • The emergence of “DeepSeek,” a Chinese alternative to ChatGPT, further deteriorated the mood of investors, particularly affecting technology stocks in the U.S.
• Tech Stocks
  • Tech stocks, including Nvidia and Oracle, faced significant losses early in the U.S. trading session, due to fears that DeepSeek’s low-cost AI model could threaten Western tech companies’ dominance.

Facts To Remember

1. JPC dismisses Opposition amendments to Waqf Bill

Amid the Opposition’s complaint that its voice was not heard, the Joint Parliamentary Committee ( JPC) on the Waqf (Amendment) Bill accepted 32 out of the more than 500 amendments moved by the members, after a vote.

2. SEBI: Govt. kicks off hunt for Madhabi Puri Buch successor

The Centre initiated the process to find a successor for market regulator SEBI chief Madhabi Puri Buch, who was involved in an alleged conflict of interest row. The three-year term of Ms. Buch as Securities and Exchange Board of India (SEBI) chairperson ends on February 28, 2025.

3. Cricket: India defeats Scotland by 150 Runs in U-19 Women’s T20 World Cup

In the ICC Under-19 Women’s T20 World Cup, India defeated Scotland by 150 runs at Bayuemas Oval Stadium in Kuala Lumpur, Malaysia.

4. SC rejects PIL seeking expert committee on reforms in dowry, domestic violence laws

The Supreme Court declined to entertain a PIL which sought the appointment of an expert committee to review and reform the existing dowry and domestic violence laws to stop their misuse. A bench of Justices BV Nagarathna and Satish Chandra Sharma declined to hear the plea and observed that society must change and it cannot do anything.

5. Union Minister Nitin Gadkari urges need to reduce logistic costs to boost exports

Union Minister of Road Transport and Highways, Nitin Gadkari today said that nearly 5 lakh road accidents and 1.80 lakh deaths occurred in 2024. Addressing the concluding event of Project Abhay by the Centre for Rural Development and Technology in New Delhi, Mr Gadkari highlighted that 66 per cent of the deaths were in the age group of 18 to 34.

6. FM Sitharaman to present Union Budget 2025-26 on Feb 1

Union Finance Minister Nirmala Sitharaman is set to present the Union Budget for the fiscal year 2025-26 on 1st of next month. The upcoming budget is anticipated to unveil the government’s economic priorities and fiscal strategies to deal with the pressing domestic and global challenges.

7. India-UAE partnership to grow stronger in shifting global order: EAM Jaishankar

The global order is undergoing significant transformation, bringing both challenges and opportunities. External Affairs Minister Dr S. Jaishankar emphasized that these are times when true friendships are tested and strengthened, highlighting the growing synergy between India and the UAE. Speaking at the 75th Republic Day celebrations hosted by the Indian Embassy in Abudhabi, Dr Jaishankar underlined the shared values and mutual trust that bind the two nations.