Economy- planning, mobilization of resources, growth, development and employment

Question 1

KABIL?

Answer 1

1. A joint venture company, Khanij Bidesh India Ltd. (KABIL), to be set up with the participation of three Central Public Sector Enterprises namely NALCO, HCL and Mineral Exploration Company Ltd. (MECL)
2. obj: ensure a consistent supply of critical and strategic minerals to Indian domestic market.
3. KABIL would carry out identification, acquisition, exploration, development, mining and processing of strategic minerals overseas for commercial use and meeting country’s requirement of these minerals.
4. The company will help in building partnerships with other mineral rich countries like Australia and those in Africa and South America, where Indian expertise in exploration and mineral processing will be mutually beneficial

Question 2

Samarth?

Answer 2

launched by Flipkart

will support artisans, weavers and handicraft maker by on-boarding them and helping them in process of selling on internet.

Question 3

Negative rate policy?

Answer 3

1. Under a negative rate policy, financial institutions are required to pay interest for parking excess reserves with the central bank.
2. That way, central banks penalise financial institutions for holding on to cash in hope of prompting them to boost lending.
3. Pros:
   
   1. Lowers borrowing costs.
   2. Help weaken a country’s currency rate by making it a less attractive investment than that of other currencies.
   3. A weaker currency gives a country’s export a competitive advantage and boosts inflation by pushing up import costs.
4. Cons:
   
   1. Negative rates put downward pressure on the entire yield curve.
   2. Narrow the margin financial institutions earn from lending.
   3. If prolonged ultra-low rates hurt the health of financial institutions too much, they could hold off on lending and damage the economy.
   4. There are also limits to how deep central banks can push rates into negative territory – depositors can avoid being charged negative rates on their bank deposits by choosing to hold physical cash instead.
5. To battle the global financial crisis triggered by the collapse of Lehman Brothers in 2008, many central banks cut interest rates near zero. With little room to cut rates further, some major central banks have resorted to unconventional policy measures, including a negative rate policy.The euro area, Switzerland, Denmark, Sweden and Japan have allowed rates to fall slightly below zero.

Question 4

Fintech industry?

Answer 4

1. According to NITI Aayog, India is one of the fastest growing fintech markets globally, and industry research has projected that $1 trillion, or 60% of retail and SME (small and medium sized enterprises) credit, will be digitally disbursed by 2029.
2. The Indian fintech ecosystem is the third largest in the world, attracting nearly $6 billion in investments since 2014. Fintech or financial technology companies use technology to provide financial services such as payments, peer-to-peer lending and crowdfunding, among others.

Question 5

inverted yield curve?

Answer 5

1. The yield curve is a graph showing the relationship between interest rates earned on lending money for different durations.
2. Normally, someone who lent to the government or a corporation for one year (by buying a one-year government or corporate bond) would expect to get a lower interest rate than someone who lent for five or ten years, making the yield curve upward-sloping.
3. In the US in recent days the ten-year bond rate has fallen to the point at which the ten-year rate is below the two-year rate – so the yield curve is inverted.
4. inverted yield curve denotes a recession in near future
   
   1. When investors feel buoyant about the economy they pull the money out from long-term bonds and put it in short-term riskier assets such as stock markets. In the bond market, the prices of long-term bonds fall, and their yield (effective interest rate) rises. Thus higher yield for longer term bonds indicates trust in the pvt economy
   2. However, when investors suspect that the economy is heading for trouble, they pull out money from short-term risky assets (such as stock markets) and put them in long-term bonds. This causes the prices of the long-term bonds to rise and their yields to fall.

Question 6

global recession?

Answer 6

1. In an economy, a recession happens when output declines for two successive quarters (that is, six months).
2. However, for a global recession, institutions such as the International Monetary Fund tend to look at more than just a weakness in the economic growth rate; instead, they look at a widespread impact in terms of employment or demand for oil, etc.
3. The long-term global growth average is 3.5%. The recession threshold is 2.5%.

Question 7

Panglossian way of life?

Answer 7

A Panglossian way of life is one of extreme optimism, in which you are convinced whatever happens is for the best, and hence make no effort to change it.

Why in News? Mentioned by RBI governor in his recent speech.

Question 8

Competition Law Review Committee recommendations?

Answer 8

1. Introduction of a ‘Green Channel’ for combination notifications to enable fast-paced regulatory approvals for vast majority of mergers and acquisitions that may have no major concerns regarding appreciable adverse effects on competition. Combinations arising out of the insolvency resolution process under IBC will also be eligible for “Green Channel” approvals.
2. Introducing a dedicated bench in NCLATfor hearing appeals under the Competition Act.
3. Introduction of express provisions to identify ‘hub and spoke’ agreements as well as agreements that do not fit within typical horizontal or vertical anti-competitive structures to cover agreements related to business structures and models synonymous with new age markets.
4. Additional enforcement mechanism of ‘Settlement & Commitments” in the interests of speedier resolution of cases of anti-competitive conduct.
5. Enabling provisions to prescribe necessary thresholds, inter alia, deal-value threshold for merger notifications.
6. CCI to issue guidelines on imposition of penaltyto ensure more transparency and faster decision making which will encourage compliance by businesses.
7. Strengthening the governance structure of CCI with the introduction of a Governing Board to oversee advocacy and quasi-legislative functions, leaving adjudicatory functions to the Whole-time Members.
8. Merging DG’s Office with CCI as an ‘Investigation Division’ as it aids CCI in discharging an inquisitorial rather than adversarial mandate. However, functional autonomy must be protected.
9. Opening of CCI offices at regional levelto carry out non-adjudicatory functions such as research, advocacy etc. and interaction with State Governments and State regulators.

Question 9

Debenture Redemption Reserve (DRR)?

Answer 9

1. It is a provision stating that any Indian corporation that issues debentures must create a debenture redemption service in an effort to protect investors from the possibility of a company defaulting.
2. This provision was tacked onto the Indian Companies Act of 1956, in an amendment introduced in the year 2000.
3. Why in News? Government removes Debenture Redemption Reserve requirement for Listed Companies, NBFCs and HFCs by amending the Companies (Share Capital & Debentures) Rules.
4. Significance: The measure has been taken by the Government with a view to reducing the cost of the capital raised by companies through issue of debentures and is expected to significantly deepen the Bond Market.

Question 10

link between bond yields and interest rates?

Answer 10

• usually this bond is the G-Secs
• yield = coupon rate/ selling price of the bond
• as demand of G-secs increase, its selling price increases ad yield decreases and vice-versa
• thus, increasing yield means decreasing demand for G-secs. But this is actually good. Usually falling demand for G-secs mean that investors are more interested in investing in pvt ventures through stock market. So, increasing yield indicates a booming economy.
• also, increasing yield indicates booming economy means potential rise of inflation and thus central banks usually increase the interest rates.

Question 11

can the growth rate of GDP and GVA differ?

Answer 11

YES

during the year, it is GVA data that is made available first — not the GDP. The GDP is arrived at by taking the GVA number, adding all the taxes earned by the government and subtracting all the subsidies provided by the government.

for the same level of GVA in an economy, the GDP could alter just because the government earned more money from its taxes or spent more on subsidies.

Question 12

share of cess and surcharge in the gross tax revenue (GTR) of the Centre?

Answer 12

almost doubled to 19.9% in 2020-21 from 10.4% in 2011-12, leading to the 15th Finance Commission (FC) recommending a higher grant-in-aid and lower tax devolution to the States

Question 13

T/F:

1. Unlike a cess, which is meant to raise revenue for a temporary need, surcharge is usually permanent in nature.
2. Collections from surcharge flow into the Consolidated Fund of India.

Answer 13

1. T
2. T

Question 14

New Umbrella Entities (NUEs)?

Answer 14

• As envisaged by the RBI, an NUE will be a non-profit entity that will set-up, manage and operate new payment systems, especially in the retail space such as ATMs, white-label PoS; Aadhaar-based payments and remittance services. Additionally, they will develop new payment methods, standards and technologies as well as operate clearing and settlement systems.

who can set up NUEs:

• Only those entities that are owned and controlled by Indian citizens with at least three years of experience in the payments segment can become promoters of NUEs.
• foreign investment is allowed in NUEs. eg. Reliance Industries, along with Facebook and Google — which have invested in Jio Platforms — are planning to apply as a consortium.

Need:

• Currently, the umbrella entity for providing retail payments system is NPCI, which is a non-profit entity, owned by banks. NPCI operates settlement systems such as UPI, AEPS, RuPay, Fastag, etc. Players in the payments space have indicated the various pitfalls of NPCI being the only entity managing all of retail payments systems in India. RBI aims to expand the competitive landscape in this area.

Question 15

“INdia’s vulnerabilities have been laid bare by the pandemic”?

Answer 15

1. Acc to a WB report, while India’s stock markets rose during the pandemic and the very rich became even richer, the number of people with <2$ a day is estimated to have increased by 75 million. This accounts for nearly 60% of the global increase in poverty
2. India ranks a low 139th (/149) in World Happiness index; India ranked 94 among 107 countries in the Global Hunger Index 2020 and is in the ‘serious’ hunger category; India ranks 76th out of 82 economies in social mobility index
3. old global economy was very good for migrant capital, which could move around the world at will, its life made easier by countries vying to attract foreign capital, even bending their environmental and labour regulations. pandemic has revealed that the old economy was not good for migrant workers, however. Their “ease of living” was often sacrificed for capital’s “ease of doing business”
4. Urgent need for broader progress measures as GDP does not account for vital environmental and social conditions.
5. countries in which the spirit of community is high, such as the ‘socialist’ countries of Northern Europe, come on top of well-being rankings even when their per capita incomes are not the highest.

Question 16

Emergency credit line guarantee scheme?

Answer 16

1. launched as part of the Aatmanirbhar Bharat Abhiyan package announced in May 2020. providing credit to different sectors, especially MSMEs
2. 100% guarantee coverage is being provided by the National Credit Guarantee Trustee Company, whereas Banks and NBFCs provide loans
3. credit will be provided in the form of a Guaranteed Emergency Credit Line (GECL) facility
4. No Guarantee Fee shall be charged by NCGTC from the Member Lending Institutions (MLIs) under the Scheme.
5. Interest rates under the Scheme shall be capped at 9.25% for banks and FIs, and at 14% for NBFCs.

eligibility:

• Borrowers with credit outstanding up to Rs. 50 crore as on 29th February, 2020, and with an annual turnover of up to Rs. 250 crore are eligible under the Scheme.

ECLGS 2.0: In August 2020, the government widened the scope of the Rs. 3 lakh crore-ECLGS scheme by doubling the upper ceiling of loans outstanding and including certain loans given to professionals like doctors, lawyers and chartered accountants for business purposes under its ambit. the scheme was extended to Mudra borrowers and Individual loans for business purposes.

On Nov 20, the scheme was extended through ECLGS 2.0 for 26 sectors identified by the Kamath Committee and for the Health Care sector up to Mar 21, for entities with outstanding credit of above Rs.50 crore and not exceeding Rs.500 crore.

ECLGS 3.0: extending credit of up to 40% of total credit outstanding across all lending institutions. tenor of loans was also extended to 6 yrs, incl a moratorium period of 2 yrs. also widened its scope to new sectors, including hospitality, travel and tourism

Impact

According to the SBI Research report on ECLGS:
● The scheme has saved 13.5 lakh firms from going bankrupt and consequently 1.5 crore jobs.
● In absolute terms, MSME loan accounts worth Rs 1.8 lakh crore were saved.
● Almost 93.7 per cent of such accounts are in the micro and small category.
● Amongst the states, Gujarat has been the biggest beneficiary, followed by Maharashtra, Tamil Nadu and Uttar Pradesh.

Question 17

T/F: Centre has decided to ease the inflation target from 4% to 5%, with a tolerance band of +/- 2 percentage points for the Monetary Policy Committee of the RBI for the coming five years.

Answer 17

F

Centre has decided to retain the inflation target of 4%, with a tolerance band of +/- 2 percentage points for the Monetary Policy Committee of the RBI for the coming five years.

the previous target was to last upto March 2021

Question 18

small savings instruments?

Answer 18

• SSSs are important source of household savings in India. CG operates SSSs through the nationwide network of about 1.5 lakh post offices, more than 8,000 branches of the PSBs and select private sector banks and more than 5 L small savings agents.
• Small Savings Schemes can be grouped under three heads
  
  • Post Office deposits- PO savings accounts, Time deposits etc.
  • savings certificates- Nationla savings certificates and Kisan Vikas Patra
  • social security schemes- PPF, Senior citizens savings scheme and Sukanya Samriddhi Scheme.
• National Small Savings Fund (NSSF) was established in 1999 within the Public Account of India for pooling the money from different SSSs.
• Objective for the formation of a dedicated fund for small savings is to de-link small savings transactions from the CFI. Since NSSF operates in the Public Account, its transactions do not impact the fiscal deficit of the Centre directly.
• The money in the account is used by the centre to finance their fiscal deficit.
• NSSF is administered by GoI Min of FInance
• As per the recommendations of the 14th FC, the govt has excluded states (except four states) from the use of SSSs money. This is because the SSSs have slightly higher interest rate than the loans procured by states.
• Government also gives slightly high interest rate (fixed by CG every qtr) for these schemes compared to the average interest in other FIs. SSSs are similar to bank saving schemes and there is competition between the two. Hence, there is a need to align the interest rate of SSSs with that of bank savings. Government in this regard has aligned the interest rate for SSS with that of government bonds of corresponding maturities. A higher spread is also provided for important SSSs that have social objectives.

Question 19

Harmonized System of Nomenclature Code?

Answer 19

• It has been made mandatory for a GST taxpayer having a turnover of more than Rs 5 crore in the preceding financial year, to furnish 6 digits HSN Code (Harmonized System of Nomenclature Code). This comes into effect from April 1, 2021
• It is a six-digit identification code. Of the six digits, the first two denote the HS Chapter, the next two give the HS heading, and the last two give the HS subheading.
• Developed by the World Customs Organization (WCO)
• Called the “universal economic language” for goods.
• Need:
  
  • Over 200 countries use the system as a basis for their customs tariffs, gathering international trade statistics, making trade policies, and for monitoring goods.
  • The system helps in harmonising of customs and trade procedures, thus reducing costs in international trade.

Question 20

Aug 2019: Govt’s steps to spur economic growth: Investors?

Answer 20

1. Enhanced surcharge on FPIs stands withdrawn. Surcharge on domestic investors in equity markets also withdrawn.
2. Aadhaar-based KYCfor opening demat accounts and investment in mutual funds.
3. Govt working to bring offshore rupee market to domestic market.
4. Govt to consult with RBI to enhance Credit default swap options.

Question 21

Aug 2019: Govt’s steps to spur economic growth: Industry?

Answer 21

1. CSR violationwould be treated as a civil offence, not a criminal offence.
2. All pending GST refundstill now shall be paid in 30 days. Future GST refunds to be paid in 60 days.
3. Govt to simplify the GST system

Question 22

Aug 2019: Govt’s steps to spur economic growth: Auto sector?

Answer 22

1. BS-IV cars purchased till March 2020 to remain operational for the entire period of registration.
2. Govt asks its departments to replace old vehicles.
3. Higher vehicle registration fee deferredto June next year.
4. Higher depreciation for all vehicle: Depreciation increased to 30 per cent for all vehicle purchased till March 2020.
5. Scrappage policy to be announced soon.

Question 23

Aug 2019: Govt’s steps to spur economic growth: MSMEs?

Answer 23

1. Govt withdraws angel tax provision for startups and their investors.
2. One-time settlement policy for MSME loans. Policy to be based on check box approach.
3. Laws to be amended to ensure one MSME definition.

Question 24

Aug 2019: Govt’s steps to spur economic growth: Home, auto loans?

Answer 24

1. Banks to launch Repo Rate linked loans.
2. Online tracking system for home, auto loans.
3. PSBs to return loan documentsto customers within 15 days of loan closure.

Question 25

Aug 2019: Govt’s steps to spur economic growth: Income tax?

Answer 25

all Income Tax notices must be disposed off within 3 months.

Question 26

Aug 2019: Govt’s steps to spur economic growth: NBFCs?

Answer 26

1. NBFC can now use Aadhaar-based KYC.
2. Prepayment notices issued to NBFCs will be monitored by banks.
3. Additional liquidity to support Housing Finance Companies by National Housing Board increased to Rs 30,000 crore.
4. Govt to release Rs 70,000 crore upfront for PSBs recapitalisation.

Question 27

T/F: GST refunds are mandated to be paid within 30 days.

Answer 27

F

While the pending GST refunds are to be funded within 30 days, all future GST refunds to be paid in 60 days.

Question 28

Genesis of development banks in India?

Answer 28

1. IFCI, previously the Industrial Finance Corporation of India, was set up in 1949. This was probably India’s first development bank for financing industrial investments.
2. In 1955, the World Bank prompted the Industrial Credit and Investment Corporation of India (ICICI)- Parent of today’s ICICI Bank- s a collaborative effort between the government with majority equity holding and India’s leading industrialists with nominal equity ownership to finance modern and relatively large private corporate enterprises.
3. In 1964, IDBI was set up as an apex body of all development finance institutions.
4. After 1991, following the Narasimham Committee reports on financial sector reforms, development finance institutions were disbanded and got converted to commercial banks.
5. The result was a steep fall in long-term credit from a tenure of 10-15 years to five years.

Question 29

Project SURE?

Answer 29

1. The SURE project is a commitment by India’s apparel industry to set a sustainable pathway for the Indian fashion industry.
2. SURE stands for ‘Sustainable Resolution’ – a firm commitment from the industry to move towards fashion that contributes to a clean environment.
3. The project has been launched by the union Textiles Ministry, along with Clothing Manufacturers Association of India (CMAI); United Nations in India; and IMG Reliance.
4. Significance: It will be the first holistic effort by the apparel industry towards gradually introducing a broader framework for establishing critical sustainability goals for the industry.
5. This framework would help the industry reduce its carbon emissions, increase resource efficiency, tackle waste and water management

Question 30

Merger of 10 PSBs: intro?

Answer 30

1. Merged banks
   
   1. PNB + Oriental bank of Commerce + United Bank of INdia: form the nation’s second largest lender with total business worth 18 L Cr
   2. Canara bank + Syndicate Bank: 4th largest PSB with 15 L cr
   3. Union Bank of India + Andhra Bank + Corporation Bank: 5th largest with business worth 14.5L cr
   4. Indian Bank + Allahabad bank: 7th largest with business worth 8 L cr
2. Though the central government announced the plan but RBI has been given the charge for the successful implementation of the plan.
3. decision by GOI has been taken under Section 7 of RBI that gives the power to the government to make rulings on RBI functioning in the interest of the public.

Question 31

Merger of 10 PSBs: impact?

Answer 31

1. No. of PSBs in India now stands at 12
   
   • 27 in 2017
   • merger of SBI’s 5 associate banks and Bharatiya Mahila Bank into SBI; merger of Dena bank and VIjaya bank into Bank of Baroda
   • 18 at present
   • hereafter 12
2. It is in line with recommendations of:
   
   • Narasimham committee (1991 and 1998)
   • Khan committee in 1997 stressed the need for harmonization of roles of commercial banks and the financial institutions.
   • Verma committee pointed out that consolidation will lead to pooling of strengths and lead to overall reduction in cost of operations.
3. It is a move to attain 5 Trillion $ Target

Question 32

PAiSA Portal?

Answer 32

1. Portal for Affordable Credit and Interest Subvention Access (PAiSA).
2. Lauched in Nov 2018
3. It is a cetralized IT platform which simplifies and streamlines release of interest subvention under the Mission.
4. It offers end to end online solution for processing, payment, monitoring and tracking of interest subvention claims from banks on a monthly basis.
5. It is designed and developed by Allahabad Bank (Nodal bank).

Question 33

importance of appropriateness of inflation target?

Answer 33

1. In recent, working paper titled ‘Measuring Trend Inflation in India’, the Deputy Governor overseeing monetary policy underscored the importance of ensuring the appropriateness of the inflation target.
2. there had been a steady decline in trend inflation to a 4.1%-4.3% band since 2014, they said a target far lower than the trend ran the risk of imparting a ‘deflationary bias’ that would dampen economic momentum, while a goal much above the trend could engender expansionary monetary conditions that would likely lead to inflation shocks.
3. RBI’s researchers authoring its Report on Currency and Finance themed ‘Reviewing the Monetary Policy Framework’ made clear that the framework had served the economy well, attested by a decline in inflation volatility and more credible anchoring of inflation expectations.
4. Rightfully Monetary committee decided to extend 4% along with its bandwidth target for 2021-26

Question 34

New buyers for govt bonds needed to bring down borrowing costs?

Answer 34

1. importance of borrowing cost of govt:
   
   1. increasing interests costs as % of GDP (1% point higher already in2021-22 than 202-21) limits govt’s ability to spend elsewhere
   2. this rate also affects the cost of borrowing for large parts of the economy. If Term Premium (additional Interest rate charged for longer term loans) and credit spread (additional interest rate charged for risk; sovereign bonds are risk free) had not risen over the past two years, effective borrowing costs would have been nearly 1 per cent lower
      
      • term premium has risen from an average rate of 73 basis points since 2011 to 215 basis points in 2021, among the highest in the world
2. Currently govt is borrowing at a higher cost than a mortgage on a house despite being risk free. One cause for this is the competition in residential mortgages. On the other hand, there is a structural shortage in demand for government bonds
3. Over 15 years, the share of banks in the ownership of outstanding CG bonds has fallen from 53 % to 40 % now. This can be attributed to gotv wisely reducing fin repression (i.e. forcing banks to buy govt bonds with deposit money). But no alternative buyer of size has emerged to fill the space vacated
4. Despite improving penetration of insurance and formalisation driving growth in pension inflows, their share of bonds outstanding has in fact shrunk over the last 15 years.
5. solution may lie in getting new types of buyers. The RBI opening up direct purchases by retail investors is a step in this direction, though it may not become meaningful for a few years.
6. FPIs: share of FPIs in govt bond buyers has been increasing steadily, but without Indian bonds being included in global bond indices, these flows may not be meaningful, and would be volatile, as they have been.
7. To enable inclusion in bond indices, the RBI and the govt have earmarked special-category bonds which are fully accessible (FAR) by foreign investors.
8. FTSE putting India on a watch-list for “potential future inclusion” in the Emerging Markets Government Bonds Index is a step forward

Question 35

“Bringing petrol and diesel under GST will not lower fuel oil prices by itself, unless both Union and state governments are willing to take deep revenue cuts.”?

Answer 35

misnomer that merely including these items under GST would lead to a lowering of pump prices since the maximum rate on these products would be capped at 28%

1. Centre and the states expected to earn around Rs 5.5 lakh crore by way of revenue from petrol and diesel during 2021-22
2. Union and state levies put together account for roughly 55 per cent and 52 per cent of the retail price of petrol and diesel respectively. Further breaking-up, central levy on petrol and diesel works out to around 36% of the retail price while the state component is around 20%(diesel) to 28%(petrol)
3. of the total central levies on petrol and diesel, Rs 1.40 per litre and Rs 1.80 per litre is the basic excise duty for the two fuels, and Rs 11 per litre and Rs 18 per litre is the special additional excise duty. Both these components form part of the divisible pool of taxes, 42 per cent of which (approximately Rs 52,000 crore) goes to the states. The remaining portion of Rs 18 per litre in both cases is the Road and Infrastructure Cess and Rs 2.50 per litre and Rs 4 per litre is the Agriculture Infrastructure and Development Cess which are retained by the Centre
4. Note that the original CAA that introduced GST explicitly excluded liquor and petroleum products from GST. But by the 122nd CAA, only liquor was kept in the exclusion list and GST council was empowered to simply notify petroleum products under GST without the need for CAA.
5. Bringing them under GST would bring down the prices of petrol and diesel to around Rs 55 per litre even though lowering the prices to this level would entail a staggering loss of revenue to both the Centre and the states. Reluctance of states to subject around 25-30 per cent of their assured tax revenues to the initial uncertainties of a new tax regime. this would translate into a revenue loss of around Rs 3 lakh crore on account of petrol and around Rs 1.1 lakh crore on account of diesel to the Centre and the states, at current volumes.

Question 36

suggestions for changes to Fiscal framework?

Answer 36

need: India’s general government debt has soared. It is now close to 90 per cent of GDP — the highest independent India has ever seen. The current ratio is some 10 percentage points higher than its previous peak in the early 2000s, which was the impetus for introducing the FRBM.

Govt, instead of defining arbitrary targets like 3% ficsal deficit or 60% debt-GDP etc, should focus on debt sustainability.

1. India should abandon multiple fiscal criteria for guiding fiscal policy. targets can conflict with each other, creating confusion about which one to follow
2. any future framework should not be fixated on specific numbers. Around the world, countries are realising that deficit targets of 3 per cent of GDP and debt targets of 60% of GDP lack proper economic grounding. Further, any specific target, no matter how well-grounded, sets up perverse incentives, encouraging governments to transfer spending off-budget
3. Target only ‘primary balace’ and that too not in terms of yearly targets but gradually, by say half a percentage point of GDP per year on average, making clear that it will accelerate consolidation when times are good, moderate it when times are less buoyant, and end it when a small surplus has been achieved.

Question 37

Fiscal Responsibility & Budget Management (FRBM) Act?

Answer 37

• It was enacted in August 2003.
• It aims to make the CG responsible for ensuring inter-generational equity in fiscal management and long-term macro-economic stability.
• The Act envisages the setting of limits on the Central government’s debt and deficits.
  • It limited the fiscal deficit to 3% of the GDP.
• To ensure that the States too are financially prudent, the 12th Finance Commission’s recommendations in 2004 linked debt relief to States with their enactment of similar laws.
  • The States have since enacted their own respective Financial Responsibility Legislation, which sets the same 3% of Gross State Domestic Product (GSDP) cap on their annual budget deficits.
• It also mandates greater transparency in fiscal operations of the Central government and the conduct of fiscal policy in a medium-term framework.
  • It was mandated by the act that the following must be placed along with the Budget documents annually in the Parliament:
    
    • Macroeconomic Framework Statement
    • Medium Term Fiscal Policy Statement and
    • Fiscal Policy Strategy Statement
  • The Budget of the Union government includes a Medium Term Fiscal Policy Statement that specifies the annual revenue and fiscal deficit goals over a three-year horizon. It was proposed that the four fiscal indicators i.e, revenue deficit as a percentage of GDP, fiscal deficit as a percentage of GDP, tax revenue as a percentage of GDP, and total outstanding liabilities as a percentage of GDP be projected in the medium-term fiscal policy statement.
• The rules for implementing the Act were notified in July 2004. The rules were amended in 2018, and most recently to the setting of a target of 3.1% for March 2023.
• The NK Singh committee (set up in 2016) recommended that the government should target a fiscal deficit of 3% of the GDP in years up to March 31, 2020 cut it to 2.8% in 2020-21 and to 2.5% by 2023.
• Escape Clause:
  • Under Section 4(2) of the Act, the Centre can exceed the annual fiscal deficit target citing certain grounds.
  • The grounds include
    • National security, war
    • National calamity
    • Collapse of agriculture
    • Structural reforms
    • Decline in real output growth of a quarter by at least three percentage points below the average of the previous four quarters.

Question 38

Can digital currencies and crypto investors help close India’s SME financing gap: India’s need for SME and startup financing?

Answer 38

• India- >60mn businesses, 10 mn having unique GST regtn nos., most of them SMEs. India is #3 generator of unicorns in the world
• of the one trillion USD worth of total commercial lending exposure of the banking system, only ~25% of it is provided to SMEs, which are considered less creditworthy than larger corporates
• This has resulted in a financing gap estimated to be between 250-500 billion USD, where meritorious businesses without national profiles aren’t able to access the capital they need to finance their growth
• India’s legacy financial system is still slow, costly, and unwieldy for borrowers
• JAM trinity only supports consumer-grade applications like basic P2P payments and individual savings accounts. Access to capital sufficient to finance a business is still not yet present for these low-income, mostly feature-phone possessing groups.
• India’s startup economy is still somewhat disconnected from global venture capitalists and financial markets.

Question 39

Can digital currencies and crypto investors help close India’s SME financing gap: informational collateral as a substitute for physical collaterals for SMEs and startups?

Answer 39

SMEs don’t have the physical assets to take out loans, which are the mainstay of the current, hard-collateral-backed credit system.

One alternative is to use trustworthy digital records to ascertain whether a business is worthy of credit or equity investment. GST can help to address this by generating invoice and payment data in a format suitable for credit underwriting and risk analysis.

The digital version of an SME’s sales and purchase invoices ledger thus amounts to informational collateral on both the company and the larger ecosystem within which it sits, that could become the basis for extending credit

This is similar to how Square Capital and Stripe Capital already function in the West.

Question 40

Can digital currencies and crypto investors help close India’s SME financing gap: use f cryptocurrencies?

Answer 40

the 10-year old cryptoeconomy is now worth trillions of dollars, there are more than a hundred million crypto holders around the world, and there are at least fifty crypto protocols valued over one billion dollars, a “unicoin” analog to the traditional tech unicorn. a sector worth $2T that is growing at more than 100% per annum could become a much larger piece of the global financial puzzle in short order.

This is a new source of risk-tolerant digital capital that could flow into India to help close the SME financing gap, if we can make it an attractive proposition for the global investor.

Question 41

Why are small savings rate linked to G-sec yields?

Answer 41

Since April 2016, interest rates of all small saving schemes have been linked to government bond yields and are now recalibrated on a quarterly basis.

Since then, rates have been declining gradually.

money collected through these schemes is invested in central and state government securities. Earlier, when they were delinked, while the yield on the latter progressively declined over time, small savings rates remained downwardly rigid — the result being an asset-liability mismatch that threatened the viability of the NSSF.

