Economy

CURRENT AFFAIRS august 2019

Govt unveils draft e-commerce norms

Context: To protect consumers’ interest, the Centre has proposed

guidelines for e-commerce firms.

Highlights:
It entail a 14-day deadline to effect refund request, mandate e-tailers to
display details of sellers supplying goods and services on their websites
and moot the procedure to resolve consumer complaints.
e-commerce firms should be a registered legal entity under Indian laws
and should submit a self-declaration to the ministry stating that it is
conforming to guidelines.
A promoter or key management personnel should not have been convicted
of any criminal offence punishable with five years imprisonment.
The companies should also comply with the provisions of IT Rules, 2011.
They are also required to display on their websites details about sellers
supplying goods and services.
The companies should not adopt any unfair methods, falsely represent
themselves as consumers, post reviews about goods and services in their
name or exaggerate the quality of goods and services
To ensure transparency in dealing, the companies are required to display
terms of contract between them and the seller to enable consumers to
make informed decisions.
They should also mention safety and health care information of the goods
and service advertised for sale and give information on payment methods.

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Economy
CURRENT AFFAIRS august 2019

The companies are required to effect all payments towards accepted

refund requests of the customers within a period of maximum of 14 days.
On seller’s liabilities, the norms proposed sellers to display total as well as
break up price for the goods or service including charges like delivery,
postage and taxes.
Sellers should also comply with mandatory display requirements as per
Legal Metrology (amendment) rules 2017 for pre-packaged commodities.
e-commerce companies will also be required to ensure that personally
identifiable information of customers is protected.
Such data collection and storage and use comply with provisions of the
Information Technology (Amendment) Act, 2008.
The consumer affairs ministry has sought views of stakeholders on the
draft guidelines on e-commerce by September 16.
Meanwhile, the government is planning to come out with a national e-
commerce policy to facilitate achieving holistic growth of the sector.

E-Commerce industry in India:

The e-commerce sector in India has been witnessing an explosive growth
fuelled by the increase in the number of online users, growing penetration
of smart phones and the rising popularity of social media platforms.
According to a February 2019 Morgan Stanley report, India is adding one
Internet user every three seconds and the e-commerce sector in India is
estimated to reach USD 230 billion by 2028, accounting for 10% of India’s
retail.

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Economy
CURRENT AFFAIRS august 2019

Trump accuses China of 'currency manipulation

Context: On 5/08/2019, the US Treasury Department declared that China

is a currency manipulator. The move came after the People’s Bank of China
(PBOC), the central bank of China, allowed the yuan to suddenly depreciate
(or lose value) relative to the dollar by 1.9 per cent (one of the biggest
single-day falls). As a result, the yuan breached the 7-to-a-dollar-mark for
the first time since 2008. In retaliation, the US announced that it would
approach the IMF “to eliminate the unfair competitive advantage created
by China’s latest actions.”

What is a currency’s exchange rate?

An exchange rate is the value of a nation's currency in terms of the
currency of another nation or economic zone.

How are exchange rates determined?

In an ideal world, the exchange rate for any currency would be determined
by the interplay of its demand and supply. If more Indians want to buy US
goods, there would be a higher demand for the dollar relative to the rupee.
This, in turn, would mean the dollar would be “stronger” than the rupee —
and gain in strength as the demand increases. If demand falls, the dollar
would depreciate relative to the rupee (or the rupee would appreciate
relative to the dollar).

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What is currency manipulation?

The real world is far from ideal. Most governments and central banks are
bothered about generating more growth and employment at home. A
weaker domestic currency comes in very handy when governments are
trying to attract foreign demand and boost exports. China’s economic
growth has been essentially fuelled by exporting to the world.
Currency manipulation happens when governments try to artificially tweak
the exchange rate to gain an “unfair” advantage in trade.
In other words, if China’s central bank buys dollars in the forex market, it
can artificially weaken the yuan and Chinese goods will then become more
affordable (and competitive) in the international market.

Can currency manipulation be justified?

Some amount of such “intervention” by central banks is allowed to reduce
wild fluctuations in the exchange rate. But excessive and undisclosed
interventions are not considered fair.

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Economy
CURRENT AFFAIRS august 2019

India’s 1st corporate credit card for SME

Issue
EnKash, a two year old card focused fintech startup have announced the
launch of Corporate Credit Card for SMEs/MSMEs and startup, called the
Freedom card. 

