Jan-17Eco Flashcards
Jan-17Eco-Index
- Gender Responsive Budgeting/Gender Budgeting
- Rose Valley Case
- Green Bonds
- New Housing Schemes for the Poor
- 24X7 Power for All
- Autonomy of RBI
- Modified Special Incentive Package Scheme
- Promoting Digital Payments Through Lucky Draws
- Disinvestment
- Small Finance Bank
- Draft National Steel Policy
- Banking Cash Transaction Tax
- Proposal to Amend Plantation Labour Act
- Trade Receivables Discounting System (TREDS)
- Indian Railways Launch Non-Fare Revenue Policies
- Provident Fund Contribution Via Private Banks
3.1. GENDER RESPONSIVE BUDGETING/GENDER BUDGETING
Why in news?
This year, India ratified the Paris Agreement. Gender equality is one of the 17 goals under Sustainable Development Goals.
What is it?
Gender Responsive Budgeting (GRB) refers to the practice of policy formulation (fiscal policy) and resource allocation in such a way that it furthers the gender agenda and benefits women as much as it benefits men.
Need for GRB
Women and girl children in India are confronted with gender based disadvantages which may translate into lesser benefits being enjoyed by them.
Without gender analysis, schemes may reinforce patriarchal mindset due to faulty design or implementation.
Women lag behind men on many social indicators like health, education, economic opportunities etc.
India was ranked 87 in terms of gender equality in health, education, economy and political representation by World Economic Forum’s annual Global Gender Gap Report in 2016.
Although policy formulation has been central to the issues concerning the masses, it has failed to benefit women as much as men.
Background
Gender Responsive Budgeting was institutionalized in India in 2005.
The annual budget issues a gender budget statement which has two parts.
Part A (first part) has “women specific schemes” i.e schemes that have 100% fund allocation for women.
Part B (second part) has “Pro women schemes” i.e schemes that have minimum 30% fund allocation for women.
Apart from being prevalent at the national level, it has been adopted by 16 states.
No funds were allocated for scheme implementing Domestic Violence Act in budget 2016-17.
Challenges
Women’s declining labour participation, under-representation in Parliament, skewed child sex ratio and prevalent gender based violence.
Lack of ground level knowledge of needs of women.
The proportion of gender budget as a proportion of Union budget has either been stagnant or declined.
Recommendations
Rather than just focusing on women centric schemes, gender-analysis must be carried out for all schemes.
Greater involvement of women in the administrative and policy making procedure.
GRB must be adopted not just in social sectors but also in conventionally indivisible sectors like road, transport, energy, and technology.
3.2. ROSE VALLEY CASE
Why in News?
Two MPs from All India Trinamool Congress (TMC) party have been arrested by CBI in Rose valley case.
What is Rose valley case?
It is a chit fund scam where two entities - Rose Valley Real Estates and Constructions and Rose Valley Hotels and Entertainment, garnered Rs 18000 crores from investors as installments for property purchases promising extraordinary returns of 21%.
Background
Two TMC MPs were arrested in the Saradha
scam in 2013.
In 2014 many unregistered chit schemes
were ordered to be wound up and the
money refunded to investors.
Supreme Court also instructed the
Enforcement Directorate (ED) and the CBI to
probe such chit companies. As a part of that
process, the Rose Valley Group was
uncovered.
Reasons of such scams
Multiplicity of regulations and confusion
over jurisdiction. Eg. Centre and State
regulate chit funds whereas SEBI regulates
other collective investment schemes.
Poor regulation. Eg. Lack of registration of
such companies.
Low financial literacy in the investors about
such schemes.
Quick-get-rich attitude and greed in a
consumeristic society.
Steps taken by the government
Collective Investment Schemes regulation gives SEBI sweeping powers to oversee all such schemes that pool investor money.
RBI has advised banks to carry out quick reviews of accounts opened in the names such as market agencies
and retail traders.
