Economy

Question 1

National Income

What is it?
What are its different variables?
Do remittances count in national income calculation?
GDP vs. GNP?

Answer 1

Economic Territory: Geographical territory
administered by a government within which persons,
goods and capital circulate freely.

National Income should consider only the factor
incomes i.e., income earned through the provision of
factors of production. Hence, transfer payments i.e.,
old age pensions, education grants, unemployment
benefits, gifts not included in the GDP Calculation.
• Similarly, remittances also not accounted.

GDP: Economic territory related
GDP: Economic persons related i.e. an indian citizen outside India’s income would count.

Question 2

What is factor cost vs. basic price vs. market price when looking at GDP?

Answer 2

GDP at Market price= GDP at Basic price + Product
Taxes- Product Subsidies

Or

GDP at Market Price= GDP at Factor Cost + Production
Taxes+ Product Taxes – (Production Subsidies + Product
Subsidies)

Or
GDP at Market price = GDP at Factor Cost + Indirect
Taxes – Subsidies

Question 3

What are the ways in which one can calculate GDP?

Answer 3

GDP = PFCE+ GFCE + GCF + (X-M)

Private Final Consumption Expenditure (PFCE):
Expenditure incurred by the households on Goods and
Services (only Marketable services).
What it includes?

o Expenditure incurred by Residents within India.
o Expenditure incurred by Residents outside India
(Say, Tourism, Education accounted as Imports)
o Expenditure incurred by non-residents within
Economic territory of India considered as Exports

Government Final Consumption Expenditure
Compensation of employees (wages and salaries +
pensions) + Net purchase of goods and services +
Consumption of fixed capital (CFC). Note: Excludes the
transfer payment.

Gross Capital Formation (GCF)
Calculated as Gross Fixed Capital Formation (GFCF) +
Changes in Stocks + Net acquisition of valuables.

Gross Fixed Capital Formation (GFCF) comprises of
• Construction and Maintenance of fixed assets such
Infrastructure such as Dwellings, Roads, Railways etc.
• Machinery and Equipment (3) Intellectual Property
Rights such as R&D, Software etc.
• Cultivated biological resources - Increment in
Livestock and Plantation.

Question 4

What is the difference in Nominal and Real GDP?

Answer 4

Nominal GDP: Refers to GDP at current market prices
i.e., the GDP is calculated as per the market prices for
the year for which the GDP is calculated.

Real GDP: Refers to GDP at base year prices i.e., GDP is
calculated as per market prices in the base year. Thus,
the Real GDP negates the inflation in goods and services.

Real GDP accounts for inflation.

Question 5

Trends in Indian GDP (both Nominal and Real)

Answer 5

Indian GDP has constantly increased, however both fell during COVID-19 only for it to now go back to pre-COVID-19 levels.

Question 6

What is purchasing power parity?

Answer 6

Purchasing power parity (PPP) is a popular metric used by macroeconomic analysts that compares different countries’ currencies through a “basket of goods” approach. Purchasing power parity (PPP) allows for economists to compare economic productivity and standards of living between countries.

Question 7

What is the role of the chief economic advisor?

Answer 7

1. Heads the Economic Division of Department of
   Economic Affairs in Ministry of Finance. Equivalent to
   rank of Secretary to Government of India.
2. Mainly advisory role to advice Government on
   important economic policies.
3. Cadre controlling authority of the Indian Economic
   Service (IES) and deals with Examination, Recruitment,
   Training of IES officers.
4. Most important role is to prepare the Economic
   Survey, which is presented one day before the
   presentation of the Union Budget.

Question 8

Is the the PM-Economic Advisory council statuatory?

Answer 8

NO. IT IS a non-constitutional, non-statutory & independent
body constituted to give economic advice to Prime
Minister.

Question 9

What is Money?

What are the types of money?

What are the components of money supply?

Answer 9

Money is:

1. A medium of exchange: An object that is generally
   accepted as a form of payment.
2. A unit of account: A means of keeping track of how
   much something is worth.
3. A store of value: Can be held & exchanged later for
   goods & services at an approximate value.

Legal tender: money that cannot be rejected by anyone in the country.

Sources of money supply: The RBI and the Government. RBI’s currency is backed by golf, gsecs and foreign currency assts whereas the government can issue coins under the coinage act.

seignorage is the profit accumulated by a central bank from printing.

Question 10

What are the components and levels within money supply?

Answer 10

1. Reserve money or high-powered money M0 i.e. currency in circulation, with public and in banks. Includes banker’s deposits with the RBI.
2. Narrow money m1 : currency with public, demand deposits with banks
3. M2: M1 + post office savings deposits
4. M3 Broad Money: M1+Time deposits with banks
5. M4: M3+total post office deposits

Money multiplier M3/M0 i.e. M3 is the most used measure of money supply.

Question 11

What is currency deposit ratio and reserve deposit ratio?

Answer 11

Currency Deposit Ratio:

Ratio of money held by public in currency to that they hold in bank deposits. It reflects people’s preference for liquidity. For ex. CDR increases during festive season as people convert deposits to cash balance for meeting extra expenditure during such periods.

If currency-deposit ratio increases, it means that public is holding more of its money out of Banks rather than
depositing it.

Hence, money multiplier will go down.

►RESERVE DEPOSIT RATIO
Proportion of the total deposits commercial banks keep as reserves. Reserve money consists of two things – vault cash in banks and deposits of commercial banks
with RBI. It includes the SLR and CRR.

Question 12

What is the Central Bank Digital Currency?

Is it more or less volatile than crypto?

Answer 12

In the Union Budget 2022-23, the finance minister has
announced that RBI would issue Central Bank Digital
Currency (CBDC) starting from 2022-23. Apart from that,
the Finance Bill 2022 has introduced amendments to
the RBI Act, 1934 to enable the RBI to issue Central Bank
Digital Currency.

Unlike the cryptocurrencies, the CBDC is backed by
the Central Bank and hence enjoy more amount of
stability and less volatility

Question 13

What are the main functions of the RBI?

Answer 13

1. It is the monetary authority i.e. it maintains price stability while keeping in mind the growth
2. It is the banker to the banks: it offers loands to scheduled bank, has clearing house functions and enables banks to maintain accounts with the reserve bank for stat reserve requirements
3. Regulation and supervision of non-banking financial companies
4. Manager of foreign exchanges
5. Issuer of currency
6. Lender of last resort: RBI acts as the lender of last resort to resuce a bank which is facing liquidity problems.
7. Oversight of payment and settlement systems. It is done through the Board for Regulation and Supervision of Payment and Settlement Systems
8. Banker and Debt Manager to the government: performs merchant banking for central and state governments.

Question 14

What are the subsidiaries of the RBI?

Answer 14

1. Deposit insurance and credit guarantee corporation (DIGC)
2. Bharatiya Reserve bank note mudran private limited: manages two presses
3. REBIT: IT requirements
4. IFTAS: infrastructure services to RBI, banks and other financial institutions.
5. SFMS: structured financial messaging system
6. Indian Banking Community Cloud: IBCC
7. Global interchange for financial transaction GIFT: payment and settlement system.

Question 15

What are the decision-making components of the RBI?

What is the gov’s term?

What is the board for financial supervision?

What is the RBI’s banking ombudsman scheme?

Answer 15

1. The central board is the highest decision making body with 1 gov and 4 dep govs. They are appointment by the Cabinet Appointment Committee on the recommendations of the Financial Sector Regulations Appointments Search Committee.
2. Gov + Dep Gov term is 5 years.
3. BFinancial Supervvision performs a supervisory function and has to meet once a month.
4. RBI used to have three different Ombudsman schemes (banking, nbfcs and digital transactions) but has now merged all three.

Question 16

Who drives the monetary policy of India?

What is the monetary policy committee?

What is the monteary police framework agreement?

What are the objectives?

Answer 16

1. Indian monetary policy is driven by the monterary policy committee which is a statutory body under the RBI.
2. MPC votes based on majoirty and RBI government has a tie break. Decision is binding on the RBI.
3. This function of the MPC is driven by the 2015 MPC Framework Agreement signed by GoI and RBI. It sets the MPC’s inflation targeting objective (using CPI) as well as the flexible inflation targeting which recently is aCPI of 4% + or - 2% from 2016 to 2021. This same target has been extended further.

Question 17

What is the RBI’s liquidity adjustment facility?

What are repo rates?

How does their usage function?

What are targeted long term repo operations?

Answer 17

1. Repo rates and reverse repo rates fall under whats called the Liquidity Adjustment Facility i.e. controlling liquidity in the market.
2. Repo rate refers to the interest rate at which the RBI provides liquidity to banks against the collateral of government securities. I.e. a higher repo rate means a higher cost of borrowing from the RBI, reducing the credit available for banks to provide to households and a resulting drop in the money supply.
3. Repos come in different forms
   - Overnight repo auctions: banks can borrow money for one day from the RBI at an interest rate equal to the repo rate by pledging the gsec that the banks have above the stat liquidity ratio.

• Variable repo auctions: banks can borrow money at variable repo rates decided throgh auctions
• Term repos: 7, 14,21,28,56 day repos determined by repo rate as per auction i.e. higher than set repo rate.
  3. TLTROs are a policy tool used the RBI to inject liquidity. They are like term repos but with maturity periods of 1 and 3 years. it is carried out whenever needed (on-tap) through e-Kuber, the core banking solution of the RBI. The RBI, by lowering the the long term rates, incentivizes banks to reduce their overall lending rates to the end consumer, thereby improving monetary policy transmission.

Question 18

What is a reserve repo rate?

What is the standing deposit facility?

Answer 18

1. The reverse repo rate is the rate at which the RBI borrows money from commercial banks against the collateral of eligible government securities.
   i. e. an increase in reverse repo rate means that commercial banks get more incentives to park money with the RBI, decreasing money supply whereas a decrease in reverse repo rate means that banks have less incentive to park money with RBI (lower RR rate of return) thereby increasing money in market and money supply.
2. SDF works like the reverse repo. SDF’s don’t require the RBI to provide G-Secs as collateral enabling them to absorb huge amounts of liquidity. Further, the SDF is lower than the reverse repo and it enables banks to keep surplus funds with RBI at their own discretion.

Question 19

What is the relationship between Cash Reserve Ratio, Statutory Liquidity Ratio?

What are foreign exchange swaps?

What are OMOs?

Answer 19

1. The cash reserve ratio CRR is the % of total deposits that banks have to keep in the RBI as cash. i.e. a greater CRR means more of a bank’s money held as cash with the RBI, therefore less money available to provide as credit in the economy, therefore less money supply.
2. CRR in a sense is similar to SLR except the the SLR refers to the statutory liquidity requirement of banks holding a % of their OWN deposits (as opposed to cash with the RBI) as liquid assets i.e. gold, cash, g-secs (tbills etc). Same logic applies though where a higher SLR means more money held by banks as liquid assets therefore less money available as credit into the economy i.e. lower money supply.
3. A foreign exchange swap is a simple buy/sell swap buy the RBI where in they can sell dollars to banks and simulatenously agree to buy the US dollars at the end of the swap period. Eg. First a bank buys US dollars from the RBI at an exchange rate and then the Bank sells the same amount of dollars after the period to get back the rupee. It is carried out to check rupee depreciation and can decrease the RBI’s forex reserves.
4. An OMO is the RBI’s selling and purchasing of Gsecs in the open market to influence liquidity in the economy. As of late even State Development Loans can be part of OMOs.

Question 20

What is the relationship between OMOs and economic liquidity and money supply?

What is operation twist?

What then is the G-SAP program?

Answer 20

1. Typically, the RBI carries out OMO sales to suck out excess liquidity and OMO purchases to inject liquidity.

I.e Open market purchase by RBI→RBI will release liquidity in
the economy→ money supply will increase

2. Under Operation Twist, the RBI carries out simultaneous sale and purchase of G-Secs to influence the yield rates on the G-Secs. The RBI sells short-term G-Secs to the Banks and financial institutions and collect money. The same money would then be used by the RBI to buy long term G-Secs.

This is important as Operation Twist helps stabilize (usually reduce) yield prices on G-secs to reduce the borrowing cost of the government.

As the supply of G-Secs in the market increase–> Lower Demand for G-Secs–> Lower Bond Prices–> Higher Yields on G-Secs–> RBI has to offer higher
yields to investors on issuance of new G-Secs–>
Higher Borrowing cost for the Government

GSAP Program is another special OMO wherein the RBI purchases G-Secs from Banks under 3 different routes

1. Under OMOs, RBI can purchase or sell G-secs under market conditions, but under G-SAP the RBI only purchases G-Secs and doesn’t sell.
2. G-SAP is used to control yield rates on long-term G-secs as compared to the regular liquidity management goal of OMOs
3. Under normal OMOs, the banks are left guessing as to the RBI’s decision to buy or sell G-Secs but under the G-SAP, the RBI comes out with a clear-cut commitment to purchase G-Secs within a definite time.

Question 21

What was the COVID-19 Impact on CCR, SLR and MSF?

What were some 2021 policies passed in relation to enabling credit creation via Regional Rural Banks and Small Finance Banks?

W

Answer 21

1. To help banks tide over the disruption
   caused by COVID-19, the cash reserve ratio (CRR) of all banks was reduced by 100 basis points to 3 per cent in March 2020. On a review of monetary and liquidity conditions, RBI decided to gradually restore the CRR in
   two phases back to 4%.
2. In March 2020, banks were allowed to avail funds under marginal standing facility (MSF) by dipping into Statutory Liquidity Ratio (SLR) up to an additional one per cent of net demand and time liabilities (NDTL), i.e., cumulatively up to 3 per cent of NDTL. This facility was extended by RBI until Dec 31, 2021.
3. Regional Rural Banks were now extended the Liquidity Adjustment Facility and the Marginal Standing Facility.
4. Further, Special LTRO were also offered to Small Finance Banks.
5. Lending by SFBs to MFIs was classified as Priority Sector Lending to improve credit creation by enabling SFBs to fulfill the PSL target by on-lending via MFIs.

