5. Economy1- -68T

Question 1

1. BANKING AND MONETARY POLICY 1.1. COMMERCIAL BANKS AND BAD LOANS 1.1.1. INDIA POST’S PAYMENT BANK

Answer 1

Why in news?
 Union Cabinet has approved the setting up of India Post’s
Payments Bank at a total project cost of Rs 800 crore.
Significance
 Financial inclusion- extensive reach and spread of basic
financial services to blocks, taluks and villages ensuring last
mile connectivity.
 Provision of debit facility in remote areas.

What are payment banks?
 Payment banks are non-full service
banks, whose main objective is to
accelerate financial inclusion.
 Payments banks will mainly deal in
transfer and remittance services and
accept deposits of up to Rs 1 lakh.
 They will not lend to customers and will
have to deploy their funds in
government papers and bank deposits.
 They can accept demand deposit, issue
ATM/debit cards but not credit cards.

Question 2

1.1.2. MERGER OF SBI ASSOCIATED BANKS

Answer 2

Why in news?
The boards of State Bank of Bikaner & Jaipur (SBBJ), State Bank of
Mysore (SBM), State Bank of Travancore (SBT), the unlisted State
Bank of Hyderabad (SBH), State Bank of Patiala (SBP) and
Bharatiya Mahila Bank approved the scheme of merger with State
Bank of India.
Benefits of the Merger
 It would improve the economies of scale leading to reduction
of cost on account of treasury operations, audit, and
technology, among others.
 Help in meeting BASEL-III norms. Improvement in small banks in terms of technological know-how,
international standards, innovative products, professional standards etc.

BASEL III
 BASEL III is an international banking
regulatory accord released by the Basel
Committee on Banking Supervision.
 It aimed to strengthen the global
financial system post the 2008 crisis.
 It has been designed to improve the
regulation, supervision and
management within the banking sector.
 BASEL III norms were adopted in India in
a phased manner since January, 2013.

Question 3

1.1.3. DOMESTIC SYSTEMICALLY IMPORTANT BANKS (D-SIBS)

Answer 3

Why in news?
 The Reserve bank of India (RBI) has identified public sector lender State Bank of India (SBI) and its private
sector peer ICICI Bank as domestic systemically important banks (D-SIBs) in 2016.
What is it?
 SIBs are perceived as certain big banks in the country. They enjoy a huge customer base and also engage
in cross sector activities (insurance/pension). They are perceived as ‘Too Big to Fail (TBTF)’.
 As they command such a huge consumer base as well have NBFC subsidiary therefore they have
expectation of government support at the time of distress.
 Due to this perception these banks may indulge in reckless practices. Therefore D-SIBS are required to
maintain additional capital requirements as notified by the RBI.
 There are two types of SIBs:
 Global SIBs; the identified by BCBS.
 Domestic SIBs; by central Bank of the country

Question 4

1.1.4. EXIM BANK

Answer 4

 Export-Import Bank of India is a wholly owned Govt. of India entity setup in 1982 for financing, facilitating
and promoting foreign trade of India.
 The EXIM bank extends Line of Credit (loC) to overseas financial institutions, regional development banks,
sovereign governments and other entities abroad.
 Thus the EXIM Banks enables buyers in those countries to import developmental and infrastructure,
equipment’s, goods and services from India on deferred credit terms.
 The bank also facilitates investment by Indian companies abroad for setting up joint ventures, subsidiaries
or overseas acquisitions.

Question 5

1.1.5. SMALL FINANCE BANK

Answer 5

Why in News?
 Recently micro lenders, Suryoday and Utkarsh, have started small finance banks (SFBs).
 They are offering interest rates of more than 6% (as compared to 4% offered by commercial banks) for
savings bank deposits.
What are Small Finance Banks?
 SFBs was recommended by the Nachiket Mor committee on financial inclusion
 They are niche banks (banks that focuses and serves the needs of a certain demographic segment of the
population).The SGBs are scaled down versions of commercial banks, with both deposit-taking and loanmaking
functions.
 They can supply credit to MSMEs, agriculture and banking services in unbanked and under-banked regions
in the country.
Characteristics of SFBs
 Resident individuals/professionals carrying 10 years of experience in banking and finance and companies
and societies owned and controlled by residents will be eligible to set up small finance banks.
 SFBs have a minimum paid up capital of Rs.100 crore.
 SFBs can sell FOREX, mutual funds, insurance, pensions and can also convert into a full-fledged bank.

Question 6

1.1.6. FIXING PSU BANKS

Answer 6

Background
 Our banks are saddled with too many non-performing loans
and credit expansion has slowed dramatically. It has been
referred to as ‘Balance Sheet Syndrome with Indian
characteristics’.
 Contracting credit conditions: Corporate profits are low while
debts are rising, forcing firms to cut investment to preserve cashflow (twin balance sheet problem)
Solutions
 This requires action on 4 fronts or 4 Rs: Recognition, Recapitalization, Resolution, and Reform.
Need for Recapitalization of public sector banks
 Both restructured assets and stressed assets are
currently shown as performing, but a large part could
well turn into NPAs in the next two years.
 Steps taken: Recapitalization using special declaration
of dividends from the built-up reserves in RBI,
o Implementation of Indradhanush Scheme.
 Bad banks Steps taken:
o RBI has devised two schemes for the purpose of fresh capital from investors and new management.
Strategic debt restructuring (SDR) scheme and Scheme for Sustainable Structuring of Stressed Assets
(S4A).
o The proposed National Infrastructure and Investment Fund (NIIF), operating with private partners,
will provide both equity and new credit to stressed infra projects going through the SDR mechanism.
What is NIIF?
 It is a fund created by the Government of India for enhancing infrastructure financing in the country.
 It is registered as a category II alternative investment fund with the Securities and Exchange Board of
India.
 A sort of sovereign fund, for development of infrastructure projects, including the stalled ones. It is India’s
first sovereign wealth fund.
Twin-balance Sheet Problem
 The twin balance sheet problem
deals with the corporate balance
sheet and the bank balance sheet.
 Delays in corporate projects leads to
issues with loan repayments.
Indradhanush Scheme
 The scheme was launched in 2015 to revamp
the PSU banks.
 The scheme has a 7 point which includes
appointments, board of bureau, capitalisation,
de-stressing, and empowerment, framework
of accountability and governance reforms.
Banks Board Bureau
 It is entitled with the job of making executive
appointments to PSU banks.
 It will also help banks in capital raising plans
and business strategies.

Twin-balance Sheet Problem
 The twin balance sheet problem
deals with the corporate balance
sheet and the bank balance sheet.
 Delays in corporate projects leads to
issues with loan repayments.

Question 7

1.1.7. SCHEME FOR SUSTAINABLE STRUCTURING OF STRESSED ASSETS

Answer 7

Objective
To strengthen the lenders’ ability to deal with stressed
assets and put real assets back on track by providing an
avenue for “reworking the financial structure” of big
corporate entities “facing genuine difficulties”.
Other steps taken by RBI
 5:25 Scheme: It allows banks to extend long-term
loans of 20-25 years to match the cash flow of
projects, while refinancing them every 5 or 7 years.
 Compromise settlement schemes.
 Strategic Debt Restructuring (SDR) - consortium of
lenders converts a part of their loan in an ailing
company into equity, with the consortium owning at least 51 per cent stake
 Corporate Debt Restructuring (CDR) mechanism and Joint Lenders’ Forum.

Difference between NPAs and Stressed Assets
 Stressed Assets - It is a broader term and
comprises of NPAs, restructured loans and
written off assets.
 NPAs (Non-performing Assets) - A loan whose
interest/instalment for more than 90 days.
 Restructured Loans - assets/loans which have
been restructured by giving a longer duration
for repayment, lowering interest or by
converting them to equity.
 Written off Assets - assets/loans which aren’t
counted as dues. They are compensated
through some other way.

