Daily Prelims Notes

8th April, 2022

www.optimizeias.com

1. GRAMMY AWARDS
Subject: Art & Culture
Section: Current

Context- At the 64th Annual Grammy Awards, two Indian musicians were among the winners.

Concept-
About Falu
● Falguni Shah or Falu won the award for her album A Colorful World in the category of Best
Children’s Music Album.
● Falu is a New York-based musician and has collaborated with AR Rahman for the movie
Slumdog Millionaire.
● In Mumbai, under the legendary vocal master and sarangi Ustad Sultan Khan, she had received
her early music training.
● She also performed in the opening number of the GRAMMY Premiere Ceremony and later won
her award.

About Ricky Kej

● In 2015, Ricky Kej had won his first Grammy Award and this win was his second.
● He won the award with Stewart Copeland for the album Divine Tides. He won the award in the
Best New Age Album category.

About 2022 Grammy Awards

● The 2022 Grammy Awards were held on 3rd March at the MGM Grand Garden Arena located in
Las Vegas, Nevada.
● Trevor Noah hosted this event.
● Jon Batiste won the Best Album of The Year award.
● The award for the Best New Artist as well as for Best Pop Vocal Album was won by Olivia
Rodrigo and Doja Cat won the award for Best Pop Duo/ Group.

Grammy Awards:
● The Grammy Award or just Grammy, is an award presented by the Recording Academy to
recognize "Outstanding Achievement in the music industry" of the United States.
● The trophy depicts a gilded gramophone.
● The Grammys are the first of the Big Three networks' major music awards held annually.
● The Grammy is considered one of the four major annual American entertainment awards, along
with the Academy Awards (for film achievements), the Emmy Awards (for television
achievements), and the Tony Awards (for theater achievements).
 ● The first Grammy Awards ceremony was held on May 4, 1959, to honor the musical
accomplishments of performers for the year 1958.

2. INDIAN TENT TURTLE

TOPIC: Environment
Section: Species in news

Context- Indian tent turtle is now listed in Schedule –I of the Wild Life (Protection) Act, 1972 and is
thereby provided the highest degree of protection.

Concept-
● The Indian tent turtle is threatened due to illegal mining in Narmada River.
● This turtle has also been widely traded as a pet at aquariums.

About Indian Tent Turtles:

● The Indian tent turtle (Pangshura tentoria) is a species of turtle in the family Geoemydidae.
● The species is endemic to India and Bangladesh.
● Its preferred habitats are freshwater rivers and swamps.
● The species is native to India, Nepal and Bangladesh, with three subspecies recorded from the
region viz., P. t. tentoria, P. t. circumdata and P. t. flaviventer.
○ t. tentoria occurs in peninsular India and is recorded from Orissa, Maharashtra, Andhra
Pradesh, Assam and Madhya Pradesh.
○ t. circumdata occurs in the western tributaries of Ganga and the rivers of Gujarat. It is
found in Rajasthan, Madhya Pradesh, Uttar Pradesh and Gujarat.
○ t. flaviventer occurs in the northern tributaries of Ganga and is recorded from Uttar
Pradesh, Bihar, West Bengal and Assam.
Wildlife (Protection) Act, 1972:

● WPA provides for the protection of the country’s wild animals, birds and plant species, in order
to ensure environmental and ecological security.
● It provides for various types of protected areas such as Wildlife Sanctuaries, National Parks etc.
● There are six schedules provided in the WPA for protection of wildlife species which can be
concisely summarized as under:
○ Schedule I: These species need rigorous protection and therefore, the harshest
penalties for violation of the law are for species under this Schedule.
○ Schedule II: Animals under this list are accorded high protection. They cannot be
hunted except under threat to human life.
○ Schedule III & IV: This list is for species that are not endangered. This includes
protected species but the penalty for any violation is less compared to the first two
schedules.
○ Schedule V: This schedule contains animals which can be hunted.
○ Schedule VI: This list contains plants that are forbidden from cultivation.