Question 22

What were the 2021 monetary policy developments with regard to:

1. National Automated Clearing House
2. Digital Payment Solutions in Offline Mode
3. Debt Management
4. UPI Transaction Limit
5. Voluntary Retention Route
6. Cap enhancement under e-RUPI

Answer 22

1. NACH was the payment system developed by the National Clearing Corporation of India. It exists to facilitate interbank, high volume, electronic transactions which are repetitive and periodic. NACH System can
   be used for making bulk transactions towards distribution of subsidies, dividends, interest, salary, pension etc. and for bulk transactions towards collectionof payments pertaining to telephone, electricity, water,
   loans, investments in mutual funds, insurance premium etc. RBI has proposed to make available NACH on all days of
   the week throughout the year.
2. RBI has introduced a new framework for carrying out retail digital payments (say through UPI) in
   offline mode across the country. The new framework would provide fillip to new technologies such as E-RUPI, Near Field Communication (NFC) payments etc.
3. The RBI has proposed increasing the transaction limit for payments made
   through UPI for the Retail Direct Scheme and initial public offering (IPO) applications to Rs 5 lakh from present Rs 2 lakh.
4. Currently State Govs and Central Gov borrows money from the RBI via ways and means advances (before it was ad-hoc T-bills). The loans had to be paid in 90 days. In COVID the WMA limits were increased.
5. In March 2019, the RBI enabled Foreign Portfolio Investors by letting them invest in the Indian debt market free from macro-prudential and other regulatory norms in return for their voluntary commitment to retain a minimum % of their investments in India for a period. This limit for FPI investors using VRR was increased.
6. E-RUPI - RBI has proposed to increase the cap on amount for e-RUPI vouchers issued by Governments to Rs 1 lakh per voucher and allow use of the e-RUPI voucher multiple
   times (until the amount of the voucher is completely redeemed).

Question 23

What is a NPA?

What are stressed assets?

What is a restructured loan?

What are special mention accounts SMAs?

What is the provisioning coverage ratio?

What is the difference between gross NPA and net NPA?

Answer 23

1. A loan is categorized as NPA if it is due for a period of more than 90 days. Depending upon the due period, the NPAs are categorized as under:
   • Sub-Standard Assets: > 90 days and less than 1 year
   • Doubtful Assets: greater than 1 year
   • Lost Assets: loss has been identified by the bank or RBI, but the amount has not been written off wholly.
2. Stressed assets = NPAs + restructured loans + written off assets
3. Restructured loans: those assets which got an extended repayment period, reduced interest rate,converting a part of the loan into equity, providing additional financing, or some combination of these measures.
4. Written off assets: When the lender does not count that money, borrower owes to him, then the asset is called written off assets. However, it does not mean that the borrower is pardoned or exempted. It is just off the book now.
5. In agri loans, an NPA is if the installment of principal or interest remains overdue for two crop seasons for SDcrops and 1 season of LD crop.
6. SMAs were introduced by the RBI to identify stress in the assets of banks and NBFCs. SMA-0: Principal or interest payment not overdue for more than 30 days but account showing signs of
   incipient stress SMA-1: Principal or interest payment overdue between 31-60 days
   SMA-2: Principal or interest payment overdue between 61-90 days.
7. The Provisioning Coverage Ratio is the RBI’s way of ensuring banks set aside a % of profits from assets to cover NPA risk. It is defined in terms of percentage of loan amount and depends upon the asset quality. As the asset quality deteriorates, the PCR increases. The PCR for different categories of assets is as
   shown below:
   • Standard Assets (No Default): 0.40%
   • Sub-standard Assets (> 90 days and less than 1 year):
   15%
   • Doubtful Assets (greater than 1 year): 25%-40%
   • Loss Assets (Identified by Bank or RBI): 100%

Gross NPA is the total NPA of a bank and Net NPA is Gross-Provisioning Amount.

Question 24

What is capital adequacy ratio?

Who defined it?

Is the RBI’s limits in line with BASEL’s recommendations?

What about Liquidity Coverage Ratio?

What is the Banking Stability Index?

Answer 24

1. Capital adequacy ratio is the ratio of a bank’s capital to its risk assets. A higher minimum CAR means that a bank has to maintain higher capital as compared to the risk weighted assets in its portfolio.
2. In India, the RBI mandates banks to maintain a capital adequacy ratio of 11.5% (9% CAR + 2.5% Capital Conservation Buffer). This is 2 basis points higher than the BASEL recommendation.
3. Liquidity Coverage Ratio is the amount of High Quality Liquid Assets that a bank must maintain in its portfolio that can enable it to survive a liquidity stress for 30 days. HQLA can be converted to cash quickly ie.e cash outside the CRR, gold, G-sec’s not bound by the SLR requirement, assets under SLR, high-rated corp bonds.
4. The Banking stability index dictates the level of interdependence across financial institutions and mainly banks i.e. if one bank is distressed, how many other banks will be distressed.

Question 25

What is a domestic-systemically important bank (DSIB)? What is a G-SIB?

What are the components on which a DSIB is scored?

What is the ease reforms index?

Answer 25

1. A DSIB is a bank who’s size is, at a minimum, 2% of the Indian GDP. Banks like ICICI, SBI, HDFC. GSIBs are the top 75 largest banks in the world. GSIBS - Financial Stability Board, DSIBS - RBI.
2. A DSIB has a higher capital requirement and is judged on size, interconnectedness, substituability and complexity.
3. ICICI and HDFC are under Basel’s Tier 1 capital requirement and SBI is a tier 3 DSIB.
4. The Ease reforms index is the Enhance Access & Service Excellence Index that emasures the performance of Public Sector Bans on 140 objective metrics across 6 themes. It is published by the Indian Banks Association.

Question 26

What is LIBOR?

Is it still used?

What is MIBOR?

What is the Alternate Reference Rate (ARR)

Answer 26

London Interbank Offered Rate (LIBOR) is a benchmark interest rate at which the global banks lend to each other. LIBOR is also linked to interest rates at which Indian corporate sector borrows money under external commercial borrowings.

However, the RBI has issued an advisory to Banks to cease entering into new financial contracts that reference LIBOR as a benchmark and instead use any widely accepted alternative reference rate (ARR).

MIBOR is the Mumbai Interbank Offered Rate that is a domestic rate for inter-bank lending and is calcualted by the National Stock Exchange of India.

Question 27

What is SWIFT?

How did it come up?

Answer 27

1. The Society for Worldwide Interbank Financial Telecommunication (SWIFT) is a secure financial message carrier that transports messages from one
   bank to its intended bank recipient to facilitate cross- border payments. It does not facilitate funds transfer: rather, it sends only payment orders.
2. Formed through FATF discussions and now HQed in Brussels. It has 11,000 banks and Russia was recently chocked.

Question 28

What is Prompt Corrective Action (PCA)

What is the new framework launched by the RBI to be effective from 2022?

Do NBFCs have a PCA Framework?

Answer 28

1. The objective of the PCA Framework is to enable Supervisory intervention at appropriate time and require the Supervised Entity to initiate and implement remedial measures in a timely manner, so as to restore its financial health.
2. The PCA Framework is also intended to act as a tool for effective market discipline. The PCA Framework does not preclude the Reserve Bank of India from taking any other action as it deems fit at any time in addition to the corrective actions prescribed in the Framework.
3. In the revised regime:
   - All Scheduled Commerical Banks are covered under the PCA framework barring SFB and Payment Banks.
   - Urban Cooperative Banks are not covered as they are covered under the RBI’s Supervisory Action Framework
   - Rural Regional Banks are covered under NABARD’s supervisory framework
   - It uses Capital to Risk Weighted Assets Ratio and Common Equity Tier 1 Ratio as well as Net Non-Performing Assets and Leverage Ratio as the framework.
   - It does not include return on assets and has a discretionary provisioning requirement.
   - A bank can be taken out of the framework if there are no breaches on the 4 parameters.
4. The RBI is launching a separate PCA framework for NBFCs given their greater interconnected role. It will come into effect in October 2022 based on their financial position in March 2022.

Question 29

What are:

1. haircuts
2. co-orgination of loans
3. the RBI’s sandbox policy
4. promoter pledging
5. inverted yield curve

Answer 29

1. Haircuts are the difference between the loan amount and the actual amount recovered by the Bank from the defaulting customer. In many cases, leading industries that default can come to a compromise and the compromise amount dictates how much was “haircut” i.e. lost by the bank.
2. Co-origination of loans refers to the framework that enables the bringing together of commerical banks and MFIs + NBFCs. It helps them join together to give out loans in various sectors while sharing the risk and loan amount. It will boost credit creation and bring down the cost of credit.
3. Sandbox policy/regulatory sandbox is the live testing of new products in a test environment, and the RBI is developing one for fin-tech companies.
4. Promoter pledging It refers to pledging of shares by promoters of a company to avail loans from the Banks. RBI has set a cap on the maximum loan amount that can be availed at 50% of the value of pledged shares.
5. As a general rule of thumb, yields on bonds are lower in the short-run due to them being less risky as compared to yields on 30 year bonds that tend to be higher. However in an economic crisis/slowdown, the short term actually becomes riskier than the long term, and the yield curve can be flipped wherein a short term bond yield is higher due to greater risk and a long-term bond yield is safer and lower yielding.

Question 30

How does the RBI define a willful defaulter?

Who then is a fugitive economic offender?

What is regulatory forbearance?

What is the interest coverage ratio and what are zombie firms?

Answer 30

1. A willful defaulter is a unit who:
   - has defaulted even when it has the
   capacity to repay.
   - The unit which has defaulted and has not utilized the loans for the specific purposes for which finance was availed of but has diverted the funds for other purposes.
   - The unit which has defaulted and has siphoned off the funds so that the funds have not been utilised for the specific purpose for which finance was availed and the funds are not available with the unit in the form of other assets.
   - The unit which has defaulted and has also sold off the collateral used for availing loans.
2. A fugitive economic offender is a person against whom an arrest warrant has been issued for commiting an offence of atleast a 100cr and ranges from counterfeiting of government stamps/currency, cheque dishonour, laundering, defrauding, tax evasion, corruption etc.
3. Regulatory forbearance means giving certain exemptions from complying with the regulatory requirements. In case of Banking sector, the RBI provides certain leeway to the Banks to comply with its
   regulations in cases of the global financial crisis for example.
4. Interest coverage ratio is used to measure how well a firm can pay the interest due on its outstanding debt. A good ICR (greater than 1) means a good ability to meet interest payments on debt and a bad ICR (lower than 1) means you are a zombie firm.

Question 31

What is the Sarfaesi Act?

What did the introduction of the Insolvency and Bankruptcy Code do to Sarfaesi?

What is the Bad Bank concept?

What is National Asset Reconstruction Limited and Indian Debt Resolution Company?

Answer 31

1. The SARFAESI Act essentially empowers banks to directly auction residential or commercial properties that have been pledged with them to recover loans from borrowers. EG. After defaulting a property can be auctioned after a 60 day notice period.
2. Another option was to have them sell the NPAs to an asset reconstruction company.
3. The IBC, intoduced in 2016 aimed to consolidate all the various bankruptcy codes and asset reconstruction acts and applies now to both secured and unsecured financial creditors.
4. The IBC introduced the National Companies Law Tribunal (NCLT) for companies; and the Debt Recovery
   Tribunal (DRT) for individuals as the adjudicating bodies. The insolvency resolution process can be kickstarted by the debitor or the creditor and once done an insolvency professional is appointed.

Question 32

What is the recapitalization of PSBs initiative and what is lazy banking?

Are recap bonds part of fiscal deficit?

Are they a part of internal debt?

Answer 32

1. It refers to the government’s plan to inject capital through equity investment into PSBs. The rationale is to improve balance sheets while meeting capital requirements under PCA while also promoting GDP growth.
2. The Gov can issue recap bonds that are bought by banks. The money raised by the government can then be used to buy shared of PSBs to increase their capital. Money raised through Recap bonds is not part of fiscal deficit but it is part of internal debt.
3. To get out of the present economic recession, there is a need to enhance credit creation by the Banks. However,
   Lazy Banking” by the Banks in India can derail the economic revival. Lazy banking is when the depositor’s money is used simply to buy risk-free G-secs instead of giving loans due to their NPA risk fears.

Question 33

History and Structure of Indian Banking:

What is a scheduled bank?

What is an urban cooperative bank?

What are Rural Regional Banks?

What is a Local Area Bank?

What has been the development of digital banks?

Answer 33

1. India nationalized private banks in the late 60s and 80s and then finally there was liberalization in 1991 that led to privatization and PSB consolidation.
2. A scheduled bank is one that is included in the 2nd schedule of the RBI, and it usually has a paid-up capital of >5lakh. Scheduled banks include: commerical banks, PSBs, cooperative banks, RRBs etc.
3. For a new banking license, there should be a 10yr track record and a min of 500cr capital.
4. RRBs are focused on ensuring institutional credit for agriculture and other rural sectors. Operation is limited to areas covering one of more districts in states and it jintly owned by central gov, state gov and sponsor bank. They do follow CRR and SLR norms of the RBI and PSL norms.
5. Commercial and non-commerical banks have to both maintain SLR requirements.
6. Coop banks can exist in rural areas or urban areas and in rural areas they can be focused on short term credit or long term credit.
7. PACS and long-term credit cooperatives are not regulated by the RBI and are usually under dual regulation of the RBI and the Registrar of Coop societies. Some functions (management) delegated to Nabard. In UCBs it is dual regulation as well.

Question 34

What are the key details of the banking regulation act 2020?

What is an umbrella entity for UCBs?

Answer 34

1. Its goal is to strengthen RBI’s regulation over UCBs, by expanding the regulatory control in terms of management, capital, audit and liquidation but not quite ending dual reg.
2. RBI is empowered to supersede the BoD of UCBs.
3. Greater audit powers (on par with commercial banks)
4. Issuance of shares and securities: Coop banks are excluded from provision on issuance of shares and securities under the BR act, but the bill modifies and allows them to do so, with prior approval of the RBI.
5. The RBI gave regulatory approval to the National Federation of UCBs and Credit Societies to form an Umbrella Org for UCB sector.
   - The idea is to provide coop banks with a range of banking and fin services as they are more closely networked these days.
   - Goal is to strengthen resilience, offer fund management, establish IT infrastructure and enhance depositor confidence.
6. Can LABs be a part of the 2 RBI schedule? Yes, provided they fulfill eligibility criteria. LABs are banks that have jurisdiction over two or three contiguous districts.

