6.Economy-2- 81T Flashcards
- EXTERNAL SECTOR
4. 1. CURRENT ACCOUNT SURPLUS
Why in news?
India’s current account moved in to surplus in the April-June quarter of the current fiscal year after a gap of 9
years.
What is Current Account Deficit?
It means the value of imports of goods/services/investment incomes is greater than the value of exports.
It is sometimes referred to as a trade deficit.
The major contributor to India’s Current Account Deficit (CAD) has been imports of Gold and Crude Oil.
Impact of CAD
Sustained period of CAD has led to currency depreciation, high rates of inflation which further effects the
incoming foreign investment.
Fall in gold imports and lower oil import bill in recent time led to shrinkage in the deficit.
A current account surplus means an economy is exporting a greater value of goods and services than it is
importing.
There is no hard and fast rule about what will happen if a country has a current account surplus. It
depends on the size of the current account and the reasons for the current account surplus.
In the case of India, slow growth in imports, reflecting the persisting weakness in the investment
sentiment, is the prominent reason behind this.
The current account was in surplus last in the January-March quarter in the year 2007.
4.2. NATIONAL COMMITTEE ON TRADE FACILITATION
Background
India in February 2016 had agreed to undertake the commitments under the Trade Facilitation Agreement
(TFA) of WTO.
It, thus, needed a national level body to facilitate domestic co-ordination and implementation of TFA
provisions. Accordingly, National Committee of trade Facilitation (NCTF) has been set up.
Purpose of NCTF
It is an inter-ministerial body on trade facilitation chaired by the Cabinet Secretary.
It will include Secretaries of all key Depts. involved in trade issues as well as members from major trade
associations like FICCI, CII etc. so as to synergise various trade facilitation perspectives.
Its Secretariat will be housed within the Central Board of Excise and Customs (CBEC), in the Directorate
General of Export Promotion, New Delhi.
It will have a three-tier structure:
National Committee- pivot for monitoring the implementation of TFA
Steering Committee- responsible for identifying the nature of required legislative changes as well as
for spearheading the diagnostic tools needed for assessing our level of compliance to the TFA.
Ad hoc working group of experts- dealing with specific trade facilitation issues
About trade facilitation
The TFA was agreed upon at the WTO Ministerial Conference in Bali in 2013. The agreement aims at
expediting the movement and clearance of goods, including goods in transit, and establishing effective
cooperation between customs and other authorities on trade facilitation and customs compliance issues.
It will enter into force once two-thirds of WTO’s 162 members formally accept the agreement.
4.3. FDI POLICY REFORMS
Why in news?
The government has made changes to the FDI policy. This is the second biggest reform in FDI since those
announced in November 2015.
Important changes in different sectors
Defence Sector: The policy has been tweaked to allow 100 per cent FDI by doing away with the condition
of access to “state of the art” technology. It has now been modified to “modern or for other reasons”, a
move that will widen the scope of investment by foreign players. The new norms have also been made
applicable to manufacturing of small arms and ammunitions covered under Arms Act 1959. Under the
current policy, FDI up to 49 percent was allowed under automatic route and beyond that under
the approval route on case-to-case basis.
Pharmaceutical Sector: In this sector, 74% FDI would be allowed in the pharmaceutical sector under the
automatic route in existing domestic companies (Brown Field projects). Currently, FDI up to 100% is
permitted in new projects in the pharma sector (Green field projects).
Aviation Sector: 100% FDI under automatic route in brownfield airport projects. FDI beyond 74% for
brownfield projects is under government route. Earlier, the FDI policy on airports permitted 100% FDI
under automatic route in Greenfield projects.
Animal Husbandry: 100% FDI allowed in Animal Husbandry. The clause of controlled conditions for 100%
FDI under the automatic route for animal husbandry has been done away with.
Food products: 100% FDI under government approval route. It will include trading in food products
including through e-commerce, in respect of food products manufactured or produced in India.
Single Brand Retail Trading: The new policy relaxes local sourcing norms upto three years and a relaxed
sourcing regime for another five years for entities undertaking Single Brand Retail Trading of products
having ‘state-of-art’ and ‘cutting edge’ technology.
4.3.1. WHITE LABELLED ATM
Government has allowed Foreign Investment up to 100% in White
Label ATM (WLA) operations, subject to the following conditions:
Any non-bank entity intending to set up WLA should have
minimum net worth of Rs. 100 crore as per latest financial
years audited balance sheet, which is to be maintained at all
times.
In case the entity is also engaged in any other 18 Non-Banking Finance Company (NBFC) activities, then
the foreign investment in the company setting up WLA, shall also comply with the minimum capitalization
norms for foreign investment in NBFC activities.