Question 8

1.1.8. INSOLVENCY AND BANKRUPTCY BOARD

Answer 8

 The Centre has constituted a four-member Insolvency and Bankruptcy Board of India (IBBI) under the
Ministry of Corporate Affairs.
 The main activity of IBBI would be to regulate the functioning of insolvency professionals, insolvency
professional agencies and information utilities under the Insolvency and Bankruptcy Code 2016.
Insolvency and Bankruptcy Code, 2016
 It was brought to reduce the delay in resolution of insolvency and bankruptcy due to multiplicity of laws -
Companies Act, SARFAESI Act, Sick Industrial Companies Act, and so on.
Salient Features of the law
 A unified code for greater legal clarity.
 Fixed a timeline of 180 days, extendable by another 90 days, to resolve cases of insolvency or bankruptcy.
 A new regulator — The Insolvency and Bankruptcy Board of India (IBBI) to regulate professionals/agencies
dealing with insolvency and informational utilities.
 National Company Law Tribunal (NCLT) to adjudicate bankruptcy cases over companies, limited liability
entities while Debt Recovery Tribunal (DRT) to adjudicate cases over individuals and unlimited liability
partnership firms.
 It allows the debtor itself to initiate the insolvency-resolution process once it has defaulted on a debt.
 Prioritization of claims by different classes of creditors and enabling provisions for solving cross border
insolvency.

Question 9

1.1.9. AMENDMENT TO SARFAESI AND DRT ACT

Answer 9

Why in News?
 Parliament has passed a Bill that seeks to amend four Acts:
 SARFAESI Act, 2002,
 The Recovery of Debts due to Banks and Financial
Institutions Act, 1993,
 The Indian Stamp Act, 1899; and
 The Depositories Act, 1996.
Main features of the bill
 SARFAESI
 Allows Banks to take possession of collateral security
within 30 days. This assumes importance in view of Vijay
Mallaya controversy
 Expansion of regulatory powers of RBI over ARCs;
 RBI will get more powers to audit and inspect any ARC as well as the freedom to remove the
chairman or any director and appoint central bank officials to its board.
 RBI will be empowered to impose penalties for non-compliance with its directives, and regulate
the fees charged by these companies to banks at the time of acquiring such assets.
 DRT
 To move towards online DRTs- electronic filing of recovery applications, documents and written
statements.
 Establish a time bound process
 Taking interest of creditors- 50% of the debt has to be deposited with DRT for filing an appeal.
 ARCs:
 ARC take over the NPA’s from banks for fixed cost which is less than the NPA amount.
 NPA is transferred to ARC along with any security which is pledged while taking loan.
 ARC issues security receipts for fixed interest rate and raises money.(These raised money can be
invested in financial institutions)

SARFAESI: was enacted to enable
Banks and financial institutions to
auction residential or commercial
properties without the intervention of
any court or tribunal to recover loans.
It led to the formation of ARCs,
enabling banks to take over the
management of secured assets etc
Debt Recovery Tribunal: They are
alternate to civil courts formed for
enforcement and recovery of debts. It
provided a faster and easier procedure
for recovery.

Question 10

1.2. PF CONTRIBUTION VIA PRIVATE BANKS

Answer 10

Why in news?
 Labour Ministry has allowed employers to make provident fund (PF) contributions to Employees Provident
Fund Organization (EPFO) through scheduled banks (SCBs) in India including private sector banks.
What is EPFO?
 It is a statutory body under Employees Provident Fund and Miscellaneous Provisions Act 1952.
 It administers
 The Employees Provident Fund scheme
 The Employees’ Pension Scheme
 The Employees Deposit linked Insurance scheme for the workforce engaged in the organized sector in
India.
 It is administered by a Board known as Central Board of Trustees (headed by Labour Minister).

Question 11

1.3. CREDIT ENHANCEMENT GUARANTEE FUND

Answer 11

Why in News?
 Government has chosen India Infrastructure Finance Co. Ltd (IIFCL) as the lead promoter of a Credit
Enhancement Guarantee Fund, announced in the Union budget 2016-17.
About Credit Enhancement Guarantee Fund
 It provides an additional source of guarantee that the borrower will not default on their loan.
 It also helps borrowers raise loans at reduced interest rates.
 It has a seed capital of Rs. 1500 crores and will be able to provide guarantees for up to Rs 40000 crores
worth of infrastructure projects

Question 12

1.4. RBI 1.4.1. FUNCTIONS OF RBI

Answer 12

Why in News?
Questions on autonomy of RBI were raised after note-ban in November.
RBI and its Functions
 It was established in 1935 under the provisions of RBI Act, 1934.
 RBI has seven major functions:
 Print Notes: RBI has the sole autonomy to print notes. GoI has
the sole authority to mint coins and one rupee notes.
 Banker to the Government: It manages government’s deposit
accounts. It also represents govt. as a member of the IMF and
World Bank.
 Custodian of Commercial Bank Deposits
 Custodian to Country’s Foreign Currency Reserves
 Lender of Last Resort: Commercial banks come to RBI for their monetary needs in case of emergency.
 Central Clearance and Accounts Settlement: As RBI keeps cash reserves from commercial banks
therefore it rediscounts their bills of exchange easily.
 Credit Control: It controls supply of money in the economy through its monetary policy.
 The power to appoint RBI Governor solely rest with the Centre and he holds office at the pleasure of
Central Government (tenure not exceeding 5 years).

Monetary Policy Committee
 A 6-member committee to decide
key policy rates.
 It will have three members from
RBI. They are the governor, deputy
governor and another officer.
 3 members will be decided by the
centre based on the
recommendations of a panel
headed by the Cabinet Secretary.
 The RBI governor will have a vote
in case of a tie.

Question 13

1.4.2. INFLATION TARGETING

Answer 13

Why in News?
 The government has notified an inflation (Consumer Price Index) target of 4% till 2021 with an
upper/lower tolerance of 2 points.
What is it?
 Inflation targeting refers to the monetary policy strategy where an inflation target
is set and policy formulation is done in a way to achieve that target.
 RBI officially adopted inflation targeting as a monetary policy strategy in February
2015.
 The inflation target is to be revisited once in every five years.
 In order to meet the inflation target, the RBI will raise or lower interest rates.
WPI
 It includes three components
o Manufactured products = 65% approx
o Primary articles = 20% approx
o Fuel and power = 15% approx
 The WPI basket includes 676 commodities in total- all of these are only goods and whose prices are
captured at the wholesale/producer level. The CPI considers inflation at the retail end, while also including
services.
 It is measured by Ministry of commerce and industry with base year as 2004-05
CPI
 Apart from the WPI, inflation in India is calculated at the consumer level also by the mean of CPI. Because
the wide disparities in the consumption baskets for different segment of consumers, India has adopted
four CPIs
o CPI (Industrial Workers):
o CPI (Urban Non- Manual Employees
o CPI (Agricultural Labour):
o CPI (Rural Worker)
 In India, RBI uses CPI (combined) released by CSO for inflation purpose with base year as 2012.
 The number of items in CPI basket include 448 in rural and 460 in urban.
PPI
 The Producer Price index (PPI) is a family of indexes that measures the average change in selling prices
received by domestic producers of goods and services over time.
 It measures price change from the perspective of the seller and differs from other indexes, such as the
Consumer Price Index, that measure price change from the purchaser’s perspective.
 The PPI looks at three areas of production:
o Industry-based,
o commodity-based and
o Commodity-based final demand-intermediate demand.

Question 14

1.4.3. P2P LENDING

Answer 14

Why in news?
• Recently, the RBI released a consultation paper on developing regulatory norms for P2P lending.
• It has proposed 6 key areas to frame regulatory guidelines - permitted activity, reporting, prudential and
governance requirements, business continuity planning and customer interface.
What is Peer-To-Peer Lending (P2P)?
 It is a method of debt financing that enables individuals to borrow and lend money - without the use of an
official financial institution as an intermediary.
 The basic business model of an online P2P player is to provide a platform to connect lenders with
borrowers. The lender will put their savings/investment into an account for it to be loaned out to
borrowers and get a good rate of return.
 Two prominent online lending portals in the country are Faircent and ilend.

