IAS4Sure Economy Notes For Prelims 2021

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ECONOMY REVISION NOTES

For
Prelims 2021
Contains all Economy related news of past one year
Updated up to 10 April 2021
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Economy Revision Notes
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Contents
Banking................................................................................................................................................................5
Prompt corrective action(PCA) Framework..........................................................................................................5
Systemically Important Banks............................................................................................................................... 5
Bad Bank................................................................................................................................................................6
Positive Pay Mechanism....................................................................................................................................... 7
Payment Banks......................................................................................................................................................7
White Label ATMs................................................................................................................................................. 7
SWIFT (Society for World Interbank Financial Telecommunication System) platform........................................ 8
Islamic Banking......................................................................................................................................................9
Bodies in News.....................................................................................................................................................9
Prevention of Money Laundering Act................................................................................................................... 9
Regional Rural Banks (RRBs)................................................................................................................................. 9
Monetary Policy Committee............................................................................................................................... 10
National Infrastructure and Investment Fund (NIIF).......................................................................................... 11
National Authority of Ship Recycling (NASR)...................................................................................................... 12
National Productivity Council (NPC)................................................................................................................... 12
Banks Board Bureau (BBB).................................................................................................................................. 13
EXIM Bank........................................................................................................................................................... 13
Goods and Services Tax Network (GSTN)........................................................................................................... 14
GST Council......................................................................................................................................................... 14
Insolvency and Bankruptcy Code, 2016.............................................................................................................. 15
Payment Banks....................................................................................................................................................16
Public Credit Registry (PCR)................................................................................................................................ 16
Basic Economy in News.......................................................................................................................................17
What is Cess?...................................................................................................................................................... 17
Foreign Exchange Reserve.................................................................................................................................. 17
Purchasing Managers Index................................................................................................................................ 18
Monetary Policy.................................................................................................................................................. 19
Consumer Price Index (CPI).................................................................................................................................19
Capital expenditure.............................................................................................................................................20
Disinvestment..................................................................................................................................................... 20
Sovereign Credit Rating.......................................................................................................................................21
Green Tax............................................................................................................................................................ 22
Off Budget Borrowing......................................................................................................................................... 22
Non-convertible debentures(NCDs)....................................................................................................................22
Initial Public Offering (IPO) .................................................................................................................................23
K-shaped Recovery..............................................................................................................................................23
Strategic Disinvestment...................................................................................................................................... 24
Current Account..................................................................................................................................................25
Municipal Bonds..................................................................................................................................................26
Zero Coupon Bonds.............................................................................................................................................27
Bitcoin................................................................................................................................................................. 27
Call or Notice Market.......................................................................................................................................... 30
Marginal Standing Facility...................................................................................................................................31
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Liquidity Adjustment Facility...............................................................................................................................31