Types of ATM: Bank ATM- owned and operated by the respective bank. Brown Label ATM- banks outsource the ATM operations to a third party. They have logo of the bank. White Label ATM- owned by non-bank entities. Eg- Muthoot Finance ATM, TATA Indicash, etc. There is no bank logo.
4.4. FIPB TO BE ABOLISHED
Why in news?
Government announced in the Budget 2017-18 its intention to abolish FIPB (foreign investment promotion
board) in fiscal year 2018.
Background
FDI flows into India in two ways, the automatic route and through government approval.
FIPB offers a single window clearance mechanism for FDI applications in sectors under the approval route.
The board has handled investment proposals worth up to ₹5,000 crore.
FIPB is located in the Department of Economic Affairs, Ministry of Finance and the Finance Minister is in
charge of the FIPB.
Reasons Cited
At present, more than 90% of the FDI inflows are routed through the automatic route which do not
require prior approval from the FIPB and are subject to sectoral rules.
For the rest of the FDI (about 8% of the total FDI inflows), every department concerned has a framework
or a regulator for it.
Further, FIPB has successfully implemented e-filing and online processing of FDI applications.
4.5. BILATERAL INVESTMENT TREATY
Why in News?
India recently unilaterally terminated its Bilateral Investment Treaty (BIT) with Netherlands and has also
served notices to 20 EU members for termination of their respective BITs.
Background
A BIT is an agreement between two countries that
help formulation of rules for foreign investment in
each other’s countries.
BIT offers protection to foreign investor by holding
the host state accountable for exercise of their
regulatory power through an independent
international arbitration mechanism.
India changed its model BIT treaty in 2015. This
model pays a greater emphasis to the state’s
regulatory power.
India was one of the most sued countries in 2015.
Indian signed some 70-odd BITs from 1994-2011 which were investor friendly. Post 2011, the trend has
been its opposite.
Bilateral Investment Treaty (BIT)
India has about 83 BITs with different countries
India’s model draft on BIT
Deleting the MFN clause.
Enterprises based definition of investment-
Investors who do not set up an enterprise in India
to carry business cannot seek protection under BIT.
Compulsorily exhausting the local courts first
before approaching international tribunal for
dispute resolution.
List of subject exceptions where provisions of BIT
would be invalid are health, environment etc.
- ARBITRATION MECHANISM
4. 6.1. INDIA’S FIRST COMMERCIAL ARBITRATION CENTRE
Mumbai Centre for International Arbitration (MCIA), India’s first major centre for commercial arbitration was
launched in Mumbai in October
4.6.2. SINGAPORE INTERNATIONAL
ARBITRATION CENTER
Why in news?
Singapore International Arbitration Centre (SIAC) in June 2016 signed a Memorandum of Agreement (MoA)
with Gujarat International Finance Tec-City Company Limited (GIFTCL) and GIFT SEZ Limited (GIFT SEZ) to
establish a representative office in India.
Aim: To resolve international commercial disputes with the collaboration of SIAC and the Singapore
International Mediation Centre (SIMC) with Indian companies.
It also includes the innovative ‘Arb-Med-Arb’ service (Arbitration - Mediation - Arbitration).
Gujarat International Finance Tec-City or GIFT
It is first of the 100 smart cities.
GIFT city is the first IFSC (International financial services centre) and to be set up in a SEZ.
As part of the budget, a reduced Minimum Alternate Tax (MAT) rate of 9% was proposed for the IFSC in
the SEZ, while retaining 18.5% MAT on all other SEZs.
GIFT City is a US$20-billion project combining state-of-the-art connectivity, infrastructure and
transportation with sustainable growth.
From offshore banking to currency convertibility, re-insurance, securities trading and capital raising all
kinds of financial activity can take place inside this IFSC.
Arb-Med-Arb
Arb-Med-Arb is a process where
A dispute is first referred to arbitration
before mediation is attempted.
If mediation works, mediated settlement
may be recorded as a consent award.
If mediation fails, they may continue with
the arbitration proceedings
4.6.3. ANTRIX-DEVAS CASE
Why in news?
The Permanent Court of Arbitration at The Hague ruled against the
Indian government over the cancellation of a contract between
Devas Multimedia and Antrix Corporation Ltd.
The tribunal’s decision is the second such arbitration outcome in the
Antrix-Devas controversy. An International Chamber of Commerce
(ICC) tribunal in 2015 found the annulment of the agreement
“unlawful” and awarded Devas damages of nearly Rs 4,400 crore.
Background
In 2005, ISRO’s commercial arm Antrix Corporation signed an
agreement with Devas to lease out satellite spectrum.
In 2011, a leaked draft audit report noted that there were potentially a number of irregularities in the
agreement. Shortly after the controversy, ISRO decided to annul the agreement.