RBI has been sensitising state governments on the Prize
Chits and Money Circulation Scheme (Banning) Act,
1978 and the appropriate action needed.
‘Direct Selling Guidelines 2016’ by SEBI clearly defines
money circulation schemes and direct selling to help
investigating agencies identify fraudulent players.
What needs to be done?
Improve financial literacy of the investors.
Resolve multiple regulation problems.
Heavy penalty on non-registration of such schemes with the regulator.
A coordinated effort and a political will by both centre and state governments to tackle the issue.
Conclusion
The basic aim of such saving and investment schemes is to dupe investors fraudulently. Therefore there is a need to resolve both the supply side problems like regulation deficit etc. along with demand side problems like poor awareness, to curb the financial losses to the economy due to these schemes.
Box–1-Chit Funds A chit fund is a type of saving scheme run by an individual or an institution. Subscribers pool instalments to the chit fund. After a period, each subscriber gets the entire pooled fund after a discount cut by the chit fund. The benefit of chit fund is that a subscriber can get a large amount of money in a short time. As per Supreme Court, Chit funds are a part of concurrent list. Chit funds are registered by the State governments. The unregistered ones are usually termed illegal. The Prize chits and Money Circulation (Banning) Act 1978 usually defines the illegal Chit funds.
Box–2-Other fraudulent monetary schemes 1.Ponzi scheme It is an illegal investing scam promising high rates of return to investors. It has no underlying assets i.e. it generates returns for older investors by acquiring new investors and not by earning returns/revenue by any assets like property etc. 2.Pyramid Scheme is an illegal scheme similar to ponzi scheme. While in a Ponzi scheme, participants believe of earning returns from any asset, participants in a pyramid scheme are aware that they earn money by finding new investors.
Box–3-Direct Selling and Money Circulation guidelines 2016 It bars entities involved from charging any entry fee from agents. It have also made provision for appointment of monitoring authority at both Central and state level to deal with money circulation schemes. It prohibits such entities from using misleading and deceptive or unfair recruitment practices.
3.3. GREEN BONDS
Why in News?
According to the Climate Bonds Initiative, $81 billion worth of labelled green bonds were issued in 2016, compared to $42.2 billion in 2015
India’s Position on Green Bonds
Indian Renewable Energy Development Agency Ltd has issued bonds to finance renewable energy without the tag of green bonds.
In 2015, EXIM bank launched India’s first dollar denominated green bond of $500 million.
India has become the seventh largest green
bond market in the world.
In January 2016, SEBI also released first Green Bond guidelines relating to listings, norms for raising money etc.
Banks have also been permitted to issue green masala bonds.
The upcoming year will witness the first ‘blue bond’ issuance in India.
As per Smart cities initiative, municipal bond market will be refueled for water supply projects (a category of Blue Blonds) in cities
like Pune and Hyderabad.
Significance of Green Bonds
India has a target of building 175 GW of renewable energy capacity by 2022. This requires $200 billion in funding.
India’s INDC for Paris deal obligates India to achieve its emission intensity targets.
Budget allocations are insufficient with most of it allocated to the coal sector.
Higher interest rates in India raise renewable energy costs by about 25 per cent. Green bonds carry a lower interest rate than the loans offered by the commercial banks.
Investor suffers low risk because the risk of the project stays with the issuer rather than investor.
It will promote a faster and a sustainable growth as per the 12th FYP.
Challenges in success of Green Bonds in India
Concerns on projects targeted under green bond. Eg. French utility GDF Suez’s $3.4 billion green bond issue funded a dam project hurting the Amazon rainforests.
Most green bonds in India have a shorter tenor period of about 10 years (compared to international issuances). A typical loan is for minimum 13 years.
Many target buyers may not invest in any bonds that are rated lower than the AAA-.
There is a lack of viable and bankable projects owing to pricing issues.
There is inadequate infrastructure (such as inefficient metering in water infrastructure) to implement green projects.