RBI's Inflation Targeting...................................................................................................................................... 31
Actionable Claims................................................................................................................................................32
V Shaped Recovery..............................................................................................................................................32
Eight Core Sectors............................................................................................................................................... 33
Fiscal Deficit........................................................................................................................................................ 34
Crypto Currencies................................................................................................................................................34
Inflation............................................................................................................................................................... 35
Core Inflation...................................................................................................................................................... 35
Wholesale Price Index (WPI)...............................................................................................................................35
Economic Terminology........................................................................................................................................35
What is Sheltering of Taxes?...............................................................................................................................36
Interest Rate Derivatives (IRDs).......................................................................................................................... 36
How are inflation rate and interest rate linked?................................................................................................ 37
Debt-to-GDP Ratio.............................................................................................................................................. 38
Money Laundering.............................................................................................................................................. 39
Advance Pricing Agreement................................................................................................................................40
All about GST.......................................................................................................................................................40
Anti-Dumping Duty............................................................................................................................................. 41
Balance of Payments...........................................................................................................................................41
Basel III (Third Basel Accord)...............................................................................................................................43
Base Effect...........................................................................................................................................................44
Composition Scheme under GST.........................................................................................................................44
Countervailing duty.............................................................................................................................................45
Double Taxation Avoidance Agreement............................................................................................................. 45
Exchange-traded funds (ETFs).............................................................................................................................45
E-way bill............................................................................................................................................................. 46
Fiat Digital Currency............................................................................................................................................46
Foreign Exchange Management Act (FEMA)...................................................................................................... 47
Foreign portfolio investment (FPI)......................................................................................................................47
GDP Model Vs GVA Model.................................................................................................................................. 48
GDP Vs GNP.........................................................................................................................................................49
Gratuity............................................................................................................................................................... 49
Gross value added...............................................................................................................................................49
GST...................................................................................................................................................................... 50
Import Duty......................................................................................................................................................... 50
Index of Industrial Production (IIP)..................................................................................................................... 50
Initial Coin Offering (ICO).................................................................................................................................... 51
Land Pooling Method..........................................................................................................................................51
Liberalised Remittance Scheme (LRS).................................................................................................................52
Marginal Cost of funds based Lending Rate (MCLR)...........................................................................................52
Merchant Discount Rate..................................................................................................................................... 53
Non-Banking Financial Company........................................................................................................................ 53
Peer-to-Peer Lending.......................................................................................................................................... 54
Real Estate Investment Trusts (REITs).................................................................................................................55
Safeguard Duty....................................................................................................................................................55
SARFAESI Act 2002.............................................................................................................................................. 55
_______________________________________________________________
Share Buyback.....................................................................................................................................................56
Swiss Challenge model........................................................................................................................................56
Unified Payment Interface (UPI)......................................................................................................................... 57
Viability Gap Funding.......................................................................................................................................... 57
Ways and Means Advances (WMA)....................................................................................................................57
Foreign Direct Investment (FDI)..........................................................................................................................58
Funds in News...................................................................................................................................................58
Pradhan Mantri Swasthya Suraksha Nidhi (PMSSN)...........................................................................................58
Universal Service Obligation Fund...................................................................................................................... 59
ESG funds............................................................................................................................................................ 60
Hybrid Funds....................................................................................................................................................... 61
SWAMIH Investment Fund..................................................................................................................................62
Backward Regions Grant Fund (BRGF)................................................................................................................62
BHART Fund.........................................................................................................................................................62
Central Road Fund...............................................................................................................................................63
Credit Enhancement Fund (CEF)......................................................................................................................... 63
Fisheries and Aquaculture Infrastructure Development Fund (FAIDF).............................................................. 63
Krishi Kalyan Cess................................................................................................................................................64
Long Term Irrigation Fund (LTIF).........................................................................................................................64
Methanol Economy Fund....................................................................................................................................65
National Clean Energy Fund................................................................................................................................65
National Culture Fund (NCF)............................................................................................................................... 66
National Disaster Response Fund....................................................................................................................... 66
National Investment Fund.................................................................................................................................. 67
National Sports Development Fund....................................................................................................................67
National Urban Housing Fund (NUHF)................................................................................................................ 68
Rashtriya Arogya Nidhi (RAN)............................................................................................................................. 69
Rural Infrastructure Development Fund.............................................................................................................69
Senior Citizen Welfare Fund............................................................................................................................... 70
State Disaster Response Fund.............................................................................................................................70
Swachh Bharat Cess............................................................................................................................................ 70
Miscellaneous..................................................................................................................................................... 71
Poppy Cultivation................................................................................................................................................ 71
HSN Code ............................................................................................................................................................71
Contingency Funds of RBI................................................................................................................................... 71
Blank-cheque company.......................................................................................................................................72
Type of Trade Agreements..................................................................................................................................72
Currency Swap Facility........................................................................................................................................ 73
Economic Survey................................................................................................................................................. 74
Domestically Systemically Important Insurers....................................................................................................74
FRBM Act ............................................................................................................................................................75
Currency Manipulator Monitoring List .............................................................................................................. 76
Diversity Requirements for Indian Companies................................................................................................... 76
Project Kirana .....................................................................................................................................................77
Reserve Bank Innovation Hub(RBIH) ..................................................................................................................77
International Financial Services Centres Authority (Banking) Regulations, 2020.............................................. 77
New Guidelines for Digital News Platforms........................................................................................................78
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Co-Lending Model Scheme ................................................................................................................................ 79