Question 15

1.4.4. PROPOSED PAYMENT REGULATORY BOARD

Answer 15

Why in News?
 RBI has differed on opinions given by Ratan Watal committee on payment regime in India and especially
on the recommendation of a new Payment Regulatory Board.
 Watal committee recommended constituting a Payment Regulatory Board (independent of RBI) to
promote competition and innovation in the payment ecosystem in India.
 Presently Board for Regulation and Supervision of Payment and Settlement Systems overlooks the
payment ecosystem in India.
Board for Regulation and Supervision of Payment and Settlement Systems
 It is a sub-committee of the Central Board of the RBI
 It is the highest policy making body on payment systems.
 It is empowered to authorize, prescribe policies and set standards to regulate and supervise all the
payment and settlement systems in the country.
 It secretariat is at the Department of Payment and Settlement Systems of RBI.
 It is a statutory body set as per Payment and Settlements systems Act 2007.
1.4.5. RBI’S

Question 16

1.4.5. RBI’S STEPS ON FCNR GET FSDC NOD

Answer 16

Background
 In 2013, the rupee was at an all-time low of 68.85 against the dollar and huge volatility in currency
markets volatility on fears of tapering of quantitative easing by the US Fed.
So RBI asked commercial banks to raise the foreign currency deposits (for ex:
FCNR, offshore corporate loans etc.) to shore up reserves.
 Banks had raised about $34 billion through FCNR deposits.
 The central bank thereafter readied itself by buying forwards dollar.
Financial Stability and Development Council (FSDC)
 To strengthen and institutionalize the mechanism for maintaining financial
stability and enhancing inter-regulatory coordination.
 The Chairman of the FSDC is the Finance Minister of India and its members include the heads of the
financial sector regulatory authorities (i.e., SEBI, IRDA, RBI, PFRDA), Finance Secretary and/or Secretary,
Department of Economic Affairs (Ministry of Finance), Secretary.

What is a FCNR Account?
An FCNR account is a
term deposit account that
can be maintained by
NRIs and PIOs in foreign
currency. Thus, FCNRs are
not savings accounts but
fixed deposit accounts.

Question 17

1.4.6. MARKET STABILISATION SCHEME BONDS

Answer 17

Why in news?
The government increased the ceiling of market stabilization scheme (MSS) bonds to Rs.6 lakh crore, from the
earlier Rs.30000 crore.
What is MSS scheme?
 MSS is a mechanism to give more powers to RBI to manage liquidity. It sucks out the over-liquidity from
the market.
 It was first used in February 2004 when the country was flushed with dollar inflows, which needed to be
converted into the rupee.
 Raised money goes to separate Market Stabilization Scheme Account (MSSA), not for government
expenditure.

Question 18

1.5. DEMONETIZATION AND CASHLESS ECONOMY 1.5.1. DEMONETISATION OF RS 500 AND RS 1000 NOTES

Answer 18

Why in news?
 The 500 and 1000 rupee notes seized to be a legal tender
from 8 November, 2016.
Implications of Demonetization
 A parallel black economy would collapse.
 Of the Rs 17 lakh crore of total currency in circulation
in the country, black money is estimated at mindboggling
Rs 3 lakh crore.
 Counterfeit currency: Death blow to the counterfeit
Indian currency syndicate operating both inside and
outside the country.
 On Employment: a large part of the Indian economy is
still outside the banking system. So, the cash shortage
will hurt the informal sector that does most of its
transactions in cash.
 On elections: It will reduce the Vote-for-Note politics
making elections more clean and transparent.
 On Economy:
 First, it will bring more borrowings to the exchequer, improve inflation outlook and increase India’s
gross domestic product (GDP).
 Second, it will revive investment opportunities and give a fillip to infrastructure and the manufacturing
sector.
 Third, it will help reduce interest rates and lower income tax rate.
 Real estate cleansing: An unexpected dip in land and property prices.
 On Higher Education: will become more reachable as the black money from ‘high capitation fees’ is
discouraged.
 On security:
 Terror financing: Terror financing is sourced through counterfeit currency and hawala transactions.
 Kashmir unrest: The four-month-long unrest in Kashmir valley is on a backburner
 North-East insurgency and Maoists: Black money is the oxygen for Maoists collected through
donations, levy and extortions. The illicit money is used to purchase arms and ammunition

What is Demonetization?
 It is a financial step where in a currency unit’s
status as a legal tender is declared invalid.
 This is usually done when old currency notes
are to be replaced with the news ones.

A brief past
 Demonetisation was earlier done in 1978
When the government demonetised Rs.
1000, Rs. 5000 and Rs. 10000 notes.
 This was done under the High Denomination
Bank Note (Demonetisation) Act, 1978.
 The difference between 1978 and 2016
Demonetisation is that the currency in
circulation (of the higher denomination) is
higher in 2016 than was in 1978.
 The current demonitization has been done by
government under section 26(2) of the
Reserve Bank of India Act.

Question 19

1.5.2. SWACCH DHAN ABHIYAN

Answer 19

 The Income Tax Department launched Operation Clean Money for the e-verification of large cash deposits
post demonetization till 31st December, 2016.
 The government has used Data Analytics to identify persons whose cash deposits are not in line with their
income tax profile.

Question 20

1.5.3. BHARAT QR CODE

Answer 20

 Bharat QR code has been developed jointly by
National Payments Corporation of India (NPCI), Visa,
MasterCard and American Express under
instructions from RBI.
 It works as common interface for the MasterCard/
Visa/RuPay platforms and also facilitate acceptance
of Aadhaar-enabled payments and Unified
Payments Interface (UPI).
 It eliminates the need of using card swiping machines
for digital payments.
 Interoperability- The merchants will be required to
display only one QR code instead of multiple.
QR code (Quick Response code) is a twodimensional
(matrix) machine-readable bar code
made up of black and white square. This code can
be read by the camera of a smartphone.
 It is capable of 360 degrees (omni-directional),
high speed reading.
 QR Code can store up to 7089 digits as
compared to conventional bar codes which can
store max 20 digits.
 It carries information both horizontally and
vertically. It has error correction capability and
data stored in it can be restored even if it is
partially damaged or dirty.

Question 21

1.5.4. BHIM APP

Answer 21

Why in News?
 PM launched a digital payments app known as BHIM (Bharat
Interface for Money) App on 30th Decemeber 2016.
What is it?
 BHIM is a UPI-based digital payments app developed by the
NPCI
 It works both on Smartphones and feature phones.
 The app can send money to other UPI accounts or addresses.
 It can also send money via IFSC (Indian Financial System Code)
and MMID (Mobile Money Identifier Code) to users that do
not have UPI.
 One can also generate a QR code for a specific amount. A merchant can deduct the said amount by
scanning this QR code. Contrary to popular conception, it is not a mobile wallet like PayTM or Mobikwik.
 The BHIM app will support Aadhaar-based payments in future where transactions will be possible with just
a fingerprint impression.

Major ways of digital transactions:
 National Electronic Funds Transfer
(NEFT) and Real Time Gross Settlement
in India (RTGS) and – bank services.
 Utilising mobile wallet services
provided by banks, UPI etc.,
 Others forms pertains to debit cards
and credit cards which are referred as
plastic money. These cards can be used
in Point of Sale (PoS) machines
maintained by vendors.

Question 22

1.5.5. VITTIYA SAKSHARATA ABHIYAN (GO DIGITAL)

Answer 22

 An initiative launched by Ministry of Human Resource development to encourage, create awareness and
motivate all people to use a digitally enabled cashless economic system for transfer of fund.
 It emphasized upon cashless economy and appealed to faculty of higher institutions to make their
respective campus cashless.

