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Current Affairs 20th May 2023 for UPSC Prelims Exam

Current Affairs 20th May 2023 for UPSC Prelims Exam

NIB Withdrawal of ₹2000 Banknotes

Context: The Reserve Bank of India has decided to withdraw Rs 2,000 denomination banknotes from circulation.

Reasons for the withdrawal of Rs 2000 denomination banknotes

  • According to the RBI, the Rs 2000 denomination banknote was introduced in November 2016 “primarily with the objective to meet the currency requirement of the economy in an expeditious manner after withdrawal of the legal tender status of all Rs 500 and Rs 1000 banknotes in circulation at that time.”
  • With fulfilment of that objective and availability of banknotes in other denominations in adequate quantities, printing of Rs 2000 banknotes was stopped in 2018-19.
  • The RBI has observed that this denomination is not commonly used for transactions. Further, the stock of banknotes in other denominations continue to be adequate to meet the currency requirement of the public.
  • In view of the above, and in pursuance of the “Clean Note Policy” – a policy adopted by RBI to ensure availability of good quality banknotes to the members of public – the central bank decided to withdraw the Rs 2000 denomination banknotes from circulation.


  • On 8th November 2016, the government announced that the largest denomination of Rs 500 and Rs 1000 were demonetized with immediate effect ceasing to be a legal tender.
  • It is the act of stripping a currency unit of its status as legal tender or fiat money.
  • It occurs whenever there is a change of national currency and the current form or forms of money is pulled from circulation and retired, often to be replaced with new notes or coins.

Currency issuing and management in India

  • Role of RBI in Issuing Notes:
    • Section 22 of The Reserve Bank of India Act, 1934, gives RBI the “sole right” to issue banknotes in India.
    • The central bank internally works out a design, which is put before the RBI’s Central Board.
    • Section 25 states that “the design, form, and material of bank notes shall be such as may be approved by the Central Government after consideration of the recommendations made by the RBI’s Central Board”.
    • If the design of a currency note has to change, the Department works on the design and submits it to RBI, which recommends it to the central government. The government gives the final approval.
  • Role of Central Government in minting of coins:
    • The Coinage Act, 2011 gives the central government the power to design and mint coins in various denominations.
    • The role of the RBI is limited to the distribution of coins that are supplied by the central government.
    • The government decides on the quantity of coins to be minted on the basis of indents received from the RBI on a yearly basis.
    • Coins are minted in four mints owned by the Government of India in Mumbai, Hyderabad, Kolkata and Noida.
  • RBI’s Currency Management System:
    • RBI, in consultation with the central Government and other stakeholders, estimates the quantity of banknotes that are likely to be needed denomination-wise in a year, and places indents with the various currency printing presses for their supply.
    • The RBI’s Department of Currency Management, currently headed by Deputy Governor, has the responsibility of administering the core function of currency management.
    • Two of India’s currency note printing presses (Nasik and Dewas) are owned by the Government of India; two others (Mysore and Salboni) are owned by the RBI through its wholly owned subsidiary, Bharatiya Reserve Bank Note Mudran Ltd (BRBNML).
    • Notes that are received back from circulation are examined, after which those fit for circulation are reissued, while the soiled and mutilated notes are destroyed.

Current Affairs 19th May 2023 for UPSC Prelims Exam


Alternative Investment Funds (AIF)

Context:  SEBI has proposed to amend the current rules governing alternative investment funds (AIFs) to strengthen corporate governance mechanism.

Proposed Changes:

  • The proposal suggests that Category I and Category II AIFs should not borrow funds directly or indirectly or engage in leverage for the purpose of making investments.
  • Borrowing can be initiated by AIF for the purpose of meeting shortfall in drawdown while making investment in an investee company, subject to certain conditions.
  • Such borrowing should be made only in case of emergency and as a last recourse. The amount borrowed should be below 10% of the investment proposed to be made in the investee company.
  • The cost of borrowing should be charged only to such investor who delayed or defaulted on drawdown payment.