Delhi–Meerut Regional Rapid Transit System (RRTS).........................................................................................80
CAROTAR 2020 Rules.......................................................................................................................................... 81
What are SAROD-Ports?......................................................................................................................................82
Open Credit Enablement Network (OCEN) Protocol.......................................................................................... 83
‘Act of God’......................................................................................................................................................... 83
GIS-enabled Land Bank System...........................................................................................................................85
RBI’s Positive Pay system.................................................................................................................................... 86
Business Responsibility Report........................................................................................................................... 87
ASPIRE Portal.......................................................................................................................................................87
Google for India Digitization Fund (GIDF)........................................................................................................... 88
Rewa Solar Project.............................................................................................................................................. 88
Kozhikode-Wayanad Tunnel Project...................................................................................................................90
Next Generation Treasury Application (NGTA)...................................................................................................91
External Debt.......................................................................................................................................................92
Forex Reserves hit a record high.........................................................................................................................92
Natural gas to come under GST.......................................................................................................................... 93
Ghogha-Hazira Ferry Service...............................................................................................................................94
Bharat-22 ETF......................................................................................................................................................94
Bharatiya Nirdeshak Dravya (BND-4201)............................................................................................................96
Fair and Remunerative Price (FRP)..................................................................................................................... 96
Financial Sector Assessment Programme........................................................................................................... 96
Fugitive Economic Offender................................................................................................................................97
GAFA Tax............................................................................................................................................................. 97
Hydrocarbon Exploration and Licensing Policy (HELP)....................................................................................... 97
India INX.............................................................................................................................................................. 98
Petro Crypto Currency........................................................................................................................................ 98
Brent and WTI Crude Price..................................................................................................................................98
Spectrum Auction................................................................................................................................................99
Kochi-Mangalore natural gas pipeline................................................................................................................ 99
Foreign Direct Investment (FDI)........................................................................................................................100
FDI in Insurance Sector .................................................................................................................................... 101
Accredited Investors......................................................................................................................................... 102
Green Bonds......................................................................................................................................................103
Panda Bonds......................................................................................................................................................103
Participatory Notes (P-notes)............................................................................................................................104
Masala Bonds.................................................................................................................................................... 104
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Banking
Prompt corrective action(PCA) Framework
What is Prompt corrective action(PCA) Framework?

 PCA is an RBI framework. Banks with weak financial metrics are put under the PCA
framework by the Reserve Bank of India(RBI).
 Aim: It aims to check the problem of Non-Performing Assets (NPAs) in the Indian
banking sector.
When was the PCA framework introduced?

 The RBI introduced the PCA framework in 2002. It is a structured early-intervention
mechanism for banks that become under capitalised due to poor asset quality, or
vulnerable due to loss of profitability.
When does RBI invoke PCA?

 The PCA framework is invoked when banks breach any of the three key regulatory trigger
points namely
o Capital to risk-weighted assets ratio
o Net non-performing assets(NPA) and
o Return on assets(RoA).
What are the restrictions on Banks when PCA is invoked?

There are two types of restrictions:
Mandatory Restrictions: It includes:
 Restrictions on Dividends
 Restrictions on Branch expansion
 Restrictions on Management compensation among others.
Discretionary Restrictions: It includes
 Curbs on lending and deposits.
 Recommending the bank owner to bring new management and board among others.
Systemically Important Banks
What is a Systematically Important Bank?

 SIBs are perceived as certain big banks in the country/world. They enjoy a huge customer
base and also engage in cross sector activities (insurance/pension). They are perceived as
‘Too Big to Fail (TBTF)’.
 As they command such a huge consumer base as well have NBFC subsidiary therefore they
have expectation of government support at the time of distress
 Due to this perception these banks may indulge in reckless practices.
 There are two types of SIBs:
o Global SIBs; the identified by BCBS (BASEL Committee on Banking
Supervision)
o Domestic SIBs; by central Bank of the country
_______________________________________________________________
Domestic Systemically Important Banks(D-SIBs):