3. PALM OIL CRISIS IN INDONESIA

TOPIC: Economy
Section: External Sector
Context- The world’s largest producer and exporter of palm oil, Indonesia, is facing domestic shortages,
leading to price controls and export curbs.

Concept-
About Oil Palm

● Palm oil is an edible vegetable oil derived from the mesocarp of the fruit of the oil palms.
● The oil is used in , cooking ,food manufacturing, in beauty products, and as biofuel.
● Indonesia accounts for about 60% of the total global oil palm output followed by Malaysia. It
is also the world’s No. 1 exporter of the commodity, at 29 mt, followed by Malaysia (16.22 mt).

Reasons for current crisis:

(1) Ongoing Ukraine- Russia Crisis: Leading to supply chain disruptions in other cooking oils,
especially sunflower and Soyabean.
Ukraine and Russia together account for nearly 80% of the global trade in sunflower oil, quite
comparable to the 90% share of Indonesia and Malaysia in palm.
Russia’s invasion of Ukraine has resulted in port closures and exporters avoiding Black Sea
shipping routes.
Sanctions against Russia have further curtailed trade in sunflower oil, the world’s third most
exported vegetable oil after palm and soybean.

(2) Diversion for Bio-Fuels

● Another factor is linked to petroleum, more specifically the use of palm oil as a bio-fuel.
● The Indonesian government has, since 2020, made 30% blending of diesel with palm oil
mandatory as part of a plan to slash fossil fuel imports.
● Palm oil getting increasingly diverted for bio-diesel is leaving less quantity available, both for the
domestic cooking oil and export market.

Impact on India:

● India is the world’s biggest vegetable oils importer.

● Out of its annual imports of 14-15 mt, the lion’s share is of palm oil (8-9 mt), followed by
soyabean (3-3.5 mt) and sunflower (2.5).
● Indonesia has been India’s top supplier of palm oil, though it was overtaken by Malaysia in
2021-22 (see above table).

4. SMART PROTEIN
Subject: Science & Tech
Section: Science
Context- Smart protein’s potential as a sustainable alternative to industrial animal farming.

Concept-
● Smart protein is a rapidly-growing sector pioneering foods which provide a viable alternative to
conventional meat, eggs, and dairy.
● The sector encompasses products made from plants and cell cultivation, eliminating the need to
inefficiently cycled calories through animals, freeing up huge tracts of land, saving huge
quantities of water, and eliminating huge quantities of emissions.
● Smart proteins also do not require the use of antibiotics and eliminate the risk of zoonotic
disease.
● Smart proteins fit into three categories from a production, cost, and infrastructure perspective,
namely:
○ Plant-based proteins;
○ fermentation-derived proteins, using whole-biomass and precision fermentation
techniques; and
○ cultivated meat, using cell culture techniques.
● All of these exhibit substantial benefits relative to animal agriculture with regard to land use,
climate change, environmental pollution, and public health risk factors because they eliminate
animal rearing and slaughter from the process.
● Producing meats directly from plants and cultivating meat directly from cells, for example, uses
anywhere from 35 to 99 per cent less land than conventional meat production.

India’s Role in the Global Smart Protein Sector:

● A sunrise sector like plant-based meats alone will form anywhere from a US $100 to US $370
billion global industry over the next 15 years—and with the right push, India stands to benefit
enormously from that growth.
● India has tremendous crop biodiversity, with crops such as pulses, millets and hemp,
offering huge promise to diversify raw materials for the entire global smart protein sector.
● Plant-based and cultivated meat can be made from a wide variety of high-value crops and will
support the growth of a more biodiverse and resilient food supply.
● Apart from rich agricultural landscapes, India has expansive food processing infrastructure and
manufacturing power. There exists great scope for decentralised food processing infrastructure
and processing closer to farms.
● India’s existing capabilities in biopharmaceutical manufacturing and fermentation
capabilities could lend itself to the alternative protein sector as raw materials and ingredients
providers or suppliers of end products.
● Lower labour costs and a large, educated workforce mean that, in theory, the cost of
experimentation in India is lower than in developed markets. Inspiring talent with translational
skill sets to enter the smart protein sector, and navigating issues with ease of doing business and
infrastructure, will be key to realising this potential.
5. Gucchi Mushroom
Subject: Environment
Section: Species in news
Context: Uncertainty in availability, makes ‘guchhi’ hunting a difficult occupation in Himachal
About Gucchi Mushroom
 In India, guchhi is found in Jammu, Kashmir, and some higher altitude districts of Himachal
Pradesh and Uttarakhand.
 It is one of the most expensive edible fungi in the Morchellaceae family, botanically termed
as Morchella esculenta.
 Morchella mushrooms grow naturally post February in moist soil and aren’t yet cultivated
artificially in India.
 Their growth is believed to be begin post snowfall, after thunderstorms.
 They are pale yellow in colour with large pits and ridges on the surface of the cap, raised on a
large white stem.
 Is known for its spongy,
honeycombed head and
savoury flavour.
 Benefits- They are rich
in antioxidant and
antimicrobial properties that
prevent health issues
including heart diseases and
diabetes by removing reactive
oxygen species that harm the
body.
 With rising temperatures leading to less moisture in the soil, the natural growing conditions of
guchhi are reducing, leading to a decrease in the availability of the mushrooms.
 Methods to artificially grow these morel mushrooms are being experimented.
6. Declare veg, non-veg labels on food packages, says FSSAI
Subject: Polity
Section: National Organization
FSSAI’s latest order:
 The Food Safety and Standards Authority of India (FSSAI), in its latest order, has clarified that
food businesses need to declare non-vegetarian logo on product labels in case it contains any
animal-derived ingredient irrespective of its content percentage.
 The authority said the obligation upon the food business operators to make a disclosure of
whether the product is vegetarian or non-vegetarian is stipulated in the FSS (Packaging &
Labelling) Regulations, 2011.
 According to FSSAI’s norms, every package of non-vegetarian food containing ingredients,
including food additives, processing aids of animal origin “shall bear a declaration to this
effect made by a symbol and colour code” in line with the stipulated provisions. It states that
compound ingredients, which is a product of two or more ingredients, should be declared
by their specific names.
o Where a compound ingredient constitutes less than 5 per cent of the food, the ingredients,
other than food additives that serve the technological function in the food products, need
not be declared
 FSSAI has also directed State food safety commissioners to ensure strict enforcement of the
norms and to sensitise all packaged food companies in their respective jurisdiction.

Front of-Pack (FOP) Labelling

s://optimizeias.com/front-of-pack-fop-labelling/
Food Safety and Standards Authority of India (FSSAI)
s://optimizeias.com/food-safety-and-standards-authority-of-india-fssai/

7. India seeks synergy in rules governing its forests

Subject: Environment
Section:
Context: The task force has been created by the union environment ministry on March 31 and it has
been asked to present its report within 60 days.
Background:
  2014 report by a committee led by former cabinet secretary T.S.R. Subramanian, which
suggested an overhaul of environment and forest laws. The implementation of this report,
however, was shelved due to massive resistance against it.
 It was followed by the MoEFCC unveiling a draft National Forest Policy (NFP) in June
2016 but when the proposal was criticised for being weak in protecting forests and diluting the
then-existing regulations, the environment ministry had backtracked calling it just a “study”.
 Later, in 2018, the central government officially unveiled the draft of the NFP. It was under
fire for alleged attempts to dilute forest management and involve the private sector in forest
management. Since then, it has been revised a couple of times but, so far, no final decision has
been taken on this crucial policy which once passed would guide the sector for at least the next 20
years.
 In October 2021, the MoEFCC had unveiled a note seeking comments on amendments in the
Forest Conservation Act 1980 – a decision that environmentalists fear that the proposed
amendment would result in more forest areas being opened up for projects including mining.
 The government of India has been trying to change how India’s forests are governed, especially
the national forest policy, for at least six years now but has been unable to do so due to severe
resistance.
 The Indian government has now formed a task force to develop a synergy between various
laws related to the conservation and protection of forests including the regulation of trees
outside forests and agroforestry.
Need for new Forest Policy:
 Take into account the changes that have come into laws that deal with forests, climate change,
pollution and other pressing requirements of the present times since the last version
 India also has ambitious afforestation plans. Going forward, it has a target of having about 33
percent of its total geographical area under forest cover compared to about 22 percent at
present.
 Moreover, before the 2015 Paris Agreement, India had pledged “to create an additional
(cumulative) carbon sink of 2.5-3 GtCO2e through additional forest and tree cover by 2030”.
National Forest Policy, 1988