Question 42

MSMEs: significance?

Answer 42

1. 29% of INdia’s GDP
2. employs 11 cr people in its 6.3 cr enterprises
3. higher labour intensity than big corporates. MSMEs generate the highest employment per capita investment
4. about 33% of manufacturing output. around 6.11% of the manufacturing GDP and 24.63% of the GDP from service activities as well
5. about 48% of the total exports
6. MSME sector in India has grown significantly since 1960 – with an average annual growth rate of 4.4% in the number of units and 4.62% in employment
7. go a long way in checking rural-urban migration
8. strong and complex backward and forward linkages, ancillary services providing essential support to large enterprises and their value chain
9. ~20% of these MSMEs are based in rural areas, promoting inclusive development as well as equitable regional growth
10. As on January 23, 2022, the number of SC-owned Generally, the proportion of enterprises owned by Scheduled Caste entrepreneurs in the overall national tally of MSMEs is 6%. enterprises at the all-India level was 4,53,972, of which micro enterprises accounted for 4,50,835, small – 3,004 and medium - 133.

Question 43

MSMEs: govt recent efforts (March 2021)?

Answer 43

1. simplification of registration and definition
   
   • An MSME would hereafter been referred to as Udyam and the registration process as Udyam Registration.
   • Registration can be filed online based on self-declaration. Uploading of documents, papers or certificate as proof would not be necessary henceforth.
   • basic criteria for MSME classification would be on investment in plant, machinery and equipment and turnover:
     
     • Micro: inv< 1cr and turnover <5cr
     • Small: inv< 10cr and turnover < 50cr
     • Medium: inv< 50cr and turnover <250cr
   • Export of goods or services or both would be excluded while calculating the turnover of any enterprise and investment calculation linked to the IT return of the previous year.
   • Champions Control Room across the country have been made legally responsible for facilitating entrepreneurs in registration and thereafter.
2. Collateral-free Automatic Loans upto INR 3 Lakh Crore. Facility to borrow emergency credit from banks and NBFCs up to 20% of their entire outstanding credit
3. 20,000 Crore as subordinate debt: MSMEs with declared NPAs or those stressed will be eligible for equity support.
4. to infuse INR 50,000 Crore in ‘equity’ through a fund of funds.
5. INR 3 L Cr Emergency Credit LIne Guarantee scheme (ECLGS) with 2.9 L Cr already scanctioned till Jan 2021
6. to address the problem of unfair competition between Indian MSMEs and foreign companies, the government has taken the decision to not allow global tenders in procurements up to INR 200 Crore.
7. fintech enterprises will be used to boost transaction-based lending in this sector and the data will be used by the e-marketplace.
8. Budget 2021-22:
   
   • INR 15700 cr to be provided to MSME sector- double that of BE of 2020-21
   • Conciliation mechanism to be set up for quick resolution of contractual disputes with govt or PSEs
   • a special framework for MSMEs shall be introduced for faster resolution of cases

Question 44

India: Pharmacy to the world: stats?

Answer 44

1. largest provider of generic drugs globally.
2. Indian pharmaceutical industry meets over 50% of global demand for various vaccines, 40% of generic demand in the U.S. and 25% of all medicine in the U.K.
3. Presently, over 80% of the antiretroviral drugs used globally to combat AIDS are supplied by Indian firms
4. Indian pharma exports reaching >17Bn$ in 2019
5. Indian pharmaceuticals market is the world’s third-largest in terms of volume and thirteenth-largest in terms of value. It has established itself as a global manufacturing and research hub.
6. Fixed dose combination (FDC) drugs (where two or more drugs are combined in a set ratio in a single dose form) is considered an innovation of India’s national pharmaceutical industry.

Question 45

India: Pharmacy to the world: issues?

Answer 45

1. dependence on China: import 70% of APIs for our pharmacy
2. hollowing out: India is preferred producer only for simpler off-patent formulations. producers move important activities of manufacturing to low-cost facilities overseas (China producing API at 40% cheaper rate than that of Indian manufacturer).
3. a study found that thousands of FDCs on the market made up of formulations never approved for marketing by the national regulator, the Central Drugs Standard Control Organisation, and that were likely to be more harmful than beneficial to patients.
4. challenge to IPR of big Pharma companies
5. Indian pharmaceutical Industry is facing pressure from both the government and the civil society to make generic medicines more affordable

Question 46

INdia: pharmacy to the world: way forward?

Answer 46

1. India should look up to and invest in biotechnology. India’s biotechnology industry, comprising biopharmaceuticals, bio-services, bio agriculture, bio-industry and bioinformatics is expected to grow at an average rate of around 30% a year and reach $100 billion by 2025.
2. Indian govt’s ‘PharmaVision 2020’ aims to make iNdia a global leader in end-to-end drug mfg

Question 47

“IBC is moving away from its promoter averse approach”?

Answer 47

recent amendments, via an ordinance, introduced the concept of pre-packs for MSMEs

1. framework involves a privately negotiated contract between the promoters of a financially distressed firm and its financial creditors to restructure the company’s obligations, within the IBC architecture, but before the commencement of insolvency proceedings. if accepted by creditors, mustbe approved by NCLT as well
2. Note that firm’s promoters could have submitted a resolution plan even after it enters the insolvency proceedings but the difference is:
   
   1. under IBC, upon the initiation of insolvency proceedings, control of a firm is wrested from its existing promoters, and a resolution professional is appointed. The amendment allows the promoter to retain control. We have transitioned from “creditor in control” to “debtor in control”
   2. the absence of an open bidding process, such as during the resolution phase — which would have allowed for multiple competing offers to be considered by the committee of creditors — might raise questions over price discovery
3. This amendment acknowledges that not all debt defaults are result of corrupt promoters, especially in wake of the pandemic induced lockdown and sslump in demand.
4. pushing struggling firms through the IBC process, which suffers frm liquidation bias (of the 2,422 cases closed since IBC came into being, 46.5 per cent of the firms have gone into liquidation, while a resolution plan has been accepted in only 13% cases; liquidation recovers jst a fraction of debt), would lead to significant value destruction.
5. Moreover, this entire process remains outside the restructuring framework of RBI . pre-packs encompass all financial creditors, as opposed to RBI’s restructuring schemes which deal only with banks, this takes into account concerns of other financial creditors as well.

Question 48

India’s automobile industry: significance?

Answer 48

1. contributes 6.4 per cent to GDP, around 35 per cent to manufacturing GDP, supports over 8 million jobs directly (OEMs, suppliers and dealers) and as many as 30 million more in the value chain.
2. generates export revenue of $27 billion that is nearly 8 per cent of the total merchandise exports from India.
3. important for MSME sector: MSME share of value-addition to a car is 35 per cent. one estimate puts the total number of MSMEs engaged in the auto value chain in the range of 25,000-30,000.
4. rapid strides made in recent times:
   
   • advancement of the supplier ecosystem in India
   • build-quality of our products. Quality defects have reduced by a staggering 90 per cent
   • our ability to design, engineer and develop world-class products completely in India. Scorpio, Indica, XUV500, Nano and Pulsar brought respect to India’s engineering capabilities. Today, every major carmaker has an engineering centre in India
5. potential for further growth
   
   • In countries like Korea, Germany, Thailand, Germany, and Japan — the auto industry contributes more than 10 per cent to the country’s GDP
   • scrappage policy will further help to take polluting, unsafe, gas-guzzlers off the roads.
   • opportunity for India is to carve out a niche for itself in EV tech and solutions space — related to first/last-mile mobility and delivery.
   • government had released an Automotive Mission Plan 2026. Done right, a $200 billion industry with exports of $50 billion by 2026 is not out of reach.
6. suggestions:
   
   • need to enhance local value addition and make large investments in capacities
   • Indian products need to be globally competitive in cost, quality, and technology.
   • India needs to sign bilateral treaties to get favourable tariff regimes for auto exports.
   • government needs to take a hard look at rationalising the extremely high GST rates on automobiles in a phase-wise manner and be pragmatic about introducing new regulations.

Question 49

IPO Grey market?

Answer 49

an IPO grey market is an unofficial market where IPO shares or applications are bought and sold before they become available for trading on the stock market.

It is also termed a parallel market or an over-the-counter market.

Since it’s unofficial, inevitably, there are no regulations that govern it. The SEBI, stock exchanges, and brokers have no part to play in it. These transactions are undertaken in cash on a one-on-one basis.

Question 50

Kostak rate?

Answer 50

It relates to an IPO application. So, the rate at which an investor buys an IPO application before the listing is termed the Kostak rate.

Question 51

India’s GDP growth (and other stats) for FY 2020-21?

Answer 51

Acc to NSO’s National income estimatesin released in June 2021,

1. GDP shrank by 7.3%, marginally better than expected 8% contraction projected earlier. In previous FY India’s GDP grew @4.1%
2. GVA sharnk 6.2% in FY 2020 compared to 4% rise last FY
3. Only two sectors bucked the trend of negative GVA growth — agriculture, forestry and fishing, which rose 3.6%, and electricity, gas, water supply and other utility services (up 1.9%).
4. this is the bleakest performance on record for the economy
5. The Q4 of 2020-21 helped moderate the damage, with a higher-than-expected growth of 1.6% in GDP. This marked the second quarter of positive growth after the country entered a technical recession in the first half of the year. GDP growth in the four qrtrs in FY20 were -24.4%, -7.4%, +0.5% and +1.6%
6. GVA from trade, hotels, transport, communication and broadcasting-related services recorded the sharpest decline of 18.2%, followed by construction (-8.6%), mining and quarrying (-8.5%) and manufacturing (-7.2%).
7. Studies show that more than 200 million Indians are expected to fall into poverty as a result of shutdowns and healthcare costs. The S&P has now downgraded Indian GDP growth to 9.8%.
8. India recorded a fiscal deficit of 9.3% of GDP in 2020-21, 0.2% lower than the revised estimate of 9.5% of GDP, acc to CGA. The government has set a target to reduce the fiscal deficit this year to 6.8% of GDP.

Question 52

Digital tax imposed by India?

Answer 52

1. India was the one of the first countries to introduce a 6 per cent equalisation levy in 2016, but the levy was restricted to online advertisement services. equalisation levy was imposed “to give level playing field between Indian businesses who pay tax in India and foreign e-commerce companies who do business in India but do not pay any income tax here.
2. However, India introduced the digital tax (2%) in April 2020 for foreign companies selling goods and services online to customers in India i.e. non resident e-commerce players, and showing annual revenues more than INR 20 million.
3. scope was further widened in the Finance Act 2021-22 to cover e-commerce supply or service when any activity takes place online.
4. Since May 2021, this also includes any entity that systematically and continuously does business with more than 3 lakh users in India.
5. Offshore e-commerce firms that sell through an Indian arm will not have to pay i.e. if the goods and services sold on a foreign e-commerce platform are owned or provided by an Indian resident or Indian permanent establishment, they will not be subject to the two percent equalization levy.

Question 53

Examples of other countries that imply digital tax on digital services?

Answer 53

• France imposes a three percent digital services tax.
• In the ASEAN region, Singapore, Indonesia, and Malaysia impose a digital service tax with Thailand announcing forthcoming plans to tax its foreign digital service providers.
• Negotiations are underway at the Organisation for Economic Cooperation and Development (OECD) involving 140 countries to overhaul international tax rules given the fast growth of internet economies.

Question 54

Arguments against digital tax levied by India?

Answer 54

1. USTR) says that this tax is discriminatory because
   
   • DST discriminates against US digital businesses because it specifically excludes from its ambit domestic (Indian) digital businesses.
   • it does not extend to identical services provided by non-digital service providers.
2. Eventually the tax may become a burden for Digital Consumers.
3. It could invite retaliatory tariffs (such as the latest one), as similar tariffs were imposed by the US on France.
4. can also lead to double taxation

Question 55

liable entity for digital tax when:

1. service provider is outside India and receiver is inside INdia and transaction is B2B
2. service provider is inside India and receiver is outside INdia and transaction is B2B
3. service provider is outside India and receiver is inside INdia and transaction is B2C
4. service provider is inside India and receiver is outside INdia and transaction is B2C

Answer 55

1. service receiver
2. export of service exempt from service tax
3. service provider
4. exempt

Question 56

Challenge of good corporate governance?

Answer 56

To balance seemingly contradictory goals of : short term financial performance for the intersts of the share-holders with that of society when the incentive structure is disproportionately skewedin favour of the former

Question 57

Benefits of good corporate governance?

Answer 57

1) “reputation Institute”, an NGO estimates that intangibles like reputation make up approx 81% of a company’s value and a strong reputation yields 2.5X better stock market performance 2) Well governed companies hv easier access to capital, pay lower interest rates, scure better credit terms and attract the best of talents 3) Prohibitive examples: a) Whistleblower allegation of breach in disclosure of fin data by Infosys led to its mkt cap drop by abt 50000cr in one trading session b) IPO of Saudi govt owned Aramco, originally valued at 2Tn $, the market valuation from testing came out to 1-1.2 Tn$ mainly because of perception of opacity in saudi governance str.

Question 58

Good corporate governance: suggestions?

Answer 58

1) A processneeds to be engendered to create a balanced incentive str that motivates generation of fin returns through societal welfare than the current str that views one as trade off for another 2)Get the 4 stakeholders i.e. Management (custodian of operational performance and driven by short term fin needs), IDs (represents minority stakeholders), regulator (to frame rules and procedures of governance) and Govt (law maker and agency for bringing corporates into the developmental net ) on the same page and hv comparable powers to checkand balance each other into coolab and coop. Currently there isn’t a platform that brings all of them formally together.

Question 59

Contri of C, S and I in gross GST?

Answer 59

CGST (~20%) SGST (25%) IGST (50%) incl on imports (20%) cess (6%)

Question 60

GST provision regarding compensation to states? can the deadline be extended?

Answer 60

While States would receive the SGST (State GST) component of the GST, and a share of the IGST (integrated GST), it was agreed that revenue shortfalls arising from the transition to the new indirect taxes regime would be made good from a pooled GST Compensation Fund for a period of five years that is currently set to end in June 2022.

as per GST act, states hv been guaranteed compensation in the event of their revenue growth falling below 14% (base 2015-16) for a five yr period ending in 2022

Deadline extesion, as demanded by many states like TN, WB, RJ and CHH, in view of COVID impct, can be done by amendment only. The deadline for GST compensation was set in the original legislation and so in order to extend it, the GST Council must first recommend it and the Union government must then move an amendment to the GST law allowing for a new date beyond the June 2022 deadline at which the GST compensation scheme will come to a close.

Question 61

GST provision if collections from compensation cess are unable to fully meet the shortfall in states’ GST revenue for a particular yr? States’ view?

Answer 61

Centre believes that since the law says compensation has to be paid out of the fund, the compensation can be deferred till there is enough money in the fund states claim the Constitution amendment guarantees them compensation for the first five years, irrespective of whether there is money in the compensation fund or not

Question 62

Compensation Cess in GST: what is it? how is it calculated? approx annual size? paying frequency?

Answer 62

compensation cess is levied on goods that come under 28 per cent GST slab, on so-called ‘demerit’ goods.
● The items are pan masala, cigarettes and tobacco products, aerated water, caffeinated beverages, coal and certain passenger motor vehicles.

deficit is calculated assuming that states GST revenues grow at 14 per cent every year beginning 2015-16

95,000 crore

Every two months

Question 63

Bharat Bond ETF: what?

Answer 63

India’s first corporate bond exchange traded fund, comprising debt of state-run companies

Question 64

Bharat Bond ETF: key features?

Answer 64

1) allow retail investors to buy government debt with as low as ₹1,000, thus deepening bond mkt 2)will provide tax efficiency as compared to bonds, as coupons (interest) from the bonds are taxed depending on the investor’s tax slab. (thus better alternative to FD) 3) will have a fixed maturity of three and ten years and will trade on the stock exchanges (thus high liquidity) 4) will track an underlying index on risk replication basis constructed by an independent index provider, National Stock Exchange

Question 65

Transactional value of digital payments in India: 2019? 2023? rate of growth?

Answer 65

64. 8 Bn $
65. 2 Bn $
66. 2%

Question 66

Bonded area scheme:what is it? by?

Answer 66

1) When the raw materials or capital goods are imported into the bonded area, the import duty on them is deferred. 2) If these imported inputs are utilised for exports, the deferred duty is exempted. 3) Only when the finished goods are cleared to the domestic market, import duty is to be paid on the imported raw materials used in the production. 4) Import duty on capital goods is to be paid if and when the capital goods are cleared to the domestic market. 5) for mfg and other processing ind like e-commerce too Central Board of indirect taxes

Question 67

T/F: SEBI recently launched independent Directors Databank.

Answer 67

F Min of Corporate Affairs

Question 68

T/F: independent Directors Databank is developed and maintained by IICA.

Answer 68

T by Indian Indstitute of corporate Affairs under MCA

Question 69

T/F: Companies Act, 2013 has mandated all listed public companies to have at least 50% of the total Directors to be independent.

Answer 69

F 1/3rd

Question 70

Fugitive Economic Offender: 1. Defn? 2. procedure?

Answer 70

1. can be named an offender under the law if there is an arrest warrant against him or her for involvement in economic offences involving at least Rs. 100 crore or more and has fled from India to escape legal action. 2. inv agencies hv to file application in a special court under PMLA; person has to surrender within 6 weeks; proceedings will be terminated if he appears, otherwise declared FEO; can challenge proclamation in HC within 30days

Question 71

Schedule bank?

Answer 71

• Scheduled Banks in India refer to those banks which have been included in the Second Schedule of Reserve Bank of India Act, 1934.
• Every Scheduled bank enjoys two types of principal facilities:
  
  • It becomes eligible for debts/loans at the bank rate from the RBI; and,
  • it automatically acquires the membership of clearing house.

Question 72

Payments bank

Answer 72

1. main objective: to ensure the financial inclusion by providing payments/remittance services to migrant labour workforce, opening up small savings accounts of small business holders, low income households, workers of the unorganised sector.
2. can accept deposit bt upto a limit (2L)
3. can issue ATM/Debit card bt NOT CREDIT CARD ; can also provide mobile and internet banking
4. can open both savings and current acct
5. no loan services; though can extend 3rd party loans as BCs
6. cannot accept deposits frm NRIs/ cross-border remittances
7. 3rd party non-risk sharing simple financial products like mutual fund units and insurance products
8. can fn as BC for other banks

Question 73

SFB?

Answer 73

1. objectives: to further financial inclusion by (1) the provision of savings vehicles (2) supply of credit to small business units; small and marginal farmers; micro and small industries; and other unorganised sector entities 2. no restriction in the area of op 3. can take small deposits and disburse loans (nt big loans). 4. can Distribute mutual funds, insurance products and other simple third-party financial products. 5. can issue ATM/debit cards/ credit cards

Question 74

restrictions on Payment banks?

Answer 74

1. will have to deposit the amount in the form of Cash Reserve Ratio (CRR) with RBI like other commercial banks do.
2. SLR: min 75% of its demand deposits in govt treasury/securities bills with maturity up to one year and hold maximum 25 %in current and fixed deposits with other commercial banks for operational purposes.
3. must use the word “Payments Bank” in their names
4. SINCE NO LENDING => NO PSL

Question 75

restrictions on SFB?

Answer 75

1. SFBs have to maintain Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) as per RBI norms. 2. Lend 75% of their total adjusted net bank credit to priority sector. 3. Minimum 50% of loans should be up to 25 lakhs 4. needs to open at least 25% of its banking outlets in unbanked rural centres.

Question 76

setting up Payments bank: who can promote?

Answer 76

1. Existing non-bank Pre-paid Payment Instrument (PPI) issuers 2. telecom companies 3. NBFCs 4. BCs 5. corporates 6. real sector cooperatives that are owned and controlled by residents 7. PSEs

Question 77

min paid up capital: 1. for PB? 2. SFB?

Answer 77

1. 100cr 2. 200cr (raised frm 100cr)

Question 78

setting up SFB: who can promote?

Answer 78

1. individuals/professionals with 10 yrs experience in Finance 2. NBFCs 3. MFI 4. Local Area Banks

Question 79

on tap licensing of pvt sector SFBs: RBI guidelines?

Answer 79

1. PBs can apply for conversion into SFBs after 5yrs of op 2. Promoter of a PB can set up a SFB, such that both banks come under non-operating Fin Holding company (NOFHC) str 3. min paid up capital requirement forSFBs raised to 200cr 4. SFBs shud be listed within 3 yrs of reaching a net worth of 500cr. 5. They will be given scheduled bank status immediately upon commencement of operations, and will have general permission to open banking outlets 6. promoter should hold a minimum of 40% of the paid-up voting equity capital for five years; and if it is more than 40%, it needs to be brought down to 40% (in 5 yrs), 30% (in10 yrs) and 15% (in 15 yrs) 7. Primary UCBs can also convert to SFBs , provided they comply with the on-tap licencing guidelines

Question 80

T/F: payment banks and SFBs are eligible to conduct govt agency business.

Answer 80

T

allowed since Dec2021; It will be subject to the condition that the concerned bank is not under the Prompt Corrective Action (PCA) framework or moratorium.

Implications:
● The Bank can now participate in government and other large corporations issued Request for Proposals (RFP), primary auctions, fixed-rate and variable rate repos, and reverse repos, along with participation in Marginal Standing Facility.
● Also, the bank would now also be eligible to partner in government-run financial inclusion schemes.

Question 81

PLFS: about?

Answer 81

PLFS is India’s first computer-based survey which gives estimates of key employment and unemployment indicators like the labour force participation rate, worker population ratio, proportion unemployed and unemployment rate in

• rural households annually and
• on a quarterly basis for the urban households.

PLFS also gives the distribution of educated and unemployed people, which in turn can be used as a basis for skilling

survey was launched by NSSO in 2017 and the first annual report was released (July 2017-June 2018), covering both rural and urban areas, in May 2019.

Question 82

PLFS: findings fr 2017-18?

Answer 82

1. According to Periodic Labour Force Survey (PLFS) 2017-18, 6.1% (45 year high) of India’s labour force, and 17.8% of young people (15-29 years) in the labour force are unemployed
2. proportion of the workforce engaged in regular wage/salaried jobs increased by 5 percentage points between 2011-12 (when the last NSSO employment unemployment survey was conducted) and 2017-18.
3. this increase was partly because of the denominator effect (the overall workforce declined by 4 percentage points
4. As a share of the population, regular workers increased only by one percentage point to 8% over the same period.
5. India still lags far behind its South Asian neighbours and developing economies such as China (53.1%), Brazil (67.7%) and South Africa (84.8%) in the share of salaried or regular jobs.
6. While median daily earnings were higher for men and women in regular jobs, as compared to self-employment and casual work, not all salaried jobs guarantee high pays as around 45% of salaried workers — the best-paid workers in India — earned less than ₹10,000 per month, and only about 4% of them earned more than ₹50,000 per month in 2017-18.
7. Overall, 72% of regular workers earned below the minimum monthly salary of ₹18,000 prescribed by the 7th Pay Commission.
8. wages and earnings were higher in urban areas than in rural areas, and for men than for women.
9. About 15% of regular workers (21% fr women regular workers category) were engaged in elementary occupations such as building caretakers, garbage collectors and manual workers.
10. The median earnings of these workers was only about one-fourth of the top-earning occupational group (legislators, senior officials and managers).
11. About 71% of the regular workers in the non-agricultural sector did not have a written job contract in 2017-18. proportion without a job contract increased for both men and women regular workers between 2011-12 and 2017-18. So did the proportion of workers who were not eligible for paid leave

Question 83

unemployment rate trend acc to CMIE?

Answer 83

According to monthly data from the Centre for Monitoring Indian Economy, unemployment rate in India shot up significantly from 7.87% in June 2019 to 23.48% in May 2020.

Question 84

PLFS: findings 2018-19?

Answer 84

1. India’s unemployment rate fell between July 2018 and June 2019 to 5.8% from 6.1% (45 yr high) during the same period of 2017-18.
   
   • The dip in unemployment rates came across all categories, though women and rural workers showed the most improvement.
   • Women’s unemploymet fell frm 5.7% to 5.2%, while male unemployment fell frm 6.2% to 6.1%.
   • Urban unemploymnt still high at 7.7% in 2018-19, a marginal drop frm 7.8% in 2017-18
   • rural unemployment fell frm 5.3% to 5%
2. the labour force participation rate rose marginally to 37.5% from 36.9%.
   
   • Female participation rate improved in both urban and rural India during the period under review, going up to 18.6% in 2018-19 from 17.5% the year before.
3. The worker population ratio (number of persons employed per thousand persons) also increased, to 35.3% as against 34.7% in the 2017-18.

Question 85

“We need to face the challenge of job creation and up-skilling of youth for the labour market to ensure that India’s demographic dividend does not become a demographic disaster.”?

Answer 85

Threat of demographic disaster:

• unprecedented UR even before the pandemic hit; further exacerbated by pandemic
• unemployment rate has risen steeply in the last few years, from about 15.66 per cent in 2016-17 to 28.26 per cent in 2020-21 (it was 32.03 per cent in August 2021)
• Even getting a degree is no guarantee for a job — 9 million of 55 million graduate degree holders were unemployed in 2019.
• We seem to be wasting our nation’s demographic potential — our youth stay unemployed for longer, desperately awaiting a chance to crack a government job. And if they don’t, then the only option is to get an informal job as a labourer.
• India needs to create 90 million non-farm jobs between 2023 and 2030, to ensure our demographic surplus is absorbed
• the hopes of quick fixes are not panning out
  
  • hope on startups: as of July 2021, there were more than 53,000 recognised start-ups in India, which had created about 5.7 lakh jobs (not counting the jobs they may have destroyed by optimising value-chains).
  • gig economy: lack of formalisation; plus hindered by pandemic
  • old tap of public sector jobs has gone dry — there were 11.3 lakh employees in Central Public Sector Enterprises as of March 31, 2017; by 2019, this had dipped down to 10.3 lakh.
• many have simply stopped searching for jobs; the labour force participation rate has dropped to 40-42 per cent from 47.26 per cent in August 2016 — 60 per cent of our workforce is simply not looking for work.
• demand for state-assured labour jobs under the National Employment Guarantee Scheme has gone up, with 85.6 million individuals participating between April and October 2021, significantly higher than between 2017 and 2019.
• In 2021, Shivpuri, in Madhya Pradesh, was witness to scenes of pandemonium, as about 8,000 citizens waited in line for a chance to become one of the 20 peons being recruited for the district court. In Gwalior, 15 openings for various junior roles (from a driver to a watchman) saw over 11,000 unemployed young men flock to collect forms. Often, the same person (educated to an MBA or PhD) would be applying for the role of a peon, while preparing for a judge’s exam.

Suggestions

• rejuvenate the state by dramatically expanding basic public services: As of 2019, before the pandemic, there were about 2,00,000 million health worker vacancies, 1 million teacher vacancies and 1.17 million anganwadi worker positions — totalling over 2.5 million vacancies. Additionally, there is a clear need to expand capacity in healthcare by 2,90,000-4,20,000 health workers. By regularising the contractual and seasonal workers in these sectors, can create over 5.2 Mn jobs
• At the same time, we need to help up-skill the existing labour force, particularly in urban India. A national urban employment guarantee scheme, with a focus on creating public assets, would help improve skill sets, provide certification and give income support. Such a scheme could cover 20 million urban casual workers for 100 days, at a wage rate of Rs 300 per day, with an overall cost of Rs 1 lakh crore annually. This will also help in urban rejuvenation.
• Another way out could be to foster “green jobs” — including those traditionally under the remit of public services. It is estimated that a municipal council-based town could create about 650 “green jobs” in such categories, while a city municipal council could lead to the creation of 1,875 jobs and a full-fledged municipal corporation could lead to 9,085 jobs. About 150-2,500 of these jobs in the latter area would be generated in the renewables sector, while an additional 300-2,000 jobs would be in waste management, 80-1,700 in urban farming and 300-2,000 jobs in waste management.

Question 86

Moodys’ downgrading INdia’s rating?

Answer 86

1. Moody’s has downgraded the GoI’s foreign-currency and local-currency long-term issuer ratings to “Baa3” from “Baa2”. It stated that the outlook remained “negative”.
2. This reduces India to the lowest investment grade of ratings and brings Moody’s ratings for the country in line with the other two main rating agencies in the world — Standard & Poor’s (S&P) and Fitch.
3. When India’s sovereign rating is downgraded, it becomes costlier for the Indian government as well as all Indian companies to raise funds because now the world sees such debt as a riskier proposition.
4. reasons for downgrade:
   
   • Weak implementation of economic reforms since 2017.
   • Relatively low economic growth over a sustained period.
   • A significant deterioration in the fiscal position of governments (central and state).
   • And the rising stress in India’s financial sector.
5. a “negative” implies India could be rated down further. The negative outlook reflects dominant, mutually-reinforcing, downside risks from deeper stresses in the economy and financial system that could lead to a more severe and prolonged erosion in fiscal strength than Moody’s currently projects. Moody’s has highlighted persistent structural challenges to fast economic growth such as “weak infrastructure, rigidities in labor, land and product markets, and rising financial sector risks”.
6. Moody’s outlook on economic growth, jobs and per capita income: expects India’s real GDP to contract by 4.0% in the current FY. Thereafter it expects a sharp recovery in 2021-22. But over the longer term, it states “growth rates are likely to be materially lower than in the past”
7. Moody’s observed that since the 2017 upgrade to “Baa2 with a stable outlook” (on the back of key reforms), relatively weak implementation of reforms has not rsulted in material credit improvements indicating limited policy effectiveness.

Question 87

Long term Credit rating scales?