About PCA It is an inter-governmental organization in the field of dispute resolution, located at The Hague in Netherlands It is not part of the UN system although it has observer status in UN General Assembly
4.7. MULTILATERAL COMPETENT AUTHORITY AGREEMENT FOR
COUNTRY-BY COUNTRY REPORTING (CBC MCAA)
CbC MCAA is a tax co-operation agreement to enable automatic sharing of country-by-country
information.
The CbC MCAA aims to boost transparency by multinational enterprises (MNEs) by allowing signatories to
bilaterally and automatically exchange country-by-country reports.
This exchange of information is facilitated as part of Action 13 of the base erosion and profit shifting
(BEPS) Action Plan adopted by the OECD and G20 countries in 2013.
The agreement will help to ensure that tax administrations obtain better understanding of how MNEs
structure their operations and also ensure that the confidentiality and appropriate use of such information
is safeguarded.
The total number of signatories has increased to 57 including India
4.8. EXPORT CREDIT GUARANTEE CORPORATION (ECGC)
The ECGC Limited is a company wholly owned by the Government of India. It provides export credit insurance
support to Indian exporters and is controlled by the Ministry of Commerce.
Functions
Provides a range of credit risk insurance covers to exporters against loss in export of goods and services as
well.
Offers guarantees to banks and financial institutions to enable exporters to obtain better facilities.
Provides Overseas Investment Insurance to Indian companies investing in joint ventures abroad in the
form of equity or loan and advances.
4.9. PANAMA: TAX INFORMATION SHARING CONVENTION
Multilateral Convention on Mutual Administrative Assistance in Tax Matters was developed jointly by the
OECD and the Council of Europe in 1988.
The Convention represents a wide range of countries, including all G20, BRIICS and OECD countries,
financial centres and several developing countries.
India is among the 98 countries and jurisdictions that have already joined the Convention.
The convention regulates information exchange between states parties on the exchange of information
regarding tax matters.
4.10. MARKET ECONOMY STATUS
4.10. MARKET ECONOMY STATUS
India is not inclined to automatically grant the coveted ‘Market Economy Status’ (MES) to China under
World Trade Organisation (WTO) norms.
Once a country gets MES status, exports from it, will have to accepted at the production costs and selling
price as the benchmark.
The definition of a country as a Non Market Economy (NME) allowed importing countries to use
alternative methodologies for the determination of normal values, often leading to higher anti-dumping
duties.
The main reason India is reluctant to grant MES to China is that it will severely curb India’s ability to
impose anti-dumping duties on “unfairly priced” Chinese imports.
Anti-Dumping Duty
Dumping refers to the international trade practice when manufacturers export a product to another
country at a price below the domestic market price.
Anti-dumping duty is a protectionist duty levied on such imports that are believed to have been price
below their domestic price. This is mainly done in order to uphold the practice of fair trade.
Countervailing Duty (CVD)
It is additional duty levied by the importing country on specific goods.
It is generally equal to the excise duty paid by manufacturers when the same product is produced in the
home country.
It is mainly levied in order to neutralize the effect of subsidies in the exporting country on the price and
domestic market of the importing country.
In other words, it is levied in order to protect the domestic manufacturers.
Safeguard Duty
The government extended the safeguard duty on steel import to March 2018 in order to protect the
domestic manufacturers.
It is another duty levied in order to protect the domestic industry.
However, it is done so after an enquiry and when the government is satisfied that the concerned good
when imported in large quantities or at cheap price will affect the domestic industry.
domestic industry.
4.11. EXTERNAL COMMERCIAL BORROWINGS
Any money borrowed from foreign sources for financing the commercial activities in India are called ECBs.
The Central Government permits ECBs as a source of finance for Indian Corporate for expansion of existing
capacity as well as for fresh investment.
The Reserve Bank of India (RBI) has permitted start-ups to raise external commercial borrowings (ECBs) of
up to $3 million in a financial year for three year tenure.
The new rules issued by RBI aims at boosting innovation and promoting job creation in the country.
There will no cost-ceiling or restriction on the end use of the funds raised.
The ECBs can be raised from a country which is either a member of Financial Action
Task Force (FATF) or either through FATF-Style Regional Bodies.
It may be bank loans, securitised instruments, buyers’ credit, suppliers’ credit, foreign currency
convertible bonds, etc.
It should be noted that ECBs are not FDI
4.12. COMPREHENSIVE ECONOMIC AND TRADE AGREEMENT (CETA)
The European Union (EU) and Canada have signed Comprehensive Economic and Trade Agreement
(CETA), a landmark trade deal.
CETA is a free free-trade agreement (FTA) between Canada and the EU.
It removes customs duties, open-up the services market and end restrictions on access to public contracts.