Question 35

What is the proposal for digital banks that was conceptualized by NITI Aayog?

Answer 35

1. NITI aayog highlighted the need for greater digital banks that can leverage ICT to improve credit creation and financial inclusion.
2. Currently only RBI licensed banks can engage in ops, and banks aren’t allowed to be 100% digital. i.e. you must have physical branches.
3. NITI wants digibanks to be licensed under the Banking Reg Act 1949 and allow them to provide services, accept deposits, give loans, etc sans brick and mortar.
4. Examples of digibanks can be:
   - Front-end only Neobanks that offer deposits and loans but no funds of their own,
   - Licensed digibanks that are regulated by RBI (but still have physical)
   - Autonomous unit of traditional banks (neobanking ops within trad banks)

Question 36

What is the difference between banks and NBFC?

What have been some key developments in the NBFC sector?

Answer 36

1. An NBFC cannot accept demand deposits
2. It cannot avail of deposit insurance of the DICGC
3. It cannot issue its own chequebook or use the payment and settlement system of the RBI
4. Foreign investment of up to 100% is allowed
5. There is no CRR
6. The only capital adequacy norms apply to deposit-taking NBFCs (only time deposits) and Systematically important NBFCs (CRAR 15%)
7. SLR is applicable again only to deposit taking NBFCs and they have to be incorporated under Companies Act and regulated by various bodies as opposed to the Banking Regulations Act 1949.

Question 37

What are the different kinds of NBFCs?

What is the RBI’s scale based regulation of NBFCs? What crashes triggered it?

Answer 37

1. NBFCs can broadly be deposit-taking or non-deposit taking and in the non-deposit taking category they can be systemically important i.e. asset size >500cr.
2. Further, they are differentiated based on activities:
   - Investment and credit company: Lending and investment
   - NBC-infrastructure finance: infra-loans
   - NBFC-Systemically Core Investment Company: Investment in equity shares, preference shares, debts, or loands in group companies
   - NBFC Infra debt fund - facilitation of flow of long-term deebt into infra projects
   - NBFC MFI - credit to economically disadvanted group
   - NBFC Factor - loans against the security interest of the receivables at a discount
   - NBFC-Non operative financial holding company - facilitation of promoters groups in setting up new banks
   - Mortage guarantee company: undertaking mortgage business
   - NBFC-AA: collecting and providing info about a customers fin assets
   - p2P lending platforms
   - Housing finance companies: earlier regulation by NHB but not now
   - VCs, Merchant Banking, Stockbroking, Insurance, Chif Fund, Nidhi are all other NBFC examples.
3. The RBI has highlighted a need for effective NBFC regulation after big failures of IL&FC and Dewan HF. NBFCs are lending more and the RBI wants to regulate them based on size, activity and perceived riskiness.
4. NBFCs now have to follow the 90 day NPA classification
5. NBFCs also have a PCA Framework that applies to deposit taking NBFCs and non-deposit NBFCs in Mid, Upper and Top layers. It gets triggered when there is a breach in threshold targets and the RBI can step in and take mandatory and discretionary action to halt expansion, stop dividend payment, supersede board etc.

Question 38

What are the important points about the two key differentiated banks that are also registered under Companies Act and licensed under the Banking Regulation Act?

What are the relevant committees?

CRR/SLR requirements applicable?

What is on-tap licensing of SFBs?

What is the ARC-AMC model for NPA resolution launched last year building up on the IBC development?

Answer 38

1. Payment Banks and Small Finance Banks (SFBs) are two differentiated bank categories. They can go from NBFC to PB or SFB.
2. FDI is allowed in them up to 74%
3. For payment banks no fixed deposits/time/term deposits are allowed and they can operate mainly with demand deposits whereas SFB can do it all.
4. Both can avail of deposit insurance however PBs cannot issue loans or credit cards. SFBs can issue loans, debit cards and credit cards.
5. The Nachiket Mor Committee evaluates licenses for PB applications and the Usha Thorat Committee does so for SFBs.
6. BASEL norms on Risk Weighted Assets apply of 15% RAWs and SFBs have a priority lending target of 75% as well.
7. CRR and SLR are applicable to both SFBs and PBs but for PBs their SLR requirement is only 75% of deposits.
8. On-tap licensing is essentially the RBI’s goal to accept SFB applications year round subject to fulfillment of conditions. The Department of Posts is launching the India Post Payments Bank as a way of further financial inclusion and even Wholesale Banks is another concept suggested by Nachiket Mor Committee to focus on infra and core industries.

Question 39

What is the ARC-AMC model for NPA resolution?

What is the NARCL and IDRCL?

How will they operate?

Does the Indian government cover any shortfalls for security receipts?

Answer 39

1. The ARC-AMC model is building on the Bank Bank suggestions from the Econ survey in 16-17. The Asset Resolution Company (now named the National Asset Reconstruction Limited Company) is registered with the RBI under SARFAESI and it has been set up by Banks itself. It will essentially buy the bad loads form banks and then transfer them to the Asset Management Company. The Asset Management Company is the India Debt Resolution Company which will have a min of 51% ownership of Private Sector Banks with balance held by PSBs.
2. The NARCL will buy the bad loans from the banks through 15% cash and 85% security receipts. After the IDRCL tries recovering the NPA through debt restructuring and sale of mortgaged assets, the NARCL will pay for the security receipts after deducting its management fee.
3. The govt provide for the shortfall if the end recovery is lower than the security receipt amount after the IDRCL has restructured debt and sold assets from the NPA.
4. ARCs can be strengthened by selling NPAs at an early stage, bringing ARCs under the IBC, enhancing the financing options through FPS, AIFs etc. and enabling more than just Qualified Institutional Buyers to invest in security receipts issued by ARCs.

Question 40

What are the various important development banks in India?

What are some current changes in their operations?

Any unique loans offered by them?

Answer 40

1. The difference between commercial banks and development banks is their source of funds, nature of loans and nature of assistance. In Dev banks the source of funds is govt’s funding, they give out long-term loans along with managerial assistance and a credit guarantee enhancement.
2. Examples are:
   - National Bank for Financing Infrastructure and Development (proposed in 2021-22 union budget) to focus on infra and dev and to be funded by centre, RBI, comm banks, mutual funds and multi-lat orgs
   - National Housing Bank - owned by central gov and focuses on financial assistance to housing sector
   - National Bank for Agriculture and Rural Development (NABARD) - apex dev bank focusing on rural credit system, supplemental funding to rural credit institutions and refinance facilities for SLBs, SCBs and RRBs and Scheduled Commercial Banks for dev purposes. Gov owns 100% of NABARD.
   - Micro Units Development and Refinance Agency (MUDRA) - a refinance agency to focus on micro-enterprises engaged in manufacturing, trade and service. It is a SIDBI subsidary and MUDRA loans are available for non-agricultural activities up to Rs. 10lakh. Mudra Loans: Shishu up to 50k, Kishore up to 5lakh, and Tarun up to 10lakh.

Question 41

How has the RBI recently modified the regulatory framework for microfinance loans?

What is the present status?

Answer 41

1. NABARD began the early endeavour into MF through women-led SHGs. MFIs began popping up in a regulatory vacuum and the phase saw a growth of large MFIs such as SKS. In 2010 there was an MFI crisis that affected rural areas.
2. In 2011, the Malegam committee asked for regulation of MFIs and created the NBFC-MFI category.
3. The framework merged MFIs into banks while some MFIs were issued SFB licenses like Bandhan.
4. The framework currently applies only to NBFC-MFIs but the proposed framework insists that it should apply to SCBs, RRBs and Coop banks as well. Microfinance loan definition should be further extended and borrowing limit should be dynamic based on household income. Further, the RBI proposes that interest rates on MFI loans be left to the discretion of banks rather then setting a uniform rate).
5. In 2022, the RBI launched its new regulations that apply to All Commerical Banks (RRBs, SFBs, LABs), Cooperative Banks + NBFCs( NBFC-MFI and Housing Finance Companies)

• The definition is a collateral-free load given to a household having annual income of up to 3lakh, regardless of end-use/mode of disbursal and flexibility of repayment.
• Further, RBI has given a free hand to fix their interest rates on MF loans but the rates should not be usurious.
• Further, an NBFC-MFI is defined as a non-deposit taking NBFC with atleast 75% of loans as MF loans.

Question 42

What is Peer-to-Peer (P2P) Lending?

What is the Banks Board Bureau and Public Enterprises Selection Board?

What is the P.J. Nayak Committee’s proposed Bank Investment Company?

What are account aggregators and how will they change the future of Indian banking?

Answer 42

1. Mechanism which enables the people to borrow and
   lend money without the need for financial institutions
   such as banks.
   - P2P lending platform brings together the people who
   are willing to lend money and the money who wants to
   borrow money and enables such participants to lend
   and borrow money through an online platform.
2. These platforms are categorised as NBFC-P2P and are
   accordingly regulated by the RBI. These Platforms
   should not be involved in any direct financial activity of
   lending money. Interest rates are set on the platform by borrower and lender.
3. The Banks Board Bureau (BBB) is in charge of selecting the heads of PSBs and FIs. The appointment is approved by the Cabinet Committee and the members consists of the Dep Gov of RBI.
4. The Public Enterprises Selection Board (PESB) is a non-statutory body that advises the government on the appointments to the highest posts in central public sector enterprises. This year a Private Sector Exec was made head of the PESB.
5. The BIC is an idea that proposes setting up a holding company to hold the Gov’s shares in PSBs. These PSB shares held by BIC should give it autonomy to manage the PSBs, make decisions on the BoD appointments while meeting the targets set by the government.
6. The Account Aggregator framework is one of the most promising to come out of the recent modernization. It is considered a UPI moment to enhance information flow and credit creation. Recently 8 major banks came together to join the AA network. Currently for a person to avail a loan, they must provide all necessary information and quite often go to multiple financial institutions to get their financial info. Further the bank looks at the credit score which is tedious too. Now the person can authorize an AA to gather all this information to act as intermediaries and collect the info and facilitate the exchange. AAs are regulated by the RBI as an NBFC and AAs cannot see the data but can only transfer based on directions and consent.

Question 43

Payment Systems in India

What are they?

What are RBI’s guidelines?

What is UPI and UPI 2.0

Answer 43

1. The payment and settlement systems in India facilitate transfers of money from a payer to beneficiary. This can be a cheque, demand draft as well as Real Time Gross Settlement (RTGS), the National Electronic Funds Transfer (NEFT) and the now trending Immediate Payment Service (IMPS) such as UPI.
2. No payment system can operate in India without RBI approval and the RBI has authorized Payment System Operators (PSOs) and the National Payments Corporation of India (an umbrella org for retail payments and systems) to carry out this work.
3. Payment systems under RBI are the RTGS and NEFT. RTGS is used for minimum of 2lakh and above and are available 24x7.
4. NPCI payment solutions are UPI (a real-time interbank payment system), Rupay, BHIM App, Bharat Billpay (paument of bills), Bharat QR, National Financial Switch (ATM network), Positive Pay System (Cheque Clearance), National USSD Platform for phone w/o internet, National Automated Clearing House (NACH) for interbank, high volume, electronic transactions that are repetitive and periodic.
5. UPI was a game-changing technology developed by the NPCI that is built using the IMPS infrastructure. You can transfer funds through Virtual ID, Account Number + IFCS + Aadhar number using a single mobile app. Customers don’t need to enter private details and beneficiary registration is not required. There is an upper limit of 1lakh on UPI transaction however IPO investments can be 2lakh.
6. Recently, the RBI has allowed UPI usage for the retail direct scheme and IPO applications up to 5lakh. UPI 2.0 has enhanced features that allow linking of overdraft accounts, one-time mandates to allow customers to pre-authorize transactions and an additional security layer through the QR code. UPI123 Pay was UPI’s offline approach to UPI payments.

Question 44

Quickly describe UPI Lite, BHIM, Bharat Billpay, NPCI International Payments

What is the UPMS?

Answer 44

1. UPI Lite foucses on low value transactions including using an offline mode.
2. BHIM is a UPI-payment interacte allowing real time fund transfer using a single identity like phone/name.
3. Bharat Billpay is a one-stop ecosystem for payment of electricity, telecom, DTH, gas, water etc.
4. NPCI International Payments is to focus on RuPay (domestic card scheme) and UPI abroad.
5. Nepal was the first country to adopt UPI outside India and prior to this India is already partnering with Singapore and UAE.
6. The unified presentment management system was launched by the Bharat BillPay team to help customers set up instructions to autopay bills while the UPMS directly fetches the bills and presents them to customers for their actions.
7. Aadhar Enabled Payment is another NPCI payment to standardize AePS i.e. using Aadhar as the identity to access an Aasdhar enabled bank account to perform basic banking transactions like cash withdrawal, transfer, inquiry etc.

Question 45

What is E-Rupi?

What are its benefits?

What are the RBI’s framework guidelines for offline payments?

Do non-banking entities have access to the RBI’s CPS?

What is the government’s initiative on ZERO Mdr for RuPay and BHIM?

What is the tokenization of payments?

Answer 45

1. E-Rupi is developed by the NPCI and it enables person and purpose specific cashless digital payments.
2. It can be used by the person it is meant for and only for that purpose.
3. QR code or SMS string-based e-voucher, which is
   delivered to the mobile of beneficiaries.
   • It is offline hence can be accessible even in the
   remotest areas.
   • Runs on UPI platform.

4.RBI has proposed to increase the
cap on amount for e-RUPI vouchers issued by
Governments to Rs 1 lakh per voucher and allow use of
the e-RUPI voucher multiple times (until the amount of
the voucher is completely redeemed).