Question 23

1.5.6. UNIFIED PAYMENT INTERFACE

Answer 23

Why in news?
The indigenous payment system via smartphone was launched giving a boost to the efforts of the RBI in
moving towards a ‘less-cash’ India.
What is UPI?
 It is a common platform through which a person can transfer money
from his bank account to any other bank account in the country
instantly using nothing but his/her UPI ID.
 It is developed by the National Payments Corporation of India
(NPCI) under the guidelines of the RBI.
 The interface will be based on the Immediate Payment Service
(IMPS) platform.
How will it work?
 A customer can transfer money to another person
through a unique virtual address, or mobile
number, or Aadhaar. Therefore, customers do not
need to know the payee’s IFSC code, bank account
details, etc. and this will make the process simpler.
 A customer can have multiple virtual addresses for
multiple accounts in various banks. There is no
account number mapper anywhere other than the
customer’s own bank. This allows the customer to
freely share the financial address with others.
How is it better than existing payment methods?
 Apart from doing away with the need for account
details, one can also raise payment requests and
ask for money. Therefore, it is being expected that apart from consumers, even merchants and companies
will widely use this platform.

NPCI
 Founded in 2008, it is a non-profit
organization registered under
section 25 of Companies act.
 It is an umbrella organization for
all retail payment systems in India
charged with a responsibility of
guiding India towards being a
cashless society.
 It is promoted by RBI.

Question 24

1.5.7. AMITABH KANT COMMITTEE

Answer 24

 The government set up a high-level committee under the leadership of Amitabh Kant post demonetization
to identify all possible modes of digital payments across sectors.
 The committee will identify infrastructural bottlenecks affecting the access and utility of digital payment
options.

Question 25

1.5.8. PROMOTING DIGITAL TRANSACTIONS

Answer 25

Why in News?
 The responsibility to promote digital transactions in India has been shifted from NITI Aayog to the Ministry
of IT and Electronics (MEITY).
Significance
 By shifting the responsibility to promote digital transaction to MEITY, the government is trying to utilize
the core competence of specific ministries.
 NITI Aayog would have a role to monitor and recommend ways to improve government schemes and
growth of IT-enabled services

Question 26

1.6. BOND MARKET AND SEBI REGULATION 1.6.1. REITS AND OFFSHORE FUND MANAGERS

Answer 26

 SEBI has relaxed rules on Real Estate Investment Trusts (REITs) by allowing them to invest more in underconstruction
projects, rationalized unit holder consent on related party transactions and removed
restrictions on special purpose vehicle (SPV) to invest in other SPVs holding the assets.
 Real Estate Investment Trust, is a company that owns or finances income-producing real estate. Modeled
after mutual funds, REITs provide investors of all types regular income streams, diversification and longterm
capital appreciation. REITs typically pay out all of their taxable income as dividends to shareholders.
In turn, shareholders pay the income taxes on those dividends.

Question 27

1.6.2. ANGEL INVESTORS

Answer 27

Why in news?
 Based on the recommendations of NR Narayana Murthy headed Alternative Investment Policy Advisory
Committee, SEBI decided to amend the SEBI (Alternative Investment Funds) Regulations, 2012.
More Info
 Angel Investors – Angel investors invest in small startups or entrepreneurs. The capital angel investors
provide may be a one-time investment to help the business propel or an ongoing injection of money to
support and carry the company through its difficult early stages.
 Venture Capitalists – They are professional investors who invest other people’s money in high growth
potential start-ups and companies.
 They also own shares in the company and have a say in its running.
About SEBI
 It was established in 1992 in accordance with the provisions of the SEBI Act, 1992.
 The main objective is to protect the interest of investors, promote the development of stock exchange and
regulate the activities of the stock market.

Question 28

1.6.3. ALGORITHMIC TRADING

Answer 28

Why in news?
 The SEBI plans to further tighten the regulations for algorithmic trading.
What is Algorithmic Trading?
 An algorithm is a step-by-step procedure to accomplish a task.
 Algorithmic trading is the process of using pre-set computer programmes to execute trades at a speed and
frequency that is impossible for a human trader.
 Algo-trading provides the following benefits:
 Trades executed at the best possible prices
 Reduced transaction costs
 Simultaneous automated checks on multiple market conditions
 Reduced risk of manual errors in placing the trades, also based on emotional and psychological factors

Question 29

1.7. GOLD BOND

Answer 29

Why in news?
 The government recently issued 2016-17-Series IV sovereign gold bonds.
What are Sovereign Gold Bonds?
 SGBs are government securities denominated in grams of gold.
 They are substitutes for holding physical gold. Investors have to pay the issue price in cash and the bonds
will be redeemed in cash on maturity.
 The Bond is issued by Reserve Bank on behalf of Government of India.

Question 30

1.8. GREEN BONDS

Answer 30

Why in News?
 According to the Climate Bonds Initiative, $81 billion worth of labelled green bonds were issued in 2016,
compared to $42.2 billion in 2015.
 The New Development Bank (NDB), established by the BRICS emerging nations sold its first yuan
denominated green bond. Bond proceeds will be used to finance green projects in BRICS countries.
What is Climate Bonds Initiative?
 The Climate Bonds Initiative is an
international, investor-focused not-forprofit
organization.
 Its objective is to develop a large and liquid
Green and Climate Bonds Market in
developed and emerging markets.
Green Bond
 A bond is a debt instrument with which an
entity raises money from investors.
 The capital for green bond is raised to fund
‘green’ projects like renewable energy,
emission reductions etc.
 First Green Bond was issued by World Bank
in 2007.
 There is no standard definition of green
bonds as of now.
 Blue Bonds: It is a type of green bond which specifically invests in climate resilient water management and
water infrastructure.

Different climate financing initiatives existing today
 Global Environment Facility (GEF) is a multilateral body of
governments, civil society, banks etc. acting as a financial
mechanism to environmental conventions like UNFCCC etc.
 Green Climate Fund was created by UNFCCC in 2011 as an
operating entity of financial mechanism of the UNFCCC.
 Carbon taxes and cess by the national governments.
 Clean Development Mechanism – It involves investment by
developed countries in emission reduction projects in
developing countries
 Joint Implementation (JI) - JI enables developed countries
to carry out emission reduction projects in other developed
countries.
 Perform Achieve Trade (PAT) - It is a market-based trading
scheme under National Mission on Enhanced Energy
Efficiency (NMEEE). It involves trading in energy efficiency
certificates to offset emissions.

Question 31

1.9. INTERNATIONAL STOCK EXCHANGE

Answer 31

 India’s first international exchange – India INX at the International Financial Service Centre (IFSC) of GIFT
(Gujarat International Financial Tech) City was inaugurated at Vibrant Gujarat Global Summit 2017.
 India INX – a subsidiary of Bombay Stock Exchange is touted to be the world’s most advanced technology
platforms having an order response time of 4 micro seconds.
 This international exchange will operate 22 hours allowing international investors and NRIs to trade
conveniently from anywhere across the world.
 INX will initially trade in equity derivatives, currency derivatives and commodity derivatives which will
include index and stocks. It will offer depository receipts and bonds later.

Question 32

1.10. MASALA BONDS

Answer 32

Why in News?
 Housing Development Finance Corporation (HDFC) has raised Rs. 3000 crore by issuing masala bonds. It is
the first company to do so since RBI cleared it in September 2015.
What is it?
 Masala Bonds are rupee-denominated bonds sold by Indian entities in the overseas market.
 As of right now, these bonds are being traded at the London Stock Exchange.
 Masala bonds were named so by the International Finance Corporation (IFC), an arm of the World Bank
after it issued rupee denominated bonds worth Rs. 1000 crore to fund infrastructure projects.
 Significance: Masala Bonds can help Indian borrowers tide over exchange rate fluctuations and minimize
losses. It will also help put rupee on the global map.