There is a limited reliability and creditworthiness of urban local bodies in India.
Presently, Indian corporates tap overseas market due to greater awareness and dedicated investors.
Standalone green projects such as rooftop solar still are unattractive to investors due to the small scale and vast geographical spread.
Way Forward
There is a need for developing a formal definition of ‘green’ to ensure understanding across sectors. Innovative mechanisms such as aggregation and securitisation could be used to provide mainstream debt to small-scale green projects. Collective participation of regulators, policymakers, corporate and financial institutions is going to be crucial in pushing green bonds further to address climate change
Box–1-What is Climate Bonds Initiative?
The Climate Bonds Initiative is an international, investor-focused not-for-profit organization.
It’s the only organisation working to mobilize $100 trillion bond market for climate change solutions.
Its objective is to develop a large and liquid Green and Climate Bonds Market in developed and emerging markets.
It would help aggregate money for fragmented sectors and support governments to tap debt capital markets
Box–2-Green Bond
A bond is a debt instrument with which an entity raises money from investors.
The capital for green bond is raised to fund ‘green’ projects like renewable energy, emission reductions etc.
First Green Bond was issued by World Bank in 2007.
There is no standard definition of green bonds as of now.
BLUE BONDS
It is a type of green bond which specifically invests in climate resilient water management and water infrastructure.
Box–3-Different climate financing initiatives existing today
Global Environment Facility (GEF) is a multilateral body of governments, civil society, banks etc. acting as a financial mechanism to environmental conventions like UNFCCC etc.
Green Climate Fund was created by UNFCCC in 2011 as an operating entity of financial mechanism of the UNFCCC.
Carbon taxes and cess by the national governments. Clean Development Mechanism – It involves investment by developed countries in emission reduction projects in developing countries Joint Implementation (JI) - JI enables developed countries to carry out emission reduction projects in other developed countries. Perform Achieve Trade (PAT) - It is a market-based trading scheme under National Mission on Enhanced Energy Efficiency (NMEEE). It involves trading in energy efficiency certificates to offset emissions.
3.4. NEW HOUSING SCHEMES FOR THE POOR
Why in news?
Government announced two new housing schemes under the Pradhan Mantri Awas Yojana, to help the middle class and the poor buy or build homes.
Main Features
The number of houses being built for the poor, in rural areas, is being increased by 33 per cent.
Subsidized loans will be made available for building or expanding homes in rural India and to urban poor.
Interest subvention of 4% on loans of up to 9 lakh rupees and 3% on loans of up to 12 lakh rupees.
Under the new scheme of housing for all 2022, the central assistance per house for EWS has been planned to increase to 1.5 lakh rupees from 70,000 rupees.
Benefits
Lower than market price makes it affordable for EWS.
Buying or making houses registered under such govt schemes offer various benefits, including pricing, location and security of investments.
Easy and quick legal clearances are also ensured as the govt ensures these things before putting the properties for sale.
Rural housing schemes can give a boost to employment for the locals.
Challenges
Availability of land and its acquisition is the biggest impediment.
Exclusion and inclusion errors in selection of beneficiaries due to faulty BPL lists.
Such schemes generally concentrate just on house construction and lack other amenities and facilities like drinking water, electricity supply, cooking gas etc when compared to private developers.
Sub-par construction quality of government schemes turns houses as poor investments for the long term.
Large section of migrants such as in New Delhi and Mumbai, are left out because of allocation generally on domicile basis.
Lack of monitoring of the implementation of these schemes and presence of corruption. In many cases houses were not built in spite of release of funds to the beneficiary.
Slow pace of the implementation of the schemes. 4.4 million new rural houses for poor have to be built this year but rural development ministry has built just 1.1 to 1.8 million houses annually in the last five years.
Way Forward
Effective targeting of beneficiaries is required before releasing funds under the scheme.