5. Offline payment transactions may be offered without
   Additional Factor of Authentication (AFA) such as OTP.
   • Transactions are subject to a limit of Rs 200 per
   transaction and an overall limit of Rs 2,000 for all
   transactions until the balance in the account is
   replenished.

Further, certain non-banking entitites such as Ola Money, Paytm, Amazon pay are now getting access to the RBI’s CPS (the system that includes NEFT and RTGS).

6. Merchant Discount Rate is the fee charged for merchants by the bank for accepting payments from a customer through debit/credit/qr code and recently the govt has announced zero MDR on RuPay and BHIM UPI, encouraging greatr indigenous development of payment tool, cashless economy and pushing visa and master to bring down their commission.
7. Tokenisation is a greater way to promote security when purchasing online as there is no more need to enter acct number multiple times when shopping online.
8. The RBI is also launching the interoperability of PPI instruments wherein I can seamlessly transfer money from say Paytm and Amazon pay.

Question 46

What is the trade receivables discounting system? (TReDS)

What is factoring in India?

How has the Ukraine war increased UPI adoption?

What is the Buy Now Pay Later Model for cards?

Answer 46

1. TReDS is an electronic platform for financing/discounting of trade receivables of MSMEs through multiple financiers. The receivables can be due from corporates and other buyers, including Govt. Depts and PSUs.
2. Factoring in India is a transaction where the entity sells its receivables (dues from a customer) to a third party like an NBFC for immediate funds. The facto then collects the payments from the buyer of the goods and earn a commission in the form of some interest. Now all NBFCs can engage in factoring.
3. Project Nexus is a Bank of International Settlements idea to connect national payment systems to streamline cross-border payments.
4. The MIR payment system is Russia’s goal to link MIR with UPI given Ukraine-war related sanctions.
5. BNPL is a fast-developing concept that essentially serves as a short-term loan product where the BNPL lender pays the merchant and allows you to repay the loan at a future date with little to no interest. Klarna is an example. BNPL can be issued to someone without credit history and the BNPL credit limit is lower.

Question 47

Financial Inclusion:

1. What is the Pradhan Mantri Jan Dhan Yojana?
2. Are Basic Savings Bank Deposit Accounts different from PMJDY?
3. What is Pradhan Mantri Shram Yogi-Maan Dhan?
4. It is different from the Atal Pension Yojana?

Answer 47

1. PMJDY is the PM’s flagship universal bank account scheme aiming to get all Indians a simple savings bank account w/o minimum balance requirement, a RuPay car, accident insurance cover of Rs. 1Lkah and life insurance cover of rs. 30k. Now the PMJDY has been extended to every adult instead of household with higher OD limit and higher accidental insurance cover
2. BSBDA is a part of the PMKDY and it is a basic savings account opened on simpllified KYC norms. Total credits cannot exceed 1lakh and max balance shouldn’t exceed 50k. Recently there are no number and value on deposits and theree is an ATM+ card provided too.
3. PMDMSYMD - is the voluntary and contributory pension scheme - 50:50 contribution by subscriber and central gov. The focus is on unorganized workeers (18-40) and assures them 3k per month after 6 0yrs old. It is managed by the Ministry of Labour and Employment
4. The Atal Pension Yoajana meanwhile is a guaranteed pension of Rs 1000 to 5000 receeivable at age of 60 years. It is focused again on 18 to 40 yrs old and the government will cover 50% if the total prescribed contribution up to rs.1000 per anum. It is not for income tax payers and Atal pension is housed under MoF.

Question 48

What is the Pradhan Mantri Suraksha Bima Yojana?

What is the Pradhan Mantri Jeevan Jyoti Bhima Yojana?

What is standup India?

What are priority lending sectors and who do PSL rules apply to?

Answer 48

1. The PMSBY is another insurance program run by the MoF that is available to any 18-70 with a bank account. At 12 rs. per annum they get an accidental death and full diability cover of Rs. 2lakh. The scheme is offered by all PS General Insurance companies.
2. The PMJJBY is another insurance scheme under the MoF that is available to 18-40 having a bank account that charges a rs.330 per annum premium. This give 2lakh in case of death for any reason and is offered by LIC.
3. Standup India facilitates bank loans between 10L and 1Cr to at least one SC/ST borrower and 1 woman borrower per bank branch for setting up greenfield enterprises. It is implemented through all Scheduled Commercial Banks and comes under the MoF.
4. PSL highlights priority sectors: Agri (18%), MicroEnterprises (7.5%), Advances to Weaker Sections (12%), Export Credit Education, Housing, Social Infra etc. Scheduled Commercial Banks exluding RRBs have to engage in 40% PSL, Foreign banks with less than 20 branches also 40% and RRBs and SFBs have to do 75% of total loans while UCBs have to do 40% of total loans. Failure to do so makes them have to buy PSL Certificates (PSL target exceeded by another bank) or transfer the shortfall to NABARD or SIDBI.
5. As of 2022, a bank and an NBFC can come together to provide loans to various sectors helping credit creation to priority sectors while also addressing regional disparities in PSL credit flow by assigning a higher weight to identified disctricts. They have further boosted startup ecosystem and classified SFB lending to MFIs for on-lending as PSL.

Question 49

What is a Small Savings Scheme instrument? What is its objective? Which Dept?

What is the famous Kisan Credit Card (KCC)? Who does it apply to? Does it cover animal husbandry and fisheries?

What is the Financial Inclusion Index and Better than Cash Alliance?

Answer 49

The Small Savings instrument is classified under:

• Postal deposits
• Savings certificates i.e. National Small Savings Certificate and Kisan Vikas Patra
• Social Security Schemes (Public Provident Fund and Senior Citizens Savings Scheme)

1. All small savings collections are credited to the National Small Savings Fund by the Public Account of India and the interest rates are reset every quarter. The NSSF is invested in Central and state government securities and the fund is administered by the Dept. of Economic Affairs.
2. The Kisan Credit Card’s objective is to give short-term credit to purchase inputs, post-harvest expenses, marketing, consumption requirement of farms and investment for allied and non-farm activities. This is implemented by Commerical Banks, RRBs, SFBs and Coops. The program focuses on Small and Marginal Farmers, Sharecroppers, Oral Lessee and tenenat Farmers, SHGs and Joint Liability Groups of Farmers.
   - Recently KCC has been extended to fisheries and animal husbandry as well.
3. The Financial Inclusion Index was launched by the MoF and it uses :

• access to fin services
• usage of fin service
• quality of the products and the service delivery

CRISIL publishes Inclusix to measure Financial Inclusion in India.

4. The Better Than Cash Alliance organized a joint peer learning exchange on fintech solutions for promotion responsible digital payments. The UN BTCA brings together Private, Govt etc. to transition away from cash to electronics. India became a member in 2015.

Question 50

Inflation:

What are the way in which prices and rise or fall over time?

What are the various terms around inflation?

Answer 50

1. Inflation refers to a sustained rise in the general level of prices over a period of time in the economy. This results in a fall in the value of money i.e. purchasing power over a period of time.

Deflation - fall in general level of prices (negative inflation rate)

Disinflation - slowing rate of inflation

Skewflation - general price rise is skewed to a group of commodities

Galloping inflation - very high inflation running into double, triple digit like Argentina.

Hyperinflation - large and accelerating, 50% every month.

Creeping inflation - gradual rise in price levels and good for economy

Bottle neck - structrual inflation as it occurs when supply falls

Inflation tax- penalty for holding cash at a high time of inflation as inflation erodes held cash.

Philips curve - inverse relationship between inflation and unemployment i.e. as unemployment decreases (more employed), inflation increases.

Stagflation - a situation characterized by slow economic growth, high unemployment and prices still rising.

Question 51

What are the main types of inflation?

What are its measures? CPI? WPI?

What are other important Sub-Indexes used under CPI and WPI?

Answer 51

1. Based on its origin, inflation is categorised into demand-
   pull and cost-push inflation.

Cost-push Inflation: Caused by rise in prices of factors
of production such as increased cost of raw materials,
electricity, rent, labour etc. i.e. cost of products go up therefore market price up.

Demand-pull Inflation: Occurs in a situation where
demand increases due to excess money supply with
people without increase in supply level. In other words,
it occurs when too much money chasing too few good. I.e. a lot of money in hands, but supply cant meet demand therefore price increases.

2. Inflation is measured based on price indices that measure the average level of a basket of prices on a point-to-point basis i.e. prices in the current month are compared with prices in the corresponding month of the previous year.
3. Wholesale Price Index and Consumer Price Index are two key indices used to measure inflation. Their differences are:

WPI: based on primary articles, manufactured products, fuel and power

CPI: food and bev, pan, tobacco, intoxicants, clothing footwear, housing, fuel and light (not including petrol and diesel), misc such as education healthcare, transport and communications.

In WPI, there is a sub-index of WPI-Food Index that bundles together the food articles from primary articles and manufactured food product.

Similarly the CPI has the sub-index CFPI that, out of the 12 sub-groups contained in food and beverage, CFPI is based on ten subgroups exclusing non-alcoholic bevs and prepared meals, snacks, sweets etc.

Food item impact is felt most on CPI rather than WPI and WPI gives the highest weightage to fuel and power.

WPI: doesn’t include services, indirect taxes or RBI targeting but the CPI includes all three. Inflation goal is 4% =- 2.

Question 52

What are other CPI variants considered?

Who publishes these?

What are do other indices such as SPI, PPI, Residex, HPI, WRI, Food Price Index and Baltic Dry Index all focus on?

Answer 52

1. CPI (which is calculated by National Statistical Office) vairants include a CPI for industrial workers with a revised base year from 2001-2016, a CPI for Agricultural labourers and a CPI for rural labourers that share a 1986-87 base year.
2. These variations are published by MoLabour and Employment and MNREGA wages are linked to CPIAL.
3. The Services Price Index published by office of economic advisor under MoC&I measures inflation in railways, postal, banking aviation, insurance telecom.
4. PPI measures changes that a producer faces on primary, intermediate and finished goods and services.
5. Residex is a residential real estate measure based done by National Housing Bank
6. The All India House Price Index HPI is published by the RBI with a 2010-11 base year based on housing registration transaction data.
7. New Wage Rate Index (WRI) focuses on the relative change in wage level in selective industries and it now covers over 700 occupations and makes the index more representative.
8. Food price index is published by the FAO and it tracks the international prices of commodities and the Baltic Dry Index is published by London Baltic Exchange which focused on prices of moving major raw materials by sea eg. coal, iron ore, grain.

Question 53

What is the GDP deflator?

What is the difference between headline and core inflation?

Answer 53

1. GDP defaltor is a measure of inflation calculated as the ratio of GDP at current prices to GDP at constant prices.
2. For example, CPI will look at the fixed basket of goods and services, including imported goods every month whereas the GDP deflator looks at all the goods and services produced within India exclusing imported goods and keeps changing the basket of goods using a market value weightage every quarter as opposed to monthly.
3. Headline inflation is the simple CPI (or WPI) covering all categories of goods and services whereas Core inflation excludes volatile categories such as food and fuel. By only focusing on headline inflation, the government can end up engaging in contractionary monetary policies (increasing interest rates) to curtail inflation and as a result damaging economic growth since headline inflation places a high weightage on volatile categories. CPI gives a 45% weightage to food even when household ecxpenditure has declined.
4. Base effect refers to the impact of the rise in price leveel in the previous year over the corresponding rise in price levels in the current year. Last years inflation compared to this years inflation. A higher base/denominator means a lower rate of inflation whereas a lower base/denominator means a higher rate of inflation.

Question 54

What is the Cobweb phenomenon?

What are the effects of inflation?

What programs and committees have been launched to focus on inflation?

Answer 54

1. The cobweb phenomenon explains large scale fluctuations in prices of pulses in the Indian market. If prices were higher in the previous year, then more farmers sow pulses, leading to overproduction and then a subsequent decline. The lower prices then disincentivize farmers leading to under production and then a subsequent increase.
2. Inflation tends to have a corroding effect on the value of money, and as a result it affects lenders (creditors) and benefits borrowers (debitors).
3. Inflation also interplays with interest rates. The real rate of interest, is the nominal interest rate minus inflation which actually decreases due to rise in inflation. So say a bank gives a loan at 10% interest and then inflation is at 5%, then the actual rate of interest will only be 5%.
4. Moderate inflation indicates higher demand and is generally a good goal. However savings is not benefited with high inflation as the value erodes when held.
5. Further, inflation increases the direct and indirect tax liability while also leading to the depreciation of the rupee.
6. The GoI’s Ministry of Consumer Affairs, Food and Public Distribution launched the Price Stabilization Fund to procure Onion, Pulses and Tomato from farmers to offer it at reasonable prices to the conumser.
7. They also launched operation greens to protect the growers of fruits and veggies from making distress sales.
8. BN Goldar committee recommended the development of Producer Price Index and NITI Aayog gave a roadmap to switch from WPI to PPI. The Urjit Patel committee recommended the Monetary Policy Committee and the Mahendra Dev Verman Committee recommend linking MNREGA to CPI-Rural Labourer.

Question 55

The financial market comprises of the money market and the capital market.

What are the instruments of the money market?

Answer 55

Money market: Financial market that fills the demand-supply gap in
short-term funds with maturity period less than 1 year.

• Commercial Paper: Unsecured debt Instrument that
enables Corporates to raise short-term borrowings
for a period less than 1 year.

• Certificate of Deposit: Issued by Banks and Financial
Institutions to raise short-term capital. Like Fixed
Deposit, but of shorter maturity period. Further, the
minimum value of Certificate of Deposit is Rs 1 lakh.

• Call/Notice Money: Instruments used for Inter-bank
borrowing and Lending. Under call money market,
funds are transacted on an overnight basis and under
notice money market, funds are transacted for a
period between 2 days and 14 days.

• Treasury Bills: Instruments that government use to
raise short-term money from the financial market.
(For long-term: government bonds); Maturity period:
91-days, 182-day, 364-day. T-bills are ‘zero-coupon
securities’ i.e., no interest. Instead, they are issued at
a discount rate and redeemed at the face value on
maturity. T-bills are issued only by Central
government.