Background
There are around 42 million MSME enterprises in India contributing 6.11 %
of the GDP in manufacturing and 24.63 % of the GDP to the service sector.
Access to credit is essential to MSMEs, as lending in this sector has been
dominated informal financial entities and almost 40% of credit allotment to
MSMEs in India is through informal channels. Anew easy credit
mechanism is required to boost domestic industries.

EnKash credit cards salient features

The Freedom card would give the SME’s and startups the freedom to avail
credit facility for immediate needs and to manage their financial liquidity. 
EnKash Freedom Card offers customized billing cycle based on the
repayment ability of the businesses. The company has come up with a
corporate card to cater the varied billing cycles as per the working capital
cycles of different businesses.
 Freedom Card is designed to fulfill the credit requirements of SMEs &
Startups segment, which are highly underserved at present 

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The startup sector is booming in India at a tremendous pace, according to

the latest KPMG report on the Indian Startup Ecosystem, the number of
startups in the country has gone up from 7,000 in 2008 to 50,000 in 2018,
a growth of over seven times in the last decade. As the number of startup
grows further it will require easy access to credit. 

SME and MSME

Notes

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Economy
CURRENT AFFAIRS august 2019

Artificial Currency Weakening by China

Issue
The United States has designated China as a “currency manipulator” after
Chinese Central bank Yuan weakens past US dollars.

Background
The present devaluation of the currency has gained significance in light of
the ongoing trade war between the U.S. and China. Both countries have
slapped high tariffs on goods worth billions imported into their countries
from the other side.

What is Artificial Currency Fixing?

Devaluing the currency is a common ploy employed by economies that face
a slowdown in order to help boost demand for their goods. 
A currency is devalued (or weakened) using the central bank to increase
the supply of the currency in the forex market. This allows more units of
the currency to be purchased using fewer units of various other foreign
currencies. 
This is a way of transferring more of the purchasing power to buy Chinese
goods away from the hands of the local Chinese and into the hands of
Americans. The Chinese believe this will help boost the value of China’s
exports and also kick-start growth.

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How does it impact global economy?

Chinese economy has been witnessing a general slowdown, with growth
dropping to a 27-year low of 6.2%. China has decided to depend more
heavily on exports as a way to boost demand for its goods.
If the U.S. weakens the dollar to retaliate against China’s Yuan
devaluation, it will enter a currency war. 
This can cause terrible uncertainty for businesses. Combined with high
tariffs, this will lead to a steep fall in international trade.
Currency devaluation may temporarily boost exports by transferring
more purchasing power to the hands of foreign investors, but it will not
boost domestic production. Eventually,such competitive devaluations can
cause the size of global trade to shrink

Impact on India
The result of China’s decision to let the Yuan fall against the dollar,
demand for dollars surged around the globe, including in India, investors
buy dollars at the expense of the rupee. The Indian currency can plunge
into low against the dollar.

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Economy
CURRENT AFFAIRS august 2019

Economic slowdown in India

Issue
That the Indian economy is slipping into a recession is quiet apparent. The
real GDP growth has gone down from a peak of 8.2% in 2016-17 to 6.8% in
2018-19, with the fourth quarter of 2018-19 dipping to 5.8%. The first
quarter of 2019-20 is expected to dip further to 5.6%.

Background
There have been four global recessions since World War II, beginning in
1975, 1982, 1991 and 2009. This last recession was the deepest and
widest of them all. Since 2010, the world economy has been in a process of
recovery although slowly.

What is Economic Slowdown?

A recession or economic slowdown is a business cycle contraction when
there is a general decline in economic activity. Recessions generally occur
when there is a widespread drop in spending.
Reasons for recession can be various events, such as a financial crisis, an
external trade shock, an adverse supply shock or the bursting of
an economic bubble.

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Economy
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Reasons for Economic slowdown

The fall in private consumption, has gone down since the second quarter of
2018-19. Private consumption has been the main driver of India's growth,
contributing about 60% to GDP, and its fall is dragging economic growth
further down.
Gross savings have fallen from 31.1% of GDP in 2015-16 to 30.5% in
2017-18 mainly contributed by the household sector savings, which
declined from 23.6% of GDP in 2011-12 to 17.2% of GDP in 2017-18.
With this decline, investment rate has gone down. This decline in wages hit
private consumption due to stagnation in income and household savings
declined

Measures to tackle slowdown

Since consumption expenditure is directly linked to income, especially for
the lower and middle income working population  of India, the idea is to
improve their wages to spur consumption demand
Major tasks of the government would be to design appropriate
macroeconomic responses to check the sharp decline in wages or income
levels of working population and also to boost consumption and savings
rate to propel growth.
To boost agricultural growth PM-Kisan scheme, which proposes an income
transfer of Rs 6,000 per year to all farmers, could be seen as a measure
but this scheme leaves out from its cover the most vulnerable and
numerically bigger group which are the landless agricultural laborers, who
constitute more than half of the total agriculture workforce in India.

