Context: India is on the verge of finalizing a deal to acquire exploration and development rights for five lithium blocks in Argentina. The agreement is set to be formalized between Khanij Bidesh India Ltd. (KABIL) and CAMYEN, a state-owned mining and energy company in Argentina.

About Lithium:

Properties:

• Lithium, denoted by the symbol Li and atomic number 3, is classified as a chemical element.
• Belonging to the alkali metal group on the periodic table, it is characterized as a soft, silvery-white metal.
• Its high reactivity is attributed to its position within the alkali metal group.
• Lithium finds diverse industrial applications, with its primary use in rechargeable lithium-ion batteries.
• These batteries are extensively utilized in electronic devices like smartphones, laptops, and electric vehicles.
• Lithium-ion batteries have emerged as crucial technology for energy storage solutions.
• Widely adopted in portable electronic devices, electric vehicles, and grid energy storage, they play a pivotal role in the global transition to renewable energy.
• The majority of the world's lithium production is concentrated in countries such as Australia, Chile, and Argentina.
• These nations possess substantial lithium reserves and serve as key contributors to the global lithium market.

Lithium Triangle

• The term "Lithium Triangle" denotes a South American region renowned for hosting some of the globe's most substantial lithium reserves.
• This triangular area encompasses portions of Argentina, Bolivia, and Chile. Collectively, Argentina, Bolivia, and Chile are estimated to hold 58 percent of the world's recognized lithium reserves.
• The abundance of lithium Resources in this region positions these three nations as major contributors to the global lithium market.

India's Engagement with Lithium Triangle Countries (LTCs)

• India has been actively expanding its diplomatic ties with Lithium Triangle Countries (LTCs) in pursuit of accessing vital mineral Resources.
• The primary objective is to secure lithium Resources, especially for the escalating demand in lithium-ion batteries, notably within the realms of electric vehicles (EVs) and renewable energy storage.
• As part of this initiative, India has launched an ambitious plan under the Production-Linked Incentive (PLI) scheme to manufacture Advanced Chemistry Cells (ACC) and enhance battery production.
• Despite these endeavors, India currently relies entirely on imports for 100 percent of its lithium metal, primarily sourcing from East Asian countries like China, Hong Kong, Taiwan, and the Republic of Korea for battery production.
• Notably, Indian states like Telangana aspire to position themselves as the hub for EV manufacturing within the country.
• While actively seeking critical minerals abroad, India is also exploring domestic lithium deposits, including those in regions like Jammu and Kashmir. This dual approach underscores India's strategic efforts to ensure a stable supply chain and strengthen its position in the global lithium landscape.

India's collaboration with the nations in the Lithium Triangle aligns with its comprehensive approach to establishing a dependable supply chain for crucial minerals, particularly those vital for manufacturing lithium-ion batteries. The government's emphasis on encouraging the use of electric vehicles is driven by environmental considerations and the goal of diminishing reliance on fossil fuels. The assurance of a consistent and dependable lithium supply is paramount for the advancement and expansion of the electric vehicle sector in India.

Context: Refusing to hand over a probe into allegations of the Hindenburg Research report on Adani Group to a Special Investigation Team, the Supreme Court asked market regulator SEBI to continue with its investigations and complete the probe in three months.

Background:

• In late January, Hindenburg Research, which specialises in short selling, published a report critical of the group’s finances. The research firm, which has short positions in Adani companies through US-traded bonds and non-Indian-traded derivative instruments, said key listed companies in the group had “substantial debt” which has put the entire group on a “precarious financial footing”.
• Since the day  Hindenburg Research accused industrialist Gautam Adani-led conglomerate of “brazen stock manipulation and accounting fraud scheme over the course of decades”, shares of Adani Group companies have nosedived.
• Adani, who until recently was the richest Indian in the world, has now slipped to 22nd spot in the Forbes Real-time billionaire list for 2023.
• • Hindenburg Research is an investment research firm that focuses on analysing accounting irregularities, undisclosed indenburg Research transactions, illegal business or financial reporting practices among others.
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  • It alleged that Gautam Adani, founder and chairman of the Adani  group, has added over $100 billion to his net worth over the last three years, largely through stock manipulation and fraud.
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  • The research firm has raised concerns about its substantial debt.
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  • Hindenburg alleged that Adani used offshore shells for money laundering and siphoned from listed companies.
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  • Hindenburg revealed about short positions in Adani companies through bonds and non-Indian-traded derivative instruments.
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  • As per India’s tax and SEBI laws, short selling of domestic stocks outside the country’s jurisdiction is illegal unless they are listed on any exchange.
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  • While Adani bonds are listed on the US exchange, Hindenburg’s reference to the ‘non-Indian-traded derivatives’ raised the alarm for Indian regulators.