D-SIBs are banks that are Too Big To Fail(TBTF). According to RBI, banks become D-SIBs due to
their size, cross-jurisdictional activities, complexity and lack of substitute and
interconnection. Banks, whose assets exceed 2% of GDP are considered part of this group.
 Significance of D-SIBs:
o Failure of such banks will result into significant disruption to the
essential banking services to banking system and the overall economy.
o D-SIB tag also indicates that in case of distress, the government is expected to
support these banks.
o They are also subjected to higher levels of supervision so as to prevent
disruption in financial services in the event of any failure.
o D-SIBS are required to maintain additional capital requirements as notified by
the RBI.
Why in news?
 RBI has retained SBI, ICICI and HDFC Bank in Domestically Systematically Important
Banks (D-SIBs) list.
Why it is needed?
 Following the global financial crisis of 2008, it was observed that problems faced by
certain large and highly interconnected financial institutions hampered orderly functioning
of financial system, which in turn, negatively impacted real economy.
 As some of the banks are perceived as TBTF, they can lead to reckless practices on their
part like increased risk-taking, reduction in its market discipline, creation of competitive
distortions etc. because of expectation of government support them at time of distress. All
this can increase probability of distress in future.
 Therefore, it is required recognition of these banks as SIBs and subjected to additional
policy measures to deal with systemic risks and moral hazard issues posed by them. They
are forced to have additional capital against financial emergency, so that taxpayer money
not wasted in rescuing them during crisis.
Bad Bank
Bad Bank:
 A bad bank conveys the impression that it will function as a bank but has bad assets to
start with.
 Technically, a bad bank is an asset reconstruction company (ARC) or an asset
management company that takes over the bad loans of commercial banks, manages them
and finally recovers the money over a period of time.
 The bad bank is not involved in lending and taking deposits, but helps commercial banks
clean up their balance sheets and resolve bad loans.
 The takeover of bad loans is normally below the book value of the loan and the bad bank
tries to recover as much as possible subsequently.
_______________________________________________________________
 US-based Mellon Bank created the first bad bank in 1988, after which the concept has
been implemented in other countries including Sweden, Finland, France and Germany.
Positive Pay Mechanism
 Positive Pay Mechanism: It involves a process of reconfirming key details of large-value

cheques.
 Process:
o Under this, the issuer of the cheque submits electronically through channels
like SMS, mobile app and Internet banking, certain minimum details of
cheque to the drawee bank, details of which are cross-checked with the
presented cheque by Cheque Truncation System(CTS).
o Any discrepancy is flagged by CTS to the drawee bank and presenting bank
who then take redressal measures.
 Cheque Limits:
o Banks will enable the new system for all account holders issuing cheques for
amounts of Rs 50,000 and above.
o It is mandatory in case of cheques for amounts of Rs 5,00,000 and above.
 Developed by: National Payments Corporation of India (NPCI) will develop the facility
of Positive Pay in CTS and make it available to participant banks.
 Why in news? From January 1, 2021, the Reserve Bank of India (RBI) will introduce the
‘Positive Pay System’ for cheque transactions above Rs 50,000 in a bid to enhance safety
and eliminate frauds.
Payment Banks
 Payment banks are non-full service banks, whose main objective is to accelerate financial
inclusion.
 Payment Banks concept allows mobile firms, supermarket chains and others to cater to
banking requirements of individuals and small businesses to further enhance financial
inclusion.
 Payments banks will mainly deal in transfer and remittance services and accept deposits of
up to Rs 1 lakh.
 They will not lend to customers and will have to deploy their funds in government papers
and bank deposits.
 They can accept demand deposit, issue ATM/debit cards but not credit cards.
 They also can distribute non-risk sharing simple financial products like mutual funds and
insurance products.
White Label ATMs
 Automated Teller Machines (ATMs) set up, owned and operated by non-bank entities are
called White Label ATMs.
_______________________________________________________________
 These White Label ATMs provide banking services to the customers of banks on the
basis of the cards (debit/credit/prepaid) issued by banks.
 The non-bank entities which set up, own and operate ATMs are called White Label
ATM Operators.
 Their role is confined to enabling the transactions of all banks customers by establishing
technical connectivity with the existing authorized, shared ATM Network Operators or
Card Payment Network Operators.
 These White Label ATM operators are entitled to receive a fee from the banks for the use
of ATM resources by the bank’s customers and they are not permitted to charge bank
customer directly for the use of WLAs.
SWIFT (Society for World Interbank Financial Telecommunication System) platform
 SWIFT is global financial messaging service that enables financial institutions worldwide
to send and receive information about financial transactions in secure, standardized and
reliable environment.
 It is used to transmit messages relating to cross border financial transactions.
 It was founded in 1973 and is headquartered in La Hulpe, Belgium.
 It is a cooperative society under Belgian law owned by its member financial institutions
with offices around the world.
 Globally over 11,000 financial institutions in more than 200 countries use services of
SWIFT.
 SWIFT does not facilitate funds transfer, rather, it sends payment orders, that must be
settled by correspondent accounts that institutions have with each other.
 On receiving this message through SWIFT, banks abroad, mostly branches of domestic
banks abroad provide funds to the company.
 Why in news? The mega PNB fraud surrounds around SWIFT technology which was
misused by its branch officials to fraudulently issue LoUs (letters of undertaking), kind of
Bank guarantees to diamond and jewellery importer Nirav Modi-linked companies
without getting proper approvals and without making entries in CBS. The failure of
SWIFT-CBS link led to Rs 11,400 crore fraud at PNB and enabled these transactions to
go undetected for over seven years.
Example:
 Suppose a customer of a Bank of America of New York Branch want to send money to
the ICICI bank account in Bengaluru, he can approach the Bank of America’s New York
Branch with the account number of ICICI to which the money needs to be deposited and
ICICI Banks Swift Code for the Bengaluru branch.
 Bank of America’s New York Branch will send the payment message to the ICICI
Bengaluru branch over the secure SWIFT network. Once ICICI ‘s Bengaluru branch
receives the SWIFT message about the incoming payment, it will clear and credit the
money to the account.
 SWIFT code is used when the transfer between two banks happens internationally as we
use IFSC codes for the domestic transfers i.e. financial transactions within the
geographical territory of India.
_______________________________________________________________
Islamic Banking
What is Islamic Banking?