The principal aim of National Forest Policy, 1988 is to ensure environmental stability and maintenance
of ecological balance including atmospheric equilibrium which are vital for sustenance of all life forms,
human, animal and plant. The derivation of direct economic benefit must be subordinate to this
principal aim.
 Since, inception of the Forest Policy 1988 the forest and tree cover in the country has increased
from 19.7 % of geographical area (State Forest Report, 1987) to 23.4 % of the geographical area (State
Forest Report, 2005) and is indicative of the facts that the forest policy prescriptions are
helping gradually towards achieving environmental stability and maintenance of the ecological
balance. The major achievements of National Forest Policy, 1988, inter alia, are as follows:

 Increase in the forest and tree cover.

 Involvement of local communities in the protection, conservation and management of forests
through Joint Forest Management Programme.
 Meeting the requirement of fuel wood, fodder minor forest produce and small timber of the
rural and tribal populations.
 Conservation of Biological Diversity and Genetic Resources of the country through ex-situ and
in-situ conservation measures.
 Significant contribution in maintenance of environment and ecological stability in the country.

The basic objectives that should govern the National Forest Policy- are the following:

 Maintenance of environmental stability through preservation and, where necessary, restoration

of the ecological balance that has been adversely disturbed by serous depletion of the forests of
the country.
 Conserving the natural heritage of the country by preserving the remaining natural forests with
the vast variety of flora and fauna, which represent the remarkable biological diversity and
genetic resources of the country.
 Checking soil erosion and denudation in the catchments areas of rivers, lakes, reservoirs in the
“interest of soil and water conservation, for mitigating floods and droughts and for the
retardation of siltation of reservoirs.
 Checking the extension of sand-dunes in the desert areas of Rajasthan and along the coastal
tracts.
 Increasing substantially the forest/tree cover in the country through massive afforestation and
social forestry programmes, especially on all denuded, degraded and unproductive lands.
 Meeting the requirements of fuel-wood, fodder, minor forest produce and small timber of the
rural and tribal populations.
 Increasing the productivity of forests to meet essential national needs.
 Encouraging efficient utilisation of forest produce and maximizing substitution of wood.
 Creating a massive people’s movement with the involvement of women, for achieving these
objectives and to minimize pressure on existing forests.
8. Monetary Policy Committee Meeting
Subject: Economy
Section: Monetary Policy

Context:

First bi-monthly monetary policy meeting of the current fiscal was conducted by the Monetary Policy
Committee

Minutes of the meeting:

 Continuation of the accommodative stance and keeping the repo rates and reverse repo rates
changed at 4 percent and 3.35 per cent respectively.
 Kept bank rates unchanged at 4.25 per cent.
 Raised inflation projections for the country to 5.7 percent from 4.5 percent. For FY 2023,
inflation is now projected Q1 at 6.3 per cent; Q2 at 5.8 per cent; Q3 at 5.4 per cent; and Q4 at
5.1 per cent.
 Cut growth projections for India to 7.2 cent from 7.8 percent. Growth is expected to be 16.2 per
cent in Q1; 6.2 percent in Q2 ; 4.1 percent in Q3; and 4.0 per cent in Q4.
 Current account deficit to remain at sustainable levels at 8%
 Gradual and calibrated withdrawal of Rs 8.5 lakh crore liquidity from the system beginning
this year, over a multi-year time frame in a non-disruptive manner of by:
o Introduction of the Standing Deposit Facility or SDF at 3.75 percent, 0.25 per cent
below the repo rate and 0.50 per cent lower than the marginal standing facility (MSF).
o Narrowing the liquidity adjustment facility (LAF) to 0.50 per cent from the 0.90 per
cent.
o The fixed rate reverse repo continues to be at 3.35 percent and will remain as part of the
RBI’s toolkit whose operation will be at the discretion of the central bank.
o Enhance the limit for inclusion of SLR (statutory liquidity ratio) eligible securities in
the HTM (held to maturity) category to 23 per cent.
Concept:
 Bank rate is the minimum rate at which the central bank lends money and rediscounts first-class
bills of exchange and securities held by commercial banks. When RBI gets a hint that inflation is
rising, it increases the bank interest rates so that commercial banks borrow less money and the
inflation stays under control
 Legal Ratio-To maintain liquidity and to control credit in the economy, the RBI also keeps a
certain amount of cash reserves. These reserve ratios are known as SLR (Statutory Liquidity
Ratio) and CRR (Cash Reserve Ratio), increase in both of these ratios lead to decline in
inflation.
o Cash Reserve Ratio (CRR) is a specific part of the total deposit that is held as a reserve
by the commercial banks and is mandated by the Reserve Bank of India (RBI). This
specific amount is held as a reserve in the form of cash or cash equivalent which is stored
in the bank’s vault or is sent to the RBI. CRR ensures that the banks do not run out of
money.
Cash Reserve Ratio in India is decided by the Monetary Policy Committee (MPC) under
the periodic Monetary and Credit Policy. If the CRR is low, the liquidity with the bank
increases, which in turn goes into investment and lending and vice-versa.
o Statutory Liquidity Ratio or SLR is the minimum percentage of deposits that a
commercial bank has to maintain in the form of liquid cash, gold or other securities. It is
basically the reserve requirement that banks are expected to keep before offering credit to
 customers. The SLR is fixed by the RBI and is a form of control over the credit growth in
India.
The government uses the SLR to regulate inflation and fuel growth. Increasing the SLR
will control inflation in the economy while decreasing the statutory liquidity rate will
cause growth in the economy. The SLR was prescribed by Section 24 (2A) of Banking
Regulation Act, 1949.
 Liquidity Adjustment Facility-It is a monetary policy tool used largely by the Reserve Bank of
India (RBI) that controls the liquidity of money supply in the economy. It is done by either
allowing banks to borrow money via repurchase agreements (repos) or lend loans to the RBI via
reverse repo agreements.
Liquidity Adjustment Facility was recommended by the Narasimhan Committee on Banking
Reforms and was introduced by the RBI in 1998.
There are two main components of Liquidity Adjustment Facility (LAF):
o Repo Rate: It is the rate at which the Reserve Bank of India (RBI) lends to other banks.
o Reverse Repo Rate: It is the rate at which the Reserve Bank of India (RBI) borrows
from commercial banks.
 Repo rate is a rate at which commercial banks borrow money by selling their securities to the
RBI to maintain liquidity. A rise in Repo rate makes borrowing costlier thus, reduces inflation.
 Reverse Repo Rate-At the time of higher inflation in the country, RBI increases the reverse repo
rate that encourages banks to park more funds with the RBI, which will help it earn higher returns
on excess funds. It is conducted at a fixed and variable rate.
 The Marginal Standing Facility (MSF)- refers to the facility under which scheduled
commercial banks can borrow an additional amount of overnight money from the central bank
over and above what is available to them through the LAF (liquidity adjustment facility) window
by dipping into their Statutory Liquidity Ratio (SLR) portfolio up to a limit.Banks borrow from
the RBI by pledging government securities at a rate greater than the repo rate under LAF
(liquidity adjustment facility). The MSF rate is pegged 100 basis points or a percentage point
above the repo rate.
 Standing Deposit Facility (SDF) -at 3.75 per cent, 0.25 per cent below the repo rate and 0.50 per
cent lower than the marginal standing facility (MSF) which helps the banks with funds when
required.
The SDF has its origins in a 2018 amendment to the RBI Act and is an additional tool for
absorbing liquidity without any collateral. It will replace the fixed rate reverse repo (FRRR) as
the floor of the LAF corridor.
Thus,the LAF corridor will be symmetric around the policy repo rate with the MSF rate as the
ceiling and the SDF rate as the floor with immediate effect.
Access to SDF and MSF will be at the discretion of banks, unlike repo/reverse repo, OMO and
CRR which are available at the discretion of the Reserve Bank.
 The entire investment portfolio of the banks (including SLR securities and non-SLR securities)
are classified under three categories viz. ‘Held to Maturity’, ‘Available for Sale’ and ‘Held for
Trading’.
Held-to-maturity securities are debt security investments which the holder has the intention and
ability to hold until a specific date of maturity. The investments classified under HTM need not
be marked to market and will be carried at acquisition cost, as subsequent changes in market
value are ignored because the return is predetermined.
Monetary policy stance
Accommodative
Hawkish Monetary Policy Stance
Dovish
Features
 An accommodative stance means the
central bank is prepared to expand the
money supply to boost economic growth.
 The central bank, during an
accommodative policy period, is willing
to cut the interest rates.
 This is also known as “easy monetary
policy”.
 Accommodative money policy is
triggered to encourage more spending
from consumers and businesses by
making money less expensive to borrow
through the lowering of short-term
interest rates.
 A hawkish stance indicates that the
central bank’s top priority is to keep the
inflation low. During such a phase, the
central bank is willing to hike interest
rates to curb money supply and thus
reduce the demand.
 A hawkish policy also indicates tight
monetary policy.
 When the central bank increases rates or
'tighten' the monetary policy, banks too
increase their rate of interest on loans to
end borrowers which, in turn, curbs
demand in the financial system.
 Because of the high interest rates,
borrowing (taking loans from banks) will
become less attractive.
 This would lead to low domestic demand
for Goods & Services. As a result of low
demand, prices of Goods & Services
would tend to stabilise. This would
prevent inflation. This is a complete
circle.
 An increase in interest rates can cause a
strengthening of the country’s currency.
 This monetary policy stance involves low
interest rates.
  Low-Interest Rates would entice
consumers to take credit (loans) from
Banks and other sources.
 As the demand increases, the prices of
Goods & Services would rise/increase.
 Inflation will cause to balance Economic
Growth.
 Economists who recommend Dovish
Monetary Policy Stance, typically believe
that lower interest rates will lead to a hike
in Employment and an increase in
Economic Growth.
 This stance might also lead to a possible
weakening of the country’s currency