4.13. GLOBAL INVESTMENT AGREEMENT
India, along with Brazil, Argentina and some other nations rejected an informal attempt of EU and Canada
to work towards a global investment agreement at World Trade Organisation (WTO)-level.
The EU and Canada proposed agreement incorporates a contentious Investor-State Dispute Settlement
(ISDS) mechanism.
What is Investor-State Dispute Settlement (ISDS) mechanism?
The ISDS mechanism permits companies to drag governments to international arbitration without
exhausting the local remedies.
It also allows them to claim huge amounts as compensation citing losses they suffered due to reasons,
including policy changes.
It has already has been incorporated by investment pact by the EU and Canada.
4.14. INTERNATIONAL MONETARY AND FINANCIAL COMMITTEE
The IMFC advises and reports to the IMF Board of Governors on the supervision and management of the
international monetary and financial system, including on responses to unfolding events that may disrupt
the system.
It also considers proposals by the Executive Board to amend the Articles of Agreement and advises on any
other matters that may be referred to it by the Board of Governors.
Although the IMFC has no formal decision-making powers, in practice, it has become a key instrument for
providing strategic direction to the work and policies of the Fund.
India is a member of IMFC
4.15. JOINT INTERNATIONAL TASKFORCE ON SHARED INTELLIGENCE
AND COLLABORATION
India participated in the Joint International Taskforce on Shared Intelligence and Collaboration (JITSIC)
meeting held in Paris.
JITSIC is a forum for tax administration.
The JITSIC brings together 37 of the world’s national tax administrations that have committed to more
effective and efficient ways to deal with tax avoidance.
It offers a platform to enable its members to actively collaborate within the legal framework of effective
bilateral and multilateral conventions and tax information exchange agreements – sharing their
experience, resources and expertise to tackle the issues they face in common.
It operates under the framework of OCED
4.16 P-NOTES
Background
Special Investigation Team (SIT) on black money has suggested ensuring that P-Note route is not used for
money laundering
Under the new norms, all the users of P-Notes would have to follow Indian KYC and Anti Money
Laundering (ALM) Regulations, irrespective of their jurisdictions.
What are offshore derivatives instruments (ODIs)?
(ODIs) are investment vehicles used by overseas investors for an exposure in Indian equities or equity
derivatives.
These investors are not registered with SEBI, either because they do not want to, or due to regulatory
restrictions.
These investors approach a foreign institutional investor (FII), who is already registered with SEBI. The FII
makes purchases on behalf of those investors and the FII’s affiliate issues them ODIs.
P-Notes are a type of offshore/overseas derivative instruments (ODIs)
Financial Intelligence Unit – India: was set by the Government of India in 2004 as the central national agency
responsible for receiving, processing, analyzing and disseminating information relating to suspect financial
transactions.
4.17. SPECIAL ECONOMIC ZONE
Why in news?
A Mobile app named “SEZ India” has been launched by the Department of Commerce under its broader e-
Governance initiative i.e. SEZ Online System.
SEZs are geographical areas which enjoy special privileges as compared with non-SEZ areas in the country.
They were conceived as tax free enclaves with world class infrastructure for exporting goods and services.
The main objectives of the SEZ Act are
Generation of additional economic activity.
Promotion of export of goods and services.
Promotion of investment from domestic and foreign sources.
Creation of employment opportunities.
Development of infrastructure facilities.
4.18. DOUBLE TAXATION AVOIDANCE AGREEMENT
A DTAA is a tax treaty signed between two or more countries. Its key objective is that tax-payers in these
countries can avoid being taxed twice for the same income. A DTAA applies in cases where a tax-payer
resides in one country and earns income in another.
DTAA with Singapore, Mauritius and Cyprus give full exemption on capital gains to investors as there’s no
cap gains in contracting countries. These agreements were misused for round tripping black money.
To curb revenue loss and check menace of black money through automatic exchange of information,
India recently revised treaties with Mauritius and Cyprus and joint declaration was signed with
Switzerland.
- EMPLOYMENT AND SKILL DEVELOPMENT
5. 1. WOMEN EMPLOYMENT SCHEMES IN MSME
The Ministry of Micro, Small and Medium Enterprises has been implementing special, dedicated Schemes for
Women Entrepreneurship Development.
5.1.1. TRADE RELATED ENTREPRENEURSHIP ASSISTANCE AND DEVELOPMENT
(TREAD) SCHEME
trade related training, information and counseling extension activities and enhancing capability to
undertake self-employment in non-farm activities
financial loans are provided by Nationalized Banks and grants by Government at the rate of 30% of the
loan through NGOs
5.1.2. MAHILA COIR YOJANA
Financial assistance is given for coir processing equipment.
Training in various coir processing activities like spinning of coir yarn etc.
