What’s in Today’s Article?

• Judicial Activism Latest News
• Judiciary’s Role in a Constitutional Democracy
• Recent Remarks by Vice-President Dhankhar
• Mixed Reactions and Constitutional Interpretation
• Judicial Independence and Constitutional Sovereignty
• Judicial Independence and Constitutional Balance FAQs

Judicial Activism Latest News

• Vice-President Jagdeep Dhankhar recently raised certain issues with respect to the independence of the judiciary, its powers of judicial review and the judgment prescribing timelines to the President and Governor for their actions.

Judiciary’s Role in a Constitutional Democracy

• India’s judiciary is constitutionally placed as the guardian of the Constitution and the rights of citizens. 
• It exercises wide powers through mechanisms such as judicial review and Article 142 to uphold justice and ensure accountability, including for the executive. 
• However, its role has occasionally sparked debate, particularly concerning its perceived lack of transparency and the scope of its powers.

Recent Remarks by Vice-President Dhankhar

• At a recent public event, Vice-President Jagdeep Dhankhar voiced serious concerns regarding various facets of the Indian judiciary’s functioning, leading to widespread discussion. His observations covered five core aspects:
  • Transparency in Judicial Inquiries: He criticized the opaque nature of internal inquiries into judicial misconduct, especially referencing an incident involving recovery of large amounts of cash from a Delhi High Court judge’s residence.
  • Judicial Directives to Constitutional Authorities: Dhankhar questioned a recent Supreme Court judgment that directed timelines for action by Governors and the President on pending state legislation. The court had issued a writ of mandamus, holding high constitutional offices accountable in cases of undue delay.
  • Accountability Deficit: The Vice-President emphasized that unlike the executive and legislature, the judiciary lacks a mechanism to be directly answerable to the public.
  • Size of Constitution Benches: He suggested re-evaluating the provision under Article 145(3), which mandates a minimum of five judges to adjudicate constitutional questions, noting the current strength of the Supreme Court is 34, unlike just 8 when the Article was framed.
  • Use of Article 142: The Vice-President opined that the sweeping powers under Article 142 are sometimes used in ways that undermine the principles of representative democracy.

Mixed Reactions and Constitutional Interpretation

• The Vice-President’s statements have triggered divided reactions across the political and legal spectrum. 
• While some see this as overreach from a high constitutional office, others view it as a long overdue criticism reflecting broader public sentiment.
• Arguments in Favour of Greater Transparency
  • There is widespread public concern regarding the secrecy surrounding inquiries into alleged judicial misconduct. 
  • Many experts believe the Chief Justice of India should institutionalize a transparent inquiry mechanism to reinforce public trust.
• Judicial Activism: Justified or Overstepped?
  • Judicial activism through Article 142 has played a crucial role in landmark decisions, such as:
    • Bhopal gas tragedy compensation (1989)
    • Vishaka guidelines on sexual harassment (1997)
    • Cancellation of illegal coal-block allocations (2014)
    • Granting permanent commission to women officers in armed forces (2024)
    • Guidelines on unlawful demolitions (2024)
  • These rulings illustrate the judiciary’s evolving role in ensuring justice where administrative or legislative mechanisms fall short.
• On Judicial Review and Timeline Mandates
  • The judiciary’s power of judicial review has been repeatedly upheld as part of the Constitution’s basic structure. 
  • Legal scholars have noted that the Supreme Court’s ruling to prescribe action timelines for the President and Governors was derived from precedents and supported by government guidelines (Home Ministry’s Office Memorandum of 2016).
• Constitutional Bench Composition
  • While Article 145(3) specifies a minimum of five judges to decide constitutional matters, current pendency levels and the increased strength of the bench suggest this number may still be optimal, considering logistical constraints.

Judicial Independence and Constitutional Sovereignty

• The Indian constitutional system blends British-style Parliamentary sovereignty and American-style judicial supremacy. 
• The Indian judiciary, through judicial review, upholds constitutional supremacy, enabling it to examine the legality of legislative and executive actions.
• This synthesis is foundational to Indian democracy. While transparency and inclusiveness in appointments (via a potential reformed National Judicial Appointments Commission) may help restore public faith, it must not come at the cost of judicial independence.

Judicial Independence and Constitutional Balance FAQs

Q1. What prompted the Vice-President’s recent criticism of the judiciary?

Ans. He raised concerns over lack of transparency in judicial inquiries and overreach in mandating timelines to the President and Governors.

Q2. What is Article 142 of the Indian Constitution?

Ans. It empowers the Supreme Court to pass any order necessary to deliver “complete justice” in any case.

Q3. Why is judicial review considered a basic structure of the Constitution?

Ans. Because it ensures laws and executive actions adhere to constitutional values and can be struck down if found violative.

Q4. What was the Supreme Court’s directive to the Governors and President?

Ans. It mandated timelines for action on State legislation to prevent indefinite delays.

Q5. What reform has been suggested for judicial appointments?