Neutral  A ‘neutral stance’ suggests that the central

bank can either cut rate or increase rate.
 This stance is typically adopted when the
policy priority is equal on both inflation
and growth. During neutral policy, the
central bank doesn’t commit to hike rates
or cut.
 The interest rate can move to either sides
depending on incoming data. The
guidance indicates that the market can
expect a rate action on either way at any
point

9. Priority Sector Lending Certificates (PSLCs)

Subject: Economy
Section: Banking

Concept:
 The Priority Sector Lending Certificates (PSLCs) scheme, was operationalised by the RBI in
April 2016, on recommendations of the Planning Commission’s Committee on Financial
Sector Reforms headed by Raghuram Rajan.

 Priority Sector Lending Certificates (PSLCs) are instruments that enable banks to achieve
their priority sector lending targets without actually disbursing loans to sectors outside their
comfort zone. PSL certificates allow banks sitting on surplus loans to a priority sector to sell
certificates to banks that haven’t met their targets, pocketing a sizable fee for this trade. The said
loans however do not change hands.
  Priority Sector Lending-The RBI mandates banks to lend a minimum of 40 percent of their total
loans to priority sectors such as agriculture, education, social housing, and micro enterprises.
Aside from the overall target, banks are also required to meet sub-targets within this, such as 18
per cent towards agriculture (8 per cent for small and marginal farmers), 7.5 per cent for micro
enterprises and 10 per cent for weaker sections.