• Cash management bills: Short-term instruments
like T-bills. Issued by the government to meet
temporary cash flow mismatches. Maturity period:
less than 90 days. (More than 90 days – T-Bills). Issued
at a discount and redeemed at face value on maturity.
Eligible under SLR requirements.

• Repo: Used by the Banks to borrow short term loans
from the RBI.

• Ways and Means Advances (WMA): Borrowing by
the Government from the RBI to meet temporary
cash flow mismatches. Maturity period: 90 days. Interest rate: Repo rate

Question 56

The Capital market is the financial market that fills the demand-supply gap in medium and long-term funds with a maturity period more than a year.

What are the important terms in the capital market?

Answer 56

1. IPOs: process by which a company issues shares for the first time to raise money
2. Offer for sale: enables promoters of a company to sell their shares
3. Rights issue: only existing shareholders of the company have the right to buy the shares
4. Private placement: raise capital from certain selected investors
5. Blue-chip companies: large, well recognized companies with a history of sound financial performance
6. Bullish market refers to a healthy performance of a share market and Bearish is a poor performance.
7. A circuit breaker is a measure to stem the steep fall or sharp rise of a price, security/stock or index.
8. VIX index is the NSE’s measure of the volatility in the NIFTY over the next 30 days. VIX is negatively corelated with Nifty, so when VIX falls, the Nifty rises.

Question 57

What are the important components and financial instruments of the capital market?

Answer 57

1. The capital market is broadly divided into the primary market that focuses on the new issuance of shares. I.e. investors directly buy securities from the issuing company
2. Secondary market is where securities are traded i.e stock exchanges.
3. Financial instruments can be equity i.e. ownership of a company, debt i.e debt capital raised by a company, debenture i.e. unsecured debt, dated securities i.e. govt of india securities to raise long-term loans and SDLs which are the State Gov’s instrument to raise long-term loans.

Question 58

What is the derivatives market?

What are the contracts in a derivatives market?

Answer 58

1. Derivatives are financial instruments whose value is
   based upon the value of an underlying asset like
   equities, currency or other financial assets or
   commodities.
2. In case of Equity Derivatives Contract, the
   underlying asset is the share of a company. In case of
   commodity derivative contract, the underlying asset is a
   commodity
3. Instruments can be a forward contract (future date at predetermined price OTC), futures contract (traded on an exchange), options (futures with an option to buyer or seller to execute at a future date, call option (right to the buyer to purchase w/o obligation and put option gives seller the right but no obligation.

Question 59

What is a sovereign wealth fund?

What is the national infrastructure investment fund?

What are AIFs?

Uday Bonds? Panda Bonds? Masala Bonds?

Answer 59

1. t is a fund set up by government to invest its forex
   surplus in financial instruments like bonds, stocks, gold
   etc.
2. The NIIIF is the only sovereign wealth fund set up by India. 49% is
   owned by the Indian Government and the remaining is
   owned by domestic and foreign investors. Foreign
   sovereign wealth funds such as Abu Dhabi Investment
   Authority have invested in NIIF. It is primarily set up to
   support infrastructure financing.
3. The NIIF is an AIF Cat 2, which is a fund that includes real estate, PE, distressed assets etc. they are prohibited from meeting long term debt.
4. Uday Bonds are bonds aimed at reducing the debt burden on DISCOMs. enabling them to engage in structural reforms w/o going bankrupt.
5. Panda Bonds are Yuan-dominated bonds issued by foreign and chinese companies overseas to raise capital. Masala bonds are the Indian version and Uridashi Masala bonds are issued in Japan. Maharaja bonds are issued by the IFC in India and MUNI bonds are bonds issued by ULB.
6. You can also have impact bonds and green bonds that focus on specific sectors, including oil bonds and surety bonds (3 way deal where the surety comapny covers the obligeee (government) for a loss on a contractor’s delay).

Question 60

What is Strategic Disinvestment?

Is the National Monetization Pipeline a kind of disinvestment?

Answer 60

1. Disinvestment is a mechanism by which the government
   sheds its ownership in a company.
   It necessarily involves (a) Shedding of ownership by the
   government below 51% (b) Transfer of management
   control to a strategic partner (mostly private sector)
2. NITI identifies the PSY, DIPAM makes the recommendation and once approved by CEA they decide to disinvest.
3. The government’s new public sector enterprise policy classifies sectors as strategic and non strategic and aims to reduce PSEs in stratefic sectos while privatizing PSEs in non-strategic sectors.
4. The money gained from disinvestment will go into the national investment fund.

Question 61

What is the bold new retail direct plan launched by the Modi gov?

Answer 61

1. Presently, G-Secs are issued through auctions conducted on E-Kuber and is sold to scheduled banks, primary dealers and insurance comanies, however now the RBI will allow retail investors can now buy G-Secs through the retail direct platform via aggregators/facilitators such as banks and primary dealers.

Question 62

What is the difference between a surcharge and a cess?

Answer 62

1. A surcharge is an additional tax i.e. income level above a certain threshold.
   - Examples include a surcharge on income tax
   - Surcharge proceeds get credited into the consolidated fund of India (CFI)
   - A surcharge can be then used on anything
2. A Cess is a tax on a tax and is applied when a tax is paid. Examples include a health and education cess, a road and infra cess etc.
   - A cess will also get credited into the CFI but then can be utilized outside CFI
   - A cess can only be used for the purpose it is collected

Question 63

What falls under India’s external debt?

How is it classified?

What is the present status?

Answer 63

1. Duration of loans - short term and long term
2. Sovereign debt and non-sovereign debt (other than gov including private sector)
3. The external debt is then classified into multilateral debt, bilateral debt, trade credit/export credits, external commercial borrowings and non-resident deposits in banks and fin institutions.

4 India’s present external debt status is about 20% of GDP of which

• 16% of the GDP is non-sovereign debt
• 4% of GDP is sovreign/government debt

.5. Most of the debt is in US dollars, Yen, SDR and Euros.

Question 64

What are the two parts of the Annual Financial Statement (AFS)?

What are the three terms under which it must be presented?

Answer 64

1. Under Article 112, the Government is required to
   present Annual financial statement (AFS) before both
   the houses of the Parliament.
2. It contains the Appropriation
   Bill (Expenditure Side) and Finance Bill. (Receipts)
3. Presented in terms of (a) Consolidated Fund of India, (ii)
   Contingency Fund of India and (iii) Public Account of
   India. The Indian Constitution mandates that AFS should
   distinguish the expenditure on revenue account from
   the expenditure on other accounts.

Question 65

What is the Goods and Services Tax?

What is the rationale for GST?

What are the tiers within GST?

What was the GST compensation cess?

Answer 65

1. The GST is a comprehensive, multi-stage, indirect tax that aims to subsume all other indirect taxes.
2. Multi-staged as GST is imposed at every step in the
   production process but is meant to be refunded to all
   parties other than the final consumer.
3. Destination based tax as it is collected from point of consumption and not
   point of origin like previous taxes.
4. Rationale for GST: Idea is to have “One India, One
   Market, One Tax”; Remove cascading effect of taxes;
   Simplification of indirect tax structure; Create a unified
   economic market.
5. There is a Central GST, collected by the center on sale of goods and services, there is a State GST collected by the state, and the IGST which is collected by centre on interstate sale of goods and services.
6. The GST compensation cess was a cess levied to compensate states for revenue losses on account of switching to GST for the first 5 years of GST implementation. According to the GST act, states were guaranteed compensation if GST rev growth is less than 14%
   - However, due to COVID 19 there was lower GST collection and a shortfall in GST compensation. To resolve, the Centre borrowed from RBI, gave loan to states and the load is to be repaid by extending GST compensation Cess more than 5 yrs.

Question 66

What is the GST council?

What is it an example of?

What is its composition?

Answer 66

The GST Council is a constitutional body Art 279A for making reccs to the center and state on issues related to G and S.

• It is chaired by Sitharaman and has other Union State Ministers of Rev and Ministers in charge of fin/taxation of all other states.
• The centre has a 1/3 weightage on voting and the states have a 2/3. Hence the centre has a de facto veto.
• The GST is considered an example of cooperative federalism where states and centre work together for the tax benefit of the whole country.

Question 67

What is the national anti-profiteering authority NAA?

What is the GST composition scheme?

Why is there a need for an authority for advance ruling?

What is the GST Network (GSN)?

What is an e-way bill?

Answer 67

1. The NAA is constituted by the cabinet with a goal of limiting profiteering i.e. reductions in the rate of tax should be passed to the consumer by way of commensurate reduction in prices. The NAA investigates cases of profiteering and there is no appelate authority. A person dissatisfied with NAA can only approach HC through a Writ Petition.
2. The GST Composition Scheme is aimed at bringing simplicity and reducing compliance cost for small tax payers. An eligible person can pay tax at a prescribed % of his turnover every quarter instead of paying tax at a normal rate. Manufacturers, dealers, restaurants opt for this usually.
3. Advance Ruling is needed due to the lack of clarity over tax provisions. Famous pizza vs. pizza topping categorization. A Written interpretation by the Authority for Advance Rulings (AAR) provides clarification on tax matters and can attract more FDI.
4. The GST network is a digital infrastructure to administer GST transactions. It is a centre-state owned non-profit that facilitates registration, filing of returns, computation and settlement of IGST, verficiation, analsysis etc.
5. The Centre decided to integrate the GST e-way bill with fasttag and RFID to track vehicles and to curb tax evasion. An e-way bill has to be generated by the sender or receiver of goods and is mandatory for movement of goods withing a state and interstate.

Question 68

What is the equalisation levy?

Does India have a capital gains tax?

Answer 68

1. It is a tax on digital transactions in the digital advertising space.
2. It is a direct tax levied on the income accruing to foreign eCommerce companies from within India.
3. It is a witholding tax levied at 6% of the transaction amount and is considered India’s GAFA tax. It is applicable only to B2B transactoins.
4. Yes - it is the tax levied on gains made by buying or selling of assets. There is long term (>3 years), shares and mutual funds (1 year) and short term (<3 years).

Question 69

What is a commodity transaction tax?

What have been the changes in the corporate tax rate?

How are countries misusing the DTAA?

Answer 69

1. A commodity transaction tax is imposed on the exchange traded non-agricultural commodity derivates in India. Gold, Crude, Iron etc.
2. India has reduced corporate tax rates for all domestic companies provided they do not avail of any exemptions and further they are not required to pay the Minimum Alternate Tax.
3. The companies incorporated after 1st Oct 2019 and beginning prdouction by March 31st 2023 enjoy an even lower tax rate of 15%.
4. The double taxation avoidance agreement is signed to make a place attractive for investments, so India signs deals with Mauritius, Maldives, Caymans etc to say Double taxation doesn’t apply when registered in that treaty-approved haven and business conducted in India. This is abused as companies simply register in havens and route payments through there so they avoid double taxation and pay tax at a preferntial rate because of the tax haven nature of a place. It is known as round-tripping via treaty shopping.

Question 70

What is the big retrospective taxation amendment bill passed?

Is India a member of the BEPS global Minimum Corporate Tax project?

Answer 70

1. In 2012, the Finance Act amended the IT act to impose tax on foreign companies on a retrospective basis. I.e. if a company is registered outside India, its shares were deemed to be situation in India if they dervied their value from the Indian assets. SO people who sold such shares of foreign companies became liable to pay tax.
2. The Government got rid of the retrospective taxation amendment bygetting rid of the demand for payment of taxes which were done before may 2012 and refueled the collected tax back to the companies. This deal was in play if tha company withdrew case against the government.
3. Yes - it is. the BEPS project goal is to use nexus rules, a global minimum tax of 15% and residual taxes to correctly tax companies in a digital era since thus far it has primarily been based on a brick and mortar system, leading to massive tax avoidance eg. FB has several million Indian consumers in the market but doesn’t pay tax here.

Question 71

What are some of the recent schemes launched by the government to ease tax burden on the customers while streamlining taxation?

What is Sabka Vishwas Legacy Dispute Resolution?

What is the Vivad Se Wishwas scheme?

What is the Transparent Taxation : Honouring the Honest Platform?

Answer 71

1. The government launched a national e-assessment scheme to facilitate jurisdiction-less assessment and scrutiny of income tax, i.e. you are assigned to an assessing officer at random.
2. India has parterned with Eswatini under the tax inspectors without borders program.
3. India has also launched the Sabka Wishwas legacy dispute resolution that aims at closing pending disputes with regard to legacy servvice tax and central excise cases via dispute resolution and amnesty as well as the Vivad se vishwas scheme to reduce pending tax litigations in direct taxes.
4. The government also launched the honouring the honest platform to implement tax reforms in the area of faceless assessment, faceless appeal, and taxpayers charter.

Question 71

What are some of the recent schemes launched by the government to ease tax burden on the customers while streamlining taxation?

What is Sabka Vishwas Legacy Dispute Resolution?

What is the Vivad Se Wishwas scheme?

What is the Transparent Taxation : Honouring the Honest Platform?

Answer 71

1. The government launched a national e-assessment scheme to facilitate jurisdiction-less assessment and scrutiny of income tax, i.e. you are assigned to an assessing officer at random.
2. India has parterned with Eswatini under the tax inspectors without borders program.
3. India has also launched the Sabka Wishwas legacy dispute resolution that aims at closing pending disputes with regard to legacy servvice tax and central excise cases via dispute resolution and amnesty as well as the Vivad se vishwas scheme to reduce pending tax litigations in direct taxes.
4. The government also launched the honouring the honest platform to implement tax reforms in the area of faceless assessment, faceless appeal, and taxpayers charter.

Question 72

What are the differences in borrowing powers of center and states?

Can states borrow from outside India?

Answer 72

1. The centre has unrestricted borrowing powers in India and from abroad and is subject to only limits as set by law by parliament.
2. The State can raise loans from the centre or the market however the State cannot raise a public loan without consent of the centre i.e. the state controls the amount of public debt raised by the State.
3. No power to raise loans outside India. In 2017, the Centre enables financial sound states to borrow from external agencies subject to fulfilment of conditions and the GoI acts as counter-guarantor.