Question 33

1.11. ROSE VALLEY CASE

Answer 33

Why in News?
 Two MPs from All India Trinamool Congress (TMC) party have been arrested by CBI in Rose valley case.
What is Rose valley case?
 It is a chit fund scam where two entities - Rose Valley Real Estates and Constructions and Rose Valley
Hotels and Entertainment, garnered Rs 18000 crores from investors as instalments for property purchases
promising extraordinary returns of 21%.
Chit funds:
 These are essentially saving institutions which have regular
members who make periodical subscriptions to the fund.
 They are of various forms and lack any standardized form.
 Chit fund business is regulated under the Central Act of Chit
Funds Act, 1982.
 However, registration and regulation of Chit funds are
carried out by State Governments under the Rules framed
by them under this Act.
 Functionally, Chit funds are included in the definition of
Non- Banking Financial Companies by RBI.
Ponzi scheme
 It is an illegal investing scam promising high rates of return to investors.
 It has no underlying assets i.e. it generates returns for older investors by acquiring new investors and not
by earning returns/revenue by any aWssets like property etc.
Pyramid Scheme is an illegal scheme similar to ponzi scheme.
 While in a Ponzi scheme, participants believe of earning returns from any asset, participants in a pyramid
scheme are aware that they earn money by finding new investors.
 Pyramid schemes are banned under Chits and Money Circulation Schemes (Banning) Act, 1978.

NBFCs are financial institutions that
provides banking services with the following
limitations.
o They can accept only term deposits
and not demand deposits.
o They are not part of payment and
settlement system and cannot issue
cheques draw on themselves.
Deposit insurance facility is not available to
depositors of NBFCs.

Question 34

2. FISCAL POLICY
3. 1. BUDGETARY REFORMS
4. 1.1. RAILWAY BUDGET SCRAPPED

Answer 34

About
 The 92-year-old practice of presenting a separate Rail Budget came to an end from FY 2017-18, with the
Finance Ministry accepting Railway Ministry proposal to merge it with the General Budget.
 The proposal for merger of the Rail Budget was given by a Committee headed by Bibek Roy.
Background
 The origin of the railway budget goes back to a report by British politician William Ackworth in 1924.
 He recommended a separate railway budget, given that most of the infrastructure spending by the British
government went towards building railway lines.
 While the Union budget is a Constitutional requirement and is presented under Article 112 of the Indian
Constitution, which mandates an annual financial statement, the Constitution does not talk about the
railway budget in particular.
Implications
 Post-merger, the issue of raising passenger fares, will be the Finance Minister’s call.
 The merger would mean, Indian Railway will get rid of the annual dividend it has to pay for gross
budgetary support from the government every year.
 There are delays resulting in cost overrun of Rs 1.07 lakh crore in respect of 442 on-going rail projects.
 The Indian Railways suffering from a massive revenue deficit, will pass on the burden to the finance
ministry after the merger.
 Consequent to the merger, the appropriations for Railways will form part of the main Appropriation Bill

Question 35

2.1.2. ADVANCEMENT OF BUDGET DATE

Answer 35

Why in news?
Presentation of the Budget was advanced by a month and moved to the last day of February.
Benefits
 This would pave the way for early completion of Budget cycle and enable Ministries and Departments to
ensure better planning and execution of schemes from the beginning of the financial year.
 It would lead to utilization of the full working seasons including the first quarter.
 This will also preclude the need for seeking appropriation through ‘Vote on Account’ and enable
implementation of the legislative changes in tax laws from the beginning of the financial year.
 This would synchronize the transfer of funds to states with their own state budgets.

Question 36

2.1.3. MERGER OF PLAN AND NON-PLAN CLASSIFICATION

Answer 36

Why in news?
 Differentiation of plan and non-plan expenditures in the budget statement has been done away with.
 Earlier Planning Commission had an important role in determining the quantum of plan expenditure.
 However, with its abolition, the relevance of plan and non-plan expenditure is lost.
Plan and Non Plan Expenditure
 Plan Expenditure - Any expenditure that is incurred on programmes which are detailed under the current
(Five Year) Plan of the centre or centre’s advances to state for their plans is called plan expenditure.
 Non Plan Expenditure- This refers to the estimated expenditure provided in the budget for spending
during the year on routine functioning of the government. Non- Plan expenditure is all expenditure other
than plan expenditure of the govt.
Benefits
 The Plan/Non-Plan bifurcation of expenditure has led to a fragmented view of resource allocation to
schemes, making it difficult to ascertain cost of delivering a service and also to link outlays to outcomes.
 The bias in favour of Plan expenditure by Centre as well as State Governments has led to a neglect of
essential expenditures on maintenance of assets and other establishment related expenditures.

Question 37

2.1.4. GENDER RESPONSIVE BUDGETING

Answer 37

 Gender Responsive Budgeting: It entails dissection of the Government budgets to establish its gender
differential impacts and to ensure that gender commitments are translated in to budgetary commitments.
 Gender Responsive Budgeting was institutionalized in India in 2005.
 Apart from being prevalent at the national level, it has been adopted by 16 states.

Question 38

2.2. PUBLIC FINANCIAL MANAGEMENT SYSTEM

Answer 38

Why in news?
As part of implementing GST, PFMS is being brought to improve the financial management. It is already
universalized to cover all transactions/payments for the Central Sector Schemes.
What is PFMS?
 PFMS, administered by the department of expenditure, is an end-to-end solution for processing payments,
tracking, monitoring, accounting, reconciliation and reporting.
 All Central ministries and departments have been directed to complete the full roll-out of PFMS by 31st
October, 2016

Question 39

2.3. CENTRE OWES RS. 80,000 CRORE TO STATES: CAG REPORT

Answer 39

Why in news?
 According the report, Centre owes the States over Rs. 80,000 crore from its net proceeds of the period.
Background
 According to Article 279, the CAG is “required to ascertain and certify the ‘net proceeds’ (any tax or duty
the proceeds thereof reduced by the cost of collection), whose certification shall be final.”
 The Finance Ministry had requested for CAG certification of net proceeds of taxes afresh ante-dated from
1996-97 because of the 80th constitutional amendment.
 The amendment resulted from the recommendations of the 10th Finance Commission for an alternative
way of sharing proceeds of union taxes and duties between Centre and States.

Question 40

2.4. PUBLIC DEBT MANAGEMENT CELL (PDMC)

Answer 40

Why in news?
 The Finance Ministry has set up a Public Debt Management Cell.
What is it?
 It is an interim arrangement and will be upgraded to a statutory
Public Debt Management Agency (PDMA) in about two years.
 Its main purpose is to allow separation of debt management
functions from RBI to PDMA in a gradual and seamless manner,
without causing market disruptions.
 PDMC will have 15 experienced debt managers from Ministry
and RBI for the required expertise.
 A joint implementation committee chaired by Joint secretary
(Budget) will oversee the transition process of PDMC to PDMA.
About Public Debt Management Agency (PDMA)
Public Debt Management Agency (PDMA) is a proposed specialized independent agency that manages the
internal and external liabilities of the Central Government in a holistic manner.

Key Functions of PDMC
 It will only have advisory functions.
 Plan government borrowings as well as
manage its liabilities.
 monitor cash balances, foster a liquid
and efficient market for government
securities
 Advise government on matters related
to investment, fixing interest rates on
small savings etc.
 It will develop an Integrated Debt
Database System as a centralised
database for liabilities of centre.

Question 41

2.5. REGULATION OF PENSION PRODUCTS

Answer 41

Why in news?
 The Finance Ministry has set up a high-level committee to consolidate the regulation of pension products.
 Pension products floated by insurance companies come under the purview of the Insurance Regulatory
and Development Authority (IRDA) while those sold by mutual funds are overseen by the SEBI.
 However, since their prime focus is on insurance and mutual funds/capital markets respectively, pension
regulation done by them is only a piecemeal work.
About PFRDA
 The Pension Fund Regulatory and Development Authority (PFRDA) is a pension regulatory authority which
was established in 2003.
 It is authorized by Ministry of Finance, Department of Financial Services.
 It promotes old age income security by establishing, developing and regulating pension funds and protects
the interests of subscribers to schemes of pension funds and related matters.