 April 2016 onwards, the RBI launched an online trading platform — the PSLC platform — to
allow banks to trade in PSLCs to meet the sectoral sub-targets. Rather than offering fresh
loans, banks were only required to hold PSLCs reflecting lending by others. The RBI’s core
banking solution portal, e-Kuber, facilitates trading in PSLCs.

 Normally, PSLCs are issued against the underlying assets; however, in the transaction, there is
no transfer of risks or loan assets from the seller to buyer.
There are four types of PSLCs:
1. Agriculture,
2. Small/Marginal
3. Farmers, Micro Enterprises
4. General
 A bank having a shortfall in achievement of any sub-target will have to buy the specific PSLC to
achieve the target. However, if a bank is having shortfall in achievement of the overall target
only, as applicable to it, it may buy any of the available PSLCs.
 PSLCs help banks reach the stipulated PSL targets in contrast to ‘incentivising’ them to
actually increase their PSL as a surplus holder can sell PSLCs at the market price.

 Under the Goods and Services Tax, PSLCs are taxable as goodsat a standard rate of 18 per
cent. The private banks and foreign banks are the major buyers, and PSBs, RRBs and SFBs as
major sellers. To balance the risk-transfer, there is a provision to issue PSLCs up to 50 per cent of
the previous year’s PSL achievement, without having the underlying value in its books.

10. Zero-Coupon Bonds

Subject: Economy
Section: Banking

The Income Tax department has amended rules to enable infrastructure debt funds and NBFCs to issue
zero-coupon bonds. Accordingly, the infrastructure debt fund can issue zero-coupon bonds (ZCBs) apart
from rupee-denominated bonds or foreign currency bonds.

Details:
  ZCB can be issued in accordance with rule 8 B of the Income Tax Rules. Among other things, the
rule prescribes the period of the bond as 10 years to 20 years.
 The fund should have an investment grade rating from at least two credit rating agencies.
 The bonds will be listed on stock exchanges.
 Debt funds will be required to invest 25 per cent or more of money collected through ZCBs
before the end of the financial year and the remaining money will be invested in the next four
financial years.
 Debt funds shall also give an undertaking that a sinking fund will be maintained for the interest
which will accrue on all the ZCBs subscribed

Concept:
A zero-coupon bond is a debt security that does not pay interest but instead trades at a deep discount,
rendering a profit at maturity, when the bond is redeemed for its full face value. Examples of zero-
coupon bonds include Gsec,US Treasury bills, US savings bonds, long-term zero-coupon bonds, and
any type of coupon bond that has been stripped of its coupons.
Zero-coupon bonds trade at deep discounts, offering full face value (par) profits at maturity. The
difference between the purchase price of a zero-coupon bond and the par value, indicates the investor’s
return. No interest payments are made on such bonds at periodic intervals before maturity. For example,
a bond with a face value of Rs 100 may be issued at Rs 85 for a duration of two years. At the end of
the two years, the bondholders will get Rs 100, implying an interest income of Rs 15.
Because they offer the entire payment at maturity, zero-coupon bonds tend to fluctuate in price, much
more so than coupon bonds. A zero-coupon bond is also known as an accrual bond.

Investors in ZCBs may face interest rates risk if sold prior to the date of maturity. Its value is inversely
related to the rise in the interest rates.
In terms of taxation, investors in notified ZCBs are liable to pay only capital gains tax on maturity.
Capital appreciation in such cases is the difference between the maturity price and purchase price of the
bond.
 These bonds are considered ideal for people who require funds at a specific period of time in the
future, like children’s education or retirement or a planned tour.
 Also, if one is not interested in watching the market trends and likes the comfort of the ‘invest
and forget’ strategy, then she/he can consider ZCBs.
 Such bonds are also useful in securing a guaranteed return for a fixed time period.