Ans. A broader-based National Judicial Appointments Commission with veto power for the CJI to ensure transparency and inclusiveness.

Source: TH

What’s in Today’s Article?

• Liquidity Coverage Ratio (LCR) Latest News
• Liquidity Coverage Ratio (LCR)
• RBI Releases Final LCR Norms
• Liquidity Coverage Ratio (LCR) FAQs

Liquidity Coverage Ratio (LCR) Latest News

• The Reserve Bank of India (RBI) has relaxed the Liquidity Coverage Ratio (LCR) norms by introducing a new requirement: banks must now assign an additional 2.5% run-off factor to retail deposits accessible via internet and mobile banking (IMB) services.
• A run-off factor refers to the percentage of deposits that a bank expects to be withdrawn in a short-term period of stress.

Liquidity Coverage Ratio (LCR)

• The LCR is a regulatory standard designed to ensure that banks hold enough high-quality liquid assets (HQLAs) to cover their total net cash outflows over a 30-day stress period. 
• It acts as a financial stress test to protect against short-term liquidity disruptions.

Origin and Implementation

• The LCR was developed by the Basel Committee on Banking Supervision (BCBS) following the global financial crisis. 
• Proposed in 2010 and finalized in 2014, the rule became fully applicable with a 100% minimum requirement in 2019. 
• It primarily applies to large banks with over $250 billion in assets or $10 billion in foreign exposure.

LCR Formula

• LCR = High-Quality Liquid Assets (HQLA) / Total Net Cash Outflows (30 days)
• The ratio reflects a bank’s ability to survive a liquidity crunch for 30 days without external support.

High-Quality Liquid Assets (HQLA)

• In India, High Quality Liquid Assets (HQLA) are assets that banks and other financial institutions hold to meet short-term liquidity needs, especially during periods of stress. 
• These assets are readily convertible to cash with minimal loss in value and are considered to be low-risk and of high credit quality. 
• They serve as a safety net, ensuring institutions can meet their funding obligations promptly.
• E.g., - Cash and Balances with the RBI; Government Securities etc.

Limitations of LCR

• Reduced Lending Capacity: Holding excess liquidity may limit banks’ ability to offer loans.
• Uncertain Effectiveness: The real test of LCR’s adequacy will come only during a future financial crisis.

RBI Releases Final LCR Norms

• RBI has finalized and released the Liquidity Coverage Ratio (LCR) guidelines. 
• A key update includes an additional 2.5% run-off factor for internet and mobile banking (IMB)-enabled deposits of retail and small business customers.
• This is a reduction from the earlier proposed 5%.

Digital Deposits and Run-off Factors

• IMB-enabled stable retail deposits will now attract a 7.5% run-off factor (up from 5%).
• IMB-enabled less stable deposits will have a 12.5% run-off factor (up from 10%).
• IMB includes services like internet banking, mobile banking, and UPI.

Implementation Timeline

• The revised norms will be effective from April 1, 2026 and apply to all commercial banks, excluding payments banks, regional rural banks, and local area banks.
• During meetings with RBI in January 2025, both public and private banks requested a deferment of LCR implementation, citing preparedness concerns.
• Originally proposed in July 2024, the RBI had called for a 5% additional run-off for IMB-enabled deposits, which sparked industry feedback.

Impact on Liquidity and Lending

• The RBI estimates that the banking system’s LCR will improve by 6% as of December 31, 2024.
• With Rs 45–50 lakh crore in HQLAs, the relaxation could free up Rs 2.7–3 lakh crore in lendable resources.
• This may support an additional credit growth of 1.4–1.5%, boosting economic activity.

Liquidity Coverage Ratio (LCR) FAQs

Q1. What is LCR?

Ans. LCR ensures banks hold enough liquid assets to cover 30-day cash outflows in stress situations.

Q2. Why did RBI revise LCR norms?

Ans. To manage risks from volatile digital deposits and strengthen liquidity in digital banking systems.

Q3. What is the new run-off factor?

Ans. A 2.5% additional run-off for internet and mobile banking-enabled deposits of retail and small businesses.

Q4. When will the new rule be effective?

Ans. From April 1, 2026, across commercial banks (excluding payments and rural banks).

Q5. How will this impact lending?

Ans. Relaxed norms could unlock ₹2.7–3 lakh crore in lending, boosting credit growth by 1.4–1.5%.

Source: IE | OM | RBI

What’s in Today’s Article?

• Particulate Emissions Trading Latest News
• Emissions Trading Scheme (ETS)
• Criticisms of Emissions Trading Schemes (ETS)
• Overview of the Surat Emissions Trading Scheme (ETS)
• Significance of Emissions Trading Markets
• Particulate Emissions Trading FAQs

Particulate Emissions Trading Latest News

• A recent study published in the Quarterly Journal of Economics highlights the success of the world’s first market for trading particulate emissions, implemented in Surat’s industrial cluster. 
• The study, covering 162 textile plants over nearly two years, found that those participating in the emissions trading system reduced pollution by 20–30%—significantly more than those under conventional regulation. 
• Market participants had permits for 99% of their emissions, while non-participating plants violated norms nearly one-third of the time. The findings support emissions trading as an effective pollution control tool, building on global models from Europe and China.