News:

The two aspects of the Hindenburg Research allegations against the Adani Group which market regulator Securities and Exchange Board of India is still probing are:

i) ownership of 12 foreign portfolio investors who hold stake in the companies of the group, and

ii) short sellers (selling without owning) in Adani shares during January 18-31 last year (around the time of the release of the Hindenburg report).

This investigation is being conducted by the regulator to find if there has been a violation of Section 19A of the Securities Contract (Regulation) Act, which stipulates minimum 25% public shareholding in listed companies.

Short selling

It is also known as "shorting," is a trading strategy where an investor sells a security that they do not own, with the expectation that its price will fall. The investor borrows the security through a broker and sells it on the open market, aiming to buy it back later at a lower price to make a profit. Short selling is considered an advanced strategy that carries high risk and requires careful analysis and timing

Follow-on Public Offer

An FPO, or Follow-on Public Offer, is a process where a company that is already publicly listed on the stock market issues additional shares to investors. This is done after the company has gone through an Initial Public Offering (IPO) and decides to make more of its shares available.

The purpose of an FPO is to diversify the company's equity base and raise additional funds for various reasons, such as financing expansion plans, paying off debt, or funding acquisitions.

The FPO process is similar to an IPO, requiring issuers to draft an offering document and allot shares to investors before listing them on the stock exchange.

There are two main types of FPOs: dilutive, where new shares are added, and non-dilutive, where existing private shares are sold publicly. Non-dilutive FPOs do not decrease the valuation and the ownership percentage of the company. Successful FPOs require careful planning, market analysis, and risk management

Free-float methodology in stock market capitalization: This method calculates the market capitalization of a stock market by taking the equity's price and multiplying it by the number of outstanding shares available for public trading, excluding locked-in shares held by insiders, promoters, governments, and other private parties. The free-float methodology is sometimes referred to as float-adjusted capitalization. It is considered a better way of determining market capitalization as it provides a more accurate representation of a company's worth according to public investors

Impacts of such events on the economy

• Impact on Capital Flow: MSCI's decision is expected to have a negative effect on the capital inflow into Adani stocks, particularly from passive investors who follow indices constructed by entities like MSCI.
• Decline in India’s Index Weight: According to Goldman Sachs, India's weight in MSCI's emerging markets index may decrease by 20-30 basis points due to the reduced weight of Adani stocks.
• Impact on Banks: Apart from the decline in Adani Group shares, banks, including the State Bank of India, which have provided loans to these companies, are also experiencing negative repercussions.
• Affecting Investor Confidence: The negative attention generated by Adani-related headlines has the potential to dampen investor interest in Indian stocks, impacting overall investor confidence.
• Consequences for Capital Raising: The ongoing developments can adversely affect the Adani Group's attempts to raise capital, whether through equity or debt offerings.
• Shortage of Shares: Indian-listed entities are facing a shortage of shares available for short sellers to borrow, leading to higher costs for such transactions.
• Impact on India’s Growth Narrative: If the downward trend in asset prices persists and further erodes investor confidence in the Adani empire, it could pose a setback to India's growth narrative, especially at a critical juncture.

National Research Centre on Litchi (NRCL) has successfully expanded litchi cultivation in India by providing technical help, plants and training to farmers.

• It is a sweet juicy fruit which is also known as lychee or lichee.
• Scientific name – Litchi chinensis under soapberry family (Sapindaceae).
• It is a small, oval roundish fruit that is native to Southeast Asia.
• Growing conditions – A sensitive fruit influenced by temperature, rainfall, humidity and soil suitability as well.
• Climate changes can make the fruit to grow smaller, less sweet and juicy and crack.
• In India – It mainly grows in the foothills of the Himalayas in Uttarakhand, Bihar, West Bengal and Jharkhand.
• Commercial cultivation – More than 0.1 million hectares of land across 19 Indian states including Andhra Pradesh, Tamil Nadu, Karnataka, Mizoram among others.
• Litchi harvest – It takes place in summer in North India while in Karnataka, it takes place in the winter.
• Production – Bihar, West Bengal, Jharkhand and Assam accounts for 78% of the total production in the country.
• Bihar alone produces 43% of total litchi and occupies nearly 35% of the area in India.