 Islamic banking is banking or banking activity that is consistent with the principles of
sharia and its practical application through the development of Islamic economics.
 Sharia prohibits the fixed or floating payment or acceptance of specific interest of fee for
loan of money.
 It is different from regular banking in that it prohibits earning of interest (or riba)
through the business of lending.
How RBI going to implement it?

The Reserve Bank of India (RBI) has decided not to pursue a proposal to introduce Islamic banking in
India. Decision in this regard was taken after considering wider and equal opportunities available to all
citizens to access banking and financial services.
Bodies in News
Prevention of Money Laundering Act
 The Prevention of Money Laundering Act (PMLA) was enacted by the Indian Parliament
in 2002 to prevent money laundering in India.
 The act was amended in 2019 to further empower the Enforcement Directorate in dealing
with money laundering cases.
 The chief objective of this legislation is to fight money laundering, that is, the process of
converting black money into white
 The Enforcement Directorate (ED) is responsible for investigating offences under the
PMLA.
 Financial Intelligence Unit – India (FIU-IND) is the national agency that receives,
processes, analyses and disseminates information related to suspect financial transactions.
Regional Rural Banks (RRBs)
 RRBs were set up as government-sponsored, regional based rural lending institutions

under Regional Rural Banks Act, 1976.
 These are financial institutions which ensure adequate credit for agriculture and other
rural sectors.
 They were set up on the basis of recommendations of Narasimhan Working Group.
 Objective:
o They have been created with a view to serve primarily rural areas of India with
basic banking and financial services.
o They fulfill credit needs of relatively unserved sections in rural areas-small
and marginal farmers, agricultural labourers and socio-economically weaker
sections and small entrepreneurs in rural areas for development of agriculture,
trade, commerce, industry and other productive activities.
_______________________________________________________________
o RRBs can also set branches set up for urban operations and their area of
operation may include semi urban or urban areas too.
 Ownership:
oRRBs are jointly owned by Central Government, concerned State
Government and Sponsor Banks with the issued capital shared in the
proportion of 50%, 15% and 35% respectively.
 Priority Sector Lending: The RRBs are required to provide 75% of their total credit as
priority sector lending(PSL).
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Monetary Policy Committee
What is Monetary Policy Committee?

 It is a statutory committee of RBI which decides India's Monetary Policy.
 The formation of the monetary policy committee was mooted by the Urjit Patel
committee.
 The committee suggested that monetary policy be rule-based and not discretion-based.
The final decision on monetary policy should not lie with the RBI governor alone but on
a group of people.
 Targeting inflation is to be the core objective of the central bank, and it will be answerable
to law-makers if it failed to achieve the target.
 It is mandated by law to ensure that retail inflation stays within a band of two percentage
points of the target inflation rate of 4%.
_______________________________________________________________
Composition of MPC
MPC will be a 6 member committee:
 3 members will be from RBI. These 3 members would include the governor who will also
be the ex-officio chairperson of the committee.
 3 members will be appointed by the central govt. These members should be experts in the
field of finance or banking or economics or monetary policy. They will have a tenure of 4
years and will not be eligible for reappointment.
 The members appointed by the govt. will be appointed based on the recommendations by
the search-cum-selection committee which will be headed by the cabinet secretary.
 Decisions will be taken by majority vote with each member having a vote
 The governor will not enjoy a veto power to overrule the other panel members, but will
have a casting vote in case of a tie.
 No government official will be nominated to the MPC
MPC will meet four times in 1 year and will announce its decisions publicly after each meeting. MPC
replaces previous arrangement where RBI Governor along with a Technical Advisory Committee
(TAC) taking decisions on monetary policy including setting interest rates. In the previous
arrangement TAC was only having advisory functions and the RBI Governor enjoyed veto power over
the committee in setting interest rates.
National Infrastructure and Investment Fund (NIIF)
 NIIF stands for National Infrastructure and Investment Fund