Emissions Trading Scheme (ETS)

• An ETS is a regulatory mechanism aimed at reducing greenhouse gas or particulate emissions by offering financial incentives for industries to comply with pollution norms and invest in cleaner technologies.

Working of ETS – The Cap-and-Trade Model

• Cap on Emissions: Regulators set a limit (cap) on the total allowable emissions.
• Permits Allocation: Industries receive permits representing the right to emit a specific amount of pollutants (e.g., 1 kg of particulate matter or 1 ton of CO₂).
• Trading System: Plants that reduce emissions can sell their unused permits to others, creating a financial incentive for cleaner operations.

Benefits for Industries

• Flexibility: Industries with fewer resources can buy permits while gradually transitioning to cleaner tech.
• Revenue Opportunity: Efficient plants can earn by selling surplus permits.

Price Controls and Penalties

• Price Stability: Regulators set a minimum (floor) and maximum (ceiling) price for permits to keep the market attractive and stable.
• Enforcement: Industries exceeding caps face penalties or must surrender permits.

Long-Term Impact

• As the ETS matures, regulators reduce the total number of permits, pushing industries toward adopting cost-effective, cleaner technologies.

Criticisms of Emissions Trading Schemes (ETS)

• Over-Allocation of Permits
  • In several cases, regulators issued too many permits, leading to low permit prices.
  • This reduced the incentive for industries to invest in cleaner technologies.
  • Example: The Le Monde investigation (2023) found surplus permits in the European ETS, undermining its environmental goals.
• Weak Regulatory Oversight
  • Lack of strict monitoring and transparency has hampered market effectiveness.
  • Actual environmental impacts have been difficult to assess due to insufficient oversight.
• Industry Lobbying and Free Permits
  • In the U.S., fossil fuel companies have lobbied to delay cap tightening and secure free permits.
  • This turned ETS into a “pay-to-pollute” system rather than an emissions-reduction mechanism.
• Design Flaws in China’s ETS
  • China’s carbon market uses emissions intensity (per unit of output), not absolute caps.
  • This approach doesn’t guarantee total emissions reduction, especially as production increases.
• Environmental Injustice
  • A 2018 PLOS Medicine study on California’s ETS found:
    • Regulated plants were mostly located in disadvantaged communities.
    • Emissions actually increased in these areas between 2011 and 2015, raising equity concerns.

Overview of the Surat Emissions Trading Scheme (ETS)

• Launched in 2019, Surat-ETS is the world’s first market-based pilot to control particulate matter pollution.
  • It is the world’s first ETS pilot to control particulate pollution and India’s first for any pollutant. 
• Targeted 342 highly polluting industries, primarily using coal, lignite, and diesel.
• Developed by the Gujarat Pollution Control Board (GPCB) with researchers from J-PAL, EPIC, and Yale University.

Impact of the Surat ETS

• The scheme significantly improved compliance and emission control.
• Provided a cost-effective, transparent, and flexible approach to reducing pollution in an industrial cluster.

Significance of Emissions Trading Markets

• Limitations of the Traditional Command-and-Control System
  • Pollution regulation in India follows a top-down approach enforced by the Environment Ministry, CPCB, and SPCBs.
  • Non-compliance results in fines, shutdowns, or bureaucratic delays.
  • Uniform regulations apply the same standards to all industries, regardless of their size or resources.
  • This favors larger plants that can bear the costs and influence regulatory decisions.
• Challenges in Monitoring and Enforcement
  • With limited manpower and resources, regulators struggle to monitor thousands of industries effectively.
  • High enforcement costs make the system inefficient and reactive, rather than preventive.
• How Emissions Trading Markets Help
  • ETS introduces flexibility by allowing industries to trade emissions permits based on their actual performance.
  • Offers financial incentives for pollution reduction instead of relying solely on penalties.
  • Supports a customized compliance path, helping resource-constrained industries gradually adopt cleaner technology.
  • Shifts focus from enforcement to market-driven solutions, improving efficiency and accountability.

Particulate Emissions Trading FAQs

Q1. What is ETS?

Ans. A market system where industries trade permits to emit pollutants, incentivizing cleaner technologies and compliance.

Q2. Where was the first particulate ETS launched?

Ans. In Surat, Gujarat, covering 342 polluting industries, especially in the textile sector.

Q3. What was the pollution reduction result?

Ans. Plants under ETS reduced particulate pollution by 20–30% over nearly two years.

Q4. How does ETS benefit industries?

Ans. It offers flexibility and financial incentives, enabling gradual adoption of clean tech and emissions compliance.

Q5. What are criticisms of ETS?

Ans. Critics cite over-allocated permits, weak monitoring, and unfair pollution in disadvantaged communities.

Source: IE | IE | EPIC