Capacity building of PRIs and ULBs to ensure proper implementation and monitoring of schemes.
Convergence of unskilled construction work with NREGA can address scarcity of labour and high labour cost.
Encouraging participation of private sector to provide efficient water, electricity and other amenities.
3.5. 24X7 POWER FOR ALL
Why in News?
Tamil Nadu Govt. has signed a MoU with Ministry of Power, GOI for Ujwal DISCOM Assurance Yojana.
The state has also signed up for the “24X7 Power for All” initiative.
Background
“24X7 PFA” aims to provide 24X7 power access in the country anywhere any time by 2019.
With TN signing the MoU, roadmap for all states except UP have been finalized and under implementation.
Andhra Pradesh and Rajasthan were the first states to sign up to provide 24X7 power.
Rigorous analysis showed that the states lacked financial viability to provide power for all.
This led to the formation of UDAY, to replenish loss-making DISCOMs (distribution companies).
Apart from UDAY, the government has also launched several other initiatives in the past two years to achieve 24X7 PFA such as UJALA (distribution of LED light bulbs), DDUGJY and IPDS.
Allocations for DDUGJY (Deen Dayal Upadhyaya Gram Jyoti Yojna) and IPDS (Integrated Power Development Scheme) have been increased by 25% in budget 2017-18 to achieve 24X7 PFA.
Challenges
Resolving price related issues and identifying as to why discoms have accumulated losses over the years.
Smaller villages do not have the required infrastructure to provide 24X7 power. Also, transporting power grids and laying distribution and transmission lines takes time.
Recommendations
Alternative methods such as solar power can also be used to achieve the 24X7 PFA vision by 2019.
Electrification can be carried out at the village level by installing off-grids/ mini-grids.
Significance
UDAY is expected to clear the debt burden of discoms so that they are able to buy more units without adding to losses and achieve 24X7 PFA. It will also give the discoms an opportunity to start afresh.
24X7 PFA will not only have a positive impact on productivity and efficiency of firms but a positive correlation between access to electricity and declining poverty has also been witnessed.
24X7 PFA is the implementation of integrated planning and cooperative federalism.
Box–Meaning of Electrification of a Village
According to the definition of electrification that came into effect from 2004-05, a village would be declared electrified if,
Basic infrastructure such as Distribution Transformer and Distribution lines are provided in the inhabited locality as well as the Dalit Basti hamlet where it exists.
Electricity is provided to public places like Schools, Panchayat Office, Health Centers, Dispensaries, Community centers etc.
The number of households electrified should be at least 10% of the total number of households in the village.
3.6. AUTONOMY OF RBI
Why in News?
Questions on autonomy of the RBI were raised after note-ban in November.
Where Does RBI Stand in Terms of Autonomy?
According to a paper published in the International Journal of Central Banking in 2014, RBI was listed as the least independent among 89 central banks considered under the study.
The study took four factors into account.
Government intervention in appointing central bank’s head
Government intervention in policy decisions
Price stability being the sole or primary goal of the monetary policy
Limits on the ability of the
government to borrow from the central bank
These rankings are likely to have improved since the adoption of inflation targeting in February 2015 and formation of monetary policy committee in October 2016.
However, vacancies in RBI’s board and government’s reluctance to fill them up raises questions about the decisions taken and whether proper deliberations on those decisions are being held.
Time and again successive governments have tried to curtail RBI’s independence by various means.
During the previous government, a Financial Sector Legislative Reforms Commission was formed which made various recommendations to cut down RBI’s powers.
In 2013, a financial sector monitoring body, called Financial Stability Development Council was established which was to be chaired by the Finance Minister.
In essence the RBI Act does not empower RBI absolute autonomy. However, it does enjoy some independence when it comes to performing its regulatory and monetary functions.
Box–RBI and its Functions
It was established in 1935 under the provisions of RBI Act, 1934.