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Economy
CURRENT AFFAIRS august 2019

INX media scam

Issue
 Former Finance Minister P Chidambaram was arrested by the Central
Bureau of Investigation in relation to the INX Media case. 

Background
The CBI has registered an FIR alleging irregularities in Foreign Investment
Promotion Board (FIPB) clearance given to INX media for receiving funds
from abroad to the tune of Rs 305 crores.
It is alleged that Chidambaram received kick backs and tweaked FDI rules
to allow excessive flow of foreign investments into INX media firm.

Details
According to ED, INX Media was granted permission by the FIPB for FDI
inflow amounting to Rs 4.62 crore from three Mauritian companies into
INX Media.
Instead of the approved Rs 4.62 crore FDI, INX Media brought in a much
larger sum of Rs 305 crores. It then went a step further and even brought
in downstream investments, clearly violating rules.
To facilitate changes, a bribe of $1 Million was transferred to Karti
Chidambaram, son of P.Chidambaram through various foreign banks. The
bribe amount was then used to buy various benami properties abroad.

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Economy
CURRENT AFFAIRS august 2019

Foreign Investment Promotion Board (FIPB)

The Foreign Investment Promotion Board (FIPB) was a national agency
of Government of India, with the remit to consider and recommend foreign
direct investment (FDI) which does not come under the automatic route.
 It was housed in the Department of Economic Affairs, Ministry of Finance.
FIPB was abolished on 24 May 2017.

Notes

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Economy
CURRENT AFFAIRS august 2019

US announces tariff hikes on Chinese goods

Issue
U.S. President Donald Trump on Friday lashed back at a new round of
Chinese tariffs by heaping an additional 5% duty on some $550 billion in
targeted Chinese goods. This is a part of trade war between world’s two
largest economies.

Background
Mr. Trump has accused China of unfair trade practices and pushed for a
deal that would rebalance the relationship in favour of U.S. manufacturers
and workers
China unveiled its retaliatory tariffs on $75 billion worth of U.S. goods,
prompting the President earlier in the day to demand U.S. companies move
their operations out of China.

Details
United States has said it would raise its existing tariffs on $250 billion
worth of Chinese imports to 30% from the current 25% beginning
October 1.
Tariffs on the remaining $300 billion worth of Chinese goods to 15% from
10%. The United States will begin imposing those tariffs on some products
starting September, but tariffs on about half of those goods have been
delayed.

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Effect on India and world

China will search for other markets where it can dump the products it
exported to the US. India will provide a ready-made market for these
Chinese products. The trade war will result in an increase in Chinese
exports to India.
The trade war will adversely affect global trade and financial markets. IMF
has predicted that a full-blown trade war would cause the global economy
to slow down by more than 0.8% in 2020. This will lead to shrinking of
Indian exports in the coming months, not only to the US and China but also
to other countries.
This will negatively affect income and employment generation in export-
driven sectors and downstream industries. Given the inelastic nature of
Indian imports like dependence on oil, a slowdown in exports will result in
a higher trade deficit.
This will lead to a further fall in the Indian rupee’s value, exerting
pressure on other macroeconomic indicators and depreciates currency. 

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Economy
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Government announces measures to boost growth

Issue
In a bid to stabilise the faltering economy, Union Finance Minister Nirmala
Sitharaman announced various measures.

Background
FPI or foreign portfolio investment is the entry of funds into a country
where foreigners deposit money in a country's bank or make purchases in
the country's stock and bond markets.
The steps by government comes in the wake of a slide in equity markets
and a slowdown in demand that has impacted industries ranging from
automobiles to items of daily use such as biscuits and groceries.

Measures announced
Removal of the surcharge on capital gains on shares for both foreign and
domestic investors.
Upfront amount of  Rs. 70,000-crore equity infusion into public sector
banks to boost lending.
The government assured that ICE (internal combustion engine) vehicles
will coexist with EVs (electric vehicles) and there will be no phasing out of
ICE vehicles, a fear expressed by the auto industry. 
Ban on govt departments lifted for purchase of vehicles to replace old
ones.