Answer 87

1. Prime: Aaa (Moody’s) and AAA (S&P and Fitch)
2. High grade: Aa(1,2,3) and AA(+, , -)
3. Upper medium grade: A (1,2,3) and A (+, ,-)
4. Lower mEdium grade: Baa (1,2,3) and BBB (+, ,-)

• India recently downgraded frm Baa2 to Baa3 by Moody’s and is already at BBB- fr the other two

Hereon, bonds are called Junk

Non-investment grade speculative

Highly speculative

Substantial risk

Extremely speculative

Default imminent with little prospect fr recovery

Default

Question 88

Committee set up on social stock exchanges: about?

Answer 88

1. by SEBI
2. under Ishaat Hussain
3. in Sept 2019
4. to suggest possible structures and regulations for creating SSE to facilitate listing and fund-raising by social enterprises as well as voluntary organisations.
5. idea of a social stock exchange (SSE) for listing of social enterprise and voluntary organisations was mooted by FM in Budget 2019-20

Question 89

Committee set up on social stock exchanges: key recommendations?

Answer 89

1. Allow direct listing of non-profit organisations through the issuance of bonds and a range of funding mechanisms.
2. Funding mechanisms suggested include some of the existing mechanisms such as Social Venture Funds (SVFs) under the Alternative Investment Funds.
3. A new minimum reporting standard has also been proposed for organisations which would raise funds under social stock exchanges (SSE).
4. Profit social enterprises can also list on SSE with enhanced reporting requirement. To encourage, giving culture some tax incentives have also been suggested.
5. SSE can be housed within the existing stock exchange such as the BSE and/or NSE. This will help the SSE leverage the existing infrastructure and client relationships of the exchanges to onboard investors, donors, and social enterprises (for-profit and non-profit).

Question 90

What is social capital?

Answer 90

1. Social capital is defined by the OECD as “networks together with shared norms, values and understandings that facilitate co-operation within or among groups”
2. it can be divided into three main categories:
   
   1. Bonds: Links to people based on a sense of common identity (“people like us”) – such as family, close friends and people who share our culture or ethnicity.
   2. Bridges: Links that stretch beyond a shared sense of identity, for example to distant friends, colleagues and associates.
   3. Linkages: Links to people or groups further up or lower down the social ladder
3. term has been in use for almost a century while the ideas behind it go back further still. “Social capital” may first have appeared in a book published in 1916 by Lyda Hanifan in the United States that discussed how neighbours could work together to oversee schools.
4. Recently, the term became in vogue after Robert Putnam and his work “Bowling alone: The collapse and revival of American community”

Question 91

Patient capital?

Answer 91

1. another name for long term capital. With patient capital, the investor is willing to make a financial investment in a business with no expectation of turning a quick profit. Instead, the investor is willing to forgo an immediate return in anticipation of more substantial returns down the road.
2. it has gained new life with the rise in environmentally and socially responsible enterprises. In these cases it is characterized by
   
   • Willingness to forgo maximum financial returns for social impact, and an unwillingness to sacrifice the interests of the end customer for the sake of shareholders
   • Greater tolerance for risk than traditional investment capital
   • Longer time horizons for return of capital
   • Intensive support of management as they grow their enterprise
3. Patient capital is not a grant, it is an investment intended to return its principal plus (often below market-rate) interest. It does not seek to maximize financial returns to investors; it seeks to maximize social impact and to catalyze the creation of markets to combat poverty.

Question 92

What is a social enterprise?

Answer 92

A social enterprise is a revenue-generating business. Its primary objective is to achieve a social objective, for example, providing healthcare or clean energy.

This in no way means that a social enterprise can’t be highly profitable. In fact, most social enterprises look and operate like traditional businesses.

The only catch is that the profit these entities generate is not necessarily used for payouts to stakeholders, but reinvested into their social programmes.

Question 93

Global examples of social stock exchanges?

Answer 93

1. UK: The Social Stock Exchange in London functions more as a directory connecting social enterprises and potential investors.
2. Kenya: The Kenya Social Investment Exchange, connects vetted social enterprises with impact investors, both foreign and domestic.
3. Canada: Backed by the Ontario government, the SVX is an online platform that allows investments in Canadian companies and funds that have “a positive social or environmental impact”.
4. Singapore: The Impact Investment Exchange runs a social stock exchange in partnership with the Stock Exchange of Mauritius, which is open to limited accredited investors who want to invest.

Question 94

Shapes of recovery: Z?

Answer 94

1. Z-Shaped recovery:
   
   1. most-optimistic scenario in which the economy quickly rises like a phoenix after a crash.
   2. It more than makes up for lost ground (think revenge-buying after the lockdowns are lifted) before settling back to the normal trend-line, thus forming a Z-shaped chart.

Question 95

Shapes of recovery: V?

Answer 95

In V-shaped recovery the economy quickly recoups lost ground and gets back to the normal growth trend-line.

CLear example is the US recession in mid-1950s.

Question 96

Shapes of recovery: U?

Answer 96

A U-shaped recovery is a scenario in which the economy, after falling, struggles and muddles around a low growth rate for some time, before rising gradually to usual levels.

eg. US’s downturn in 1973-75

Question 97

Shapes of Recovery: W?

Answer 97

A W-shaped recovery, aka ‘double-dip’, is a dangerous creature — growth falls and rises, but falls again before recovering yet again, thus forming a W-like chart.

eg. US in 1980-82, wherein economy dipped in 1980H1, recovered in 1981H2 but fell again in 1982H1 and then recovered

Question 98

Shapes of Recovery: L?

Answer 98

The L-shaped recovery is the worst-case scenario, in which growth after falling, stagnates at low levels and does not recover for a long, long time.

eg. Japanese economy in 1990s, when it stagnated for a ‘lost decade’ after an asset bubble burst

Question 99

Shapes of Recovery: J?

Answer 99

The J-shaped recovery is a somewhat unrealistic scenario, in which growth rises sharply from the lows much higher than the trend-line and stays there.

Question 100

Shapes of Recovery: square root shape?

Answer 100

this basically explains that while tehre could be rebound from the bottom, the growth slows and settles a step down from before the crash.

Question 101

Shapes of recovery? Deciding factors ?

Answer 101

• Z
• V
• U
• W
• L
• J
• Swoosh
• Inverted square root

Factors responsible: shape of economic recovery is determined by both the speed and direction of GDP prints. This depends on multiple factors including fiscal and monetary measures, consumer incomes and sentiment.

Question 102

India’s forex reserves?

Answer 102

In May 2020, it touched an all time high of 493.5 Bn $

The level of foreign exchange reserves has steadily increased by 8,400 per cent from $5.8 billion as of March 1991 to the current level.

India’s Foreign Exchange Reserves equaled 25.9 Months of Import in Apr 2020

Question 103

Why are forex reserves rising despite the slowdown in the economy?

Answer 103

1. Rise in investment in foreign portfolio investors in Indian stocks and foreign direct investments (FDIs).
2. Fall in crude oil prices has brought down the oil import bill, saving the precious foreign exchange.
3. Overseas remittances and foreign travels have fallen steeply – down 61 per cent in April from $12.87 billion.

Question 104

significance of rising forex reserves?

Answer 104

• rising forex reserves give a lot of comfort to the government and the Reserve Bank of India in managing India’s external and internal financial issues at a time when the economic growth is set to contract by 1.5 per cent in 2020-21.
• It’s a big cushion in the event of any crisis on the economic front and enough to cover the import bill of the country for a year.
• The rising reserves have also helped the rupee to strengthen against the dollar.
• Reserves will provide a level of confidence to markets that a country can meet its external obligations, demonstrate the backing of domestic currency by external assets, assist the government in meeting its foreign exchange needs and external debt obligations and maintain a reserve for national disasters or emergencies.

Question 105

Where are India’s forex reserves kept?

Answer 105

1. The RBI Act, 1934 provides the overarching legal framework for deployment of reserves in different foreign currency assets and gold within the broad parameters of currencies, instruments, issuers and counterparties.
2. As much as 64 per cent of the foreign currency reserves is held in the securities like Treasury bills of foreign countries, mainly the US. 28 per cent is deposited in foreign central banks. 7.4 per cent is also deposited in commercial banks abroad.
3. India also held 653.01 tonnes of gold as of March 2020, with 360.71 tonnes being held overseas in safe custody with the Bank of England and the Bank for International Settlements, while the remaining gold is held domestically.

Question 106

What is rights issue?

Answer 106

1. It is an offering of shares made to existing shareholders in proportion to their existing shareholding.
2. Companies often offer shares in a rights issue at a discount on the market price.
3. Rights issues are used by companies seeking to raise capital without increasing debt.
4. Shareholders are not obliged to purchase shares offered in a rights issue.
5. For a rights issue, there is no requirement of shareholders’ meeting and an approval from the board of directors is sufficient and adequate. Therefore, the turnaround time for raising this capital is short that makes it suitable fr COVID times
6. recently,

• Sebi reduced the eligibility requirement of average market capitalisation of public shareholding from Rs 250 crore to Rs 100 crore for a fast track rights issuance.
• It also reduced the minimum subscription requirement from 90 per cent to 75 per cent of the issue size.
• Also, listed entities raising funds upto Rs 25 crores (erstwhile limit was Rs 10 crores) through a rights issue are now not required to file draft offer document with SEBI.
• Many companies including Reliance Industries Limited, Mahindra finance, Tata Power plan to raise funds (aggregating to over Rs 10,000 crore) through rights issue amidst the Covid-19 pandemic.

Question 107

draft Framework for ‘Sale of Loan Exposures’?

Answer 107

1. by RBI
2. aimed at building a robust secondary market for bank loans that could ensure proper price discovery and can be used as an indicator for impending stress.
3. These guidelines will be applicable to commercial banks, all financial institutions, non-banking finance companies and small finance banks.
4. The directions will be applicable to all loan sales, including sale of loans to special purpose entities for the purpose of securitisation.
5. Highlights of the draft:

• Standard assets would be allowed to be sold by lenders through assignment, novation or a loan participation contract (either funded participation or risk participation).
• Stressed assets would be allowed to be sold only through assignment or novation only. They may be sold to any entity that is permitted to take on loan exposures by its statutory or regulatory framework.
• The draft lays down norms for sale of NPAs to Asset Reconstruction Companies (ARCs) also buy back of NPAs in case the ARCs manage to turn them into standard assets.
• The draft also proposes to do away with the requirement of Minimum Retention Requirement (MRR) for sale of loans by lenders.

Question 108

border adjustment tax (BAT)?

Answer 108

1. BAT is a duty that is proposed to be imposed on imported goods in addition to the customs levy that gets charged at the port of entry.
2. BAT is a fiscal measure that imposes a charge on goods or services in accordance with the destination principle of taxation.
3. Generally, BAT seeks to promote “equal conditions of competition” for foreign and domestic companies supplying products or services within a taxing jurisdiction.
4. NEED: The Indian industry has been complaining to the government about domestic taxes like electricity duty, duties on fuel, clean energy cess, mandi tax, royalties, biodiversity fees that get charged on domestically produced goods. But many imported goods do not get loaded with such levies in their respective country of origin and this gives such products price advantage in the Indian market.

Question 109

Amendments to IBC in the wake of Corona Virus?

Answer 109

1. GoI promulgated an ordinance to amend the Insolvency and Bankruptcy Code (IBC).
2. ordinance suspends sections 7, 9 and 10 on grounds that:
   
   • the pandemic has created uncertainty and stress for business for reasons beyond their control
   • the nationwide lockdown has added to disruption of normal business operations
   • in such circumstances it would be difficult to find adequate number of resolution applicants for a distressed/defaulting business
3. Section 7, 9 and 10 of the Insolvency and Bankruptcy Code, 2016 allow for insolvency filings by financial creditors, operational creditors and the corporate debtor itself.
4. fresh insolvency proceedings will not be initiated for at least six months starting from March 25 amid the COVID-19 pandemic. Default on repayments from March 25, the day when the nationwide lockdown began to curb COVID-19 infections, would not be considered for initiating insolvency the proceedings for at least six months.
5. In March this year, the government raised the threshold for invoking insolvency under the IBC to Rs 1 crore from Rs 1 lakh with a view to prevent triggering of such proceedings against small and medium enterprises that are facing currently the heat of coronavirus pandemic.

Question 110

FDI inflows in 2020-21? FII in 2020-21?

Answer 110

FDI: India attracted highest ever total FDI inflow of US$ 82 Bn in 2020-21, 10% higher than in 2019-20. This is despite global FDI inflows in 2020 declining by 42% over previous yr and inflows to developing countries faaling by 12%.

FII: 69-fold increase in the participation by FIIs, totalling U.S.$38 billion. This was the second highest level of FIIs’ involvement in India, after they invested U.S.$42 billion in 2014-15.

Question 111

FDI in 2020-21: a cause for concern or joy?

Answer 111

In absolute terms India has seen higher than ever before increase in FDI despite a global slowdown in FDI. But,

1. net of repatriation/disinvestment, FDI inflows had declined by 2.4% in 2020-21, as compared to the previous year. This was due to a 47.2% increase in repatriation/disinvestment, which had reached a record level of U.S.$27.0 Bn
2. RBI: “Even though FDI inflows were stronger in 2020-21, their distribution was highly skewed. The coefficient of variation of FDI flows was larger during the pandemic period, implying concentration in distribution. The lower incidence of transactions points to the underlying weakness in FDI inflows during the year.” eg. 54% of total equity inflows was in Jio platform by companies like Facebook, Google etc.
3. Most of this FDI is used for acquisition, thereby not creating any new asset in the country
4. contrary to the Government’s expectations of a larger magnitude of inflows into the manufacturing sector, this sector received just 17.4% of the total inflows during 2020-21.

Question 112

T/F: Merchandise export reached an all time quarterly low in Q1 of FY2021-22.

Answer 112

F

india’s merchandise exports reached an all-time quarterly high of $95 billion in the three months ended June

Question 113

india’s merchandise exports reached an all-time quarterly high: more info?

Answer 113

1. reached 95Bn$ in Q1 of FY 2021-22
2. Even discounting the fact that the year-earlier period provided an anomalous base as the economy had just begun reopening from a protracted nationwide lockdown, growth in shipments was still a robust 30% when compared with the pre-pandemic June of 2019.
3. Mian contributors for this surge: non-rice cereals, which quadrupled; iron ore, which more than doubled; and organic and inorganic chemicals that rose 62%. Engineering goods exports had the biggest jump in dollar terms
4. however, data reveals that a significant driver of the export growth has been the runaway rally in commodity prices that have benefited from the accelerated reopening of major economies, as well as an increased appetite for raw materials and grains in China
5. the crucial job-generating export sectors including readymade garments, leather and leather products and tea all posted double-digit declines from June 2019 levels, reflecting the deeper structural problems

Question 114

role of cess levies in high fuel price and retail inflation?

Answer 114

1. As of June 2021, taxes accounted for close to 58% of the price of petrol in Delhi.
2. Between 2014 and 2021, Centre’s share of taxes on the retail price of petrol rose 216%, even though the base price of the fuel declined 24%.
3. current high fuel prices reflect the higher cesses that have been imposed by the Centre since March 2020 and an increase in VAT rates by more than three-fourths of the SG
4. effect on retail inflation: CPI has been persistently higher than the RBI’s medium-term target of 4% an deven reached 6.3% for May 2021. transport and communication category, which includes the automotive fuels of petrol and diesel and has a weight of 8.59% in the CPI
5. causes
   
   1. developmental expenditure especially in pandemic times
   2. Centre needs ₹20,000 crore in the current financial year to service the interest and principal related to special oil bonds issued to OMCs in the period 2005-2010.

Question 115

Need to reform the present structure of Independent Directors?

Answer 115

1. Despite the growth of culture of independent directors in companies’ Board of Directors, independent directors are appointed just like other directors through shareholder voting by a simple majority, thereby conferring significant power in the hands of significant shareholders to handpick the independents.
2. In case of family-owned companies, it is not uncommon to appoint “friendly” independent directors. As for public sector undertakings, an investigation by the newspaper IE reveals a demonstrable affiliation between independent directors and the ruling political dispensation of the day.
3. SEBI in March 2021, in its ocnsultation paper conceded that even though an independent nomination and remuneration committee of the board screened candidates for independent directorships, the appointment was ultimately dominated by the promoters during shareholder voting.
4. SEBI proposed a “dual approval” system :
   
   1. approval by a majority of all shareholders
   2. the approval of a “majority of the minority”, namely the approval of shareholders other than the promoters.
   3. In case of a failure to satisfy the two-step test, the company would be free to propose the same candidate after a 90-day cooling off period for approval by a special resolution (75 per cent majority) of all shareholders voting.
   4. SEBI recommended the same “dual approval” system for the removal of independent directors as well.
5. SEBI drew inspiration from Israel and the premium-listed segment of the United Kingdom, which confers greater power to minority shareholders in installing or dethroning independent directors.
6. Though SEBI backtracked its own proposal in June 2021

Question 116

8 core sectors of India and their weightage in ‘Index of 8 core ind’?

contri of core sectors in IIP?

‘Index of 8 core ind’: by? period?

Answer 116

• Coal(10%), electricity(weightage 20%), cement(5%),steel(18%), fertiliser(3%), crude oil(9%), natural gas(7%) and refinery products(28%).
• 40%
• CSO;monthly

Question 117

Growth in GST collections?

Answer 117

1) Average GST revenues for April-dec nw stands at >1Lcr, 4.3% higher than 96.7ThousandCr for same period last yr
2) state wiese break up for Gross GST revenue, released for the first time, showed avg growth of ~13% for non-special category states
3) Target of Gross GST revenue for FY 2019-20 is 11.89 Lcr, @avg of 99112cr per month
4) Central: state: IGST: cess= 20: 25:48:8

Question 118

Govt’s falling revenues?

Answer 118

1. Centre’s Gross tax revenues for Apr-Nov of FY19, grew by a mere 0.8% vs 18.3% growth predicted by the budget for the whole FY19
2. On direct tax side, impact of Corporate Tax cut not yet known, Corp tax collections have contracted by 0.9% for Apr-Nov, against a target of 15.4% growth. Personal income tax hv also fared marginally batter
3. Central GST collections (incl IGST half), stands at 3.72Lcr compared to full yr target of 5.26Lcr. That means that in the next 4 months, Centre’s GST collections will need to be 51000cr/month frm current 41000cr/month this Fiscal yr.
4. disinvestment targets: target of 1.05Lcr, collections so far hv been only >17000cr.

Question 119

‘mom-and-pop outlets’ or traditional grocery store/kirana stores: characterestics?

Answer 119

• contry has ~12 mn of them
• viability rests on 3 elements:
  
  • low overheads: pre-dominantly family-run enterprises, nt paying rent on on their own little shopping premises and avoiding tax by dealing in cash
  • maximum space utilisation: highest possible per sq foot sale and less on looks and appeal
  • high inventory turnover and working capital rotation: real business of these stores come frm fast moving SKUs(Stock keeping units) like milk,curd, eggs, bread etc. With these items, even with a 3% margin, annual return worth more than 10 times is achieved on capital investm.
• symbiotic relation with cooperatives like Amul.
• In terms of avg ‘days inventory outstndg’- a measure of hw quickly stocks in its helves turn to cash- is abt 43 for Walmart, while ~5 days for traditional stores.
• Where kirana stores cannot compete is Scale and deep pockets.

Question 120

Estimate of food subsidy in Union Budget?

Answer 120

Budget 2019-20 amde provision for Rs1.84Lcr, bt FCI uncleared dues worth Rs 1.86Lcr.

Question 121

Fetiliser subsidy in budget?

Answer 121

• ~80000cr
• While Urea(N) is subsidised upto 75% of its cost, Phospshatic and Potasic fertilisers are subsidised only upto 25% of their cost.

Question 122

India’s Fiscal deficit: SC Garg?

Answer 122

Former Economic Affairs Secretary S C Garg has stated that the true fiscal deficit for 2018-19 is 4.7% and predicted FD fr 2019-20 at 4.5-5% of GDP.

GoI, instead, maintains that FD is just 3.4% of GDP fr 2018-19 and fr 2019-20, expected FD at 3.3% of GDP

For long, it has been suspected that the official figures hide the true fiscal deficit. That’s because some of the government’s expenditure was funded by the so-called “off-budget” items.

Question 123

What is the acceptable level of fiscal deficit??

Answer 123

1. There is no set universal level of fiscal deficit that is considered good.
2. Typically, for a developing economy, where private enterprises may be weak and governments may be in a better state to invest, fiscal deficit could be higher than in a developed economy.
3. Here, governments also have to invest in both social and physical infrastructure upfront without having adequate avenues for raising revenues.
4. In India, FRBM Act suggests bringing the fiscal deficit down to about 3 percent of the GDP is the ideal target

Question 124

What is off- budget financing?

Answer 124

This refers to expenditure that’s not funded through the budget.

For example;

The government sets up a special purpose vehicle (SPV) to construct a bridge.

The SPV will likely borrow money to build the bridge on the strength of a government guarantee. If it’s not a toll bridge, the SPV will need government support to meet interest obligations.

So, even though the borrowing and spending is outside the budget, it has implications for the budget and for all practical reasons should be included in that document.

Since it’s not, this doesn’t reflect on the fiscal deficit number as well.

cost is borne by the budget through some mechanism or the other. Such financing tends to hide the actual extent of government spending, borrowings and debt and increase the interest burden.

Question 125

HH savings rate?

Answer 125

17.2% of GDP in FY18 down frm 22.5% in FY13

Question 126

rural wage growth rate in last 5 yrs?

Answer 126

~4.5% in last 5 yrs, bt adjusting fro inflation, it has been only 0.6%.

Question 127

NPA decline?

Answer 127

1. gross NP loans of banks improved to 9.1 per cent as of end-September 2019, compared to 11.2 per cent in FY18, says an RBI report.
2. gross NPA ratio of all banks declined in FY19 after rising for seven consecutive years
3. Despite overall fall, MSME bad loans are on the rise.

Question 128

Disinvestment earnings for 2014-19?

Answer 128

~2.79Lcr

Question 129

SFBs: about?

Answer 129

• Differentiated aka niche bank i.e. they serve a specific demographic like
  
  • provision of savings vehicles and
  • supply of credit to small business units; small and marginal farmers; micro and small industries; and other unorganised sector entities, through high technology-low cost operations.
• recommended by NachiketMor committee on financial inclusion.
• SFBs are registered as a public company under the Companies Act, 2013 and comes under Scheduled Bank and is covered by all the acts (like Deposit Guarantee Act, Payment & Settlement Act 2007 etc.) like any other bank
• Allowed activities:
  
  • Take small deposits and disburse small loans
  • can Sell forex to customers.
  • can Sell mutual funds, insurance and pensions.
  • Can convert into a full-fledged bank.

Question 130

SFBs: what they cannot do?

Answer 130

1. cannot lend big
2. Lend to big corporates and groups.
3. Cannot open branches with prior RBI approval for first five years.
4. Other financial activities of the promoter must not mingle with the bank.
5. It cannot set up subsidiaries to undertake non-banking financial services activities.
6. Cannot be a business correspondent of any bank.

Question 131

SFBs: guidelines to be followed/restrictions?

Answer 131

1. Individuals/professions with 10 years of experience in finance, NBFCs, micro finance companies, local area banks are eligible to set up SFBs.
2. Existing Non-Banking Finance Companies (“NBFCs”), Micro Finance Institutions (“MFIs”) and LABs that are owned and controlled by residents can also opt for conversion into SFBs
3. Promoter must contribute minimum 40% equity capital and should be brought down to 30% in 10 years.
4. Minimum paid-up capital would be Rs 100 cr.
5. Capital adequacy ratio should be 15% of risk weighted assets, Tier-I should be 7.5%.
6. Foreign shareholding capped at 74% of paid capital- 49% under automatic route and thereafter ubder govt route, FPIs cannot hold more than 26%. though this may change with change in pvt bank FDI norms
7. Priority sector lending requirement of 75% of total adjusted net bank credit.
8. 50% of loans must be up to Rs 25 lakh.
9. Maximum loan size would be 10% of capital funds to single borrower, 15% to a group.
10. have to maintain CRR and SLR as per RBI norms

Question 132

Which bank recently became first to get RBI’s in principle approval to turn frm Cooperative bank to SFB?

Answer 132

Saharanpur-based Shivalik Mercantile Cooperative Bank

The ‘in-principle’ approval implies that the lender now has 18 months to comply with all conditions required to get the final SFB license from the RBI.

On being satisfied that the applicant has complied with the requisite conditions laid down by it as part of “in-principle” approval, the RBI would consider granting it a licence for the commencement of banking business under Section 22 (1) of the Banking Regulation Act, 1949 as an SFB.

Question 133

SFB vs Payments Banks?

Answer 133

Question 134

Primary Agricultural Cooperative Societies (PACS)?

Answer 134

1. PACS are the bottom-tier of three- tier Cooperative credit structure operating in the country.
2. These are Short Term Cooperative Credit Structure functionoing at grassroots (GP) level
3. These are owned by farmers, rural artisans etc.
4. intended to promote thrift and mutual help and credit to members; implement KCC; marketing of agri produce of member farmers; create awareness among farmers to use modern methods etc.
5. deep reach in rural areas and accessibility to small and marginal farmers
6. PACS has the deepest penetration amongst all the other credit providing institutions. Currently, India has 93,000 PACS — one for every seven villages. IN contrast commercial and RRBs hv just 50000 branches across rural and semi-urban India
7. During 2011-12, PACS lent to 3.09 crore farmers. The comparable numbers for commercial banks and RRBs are 2.55 crore and 82 lakh.
8. During 2011-12, for instance, PACS financed 67 lakh new farmers compared to 21 lakh for commercial banks and 9 lakh by RRBs
9. Bakshi committee (set up by RBI) recommended PACS to be turned to BCs for Central or District Cooperative Banks
10. Issues with PACS:
    
    1. As per Bakshi Committee report, only about 10% of the agricultural loans issued by the PACS were supported through deposits mobilised by PACS and the rest 90% had to be provided by Central Coop banks
    2. PACS of just 3 states- Kerala, KN and TN are doinf well and rest are depending on CCB
    3. PACS’ share in agricultural credit is slipping. It has declined from 50% in the mid nineties to 17% now – with the rest moving to commercial banks and

Question 135

Global reserve currency: what?

Answer 135

A reserve currency (or anchor currency) is a foreign currency that is held in significant quantities by central banks or other monetary authorities as part of their foreign exchange reserves.

The reserve currency can be used in international transactions, international investments and all aspects of the global economy.

It is often considered a hard currency or safe-haven currency.

The main property of a reserve currency country is trust and the main upside is the “exorbitant privilege” of lower real interest rates.

benefits of being a reserve currency: being a reserve currency, demand for the currency increases allowing borrowing at lower rate eg. the world’s need for dollars has allowed the United States government to borrow at lower costs, giving the United States an advantage in excess of $100 billion per year.

Question 136

Global reserve currency: making Indian rupee a global reserve currency: opportunity/factors favouring India’s ambition?

Answer 136

1. a multipolar world (America now accounts for less than 25 per cent of global GDP)
2. need for diversification (central bank reserves in dollars have fallen to 55 per cent from 71 per cent in 1999)
3. new US thinking about indebtedness (in the last 13 years, their debt increased by $20 trillion equivalent to 90 per cent of GDP)
4. central bank credibility (lower-for-longer creates a quantitative easing addiction)
5. demographics (25 per cent of the world’s new workers in the next 10 years will be Indian)
6. UK’s secular decline
7. a global shift of economic gravity to Asia
8. questions on trustworthiness of China
9. Our economic skills have a strong opening balance: India has never defaulted and the 1991 reforms have been accelerated by big reforms like GST, IBC, inflation targeting, education, labour, and agriculture.
10. absence of volatility of INdian rupee in last few yrs

Question 137

Global reserve currency: making Indian rupee a global reserve currency: suggestions?

Answer 137

1. Full Capital account convertibility: as suggested by Tarapore committee in 1997.
2. advocating trading partners to start rupee invoicing
3. raising corporate rupee borrowing offshore and onshore
4. accelerating our CBDC (central bank digital bank currency) plans, and
5. taking our UPI payment technology to the world (the dollar gets heft from global networks like Visa, MasterCard and Swift)

On the domestic policy front

1. raise our tax to GDP ratio,
2. raise the share of direct taxes in total taxes,
3. keep our public debt to GDP ratio under 100 per cent
4. Monetary policy must control inflation while moderating central bank balance sheet size.
5. accompanids with raising productivity, increase formalisation, urbanisation, industrialisation and industrialisation

Question 138

PLFS 2019-20: findings?

OR

“the decline in unemployment rate based on the usual status approach masks a deterioration in the quality of employment and rising underemployment”

Answer 138

1. decline in the unemployment rate from6.1% in 2017-18 (highest in 45 yrs; first PLFS survey) to 5.8 per cent in 2018-19 to 4.8 per cent in 2019-20.
2. They are based on the “usual status” approach wherein the activity status of a person is captured for a reference period of 365 days preceding the date of survey i.e. chronically unemployed. Which means it counts out thse engaged in casual and intermittent works, part time and temporary jobs.
3. In PLFS 2019-20, UR based on weekly status is not only higher than the usual status measure, but has also remained unchanged at 8.8 per cent compared to 2018-19. This reinforces the need for anchoring the policy discourse in India on weekly status measures and not the usual status measures
4. .increased underemployment- the share of self-employment in total employment has increased to 53.5 per cent, up from 52.1 per cent as reported in the previous two PLFS rounds. Self-employed workers comprise three broad categories —
   
   1. own-account workers (those who run their enterprise without hiring any labour);
   2. employers (those who run their enterprise by hiring labour) and
   3. unpaid family workers/helpers in household enterprises.

It is this latter category, considered as poor quality employment, that has witnessed an increase in its share in total employment from 13.3 per cent (2018-19) to 15.9 per cent (2019-20) and contributed to the falling UR.