 It is a fund created by the Government of India for enhancing infrastructure financing in
the country.
 Established in 2015.
 It is registered as a category II alternative investment fund with the Securities and
Exchange Board of India.
 A sort of sovereign fund, for development of infrastructure projects, including the stalled
ones.
 It is India's first sovereign wealth fund
 It has been set up as fund of funds structure with aim to generate risk adjusted returns for
its investors alongside promoting infrastructure development.
 It aims to attract investments from both domestic and international sources for
infrastructure development in commercially viable projects both Greenfield and
Brownfield, including stalled projects.
 Government’s contribution to NIIF is 49% of total commitment at any given point of
time.
 The remaining 51% will be raised from domestic and global investors, including
international pension funds, sovereign wealth funds, multilateral/bilateral investors.
 Its Governing Council is chaired by Finance Minister and has already been set up to act as
an advisory council to the NIIF.
_______________________________________________________________
National Authority of Ship Recycling (NASR)

The Central government has notified the Director-General of Shipping as the national authority for
recycling of ships under the Recycling of Ships Act, 2019.
About NASR
 The national authority of ship recycling will be set up in Gandhinagar, Gujarat.
 The location of the office will benefit the ship recycling yard owners situated in Alang,
Gujarat which is home to the largest ship recycling industry in the world.
 DG Shipping is authorized to administer, supervise and monitor all activities relating to
ship recycling in the country.
 DG Shipping will oversee the sustainable development of the ship recycling industry,
monitoring the compliance to environment-friendly norms and safety and health measures
for the stakeholders.
 DG Shipping will be the final authority for the various approvals required by the ship-
recycling yard owners and state governments.
Recycling of Ships Act, 2019

 Under the Ship Recycling Act, 2019, India has acceded to the ‘Hong Kong International
Convention for the Safe and Environmentally Sound Recycling of Ships’.
 This was adopted by the International Maritime Organization (IMO).
 DG Shipping is a representative of India in the IMO and all the conventions of IMO are
being enforced by DG Shipping.
National Productivity Council (NPC)
National Productivity Council (NPC) has been granted accreditation conforming to ISO 17020:2012
by National Accreditation Board for Certification Body (NABCB).
National Productivity Council (NPC)
_______________________________________________________________
 NPC is a national level organization to promote productivity culture in India.

 The NPC comes under the Department for Promotion of Industry and Internal Trade
(DPIIT), Ministry of Commerce & Industry.
 Established in 1958, it is an autonomous, multipartite, non-profit organization and has
been registered as a Society under the Societies Registration Act XXI of 1860.
 NPC is a constituent of the Tokyo-based Asian Productivity Organisation (APO), an
Inter-Governmental Body, of which the Government of India is a founder member.
Why ISO status?

 It has been granted accreditation for undertaking inspection and audit work in the area of
Food Safety Audit and Scientific Storage of Agricultural Products.
 NPC has been conducting inspections/audit for different statutory bodies such as
Warehousing Development and Regulatory Authority (WDRA) and FSSAI and is
already having high credentials in the area of inspections and audits.
Banks Board Bureau (BBB)
 BBB is super authority (autonomous body) of eminent professionals and officials for
public sector banks (PSBs).
 It was announced by Union Government in August 2015 as part of seven point
Indradhanush Mission to revamp PSBs and started functioning in April 2016.
 It had replaced Appointments Board of Government.
 It is housed in Reserve Bank of India’s central office in Mumbai, Maharashtra.
 BBB is considered as the first step towards Bank Investment Company as recommended by
P J Nayak committee.
 The first BBB was set up in February 2016 under chairmanship of former CAG Vinod
Rai for two-year term that ended in March 2018.
Functions
 Give recommendations for appointment of full-time Directors as well as non-Executive
Chairman of PSBs.
 Give advice to PSBs in developing differentiated strategies for raising funds through
innovative financial methods and instruments and to deal with issues of stressed assets.
 Guide banks on mergers and consolidations and governance issues to address bad loans
problem among other issues.
Composition: BBB comprises of three ex-officio members (from government) and three expert
members, two of which are from private sector in addition to Chairman.
EXIM Bank
 EXIM stands for Export-Import