Question 42

2.6. FINANCIAL DATA MANAGEMENT CENTRE (FDMC)

Answer 42

Why in news?
 Ajay Tyagi committee constituted under the Department of Economic Affairs recommended the creation
of statutory body called Financial Data Management Centre.
 GoI in budget 2016-17 announced the setting up of FDMC under FSDC to facilitate integrated data
aggregation and analysis in financial sector.
Key functions of FDMC
 To establish, operate and maintain the financial system database, collect financial regulatory data and
provide access to it.
 Standardize data from all financial sector regulators in a single database.
 To provide analytical support to the FSDC on issues relating to financial stability.

Question 43

2.7. EQUALIZATION LEVY/GOOGLE TAX

Answer 43

Why in News?
 Google Tax or Equalisation Levy was announced by the Finance
Minister in Budget 2017-18.
 It refers to the taxation of income accrued to a non-resident foreign ecommerce
company. It comes into effect from 1 June, 2017.
How does it work?
 As of right now the services covered by the tax include online
advertising, provision of digital advertising space and any other
service as notified by the government.

Question 44

2.8. SHANKAR ACHARYA COMMITTEE

Answer 44

 The Shankar Acharya Committee submitted its report on desirability and feasibility of a new financial
year from January 1st to Finance Minster. The report is yet to be made public.
 The committee is said to have given merits and demerits of shifting the FY as well as its impact on various
sectors and other stakeholders.
 India adopted the current FY of April-March post-independence as a colonial legacy

Question 45

2.9. FRBM COMMITTEE

Answer 45

Why in News?
 The Fiscal Responsibility and Budget Management Committee headed by N.K. Singh submitted its report
to Finance Minister in January 2017.
 According to reports, the Committee has recommended expansionary fiscal consolidation policy and has
said that there is no need to bring the fiscal deficit less to than 3% as of now.
Background
 The Committee was constituted in May 2016 to review the Fiscal Responsibility and Budget Management
Act.
 The FRBM Act, 2003 was put in place to maintain fiscal discipline. It set fixed targets including reduction of
fiscal deficit and elimination of revenue deficit.
 However, its targets have been breached time and gain and therefore the government thought it to be
necessary to look into the act.

Question 46

3. TAXATION

3. 1. BANKING CASH TRANSACTION TAX

Answer 46

Why in News?
 The Committee of Chief Ministers on Digital Payments has recommended bringing back BCTT (Banking
Cash Transaction Tax) in order to promote digital payments.
BCTT (Banking Cash Transaction Tax)
 BCTT is a type of tax that was levied on cash transactions above a specified limit by an individual or HUF
from any non-saving account of a scheduled bank in a single day.
 The tax was first introduced in 2005 under the Finance Act, 2005. It was later rolled back from 1 April,
2009. Cash transactions were taxed at 0.1%.
 The tax was introduced to track unaccounted money and trace its source and destination.
 Tax Administration Committee headed by Parthasarathi Shome had also recommended reinstating the
BCTT in 2014.

Question 47

3.2. RAJASVA GYAN SANGAM

Answer 47

Why in news?
 The PM has addressed the tax administrators of both Central Board of Direct Taxes (CBDT), and the
Central Board of Excise and Customs (CBEC), at Rajasva Gyan Sangam.
 The Central Board of Excise and Customs is to be renamed as Central Board of Indirect Taxes (CBIT)
under the GST regime.
CBDT (Central Board of Direct Taxes)
 It is a statutory body functioning under the Department of Revenue in Ministry of Finance.
 The board is functioning as per the provisions under the Central Board of Revenue Act, 1963.
 On one hand the board provides essential inputs for policy making regarding direct taxes, on the other, it
also oversees administration of direct tax laws through the IT department.
CBEC (Central Board of Excise Customs)
 The Central Board of Excise and Customs came into existence when the Central Board of Revenue was
split two under the Central Board of Revenue Act, 1963.
 The CBEC looks into Customs, Central Excise, Service Tax and Narcotics.
 The organizational structure of the board is set for an overhaul with the implementation of GST

Question 48

3.3. PLACE OF EFFECTIVE MANAGEMENT (POEM)

Answer 48

Why in News?
 The Central Board of Direct Taxes (CBDT) (Ministry of Finance) released the final guidelines for
determination of Place of Effective Management (POEM) for business in India.
About POEM
 The Guidelines provide a two-step approval process in which the tax officer must seek the prior approval
from a senior tax officer and approval of a three-senior officer board.
 POEM is broadly defined as the place where the management decisions are taken rather than the place
where these decisions are implemented.
 Impact of POEM guidelines: It will help as an anti-avoidance measure and is thought to bring the passive
income of foreign subsidiaries of domestic companies and Indian subsidiaries of foreign companies under
tax net.

Question 49

3.4. ADVANCE PRICING AGREEMENTS

Answer 49

Why in news?
 The Central Board of Direct Taxes (CBDT) announced signing of four more unilateral Advance Pricing
Agreements (APAs) in February, 2017.
 With this, the total number of APAs entered into by the CBDT
has reached 130. This includes eight bilateral APAs and 122
Unilateral APAs.
What are APAs?
An APA is a contract, usually for multiple years, between a
taxpayer and at least one tax authority specifying the pricing
method that the taxpayer will apply to its related-company
transactions. They can be classified as:
 Unilateral APA- between taxpayer and tax authority of country where the taxpayer is located.
 Bilateral APA- between taxpayer, tax authority of host country and the foreign tax authority.
 Multilateral APA-between taxpayers, tax authority of host country and more than one foreign tax
authorities.

Related concepts
 The price at which divisions of a
company transact with each other is
called transfer price.
 A transaction in which buyers and
sellers of any products act
independently and have no
relationship with each other is known
as Arm’s length transaction.

Question 50

3.5. TAXATION LAWS (AMENDMENT) BILL, 2016

Answer 50

Why in news?
 The Lok Sabha passed the Taxation Laws (Amendment) Bill, 2016, that seeks to amend the Income Tax Act,
1961, and Customs Tariff Act, 1975.
Features of the bill
Income Tax Act, 1961
 Demerger of public sector companies: The Companies Act, 1956 allows companies to demerge (split) into
multiple companies.
 The Income Tax Act, 1961 takes into account these transfers from the parent company for taxation of
resultant companies.
 The Bill clarifies that these provisions will apply in case a public sector company demerges, and the
resultant company is no longer a public sector company.
 Deduction in respect of employment of new employees: The Income Tax Act, 1961 allows businesses to
obtain a deduction on taxable income to the extent of 30% of the cost of recruiting a new employee.
 The Act requires that the employee should have been employed for a minimum 240 days in previous year.
 The Bill relaxes this limit to 150 days for businesses which manufacture apparel.
Customs Tariff Act, 1975
 Customs duty on marble and granite blocks and slabs: Currently, the customs duty on imports of granite
and marble used for certain purposes is charged at 10%.
 The Bill proposes to increase this to 40%.
 The bill also proposes to introduce a scheme named the ‘Pradhan Mantri Garib Kalyan Yojana, 2016’.
 Its aim is to use black-money collected post-demonetization in welfare schemes for the poor.
 PMGKY will allow people to deposit previously untaxed money by paying 50% of the total amount:
30% as tax and 10% as penalty on the undisclosed income, as well as 10% as cess.
 The declarant will also have to deposit 25% of undisclosed income in a deposit scheme to be notified
by the RBI under the PMGKY Deposit Scheme, 2016.
 If the declarant refuses this option, 85% of the amount will be deducted as taxes and penalties.
 For money that is found in raids, taxes and penalties of nearly 90% of the amount will be levied.
 Government had launched a similar Income Declaration Scheme in 2016 for undisclosed income.