5. INCREASED INFORMALISATION
   
   1. The share of regular salaried workers, which had been steadily rising in India until the PLFS 2018-19 is now showing a decline. Even amongst regular salaried workers, those who are not eligible for any social security benefits has increased from 51.9 per cent to 54.2 per cent suggesting that formalisation is being adversely impacted.
   2. share of the workforce engaged in agriculture has risen to 45.6 per cent (2019-20) from 42.5 per cent (2018-19). This marks the first time that the share of agriculture in total employment (as %) has increased since the NSS survey started.
   3. Further, within the agricultural sector, much of the increase is coming through the category of unpaid family helpers., showing under-employment even within agri
   4. in the non-agriculture sector, the share of those engaged in informal enterprises increased from 68.4 per cent in 2018-19 to 69.5 per cent in 2019-20.
6. FEMALE EMPLOYMENT
   
   1. ​share of rural women engaged in agriculture has increased substantially from 71.1 per cent (2018-19) to 75.7% (2019-20), and mostly of unpaid family work type.
   2. PLFS 2019-20 shows a sharp increase in the female LFPR by 5.5 percentage points. This marks the reversal of trend of declining female LFPRsince 2004-05. The decline was attributed to increase in family income- more educational opp for women as well as less distressed job seekers among women. But the increase in 2019-20 is driven by the increased LFPR of rural women- of the unpaid family work category and thus is a step back

Question 139

Reverse Repo rate is effectively setting the benchmark in current imes (April 2021)?

Answer 139

Under normal circumstances, that is when the economy is growing, the repo rate is the benchmark interest rate in the economy because it is the lowest rate of interest at which funds can be borrowed and, as such, it forms the floor rate for all other interest rates in the economy.

Over the last couple of years, India’s economic growth has decelerated sharply. In response, businesses have held back from making fresh investments and, as such, do not ask for as many new loans. Along with this, the high NPA buren within the banking system mean that banks’ demand for fresh funds from the RBI has also diminished. This has further intensified due to Pandemic induced lockdown

The excess liquidity in the banking system has meant that during March and the first half of April, banks have been using only the reverse repo (to park funds with the RBI) instead of the repo (to borrow funds). In other words, the reverse repo rate has become the most influential rate in the economy.

Recognising this, the central bank has cut the reverse repo rate more than the repo (see graph) twice in the spate of the last three weeks. The idea is to make it less attractive for banks to do nothing with their funds

Question 140

Insolvency and Bankruptcy Code (IBC): issues?

Answer 140

• Lack of Adequate Infrastructure in NCLT: The NCLT is the backbone of the IBC, but lamentably is starved of infrastructure and over 50% (34 out of 63) of NCLT benches were bereft of regular judges.
  
  • Over 13,170 cases involving distressed debt of Rs 9.2 lakh crore are languishing with the NCLT.
  • This lack of adequate infrastructure, coupled with the poor quality of its decisions, has proved to be the IBC’s Achilles’ heel.
• Delayed Recognition and Resolution: 47% of the cases referred to the IBC, representing over 1,349 cases, have been ordered for liquidation.
  
  • Over 70% of these cases were languishing at the now-defunct BIFR for years and decades.
  • Against the aggregate claims of the creditors of about Rs 6.9 lakh crore, the liquidation value was estimated at a meagre Rs 0.49 lakh crore.

Question 141

Parliamentary Standing Committee on Finance Recommendations on IBC?

Answer 141

1. vacancies in NCLT leading to delays in corporate insolvency
   
   1. combined strength of the current NCLT benches around the country is currently only 29 members against the total sanctioned strength of 63 members.
   2. As of March 31, 2016, 79 per cent of the total cases under the IBC had been pending for more than 270 days, the initial time limit envisaged for a resolution process under the IBC.
2. non-adherence of timelines under IBC
   
   1. committee noted that delays in the admission of insolvency cases by NCLTs and the approval of resolution plans were the key reasons behind the non-adherence
   2. The committee noted that delays on the part of the NCLT in admitting cases allowed defaulting owners the opportunity to divert funds and transfer assets and, therefore, the NCLT should be required to admit a defaulting company into insolvency proceedings and hand over control to a resolution professional within 30 days.
   3. cases in which creditors have evaluated resolution plans submitted after the specified deadline would disincentivise bidders from bidding within prescribed timelines. eg. same happened in Bhushan Power Steel Ltd insolvency proceedings. These bidders typically wait for the H1 bidder to become public and then seek to exceed this bid through an unsolicited offer that is submitted after the specified deadline … As a result, genuine bidders are discouraged from bidding at the right time.
3. frivolous litigations
   
   1. A number of high profile cases under the IBC — including those of Essar Steel, Bhushan Power & Steel and Binani Cement — saw multiple decisions being challenged by stakeholders. Experts have called many of these appeals frivolous attempts to slow down insolvency proceedings.
4. recommended that the IBC be amended to provide MSMEs, which are operational creditors under the IBC, with greater protection in the current economic environment. The IBC currently prioritises financial creditors over operational creditors.

Question 142

e-RUPI?

Answer 142

1. e-RUPI is a digital prepaid, purpose- and person-specific payment utility. e-RUPI is a prepaid UPI e-voucher that can be redeemed either through a QR code or an SMS string by the intended beneficiary. It is a cashless and contactless digital payment system to ensure seamless benefit transfer to citizens in a ‘leak-proof’ manner.
2. It is basically like a pre-paid gift card (paid for by the government agency or ministry providing the service or any company) without a physical card but delivered in the form of a QR code or an SMS string.
3. These e-RUPI vouchers are person-specific and purpose-specific which means that they can be redeemed only for the intended purpose, for example, if they are for vaccination purposes , they can only be redeemed at vaccination centres or hospitals, etc. for the prescribed purpose.
4. Beneficiaries can redeem the voucher without a card, internet banking access or a digital payments app. A person without a bank account can also use e-RUPI. There is no need for a smartphone also to avail of this service since feature phones will also be able to receive the SMS string.
5. developed by NPCI alog with Deptt of fin Services, MoHFW and National Healh Authority
6. Any government agency or corporation can generate these e-vouchers through their bank partners.
7. Possible uses

• help the government sharpen targeted welfare programmes. e-RUPI could make the PDS programme more efficient
• could also be used to streamline fertiliser subsidies to farmers.
• can be used for school voucher programmes
• can be used for Future basic income support
• Ayushman Bharat : Beneficiaries will receive e-RUPI vouchers of designated value tenable at empanelled healthcare facilities, providing them portability and facility choice. The service provider will benefit from the immediate payment.
• The private sector will find it helpful to disburse non-cash benefits to employees and support focussed CSR programmes.
• individuals could use it for gifting.

Question 143

4 yrs of GST: GST- basic features?

Answer 143

• GST is a single domestic indirect tax law for the entire country levied on the supply of goods and services.
• comprehensive, multi-stage, destinationbased tax that is levied on every value addition
• several indirect taxes like excise duty, VAT, service tax, luxury tax etc. have been subsumed.
• However, several goods like Property Tax & Stamp Duty, Electricity Duty, Excise Duty on Alcohol, Basic Custom Duty, Petroleum crude, Diesel, Petrol, Aviation Turbine Fuel, Natural Gas, etc are not covered under GST.
• It has multiple slabs- 5%, 12%, 18%, 28% with different products classified in them. Apart from these, GST on gold is 3% and 0.25% on semiprecious and rough stones. Also, a minor portion of all goods and services under the GST regime does not invite any tax, including different salt types, sanitary napkins etc.
• GST is levied at every stage of the production process but is collected from the point of consumption (Reverse Charge Mechanism), refunding all parties eventually other than the end consumer.

Question 144

4 yrs of GST: reverse charge mechanism?

Answer 144

GST has to be typically paid by the supplier of goods and services. But in some cases, the liability to pay the tax falls on the buyer. This is called reverse charge.

This is only applicable in certain instances e.g. when a business buys goods or services from a supplier who is not registered to pay GST or in cases of import.

Question 145

4 yrs of GST: achievements of GST?

Answer 145

1. Widening of INdia’s Tax base: almost doubled from 66.25 lakhs to 1.28 crores in the last four years (2017- 2021).
2. Increase in GST revenue collection: over the Rs 100,000 crore mark for eight consecutive months in a row. The revenue collection in FY 2019-20 soared by 42% as compared to the collections made in FY 2016-17
3. Ease of compliance: It has also brought in efficiencies in indirect tax compliances and reduced the number of indirect tax authorities that business needed to interact with.
4. “E-Invoicing” has also ensured that a trade invoice is identified by a unique identification number which is generated by automated government-backed online portals
5. Increased Logistics efficiency: eliminated all the inter-state barriers by removing check-posts, introducing a nationwide e-way bill, eliminating the entry tax. thereby reducing the time of movement of goods. As per an estimate more than 50% of logistics effort and time is saved in GST regime
6. Impact on transaction costs: In previous regime, all the interstate transactions had an additional cost of 2% (Central Sales Tax), which post GST has now been reduced to 0%
7. Reinforced Cooperative Federalism
8. Increase in Transparency: Taxpayers can track their compliances online on the GST Portal. Also, they can easily get the basic information about any business by entering the respective PAN or GSTIN

Question 146

4 yrs of GST: challenges?

Answer 146

1. Overestimation of GST collection: shortfall led to a sense of failed taxation regime initially
2. complex tax slabs: complex slab structure and continually switching between them. Additionally, fluctuating tax rates often led to unethical profiteering practices.
3. cubersome filing structure: current GST return filing structure is complex and cumbersome and put too much onus on the taxpayer. The requirement to possess a valid tax invoice/debit note, actual receipt of goods/service by the recipient, tax submission at each level by different seller etc.
4. ambiguous and conflicting judgements by various benches of the Appellate Authority for Advance Ruling across different States. Additionally, more than 80% of rulings, since the establishment of the AARs, have been revenue biased, leading to disgruntled taxpayers
5. Cracking down on tax evasion and tax fraud: including use of fraudulent invoices, fake e-way bills, etc has led to massive losses in revenue collection. A news report in March 2020 states that India has faced over ₹70,000 crore worth of losses due to tax evasion
6. expanding the GST purview: eg. fuel and alcohol; around 30 per cent of the states’ revenue comes from excise duties on petrol and diesel.
7. concerns related to compensation to states: pandemic and lockdown have intensified the problem of revenue shortfall for States and the Centre, thus leading to the Centre’s inability to pay the dues to states on time. This has led to tensions in cooperative federalism
8. CG’s over reliance on Cess and Surcharges has undermined the constitutional arrangement related to fiscal federalism.
9. Delay in reforms: Falling revenue amid disruptions caused by the pandemic is said to have continuously delayed reforms related to revision of tax slabs, robust compliance regime, etc
10. Transitional Issues: Even after four years, many assesses are still experiencing technical/legal issues as a result of the transition from the old to the new GST system.

Question 147

Direct monetisation of the Fiscal deficit: what?

Answer 147

Typically, governments have three basic choices for financing their fiscal deficits:

• they can borrow (issue debt) or
• raise taxes.
• the central bank can print currency for the government to bridge its fiscal deficit, which is known as monetisation of deficit. These can be of two types
  
  1. Indirect monetisation: undertaken through OMOs i.e. RBI buys bonds from secondary mkt by printing fresh money to infuse liquidity
  2. Direct monetisation: RBI directly purchases govt bonds in the primary mkt by printing money to finance the spending needs of the govt

Question 149

Direct monetisation of the Fiscal deficit: an option for INdia?

Answer 149

• India has recorded a fiscal deficit of 9.3% of GDP in 2020-21 and for 2021-22, the deficit has been put at 6.8 per cent of the GDP. This is mainly due to rise in expenditure to mitigate the fallout of pandemic and moderation in revenue and low tax collection due to COVID 19 induced economic slowdown.
• Thus, there have been debates on how to finance the growing fiscal deficit given the need to provide additional stimulus to the Indian economy amid the ongoing pandemic.
• There is a debate whether India should undertake direct monetisation of the deficit by RBI
• Direct Monetisation happens when the government privately places its bonds with the Central bank i.e., the central bank purchases government bonds in the primary market.
• Direct monetisation may not necessarily involve actual printing of currency as the central bank could simply credit the Government’s account with itself through an electronic accounting entry.
• The exercise leads to an increase in total money supply in the system.
• Direct monetisation of deficit is also referred to as helicopter money when large sums of new money are printed to stimulate an economy during a crisis — like a recession.

Question 150

Direct monetisation of the Fiscal deficit: arguments in support for India?

Answer 150

1. Financing recovery programmes post pandemic: For instance, it can be used to finance Government of India’s stimulus to the economy, under Atmanirbhar Bharat 3.0 which amounts to around ₹ 2.65 Lakh crore
2. Mitigating deflation and stimulating moderate inflation: Printing money can ensure that the money reaches the masses which can then lead to higher spending., esp in these times of suppressed demand.
3. Maintaining financial stability: Since savings in an economy are limited, financing large deficits through issuance of G-Secs (domestic borrowing) can substantially increase interest rates and cost of borrowing for the Government. This could increase the probability of default, threatening financial stability.
4. Infusion of liquidity: Direct monetisation can provide liquidity in the financial system when interest rate cuts are not possible due to inflationary concerns.
5. Unlike debt-financed fiscal programs, a money-financed program does not increase future tax burdens.
6. It can reduce the value of a government’s outstanding obligations to some extent by increasing inflation.
   7.

Question 151

Direct monetisation of the Fiscal deficit: arguments against?

Answer 151

1. High inflation: Monetisation of the government’s fiscal deficit may give rise to unproductive spending and may lead to higher inflation. Estimates suggest that inflation could surge to an average of 12% in 2021 if the RBI was to finance a second stimulus package of $270 billion (a similar amount to Atma-nirbhar Bharat package 1.0)
2. Erodes the credibility of RBI: The quantum and timing of money to be printed being decided by the government’s borrowing requirement rather than the RBI’s monetary policy.
3. May hurt fiscal prudence: Direct monetisation can disincentivize fiscal consolidation activities of the Government.
4. Fiscal dominance: The lack of fiscal discipline in the long run affects the independence of the central bank as it will be forced to monetize an unsustainable, out-of control deficit to avoid negative economic outcomes leading to fiscal dominance.
5. Ineffective to increase liquidity: Money extended by a fiscal program inevitably ends up in the banking system. This can increase the amount of bank reserves at the central bank as in times of stress banks are usually reluctant to lend
6. Depreciation of currency: The supply-demand imbalance in the currency market can cause the Indian rupee to depreciate.

Question 152

Direct monetisation of the Fiscal deficit: history of use in India?

Answer 152

1. Until 1997: Automatic monetisation of deficit. Ad-hoc treasury bills (non-marketable short term debt instruments issued by the GoI), were automatically issued by the RBI on behalf of the Centre to itself at a fixed rate, to replenish the CG’s cash balances.
2. An agreement was signed between the RBI and the GoI in 1997 completely phasing out funding through ad hoc treasury bills and the practice was replaced with a system of ways and means advances (WMA) from April 1, 1997.
3. 1997-2006: , monetisation continued in another form as the RBI continued to subscribe to the primary issuances of G-secs
4. 2006-2018: (FRBM Act), 2003, was enacted which completely barred RBI from subscribing to the primary issuances of the government from April 1,2006.
5. since 2018: FRBM Act was amended in 2017 adding an escape clause which permits monetisation of the deficit under special circumstances. RBI can subscribe to the primary issue of CG G-Secs in case the government exceeds the fiscal deficit target on grounds such as national security, act of war, national calamity, collapse of agriculture severely affecting farm output and incomes etc

Question 153

suggestions for GoI to finance her expenditure to boost growth in pandemic times?

Answer 153

1. government could raise a part of its borrowing requirements by issuing Covid bonds to the public.
   
   1. Appropriately priced and structured, they can provide relief to savers who are short-changed by the lowinterest rates on bank fixed deposits.
   2. Moreover, such Covid bonds will not add to the money supply and will not, therefore, interfere with RBI’s liquidity management.
2. Using Direct monetization as a last resort
3. If there exists enough underutilized resources and opportunities in the economy (as is the case in point for a labour abundant India), then printing money does not stoke excessive inflation. So, before India adopts direct monetization, the government should develop ‘credibility’ of its fiscal spends and ensure productive spending decisions for higher growth multiplier effects.

Question 154

Minimum alternate tax?

Answer 154

1. Due to an increase in the number of zero tax paying companies, MAT was introduced by the Finance Act, 1987 with effect from assessment year 1988-89. Later on, it was withdrawn by the Finance Act, 1990 and then reintroduced by Finance Act, 1996.
2. MAT was later extended to cover non-corporate entities as well.
3. MAT is calculated at 15% on the book profit (the profit shown in the profit and loss account) or at the usual corporate rates, and whichever is higher is payable as tax.
4. All companies in India, whether domestic or foreign, fall under this provision.
5. In September 2019, the government reduced the MAT tax rate from 18.5 per cent to 15 per cent while also slashing the corporation tax rate to 22% (15% for new domestic mfg companies) from 30%. Also, existing domestic companies opting for the concessional taxation regime will not be required to pay any Minimum Alternate Tax.
6. MAT is levied on book profit, unlike normal corporation tax, which is levied on taxable profit.
7. no MAT would be imposed on new domestic manufacturing company (incorporated on or after October 1, 2019).
8. MAT credit is the difference between the tax the company pays under MAT and the regular tax. It is allowed to be carried forward for a period of 15 financial years.
9. For example, a company with Rs 100 crore book profit is required to pay a minimum tax of Rs 15 crore (assuming 15 per cent MAT rate). If its normal tax liability after claiming deductions is Rs 10 crore (less than MAT), it is required to pay the remainder Rs 5 crore as MAT and use MAT credit equivalent to Rs 5 crore to pay tax in the future.

Question 155

global minimum tax rate?

Answer 155

1. Global Minimum Corporate Tax is an additional tax imposed on large MNCs, potentially forcing them to pay taxes to countries based on where their goods or services are sold, regardless of whether they have a physical presence in that nation.
2. In meeting of FMs of G7 nations in 2021, they reached a landmark accord setting a global minimum corporate tax rate, an agreement that could form the basis of a worldwide deal.
3. The deal aims to end what U.S. Treasury Secretary has called a “30-year race to the bottom on corporate tax rates”
4. According to estimates, governments lose $245 billion annually to tax havens. US Treasury loses nearly $50 billion a year to tax cheats.
5. global minimum tax rate would apply to overseas profits. Governments could still set whatever local corporate tax rate they want, but if companies pay lower rates in a particular country, their home governments could “top-up” their taxes to the minimum rate, eliminating the advantage of shifting profits.
6. OECD has been coordinating tax negotiations among 140 countries for years on rules for taxing cross-border digital services and curbing tax base erosion, including a global corporate minimum tax. The minimum is expected to make up the bulk of the $50 billion-$80 billion in extra tax that the OECD estimates firms will end up paying globally
7. will give Boost to global economy: by leveling the playing field for businesses and encouraging countries to compete on positive bases, such as educating and training their work forces and investing in R&D and infrastr

Question 156

global minimum tax rate: issues for INdia?

Answer 156

1. It will further be problematic to enforce such a policy in a federal government structured country like India.
2. A lower tax rate is a tool for India to alternatively push economic activity.
3. To address “the challenges posed by the enterprises who conduct their business through digital means and carry out activities in the country remotely”, the government has the ‘Equalisation Levy’ and “significant economic presence”
4. India has already been proactively engaging with foreign governments in double taxation avoidance agreements, tax information exchange agreements, and multilateral conventions to plug loopholes. This proposal of a common tax rate, thereby, adds no further benefits to India.

Question 157

Global minimum tax rate : benefits for INdia?

Answer 157

India is likely to benefit as the effective domestic tax rate is above the threshold, and the country would continue to attract investment.

In 2019, India announced a sharp cut in corporate taxes for domestic companies to 22% and for new domestic manufacturing companies to 15%. The cuts effectively brought India’s headline corporate tax rate broadly at par with the average 23% rate in Asian countries.

In respect of outbound investments, it will prevent base erosion of tax in the country. India’s annual tax loss due to corporate tax abuse is estimated at over $10 billion, according to the Tax Justice Network report.

Question 158

global minimum tax rate: challenges?

Answer 158

• In a world where there are income inequalities across geographies, a minimum global corporation tax rate could crowd out investment opportunities.
• Multilateralism will further stumble in such a tax policy. The policy will create haves and have-nots across the world. Ireland, which has a tax rate of 12.5 percent, has come out against the global minimum tax, arguing that it would be disruptive to its economic model
• Right to sovereignty: Any global minimum tax operates to limit a national government’s ability to exercise tax policy how it sees fit.
• Issue of Digital taxation: Global minimum tax’s lack of clarification on the issue of digital taxation may be further dissuasion to countries like India, who are not in the stage of development so as to not differentiate between distinct sectors and industries.

Question 159

Base Erosion and Profit Shifting : definition?

Answer 159

BEPS refers to tax planning strategies used by multinational enterprises (MNEs) that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations where there is little or no economic activity, resulting in little or no overall corporate tax being paid.

Question 160

Microfinance: about?

Answer 160

1. defn: Microfinance is a form of financial service which provides small loans and other financial services to poor and low-income households to enable borrowers to work their way out of poverty by undertaking income generating activities.
2. core features:
   
   1. lending of small amts
   2. to borrowers belonging to LIGs
   3. without collateral
   4. with flexible repayment schedules
3. originated in BN with the institution of Grameen Bank in 1983. Under this model, women borrowers are organised into SHGs, which would be entitled to borrow from the lending institution either for their individual or group requirements.
4. In several countries across the world, micro finance originated from the activity of Non-Governmental Organisations (NGOs) that were aided largely or partly by foreign donors for their lending operations
5. Obj:
   
   1. asset creation
   2. promotion of financial inclusion
   3. increase in human resource productivity
   4. poverty alleviation
   5. improvement in std of living
   6. women empowerment

Question 161

Microfinance in India: evolution in India?

Answer 161

• unlike most other ocuntries which relied upon NGOs for microfinance ecosystem, India involved its public banks network with their unparallel geographical spread and functional reach to provide micro finance
• SHG-Bank linkage programme:
  
  • SHGs are formed and nurtured by NGOs and only after accomplishing a certain level of maturity in terms of their internal thrift , they are entitled to seek credit from the banks.
  • the programme undertaken since 1992 in India, has now metamorphosed into the world’s largest microfinance movement that financed more than 100 lakh SHGs with a credit outstanding of more than Rs. 1 lakh crore.
  • micro finance experiment in India has been described by NABARD as relationship banking rather than parallel banking elsewhere in the world.
• microfinance is delivered in India through
  
  • SCBs (incl SFBs and RRBs)
  • Cooperative banks
  • NBFCs
  • MFIs regtd as NBFCs (NBFC-MFIs)

Question 162

Microfinance in India: overview and stats?

Answer 162

• Indian microfinance sector has witnessed phenomenal growth over past two decades in terms of increase in both the number of institutions providing microfinance and quantum of credit made available to the microfinance customers. Currently it is serving around 102 million accounts of the poor population of India.
• MFI loan portfolio has reached Rs 2.31 lakh crore at the end of FY2020
• Over the years, the sector has incorporated several changes in its operating model, including digital interventions across the lending value chain.
• 40% of lending portfolio of MFIs in India is in East and NE India, while 27% is in South India
• 32% of gross outstanding loan portfolio is under MFIs (comapred to 40% by banks, 17% by SFBs and 10% by NBFCs) by March 2020

Question 163

Microfinance in India:regulatory evolution?

Answer 163

1. as the sector grew, certain inadequacies and failures became apparent culminating in the Andhra Pradesh microfinance crisis in 2010. crisis was attributed to the irrational exuberance of some MFIs who, in their eagerness to grow business, had given a go by to the conventional wisdom and good practices such as due diligence in lending and ethical recovery practices
2. In the wake of this crisis, RBI constituted Y H Malegam Committee to study issues and concerns in the MFI sector. Based on the recommendations of the Malegam Committee, RBI introduced a comprehensive regulatory framework for NBFC-MFIs in 2011.
3. This comprehensive regulatory framework is however, applicable only to NBFC-MFIs, whereas other lenders, which comprise of around 70 per cent share in the microfinance portfolio, are not subjected to similar regulatory conditions. Thus, RBI in June 2021, has proposed a single uniform set of regulations for all Regulated entities (REs) of RBI operating in the microfinance sector.

Question 164

Microfinance in India: NBFC-MFI: defn and charac?

Answer 164

a non-deposit taking NBFC,

with minimum net owned fund of ₹5 crore (₹2 crore for NBFC-MFIs registered in the North Eastern Region) and,

having minimum 85 per cent of its net assets (assets other than cash, bank balances and money market instruments) in the nature of ‘qualifying assets’

Question 165

Microfinance in India: Current regulatory framework (for NBFC-MFIs) and proposed change by RBI (covering all MFIs): defn of microfinance borrower?

Answer 165

• existing for MFIs(E): A microfinance borrower is identified by annual household income not exceeding ₹1,25,000 for rural and ₹2,00,000 for urban and semi-urban areas.
• Change (C): Same criteria shall be extended to all REs (regulated entities) for the purpose of the common definition. All REs shall have a Board approved policy enumerating factors considered for assessment of household income.

Question 166

Microfinance in India: Current regulatory framework (for NBFC-MFIs) and proposed change by RBI (covering all MFIs): limits on HH indebtedness?

Answer 166

1. E: Total indebtedness of the borrower does not exceed ₹1,25,000 (excluding loan for education and medical expenses)
2. C: Link the loan amount to household income in terms of debt-income ratio. Accordingly, all lending institutions has to ensure that the EMI a household has to pay does not exceed 50 per cent of its income.

Question 167

Microfinance in India: Current regulatory framework (for NBFC-MFIs) and proposed change by RBI (covering all MFIs): nature of loans?

Answer 167

E: Collateral free loans without any prepayment penalty

C: collateral free nature of microfinance loans shall be extended to all REs

Question 168

Microfinance in India: Current regulatory framework (for NBFC-MFIs) and proposed change by RBI (covering all MFIs): limit on no. of loans, loan amt and tenure?

Answer 168

E: limits like loan amt limit in absolute terms, min teure of 24 months, no more than 2 NBSC-MFIs can lend to same borrower, min 50% loan for income generation activities

C: all limits withdrawn

Question 169

Microfinance in India: Current regulatory framework (for NBFC-MFIs) and proposed change by RBI (covering all MFIs): pricing of loans?

Answer 169

E: maximum interest limited by a ceiling

C; No ceiling prescribed for the interest rate of NBFCMFIs. Board of each NBFC-MFI shall adopt an interest rate model taking into account relevant factors such as cost of funds, margin and risk premium and determine the rate of interest to be charged for loans and advances. NBFC-MFIs, like any other NBFC, shall be guided by fair practices code and would ensure disclosure and transparency of interest rates.

Question 170

Microfinance in India: need for review of current regulatory framework?

Answer 170

• over-indebtedness of borrowers: Current regulations which do not permit more than two NBFC-MFIs to lend to the same borrower give space to other lenders.
• Creating a level playing field: Prevailing regulations on interest rate ceiling has been keeping the interest rates at a higher level for NBFC-MFIs. As a result, lending rates of banks also hover around this ceiling rate, despite comparatively lower cost of funds. Ultimately the borrowers are getting deprived of the benefits from enhanced competition as well as economy of scale.
• Increasing accessibility of microloans by withdrawing the need for collateral: Low-income borrowers often lack the type of collateral often preferred by the lenders and what they have for pledging, instead is of little value for the lenders but is highly valued by the borrower
• Obviating the dependency on informal sources of credit: Committee on Comprehensive Financial Services for Small Businesses and Low-Income Households’ had recommended that over-emphasis on incomegenerating loans may drive the borrowers towards more expensive informal loans for fulfilling their entire financial needs
• To prevent trickling down of the risks: Section 8 companies are dependent for their funding needs on public funds including borrowings from banks and other financial institutions. Due to their interconnectedness with other financial intermediaries, any risk arising out of their business can get transmitted to the financial sector.

Question 171

Tourism sector in India: overview and stats?

Answer 171

1. acc to World Travel and Tourism Council (WTTC), India ranks 10th among 185 countries in terms of travel and tourism’s total contri to GDP in 2019
2. contri of 8% to employment
3. contri to GDP: 6.8%
4. Forex earnings : 30 Bn$ in 2019
5. share in International tourists arrivals in 2019 was 1.23%

Question 172

Tourism sector in India: recent initiatives taken to promote tourism?

Answer 172

1. e-visa facility has been extended to the nationals of 169 Countries under 5 sub-categories i.e e-Tourist visa, eBusiness visa, e-medical visa, e-Medical Attendant Visa and e-Conference Visa
   
   • Triple entry is permitted for e-Medical Visa and for e-Medical Attendant Visa
2. Ministry of Tourism has two major schemes for development of tourism infrastructure:
   
   • Swadesh Darshan - Integrated Development of Theme-Based Tourist Circuits. Under the scheme, fifteen thematic circuits have been identified for development, namely: North-East India Circuit, Buddhist Circuit, Himalayan Circuit, Coastal Circuit, Krishna Circuit, Desert Circuit, Tribal Circuit, Eco Circuit, Wildlife Circuit, Rural Circuit, Spiritual Circuit, Ramayana Circuit, Heritage Circuit, Tirthankar Circuit & Sufi Circuit.
   • PRASHAD- Pilgrimage Rejuvenation and Spiritual, Heritage Augmentation Drive- 51 sites have been identified at present in 28 States for development
3. Ministry of Tourism has identified 17 iconic sites in the country for development under Iconic Tourist Sites Development Project.
4. “Incredible India 2.0” Campaign of the Tourism Ministry marks a shift from the generic promotions being undertaken across the world to market specific promotional plans and content creation
5. Under RCS UDAN-3, connectivity is further improved with 46 tourism routes included for better connectivity of important tourist places
6. Recently, Centre announced free visas for 500,000 tourists and a loan guarantee scheme to support recognised tour operators and tourist guides whose business has been disrupted due to Covid-19 pandemic
7. Recently, Ministry of Tourism has formulated several Draft National Strategies and Roadmaps for development and promotion of tourism in the country, namely for
   
   • sustainable tourism
   • rural tourism
   • Medical and wellness tourism
   • MICE (Meetings, Incentives, Conferences and Exhibitions)

Question 173

DRAFT NATIONAL STRATEGY AND ROADMAP FOR SUSTAINABLE TOURISM: sustainable tourism: about?