 Export-Import Bank of India is a wholly owned Govt. of India entity
 Established in 1982
 HQ : New Delhi
 Aim : financing, facilitating and promoting foreign trade of India.
_______________________________________________________________
 The EXIM bank extends Line of Credit (loC) to overseas financial institutions, regional
development banks, sovereign governments and other entities abroad.
 Thus the EXIM Banks enables buyers in those countries to import developmental and
infrastructure, equipment’s, goods and services from India on deferred credit terms.
 The bank also facilitates investment by Indian companies abroad for setting up joint
ventures, subsidiaries or overseas acquisitions.
Goods and Services Tax Network (GSTN)
 It is a not for profit, non-Government, private limited company incorporated in 2013.

 The Government of India holds 24.5%equity in GSTN
 All States including NCT of Delhi and Puducherry, and the Empowered Committee of
State Finance Ministers (EC), together hold another 24.5%.
 Balance 51% equity is with non Government financial institutions.
 The Company has been set up primarily to provide IT infrastructure and services to the
Central and State Governments, tax payers and other stakeholders for implementation of
the Goods and Services Tax (GST).
 After rolling out of GST, the Revenue Model of GSTN shall consist of User Charge to
be paid by stakeholders who will use the system and thus it will be a self-sustaining
organization
New Changes:
 GST Council has approved proposal to convert GST Network (GSTN) into government
entity from current private entity status by taking over stakes held by private entities.
 Why this change?
o Majority of Goods and Services Tax (GST) processes including registration,
filing of returns, payment of taxes, processing of refunds is IT driven and
mainly through GSTN.
o For this, GSTN handles large-scale invoice level data of lakhs of business
entities including data relating to exports and imports.
o Considering nature of state function performed by GSTN, it was felt that the
network should be converted into fully government-owned company.
GST Council
GST Council:
 The Constitution (122 Amendment) Bill, 2016, for introduction of GST in the country
was accorded assent by the President after it was ratified by 18 states.
 After the assent to bill it became law and was notified as the Constitution (101
Amendment) Act, 2016.
 The Constitution (101 Amendment) Act, 2016 adds Article 279A in the Constitution.
 As per Article 279A (1) of the amended Constitution, GST Council has to be constituted
by the President within 60 days of the commencement of Article 279A
Composition of GST Council

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As per Article 279A of the amended Constitution, GST Council which will be a joint forum of the
Centre and the States. It shall consist of the following :
 Union Finance Minister (Chairperson)
 The Union Minister of State (MoS) in-charge of Revenue of finance (Member)
 The Minister In-charge of taxation or finance or any other Minister nominated by each
State Government (Members)
Functions of GST Council

As per Article 279A (4), the Council will make recommendations to the Union and the States on
important issues related to GST, like
 Taxes, cesses, and surcharges to be subsumed under the GST;
 Goods and services which may be subject to, or exempt from GST;
 The threshold limit of turnover for application of GST;
 Rates of GST;
 Model GST laws, principles of levy, apportionment of IGST and principles related to
place of supply;
 Special provisions with respect to the eight north eastern states, Himachal Pradesh, Jammu
and Kashmir, and Uttarakhand; and
 Other related matters.
 GST rates will including the floor rates with bands, special rates for raising additional
resources during natural disasters/ calamities, special provisions for certain States, etc.
Insolvency and Bankruptcy Code, 2016
Insolvency and Bankruptcy Code, 2016

 It was brought to reduce the delay in resolution of insolvency and bankruptcy due to
multiplicity of laws - Companies Act, SARFAESI Act, Sick Industrial Companies Act,
and so on.
Salient Features of the law