Question 51

3.6. BENAMI TRANSACTIONS (PROHIBITION) AMENDMENT ACT, 2016

Answer 51

Why in news?
 The Benami Transactions (Prohibition) Amendment Act came into force on November 1, 2016.
 Following this, the existing Benami Transactions (Prohibition) Act is renamed as the Prohibition of Benami
Property Transactions Act (PBPT Act).
Background
 Benami Transactions (Prohibition) Act 1988 had several loopholes such as lack of proper implementation
machinery, absence of appellate mechanism, lack of provision with centre for vesting confiscated property
etc.
Features of the bill
 The main aim is to route the unaccounted money into the financial system and seize Benami properties
and punish those who are involved in these properties.
 The Act defines benami transactions, prohibits them and further provides that violation of the PBPT Act is
punishable with imprisonment up to 7 years and fine.
 It also prohibits recovery of the property held benami from benamidar by the real owner.
 Properties held benami are liable for confiscation by the Government without payment of
compensation.
 An appellate mechanism has been provided under the PBPT Act in the form of Adjudicating Authority and
Appellate Tribunal.
 The Adjudicating Authority and the Appellate Tribunal have been notified on similar lines from Prevention
of Money Laundering Act, 2002 (PMLA).

Question 52

3.7. TAX-GDP RATIO

Answer 52

 The poor tax-GDP ratio and proliferation of black or parallel economy have caused government to push for
‘less’ cash economy with moves like demonetization.
 Tax-to-GDP ratio is the ratio of total taxes (both direct and indirect) collected to the Gross Domestic
Product in a given financial period (typically one-year).
 According to the Economic Survey, India’s ratio of tax-to-GDP (gross domestic product) is 5.4 percentage
points below that of comparable countries.

Question 53

3.8. TAX TERRORISM

Answer 53

Why in news?
 he term ‘tax terrorism’ was first used by the current Prime Minister to describe the adversarial approach
adopted by tax authorities.
 Recently, tax was raised by IT dept. from a PSU by an incorrect tax demand. This they did in March to
meet revenue collection targets of the fiscal year, which ends in March.
 But in April the demand was cancelled and tax refunded pushing the problem to next year.
 To mend this Revenue secretary as a penal measure has ordered transfer of certain officials, which led to
a dispute.
What is Tax terrorism?
The tag of Tax Terrorism is used in the context of practices such as:
 Retrospective taxation cases such as: Vodafone pricing case, Cairn India-Vedanta group case.
 Minimum Alternative Tax – though with right intentions but wrong implementation.
 Enforcement of regulations relating to tax avoidance: GAAR (General Anti Avoidance Regulations) etc.,
 The practice of raising large unjustified tax demands followed up with
a. Aggressive recovery procedures,
b. Coercive methods
 Adjusting interest rate manually so that refund payable is reduced to zero.
 Many decisions taken by discretion without proper accountability.

Question 54

3.9. PROJECT SAKSHAM

Answer 54

Why in news
Cabinet committee cleared the Rs 2,256 crore back-end
information technology (IT) project for the indirect tax
department (CBEC).
Significance
 CBEC’s IT structure needs to integrate with Goods and
Service Tax Network (GSTN) for processing of registration,
payment and returns data sent to CBEC as well as act as a
front-end for other modules like audit, appeal and
investigation.
 This IT infrastructure is also urgently required for
 Continuation of CBEC’s e-services in Customs, central
excise and service tax.
 Implementation of taxpayer services such as scanned
document upload facility.
 Extension of Indian Customs SWIFT initiative and
 Integration with government initiatives such as e-
Nivesh, e-Taal and e-Sign.
Key facts
 This new indirect tax network (systems integration) called
Project Saksham will help in smooth roll-out of goods and services (GST) tax from April 1, 2017.
 It will be developed with the help of Wipro, whereas GSTN is developed by Infosys.
 Project Shaksham is back-end IT infrastructure of GST Network (GSTN), a private body, is
developing the front-end infra with the help of Infosys.

Goods and Services Tax Network (GSTN)
 It is a not for profit, non-Government,
private limited company incorporated in
2013.
 The Government of India holds
24.5%equity in GSTN
 All States including NCT of Delhi and
Puducherry, and the Empowered
Committee of State Finance Ministers
(EC), together hold another 24.5%.
 Balance 51% equity is with non-
Government financial institutions.
 The Company has been set up primarily to
provide IT infrastructure and services to
the Central and State Governments, tax
payers and other stakeholders for
implementation of the Goods and Services
Tax (GST).
After rolling out of GST, the Revenue Model
of GSTN shall consist of User Charge to be
paid by stakeholders who will use the
system and thus it will be a self-sustaining
organization.

Question 55

3.10. PROJECT INSIGHT

Answer 55

Why in News?
 L& T InfoTech has signed a contract with the Income Tax Department for the implementation of Project
Insight. The IT department is set to launch an integrated platform for the same.
What is it?
 The platform will analyse the existing databases of IT returns, IT forms, TDS/TCS statements, Annual
Information in order to track tax evaders.
 The IT firm will sync the income and spending data of taxpayers with their PAN details.
 The platform is set to play a key role in widening the tax base and data mining.
 The new platform will also be used for implementation of Foreign Account Tax Compliance Act Inter
Governmental Agreement (FATCA IGA) and Common Reporting Standard.
 A new Compliance Management Centralized Processing Centre (CMCPC) will also be setup as part of the
Project for handling preliminary verification, campaign management, generation of bulk letters/notices
and follow-up.
FATCA IGA
 India and United States signed Inter Governmental Agreement (IGA) to implement the Foreign Account
Tax Compliance Act (FATCA) to Promote Transparency on Tax Matters.
 The United States enacted FATCA in 2010 to obtain information on accounts held by U.S. taxpayers in
other countries.
 It requires U.S. financial institutions to withhold a portion of payments made to foreign financial
institutions (FFIs) who do not agree to identify and report information on U.S. account holders.
 As per the IGA, FFIs in India will be required to report tax information about U.

Question 56

3.11. FINANCIAL SECTOR SEARCH AND RECRUITMENT COMMITTEE

Answer 56

 The government set up the Financial Sector Search and Recruitment Committee- headed by the Cabinet
Secretary- to choose the members and heads of the RBI, SEBI, IRDA - Insurance Regulatory and
Development Authority.
 The RBI opposed the government’s move to have Cabinet Secretary as the head of the search-cumselection
panel for the appointment of its Deputy Governor.
 Under the compromise, RBI Governor will have a greater say in the short-listing of the names. However,
the Cabinet Secretary remains the head of the panel.
 The search committee can only recommend names, while the government makes the appointment.

Question 57

3.12. PSU REFORMS: DISINVESTMENT POLICY

Answer 57

Why in News
 The PMO gave approval to NITI Ayog’s proposal for strategic sales in about 22 public sector companies
in September 2016. It is aimed at reducing government ownership to below 51 per cent.
 It has further approved closing certain loss-making PSUs as part of its PSU reforms measures.
 The government had earlier renamed the Department of Disinvestment as the Department of Investment
and Public Asset Management (DIPAM).
What is Disinvestment?
 Disinvestment refers to the government selling or liquidating its assets or stakes in PSE (public sector
enterprise). It is also referred to as divestment or divestiture.
 Disinvestment was popularized in India post the New Economic Policy of 1991. Disinvestment is mainly
done when a PSU has been running in losses for years and becomes a burden on the government.
 Disinvestment proceeds can help the government fund its fiscal deficit.
National Investment Fund (NIF)
 It was created in 2005. All the proceeds from the disinvestment of Centre Public Sector Enterprises were
to be channelized in this fund.
 75% of the income of the NIF is used in social sector schemes such as those that promote education,
health and employment while 25% is to be utilized in the revival of PSUs.
 This rule was relaxed during global economic slowdown and the govt. approved 100% NIF income
utilization for social sector from 2009 to 2013.