Answer 173

It is the tourism that takes full account of its current and future economic, social and environmental impacts, addressing the needs of visitors, the industry, the environment and host communities

obj:

• economic viability of host destination
• local prosperity
• social equity
• Employment quality
• community wellbeing
• cultural richness
• biological diversity and
• resource efficiency.

Tourism has been included as targets in sustainable development goals (SDGs) 8, 12 and 14 on inclusive and sustainable economic growth, sustainable consumption and production (SCP) and the sustainable use of oceans and marine resources, respectively.

Three basic principles of sustainable tourism acc to UNWTO:

1. env sus: optimal use of env resources, maintaining essential ecological processes and helping to conserve natural heritage and BD
2. socio-cultural sus: respect the socio cultural authenticity of host communities, conserve their built and living cultural heritage and traditional values
3. economic sus: viable, long term economic ops, providing socio-economic benefits to all stakeholders that are fairly distributed, incl stable employment and socail services to host communities and poverty alleviation

Question 174

DRAFT NATIONAL STRATEGY AND ROADMAP FOR SUSTAINABLE TOURISM: need for INdia?

Answer 174

• India ranks poor in sustainability: 96th position in Adventure Tourism Development Index 2020, 128th under Environment Sustainability in 2019.
• Potential of Eco tourism: powerful tool for conservation of forests, biodiversity/ wildlife and scenic landscapes, fastest growing segment of the travel and tourism industry, public interest in nature-based recreation etc
• Potential of Adventure tourism: attracts visitors outside of peak season, highlights the natural and cultural values of a destination, attracts high value customers etc

Question 175

DRAFT NATIONAL STRATEGY AND ROADMAP FOR SUSTAINABLE TOURISM: steps taken for sustainable tourism?

Answer 175

1. Special focus on promoting ‘Incredible India’ brand to attract tourists, not only to major cities and heritage attractions, but also to rural India.
2. With the institutionalization of Global Sustainable Tourism Council (GSTC) in 2010, India adapted GSTC criteria for sustainable tourism in the Indian context.
3. Ministry of Tourism has launched the Sustainable Tourism Criteria for India (STCI) with an aim to promote and ensure environmentally responsible and sustainable practices in the tourism industry.
4. Guidelines for classification of hotels under various categories, which require hotels to incorporate various ecofriendly measures like Sewage Treatment Plant (STP), Rain Water Harvesting System, waste management system etc.
5. Ministry has also prescribed that the architecture of the hotel buildings in hilly and ecologically fragile areas should be sustainable and energy efficient.
6. The tour operators approved by Ministry of Tourism have to sign a pledge for commitment towards Safe & Honorable Tourism and Sustainable Tourism

Question 176

DRAFT NATIONAL STRATEGY AND ROADMAP FOR SUSTAINABLE TOURISM: key features?

Answer 176

1. Certification Scheme for Sustainable Tourism based on Sustainable Tourism Criteria of India, Certification Scheme for tour operators, guides and other service providers for ecotourism and adventure tourism
2. Information, Education and Communication (IEC) campaign to create awareness
3. Ranking of the States to foster competitiveness
4. Capacity Building of field functionaries and conservation agencies
5. Marketing and Promotion by creating a sub brand around Adventure tourism and Ecotourism, developing state specific/destination specific campaigns etc.
6. Each State will identify the adventure destinations by offerings (Land, Air and Water based activities) in Soft, Hard and Other categories and create a detailed profile
7. Private Sector partnership in areas of marketing, operations, product and experience creation, quality assurance and finance etc. SGs should designate areas for private sector operator to be called ecotourism block for development and management.
8. Owners of farmland adjoining forests may be encouraged to adopt ecotourism as an alternative land use. Homestays and community lodges shall be encouraged
9. National Board on Sustainable Tourism under Secretary (Tourism) to strengthen the ecosystem for development of sustainable tourism

Question 177

DRAFT NATIONAL STRATEGY AND ROADMAP FOR DEVELOPMENT OF RURAL TOURISM: defn of rural tourism? overview and stats? initiatives taken in India?

Answer 177

Any form of tourism that showcases the rural life, art, culture, and heritage at rural locations, thereby benefiting the local community and enabling interaction between the tourists and the locals for a more enriching tourism experience can be termed as rural tourism.

As per a 2011 report of MoT, there are 172 Rural Tourism sites and 52 commissioned rural tourism sites in India. Initiatives:

• Rural Tourism was recognized as a focus area in National Tourism Policy 2002.
• In 2003, Endogenous Tourism Project-Rural Tourism Scheme was started by MoT in collaboration with United Nations Development Project (UNDP).
• Help Tourism’ organization launched a village-based tourism initiative in West Sikkim by offering rural home-stays.
• Rural Tourism Project at the Hodka Village in Kutch District of Gujarat won the Pacific Asia Travel Association (PATA) award 2010 in the heritage category.

Question 178

Rural tourism: SWOT analysis?

Answer 178

Question 179

DRAFT NATIONAL STRATEGY AND ROADMAP FOR DEVELOPMENT OF RURAL TOURISM: provisions?

Answer 179

1. benchmarking of state policies and best practices: ranking the states
2. emulate successful models for ptv sector and community partnership
3. digital tech- broadband internet infrastr
4. developing clusters of villages for tourism dev
5. marketing support- product and theme specific campaigns under the overall “Dekho Apna desh” campaign
6. capacity building: skill dev
7. governance and institutional framework: detailed national, state and local action plans with nodal agencies at each levels

Question 180

Medical tourism in India?

Answer 180

It may be broadly classified into following three categories:

o Medical Treatment: Treatment for curative purpose that may include cardiac surgery, organ transplant etc.

o Wellness & Rejuvenation: Offerings focused on rejuvenation or for aesthetic reasons such as cosmetic surgery, stress relief, spas etc.

o Alternative Cures: Access to alternative systems of medicines such as India’s offering of AYUSH (Ayurveda, Yoga & Naturopathy, Unani, Siddha and Homeopathy)

Medical tourism is now often referred as Medical Value Travel (MVT) as it captures patient’s healthcare seeking behaviour as well as the wider economic impact of such travel on nations hosting them.

Question 181

Medical tourism in India: SWOT?

Answer 181

Question 182

DRAFT NATIONAL STRATEGY AND ROADMAP FOR MEDICAL AND WELLNESS TOURISM: provisions?

Answer 182

1. develop a brand: Heal in India campaign; Partnership with Indian Missions; corporate arrangements with foreign govts to promote MVT; attract diaspora
2. strengthen ecosystem: organizing MVT facilitators by facilitating their registration, formation of associations etc; NABH accreditation will be made mandatory after stipulated number of years of successful operations in the field; facilitating registration and categorizing them based on factors like quality of health care, volume and range of services provided
3. digitalization: one stop solution; will help in formalization of the industry, enforcing regulations
4. accessibility: Liberalized VISA policy; Better air connectivity, especially for tourists from Africa and Middle East
5. effective quality assurance programme
6. governance: National Medical & Wellness Tourism Promotion Board (NMWTB) was constituted in 2015

Question 183

MICE (Meetings, Incentives, Conferences and Exhibitions) tourism?

Answer 183

MICE is also known as ‘Meetings industry’ or ‘Events industry’. Generally, they bring large groups together for a specific purpose.

Four elements of MICE are

• Meeting: coming together of a group of people to discuss or exchange information. For example: annual meetings, board meetings, sales meetings, product launches, presentations and trainings.
• Incentives: corporate-sponsored trips for employees, distributors or clients. Unlike the other types of MICE, incentives are focused on leisure rather than business.
• Conferences: events where the primary activity of the attendees is to attend educational and knowledge sessions, participate in meetings/discussions, socialize, or attend other organized activities.
• Exhibitions are professionally organised events where products and services are displayed.

Question 184

MICE (Meetings, Incentives, Conferences and Exhibitions) tourism: SWOT analysis?

Answer 184

other advantages of MICE tourism:

• It not only gives a boost to economy in the form of income generation, but creates huge employment opportunities in related hospitality service.
• MICE tourism is year-round business. It is beneficial for offsetting the low season for airlines, hotels, restaurants, travel agencies.
  
  • Indian MICE has less than 1% share in the estimated global MICE business despite the natural & cultural advantages of India.
• Converting MICE travellers into leisure travelers.
• Helps increase local government and private sector investments that result in upgradation of general hospitality environment of the destination country

Question 185

draft National strategy and roadmap for MICE: provisions?

Answer 185

goals:

• To enhance India’s share in MICE business to 2% in five years from the current share of approximately 1%
• To enhance India’s International Congress and Convention Association (ICCA) ranking to top 20 in five years from 28thin year 2019.
• To encourage the State Governments to set up 6 City level MICE Promotion Bureaus at major MICE destinations of Delhi, Mumbai, Bengaluru, Chennai, Kolkata and Goa, in the Country in two year and 20 major cities in next five years.
• To encourage the Convention Bureaus to bid for international events and target 50% of the events coming to the country should be through MICE Bureaus

1. Governance and Institutional Framework will be provided at National, state and city level
2. Developing Eco-system: Identifying success factor for MICE destination, Hardware and services facets, Prioritising cities for development as MICE destination
3. Enhance competitiveness of Indian MICE industry: (Infrastructure status for financing, Industry status in states, PPP for developing infrastructure
4. Enhance ease of doing business for MICE events; single window clearance
5. marketing: annual Incredible MICE India (iMICE India) event, sub brand “meet in India”
6. skill development

Question 186

semiconductor mfg in India: stats/need for India to facilitate semiconductor mfg domestically?

Answer 186

• Global semiconductor industry is dominated by the US, South Korea, Japan, and Taiwan. The US leads the market with a 47% share, followed by South Korea at 19%
• global shortage resulting from a surge in demand for electronic items after the outbreak of the COVID-19 pandemic last year, is pushing several countries to have their own chip-making facilities to bring down their dependency on the global supply chain. COVID-19 led to an increase in worldwide chip sales from $412.2 billion in 2019 to $439 in 2020.
• India is the second-largest smartphone manufacturer in the world after China, and chips are at the center of these devices.
• several new-age technologies, like 5G, IoT, and AI, are likely to drive the demand for chips in the years to come.
• Strategic requirement: Semiconductor manufacturing also has strategic advantages, as countries don’t want to depend on their imports for essential infrastructure like defence and power
• Reducing import bill: As of now, India is dependent on imports to meet the demand for chips. India consumed around $21 billion worth of semiconductors in 2019, according to India Electronics and Semiconductor Association (IESA).
• Fostering innovation: production and exports of electronic goods at large scale will expose the Indian industry to foreign competition and ideas, which will help in improving its capabilities to innovate for the future.

Question 187

semiconductor mfg in India: challenges faced by India?

Answer 187

1. Complex manufacturing: Chip making is a highly complex process, which is why only a few countries have the expertise and skills required to gain a leadership position for this segment. most of the global semiconductor companies have an R&D footprint in India, but most of our chips, memory and display are imported into the country
2. Massive investment requirement: Setting up a semiconductor unit demands a massive investment of around INR50,000 to INR75,000 crore over two-to-three years. This kind of investment is challenging even for big players.
3. Lack of skilled workforce
4. Requirement of very specific raw materials: Apart from Silicon, numerous types of chemicals & gases are involved in semiconductor fabrication that are not till now available in India and has to be imported.
5. Gaps in supportive infrastructure: chip manufacturing units require a massive quantity of water and an uninterrupted power supply, which can be a problem in India.
6. Global Competition: It is also difficult to compete with neighbouring countries which, due to better costefficiency and first mover advantage, have become the favoured destinations for global chip manufacturers.
7. Lack of intent: A case in point is Intel’s plant in 2007. A delay in coming out with semiconductor policy pushed the chip giant Intel to opt for Vietnam over India

Question 188

semiconductor mfg in India: govt initiatives?

Answer 188

• 100% FDI allowed under automatic route in Electronics Systems Design and Mfg (ESDM) sector
• NP on ELectronics launched in 2012 to attract global and domestic companies to invest in INdian ESDM
• Union Budget 2017-18 increased the allocation for incentive schemes like the Modified Special Incentive Package Scheme (M-SIPS) and the Electronic Development Fund (EDF) for providing a boost to the semiconductor as well as the electronics manufacturing industry.
• Electronic Manufacturing Clusters Scheme which provides 50% of the cost for development of infrastructure and common facilities in Greenfield clusters and 75% of the cost for Brownfield clusters

Question 189

Formalisation as a double edged sword?

Answer 189

While traditionally associated with efficiency gains, if it comes at the cost of putting small informal firms out of business, and the disruption in the informal sector, it can weigh on demand in subsequent periods.

differentiate between “forced” and “organic” formalisation. Formalisation that comes only on the back of external pressure or leads to deep distress in the informal sector, may not be sustainable. By contrast, formalisation that happens on the back of policy changes that help small and informal firms grow over time into medium or larger formal sector firms is more sustainable.

Question 190

relative contribution of various components (C,G,I) in India’s GDP calculations?

Answer 190

GDP- C+I+G +NX

• In India’s context, the biggest engine is consumption (C) demand from private individuals. This demand typically accounts for 56% of all GDP; technically called “Private Final Consumption Expenditure” or PFCE.
• The second-biggest engine is the investment (I) demand generated by private sector businesses. This accounts for 32% of all GDP in India; technically called Gross Fixed Capital Formation or GFCF.
• The third engine is the demand for goods and services generated by the government (G). This demand accounts for 11% of India’s GDP, and is called “Government Final Consumption Expenditure (GFCE)”
• The fourth engine is the demand created by “Net Exports” (NX). Since India typically imports more than it exports, it is the smallest engine of GDP growth; it is often negative.

Question 191

Q1 of FY22 GDP data: main findings?

Answer 191

1. India’s GDP grew by 20.1% (~27 L Cr (worth of goods and services produced )in Q1 of 2020-21 to 32.4 L Cr Rs. in Q1 of FY22) while the GVA grew by 18.8% (25.65 L Cr to 30.5 L Cr Rs)
2. It is important to remember that GDP and GVA had contracted by 24.4% and 22.4%, respectively, in Q1 of the last financial year.
3. Despite the steep increase, this cannot be called a V shaped recovery. A V-shaped recovery requires the absolute GDP of an economy getting back to the level before the crisis. India’s total output in Q1, whether measured through GDP or GVA, is nowhere near what it was in Q1 of 2019-20 (the year before the pandemic struck). In fact, both variables suggest India’s output levels are closer to 2017-18 levels.
4. If we compare quarter-on-quarter growth — Q1 FY22 to Q4 FY21 — then the GDP contracted by almost 17%.
5. It is for these reasons that in times of massive crises, it is always better to look at the absolute levels of output to correcting assess the state of an economy’s health. Percentage changes work well in normal times.
6. private demand, the biggest engine of growth, in Q1 of the current year was down to almost exactly the level where it was in 2017-18. the second biggest engine — investments or GFCF — is languishing at 2018-19 levels. unless private consumption demand rises, The govt incentives for pvt sector investments like tax breaks will not work
7. In GVA data, only two sectors — Agriculture etc. and Electricity and other utilities — have managed to grow more than they did in 2019-20. GVA of ‘Trade, Hotels, Transport, Communication & Services related to Broadcasting’ and ‘Construction’ is less than what it was even in 2017-18. These are two sectors that created lots of jobs for both unskilled and skilled workers in the past, and their weakness implies weak higher unemployment levels.

Question 192

“Advancing the Union Budget by a month has not helped fiscal marksmanship”?

Answer 192

• Fiscal marksmanship essentially refers to the accuracy of the government’s forecast of fiscal parameters such as revenues, expenditures and deficits etc.
• Raghuram Rajan, then India’s CEA, stressed on fiscal marksmanship in the Economic Survey for the year 2012-13. He had defined fiscal marksmanship as “the difference between actual outcomes and budgetary estimates as a proportion of GDP”
• importance of fiscal marksmanship: salience of Budget numbers lies in their credibility. Central purpose is to make the policymaking and governance transparent and participatory.
• recent instances of falling short on this parameter: even overlooking COVID disruption, July 2019 Budget expected nominal GDP to grow by 12% in 2019-20 (the highest level since the 13% growth witnessed in FY14) but the FAE expect the nominal GDP to grow by just 7.5% (which by the way is a 42-year low).
• Causes:
  
  • when an economy’s growth slows down (or picks up) sharply within a year
  • structural change by the government’s decision in January 2017 to advance the presentation of the Union Budget by a whole month. government wanted to ensure that all line ministries had the funds at the start of the next financial year. But in order to present the Budget on February 1, the whole Budget-making process was advanced by a month. It meant that the First Advance Estimates, which used to come by January end (after taking into account the economic activity of the first three quarters of the financial year), had to be brought out by the start of January. This, in turn, essentially meant that the estimate of the key nominal GDP data for the current year — on the base of which next year’s nominal GDP and other estimates were to be made — had to be made using just the first 6-7 months (or the first two quarters) of the current FY. eg.

Question 193

cause of failure of corporate tax reforms in boosting economic growth?

Answer 193

lower corporate tax rates can be listed as a bonafide reform and it should help India’s industry in the long-term, but its timing was the issue

it was announced at a time when India was facing a rapidly worsening demand problem. In other words, people’s incomes were either growing at a slowing rate or actually contracting. Add to that the high unemployment levels which had become endemic.

what ailed with the Indian economy was inadequate demand. But what the corporate tax cut attempted to do was to boost supply — the exact opposite of what was required.

Even before the Covid pandemic, corporations simply pocketed the tax relief — estimated to be anywhere between Rs 1.5 lakh crore to Rs 2 lakh crore — and used it to either pay off their debts or boost their profits, without even a single penny rise in net investment.

It can be argued that a better alternative would have been to provide a monetary boost of the same amount to consumers instead of the producers. This could have been done either in the form of increased direct spending from the government or in the form of tax relief (say a reduction in GST rates or income tax rates).

Question 194

“India’s Software industry is an oasis of high productivity”: some stats?

Answer 194

• 0.8 per cent of India’s workers generate 8 per cent of GDP
• 50,000 tech startups that have raised over $90 billion since 2014 from 500+ institutional investors.
• India’s software services industry and tech startups are each estimated to be worth about $400 billion today. By 2025, we expect India’s startup universe value to grow to $1 trillion.
• The mandatory global digital literacy programme and digital investment super-cycle sparked by Covid in education, medicine, shopping, office work, payments, restaurants, and entertainment will double our software employment in five years. Plus the added opportunity in the face of Chinese state’s assaut on her tech enterprises

Question 195

COVID stress on MUDRA loans?

Answer 195

1. Gross NPAs in the Mudra loan book is estimated to have reached around 20 per cent at June-end 2021, from around 6 per cent at March-end 2020 with many states showing rising distress on this book
2. In a key state like Maharashtra, for instance, SBI’s NPA on Mudra loans is at 59 per cent as on June-end 2021. Public sector banks’ Mudra loan NPAs in Maharashtra have jumped to as high as 32 per cent at June-end 2021, from 26 per cent at June-end 2020.
3. The rise in NPAs comes alongside an increase in disbursement under the scheme — from Rs 3.11 lakh crore in 2018-19 to Rs 3.29 lakh crore in 2019-20.
4. Mudra loan NPAs, which had shown a decent recovery rate in the initial years of the scheme, have been rising steadily with the stress building up significantly in the last 18 months.
5. The RBI has been cautioning banks repeatedly on the scheme, asking them to adequately assess borrowers’ repayment capacity.
6. The Credit Guarantee Fund for Micro Units (CGFMU) set up by the Central Government provides lenders guarantee against loan losses in Mudra loans, but bankers say the extent of spike in NPAs is higher than the cover being provided. In April last year, the Government had increased the guarantee to 75 per cent of NPAs in Mudra loans, from 50 per cent earlier. But the cap on guarantee payout has been kept at 15 per cent of total loans.

Question 196

PLFS 2019-20: about PLFS?

Answer 196

• It is India’s first computer-based survey launched by the NSO in 2017.
• It has been constituted based on the recommendation of a committee headed by Amitabh Kundu.
• It essentially maps the state of employment in the country. In doing so, it collects data on several variables such as the level of unemployment, the types of employment and their respective shares, the wages earned from different types of jobs, the number of hours worked etc.
• Before PLFS, the National Sample Survey Office (NSSO)- previous name of NSO used to bring the data related to employment and unemployment based on its quinquennial (every 5 year) household socio-economic survey programme.
• 2019-20 third survey in the series

Question 197

PLFS 2019-20: key stats findings?

Answer 197

1. UR: fell to 4.8% in 2019-20. In 2018-19, it stood at 5.8% and 6.1% in 2017-18.
   
   • rural-urban:
     
     • 4%R vs 7%U- probably agri work is the reason
     • female UR: 2.6%R vs 8.9%U
     • male UR: 4.5%R vs 6.4%U
   • gender divide: 5.1%M vs 4.2%F
2. WPR (Worker Population Rate): improved to 38.2% in 2019-20 compared with 35.3% in 2018-19 and 34.7% in 2017-18.
   
   • It is defined as the percentage of employed persons in the population.
   • rural-urban:
     
     • 39.2%R vs 35.9% U- probably education reason
     • female WPR: 24%R vs 16.8%U
     • male WPR: similar in both rural and urban areas ~53-54% mark
   • gender divide: ~54%M vs ~22%F
3. LFPR:
   
   • increased to 40.1% in 2019-20 from 37.5% and 36.9%, respectively, in the last two years.
   • rural -urban:
     
     • 40.8% R vs 38.6% U- can be understood as better education facilities in urban areas
     • Female LFPR: 24.7%R vs 18.5%U- probably coz of agri labour in rural areas
     • male LFPR: similar in both R and U bt slightly higher in urban areas @57.8%
   • gender divide: 56.8%M vs 22.8%F
4. Gender based UR: relatively improved from previous yr- jobless rate for both male and female fell to 5.1% and 4.2%, respectively, in 2019-20 from 6% and 5.2% in 2018-19
5. WPR by different levels of education among persons of age 15 yrs and above:
   
   • among not literates, 51.3%; ~80% in case of males while ~37% in case of females
   • WPR decreases as the education attained improves from literary upto primary to middle to secondary to higher secondary.
   • for diploma/certificate course WPR ~64% while for graduate it is ~51%
   • overall for secondary and above education level, ~46%
6. PLFS classification by type of work
   
   • rural areas:
     
     • self-employed 58.4%M and 63% female
     • regular wage/salaried employees: 14%M and 9.5%F
     • casual labour: 28%M vs 27.5%F
   • urban areas:
     
     • self employed 38.7% and 34.6%F
     • regular wage/salaried employees: 47.2%M and 54.2%F
     • casual labour: 14%M and 11%F

Question 198

PLFS 2019-20: qualitative findings?

Answer 198

1. survey data shows an increase in the LFPR in agriculture during this period. This, as some have argued, implies that during this period of stress, agriculture emerged as an “employer of last resort”.
2. Equally significant is that much of the increase in the women’s labour force participation recorded by the survey during this period was in the category of unpaid family workers, and not in more productive forms of employment. for women aged 15 and above LFPR stood at 24.5 per cent in 2018-19. much of the increase observed in 2019-20 was in the form of unpaid family work. In fact, according to the survey, the employment rate for unpaid workers in household enterprises in rural and urban areas increased to 15.9 per cent in 2019-20, from 13.3 per cent in 2018-19. In the case of female workers, it increased from 30.9 per cent to 35 per cent over the period. This, as some economists have said, is indicative of rising underemployment.
3. share of the labour force engaged in agriculture rose to 45.6 per cent in 2019-20, up from 42.5 per cent in 2018-19 — an abrupt reversal of the decades-long decline in the labour force participation in agriculture. The reverse migration of labour from cities to villages would have only increased the pressure on agriculture to absorb the workers.
4. data on work demanded by households under MGNREGA indicates that the stress in the labour market remains higher than in pre-Covid times. What these numbers also reflect is the failure of the economy in not being able to create enough non-agricultural jobs (even in pre-Covid times) to absorb both those shifting out of agriculture, and the millions entering the labour force each year. Even the jobs that are being created are informal in nature

Question 199

“The journey from financial inclusion to financial integration is not only about making products available and accessible, but also about making them relevant, applicable, and acceptable.”?

Answer 199

1. In terms of financial inclusion which concerns itself to accessibility and availability of credit, INdia has made significant progress. >90% adults have bank accounts but they are utilising the financial services to meet their needs. A significant portion of the credit need in India is being met by the informal sources like moneylenders
2. Many nano-entrepreneurs as well as daily wage earners require a loan in the morning and want to repay it in the eveneing or the next week, they might even need a second successive loan immediately. The formal bankingsystem often falls short of providing this flexibiity.
3. owing to a limited risk appetite, low or thin-file data on customers and challenging regulatory oversight, capital remains a constraint in designing bespoke products. For India to overcome these challenges, the existing infrastructure must be adapted to our new purpose, providing easy-to-use, customer-centric experiences.
4. greater accessibility: a large part of rural savings is in post offices. This is owing to the village postal agents who collect their savings from their doorsteps. Inspite of having bank accounts going to the bank branch for depositing the money for saving often discourage them.
5. the conventional method of one-size-fits-all is no longer viable. Products must be designed and delivered intelligently to meet the customer where they are, and tailoring the products to the needs and income profile of the customer, including being cognisant of their environment, geography, and demography.
   
   • case study: Mann Deshi Sahakari Bank in Satara, MH launched a cash credit product for women. Often women vegetable sellers/vendors were relying on moneylenders so that they had flexibility to repay their loans in evening or a week after or even get another loan before paying back the earlier loan.
6. In the traditional financial system, the design and distribution cost on financial products at sachet size is high. Expensive technology development and brick-and-mortar infrastructure all contribute to an impractical model. Financial service providers are consequently dissuaded from attempting to reach rural, financially excluded groups, and the availability of financial services, therefore, remains an urban privilege. By using the power of machine learning and cloud infrastructure, we can significantly lower operating costs while offering customers affordable, bespoke financial products that help them reach their goals.
7. On demand side, Financial literacy and technology readiness will help too

Question 200

NARCL?

Answer 200

• FM has announced formation of India’s first-ever “Bad Bank”- “National Asset Reconstruction Company Limited” (NARCL) as well as India Debt Resolution Company Ltd (IDRCL). The NARCL-IDRCL structure is the new bad bank.
• incorporated under companies Act and licensed as ARC by RBI. PSBs will maintain 51% ownership in NARCL while PSBs and Public Financial Institutes (FIs) will hold a maximum of 49% stake in IDRCL. The remaining 51% stake will be with private-sector lenders.
• NARCL will acquire stressed assets worth about Rs 2 lakh crore from various commercial banks in different phases followed by IDRCL trying to sell the stressed assets in the market.
• government has okayed the use of Rs 30,600 crore to be used as a guarantee. If the bad bank is unable to sell the bad loan, or has to sell it at a loss, then the government guarantee will be invoked and the difference between what the commercial bank was supposed to get and what the bad bank was able to raise will be paid from the Rs 30,600 crore that has been provided by the govt.
• The NARCL will first purchase bad loans from banks. It will pay 15% of the agreed price in cash and the remaining 85% will be in the form of “Security Receipts”. When the assets are sold , with the help of IDRCL, , the commercial banks will be paid back the rest.
  
  • Security Receipts are defined under Section 2 (1) of SARFAESI Act
• Private ARCs will be allowed to place counter-bids, but on an all-cash basis (this puts a handicap on pvt ARCs while competing with NARCL as they have to front up 100% cash as compared to only 15% cash needed by NARCL). we can expect to have an ARC industry that can participate in the process of price discovery in competition with the national bad bank. This can reduce the burden on taxpayers.
• Need: level of NPAs rose alarmingly since 2016. In a big way, this was a result of the RBI requiring banks to clearly recognise the bad loans on their books. The fact is several banks had witnessed progressive souring of their loans portfolio since the global financial crisis of 2008-09.

Question 201

How is NARCL different from existing ARCs? How can it operate differently?

Answer 201

1. The proposed bad bank will have a public sector character since the idea is mooted by the government and majority ownership is likely to rest with state-owned banks.
2. At present, ARCs typically seek a steep discount on loans. With the proposed bad bank being set up, the valuation issue is unlikely to come up since this is a government initiative.
3. The government-backed ARC will have deep pockets to buy out big accounts and thus free up banks from carrying these accounts on their books.

Question 202

SARFAESI Act?

Answer 202

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002

• SARFAESI Act, is a legislation that allows banks and other financial organizations to recover bad loans effectively.
• however, applicable only to secured loans. For unsecured loans, banks should move the court to file a civil case of defaulting.
• Supreme Court, in 2020, held that the cooperative banks involved in the activities related to banking are covered within the meaning of ‘banking company’ and Parliament has legislative competence to provide for procedure for recovery of loan under the Sarfaesi Act
• essentially empowers banks and other financial institutions to directly auction residential or commercial properties that have been pledged with them to recover loans from borrowers. Before this Act took effect, financial institutions had to take recourse to civil suits in the courts to recover their dues, which is a lengthy and time-consuming process.
• They should give a notice to the defaulting borrower asking to repay the amount within 60 days. If the debtor doesn’t comply, the bank can resort to one of the three following measures:

1. Take the possession of the loan security.
2. Sell or lease or assign the right over the security.
3. Manage the asset or appoint someone to manage the same.