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Economy
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To provide immediate liquidity to thousands of companies, the government
announced that all pending GST refunds will be paid to Micro, Small and
Medium Enterprises within 30 days. In future, all GST refunds shall be
paid within 60 days from the date of application.
To mitigate genuine difficulties of start-ups and their investors, it has been
decided to withdraw Angel Tax from them. The exemption will be
applicable to only those start-ups that are registered with the Department
for Promotion of Industry and Internal Trade.

Implications of policy
It will boost fund flows in equity and debt markets, increasing the velocity
of money so that more transactions take place. 
Changed automobile policy will boost production and keep jobs intact.
Consumption in products likely to boost growth.
Notes

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CURRENT AFFAIRS august 2019

Angel Tax

Issue
Finance minister Nirmala Sitharaman has allowed startups registered
with the Department for Promotion of Industry and Internal Trade
(DPIIT) to be exempted from angel tax, an anti-evasion provision in the
Income Tax Act.

Background
Angel tax has often been touted by the startup community as an unfair tax
burden affecting young companies and their financial backers. The
measures announced are expected to address these issues.

Mesures announced
Local tax authority in India does not recognize the discounted cash flow
method that many investors use to value early-stage startups, and instead
value the company for its worth currently. This will result in over
estimation of company’s assets and higher taxation.
Under new provisions tax shall not be applicable to startups registered
under DPIIT.
To mitigate genuine difficulties of startups, the Centre will set up cell led
by member of CBDT for addressing problems of startups. Startups with an
I-T issue can approach this panel.

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Perpetual benefits of reforms

Removal of angel tax will go a long way in building trust and confidence in
the startups and the investors, and shows government’s resolve towards
ease of doing business in India and encourage entrepreneurship. 
Simplify the flow of risk capital for young companies will allow early-stage
ventures to raise seed capital.
The decision to fast-track GST refunds within 30 days and CBDT’s move
towards setting up a dedicated cell to address tax problems will further
ease business environment.

Way forward
The government needs to make similar tax provisions for friends and
families that are not categorized as angels and have backed startups
simply without any urge for profits. These startups are not DPIIT
registered. This is common in smaller cities.

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CURRENT AFFAIRS august 2019

Chinese influence on falling rupee

Issue
The Indian rupee fell sharply by 40 paise against dollar to hit 72.05. The
global recession and trade war between Us and China are said to have
influenced this phenomenon.

Background
Normally, the rupee moves in line with the movement of the stock market,
as a positive development assures rupee to gain its value in the market.
The rupee has reeled under global pressure as markets remained
concerned over an escalation of the trade tariff war between the United
States and China.

Details
Recently the Renminbi fell to a new 11-year low of 7.15 against the dollar
due to rising concerns over the tariff war. Most emerging market
currencies, including the Malaysian Ringgit, the Indonesian Rupiah, and the
South African Rand, came under pressure. So did the rupee, which fell
sharply.
Trade war fears between US and China and a sharp fall in Chinese Yuan
(breaching 7 to a dollar) hit the global market sentiments and decline in
currencies of most countries including India.

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Link between rupee and Renminbi

A weakness in the renminbi (yuan) increases the competitiveness of
Chinese exports, as every dollar can import larger quantities of Chinese
goods.
At the same time, it puts competing countries under pressure, as their
goods become relatively more expensive. As the exports become expensive
rupee losses its value and depreciates.
US and overall slowdown in global growth has fuelled the concerns that
China may be devaluing its currency to boost its exports and push growth.

Notes

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Economy
CURRENT AFFAIRS august 2019

RBI approves Bimal Jalan committee report

Issue
Central board of the Reserve Bank of India (RBI) on Monday accepted
Bimal Jalan committee's recommendations and approved a surplus
transfer of Rs 1.76 lakh crore to the government .

Background
The RBI does its risk analysis and sets out a part of its surplus profits to
be transferred to the government.
The reason for the conflict is simple: the government wants more surplus;
the RBI wants to keep more reserves from profits for unforeseen risks.
The central bank, in consultation with the government, had constituted a
committee chaired by former RBI governor Bimal Jalan to review the
buffer funds to be held by the RBI.

Details
The RBI committee has recommended a surplus distribution policy, which
targets certain amount of equity to be maintained by RBI within the overall
level of its economic capital.
RBI’s realized equity, which is a form of contingency fund for meeting all
risks/losses which is built up from retained earnings, currently stands at
6.8% and the Jalan committee recommends it to be in the range of 6.5-5.5%
of the balance sheet.