RBI has seven major functions:
Print Notes: RBI has the sole autonomy to print notes. GoI has the sole authority to mint coins and one rupee notes.
Banker to the Government: It manages government’s deposit accounts. It also represents govt. as a member of the IMF and World Bank.
Custodian of Commercial Bank Deposits
Custodian to Country’s Foreign Currency Reserves
Lender of Last Resort: Commercial banks come to RBI for their monetary needs in case of emergency.
Central Clearance and Accounts Settlement: As RBI keeps cash reserves from commercial banks therefore it rediscounts their bills of exchange easily.
Credit Control: It controls supply of money in the economy through its monetary policy.
The power to appoint RBI Governor solely rest with the Central Govt. and he holds office at the pleasure of Central Government (tenure not exceeding 5 years).
3.7. MODIFIED SPECIAL INCENTIVE PACKAGE SCHEME
Why in News?
The cabinet recently approved amendments to the Modified Special Incentive Package Scheme (M-SIPS) in
a bid to achieve net zero imports in the electronics sector by 2020.
What is MSIPS?
The M-SIPS policy was launched in July 2012 for a three year period by the Ministry of Electronics and Information Technology (MeitY).
Its primary objective was to encourage investments in Electronics System Design and Manufacturing (ESDM) Sector and speed up the disbursement process.
The policy encourages companies to produce domestically by providing them 20-25% subsidy on capital expenditure.
The Government has increased fund allocation to this scheme in budget 2017-18.
Importance
The scheme is expected to boost domestic production in the electronics sector.
It is the key strategy towards achieving net zero balance of electronics w.r.t imports and exports.
Several government driven initiatives and incentives for electronics sectors are – Electronics Development Fund (EDF), Electronics Manufacturing Clusters (EMCs) scheme, National Knowledge Network & National Optical Fibre Network.
Domestic production will make the country self-dependent in electronics and will also aid in job creation.
Box–
National Policy On Electronics (NPE)
NPE’s vision is to create a globally competitive Electronics System Design and Manufacturing (ESDM) industry to meet the country’s needs and serve the international market.
Develop an ecosystem for a globally competitive ESDM sector in the country by attracting investment in excess of USD 100 Billion and generating employment for 28 Million people at various levels.
To develop core competencies in strategic and core infrastructure sectors like telecommunications, automobile, avionics, industrial, medical, solar, information and broadcasting, railways, intelligent transport systems, etc.
A number of state governments have also come up with separate state specific policies for electronics sector.
3.8. PROMOTING DIGITAL PAYMENTS THROUGH LUCKY DRAWS
Why in News?
The center has awarded Rs. 60.9 crores as prize money under under its two lucky draw schemes launched post demonetization- Lucky Grahak Yojana and Digi Dhan Vyapar Yojana.
Lucky Grahak Yojana and Digi Dhan Vyapar Yojana
The two schemes were launched post demonetizations to incentivize people to use digital method as a means of payment (cashless transaction).
The schemes opened on 25 December, 2016 and will remain open till 14 April, 2017.
The main focus of these two schemes has been to bring the poor, middle class individuals and small merchants under the purview of cashless economy.
Some of the Other Initiative Undertaken to Boost Cashless Economy.
A total of 100 Digi-Dhan Melas were to be organized across the country. Out of this 24 have already taken place.
Common Services Centers (CSCs) have also been carrying out training programmes.
Discounts have also been offered for various digital transactions such as payment of premium on PSU insurance online portals, Central government petroleum PSUs.
2 POS (point of sale) devices to be deployed in villages above 1 lakh population
3.9. DISINVESTMENT
Why in News?
The Cabinet Committee on Economic Affairs (CCEA) has approved divesting 25% of stake in five general
insurance companies.
The five general insurance companies are Oriental Insurance, National Insurance, New India Assurance, United India Insurance and General Insurance Corporation of India.
What is Disinvestment?