• The Act also provides for the establishment of Asset Reconstruction Companies (ARCs) to acquire assets from banks and other financial institutions.
• Also applicable to cooperative banks
• SARFAESI as a whole had a recovery rate of 26.7%, much better than previous attempts- Lok Adalat (6.2%) and Debt recovery tribunal, 1993 (4.1%)

Question 203

ARCs?

Answer 203

(SARFAESI) Act, 2002provides the legal basis for the setting up of ARCs in India.

Since then, a large number of ARCs were formed and were registered with the Reserve Bank of India (RBI) which has got the power to regulate the ARCs.

• As per amendment made in the SARFAESI Act in 2016, an ARC should have a minimum net owned fund of Rs. 2 crore.
• The RBI raised this amount to Rs. 100 crore in 2017. The ARCs also have to maintain a capital adequacy ratio of 15% of its risk weighted assets.
• ARCs are permitted to buy NPAs from banks with a combination of cash and securities.
• They are expected to engage in loan-recovery activity and thus the revival of underlying businesses.
• Typically, they charge management fees for the securities they manage on behalf of a bank. ARCs are also permitted to sell these securities in the secondary market to qualified buyers.

Question 204

ARCs: performance? Sudarshan Sen Committee recommendations?

Answer 204

performance of ARCs has been lacklustre.

• During the period from 2003-04 to 2012-13, banks and other investors were only able to recover about 14.29% of the amount owed by borrowers, mostly through measures unrelated to business revival.
• Adequate infusion of capital, a pre-condition for successful recovery, was limited by regulations that constrain an ARC’s ability to take control of a distressed company.
• Of the 28 ARCs (private sector) in operation, many are bit players; the top 5 ARCs account for over 70% of the asset under management (AUM) and nearly 65% of the capital.
• Nearly one-third of debts are rescheduled.
• This is not much value addition to what lenders would have otherwise done at no additional cost.

To improve the performance of ARCs, the RBI had appointed the committee (headed by Sudarshan Sen) to examine the issues and recommend measures for enabling ARCs to meet the growing requirements of the financial sector.

• Online platform: Recognising the need for transparency and uniformity of processes in sale of stressed assets to ARCs, the Committee feels that an online platform may be created for sale of stressed assets.
• The scope of Section 5 of the SARFAESI Act may be expanded to allow ARCs to acquire ‘financial assets’, for the purpose of reconstruction, not only from banks and ‘financial institutions’ but also from such entities as may be notified by the RBI like AIFs, FPIs, AMCs and NBFCs
• provide additional resources:ARCs are to be allowed to sponsor SEBI-registered Alternative Investment Funds to raise resources for facilitating restructuring of bad loans purchased by them.
• allow ARCs to also use theInsolvency and Bankruptcy Code (IBC) framework for this purpose
• Large loans and loans that have been in default for over two years should be considered for sale to ARCs by banks.
• if 66% of lenders (by value) decide to accept an offer by an ARC, the same may be binding on the remaining lenders and it must be implemented within 60 days of approval by majority lenders (66%). If a lender fails to agree, it will be subjected to 100% provisioning on the loan outstanding. This will nudge him to accept the offer.

Question 205

rural Credit: stats?

Answer 205

All-India Debt and Investment Surveys (AIDIS), carried out by NSO

1. average debt per household in rural India is Rs 59,748, nearly half the average debt per household in urban India.
2. the IOI ( incidence of indebtedness - proportion of households having outstanding loans on June 30 of the year in which the survey is conducted) is 35 per cent in rural India — 17.8 per cent of rural households are indebted to institutional credit agencies, 10.2 per cent to non-institutional agencies and 7 per cent to both.
3. share of debt from institutional credit agencies in total outstanding debt in rural India is 66 per cent as compared to 87 per cent in urban India.
4. In non-institutionalised debt, professional and agricultural moneylenders remain the primary sources of credit.
5. Institutional credit is taken mainly for farm business and housing in rural India. A significant portion of debt from non-institutional sources is used for other household expenditure.
6. The data indicates that better-off households have greater access to formal-sector credit and use it for more income-generating purposes. The top 10 per cent rural households in terms of asset ownership spend almost two-thirds of their institutional debt and 40 per cent of non-institutional debt on farm/non-farm business, whereas the bottom 10 per cent spend half of their total debt on household expenditure.
7. Access to institutional credit is largely determined by the ability of households to furnish assets as collateral.The report shows that the top 10 per cent of asset-owning households have borrowed 80 per cent of their total debt from institutional sources, whereas those in the bottom 50 per cent borrowed around 53 per cent of total debt from non-institutional sources.
8. Debt trap: The debt-asset ratio (DAR) of bottom 10 per cent asset-owning households in rural India is 39. This, coupled with higher borrowing from non-institutional sources, acts as a debt trap for households with fewer assets.
9. social identities: The average asset ownership of SC/ST households in rural areas is one-third as compared to upper-caste households. The low asset ownership of marginalised social groups curtails their access to institutional credit.

Question 206

Revamped Quarterly employment survey: about?

Answer 206

• part of the All-India Quarterly Establishment-based Employment Survey (AQEES).
• by Labour Bureau
• It provides updates about the employment and related variables of establishments, in both organised and unorganised segments of nine selected sectors.
• These sectors like Manufacturing, Construction, Trade, Transport, Education, Health, Accommodation and Restaurant, IT/ BPO and Financial Services, altogether account for a majority of the total employment in the non-farm establishments.
• There are two components under AQEES, Quarterly Employment Survey (QES) and Area Frame Establishment Survey (AFES).
  
  • QES has been initiated to compile relevant data from about 12,000 establishments selected through a sampling design to represent each of the nine sectors within each state/ Union Territory, as also each size-class (range of number of workers) within each sector-State/ UT.
  • Area Frame Establishment Survey (AFES) covers the unorganised segment (with less than 10 workers) through a sample survey. AQEES will provide a consolidated picture with both the organised and the unorganised segments of the non-farm economy.

Question 207

GST Revenue performance upto now (2017- 2021)?

Answer 207

• In 2016-17 the various taxes that were folded into the GST yielded revenues of Rs 9.7 lakh crore (Economic Survey, 2017-18)
• Initially, the GST performed well, with collections soaring to Rs 11.8 lakh crore in the first full year of implementation in 2018-19.
• But in 2019-20, the growth rate decelerated sharply and revenue ws 12.2 LCr
• And in 2020-21, collections actually fell. to 11.4 L Cr
• Collections have revived, averaging Rs 1.1 lakh crore in the first five months of the current FY 2021-22, exceeding even pre-pandemic levels.
• understanding drops in 2019-2020: the economy turned south after 2018-19, with nominal GDP growth slowing from 10.5 per cent in 2018-19 to 7.8 per cent the next year and -3 per cent in 2020-21. Moreover, as the RBI has pointed out, the effective tax rate has fallen by nearly 3 percentage points because of reckless rate cutting in 2019, in which both the Centre and states were complicit.

Question 208

suggestions for GST Reforms?

Answer 208

1. Centre- State relations:
   
   • the compensation guarantee should be converted into revenue insurance.
   • states give up their demand for an extension of the compensation mechanism, while the Centre offers a new counter-cyclical buffer.
   • in good economic times, GST revenues will be robust but it is against downturns that states need protection.
   • eg. states could be promised transfers equivalent to 1 percentage point of GSDP for every 3 percentage point shortfall from an agreed trend rate of growth. The transfers would be paid quarterly following any two quarters in which the shortfall exceeded 3 percentage points.
   • would also lead to abolition of compensation cess
2. GST slabs
   
   • as recommended by the Fifteenth Finance Commission and the Revenue Neutral Rate report, a new structure should have one low rate (between 8 and 10 per cent), one standard rate (between 16 and 18 per cent) and one rate for all demerit goods.
   • The average incidence of the GST will increase as the rate cuts effected since 2019 are reversed
3. cess:
   
   • Cess allows non-sharing of revenues with states and is a nice workaround the economic federalism
   • The single rate on demerit goods also requires eliminating the cesses with all their complexity. For example, taxes/cesses based on the length of cigarettes are an absurdity deserving immediate abolition.
4. consensus building in GST councils:
   
   • decisions should preferably be made by consensus. This is possible only if there is a shared sense of participatory and inclusive governance.
   • discussions in the Council could be steered by the central Finance Minister (Chair), aided by a finance minister (Vice-chair) from an Opposition state, rotating periodically. The agenda-setting and technical work could be done jointly by these two, and they could even take turns chairing council meetings.

Question 209

BEPS defn?

Answer 209

BEPS refers to tax planning strategies used by multinational enterprises that exploit gaps and mismatches in tax rules to avoid paying tax.

BEPS practices cost countries USD 100-240 billion in lost revenue annually

Question 210

Government Security Acquisition Programme (G-SAP) 1.0?

Answer 210

• In April 2021, RBI put in place a secondary market Government Security Acquisition Programme (G-SAP) 1.0 for orderly evolution of the yield curve in FY22.
• Under the programme, the central bank will purchase government bonds of worth Rs 1 trillion
• The G-Sec Acquisition Programme (G-SAP) is basically an unconditional and a structured Open Market Operation (OMO), of a much larger scale and size.
• RBI has called the G-SAP as an OMO with a ‘distinct character’.
• The word ‘unconditional’ here connotes that RBI has committed upfront that it will buy G-Secs irrespective of the market sentiment.
• significance:
  
  • The GSAP 1.0 will provide more comfort to the bond market. As the borrowing of the Government increased this year, RBI has to ensure there is no disruption in the Indian market.
  • The programme will help to reduce the spread between repo rate and the ten-year government bond yield.
  • The G-SAP will almost serve the purpose of an OMO calendar, which had been on the bond market’s wish list for a long time.

Question 211

Govt security Acquisition Programme (GASP) 2.0?

Answer 211

In Sept 2021, RBI conducted OMO of G-Secs worth 30000 cr- 150000 cr worth buying as well as selling.

This is the first time that the RBI will be conducting simultaneous purchase and sale of G-Secs, in view of the current liquidity conditions in the banking system.

Question 212

What are negative yield bonds?

Answer 212

These are debt instruments that offer to pay the investor a maturity amount lower than the purchase price of the bond.

• Can be issued by central banks or governments.
• Here, investors pay interest to the borrower to keep their money with them.
• Such instruments are usually in demand during times of stress and uncertainty. This is to protect their capital from significant erosion.
• From currency fluctuations to deflation, there are scenarios in which purchasers of negative-yield bonds can come out ahead.
• Many investors could also be temporarily parking money in negative-yielding government debt for the purpose of hedging their risk portfolio in equities.
• In case the fresh wave of the Covid-19 pandemic leads to further lockdowns of economies, then there could be further negative pressure on interest rates, pushing yields down further, and leading to profits even for investors who put in money at the current juncture.

Question 213

INput Tax credit: about?

Answer 213

• It is the tax that a business pays on a purchase and that it can use to reduce its tax liability when it makes a sale.
• In simple terms, input credit means at the time of paying tax on output, you can reduce the tax you have already paid on inputs and pay the balance amount.

Exceptions: A business under composition scheme cannot avail of input tax credit. ITC cannot be claimed for personal use or for goods that are exempt.

Question 214

Input Tax credit: concerns over misuse?

Answer 214

1. There could be possibility of misuse of the provision by unscrupulous businesses by generating fake invoices just to claim tax credit.
2. As much as 80% of the total GST liability is being settled by ITC and only 20% is deposited as cash.
3. Under the present dispensation, there is no provision for real time matching of ITC claims with the taxes already paid by suppliers of inputs.
4. Currently there is a time gap between ITC claim and matching them with the taxes paid by suppliers. Hence there is a possibility of ITC being claimed on the basis of fake invoices.
5. The government had introduced Rule 86A in GST rules in December 2019 giving powers to taxmen to block the ITC available in the electronic credit ledger of a taxpayer if the officer has “reasons to believe” that the ITC was availed fraudulently.
6. GST Network has said it has blocked Rs 14,000 crore worth of input tax credit (ITC) of 66,000 businesses registered under GST

Question 215

Blocking of Input Tax credit: guidelines?

Answer 215

Central Board of Indirect Taxes and Customs (CBIC) has come out with norms on blocking of tax credit by GST field officers, saying that such blocking should be on the basis of ‘material evidence’ and not just out of ‘suspicion.’

New Norms:

• The norms laid down five specific circumstances in which such credit could be blocked by a senior tax officer. These include invoices on which GST has not been paid by sellers.
• The commissioner or an officer authorised by him, not below the rank of assistant commissioner, must form an opinion for blocking of input tax credit (ITC) only after ‘proper application of mind’ considering all the facts of the case.

Question 216

Central bank digital Currency (CBDC)?

Answer 216

• A CBDC is an electronic record or digital token of a country’s official currency.
• As such, it is issued and regulated by the nation’s monetary authority or central bank. As such, they are backed by the full faith and credit of the issuing government.
• CBDCs are meant to represent fiat currency. The goal is to provide users with convenience and security of digital as well as the regulated, reserve-backed circulation of the traditional banking system. They are designed to function as a unit of account, store of value, and medium of exchange for daily transactions.
• The country’s central bank issues its CBDC, which has the backing of the federal government. That CBDC can then be used as legal tender for transactions such as paying employees or buying goods and services. This may sound familiar to what we already have. After all, you can transfer money from your bank account to a friend’s account at another bank, and it will all happen digitally. However, with a CBDC, this type of transaction wouldn’t need to pass through multiple banks and take several business days. It could all happen nearly instantaneously on one digital ledger. Consumers also wouldn’t need a commercial bank account to use a CBDC. For those who are unbanked, CBDCs would provide a way to transfer money digitally.
• eg. around the world:
  
  • Sweden’s Riksbank began developing an electronic version of the krona (called e-krona) after the country experienced a decline in the use of cash
  • Russia’s plan to create the CryptoRuble was announced by Vladimir Putin in 2017.
• Types:
  
  • Wholesale CBDCs use the existing tier of banking and financial institutions to conduct and settle transactions. These types of CBDCs are just like traditional central bank reserves. It can be done in two manners: via interbank payment, that involves the transfer of assets or money between two banks, or by a distributed ledger system.
  • Retail CBDCs involve the transfer of central government-backed digital currency directly to consumers. They eliminate the intermediary risk or the risk that banking institutions might become illiquid and sink depositor funds.

Question 217

central bank digital currency (CBDc) vs cryptocurrency?

Answer 217

• CBDCs are not cryptocurrencies. Although the idea for CBDCs came from cryptocurrencies, they are two very different types of digital currencies. The key difference between CBDCs and cryptocurrency is centralization.
• A cryptocurrency is a decentralized digital currency, meaning there’s no central party that controls it. a central bank digital currency is controlled by a central bank.
• Cryptocurrency also provides much greater privacy than CBDCs. Transactions are sent and received through wallet addresses, and it’s possible to retain some degree of anonymity. Certain types of cryptocurrency are even thought to be untraceable. With a CBDC, the central bank will have a record of users and their transactions.
• CBDCs are most similar to stablecoins, which are cryptocurrencies that are pegged to fiat money and attempt to maintain the same value.

Question 218

Central bank digital Currency (CBDCs): Advantages?

Answer 218

1. simplify the process of implementing monetary policy and government functions. They automate the process between banks through wholesale CBDCs and establish a direct connection between consumers and central banks through retail CBDCs.
2. minimize the effort and processes for other government functions, such as distribution of benefits or calculation and collection of taxes.
3. ‘Fit-for-purpose’ money used for social benefits and other targeted payments in a country. For such cases, the central bank can pay intended beneficiaries pre-programmed CBDC, which could be accepted only for a specific purpose.
4. Disbursement of money through intermediaries introduces third-party risk to the process. A CBDC eliminates third-party risk. Any residual risk that remains in the system rests with the central bank.
5. One of the roadblocks to financial inclusion for large parts of the unbanked population, especially in developing and poor countries, is the cost associated with developing the banking infrastructure needed to provide them with access to the financial system. CBDCs can establish a direct connection between consumers and central banks, thus eliminating the need for expensive infrastructure.
6. CBDCs can prevent illicit activity because they exist in a digital format and do not require serial numbers for tracking. Cryptography and a public ledger make it easy for a central bank to track money throughout its jurisdiction
7. Obviate the popularity of cryptocurrencies
8. India’s fairly high currency-to-GDP ratio holds out another benefit of CBDC — to the extent large cash usage can be replaced by CBDC, the cost of printing, transporting and storing paper currency can be substantially reduced.
9. CBDCs could be used for faster cross-border remittance payments. International collaboration among the major economies of the world, including India, could help create the necessary infrastructure and arrangements for CBDC transfer and conversion.

Question 219

Central bank digital Currency (CBDCs): Disadvantages?

Answer 219

1. CBDCs don’t necessarily solve the problem of centralization. A central authority (the central bank) is still responsible for and invested with the authority to conduct transactions.
2. Users would have to give up some degree of privacy since the administrator is responsible to collect and disseminate digital identifications. The provider would become privy to every transaction conducted.
3. The legal and regulatory issues pertaining to CBDCs are a black hole. What will be the role of these currencies and who will regulate them? Considering their benefits in cross-border transfers, should they be regulated across borders?
4. The portability of these systems means that a strong CBDC issued by a foreign country could end up substituting a weaker country’s currency. A digital U.S. dollar could substitute the local currency of a smaller country or a failing state.
5. Lack of digital literacy

Question 220

Central bank digital Currency (CBDCs): guidelines issued by G7?

Answer 220

1. Any digital currency issued by a central bank must “support and do no harm” to the bank’s ability to fulfil its mandate on monetary and financial stability
2. meet rigorous standards of privacy, transparency and accountability for protection of user data.
3. Any central bank digital currency (CBDC) should be grounded in long-standing public commitments to transparency, rule of law and sound economic governance.

Question 221

Central bank digital Currency (CBDCs): use in Indian context?

Answer 221

1. ‘Fit-for-purpose’ money used for social benefits and other targeted payments in a country. For such cases, the central bank can pay intended beneficiaries pre-programmed CBDC, which could be accepted only for a specific purpose.
2. CBDCs could be used for faster cross-border remittance payments. International collaboration among the major economies of the world, including India, could help create the necessary infrastructure and arrangements for CBDC transfer and conversion.
3. Payment instruments could be made available for payment transactions to be made via CBDC. Furthermore, universal access attributes of a CBDC could also include an offline payment functionality.
4. Instant lending to micro, small, and medium enterprises (MSMEs) in India can be possible with the help of CBDC.

Question 222

Cryptocurrency: intro for answers?

Answer 222

Defn: A cryptocurrency is a digital asset designed to work as a medium of exchange wherein individual coin ownership records are stored in a ledger existing in a form of a computerized database.

It uses strong cryptography to secure transaction records, to control the creation of additional coins, and to verify the transfer of coin ownership.

It typically does not exist in physical form (like paper money) and is typically not issued by a central authority.

Cryptocurrencies typically use decentralized control as opposed to centralized digital currency and central banking systems.

Question 223

Cryptocurrency: benefits?

Answer 223

1. Funds transfer between two parties will be easy without the need of third party like credit/debit cards or banks.
2. It is a cheaper alternative compared to other online transactions.
3. Payments are safe and secured and offer an unprecedented level of anonymity.
4. Modern cryptocurrency systems come with a user “wallet” or account address which is accessible only by a public key and pirate key. The private key is only known to the owner of the wallet.
5. Funds transfers are completed with minimal processing fees. Intermediaries such as banks, credit card and payment gateways draw almost 3% from the total global economic output of over $100 trillion, as fees for their services.
6. As blocks run on a peer-to-peer network, it helps keep corruption in check by tracking the flow of funds and transactions.

Question 224

Cryptocurrency: concerns?

Answer 224

1. Sovereign guarantee: Cryptocurrencies pose risks to consumers. They do not have any sovereign guarantee and hence are not legal tender.
2. Market volatility: Their speculative nature also makes them highly volatile. For instance, the value of Bitcoin fell from USD 20,000 in December 2017 to USD 3,800 in November 2018.
3. Risk in security: A user loses access to their cryptocurrency if they lose their private key (unlike traditional digital banking accounts, this password cannot be reset).
4. Malware threats: In some cases, these private keys are stored by technical service providers (cryptocurrency exchanges or wallets), which are prone to malware or hacking.
5. Money laundering: Cryptocurrencies are more vulnerable to criminal activity and money laundering. They provide greater anonymity than other payment methods since the public keys engaging in a transaction cannot be directly linked to an individual.
6. Regulatory bypass: A central bank cannot regulate the supply of cryptocurrencies in the economy. This could pose a risk to the financial stability of the country if their use becomes widespread.
7. Power consumption: Since validating transactions is energy-intensive, it may have adverse consequences for the country’s energy security (the total electricity use of bitcoin mining, in 2018, was equivalent to that of mid-sized economies such as Switzerland).

Question 225

Cryptocurrency: response by Indian state?

Answer 225

• Currently, there is no regulation or any ban on the use of cryptocurrencies in the country.
• In 2013, the Reserve Bank of India (RBI) issued a circular warning the public against the use of virtual currencies.
• RBI in 2016 banned banks from supporting crypto transactions and stated that virtual currencies are not a legal tender. But the order was reversed by SC in 2020.
• In April 2018, the finance ministry appointed-committee proposed a draft bill for the regulation of virtual currencies but did not recommend a ban. However, in February 2019 the committee proposed a fresh draft bill that recommended a blanket ban.
• Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 is listed for introduction in Parliament’s Winter Session seeks to prohibit all “private cryptocurrencies” in India. However, it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses.

Question 226

SC Garg Committee (2019) is related to?recommendations?

Answer 226

Cryptocurrency regulation in India

Recommendations

1. Ban anybody who mines, hold, transact or deal with cryptocurrencies in any form.
2. It recommends a jail term of one to 10 years for exchange or trading in digital currency.
3. It proposed a monetary penalty of up to three times the loss caused to the exchequer or gains made by the cryptocurrency user whichever is higher.
4. However, the panel said that the government should keep an open mind on the potential issuance of cryptocurrencies by the Reserve Bank of India.

Question 227

India’s Exports: trends (Sept 2021)?

Answer 227

• India’s quarterly exports cross $100 bn mark for the first time as a result of sector specific interventions taken by the government during the COVID crisis.
• India’s overall exports (merchandise and services combined) in 2019-20 were US$ 526.6 billion as against US$ 538.1 billion in 2018-19. The decline due to the global slowdown, which got aggravated due to the Covid-19 crisis disrupting supply chains
• India’s share in world exports has increased from 0.6% in 1991 to 1.7% in 2018 but remains paltry compared with China’s ~13% and US’ ~9%. India ranked 18th on the list of the top exporting countries worldwide in 2019.
• As percentage of GDP, India’s exports are about 18 per cent of GDP. India’s services trade has been a major driver of its exports due to its high growth and services trade surplus has been financing almost 50% of India’s merchandise trade deficit.
• India’s services trade has been a major driver of its exports due to its high growth and services trade surplus has been financing almost 50% of India’s merchandise trade deficit

Question 228

India’s Overall trade: trend over the past decade? (bar graph)

Answer 228

Question 229

India’s merchandise export: trend in last decade?

Answer 229

Question 230

India’s export: top 5 commodities?

Answer 230

1. Petroleum Products: 13%
2. Pearls, Precious, semi-precious stones: 7%
3. Drug and pharma formulations: 5%
4. Gold and other jewelleries: 4%
5. Iron and Steel 3%

Question 231

India’s export: Top 5 destinations?

Answer 231

1. 17%: USA
2. 9% UAE
3. 5% China
4. 4% HK
5. 3% Singapore

Question 232

Govt target for merchandise export?

Answer 232

Government has set merchandise export target of $400 billion for the year 2021-22 and overall export target of 1 trillion exports by 2027.

Question 233

Initiatives taken by Deptt of Commerce to Boost INdia’s exports in COVID/Post COVID times?

Answer 233

1. Relief for exporters: By extending Import Validity period and Export Obligation period in Advance Authorizations.
2. Export of medical supplies to the world such as Hydroxyhloroquinine and Paracetamol, N95 masks, 2/3 ply surgical masks, alcohol-based sanitizers, PPE etc.
3. Enhanced Ease of Doing Business through electronic governance and trade facilitation: Various technology driven solutions were undertaken for foreign trade facilitation for instance, electronic platform for Preferential Certificate of Origin (COO) was released.
4. Adoption of Technical Regulations (TRs) and Quality Control Orders (QCO’s) to strengthen the quality ecosystem
5. Fast track mechanism for trade remedy to promote transparency, efficiency, and expeditious relief to the domestic industry, such as the e-filing facility for anti-dumping investigations.
6. Developing Districts as Export Hubs: In this regard, various measures have been undertaken viz., preparation of State export strategy/ policy by all State/UT Governments, product/service identification in each District, preparation of District Export Action Plans (DEAPs) by DGFT among others

Question 234

Reasons for India’s Underperformance in Exports ?

Answer 234

1. Low Level of Participation in Global Value Chains (GVCs): India’s participation in GVCs has been low compared to the major exporting nations in East and Southeast Asia. For instance, export growth of capital intensive products from China has been mainly driven by its participation in the GVCs.
2. Limited diversification of India’s export basket: The top 10 principal exports in terms of commodity groups accounts for as much as 78 per cent of total merchandise exports.
3. Low competitiveness of Indian Products: The domestic factors like lackluster infrastructure, complex land and labour laws, fragmented and unregulated logistics sector have impeded the creations of conditions for Indian companies to compete in global markets.
4. Regional Disparities: 70 per cent of India’s export has been dominated by five states — Maharashtra, Gujarat, Karnataka, Tamil Nadu, and Telangana. India faces three fundamental challenges with regard to export promotion:
   
   1. Intra- and inter-regional disparities in export infrastructure as coastal states have performed extremely well compared to the landlocked states in developing export promotion parks and hubs.
   2. Poor trade support and growth orientation among states. Other than Uttarakhand and the coastal states, there is an absence of strong support towards the exporters from the respective state governments in improving their quality or quantity.
   3. Poor research & development infrastructure to promote complex and unique exports curbing the innovative tendencies at the sub-national level: ‘Himalayan’ states for instance have performed inadequately in this area due to the scarcity of research and quality check institutes.
5. Inability to exploit comparative advantage in lower-skilled and labor-intensive exports. India has seen its share of world trade in textiles, garments and footwear decline in recent years while Bangladesh has almost caught up to India, and Vietnam has well overtaken it.

Question 235

Why India needs an Export Led Growth?

Answer 235

Economic Survey 2019 has advocated an export-led growth model for India for reasons such as:

• Exports can help India to achieve the target of making India a developed economy by focusing on ‘Atma Nirbhar Bharat’.
• Economic Growth: Higher exports draw more foreign remittances, create more jobs and lower the current account deficit, creates demand and infrastructure. Major economies around the world are also major exporters. To corroborate this claim, it is to be noted that China is the world’s leading exporter of goods.
• Becoming a part of Global Value Chains: Exports give domestic sellers increased access to the market that helps in presenting a golden opportunity to capture a good chunk of global market share.
• Mitigate Regional Disparities: Improving the export competitiveness of states can mitigate regional disparities through export-led growth and the consequent rise in standard of living.
  
  • The Economic Survey established that states which engage with the world markets as well as with the other states within the country are richer.

Question 236

Initiatives under INdia’s FTP 2015-20?

Answer 236

extended till March 2022

• Export Promotion Schemes:
  
  • RoDTEP
  • Service Exports from India schemes (SEIS)
• Duty exemption/Remission schemes
• EPCG scheme
• Export Oriented Units (EOU)
• Recent initiatives

Question 237

Initiatives under INdia’s FTP 2015-20: RoDTEP?

Answer 237

It enables zero-rating of exports by ensuring domestic taxes are not exported and aims to refund all hidden taxes, such as the central and state taxes on the fuel used for transportation of export products, duties levied on electricity used for manufacturing, MANDI tax and others.

It replaced the old Merchandise Exports from India Scheme (MEIS) as it was not WTOcompliant. Under this, incentives were provided to exporters in the form of duty credit scrips to refund losses on paid duties.

Features of the scheme:

The tax refund rates range from 0.5% to 4.3% for various sectors.

The rebate will have to be claimed as a percentage of the Freight On Board (FOB) value of exports (i.e. value of goods excluding shipping, insurance and freight)

Rebates will be issued in the form of a transferable duty credit/electronic scrip (e-scrip) which will be maintained by the Central Board of Indirect Taxes and Customs (CBIC).

Steel, pharma, and chemicals have not been included under the scheme and for garment exporters, the Rebate of State and Central Levies and Taxes (RoSCTL) Scheme has been notified separately

Question 238

Initiatives under INdia’s FTP 2015-20: SEIS?

Answer 238

Service Exports from India Scheme (SEIS): Service providers of notified services are eligible for freely transferable duty credit scrip @ 5% of net foreign exchange earned

Question 239

Initiatives under INdia’s FTP 2015-20: Duty exemption and remission schemes?

Answer 239

Advance Authorisation Scheme (AAS) allows traders to import raw materials at 0% import duty if those raw materials will be used to manufacture export products.

Duty Drawback Scheme (DBK Scheme): Exporters are given compensation on customs and central excise duties incurred on materials used in the manufacture of exported goods.

Question 240

Initiatives under INdia’s FTP 2015-20: EPCG? Export Oriented Units (EoUs)?

Answer 240

Export Promotion Capital Goods Scheme (EPCG) Facilitates the imports of capital goods to produce goods and services by manufacturers to enhance India’s export competitiveness.