About Alternative Investment Fund:

  • It is a special investment category that differs from conventional investment instruments. It is a privately pooled fund.
  • Generally, institutions and HNIs invest in AIFs as substantial investments are required.
  • These investment vehicles adhere to the SEBI (Alternative Investment Funds) Regulations, 2012.

Types of AIFs in India:

Category Types of fund
Category 1 These funds invest in SMEs, start-ups, and new economically viable businesses with high growth potential.

Venture Capital Funds (VCF): New-age entrepreneurial firms that require large financing during their initial days can approach VCF.

Angel Funds: These invest in budding start-ups and are called angel investors.

Infrastructure Funds: This fund invests in infrastructure companies.

Social Venture Fund: Funds investing in a socially responsible business are social venture funds.

Category 2 Private equity fund: It invests in unlisted private companies.

Debt Funds: Primarily invests in debt securities of unlisted companies.

Funds of Fund: Such funds invest in other Alternative Investment Funds. They do not have their investment portfolio but focus on investing in different AIFs.

Category 3 Private Investment in Public Equity Fund (PIPE): A PIPE invests in shares of publicly traded companies.

Hedge funds: Hedge funds pool money from accredited investors and institutions and invest in both domestic and international debt and equity markets.

Advantage of Investing in AIFs

  • AIFs generally have a higher return potential compared to other investment options. Fund managers have enough room to prepare flexible strategies for maximizing returns due to the massive pooled amount.
  • Since AIFs are not directly related to stock markets, volatility in these funds is less, compared with traditional equity investments.
  • AIFs provide much-needed diversification in an investment portfolio.


Angel Tax

Context: The government is planning to make changes to the angel tax introduced in the Budget on start-up investments from non-resident investors.

Background: Angel tax on foreign investors

  • Previously, the angel tax applied to Indian residents and funds not registered as Alternative Investment Funds (AIFs).
  • The union Budget 2024 proposed to include foreign investors under the ambit of angel tax.
  • It would apply to only those companies whose investors buy their shares over its fair market value.

What is Angel tax?

  • Tax that needs to be paid by unlisted companies (start-ups) on the capital they raise through issuance of shares.
    • Such funding is critical for new startups as they find it difficult to obtain funds from traditional sources of finance such as banks, financial institutions, etc.
  • Origin: Angel tax was introduced in Finance Act, 2012 and became applicable since April 1, 2013.
  • Applicable: It is applicable to those unlisted companies that receive funds exceeding the fair market value, for shares issued to Indian residents.
  • Objective: The provision was introduced to prevent use of unaccounted money to buy shares of a closely held company, at a rate which is higher than fair market value.
  • Drawbacks: The tax has been called unfair tax as it is not possible to calculate the fair market value of a startup using existing methodology that suits income tax officials.


Open Network for Digital Commerce (ONDC)

Context: After the revolution brought in the realm of digital payments by the Unified Payments Interface (UPI), the Open Network for Digital Commerce (ONDC) is set to break new ground in the country’s digital commerce ecosystem.

What is Open Network for Digital Commerce (ONDC)?

  • ONDC is an initiative by the Department for Promotion of Industry and Internal Trade (DPIIT) to create an open-source platform that can enable a unified digital commerce ecosystem in the country.
  • It was incorporated as a Section 8 (Non- Profit Organisation under Companies Act 2013) company in December 2021.
    • The Quality Council of India and Protean eGov Technologies Limited are its initial promoters.
  • Aim: It aims at promoting open networks for all aspects of exchange of goods and services over digital or electronic networks.
  • What is the need of ONDC?
    • At present, there is duopoly of only two large e-commerce players Amazon & Flipkart. They both controls more than half of the country’s e-commerce trade.
    • Problems of Monopolies: Limited access to the market, preferential treatment to some sellers, and large squeeze on the supplier margins.
    • To prevent such problems ONDC is envisaged. ONDC will democratize e-commerce & create new opportunities especially for MSMEs and small traders.
  • Key features of ONDC:
    • Open-source platform: This allows for greater collaboration and innovation, and ensures that the platform is adaptable to changing market needs.
    • Interoperability: Under ONDC, it is envisaged that a buyer registered on one participating e-commerce site (for example, Amazon) may purchase goods from a seller on another participating e-commerce site (for example, Flipkart).
    • Voluntary Adoption and Inclusivity: It is neither an aggregator application nor a hosting platform, and all existing digital commerce applications and platforms can voluntarily choose to adopt and be a part of the ONDC network.
    • Not-for-Profit: It is a not-for-profit organization that will offer a network to enable local digital commerce stores across industries to be discovered and engaged by any network-enabled applications.