Disinvestment refers to the government selling or liquidating its assets or stakes in PSE (public sector enterprise). It is also referred to as divestment or divestiture.
Disinvestment was popularized in India post the New Economic Policy of 1991.
Disinvestment is mainly done when a PSU has been running in losses for years and is not contributing anything to the exchequer but has rather becomes a burden on the government.
Disinvestment proceeds can help the government fund its fiscal deficit.
Box–National Investment Fund (NIF)
It was created in 2005. All the proceeds from the disinvestment of Centre Public Sector Enterprises were to be channelized in this fund.
75% of the income of the NIF is used in social sector schemes such as those that promote education, health and employment while 25% is to be utilized in the revival of PSUs.
This rule was relaxed during global economic slowdown and the govt. approved 100% NIF income utilization for social sector from 2009 to 2013.
3.10. SMALL FINANCE BANK
Why in News?
Recently micro lenders, Suryoday and Utkarsh, have started the small finance banks (SFBs).
They are offering interest rates of more than 6% in order to compete with commercial lenders for savings bank deposits. Most of the commercial banks offer 4% on savings accounts.
Background
Small finance banks were key recommendations of the committee on financial inclusion chaired by Nachiket Mor.
The RBI estimates that close to 90 per cent of small businesses today have no links with formal financial institutions.
Taking into account of the above it was concluded that small finance banks can play an important role in the supply of credit to micro and small enterprises, agriculture and banking services in unbanked and under-banked regions in the country.
What are Small Finance Banks?
Small finance banks are niche banks (banks that focuses and serves the needs of a certain demographic segment of the population) with main function to perform lending activities among weaker section
The SGBs are essentially scaled down versions of commercial banks, with both deposit-taking and loan-making functions.
Characteristics of SFBs:
Resident individuals/professionals carrying 10 years of experience in banking and finance and companies and societies owned and controlled by residents will be eligible to set up small finance banks.
SFBs have a minimum paid up capital of Rs.100 crore.
SFBs are mainly for the growth of agriculture and Micro, Small and Medium industries.
SFBs can sell forex, mutual funds, insurance, pensions and can also convert into a full-fledged bank.
3.11. DRAFT NATIONAL STEEL POLICY
Why in News?
The Indian Ministry of Steel has released draft National Steel Policy (NSP), 2017.
Problems Faced By This Sector
Steel companies are plagued with huge debts.
Lack of domestic demand.
Quality of metallurgical coke is not good enough. Coke is the raw material used in blast furnace iron making. It is made through carbonization of coal.
High input costs.
Cheap imports from China, Korea and other countries are also a matter of concern for domestic producers.
Reforms Proposed By the Draft National Steel Policy
The aim of the draft NSP is to develop a self-sufficient steel
industry that is globally competitive.
The policy proposes setting up Greenfield Steel Plants along the Indian coastline under the Sagarmala Project.
This has been proposed in order to tap cheap imported raw materials such as coking coal and export the output without incurring huge cost burden.
The policy has also proposed the idea of gas-based steel plants and use of electric furnaces in order to bring down the use of coking coal in blast furnaces.
The policy targets to achieve production of 300 million tonnes by 2030-31.
Box–Importance
India is the third largest producer of finished steel in the world coming after China and Japan.
The steel sector in India is valued at over 100 billion dollars and contributes 2 percent to the GDP.
The sector employs 6.5 lakh people directly and 13 lakh people indirectly.
India has been importing finished steel since 2007-08 with the exception of 2013.
Until two years ago, India was also the third largest consumer of steel.
Despite the global economic slowdown, India was the only economy that showed positive growth in steel sector in 2015.
3.12. BANKING CASH TRANSACTION TAX
Why in News?
The Committee of Chief Ministers on Digital Payments has recommended bringing back BCTT (Banking Cash Transaction Tax) in order to promote digital payments.
BCTT (Banking Cash Transaction Tax)
BCTT is a type of tax that was levied on cash transactions above a specified limit by an individual or HUF from any non-saving account of a scheduled bank in a single day.