EoUs Aims to increase exports by providing a favorable ecosystem to companies, which are 100% exporters. This scheme allows certain waivers and concessions in compliance and taxation matters.

Question 241

Initiatives under INdia’s FTP 2015-20: recent initiatives?

Answer 241

1. IndiaXports Initiative: Aiming to increase MSME exports by 50% in 2022, it features an Info Portal which will serve as a knowledge base for exports by Indian MSMEs with the required information related to export potential, potential markets as well as trends in exports, etc.
2. Capital Infusion in Export Credit Guarantee Corporation: ECGC was set up in 1957 to promote exports by providing Credit Risk Insurance and related services for exports.
3. Production-Linked Incentive (PLI) is provided for 13 high-potential sectors, including auto, battery cell, pharma, telecom networking, food, and textiles to promote their manufacturing.
4. Export Preparedness Index’ (EPI) was released by NITI Aayog recently which discusses the export potential of each state and the role of regional level economies in enhancing India’s share in the global trade.
5. Draft National Logistics Policy has been introduced which will create a single-window e-logistics market that will cut logistics costs, from 13-14% of GDP, to 10%.
6. Continuation of National Export Insurance Account (NEIA) and infusion of 1,650 crore over five years (2021-2022 to 2025-2026). It will help Exporters to tap potential of project exports in focus market and will enhance manufacturing in India.
   
   • NEIA Trust was established in 2006 to promote project exports from India that are of strategic and national importance.
7. GST Refund for Exporters
8. Transport and Marketing Assistance Scheme (TMA Scheme): freight costs up of to a certain amount will be reimbursed by the government to make Indian agricultural products competitive in the global space.
9. Market Access Initiative (MAI) Scheme to promote marketing, market research, promotion and branding in new markets.
10. Interest Equalisation Scheme (IES) provides 5% interest support to all manufacturers in the MSME sector and 3% support to all exporters in the identified 416 tariff lines.
11. NIRVIK Scheme: Introduced by the Export Credit Guarantee Corporation of India (ECGC) it provides high insurance cover, reduced premium for small exporters and a simplified claim settlement process.

Question 242

EODB reforms implemented by India to improve its ranking?

Answer 242

1. Make in India led to launch of reforms like getting FDI, foster business, alleviate the business environment from outdated policies and regulations, infrastructure development etc.
2. Launch of web-based SPICe+ and AGILE-PROform has enabled new company incorporation in 3-steps as compared to the 14 steps process in 2014.
3. Establishment of a modern insolvency regime through IBC 2016 as part of a comprehensive strategy to reform corporate law.
4. One stop shop portal has been launched in Mumbai & Delhi
5. Easy procedure for filing GST returns, elimination of incorporation fees for small businesses etc.
6. Number of days required for getting electricity connection reduced from 105 days in 2014 to 53 days in 2019 in India
7. Dedicated Commercial Courts with modern facilities in Delhi and Mumbai have been established for early redressal of commercial disputes.
8. Single window for all import and export transactions, integration of all stakeholders such as port and terminal operators at a common platform and fast-tracking clearances of consignments at ports.
9. Passage of the Taxation laws (amendment) Act, 2021 which scrapped the retrospective taxation bringing certainty in taxation laws.

Question 243

what is ‘wage drift’?

Answer 243

Wage drift is the difference between the rates negotiated by a company and wages actually given to a worker by the end of a period.

The increase could be due to several reasons such as overtime, bonus payment paid out by the company etc.

Question 244

Prompt Corrective Action Framework: intro?

Answer 244

• PCA is a framework under which banks with weak financial metrics are put under watch by the RBI.
• The RBI introduced the PCA framework in 2002 as a structured early-intervention mechanism for banks that become undercapitalised due to poor asset quality, or vulnerable due to loss of profitability.
• It aims to check the problem of Non-Performing Assets (NPAs) in the Indian banking sector.
• PCA is intended to help alert the regulator as well as investors and depositors if a bank is heading for trouble.
• The idea is to head off problems before they attain crisis proportions.
• Essentially PCA helps RBI monitor key performance indicators of banks, and taking corrective measures, to restore the financial health of a bank.
• The PCA framework deems banks as risky if they slip some trigger points - capital to risk weighted assets ratio (CRAR), net NPA, Return on Assets (RoA) and Tier 1 Leverage ratio.
• Certain structured and discretionary actions are initiated in respect of banks hitting such trigger points.
• The PCA framework is applicable only to commercial banks and not to co-operative banks and non-banking financial companies (NBFCs).
• Applicable to all banks operating in India including small banks and foreign banks operating through branches or subsidiaries. However, not applicable to SFBs, Payment banks and RRBs
• In the case of a default on the part of a bank in meeting the obligations to its depositors, possible resolution processes may be resorted to without reference to the PCA matrix.
• was revised in 2017 and leverage was added as a criteria

Question 245

Prompt Corrective Action Framework 2002: details?

Answer 245

• CRAR:
  
  • If CRAR falls to less than 9 percent, the RBI asks banks to submit a capital restoration plan, restricts new businesses and dividend payments.
  • The RBI also orders recapitalisation, restrictions on borrowings from the inter-bank market, reduction of stake in subsidiaries and reduction of exposure to sensitive sectors.
  • Such sectors include the capital markets, real estate or investments in non-statutory liquidity ratio securities.
  • If CRAR is less than 6 percent but equal to or more than 3 percent, RBI will order recapitalisation; the RBI could take additional steps if the bank fails to submit a recapitalisation plan.
• NPA levels:
  
  • If net NPAs rise beyond 10 percent but are less than 15 percent, a special drive to reduce bad loans and contain the generation of fresh NPAs begins.
  • The RBI reviews the bank’s loan policy and takes steps to strengthen credit-appraisal skills.
• Return on Assets:
  
  • If RoA is less than 0.25 percent, restrictions on accessing/renewing costly deposits and CDs kick in and the RBI bars the bank from entering new lines of business.
  • The bank’s borrowings from the inter-bank market, making dividend payments and increasing staff will be restricted.

Question 246

Prompt Corrective Action Framework 2017: details?

Answer 246

Capital, asset quality and profitability continue to be the key areas for monitoring in the revised framework.

Indicators to be tracked for Capital, asset quality and profitability would be CRAR/ Common Equity Tier I ratio, Net NPA ratio and Return on Assets respectively. Leverage would be monitored additionally as part of the PCA framework.

3 risk Thresholds

Question 247

Prompt Corrective Action Framework 2017: details: threshold for capital?

Answer 247

Threshold 1:

• CRAR < 10.25% (then RBI prescribed min value for CRAR; 9% minimum reulatory prescription for capital to risk assets ratio + 1.25 % Capital conservation Buffer (as CCB was changed in subsequent yrs, these threshold also changed)) but ≥7.75%, AND/OR
• Common Equity Tier 1 < 6.75% (then RBI’s prescribed min value for CET1; 5.5% + 1.25% Capitall conservation Buffer) but ≥ 5.125%

Threshold 2:

• CRAR < 7.75% but ≥ 6.25%
• CET1 <5.125% but ≥ 3.625%

Threshold 3:

• CRAR - N/A
• CET1 <3.625%

Question 248

CRAR: what is it?

Answer 248

Capital Adequacy Ratio (CAR) or Capital to Risk (Weighted) Assets Ratio (CRAR) is the ratio of a bank’s capital to its risk

it is the ratio of a bank’s capital to its risk-weighted assets and current liabilities.

The CAR or the CRAR is computed by dividing the capital of the bank with aggregated risk-weighted assets for credit risk, operational risk, and market risk.

Tier 1 CAR = (Eligible Tier 1 capital funds) / (Market Risk RWA + Credit Risk RWA + Operational Risk RWA)

Total CAR = (Eligible Total capital funds) / (Credit Risk RWA + Market Risk RWA + Operational Risk RWA)

Question 249

Tier 1 Capital ? Tier 2 capital?

Answer 249

Tier 1 capital: This can absorb the losses without a bank being required to stop trading. Also called core capital, this consists of ordinary share capital, equity capital, audited revenue reserves, and intangible assets. This is permanently available capital and readily available to absorb losses incurred by a bank without it having to cease operations.

Tier 2 capital: This can absorb losses if the bank is winding-up and so gives depositors a lesser measure of protection. This consists of unaudited reserves, unaudited retained earnings, and general loss reserves. This capital cushions losses if the bank is winding up and is used to absorb losses after a bank loses all its tier 1 capital.

Question 250

Common Equity Tier 1?

Answer 250

• According to Basel-III norms banks’ regulatory capital is divided into Tier 1 and Tier 2, while Tier 1 is subdivided into Common Equity Tier-1 (CET-1) and Additional Tier-1 (AT-1) capital.
• Common Equity Tier 1 capital includes equity instruments where returns are linked to the banks’ performance and therefore the performance of the share price. They have no maturity.
• Additional Tier-1 capital are perpetual bonds which carry a fixed coupon payable annually from past or present profits of the bank.
• They have no maturity, and their dividends can be cancelled at any time.
• Together, CET and AT-1 are called Common Equity.

Question 251

Prompt Corrective Action Framework 2017: details: threshold for asset qlty?

Answer 251

Threshold 1: Net NPAs ≥ 6% bt < 9%

Threshold 2: ≥ 9% bt < 12%

Threshold 3: ≥ 12%

Question 252

Prompt Corrective Action Framework 2017: details: threshold for profitability?

Answer 252

Threshold 1: ROA -ve for 2 consecutive yrs

Threshold 2: ROA -ve for 3 consecutive yrs

Threshold 3: ROA -ve for 4 consecutive yrs

Question 253

Prompt Corrective Action Framework 2017: details: threshold for leverage?

Answer 253

Threshold 1: Tier 1 Leverage Ratio ≤4% bt ≥3.5%

Threshold 2: Tier 1 Leverage Ratio <3.5%

Threshold 3: N/A

Question 254

Tier 1 Leverage ratio: what is it?

Question 255

Prompt Corrective Action Framework 2017: mandatory actions (skipped writing abt discretionary actions as they are too many and many are a bit vague) for breaching of various thresholds?

Answer 255

Risk Threshold 1:

• Restriction on dividend distribution/remittance of profits.
• Promoters/owners/parent in the case of foreign banks to bring in capital

Risk Threshold 2:

• In addition to mandatory actions of Threshold 1,
• Restriction on branch expansion; domestic and/or overseas
• Higher provisions as part of the coverage regime

Risk Threshold 3:

• In addition to mandatory actions of Threshold 1,
• Restriction on branch expansion; domestic and/or overseas
• Restriction on management compensation and directors’ fees, as applicable
• Additionally, Breach of ‘Risk Threshold 3’ of CET1 by a bank would identify a bank as a likely candidate for resolution through tools like amalgamation, reconstruction, winding up, etc.

Question 256

Revised Prompt Corrective Action (PCA) Framework 2022?

Answer 256

revised PCA will be effective from January 1, 2022.

1. Capital, asset quality and profitability continue to be the key areas for monitoring.
2. Indicators to be tracked for Capital, asset quality and profitability would be CRAR/ Common Equity Tier I ratio, Net NPA ratio, Return on Assets and Leverage.

Question 257

Revised Prompt Corrective Action (PCA) Framework 2022: risk thresholds??

Answer 257

• Threshold 1
  
  • Capital:
    
    • CRAR: upto 250 bps below the value prescribed by RBI at the time
    • CET1: upto 162.50 below the value prescribed by RBI at the time
  • Net NPAs: ≥6% bt ≤9%
  • Leverage: Tier 1 leverage ratio upto 50 bps below the regulatory minimum Tier 1 Leverage ratio prescribed by RBI at the time
• Threshold 2:
  
  • Capital:
    
    • CRAR:More than 250 bps but not exceeding 400 bps below the value prescribed by RBI at the time
    • CET1: More than 162.50 bps below but not exceeding 312.50 bps below the value prescribed by RBI at the time
  • Asset qlty:Net NPAs ≥ 9.0% but < 12.0%
  • Leverage: Tier 1 leverage ratio more than 50 bps but not exceeding 100 bps below the min value prescribed by RBI at the time
• Threshold 3:
  
  • Capital:
    
    • CRAR: In excess of 400 bps below the value prescribed by RBI at the time
    • CET1: In excess of 312.50 bps below the value prescribed by RBI at the time
  • Asset Qlty: Net NPAs ≥ 12%
    
    • Leverage: Tier 1 leverage ratio more than 100 bps below the min value prescribed by RBI at the time

Question 258

Revised Prompt Corrective Action (PCA) Framework 2022: mandatory actions?

Answer 258

Risk Threshold 1:

• Restriction on dividend distribution/remittance of profits.
• Promoters/owners/parent in the case of foreign banks to bring in capital

Risk Threshold 2:

• In addition to mandatory actions of Threshold 1,
• Restriction on branch expansion; domestic and/or overseas

Risk Threshold 3:

• In addition to mandatory actions of Threshold 1,
• Appropriate restrictions on capital expenditure, other than for technological upgradation within Board approved limits

Question 259

Prompt Corrective Action (PCA) framework for NBFCs?

Answer 259

• introduced by RBI, will come into effect from Oct 202 on the basis of their fin positions on or after March 31st
• applicability
  
  • Applicable to all deposit taking NBFCs, all non deposit taking NBFCs in the middle, Apa and top layers including investment nd credit companies, core investment companies, infrastructure debt funds, infrastructure Finance Companies and microfinance institution
  • However it is excluded NBFCs not accepting public funds, primary dealers and Housing Finance Companies along with government-owned ones
• Indicators based on which PCA will be invoked
  
  • Capital to risk weighted assets ratio (CRAR); Tier I ratio and net non performing assets including non performing Investments
  • In the case of core investment companies (CICs) RBI will track adjusted net worth or aggregate risk weighted assets, leverage ratio and net non performing assets including non performing investment
  • A breach in any of the three risk thresholds under the above-mentioned indicators could result in invocation of PCA
• What will happen once PCA is invoked
  
  • RBI may prescribe mandatory corrective actions such a restriction on dividend distribution/remittance of profits, requiring promoted to Infuse equity and reducing leverage
  • for CICs, RBI can also restrict the issuance of guarantee is a take other contingent liabilities on behalf of group companies
  • RBI may also restrict branch expansion, imposed cards and capital expenditure other than for technological upgradation within board approved limits and restrict variable operating cost
• Need: 4 big finance firms- ILF&D, DHFL, SREI and Reliance Capital- which collected public funds through fixed deposits and non-convertible debentures collapse in the last three years despite the tight monitoring in the financial sector. They collectively owe over rupees 1 L crore to investors

Question 260

Asset reconstruction Companies?

Answer 260

• It is a specialized financial institution that buys the Non Performing Assets (NPAs)from banks and financial institutions so that they can clean up their balance sheets. This helps banks to concentrate in normal banking activities.
• (SARFAESI) Act, 2002provides the legal basis for the setting up of ARCs in India. ARCs are regtd with RBI which has regulatory powers over ARCs
• Capital Needs for ARCs:
  
  • As per amendment made in the SARFAESI Act in 2016, an ARC should have a minimum net owned fund of Rs. 2 crore.
  • The RBI raised this amount to Rs. 100 crore in 2017. The ARCs also have to maintain a capital adequacy ratio of 15% of its risk weighted assets.
    
    • In the Budget 2021-22, Asset Reconstruction Company (ARC) have been proposed to be set up by state-owned and private sector banks, and there will be no equity contribution from the government.

Question 261

Asset reconstruction Companies: suggestions by Sudarshan Sen committee?

Answer 261

1. Create an online platform for the sale of stressed assets.
2. Allow ARCs to act as resolution applicants during the IBC process.
3. The scope of Section 5 of the SARFAESI Act be expanded to permit ARCs to acquire financial assets from all regulated entities, including AIFs, FPIs, AMCs making investment on behalf of MFs and all NBFCs including HFCs.
4. For accounts above ₹500 crore, two bank-approved external valuers should carry out a valuation to determine liquidation value and fair market value.
5. Also, the final approval of the reserve price should be given by a high-level committee that has the power to approve the corresponding write-off of the loan.

Question 262

Age cut off for being included in definition of LFPR?

Answer 262

15 yrs

Question 263

“To truly capture the distress due to joblessness, policymakers should look at the employment rate rather than the unemployment rate”?

Answer 263

Unemployment Rate (UER) is nothing but the number of unemployed as a proportion of the labour force. Thus UER often mirrors rise and fall of LFPR.

On the other hand Employment rate ER refers to the number of employed people as a percentage of the working-age population.

• India has one of the lowest labour force participation rates, distorting the UER
• most of the fluctuations in UER can be attributed to LFPR. Lower employment rates do not signal lots of new jobs, rather fewer people demanding them
• As an example, in the five years between May-August 2016 and May-August 2021, while India’s working-age population went up by 13% from 951 million to 1,071 million, the total number of employed people in India fell by 3.5% from 408 million to 394 million. But the UER stood at 8.7% in Jan-Apr 2016 and at 8.57% in May-Aug 2021.
• Case of UP: Betn 2016 and 2017, UP’s UER fell from 17% to 3.75%. But its ER remained at ~37%. The fall was mainly because UP’s LFPR fell from 46.32% to 38.4% during the period. What essentially happened is that between May 2016 and April 2017, the demand for jobs in UP fell sharply — by almost 8 percentage points. In absolute numbers, this meant that more than 1.1 million exited the labour force in a matter of just 11 months. Not surprisingly, most of these people — who stopped looking for work — were being counted as the unemployed until they quit the labour force. As they exited the labour force the number of unemployed people fell by an almost similar amount — 1 million.

Question 264

Measure of actual no. of employed and unemployed people in India? Stagnancy of jobs market in India? Fast growth vs Job generation?

Answer 264

Acc to CMIE, Just before the Covid crisis at the end of 2019-20 financial year, India had around 403.5 million employed people and around 35 million openly unemployed people in the country.

To this existing pool, each year India adds roughly 10 million (or 1 crore) new job seekers.

But over the past year, several million have lost their jobs. As a result, as of January 2021, India had only about 400 million employed. Thus, total number of unemployed people will be anywhere between 40 to 45 million today.

Stagnancy in Jobs market in India: CMIE data, which is being compiled since 2016, the total number of employed people in India has been steadily coming down. It was 407.3 million in 2016-17 and then fell to 405.9 million in 2017-18, and to 400.9 million at the end of 2018-19.

even this 45 million estimate only captures the openly unemployed people — that is those who are seeking work and not finding it. The actual problem of unemployment is even bigger.

each year there are close to 20 million (or 2 crore) people who enter the working-age population of 15 to 59 years. With a low LFPR of ~40% (in most developed countries, it is ~60%), this means each yr 0.8-1 cr are added to Labour Force each yr.

in India’s case, one cannot assume that just fast economic growth will automatically resolve India’s unemployment problem. In the ten years from 1999-2000 to 2009-10, India’s total workforce increased by 63 million. Of these 44 million joined the unorganised sector, 22 million became informal workers in the organised sector, and the number of formal workers in the organised sector fell by 3 million

Question 265

IMpact of COVID on Banks’ NPA?

Answer 265

Indian banking system appears to have weathered the Covid storm better than was expected. However, the picture is not as rosy as one looks closer.

Banks’ GNPAs, which had begun to decline before the pandemic, have continued their downward trajectory.

Bad loans stood at 7.3 per cent at the end of March 2021, down from 8.2 per cent in the previous year. Gross NPAs had earlier peaked at 11.5 per cent in March 2018. Further, Provisional data suggests that it has declined further to 6.9 per cent at the end of September 2021.

However, this improvement is not only due to lower slippages, but is predominantly due to write-offs (banks wrote off Rs 2.08 lakh crore of bad loans), and policy measures taken by the central bank to lessen the fallout from the pandemic such as the asset classification standstill.

In fact, according to the data presented in the report, recoveries from loans that have soured through all channels — Lok Adalats, debt recovery tribunals, the SARFAESI Act, and the IBC — have actually declined from 22 per cent (of the total amount involved) in 2019-20 to 14.1 per cent in 2020-21.

On other financial indicators, banks have seen an improvement over the past year — capital buffers are up, as are provision coverage ratios.

However, there are signs of stress building up. Loans that are classified as SMA-2 (special mention accounts where the principal or the interest payment was overdue for 61-90 days) have risen, signalling impending stress. Stress is also building up in the MSME category.

Question 266

INdia and INternational Law: Financial Crimes? (for other aspects of international law and India, refer f/c foreign relations)

Answer 266

1. Need to have an international legal framework to tackle financial crimes, which are increasingly trans-border in nature.
2. under the Fugitive Economic Offenders Act, 2018 (i) the judicial process for declaring a person a fugitive offender has been very slow, and (ii) for proceeding against offenders, the money involved should be at least Rs 100 crore. This lower limit needs to be lowered

Question 267

ES20-21: explain the relevance of counter-cyclical fiscal policy.

Question 268

Domestic Systemically Important Banks (D-SIBs)?

Answer 268

What:

• The system of D-SIBs was adopted in the aftermath of the 2008 financial crisis where the collapse of many systematically important banks across various regions further fueled the financial downturn.
• D-SIBs are important for the country’s economy. In events of distress, the government supports such banks and if such a bank fails, it would lead to disruption of the country’s overall economy.
• RBI finalizes such banks after considering factors like size, complexity, lack of substitutability and interconnectedness of the banks, state reports.

determination:

• Since 2015, the RBI has been releasing the list of all D-SIBs. They are classified into five buckets, according to their importance to the national economy. In order to be listed as a D-SIB, a bank needs to have assets that exceed 2 percent of the national GDP. The banks are then further classified on the level of their importance across the five buckets.

Regulations:

• Due to their economic and national importance, the banks need to maintain a higher share of risk-weighted assets as tier-I equity. SBI, since it is placed in bucket three of D-SIBs, has to maintain Additional Common Equity Tier 1 (CET1) at 0.60 percent of its Risk-Weighted Assets (RWAs).

Question 269

T/F: IMF and WB has identified Global Systemically Important Banks (G-SIBs) since 2011.

Answer 269

F

Financial Stability Board (FSB), in consultation with the Basel Committee on Banking Supervision (BCBS) and national authorities, has identified Global Systemically Important Banks (G-SIBs) since 2011

Question 270

Jan Dhan Yojana?

Answer 270

Announced on 15th August 2014, PMJDY is National Mission for Financial Inclusion to ensure access to financial services, namely, Banking/ Savings & Deposit Accounts, Remittance, Credit, Insurance, Pension in an affordable manner.
Objectives:
● To ensure access of financial products & services at an affordable cost.
● Use of technology to lower cost & widen reach.

Basic tenets of the scheme:

1. Banking the unbanked – Opening of basic savings bank deposit (BSBD) account with minimal paperwork, relaxed KYC, e-KYC, account opening in camp mode, zero balance & zero charges.
2. Securing the unsecured – Issuance of Indigenous Debit cards for cash withdrawals & payments at merchant locations, with free accident insurance coverage of Rs. 2 lakhs.
3. Funding the unfunded – Other financial products like micro-insurance, overdraft for consumption, micro-pension & micro-credit.

The scheme is Based upon the following 6 pillars:

1. Universal access to banking services – Branch and Banking Correspondents.
2. Basic savings bank accounts with overdraft facility (OD) of Rs. 10,000/- to every household.
3. Financial Literacy Program– Promoting savings, use of ATMs, getting ready for credit, availing insurance and pensions, using basic mobile phones for banking.
4. Creation of Credit Guarantee Fund – To provide banks some guarantee against defaults.
5. Insurance – Accident cover up to Rs. 1,00,000 and life cover of Rs. 30,000 on account opened between 15 Aug 2014 to 31 January 2015.
6. Pension scheme for Unorganized sector.

New Features

1. Focus shift from Every Household to Every Unbanked Adult.
2. RuPay Card Insurance – Free accidental insurance cover on RuPay cards increased from Rs. 1 lakh to Rs. 2 lakhs for PMJDY accounts opened after 28.8.2018.
3. Enhancement in overdraft facilities – OD limit doubled from Rs 5,000 to Rs 10,000; OD upto Rs 2,000 (without conditions). Increase in upper age limit for OD from 60 to 65 years.

Question 271

Digital payments: stats to showcase the achievements?

Answer 271

On digital payment ecosystem, the total volumes of digital payments have also increased from 1459.02 crore in FY 2017-18 to 4371.18 crore in FY 2020-21 due to sustained efforts towards digitalisation.

Question 272

Govt initiatives for encouraging digital payments?

Answer 272

1. Reimbursement scheme for RuPay Debit Card and BHIM UPI transactions:
   
   1. Government will reimburse transaction charges levied on digital payments made by persons to the merchant as part of the merchant discount rate (MDR)
   2. In Budget 2020-21, the government prescribed zero Merchant Discount Rate (MDR), the rate merchants pay to scheme providers, for RuPay and UPI, both NPCI products
2. Demonetisation
3. Reserve Bank of India has constructed a composite Digital Payments Index (DPI) to capture the extent of digitisation of payments across the country. RBI-DPI has been constructed with March 2018 as the base period, i.e. DPI score for March 2018 is set at 100. The DPI for March 2019, March 2020 and March 2021 work out to 153.47, 207.84 and 270.59 respectively, indicating appreciable growth.
4. FASTag: As per Central Motor Vehicles Rules, 1989, since 1st December 2017, the FASTag had been made mandatory for all registration of new four wheeled Vehicles and is being supplied by the Vehicle Manuracturer or their dealers.
5. DigiVaarta has been launched with the express intention of spreading awareness on DigiDhan, and also to spread popularity of BHIM’s barcode-based merchant payment mode with merchants and traders at large. DigiShala, a free Doordarshan DTH channel has been launched to educate and inform the people about the various modes of digital payments.
6. launch of BHIM UPI and Bharat QR code as well as options of digital payment for all govt services
7. RBI’s scheme for low value offline payments
8. DBT and PMJDY

Question 273

Evolution of digital payments in India?

Answer 273

1. piloted by the Reserve Bank of India (RBI) and succinctly captured in the Payment Systems in India, published in 1998.
2. A major thrust toward large value payments was affected through the Real Time Gross Settlement System, or RTGS, launched by the RBI in March 2004.
3. Introduction of National Electronic Funds Transfer (NEFT) and bulk debits and credits to support retail payments around the same time.
4. Now, NEFT is available round the clock and RTGS will follow from December 2020 only a few countries have achieved this.
5. Time Bound Settlements: Today, the Securities and Exchange Board of India (SEBI), the market regulator, is contemplating a T+1 settlement (T is for transaction date) because the underlying consideration of the sale proceeds of the shares get exchanged very fast under the payments system

Question 274

Watal panel recommendations?

Answer 274

1. Setting up of a separate, more independent payments regulator within the RBI framework
2. Revisiting the payment and settlement sacked to include clauses on consumer protection, data security and privacy
3. A more prominent role for Aadhaar, including its usage for primary identification
4. Operation of RTGS and NEFT on a 24 by 7 basis, alloying non Bank payment service providers to directly access the payment systems
5. Interoperability between banks and payment service providers based on mobile number and Aadhar
6. Systematically important payment service providers to be regulated by RBI
7. Creating a fund to promote digital transaction
8. All government payments to be made digitally
9. Waiver of transaction fees and charges
10. Cash handling charges to be levied by government and merchants to disincentivize 25 use of cash

Question 275

Co-lending model?

Answer 275

• In September 2018 the RBI had permitted the banks to cool and with all registered NBFCs (incl HFCs) to increase lending to the priority sector based on a prior agreement.
• Following this, several banks have entered into co-lending master agreements with NBFCs
• Benefits of the model
  
  • The lower cost of funds from banks in Greater reach of the NBFCs will make available funds to the beneficiary at an affordable cost
  • It will help banks to expand customer base and enables them to provide last Mile banking services
• concern:
  
  • Unusual tie ups between banks and NBFCs: for instance, SBI signed a deal with Adani capital, A small NBFC, for co lending to farmers to help them by tractors and farm implements
  • Greater risk in co-lending: NBFCs are required to retain at least 20% share of individual loans on their books. This means 80% of risk will be with the banks who will take the big hit in case of a default
  • Entry of corporates in banking: while the RBI hasn’t official allowed the entry of big corporate houses into the banking space, NBFCs-mostly floated by corporate houses-were already accepting public deposits. They now have more opportunities in the lending side to direct co-lending arrangements

Question 276

Tokenization?

Answer 276

Tokenization refers to replacement of actual credit and debit card details with an alternate code call the token, which will be unique for a combination of card, token requester and device

From January 1st 2022, sensitive credit or debit card information such as card number,CVV an expiry date cannot be stored by the merchants while processing online transaction. RBI has directed all sellers in India such as Amazon, Flipkart and Zomato to delete card information stored earlier to enhance the security of online transactions. The regulator has allowed ka network like visa, MasterCard or rupay to issued tokens on request on be half of the card issuing banks or companies.

Note, that it is not new concept. UPI interface uses the tokenization concept.

Significance:
● A tokenised card transaction is considered safer as the actual card details are not shared with the merchant during transaction processing.
● Customers who do not have the tokenisation facility will have to key in their name, 16-digit card number, expiry date and CVV each time they order something online. This could be cumbersome exercise.

Three steps have to be completed for smooth implementation of tokenization:

1. Token provisioning: the consumer’s card number should be convertible into a token, which means the card networks have to be ready with the relevant infrastructure.
2. Token processing: Consumers should be able to complete their transaction successfully through the tokens.
3. Scale-up for multiple use cases: Consumer should be able to use the token for things like refunds, EMIs, recurring payments, offers, promotions, guest checkouts etc.

Tokenization is only for domestic transaction.

No fee will be charged

Tokens will also be 16 digit numbers like in case of credit or debit cards but consumers do not have to remember these.

card networks will be the ones to issue the tokens

Question 277

retrospective taxation?