Major Objectives of ONDC

  • Democratization and decentralization of e-commerce
  • Inclusivity and access for sellers, especially for MSMEs as well as local businesses
  • Increased choices and independency for consumers


Global Depository Receipts (GDRs)

Context: Tata consumer products will be delisting its global depository receipts (GDRs) from the London Stock Exchange and Luxembourg Stock Exchange.

About GDRs:

  • GDRs are financial instruments (a type of bank certificate) that represent shares in a foreign company, which are issued by a depositary bank and traded on the local stock exchanges in investors’ countries.
    • The GDRs for the investors will be denominated in their home country currencies.
  • Jurisdiction: GDRs can be used by domestic companies to be listed in any foreign stock exchanges except the US stock exchange.
  • Criteria: A company having a three-year sound financial record can get access to GDRs. They must be listed on the domestic stock exchange.


  • Equity shares are issued by domestic companies in domestic currency to a domestic custodian bank which transfers it to an overseas depository bank.
  • The equity shares are held physically by the domestic custodian bank, and it is listed as the owner of the company’s equity shares.
  • The overseas depository bank provides GDRs in foreign currency.
  • The GDRs are converted into shares and traded on the country’s stock exchange. The country’s investors can trade them just like any other security.


  • GDRs allow issuing company to access investors in capital markets beyond the borders of its own country.
  • Domestic companies can only get their shares listed on foreign exchanges through Global Depository Receipts (GDR).
Global Depository Receipts
Global Depository Receipts


RBI Surplus Transfer to the Government

Context:  Reserve Bank of India (RBI) has approved the transfer of ₹87,416 crore as surplus to the Union government for the accounting year 2022-23.


  • The Reserve Bank of India’s Central Board approved the transfer of Rs 87,416 crore as surplus, or dividend, to the Union Government for the accounting year 2022-23, providing a major boost to the Government’s fiscal position.
  • This is a 188% jump from the last year’s (2021-22) surplus transfer of Rs 30,307 crore.
  • The board also decided to raise the Contingency Risk Buffer (CRB) to 6%, from 5.5% in the preceding year.
    • The contingency risk buffer is a specific provision fund kept by the central bank primarily to be used during any unexpected and unforeseen contingencies.
    • The Bimal Jalan Committee recommended that the CRB needs to be maintained at a range of 5.5% to 6.5% of the RBI’s balance sheet.

How Does RBI Make Profits?

  • The RBI is a “full service” central bank.
  • It is it mandated to keep inflation in check and also manage the borrowings of the Government of India and of state governments.
  • It also supervises or regulates banks and non-banking finance companies and manages the currency and payment systems.  While carrying out these functions, RBI makes profits.
  •  RBI’s income comes from the returns it earns on its foreign currency assets, which could be in the form of bonds and treasury bills of other central banks or top-rated securities, and deposits with other central banks.
  • RBI also earns interest on its holdings of local rupee-denominated government bonds or securities, and while lending to banks for very short tenures, such as overnight.
  • RBI claims a management commission on handling the borrowings of state governments and the central government.

Provisions Regarding Transfer of Surplus by RBI

  • The Reserve Bank of India Act of 1934 mandates that profits made by the central bank from its operations be sent to the Central Government.
  • As the manager of its finances, every year the RBI also pays a dividend to the government to help with the finances from its surplus or profit.
  • A technical Committee of the Reserve Bank of India headed by Y H Malegam (2013), which reviewed the adequacy of reserves and surplus distribution policy, recommended a higher transfer to the government.

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