It was not applicable in the state of Jammu and
Kashmir.
Cash transactions were taxed at 0.1%.
The tax was first introduced in 2005 under the Finance Act, 2005. It was later rolled back from 1 April, 2009.
The tax was introduced to track unaccounted money and trace its source and destination.
Tax Administration Committee headed by Parthasarathi Shome had also recommended reinstating the BCTT in 2014.
Other Recommendations by the Committee of Chief Minister on Digital Payments
Provision of tax refund to consumer using digital payments up to a certain proportion of annual income.
No retrospective taxes for merchants engaging in digital payments
Ceiling on cash usage on all types of large-sized transactions.
Ministry of Electronics has been recommended to provide a subsidy of Rs. 1000 for smartphones for small merchants and those outside the income tax bracket.
50 percent subsidy for biometric sensors (iris and fingerprint scanners).
Box–HUF (Hindu Undivided Family)
It is a separate entity created by members of a family for taxation purposes.
It cannot be created by individuals. Members of the HUF are lineal ascendants or descendants.
Every member has equal share in the HUF.
Hindus, Buddhists, Jains and Sikhs can open HUFs.
HUF gets a separate PAN and is taxed separately.
It can only be funded through gifts from relatives or through inheritance under the gift tax laws.
3.13. PROPOSAL TO AMEND PLANTATION LABOUR ACT
Why in News?
The Centre is planning to amend the Plantation Labour Act (PLA), 1951 to exclude ‘in kind’ components that are regarded as wages.
Need of such amendment
To correct human right violation in tea gardens as reported by NHRC.
The tea industry does not pay statutory minimum wages, saying that the monetized value of the
facilities under PLA 1951 compensates for wages.
By the amended PLA, the government wants to share the cost of social sector schemes in the tea estates with the plantation industry.
Significance of proposed amendments Article 43 of the Constitution directs the State to secure, by law, a living wage, a decent standard of life and full enjoyment of leisure and socio-cultural opportunities to all workers. A minimum wage for all workers will fulfil government’s proposal of a Minimum Wage Code as a part of its labour reforms. The tea industry, which is the largest among the plantation sectors, will benefit many workers from this move.
Box–
Plantation Labour Act It provides for the welfare of plantation labour and regulates the work conditions in plantations. In every plantation medical facilities for the workers and their families are given. It provides for canteens, crèches, suitable accommodation and educational facilities for the workers in and around the plantation estate. The Act is administered by the Labour Ministry.
3.14. TRADE RECEIVABLES DISCOUNTING SYSTEM (TREDS)
What is it?
It is an institutional mechanism to facilitate the financing of trade receivables of Micro, Small and Medium Enterprises (MSMEs) from corporate buyers through multiple financiers. Need of TReDS
Recent CRISIL report says that demonetization by the government
has impacted liquidity of MSMEs. It also says that
Every third MSME is facing delays in receivables from corporate and the government itself.
They are unable to repay creditors and pay salaries on time.
The steel sector has been most impacted followed by textiles.
As per the Federation of Indian MSMEs (FISME), MSME businesses have come to a “grinding halt” post demonetization.
MSME Development Act says that the buyer of goods or services
shall make payment to the supplier within 45 days of acceptance. Therefore delays are violating the law.
Objective of TReDS
Create Electronic Bill Factoring Exchanges that could electronically accept and settle bills. It would enable MSMEs to cash their receivables without delay.
The TReDS will facilitate the discounting of both invoices as well as bills of exchange.
Box–1-What are trade receivables? The total value of trade receivables for a business at any time represents the amount of sales which have not yet been paid for by customers.
Box–2-Importance of MSME
According to MSME ministry, there are about 51 million enterprises in the MSME segment in India. They have generated employment for about 117.1 million persons and account for 37.5 per cent of the country’s GDP.