Answer 277

● It allows a country to pass a rule on taxing certain products, items or services and deals and charge companies from a time behind the date on which the
law is passed.
● Countries use this route to correct any anomalies in their taxation policies that have, in the past, allowed companies to take advantage of such loopholes.
● Retrospective Taxation hurts companies that had knowingly or unknowingly interpreted the tax rules differently.

In December 2020, a three-member international arbitral tribunal at the Permanent Court of Arbitration in the Netherlands ruled unanimously that the Indian government was “in breach of the guarantee of fair and equitable treatment”, and against the India-UK Bilateral Investment Treaty, and that the breach caused a loss to the British energy company and ordered compensation of $1.2 billion.
● Cairn had challenged the Indian government seeking taxes over an internal business reorganisation using the 2012 retrospective tax law, under the UK-India Bilateral Investment Treaty.
● In 2014, the Indian tax department had demanded Rs 10,247 crore in taxes.
● In 2015, Cairn Energy Plc commenced international arbitration proceedings against the Indian government.

The Taxation Laws (Amendment) Bill, 2021, enacted in August scraps the tax rule that gave the tax department power to go 50 years back and slap capital gains levies wherever ownership had changed hands overseas but business assets were in India, This nullifies the tax assessment originally levied against Cairn.

Question 278

Digital Lending?

Answer 278

• It consists of lending through web platforms or mobile apps, by taking advantage of technology for authentication and credit assessment.
• India’s digital lending market has seen a significant rise over the years. The digital lending value increased from USD 33 billion in FY15 to USD 150 billion in FY20 and is expected to hit the USD 350-billion mark by FY23. Thus, Lending through digital mode relative to physical mode in India is still at a nascent stage in case of banks (Rs 1.12 lakh crore via digital mode vis-à-vis Rs 53.08 lakh crore via physical mode).
• However, the overall volume of disbursement through digital mode for the sampled entities has exhibited a growth of more than twelve-fold between 2017 and 2020 (from Rs 11,671 crore to Rs 1.41 lakh crore).
• Banks have launched their own independent digital lending platforms to tap in the digital lending market by leveraging existing capabilities in traditional lending.
• Significance of Digital Lending:
  • Financial Inclusion: It helps in meeting the huge unmet credit need, particularly in the microenterprise and low-income consumer segment in India.
  • Reduce Borrowing from informal channels: It helps in reducing informal borrowings as it simplifies the process of borrowing.
  • Time Saving: It decreases time spent on working loan applications in-branch. Digital lending platforms have also been known to cut overhead costs by 30-50%.
• Issues with Digital Lending Platforms:
  • Growing number of unauthorised digital lending platforms and mobile applications as:
    • They charge excessive rates of interest and additional hidden charges. This loan is sometimes masked as a service called Buy Now, Pay Later (BNPL), which allows shoppers to buy something but pay for it later within a stipulated interest-free period in three or more instalments. These loans mostly target young, new-to-credit, cash-strapped millennials.
    • They adopt unacceptable and high-handed recovery methods.
    • They misuse agreements to access data on mobile phones of borrowers.

Question 279

Digital Lending: steps taken by RBI to regulate the sector?

Answer 279

• NBFCs and banks need to state the names of online platforms they are working with.
• RBI has also mandated that digital lending platforms which are used on behalf of Banks and NBFCs should disclose the name of the Bank(s) or NBFC(s) upfront to the customers.
• The central bank had also asked lending apps to issue a sanction letter to the borrower on the letter head of the bank/ NBFC concerned before the execution of the loan agreement.
• Legitimate public lending activities can be undertaken by banks, NBFCs registered with the RBI and other entities who are regulated by state governments under statutory provisions.
• RBI Panel recommendations:

1. A separate legislation should be enacted to oversee such lending.
2. Setup a nodal agency to vet the Digital Lending Apps.
3. A Self-Regulatory Organisation should be set up for participants in the digital lending ecosystem.
4. Develop certain baseline technology standards and compliance with those standards as a pre-condition for offering digital lending solutions.
5. Disbursement of loans should be made directly into the bank accounts of borrowers and servicing of loans should be done only through the bank accounts of the digital lenders.
6. All data collection must require the prior consent of borrowers and come ‘with verifiable audit trails’ and the data itself ought to be stored locally.

Question 280

bank deposit insurance?

Answer 280

What is deposit insurance? How is it regulated in India?

● Deposit insurance is providing insurance protection to the depositor’s money by receiving a premium.

● Deposit Insurance- Coverage:

• Deposit insurance covers all deposits such as savings, fixed, current, recurring deposits, etc. in all commercial banks, functioning in India.
• Deposits in State, Central and Primary cooperative banks, functioning in States/Union Territories are also covered.

● The government has set up Deposit Insurance and Credit Guarantee Corporation (DICGC) under RBI to protect depositors if a bank fails.
● DICGC charges 10 paise per ₹100 of deposits held by a bank. The premium paid by the insured banks to the Corporation is paid by the banks and is not to be passed on to depositors.
● DICGC last revised the deposit insurance cover to ₹5 lakh in Feb, 2020, raising it from ₹ 1 lakh since 1993

The DICGC does not include the following types of deposits:

1. Deposits of foreign governments.
2. Deposits of central/state governments.
3. Inter-bank deposits.
4. Deposits of the state land development banks with the state co-operative bank.
5. Any amount due on account of any deposit received outside India.
6. Any amount specifically exempted by the DICGC with previous approval of RBI.

What is the procedure for depositors to claim the money from a failed bank?
● The DICGC does not deal directly with depositors.
● The RBI (or the Registrar), on directing that a bank be liquidated, appoints an official liquidator to oversee the winding up process.
● Under the DICGC Act, the liquidator is supposed to hand over a list of all the insured depositors (with their dues) to the DICGC within three months of taking charge.
● The DICGC is supposed to pay these dues within two months of receiving this list.

Question 281

estimate of Remittances by INdians employed overseas?

Answer 281

~80 Bn USD/yr

Question 282

1) The surplus in the current account in India can happen when
1. Contraction in the trade deficit
2. Net services receipts increases sequentially.
3. Growth in remittances by Indians employed overseas.
4. Record inflow of foreign direct investment and foreign portfolio investment.
Select the correct answer code:
a) 1, 2, 4
b) 1, 3, 4
c) 2, 3, 4
d) 1, 2, 3, 4

Answer 282

D

Question 283

T/F:

1. INdia saw a current account surplus in Q1FY2021.
2. INdia saw a current account surplus in Q1FY2022.

Answer 283

1. T
2. T

India’s current account balance saw a far lower surplus of $6.5 billion (0.9% of GDP) in the first quarter ended June 30, (Q1FY22) compared with a surplus of $19.1 billion (3.7% of GDP) a year earlier.

Question 284

The FRBM Act contain an ‘escape clause’ under which Centre can exceed the annual fiscal deficit target on which grounds?

Answer 284

The law does contain what is commonly referred to as an ‘escape clause’. Under Section 4(2) of the Act, the Centre can exceed the annual fiscal deficit target citing grounds that include national security, war, national calamity, collapse of agriculture, structural reforms and decline in real output growth of a quarter by at least three percentage points below the average of the previous four quarters.

Question 285

In India, deficit financing is usually resorted in order to

1. Undertake developmental expenditure
2. Finance the revenue deficit component
3. Bridge the short-term Current Account Deficit (CAD)

Select the correct answer code:

a) 1, 2
b) 1, 2, 3
c) 1 only
d) 1, 3

Answer 285

A

CAD is financed by external flows. If government borrows from outside it would increase our external capital deficit, but not affect the short-term CAD.

Question 286

INdia’s external debt classification and sub-classifications? (just types, not values)

Answer 286

External debt can be mainly classified into Long term and Short-term debts.

Long-Term debt is further classified into

(a) Multilateral Debt
(b) Bilateral Debt
(c) ‘IMF’ signifying SDR allocations to India by the IMF
(d) Export Credit
(e) (External) Commercial Borrowings
(f) NRI Deposits and
(g) Rupee Debt.

Short Term Debt is classified into

(a) Trade Credits (of up to 6 months and above 6 months and up to 1 year)
(b) Foreign Institutional Investors’ (FII) Investment in Government Treasury-Bills and Corporate Securities
(c) Investment in Treasury-bills by foreign Central Banks and International Institutions etc. and
(d) External Debt liabilities of the Central Bank and Commercial Banks.

Question 287

Consider the following statements.

1. India is the largest recipient of both Foreign remittances and Foreign Direct Investment.
2. Foreign remittances constitute around 10 percent of India’s GDP.

Which of the above statements is/are correct?

a) 1 only b) 2 only c) Both 1 and 2 d) Neither 1 nor 2

Answer 287

D

India remains the largest recipient of foreign remittances, not Foreign Direct Investment.
Foreign remittances constitute around 3.17 percent of India’s GDP.

Question 288

Consider the following statements regarding Government Bond Yields.
1. A rise in bond yields means interest rates in the monetary system have fallen, and the returns for investors who invested in bonds and government securities have declined.
2. Bond yields are directly proportional to equity returns.
Which of the above statements is/are correct?
a) 1 only
b) 2 only
c) Both 1 and 2
d) Neither 1 nor 2

Answer 288

A

A fall in interest rates makes bond prices rise, and bond yields fall — and rising interest rates cause bond prices to fall, and bond yields to rise. In short, a rise in bond yields means interest rates in the monetary system have fallen, and the returns for investors (those who invested in bonds and govt securities) have declined.
“Bond yields are inversely proportional to equity returns; when bond yields decline, equity markets tend to outperform, and when yields rise, equity market returns tend to falter.

Question 289

Consider the following statements.

1. In 2020-21, India has seen surplus in both current account and trade account.
2. National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL) are the Depositories which holds securities of investors in electronic form.

Which of the above statements is/are correct?

a) 1 only b) 2 only c) Both 1 and 2 d) Neither 1 nor 2

Answer 289

B

India’s current account in the balance of payments ended in a surplus to the extent of 0.9 per cent of GDP in FY ‘21 for the first time in 17 years as trade deficit narrowed due to contraction in pandemic induced import demand. But as the economy opened up in the latter parts of the year, the fourth quarter ending March’21 ended in a deficit.

A depository is an organization which holds securities (like shares, debentures, bonds, government securities, mutual fund units etc.) of investors in electronic form at the request of the investors through a registered depository participant. It also provides services related to transactions in securities.
At present two Depositories viz. National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL) are registered with SEBI.

Question 290

Consider the following statements regarding.
1. RBI Retail Direct Scheme allows retail investors to buy and sell government securities (G-Sec) online, both in the primary and secondary markets.
2. RBI Integrated Ombudsman Scheme will help in improving the grievance redress mechanism for resolving customer complaints against RBI’s regulated entities.
Which of the above statements is/are correct?
a) 1 only
b) 2 only
c) Both 1 and 2
d) Neither 1 nor 2

Answer 290

C

RBI Retail Direct Scheme

• The scheme allows retail investors to buy and sell government securities (G-Sec) online, both in the primary and secondary markets.
• According to details provided by RBI, these small investors can now invest in G-Secs by opening a gilt securities account with the RBI. The account opened will be called Retail Direct Gilt (RDG) Account.
• scheme offers a portal avenue to invest in central government securities, treasury bills, state development loans and Sovereign Gold Bonds (SGBs).
• The scheme places India in a list of select few countries offering such a facility.

RBI Integrated Ombudsman Scheme

• This will help in improving the grievance redress mechanism for resolving customer complaints against RBI’s regulated entities.
• the scheme is based on “One Nation-One Ombudsman” with one portal, one email, and one address for the customers to lodge their complaints.
• The RBI has decided to integrate the three ombudsman schemes into one and also simplified the scheme by covering all complaints involving deficiency in service by centralising the receipt and initial processing of complaints to enhance process efficiency.
  
  • RBI’s alternate grievance redress mechanism currently comprises three ombudsman schemes— the Banking Ombudsman Scheme (BOS), launched in 1995, the Ombudsman Scheme for Non-Banking Financial Companies (OS-NBFC), 2018 and the Ombudsman Scheme for Digital Transactions (OSDT), 2019.
• The redressal will continue to be cost-free for customers of banks and members of the public.
• RB-IOS will do away with the jurisdictional limitations as well as limited grounds for complaints.

Question 291

Consider the following statements.

1. States are Constitutionally guaranteed to get GST compensation for the loss on account of the introduction of the GST for ten years from the date of implementation.
2. As per GST architecture, if the Union Government falls short in the collection of compensation cess, it can tap the funds from the Consolidated Fund of India. Which of the above statements is/are correct?
   a) 1 only b) 2 only c) Both 1 and 2 d) Neither 1 nor 2

Answer 291

D

States, per the Goods and Services (Compensation to States) Act, 2017, are Constitutionally guaranteed to get compensation for the loss on account of the introduction of the GST for five years from the date of implementation — that is, July 2017 to July 2022.
If the Union Government falls short in the collection of compensation cess, it cannot tap the funds from the Consolidated Fund of India.

Question 292

States’ power to borrow?

Answer 292

Article 293(3) of the Constitution requires states to obtain the Centre’s consent in order to borrow in case the state is indebted to the Centre over a previous loan.
● This consent can also be granted subject to certain conditions by virtue of Article 293(4).
● In practice, the Centre has been exercising this power in accordance with the recommendations of the Finance Commission.
Every single state is currently indebted to the Centre and thus, all of them require the Centre’s consent in order to borrow.
Does the Centre have unfettered power to impose conditions under this provision?
Neither does the provision itself offer any guidance on this, nor is there any judicial precedent that one could rely on.
● Interestingly, even though this question formed part of the terms of reference of the 15th Finance Commission, it was not addressed in its interim report.
So, when can the centre impose conditions?
The Centre can impose conditions only when it gives consent for state borrowing, and it can only give such consent when the state is indebted to the Centre.
Why are such restrictions necessary?
● One possible purpose behind conferring this power upon the Centre was to protect its interests in the capacity of a creditor.
● A broader purpose of ensuring macroeconomic stability is also discernible, since state indebtedness negatively affects the fiscal health of the nation as a whole.

Recently, The Finance Ministry has permitted seven States to borrow an additional ₹16,691 crore, linked to their having met specified capital expenditure targets in the June to September quarter of FY2022. Chhattisgarh, Kerala, Madhya Pradesh, Meghalaya, Punjab, Rajasthan and Telangana had met the targets for the first half of the year.

Question 293

Banking license to Large Business Groups: issue?

Answer 293

An RBI internal panel has ercommended to give banking licences to large business groups, while allowing promoters to own up to 26% in private banks. It suggested allowing large corporate/industrial houses to be promoters of private banks.

Former RBI Governor Raghuram Rajan and former RBI Deputy Governor Viral Acharya have criticised the suggestion by the IWG, describing it a “bombshell”. They observed, it would be ‘penny wise pound foolish’

Historically, RBI has been of the view that the ideal ownership status of banks should promote a balance between efficiency, equity and financial stability.
● A greater play of private banks is not without its risks. The global financial crisis of 2008 was a case in point.
● A predominantly government-owned banking system tends to be more financially stable because of the trust in government as an institution.
● More specifically, here in this case, the main concern in allowing large corporates to open their own banks is a basic conflict of interest, or more technically, “connected lending”.

Question 294

SWIFT India? (SWIFT covered in f/c International Bodies)

Answer 294

SWIFT India is a joint venture of top Indian public and private sector banks and SWIFT (Society for Worldwide Interbank Financial Telecommunication). The company was created to deliver high quality domestic financial messaging services to the Indian financial community.

Question 295

Union Budget 2022: highlights: overall economy?

Answer 295

Total spending and Focus:
● To enhance job creation and boost economic activity.
● Total government spending will be 4.6 per cent more than the current year and additional support of Rs 1 lakh crore to states has been announced.
● The total expenditure in 2022-23 is estimated at Rs 39.45 lakh crore, while the total receipts other than borrowings are estimated at Rs 22.84 lakh crore.
● The outlay for capital expenditure is once again being stepped up sharply by 35.4 per cent from Rs 5.54 lakh crore in the current year to Rs 7.50 lakh crore in 2022-23.

Few observations about the State of the economy:

● The government projects India’s economy to grow by 9.2 per cent in the current fiscal year.
● India’s gross domestic product (GDP) in dollar terms has already crossed $3 trillion.
● Fiscal deficit is projected to be higher at 6.9 per cent this fiscal as against 6.8 per cent estimated earlier. The fiscal deficit of the government for 2022-23 is estimated to be Rs 16,61,196 crore.
● Soaring inflation levels continue to be a cause of concern for the economy.
● Foreign exchange reserves stood at $634.287 billion on January 21, providing a cover equivalent to 13 months of imports projected for 2021-22.

Question 296

Union Budget 2022: highlights: infrastructure development?

Answer 296

● PM GatiShakti National Master Plan will encompass the seven engines for economic transformation, seamless multimodal connectivity and logistics efficiency.
○ The seven engines include roads, railways, airports, ports, mass transport, waterways, and logistics infrastructure. All seven engines will pull forward the economy in unison.

● 400 new Vande Bharat trains will be introduced and the Railways will also develop new products for small farmers and MSMEs.
● Integration of postal and railways network facilitating parcel movement was announced.
● Master plan has been formulated for highways, targets to complete 25,000 km national highways in 2022-23.
● Sovereign Green Bonds to be issued for mobilizing resources for green infrastructure.
● Data Centres and Energy Storage Systems to be given infrastructure status.

Question 297

Union Budget 2022: highlights: Agriculture and food processing?

Answer 297

● Budget allocation for the ministry of agriculture and farmers’ welfare: Rs 1,32,513 crore for 2022-23 fiscal.
● ‘Kisan Drones’ to be promoted for crop assessment, digitisation of land records and spraying of insecticides.
● A fund with blended capital raised under the co-investment model through Nabard will be set up to finance startups and rural enterprises working in agri-space.
● Zero-budget natural farming: The agriculture universities in the country will be encouraged to include these areas in their syllabus.

Question 298

Union Budget 2022: highlights: education?

Answer 298

● A Digital University would be established to provide access to students across the country for world-class quality universal education.
● One class one TV channel programme to be expanded to 200 TV channels.
● Virtual labs and skilling e-labs will be established to promote critical thinking skills and simulated learning environment.
● The Digital Ecosystem for Skilling and Livelihood - the DESH-Stack e-portal would be launched.

Question 299

Union Budget 2022: highlights: Heathcare?

Answer 299

The health sector has been allocated Rs 86,200.65 crore in the Union Budget.
● A National Tele Mental Health Programme will be launched to improve access to quality mental health counselling and care services.
● An open platform for National Digital Health Ecosystem will also be rolled out.
● For the National Health Mission, the budget allocation increased from Rs 36,576 crore in 2021-22 to Rs 37,000 crore in 2022-23.

Question 300

Union Budget 2022: tax proposals?

Answer 300

● Taxpayers have been allowed a one-time window to correct omissions in income tax returns (ITR). They can file the updated returns within 2 years from the assessment year.
● 30 per cent tax on income from transfer of virtual digital assets has been proposed.
● One per cent tax deducted at source (TDS) on transfer of virtual assets above a threshold, gifts would be taxed.
● Government will soon roll out digital rupee based on blockchain technology

Question 301

Union Budget 2022: MSMEs?

Answer 301

● A Raising and Accelerating MSME Performance (RAMP) programme will be rolled out with a Rs 6,000 crore outlay spread over 5 years for MSMEs.
● The Emergency Credit Line Guarantee Scheme (ECLGS) that provided much needed additional credit to over 1.3 crore MSMEs will be extended till March 2023 with its guarantee cover expanded by Rs 50,000 crore to Rs 5 lakh crore.

Question 302

Union Budget 2022: PM-DevINE?

Answer 302

New scheme PM-DevINE launched to fund infrastructure and social development projects in the North-East.
● An initial allocation of Rs. 1,500 crore made to enable livelihood activities for youth and women under the scheme.

Question 303

Union Budget 2022: Virtual Digital Assets?

Answer 303

announced a 30 per cent tax on income from virtual digital assets.
Rationale behind:
There has been a phenomenal rise in such transactions and the magnitude and frequency of these transactions have made it imperative to provide for a specific tax regime.

As per the Finance Bill, a virtual digital asset is proposed to mean any information or code or number or token (not being Indian currency or any foreign currency), generated through cryptographic means or otherwise, by whatever name called, providing a digital representation of value which is exchanged with or without consideration, with the promise or representation of having inherent value, or functions as a store of value or a unit of account and includes its use in any financial transaction or investment, but not limited to, investment schemes and can be transferred, stored or traded electronically.
● Non fungible token and; any other token of similar nature are included in the definition.”

Does the 30% tax mean crypto assets have been legalised in India?
A tax law can’t make anything legal or illegal—that has to be done via a separate statute.

Question 304

What are virtual digital assets and how are they different from digital currency?

Answer 304

As per the Finance Bill, a virtual digital asset is proposed to mean any information or code or number or token (not being Indian currency or any foreign currency), generated through cryptographic means or otherwise, by whatever name called, providing a digital representation of value which is exchanged with or without consideration, with the promise or representation of having inherent value, or functions as a store of value or a unit of account and includes its use in any financial transaction or investment, but not limited to, investment schemes and can be transferred, stored or traded electronically.
● Non fungible token and; any other token of similar nature are included in the definition.”

Question 305

US Federal Reserve’s Biggest rate hike in 28 yrs: impact?

Answer 305

The US Federal Reserve hiked interest rates by three quarters of a percentage point on 15th June 2022, its most aggressive move since 1994, in a bid to tame runaway inflation. the US central bank has signalled equally-large hikes later this year, which could potentially dent the already wobbly investor outlook across markets.

Cause: prices in the world’s largest economy rose at their fastest rate in 40 years during May. Prices have spiked partly due to external factors that include the war in Ukraine and the continuing Covid-19 shutdowns in China’s key manufacturing hubs.

It is expected that the rate the Fed charges banks to borrow from it to zoom to 3.4 per cent by the end of the year.

1. The new projections are being seen as a definitive move to frontload the reversal of the central bank’s expansionary monetary policy put in place in early 2020 to invigorate the American economy amid the Covid-19 outbreak.
2. Emerging economies such as India tend to have higher inflation and, therefore, higher interest rates than in developed countries. As a result, investors, including Foreign Portfolio Investors, tend to borrow in the US at lower interest rates in dollar terms, and invest that money in the bonds of countries such as India in rupee terms to earn a higher rate of interest. Interest rate hike can have three pronged impact
   
   1. When the Fed raises its policy rates, the difference between the interest rates of the two countries narrows, thus making countries such as India less attractive for the currency carry trade.
   2. A high rate signal by the Fed would also mean a lower impetus to growth in the US, which could be yet negative news for global growth, especially when China is reeling under the impact of a real estate crisis.
   3. Higher returns in the US debt markets could also trigger a churn in emerging market equities, tempering foreign investor enthusiasm.

Question 306

impact of June 2022 interest rate hike on inflation?

Answer 306

• Not as direct as one assume. Since most of current inflation is driven due to supply side constraints because of Russia-Ukraine war. Food and fuel prices constituting 60% of CPI, will not become cheaper all of a sudden due to hike in interest rates by RBI
• However, the hike will have an anchoring effect on inflation expectation.
  
  • Not only will hike in interest rate dampen the demand , for say a new car and associated fuel, but also
  • People won’t panic that inflation is going to rise even further in future and further contributing to price hike, thereby pacifying them. This gives time for supply to catch up with demand.

Question 307

India’s emerging twin deficit problem (June 2022)?

Answer 307

In its latest ‘Monthly Economic Review’, the Ministry of Finance has painted an overall optimistic picture of the state of the domestic economy. “The World is looking at a distinct possibility of widespread stagflation. India, however, is at low risk of stagflation, owing to its prudent stabilization policies,”

But, given the uncertainties, the report highlights two key areas of concern for the Indian economy: the fiscal deficit and the current account deficit (or CAD).

• Fiscal Deficit
  
  • as government revenues take a hit following cuts in excise duties on diesel and petrol, an upside risk to the budgeted level of gross fiscal deficit has emerged
  • The report underscores the need to trim revenue expenditure (or the money government spends just to meet its daily needs).
• CAD
  
  • Ministry’s worry is that costlier imports such as crude oil and other commodities will not only widen the CAD but also put downward pressure on the rupee.
  • Further, If, in response to higher interest rates in the western economies especially the US, foreign portfolio investors (FPI) continue to pull out money from the Indian markets, that too will hurt the rupee and further increase CAD.
  • A weaker rupee will, in turn, make future imports costlier.

Question 308

Recent worrying trend in Monetary Policy Committee (MPC) (June 2022)?

Answer 308

1. Communication confusion: From 2019 onwards, RBI began to release a separate governor’s statement on the day of the monetary policy meeting, presenting an inflation outlook and even explaining the decision taken by the MPC. While mostly it overlapped with MPC’s reasoning, it was not always the case
   
   1. Consider the MPC statement following the June 8 Monetary Policy Review. The MPC highlighted inflation concerns, and voted in favour of raising the policy repo rate. On the same day, a governor’s statement issued by the RBI mentioned that the central bank will also remain focussed on lowering government bond yields. The two objectives are contradictory
   2. a communication gap seems to have opened up between what the MPC has been saying and what the RBI has been doing, thereby potentially eroding credibility of the IT framework
2. MPC is empowered to decide on repo rate to influence market interest rate. However, a loophole has opened up.
   
   1. Ever since the early 2000s, policy had aimed to keep overnight money market rates in a corridor, with the lower bound established by the reverse repo rate and the upper bound by the repo rate. Since the width of this corridor was fixed, once the repo rate was decided, the reverse repo rate was automatically determined, and market overnight rates adjusted accordingly.
   2. But during the Covid-19 pandemic, the RBI constantly adjusted the reverse repo rate even as the MPC kept the repo rate unchanged, meaning that the fixed width of the corridor was lost, and the MPC lost any role in determining interest rates.
   3. Accordingly, the remit of the MPC and indeed the credibility of the entire IT edifice was called into question.
   4. In addition, the RBI introduced a number of new policy instruments, again outside the remit of the MPC. During the pandemic, it brought in the GSAP programme through which it pre-commited to buying a certain amount of dated government bonds in order to control their yields. It then introduced variable reverse repo auctions, and more recently, replaced the reverse repo rate with the long-dormant standing deposit facility rate, the rationale for which was not explained in the MPC statement.
3. the RBI has been intervening in the foreign exchange market to manage the rupee. Forex interventions by definition influence the domestic monetary base and inflation. Yet the MPC in its monetary policy statements does not discuss either the exchange rate dynamics or the forex interventions. Just as it does not discuss the RBI’s interventions in the bond market to lower the yields.

The net result of all these actions is a potential loss of both clarity and credibility. There appears to be a growing rift between what the MPC says and what the RBI does. And with the proliferation of policy instruments, it is no longer clear to the public how the policy stance should be measured — or what the monetary policy framework is.

Question 309

Variable Reverse Repo Auctions?

Answer 309

undertaken by RBI in 2021

A part of reverse repo transactions is done at a fixed rate and some of it at a variable rate.

Obj: to absorb excess liquidity from banking system

Question 310

Standing Deposit Facility?

Answer 310

• While retaining the reverse repo rate at 3.35 per cent, theRBI in April 2022 introduced the Standing Deposit Facility (SDF), an additional tool for absorbing liquidity, at an interest rate of 3.75 per cent.
• The main purpose of SDF is to reduce the excess liquidity of Rs 8.5 lakh crore in the system (The “extraordinary” liquidity measures undertaken in the wake of the pandemic, combined with the liquidity injected through various other operations of the RBI, have left a liquidity overhang of the order of Rs 8.5 lakh crore in the system.), and control inflation. RBI’s plan is to restore the size of the liquidity surplus in the system to a level consistent with the prevailing stance of monetary policy.
• idea of an SDF was first mooted in the Urjit Patel Monetary Policy Committee report in 2014, which later received the government’s nod following an amendment to the RBI Act in 2018, vide the Finance Bill. In 2018, the amended Section 17 of the RBI Act empowered the Reserve Bank to introduce the SDF – an additional tool for absorbing liquidity without any collateral. By removing the binding collateral constraint on the RBI, the SDF strengthens the operating framework of monetary policy.
• The SDF will replace the fixed rate reverse repo (FRRR) as the floor of the liquidity adjustment facility corridor.
• Both the standing facilities — the MSF (marginal standing facility) and the SDF will be available on all days of the week, throughout the year.
• The SDF rate will be 25 bps below the policy rate (Repo rate), and it will be applicable to overnight deposits at this stage. It would, however, retain the flexibility to absorb liquidity of longer tenors as and when the need arises, with appropriate pricing.
• Both SDF and reverse repo rate are used by the central bank to absorb liquidity in the system. The difference is that through reverse repo operations, the RBI needs to deposit collateral or government securities to borrow from commercial banks; while SDF does not require any such collateral. reverse repo operations do not qualify to be adjusted as SLR by the commercial lenders, while deposits under the SDF can be used by the banks as SLR
• Need: Sometimes the RBI does not have adequate bonds to suck huge liquidity like what happened in the case of demonetisation, and sometimes, the government is apprehensive about depositing collateral in excess amount

Question 311

Monetary policy: SOft landing vs Hard Landing?

Answer 311

Any Central bank, aiming to control inflation, would like to bring about monetary tightening in such a manner that slows down the economy but doesn’t lead to a recession. When a central bank is successful in slowing down the economy without bringing about a recession, it is called a soft-landing — that is, no one gets hurt. But when the actions of the central bank bring about a recession, it is called a hard-landing.

For example, in June-July 2022, US inflation rate is over 9% as compared to Fed’s target inflation rate of 2%, most observers expect that the Fed would have to resort to such aggressive monetary tightening that the US economy will end up having a hard-landing.