Question 58

3.13. MODEL SHOPS AND ESTABLISHMENT BILL 2016

Answer 58

Why in news?
The Union Cabinet recently cleared the Model Shops and Establishment (Regulation of Employment and
Conditions of Service) Bill, 2016.
Highlights
 It only covers Shops and Establishments Employing 10 or more Workers except Manufacturing Units.
 The law provides freedom to operate 365 days a year and opening/closing time of establishment
 The law tries to boost the Employment Generation in general, especially for Women, as they will be
permitted to work night shifts, with adequate safety and security provisions.
 It calls for better working conditions for employees such as drinking water, canteen, first-aid, lavatory and
crèche facilities.
 The law also provides exemption to highly-skilled workers like those in IT and biotechnology from daily
working hours (9 hours) and weekly working hours (48 hours).

Question 59

12. MISCELLANEOUS

12. 1. DISPUTE OVER BASMATI GI TAG CLAIM

Answer 59

Why in news?
 In February 2016, IPAB (Intellectual Property Appellate Board) passed a judgment granting Geographical
Indicator (GI) status to Basmati rice cultivated in the Indo-Gangetic Plains on the foothills of the
Himalayas.
 GI status helps in improving sale and export of the products because the GI tag is a guarantee of certain
quality and is thus extremely valued in international markets.
Geographical Indication
 GIs have been defined under Article 22(1) of the WTO Agreement on Trade-Related Aspects of Intellectual
Property Rights (TRIPS) Agreement.
 A geographical indication (GI) is a sign used on products that have a specific geographical origin and
possess qualities or a reputation that are due to that origin.
 A geographical indication right enables those who have the right to use the indication to prevent its use by
a third party whose product does not conform to the applicable standards.
 However, a protected geographical indication does not enable the holder to prevent someone from
making a product using the same techniques as those set out in the standards for that indication.
 Geographical indications are typically used for agricultural products, foodstuffs, wine and spirit drinks,
handicrafts, and industrial products.
 There are three main ways to protect a geographical indication:
o so-called sui generis systems (i.e. special regimes of protection);
o using collective or certification marks; and
o Methods focusing on business practices, including administrative product approval schemes.
 India, as a member of the WTO, enacted the Geographical Indications of Goods (Registration and
Protection) Act, 1999.

Question 60

12.2. NOBEL PRIZE IN ECONOMICS

Answer 60

Why in news?
 Oliver Hart from Harvard and MIT professor Bengt Holmstrom won this year’s Nobel Memorial Prize in
Economics for their study of contracts and human behaviour in business.
What is Contract Theory?
 How contracts are designed defines our incentives in various situations in the real world. Contracts can be
o formal or informal, depending on whether they are enforced by law or social norms
o complete or incomplete, which is based on whether they take into account all possibilities that lay in
the future
 Contract theory is, partly at least, an attempt to understand the nuances in our contracts and how those
contracts could be better constructed.
 The two economists provided “a comprehensive framework for analysing many diverse issues in
contractual design, like performance-based pay for top executives, deductibles and co-pays in insurance,
and the privatisation of public-sector activities.”
 It has become especially relevant in the years after the 2008 financial crisis, which was blamed on the
short-term risk encouraged by huge cash bonuses paid to investment bankers.
 It also touches on themes of moral hazard, which arises where those that take the risks don’t share in the
costs of failure.
About Nobel Prize in economics
 It was established in 1968 by a donation from the Swedish National Bank.
 It is not one of the prizes that Alfred Nobel established in his will in 1895, but it is referred to along with
the other Nobel Prizes by the Nobel Foundation.
 Laureates in the Memorial Prize in Economics are selected by the Royal Swedish Academy of Sciences.

Question 61

12.3. NIDHI APKE NIKAT PROGRAMME

Answer 61

Why in News?
 The review of this programme shows a positive trend with only 268 grievances pending out of the total
17000 filed since its inception. The EPFO rechristened Bhavishya Nidhi Adalat as Nidhi Aapke Nikat.
More about the programme
 Nidhi Aapke Nikat is a public outreach programme of the Employee Provident Fund Organisation (EPFO)
launched in July 2015.
 The programme aims to bring all the different stakeholders (employers/employees) on the same platform.
 The various new initiatives in the interest of the employees/employers taken up by the organisation are
explained during this programme.
 Apart from dealing with grievances, the organisation invites feedback and suggestion through this
programme.

Question 62

12.4. DIGILOCKER

Answer 62

 Digilocker is the key initiative of GOI under Digital India scheme.
 Digilocker has been envisioned to achieve paperless governance. It is a platform for issuance and
verification of documents and certificates online.
How does it Work?
 Any citizen signing up for digilocker would get a dedicated v-cloud storage space which will be linked to his
Aadhaar.
 Organizations that are registered with Digilocker would transfer the electronic copies of documents in the
citizen’s account.
 Citizens can also upload digital/scanned copies of their documents for safe storage. Documents can also
be e-signed.

Question 63

12.5. BEPS (BASE EROSION AND PROFIT SHIFTING)

Answer 63

 It is a technical term referring to the negative effect of multinational companies’ tax avoidance strategies
on national tax bases. It can be achieved through the use of transfer pricing.
 The BEPS package from OECD (Organization for Economic Cooperation and Development) includes 15
actions that equip government with the domestic and international instruments needed to tackle BEPS.
 The inclusive framework has the tools to ensure that profits are taxed where economic activities
generating the profit are performed and where value is created.
 The BEPS action Plan was published by OECD in 2015.

Question 64

12.6. FESTIVAL OF INNOVATION (FOIN) INITIATIVE

Answer 64

 The Festival of Innovation (FOIN) is a unique initiative of the Office of the President of India to recognise,
respect and reward grassroots innovations and foster a supportive ecosystem.
 It gains importance in the light of fact that 2011-20 is decade of innovation

Question 65

12.7. AKODARA INDIA’S FIRST DIGITAL VILLAGE

Answer 65

 Akodara, a village in Gujarat is the first digital village where 220 families have e-banking facility.
 The residents buying milk, vegetable, eggs etc. through internet
 The digital payment is accepted for sale more than Rs. 10.

Question 66

12.8. INDIA’S FIRST MEDIPARK

Answer 66

 HLL Lifecare Ltd, a mini-ratna company, would be setting up a medical devices manufacturing park
(Medipark) at Chengalpattu, a town in the outskirts of Chennai. It will be completed in seven years, being
developed in different phases.
 The Medipark would be the first manufacturing cluster in the medical technology sector in the country,
and would play a key role in the development of medical devices and technology industry and allied
disciplines.
 As part of India’s Make in India initiative this will generate direct employment for about 3000 people and
indirect employment for many more thousands once it is operational

Question 67

12.9. SOUTH ASIA TRAINING AND TECHNICAL ASSISTANCE CENTRE

SARTTAC

Answer 67

 India in collaboration with IMF is establishing this centre for capacity development through training and
technical assistance
 It is expected to become the focal point for planning, coordinating, and implementing the IMF’s capacity
development activities in the region
 It would train in various areas such as macroeconomic and fiscal management, monetary operations,
financial sector regulation and supervision, and macroeconomic statistics.
 The Center will help address existing training needs and respond to the demand for IMF training in India,
Bangladesh, Bhutan, Maldives, Nepal, and Sri Lanka, while bringing the region’s training volume on par
with those of other regions.

Question 68

12.10. CERT-FIN

Answer 68

 Finance Minister announced setting up a Computer Emergency Response Team specifically for the
financial sector.
 CERT-fin will help secure the cyber security of the financial sector. Tackling cyber threats has become all
the more relevant post demonetization and upsurge of digital economy.