Muzaffarpur region of Bihar, the litchi capital of India.

• Popular varieties – Shahi litchi, China, Gandki Lalima, Gandki Sampada and Gandki Yogita.

Shahi litchifrom Bihar known for its sweet, juicy, unique flavour and aroma with pearly white aril has a Geographical Indication (GI) tag.

Litchi fruit contains a toxin, methylene cyclopropyl-glycine (MCPG), which is known to be fatal by causing encephalitis-related deaths.  This is especially harmful when consumed by malnourished children.

Recently, India released a document titled ‘Re-examining Narratives: A Collection of Essays’ to present alternate perspectives on economic policy that have long-term implications for India’s growth and development priorities.

What are credit rating agencies?

Credit Rating Agencies (CRA) – According to IMF, they are private companies that assess credit risk of borrowers that seeks loans and issue fixed-income securities, such as bonds.

Beneficiary – Individuals, corporation, State or provincial authority, or sovereign government.

• Prospective borrowers often must obtain a credit rating before they try to raise money in capital markets.

Lending parameters – Ratings contributes to the determination of the interest rate, or price, the borrower must pay for financing.

• In India, CRAs are regulated by SEBI (Credit Rating Agencies) Regulations, 1999 of the Securities and Exchange Board of India Act, 1992.

6 Credit Rating Agencies (CRA) registered under SEBI are CRISIL, ICRA, CARE, SMERA, Fitch India and Brickwork Ratings.

sovereign credit rating?

• An independent assessment of the creditworthiness of a country or sovereign entity.
• Determining factors
  • Per capita income
  • GDP growth
  • Rate of inflation
  • Short-term external debt as a % of GDP
  • Economic development
  • History of defaults
  • Political stability.
• By allowing external credit rating agencies to review its economy, a country shows that it is willing to make its financial information public to investors.

Why do sovereign ratings matter?

• Marker for investors – They provide about the creditworthiness of governments around the world and their ability and willingness to pay back debt.
• Impact borrowing capacity – A poor sovereign rating can inhibit the country’s ability to borrow money from rich investors.
• Governments with lower sovereign ratings have to pay higher interest rates when they borrow.
• Influence businesses – If the sovereign rating of a country’s government is low, the businesses of that country end up with even higher interest rate when they borrow from global investors.
• Supports development – A good rating can make developing countries (which lack capital) easier to become more productive and remove mass poverty.

Which are the main rating agencies?

• Sovereign credit ratings predate the Bretton Woods institutions, i.e., the World Bank and the International Monetary Fund.
• 3 main agencies – Moody’s, Standard & Poor’s and Fitch are globally recognised credit rating agencies.
• Moody’s is the oldest which was established in 1900 and issued its 1^st sovereign ratings just before World War I.
• In the 1920s, Poor’s Publishing and Standard Statistics, the predecessor of S&P, started rating government bonds.

While S&P and Fitch rate India at BBB, Moody’s rates the South Asian country at Baa3, which indicates the lowest possible investment grade, albeit with a stable outlook.

• While the US and European countries have enjoyed a good record, ratings have been affected by global events.
  • For instance, sovereign defaults spiked during the 1930s Depression, and most ratings were downgraded.

What is the government’s criticism?

• The Finance Ministry has pointed out issues with the methodologies used by the rating agencies.
• External influences - According to the document from ‘Fitch’, the rating agency takes comfort from high levels of foreign ownership in the banking sector
• Bias over public banks – It discriminates developing countries where the banking sector is primarily run by the public sector.
• It also ignores the public banks’ welfare and development functions including their role in promoting financial inclusion.
• Opaqueness – Non transparent manner of selection of the experts consulted for the rating assessments.
• Weightage issues – Agencies do not convey clearly the assigned weights for each parameter considered.
• Composite governance indicator (weight of 21.4) is only based on the World Bank’s Worldwide Governance Indicators (WGI)that uses indices such as freedom of expression, freedom of media, rule of law, corruption, quality of regulation, etc. but does not capture hard economic data.