Question 73

What are the types of fiscal policies?

What is the interest rate growth differential? Why is a negative IRGD better?

What is the financial stability development council? FSDC

What is scissors effect between centre and states?

Answer 73

1. Pro-cyclical
   - In recession the government has a contractionary FP where they reduce govt. expenditure and increase taxes
   - In expansion they increase govt. expenditure and/or reduce taxes.

This can deepen recession and amply expansions thereby incresing fluctuations in a business cycle.

2. Counter-cyclical
   - In a recession, the government increase govt. expenditure and reduces taxes
   - In a expansion they contract by reducing expenditure and increase taxes. This soften recessions and moderates expansions.
3. The interest rate growth differential is calculated as interest reate = GDP growth rate. I.e. the debt of a country is said to be sustainable if the GDP growth rate is higher than the interest rate on the debt owed. I.e. if the value of IRGD is negative than the country has a higher capacity to repay existing loans and if it is positive then the public debt is not sustainable. aka Sri Lanka.
4. The financial stability development council is the apex level forum to strengthen and institutionalize the mechanism for maintaining financial stability. The role is to mointor macro prudential supervision of the economy.
5. The scissors effect takes place when rev and expenditure move in different directions. The RBI has highlighted that the state’s finances have experienced scissors effect as tax revenue of state govs has declined but their expenditure has increased.

Question 74

Does India tax virtual digital assets?

Can the gov now legally introduce the central bank digital currency?

Answer 74

1. Yes. For the first time there has been a steep growth in investor interest in crypto and other digital assets so to protect citizens the Finance Act 2022 proposed a steep taxation regime that includes a definition of virtual digital assets as a part of income tax.
2. an NFt, any inofrmation/code/number/toxen generated through cryptographic means providing a digi representation of a value exchanged with/without consideration.
3. Any other digital assets notified by the gov, and the centre can exclude any digital asset.
4. The Finance Act 2022 amended the RBI Act enabling it to intdouce the Central Bank Digital Currency.
5. The tax system is:
   - Any income from transfer of a virtual digital asset is taxed at 30% and when a surcharge and cess are added the rate goes up between 33 to 42%.
   - No deduction provided when calculating the income. So cost of mining crypto cannot be shown as an expense
   - Losses cannot be set-off against any profit from another source.
   - Gift of a vda is going to be taxed in the hands of the recipient.
   - Tax deducted at source (TDS) is to be levied on transfer of such assets at the rate of 1%.

Question 75

External Sector

What is the balance of payments?

What is current account deficit?

What are forex reserves?

What is the net international investment position?

Answer 75

1. When Current Account Deficit is greater than the Current Account Surplus we have a negative Balance of Payments
2. When CAD is > than CAS we have a positive BoP (i.e. good financial position)
3. Forex reserves crossed the milestone of $600 billion USD and the holding of foreign reserve helps India’s position vis-a-vis its short term external debt. India’s Forex consists of FCA, SDRs and reserve position in the IMF and gold.
4. Net international investment position is the residents from India holding assets in other countries and residents from other countries holding assets in India. Hence a positive NIIP is when Indian assets more assets owned abroad as compared to assets owned by non-residents. Higher NIIP to GDP ration means greater exposure to internatoinal fluctuations.

Question 76

Exchange Rates

What are they?

What is a fixed exchange rate? Pegged? Floating?

Has India adopted full rupee convertibility?

What is the difference between nominal and real exchange rate?

Answer 76

1. In a floating exhcange rate system, currency is allowed to freely appreciate or depreciate depending on market forces. In pegged the exchange rate is pegged to another currency i.e. USD and in fixed it is a fixed rate.
2. Yes, India has full rupee convertibility on current account and on the capital account there are restrictions on FDI, FPI and external commercial borrowings.
3. The nominal exchange rate measures current value against another, but the real exchange rate tells how much the goods and services i na country can be exchanged for goods and services in a foreign country. In cases of higher real exchange rate, domestic goods are costly and foreign goods are cheaper, reducing overall trade competitiveness.

Question 77

What are external commercial borrowings?

Is ECB still the highest portion of India’s external debt?

What is FDI vs. FPI?

Answer 77

1. External borrowings are commercial loans raised by residents of India from non-resident entities. They can be raised in foreign currency or rupees and the RBI sets the limit for ECBs. India’s external debt still has ECB has the highest category.

When interest rates on loans are low in foreign countries then Indian commercial entities are tempted to take borrow from there instead.

2. FDI is the major source of non-debt resource for economic development. The Nodal dept is the D for the Promotion of Industry and Internal Trade.

• It is defined as investment through capital instruments by a person resident outside India in an unlisted Indian company or in 10% or more of the post issue paid-up equity capital in a listed company.
• Shares, convertible debentures, global depository recepits and Foreign currency convertible bonds.
• The government route is application via the Foreign Investment facilitation Portal and automatic route requires no prior approval. Auto route for defence is now 74% and Govt route is 100%.

3. FPI is equity investment not exceeding 10% of the total paid up capital of the company. It is hot money as it is a short-term inflow such as investment in shares, bonds etc.
   - CAT 1 is via foreign gov and its entities
   - CAT 2 is all other FPI
   - FPI tends to be less than 10% and is only a transfer of capital. FPI is more liquid than FDI and is done mainly on secondary market with a passive role.

Question 78

What are the scenarios when rupee appreciates and depreciates?

Answer 78

1. Rupee depreciates: 
 Increase in Imports
• Decrease in Exports
• Decrease in FDI, FPI
• Decrease in Remittances
etc.
Dollar Outflows > Dollar
Inflows = Shortage of Dollars = Dollar value Increases = Rupee value Reduces

2. Rupee appreciates 
• Decrease in Imports
• Increase in Exports
• Increase in FDI, FPI
• Increase in Remittances
etc.
Dollar Outflows < Dollar Inflows = Surplus Dollars=  Dollar value reduces  = Rupee value Increases

Tools: To devalue the rupee, the RBI can intevene in the forex market and buy dollars leading to an artificial dollar shortage i.e. to boost exports

Similarly to revalue, the RBI can sell dollars and increase dollar supply to depreciate the rupee to curtail runaway depreciation of indian currency.

Question 79

What are the FTAs signed by India?

What are the stages of trade integration?

What is the Nirvik scheme?

Answer 79

1. Preferential trade agreement -> Free trade agreement (elimiate customs duty) -> Comprehensive economic cooperation agreement (CECA) integrated package i.e. with Japan -> Customs Union (zero duty but common customs with world) -> Common market (free movement of labour and cap) -> Economic Union - EU.
2. India just signed marquee FTAs with the UAE and one is in finalization with Australia. Similarly India has PTAs with APAC, Afghanistan, Mercosur and Chile. It has FTAs with Srilanka, SAARC, ASEAN, SK CEPA, Japan, Malaysia CECA, Nepal, Bhutan.
3. The Nirvik scheme is India’s export credit insurance scheme implemented by the Export Credit Guarantee Corp. It extrends insurance cover to the banks that give loans to an exporter.
4. India was planning a mega dairy related RCEP deal but has called it off.

Question 80

What is a tariff rate quota?

What is the Merchandise Exports from India scheme?

What is the new RoDTEP scheme?

What is the interest equalization scheme?

Answer 80

1. A country can impose a tariff or a quota. Quota is a quantitative restriction whereas a Tariff is a customs duty. A Tariff rate quota is a combo where a country can import goods at a lower rate of customs up to a certain limit.
2. MEIS Scheme is to incentivize exports from India. Exports were given incentive in the form of duty scrips on exporting goods from India. The scrips can be used to then purchase imports or trade on an open market. The WTO ruled against the MEIS scheme saying it volated WTO agreement.
3. The Govt then launched RoDTEP as a replacement. Under RoDTEP scheme, the duties and taxies levied at the Centre, State and Local levels such as electricity duties and VAT on fuel which are no exempted or refunded under GST are refunded to exporters in the form of duty credit scrips that can be used to pay duty on imports.
4. The interest equalisation scheme aims to boost exports by providing interest subsidies on loans taken by MSMEs and merchant exporters. Products that receive an interest subsidy are labour intensive sectors.

Question 81

What are the main institutions from the post-bretton woods economic order?

What are special drawing rights?

Answer 81

1. World Bank Group - IBRD, IDA, IFC (private entities i.e. launched masala bods), MIGA (promotes FDI). India is not a member of ICSID.
2. The IMF was set up along with the WBG in 1945 and its focus is on helping countries facing BoP crises, financial stability and monetary cooperation.
3. IMF raises money through financial contributions by members, new arrangements to borrow and bilateral borrowing reforms.
4. SDRs are the interest bearing international reserve asset to supplement a member ccountries official reserve. An SDR is based on a basket of 5 currencieis, USD, Euro, Renminbi, Yen and Pound. SDR values set daily and SDR counts as part of the foreign reserve.
5. The WTO is the org that came out of the GATT and its goal is to ensure free and fair international trade. MFN should be given to all WTO members but FTA can work. National treatment should apply. Big discussions - fisheries, TRIPs, medicine patent pool.
6. GI Tags are an agricultural, natural or manufactured product tag that originates from a definite geographical territory and is given by the WTO’s TRIPS agreement.
7. The ILO created in 1919 has a goal of promoting social protection and work opportunities for all. It supervises labour standards and publishes the world employment and social outlook, global wage and world scoial protectinon report.
8. Kimberley process is a multilateral trade regime to prevent conflict diamonds and the world gold council consisting of leading gold mining companies ensures that the gold isn’t used to fund conflict.
9. WIPO - is the IP based organization under the UN Aegis.

Question 82

What are the general trends in Indian agriculture?

What is secondary agriculture?

What is the trends with relation to GCF and GVA?

Which crops have stagnated

What are some salient points?

General trends on wheat, rice, oilseeds, and pulses?

Answer 82

1. In the last 4 decades, GDP contribution has been far greater from Urban India. Further, Rural Non Farm Economy has stagnated due to low productivity of farms, shrinking farm size and cultivation cost.
2. Secondary agriculture is defined as cottage insdutry that utilizes agri products as raw material, deploys locally available skills and can be categorized as an MSME. The newly cropped up Farmer Produced Organizations (FPOs) are an example.
3. Share of the agriculture sector has remained stagnant and fishing is the least with crops the most. Although crops has been steadily decreasing while livestock and fishing have been increasing.
4. Gross capital formation in agriculture is also less than GCF of the Indian economy which is about 30% of the GDP.
5. In terms of cropping pattern, rice and wheat account for the largest area under cultivation and there has been a stagnation in pulses, oilseeds and rice in the last decade.
6. Overall there has been an increase in production of all food grains despite a stagnation in pulses and a decrease in nuti-cereals.

General Trends:

Rice: fluctuating tend and still largest percentage area of cultivation.

Wheat: Wheat also stagnating

Pulses: top siz are pigeon, chickpea, urad, mung and masoor. India is a net importer of pulses, there is excess demand.

Oilseeds: The most stagnant in India and India is a heavy importer i.e. close to 60% of oilseed needs.

Question 83

What is the National Edible Oil Mission - Oil Pam (NMEO - OP) launched to offset the current heavy import of oilseeds and vegetable oils.

What is the roundtable on sustainable palm oil (RSPO)?

Answer 83

1. The objective is to increase domestic production of palm oil by 3x to 11 lakh tonnes with an emphasis on NE States and A&N Islands. It is a centrally sponsored scheme and the cost will be shared 60:40 between centre and states and 90:10 for NE States.
2. The reason for this is that currently there is a lack of assured prices on pol palm and high volatility that disincentivizes farmers from cultivating oil palm.
3. The govt has decided to announce viability gap price for fresh fruit branches of oil palm if the market prices falls below the viability gap price.
4. The RSPO is set up to engage with the reality that pal oil has adverse environmental effect and deforestation. The Non-profit will work with farmers, procssors, environmentalists and the gov to develop and implement global standard to minimize negative impact on environment. It leads to a certification given to stakeholders.

Question 84

What are the trends in millet, cotton, sugarcane sunflower production?

What is the national food security mission (NFSM)?

What impact will the ukraine war have on global agri markets?

Answer 84

1. India is the world’s largest millet producer, however area under cultivation has decreased. The main are jowar, bajra and ragi.
2. The NFSM targets to achieve 13 million tonnes of additional food grain production. This has a specific action plan for better nuticereal production in certain states including a higher MSP for joward, bajra and ragi.
3. Sugarcane is another top export from India, and India has the largest area under cultivation of cotton in the world. This has experienced a marginal increase.
4. Russia and Ukraine are some of the most important producers of agri commodities i.e. 50% of sunflower production, 20% of barley and 15% of wheat. India has recently capitalized and become the wheat supplier for egypt.

Question 85

What is the status of organic farming in India?

What is the National Program for Organic Production?

What about the Participatory Guarantee Scheme?

What is the Paramparagat Krishi Vikas Yojana?

What is MOVCDNorthe Eastern States?

Answer 85

1. India is the 1st rank in number of organic farmers and 9th in terms of area under organic farming.
2. The national program for organic production is under the Ministry of Commerce and Industry and it is a NPOP certification that is given
3. The PGS, under the ministry of agriculture gives the Jaivik bharat logo to distinguish non-organic from organic.
4. PKVY Is the scheme that promotes cluster based organic farming
5. The MOVCDNER is the mission organic value chain development for NE region and it is to develop organic production in a vlaue chain mode in NE.
6. There is also an effort under the large area certification scheme to identify traditional organic areas and transform them into certified organic hubs. Certification is fast. Arunachal has organic certification for Kiwis.

Question 86

What is zero budget natural farming?

Answer 86

1. ZBNF’s goal is to double farmer’s income by 2022 and the program has 4 pillars.
   - to ferment a microbial culture derived from cow dung to stimulate microbial activity (jeevmurtham)
   - to develop a coating of seed/seedling to protect young roots (beejamurtham)
   - Acchadana-mulching (process of covering topsoil with cover crops to produce humus and encourage soil fwana)
   - Soil aeration to increase water availability and water efficiency(whaphasa).