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An amount of ₹28,000 crore has already been paid as interim dividend,

and will be transferred to the Government of India. This is in addition to
the ₹52,637 crore of excess risk provisions that has been recommended
to be transfered by the committee.

Benefits of surplus
The additional amount of ₹86,000 crore that the government will receive
this year above its budgeted ₹90,000 crore as transfers from RBI could be
either used to provide fiscal stimulus to a sagging economy, reduce off-
balance sheet borrowings or meet the expected shortfall in revenue
collections.
The government might not use this for spending and could instead use it to
meet the possible revenue shortfall.

Way Forward
Sensible thing for the government would be to reduce the balance sheet
and off-balance sheet borrowings using the additional transfer from RBI.
The recapitalization bonds issued for public sector banks and huge
borrowing by the Food Corporation of India from the small savings fund
have to be properly accounted for.

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CURRENT AFFAIRS august 2019

FATF Asia Pacific group places Pakistan in Black List

Issue
Pakista’s Prime Minister Imran Khan has set up a 12-member committee
to ensure the execution of Financial Action Task Force's (FATF) 27-point
action plan, after the country was put on a terror 'blacklist' by Asia-
Pacific grouping of FATF.

Background
The FATF plays a central role in global efforts in combatting terrorist
financing. It plays its role through setting global standards to combat
terrorist financing, assisting jurisdictions in implementing financial
provisions of the United Nations Security Council resolutions on
terrorism. It also evaluates countries’ ability to prevent, detect,
investigate and prosecute the financing of terrorism.

FATF
The Financial Action Task Force, is an intergovernmental organization
founded in 1989 on the initiative of the G7 to develop policies to combat
money laundering. In 2001 its mandate expanded to include terrorism
financing.

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Details
Asia Pacific Group had placed Pakistan in an 'Enhanced Expedited Follow-
Up List' and found that the country was non-compliant on 32 of the 40
compliance parameters related to terror financing and money
laundering.
Pakistan now has to focus on avoiding the FATF blacklist in October, when
the 15-month timeline on the FATF's 27-point action plan ends.

Effect of the Move

Pakistan's continuance in the 'Grey List' means its downgrading by the
International Monetary Fund (IMF), the World Bank, the Asian
Development Bank (ADB), the European Union and also a reduction in risk
rating by Moody's, S&P and Fitch.
It will continue to suffer on several counts, especially in the economic,
trade, finance and defence sectors.

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India records slowest GDP growth

Issue
The Central Statistics Office released the Gross Domestic Product numbers
for April-June quarter, which showed India’s GDP expanded 5% in the
quarter through June , the slowest pace in six and half years.

Background
As consumer demand and private investment slowed at a time when global
trade frictions have dampened business sentiment, Indian econoimy grew
at a pace less than 6% in the current quarter of the financial year 2018-19.

Details
Manufacturing’ sector grew by 0.6 percent as compared to growth of 12.1
per cent in Q1 2018-19.
GVA for ‘Agriculture, Forestry and Fishing’ sector grew by 2 percent as
compared to growth of 5.1 percent in Q1 2018-19.
‘Mining and Quarrying’ sector grew by 2.7 percent as compared to growth
of 0.4 percent in Q1 2018-19.
Electricity,Gas, Water Supply and Other Utility Services’ sector grew by 8.6
% as opposed to 6.7 % in Q1 2018-19.
Trade, Hotels, Transport, Communication and Services grew by 7.1 percent
as compared to growth of 7.8 percent in Q1 2018-19.
Financial, Real Estate and Professional Services grew by 5.9 percent as
compared to growth of 6.5 percent in Q1 2018-19.

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Public Administration, Defence and Other Services grew by 8.5 percent as

compared to growth of 7.5 percent in Q1 2018-19.
Construction sector grew by 5.7 % as compared to 9.7 % in Q1 of 2018-19.

Measures to boost growth

The RBI has cut the key lending rate four times in succession by a total of
110 basis points. This move is expected to increase cash flow in the
market.
Public sector banks will get an immediate recapitalization of ₹70,000
crore to ease the liquidity crisis, which is hurting big and small traders.
Simplifying the goods and services tax (GST) further, besides providing
relief to the ailing auto sector, which is grappling with the worst slump in
passenger vehicle sales in nearly two decades.
The government has allowed 100% FDI in coal and associated sectors to
attract investments and boost growth.

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