Essentially, ZBNF is when there is no need for credit, the money needed for investment can be earned for agriculture itself. Natural farming is when the soil has the necessary nutrients to support growth, nutrients are made available through microorganisms and there is an active effort to reduce over-irrigation.

Question 87

What are the key differences between organic farming and natural farming?

Answer 87

1. In organic farming one has more human intervention and there is a use of organic manues like compost, vermicompost etc. In natural farming there is less efforts as there is no plouging, tilling and it is against vermicompost as the goal is to not decompose the organic matter right on the soil surface. Natural farming is cheaper too.

Question 88

What is the infamous Minimum Support Price?

Who announces it? Based on which depts recommendation?

What is the market intervention scheme?

What is PM-AASHA?

What are FPOs?

Answer 88

1. MSP is announced by the Cabinet Committee on Economic Affairs based on the reccs of the Commission on Agricultural Costs and Price.
2. The MSP is fixed through
   - A2 method: expenditure on various inputs paid by farmers
   - A2 + FL: expenditure on puts + implied cost of family labour
   - C2: A2+FL + implied cost of rent of land and all other implied cost.
3. Currently A2+FL is used which is 1.5x the production cost. MSP covers 7 cereals, 5 pulses, 7 oilseeds and 3 commercial crops (sugarcane under FRP)
4. MSP doesnt have a statutory recognition and was launched at a time when India faced great food scarcity.
5. The market intervention scheme is an ad-hoc scheme for horticultural commidities and perishable agri commodities to protect farmers from distress sale by undertaking procurement.
6. PM-AASHA incentivizes farmers to produce oilseeds by offering them remunerative prices on these crops.
7. Farmer Producer Orgs are coops that make farmers shareholders as a legal entity that share profits. The FPCs don’t have bureaucratic delays and the benefit such as Triakaya is that they can come together and reach greater markets.

Question 89

What are the 3 farm bills that were revoked?

What is the E-NAM portal?

Answer 89

1. The parliament had passed the 3 farm laws under the concurrent list (entry 22). They have since repealed it due to large scale protests.
2. The first law was helping farms to carry interstate trade in areas outside APMCs. They could produce and sell directly to wholesale and there was no longer a market fee to sell outside the APMCs. The APMC corrupt lobby is strong though.
3. Further the farm laws promoted contract farming and ensured fair and remunerative prices while also regulating the production, supply and distribution of commodities which are declared essential to prevent stockpiling.
4. The E-NAM portal is an electronic trading portal that connects the APMC Mandis in one network to create a national market for agri-commodities. eNAM is not a parrallel marketing structure but leverages existing mandis. The small farmers agribusiness consortium operates e-NAM and its not mandatory for states.
5. Kisan Rath was a mobile applicatoin launched through this to help in transporation of agri-commodities, help FPOs upload their produce directly from collection centres w/o coming to Mandis and farmers can now sell their produce directly from warehouses as well.

Question 90

What is e-SANTA?

What is the story of the PPVFR ACT 2001 and the Pepsi lawsuit that farmers had violated IP by growing FC5 lays potatos?

What is the food subsidy bill?

Is India a member of UPOV?

Answer 90

1. The e-Santa platform is the electronic marketplace privding a platform to connect aqua farmers and buyers
2. The PPVFR Act was basically an act that protects plant varieties and farmer’s rights and Pepisco sued potato farmers under this. However in a landmark judgement the court ruled in favour of the farmers and revoked the registration of the FC5
3. The food subsidy bill is calculated as the difference between the econ cost of food grains and rthe central issue price. The Food subsidy bill has been ballooning and the Centre pays for it by G-sec issurance through the National Small Savings Fund. MSP has increased, storage cost has also increased, and there is ahigher coverage of beneficiaries under the NFSA.

Question 91

What is the new open-ended procurement policy?

What is the PMFasal Bima Yojana?

What is PM-Kisan?

What is the Gobardhan scheme?

Answer 91

1. Under this policy, wheat and paddy offered by farmers within the stipulated period are purchased at MSP and there is no limit on the procurement of rice and wheat. They are free to also sell on open market if they get a better price. This has led to a higher preference for rice and wheat and a lack of agricultural diversification.
2. PMFBY is an insurance coverage to farmers i nthe event of failure of any of the notified crop because of natural calamities, pests and diseases
   - the coverage doesn’t cover war, nuclear, malicious damage and preventable risks. It does include natural disasters, pests and disease and post harvest losses.
3. PM-KISAN applies to all land owning farmers but not sharecroppers and gives 6,000 per year without life insurance support or interest free crop loans. It aims to benefit land-owning farmers and is a central sector scheme.
4. The Gobardhan sceme is focused on cattle dung and waste to conver it into compost, biogas and bioCNG which are pillars of the Swachh bharat Mission.
5. Livestock in India is important and India is the largest producer of milk in the world.

Question 92

What is the present status of the fisheries sector?

What is the status of the rubber and silk sector?

What is the national animal disease control program?

Answer 92

1. India is the second largest producer of fish and 2nd largest aquaculture nation. Govt has launched the PMMatsya Sampada Yojana to enhance fish production, generate additional employment and use a culster approach to through forward and backward linkages. It has both a central sector scheme and a centrally sponsored scheme.
2. The National Rubber Policy 2019 now treats rubber as an agri product and income from rubber as agri income. The goal is to meet atleast 75% of requirement in 2030 while also branding indian natural rubber to improve exports and protect against unwarranted imports. India allows 100% FDI in rubber, coffee, tea, cardamom and palm/olive oil tree plantations.
3. India has a unique distinction of being the only country to produce all kinds of commercially exploited silk and is the 2nd largest producer in the world.
4. India has also launched the National Animal Disease Control program to eradicate Foot and Mouth disease through a 500 million livestock vaccination program.
5. AGMARK is the GoI’s quality certification of more than 200 different agricultural commodities and semi-processed products. It is not mandatory but FSSAI has mandated it for blended edible oil.
6. The CODEX Alimentarius is the intl food standard guidelines and it works with the FAO and the WHO to enforce SPS measures. CODEX standards are the reference standards.

Question 93

1. How has Operation Greens changed from TOP to Total?
2. Microfood enterprises formalization - what is it?
3. Agri-infra fund - what does it focus on?
4. What is the Pokkali rice variety?

Answer 93

1. Operation greens was a prize stabilization plan launched for tomatoes, potatoes and onion but now extends to all fruits and veggies. The scheme features a 50% subsidy on transportation from surplus to deficient markets and a 50% subsidy on cold storage.
2. The formalization of MFE scheme helps micro food enterprises, FPOs, SHGs etc. undetrake technical upgradation using a culster based approach.
3. The Agrifrastructure fund is focused on inmproving the farm-gate infrastructure. The scheme is limited to primary proceessing units and the goal is to improve collection, storagem, cold chain infra. The loans are available for 7 years.
4. The pokkali rice variety is a saline tolerant rice grown organically in Kerala, and farmers are trying to introduce it into West Bengal. Further, the system of rice intensification (SRI) will be beneficial from a water consumption, yield and income level doubling standpoint as they are more tolerant to abiotic and biotic features.

Question 94

What is the Unique Land Parcel Ideentification Number (ULPIN) Scheme?

How will SVAMITVA help in accomplishing the same?

What is the Kadhi and Village Industries Commission?

What is the J&K Purple Revolution?

Answer 94

1. The ULPIN scheme has been launched in 10 states and the scheme is part of the goal of Digital India Land Records Modernization Program. The goal is to computerize land records, survey land, improve registration and update land records. The 14-digit ULPIN will be an Aadhar for land and this scheme is under the Ministry of Rural development.
2. The SVAMITVA Scheme will assist in the ULPIN goals by mapping rural areas using drones to then issue property cards to rural households to reduce disputes via the Panchayati Raj nodal ministry.
3. The KVIC is a Statuatory Body created to promote, organize and implement programs to develop Kadhi.
4. More J&K farmers are shifting away from Maize to grow lavender instead due to Mission Aroma. Lavender has become very popular due to the free distribution of aromatic plants to encourage cultivation and there is the VA aspect.
5. Similarly, Saffron cultivation which is restricted to J&K is also getting a boost through the National Saffron Mission and the GI Tag for Kashmir saffron.

Question 95

What is the Samarth Initiative and what is the agriculture orientation Index?

Why did the WFP win the Nobel Peace Prize?

Answer 95

1. The Samarth Initiative focuses on biomass cofiring. The goal is to combust two different types of fuel at the same time to generate electricity. EG. Coal as well as Biomass in thermal power plants to reduce coal usage. This will help India reduce coal consumption, reduce CO2 emissios as per the UNFCCC recognition of co-firing as a tool and imprvoing air quality as well as entreprenuership and job opportunities.
   - Samarth initiative mandates that all thermal power plants to use 5% blend of biomass pellets with coal up to 7% after 1 year.
2. The WFP won the NPP due to its efforts to combat hunger that they link to war.
   - The WFP signed an agreement with India recently to provide wheat to Afghanistan as a part of humanitarian assistance. It is entirely funded through voluntary contributions and is now SDG focused as well.

Question 96

What is the difference between the Index of Industrial Production (IIP) and the Purchasing Manager’s Index (PMI)?

Is PMI using in GDP Calculation?

Who publishes the eight core index report?

Answer 96

1. The IIP is a measure of the quantum of changes in industrial production in a year. It is published by the NSO and deals with primary, capital, infra, intermediate products, consumer durables and consumer non-durables.
2. The Index of core industries is a focus on the 8 core sectors: coal, nat gas, petroleum refinery, fertilisers, steel, cement and electricity that constitute a whopping 40.27% of the total IIP.
3. The Core Index is prepared by the Economic Advisor.
4. The PMI is published by Nikkei and doesn’t actually track production and covers both manufacturing and services. PMI is not used in GDP calc.

Question 97

What is the National Mining Policy launched in 2019?

What changed in 2020 in Mining?

What are special economic zones?

Answer 97

1. It replaces the 2008 policy and gives a special attention towards critical mineral, fertilizer mineral, precious metal exploration. Further, it encourages private sector involvement and defines no-go areas to protect ecology.
2. India ended the captive coal mining and came up with a composite mining license that allows captive coal mine operators to sell entirely in the open market aka a deregulation and 100% FDI is allowed now.
3. SEZs are geographically delineated duty-free enclaves deemed to be a foreign territory. SEZs can be set up by centre, state or a private entity. There is duty free import/domestic procurement, and 100% IT exemption. India has notified 277 SEZs, however they have failed to be as productive as Chinese ones.
4. Similarly NIMZs are large areas of developed land that the Centre and States use to promote world class manufacturing. SEZ-exports, NIMZ-industrial growth in partnership with states.

Question 98

What is a Production-Linked Incentive Scheme?

Answer 98

Objective: Boost domestic manufacturing and attract
large investments in domestic manufacturing

Strategy: Offer companies incentives on incremental
sales of products manufactured in India. The scheme
also invites foreign companies to set up units in India
and avail benefits.

Incentives: Extend an incentive of 4% to 7% on
incremental sales (over base year of 2019-20) of goods
manufactured in India for a period of 5 years.

Eligibility: Incentives are provided under the scheme to
only those companies which cross the threshold level in
terms of incremental sale of Manufactured Goods and
Incremental investment over the base year.

Tenure of Scheme: 5 years

List of sectors covered under PLI Scheme: Mobile
Manufacturing and specified electronics components,
Active Pharmaceuticals Ingredients (APIs), Manufacturing
of Medical Devices, Textile Products, Food Products,
Telecom & Networking Products, Pharmaceuticals Drugs,
Automobiles; Auto Components, Advance Cell Chemistry
Battery, High Efficiency Solar PV Modules, White Goods,
Specialty Steel and Drones/Drone components.

Question 99

What is the National Technical Textiles Mission?

What is PM Mitra?

Answer 99

1. This mission is also to change India from being a net importer of technical textiles and to in 4 years improve R&D, Promo, Mkting and dev.
2. Under PM Mitra Scheme, textiles contributed to 2% of the GDP and as a result has several incentives to MITRA (mega integrated textile region and apparel) parks as well as incentives to industries that aren’t availing of the textile PLI.

Question 100

How did the government change the definition of MSMEs?

What is the Startup India scheme?

Answer 100

1. MSMEs are now defind by their investment and annual turnover. Further, a micro should have an investment less than 1cr, small less than 10cr and medium less than 50 cr. With 5, 40 and 250 as the corresponding turnover amounts.
2. The distinction between manufacturing and services has been done away with
3. Startup India is a 3 year income tax exemption scheme to boost startups. It has a web portal, relaxed public procurement norms and is funded through a fund-of-funds for startups with a corpus of 10,000cr. It is a SIDBI managed fund and there is a specific seed fund scheme as well. Startup up India is under the MoCandI and Stand Up india is under MoF.

Question 101

What are the interesting pharma plays by the PM?

What are the recent big telecom sector overhauls?

Answer 101

1. The Dept. of Pharma launched the PM Bhartiya Janaushadi Pariyojana to provide generic drugs at affordable prices.
2. Further, the government has decided to declare a ceiling price on lifesaving medicines through the Drug Price Control Orders.
3. In 2020 the SC delivered a verdict on the adjusted gross revenue of telcos in India. the AGR is used to calculate license free, spectrum usage charges and contributions to the Universal service obligation fund. The Gov said that AGR should include core revenue and non-core revenue whereas telcos said no, just core revenue. The SC said it should include non-core aka not in favour of telcos.
4. The Government has changed this and now decided to make it JUST core revenue as a relief package to struggling telcos and they have removed SUC in future auctions. Further FDI has also opened up.

Question 102

What is the national infrastructure pipeline?

What is the national monetization pipeline?

What is PM Gati Shakti?

Answer 102

1. The NIP envisages a 111lakh cr spend over 5years to make india a $5 tril economy. The scope is to include 6835 projects covering 34 infrastructure sub sectors. C, S and private all contributing funding.
2. The NMP (asset monetization plan) is to transfer core assets owned by the gov to private sector for a limited period. Core assets include : roads, ports, airpots, telecom, railways, warehousing, energy pipelines, power gen, power trans, hospitality, stadiums. Non-core assets such as land and buildings not allowed.
3. PM Gati Shakti is supposed to break departmental silos and institutionalize holistic planning for stakeholders across major infra projects ranging from roads, to aviation, railways, agriculture etc.
4. Goal is for multi-modal connectivity across 16 ministeries to monitor projects worth 100lakhcr.
5. Gati Shakti will incorporate infra schemes such as Bharatmala, Sagarmala, UDAN and leverage tech, ecnomic zones etc. The DPIIT is the Nodal ministry.

Question 103

What is the big developments on the road sector? Bharatmala Pariyojana?

What big developments on the railway sector?

What is Kisan Rail?

Answer 103

1. The government has launched Setu Bharatam to remove railway crossings from highways, monetize assets through the toll-operate-transfer model, fasttag, and bharatmala pariyojana to improve critical infrastructure like developing economic corridors etc.
2. Indian railways has witness under-investment, poor org, poor gen of resources and decline in freight traffic, to change this, the gov is considering a PPP model encouraging private sector to pay haulage charge to use physical infrastructure.
3. Kisan Rail is the plan to transform transport of perishable agricultural products to reduce post-harvest losses. Trains with frozen containers will build a seamless national cold supply chain.
4. Government is also trying to develop national inland waterways via the Indland Waterways AUthority of India’s Sagarmala Porogram as well as the Jal Marg Vikas Project.

Question 104

What is the development of PM-WANI?

What is the National Digital Communication Policy 2018?

Answer 104

1. PM-WANI’s goal is to deliver broadband connectivity speeds to every user through public wifi hotspots at affordable rates. Similarly, the National Digital Communication Policy’s goal is to get braodband for all, enhance digicom’s contribution to the GDP, enhance India’s contribution to global value chains and create jobs.

Question 105

What are the big changes under the electric mobility scheme in India?

What is the NEEM 2020? What is the FAME Scheme Phase I and II?

Answer 105

1. India has commited to a EV30@30 initiative i.e. reach 30% sales share for EVs by 2030.
2. The guiding principle is the National Electric Mobility Mission Plan 2020 that aims to have 7 million EVs by 2020 and it is implemented by the Ministry of Heavy Industries and Public Enterprises
3. The National Council for Electric Mobility is the ministerial team to approve E mobility plans.
4. The FAME Scheme Part 2, implemented by heavy industries, focuses on faster adoption and manufacturing of hybrid and electric vehicles. It includes a deman incentive for consumers in the form of upfront reduced purchase prices as well are a charging infrastructure.
5. It is applicable to all EVs - 2, 3, 4 and buses. The 2 wheeler incentive is given even for private transpot but the 3, 4 and buses is available only for commercial purpose registration.
6. Further, EV is bolstered by the PLI for Advanced Chemistry Cell manufacturing and there are several startups and State govt’s working hard on EV.

Question 106

What are the various initiatives to boost solar energy in India?

Answer 106

1. India is betting big on solar and there is currently an installed capacity of 60% for thermal energy.
2. India hit a huge milestone by having achieving its Nationally Determined Contribution target of having at least 40% installed capacity from non-fossil fuels sources by end of 2030.
3. India has a National Solar Mission that targets a 100GW installation by end of 2022 via solar parks, ultra mega solar power pojects, roof solar etc.
   - Under this there is the PM Kusum Scheme which is setting up a 10,00MW grid-connected solar project to sell power to giscoms. In off-grid areas the goal is to replace diesel pump sets with solar agri pumps and in grid connected areas to use solar power to meet irrigation needs.
4. The Govt has also launched the Atal Jyoti Yojana (AJAY) Phaser 2 to illuminate dark regions through solar street lights as well as launching a PLI scheme for solar PV modules.

Question 107

The Govt has also made strides in the distribution sector. What are some big updates?

What is the ISA?

Answer 107

1. The govt launched the Deen Dayal Upadhyaya Gram Jyoti Yojana to focus on feeder separation and strengthening of sub-transmission and distribution infra in rural areas.
2. The UDAY scheme to improve the financial position of DISCOMS
3. The Saubhagya scheme to provide free electricity connections to all households in rural and poor families in urban areas.
4. The Revamped Power Distribution and PP and C in distribution scheme to help discoms improve operational efficiencies while also private partnering DISCOMS or fully privatizing them in UTs.
5. The ISA is an international org, laucnhed by India and Grance at the UN Paris Climate Conference that came into force in 2017 and now it its opened to all members not just ToC and ToC members.

Question 108

Further explain the PM Uday Scheme?

What is the PM Ujjwala Yojana Scheme?

Answer 108

1. The State-owned power distribution companies (DISCOMS) make huge losses and are leading to an NPA crisis. To resolve this, States take over 75% of the DISCOM Debt and then the gov will issue UDAY bonds to banks and other financial institutions to raise money to pay of the banks. The remaining 25% of the debt to be converted into low interest rate loans and funded through discom bonds. UDAY bonds cannot be included as G-SECS under the SLR requirements.
2. PM Ujjwala Yojana is the deposit free LPG connection + financial assitance and interest free loan from oil marketing companies to benefit first women and now all poor families that dont have an LPG connection.

Question 109

What is the payroll reporting scheme of the NSO?

What is the quarterly employment survey report? How is it differengt from the PLFS?

Answer 109

1. Payroll reporting is published by the NSO and it measures employment related statistics in the formal sector using info from EPF, ESI and NPS schemes.
2. The quarterly employment survey report published by the MoL and E measures employment in 8 major non-farm sectors.
3. the PLFS on the other hand is published by the NSO and it looks at quarterly employment in urban and rural areas.
4. While there has been a greater improvement in the formalization of workers there is still an improvement in the amount of formal workers in the organized sector and a decrease in the amount of informal workers in the organized sector. However in 2018, still 81% are inolved in the unorganized sector.

Question 110

What is the Aatmanirbhar Bharat Rojgar Yojana?

What is the EPF, EPS, ESI?

What is the PM Shram Yogi Maan Dhaan?

What is the employees deposit linked insurance scheme? EDLI?

What is the e-Shram portal?

Answer 110

1. ABRY’s goal is to reduce the financial burden on the employers and to encourage them to hire more workers.
2. The Employees Provident Fund is the social security scheme aimed at salaried individuals run by the EPFO which comes under the labour ministry. Only those who earn up to Rs 15000 have to contribute 12% of salary. Employers contribute 12% and the EPF is under the exempt and exempt tax regime.
3. The EPS scheme is also run by the EPFO and it is mandatory for those earning up to 15,000 a month and voltunary for those earning umore than that. The employee contributes 12% directly into the EPF and the employer contributes some into the EPS and some into the EPF. The Centre also contributes.
4. The EDLI scheme provides income security to a family of a private sector employee after his death and the employer contributes 0.50% of basic pay for this. It is also implemented by the EPFO.
5. The ESI is the inegrated social security scheme for sickness, maternity, death and disablement. It covers workers in the organized sector and inlcudes those establishments having more than 10 workers.
6. PM Shram Yogi-Maan Dhan is an old age protection and SS for unorganized workers earning less than 15k per month and it is 50:50 from subscriber and centre and the person is assured 3k per month upon attain 60. Implemented by the DoLabourandE
7. The Atal Pension Yojana is for unorganized workers too but any citizen can join through savings bank account. It includes a government contribution but with stipulations. This is implemented by the MoFinance.
8. The E-Shram portal is launched by the MoLandE and is used to benefit unorganized workers by creating a first-ever national database with aadhar, name, occupation, address, education, skills etc. An unorganized worker will be assigned a univeral accoutn number and the worker will get the PM Suraksha Bima Yojana which is the accidental insurnace cover through this portal.

Question 111

What are some of the up-skilling efforts of the government?

What were the ambitious 2019 Code on Wages labour reforms?

Answer 111

1. The govt has a National Skill Development AGency and Corp which is a PPP to promote skill development as well as the financing of schemes such as the 1 crore skilling project (PM Kaushal Vikas), the PM Kaushal Kendras (model district training centres) and the PM Yuva Yojana to give entrepreneurship training.
2. The Labour reforms launched amalgamates the 4 wages and payment related labour laws, and said that the code will apply to all employees. Further the centre decided to fix minimum wages based on the skill and difficulty of work while also fixing a floor wage for different geographic areas. The Code prohibits gender discrimination and the Industrial Relations Code 2020 provides for the recognition of trade unions, notice periods for strikes etc. and subsumes and replaces the three labour laws on trade unions.
3. The Govt also sought to replace the 9 labour laws on social security by putting in a requirement that employers provide social sec benefits such as PF, insurance etc.
4. The Govt also revamped the H&S element by subsuming and replacing 12 labour laws relating to safety. It strengthened the benefits for inter-state migrants and gave the govt power to exempt a new factory of the code to create more economic activity and employment.
5. The Govt also launched the Donate a Pension initiative where any citizen can pay the premium amount on behalf of an unorganized worker under the PM Shram Yogi-Maan Dhan Scheme.

Question 112

Poverty & Inclusive Growth

What were the differences in the Tendulkar Committee and Rangarajan Committe definitions of PBL (persons below poverty line?)

Answer 112

1. The Tendulkar Group in 2009 shifted away from calories norms to target nutritional outcomes and aimed for separate rural and urban PLB lnes
2. It also incorporated private expenditure on health and education while estimating.
3. In 2011-2012 it was estimated at 816 per capita per month for rural areas and 1000 per capita per month for urban.
4. However, in 2011-12 it was controversial as the govt showed a decline in PBL population while opposition showed that it was underestimating PBL.
5. The Rangarajan committee reevaluated and suggested that rural is 972 and urban is 1407 and added a protein, fat requirement, calorific norms as well as non-food items in the poverty basket. This resulted in a greater number of PBL of 29.5%.

Question 113

What is the Lorenz Curve and GINI Coefficient?

What is the HDI vs HCI difference?

What is the Huznets curve?

What is PHDI and Global Indices for Reforms and Growth?

What is multi-dimensional poverty (MPI)? How does the National MPI dimensions differ from the UNDP and OPHI’s MPI?

Answer 113

1. The Lorenz cuve maps the % of total income earned by the % of the population.
2. Theerefore in a perfectly equal population 10% of the population would earn 10% of the cumulative income. However this perfect scenario is impossible and the area between the line of equality and the lorenz curve. So if the area is 0 you have perfect equality and if it if the area is full then you have perfect inequality. I.e. higher gini coefficient = more inequality.
3. The Kuznets curve explains that as economic growth takes place there is greater inequality which then starts to reduce as the economy develops.
4. HDI, measured by UNDP, is a summary measure of the average achievement in key human dimensions. HCI, measured by the World Bank, is a measure of the amount of human capital that a child born today can attain by 18. It is a future level of human development.
5. PHDI also discoutns the HDI for pressures on the planet, i.e climate change and its impact on inter-generational inequality.
6. THE GIRG initiative was launched under the cabinet secretary to track India’s performance across 29 global indices such as HDI, GHI, GCI, HCI, GII. For Multidimensional Poverty Index (MPI), Niti aayog is the nodal agency.
7. MPI is published by the UNDP and Oxford poverty and health development and it tries to understand the incidence of multidimensional poverty by intensity. MPI poor is when someone is deprived in more than 3 out of 10 indicators ranging from child mortality, nutrition, schooling and attendance, cooking fuel, santiation, drinking water, housing, electricity and assets.
8. The National MPI launched in 2021 takes this index further and adds Child & Adolescent Mortality, Antenatal Care as well as Bank Accounts in its dimensions for MPI.

Question 114

What is the Bare Necessities Index launched in the 2020-21 Economic Survey?

What is the SDG Index developed by NITI Aayog?

What is the Silver Economy and Son-Meta Preference?

Answer 114

1. The bare necessities index covers water, sanitation, housing, micro-environment and other facilities. It shows that from 2012-2018 access to bare necessities has improved across all states.
2. The SDG Index is developed by NITI in collab with the Ministry of Stats and Program Implementation, UN India and Global Green Growth Institute. The Index spans 16 out of 17 SDGs with a qualitative assessment on Goal 17. If a State/UT achieves a score of 100, it shows that it achieved 2030 targets.
3. India’s overall performance improved to 66 and Kerala was at the top.
4. Son-Meta preference refers to tendencies amongst Indian parents who continue having children until they have a son. The survey finds that there is a decrease among parents to opt for sex selective abortion.
5. Silver economy is the system of production, distribution, consumption of G&S aimed at ageing populations.
   - This economy can boost investment and consumption expenditure while making life easier for senior citizens
   - Economic prongs are in health care, finance, hospitality travel and tourism and IT.

Question 115

NITI VS Planning Commission

What are some marquee projects for NITI Aayog?

Answer 115

1. Planning commission is commie, 5 year plan focused with a power to allocate finances with a limited role of states.
2. Niti is a think tank system with the presence of all CMs of the States, special invitees, LTgovernors, Union ministers as ex-officio members and has a 15, 7 and 3 year agenda with an enhanced role of states.
3. NITI Aayog has launched
   - Sustainable Action for Transforming Human Capital (SATH) : aimed at tranforming education and health by working with states
   - Ek Bharat Shreta Bharat - to make the country united and strong in all walks of life
   - Aspirational Districts Program - a form of competitive and constructive federalism where the centre identifies 115 aspirational districts to help impove them.
   - NITI forum for North East
   - Island Development Agency to review devleopment of identified islands
   - SAMAVESH - to improve netowrking and partnership with knowledge and research institutions using a hub and spoke model
   - Atal Innovation Mission and Atal Tinkering Labs to promote innovation and entrepreneurship
   - Nodal agency for important indexes such as Healthy States, Progressive India, Composite Water Management Index, School Education Quality Index, SDG India Index, MPI Index, Digital Transformation Index.