 A unified code for greater legal clarity.
 Fixed a timeline of 180 days, extendable by another 90 days, to resolve cases of insolvency
or bankruptcy.
 A new regulator — The Insolvency and Bankruptcy Board of India (IBBI) to regulate
professionals/agencies dealing with insolvency and informational utilities.
 National Company Law Tribunal (NCLT) to adjudicate bankruptcy cases over
companies, limited liability entities while Debt Recovery Tribunal (DRT) to adjudicate
cases over individuals and unlimited liability partnership firms.
 It allows the debtor itself to initiate the insolvency-resolution process once it has defaulted
on a debt.
 Prioritization of claims by different classes of creditors and enabling provisions for solving
cross border insolvency.
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Payment Banks
 Payments banks are new model of banks conceptualised by Reserve Bank of India (RBI)
to meet government’s financial inclusion target.
 They are being set up as differentiated bank and its activities are confined to acceptance of
demand deposits, remittance services, internet banking and other specified services but not
lending services.
 This differentiated banking model allows mobile firms, supermarket chains and others to
cater to banking requirements of individuals and small businesses.
 Payments banks can accept deposits up to Rs. 1 lakh per account from individuals and
small businesses.
 They can issue ATM/debit cards but not credit cards.
 They can also issue other prepaid payment instruments.
 They can also distribute non-risk sharing simple financial products like mutual funds and
insurance products.
Public Credit Registry (PCR)
 PCR is digital registry of authenticated granular credit information.

 It will work as financial information infrastructure providing access to various
stakeholders and enrich the existing credit information ecosystem.
 It seeks to serve as single point of mandatory reporting for all material events for each
loan, notwithstanding any threshold in the loan amount or type of borrower.
 PCR will capture all details of borrowers, including wilful defaulters and also pending
legal suits in order to check financial delinquencies.
 It will also include data from entities like market regulator SEBI, Corporate Affairs
Ministry, Goods and Service Tax Network (GSTN) and Insolvency and Bankruptcy
Board of India (IBBI) to enable banks and financial institutions to get 360 degree profile
of existing and prospective borrowers on real-time basis.
Why PCR is needed?

 In June 2018, RBI had announced to set up PCR for India with view to address
information asymmetry, foster access to credit and strengthen the credit culture in the
economy.
 This decision was taken based on recommendation of high-level task force (HTF)
i.e. YM Deosthalee committee which was constituted by RBI to review current availability
of information on credit, adequacy of existing information utilities, and identify gaps that
could be filled by PCR.
 Currently, there are multiple granular credit information repositories in India, with each
having somewhat distinct objectives and coverage.
 Within RBI, CRILC is borrower level supervisory dataset with threshold in aggregate
exposure of Rs 5 crore.
 Moreover, there are four privately owned credit information companies (CICs) operating
in India.
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 RBI has mandated all its regulated entities to submit credit information individually to all
four CICs.
Basic Economy in News
What is Cess?
Cess
 A cess is an earmarked tax that is collected for a specific purpose and ought to be spent
only for that.
 Every cess is collected after Parliament has authorised its creation through an enabling
legislation that specifies the purpose for which the funds are being raised.
 Article 270 of the Constitution allows cess to be excluded from the purview of the
divisible pool of taxes that the Union government must share with the States.
 The government has levied 42 cesses at various points in time since 1944.
 Why in News? The Comptroller and Auditor General (CAG) of India, in its latest audit
report of government accounts, has observed that the Union government withheld in the
Consolidated Fund of India (CFI) more than ₹1.1 lakh crore out of the almost ₹2.75
lakh crore collected through various cesses in 2018-19.
Difference between Surcharge and Cess:

 Surcharge is an additional charge or tax levied on existing tax. The main surcharges are on
personal income tax (on high income slabs and on super rich) and on corporate income
tax.
 Despite both are not shareable with state governments, surcharge can be kept with
the Consolidated Fund of India (CFI) and spent like any other taxes, the cess should be
kept as a separate fund after allocating to CFI and can be spent only for a specific purpose.
 A surcharge is discussed under Article 270 and 271 of the Indian Constitution.
 Unlike a cess, which is meant to raise revenue for a temporary need, surcharge is usually
permanent in nature.
Foreign Exchange Reserve
 Foreign exchange reserves: Foreign exchange reserves are assets held on reserve by a central
bank of a country.
 In context of India, Foreign Exchange Reserves include:
o Foreign currency assets (FCAs)
o Gold
o Special Drawing Rights (SDRs)
o RBI’s Reserve position with International Monetary Fund (IMF)
 Forex Reserves Storage: The RBI Act,1934 provides a legal framework for deployment of
reserves in different foreign currency assets and gold within the broad parameters of
currencies, instruments and issuers.
 FCAs constitute the largest component of the Forex Reserves. FCAs consist of US dollar
and other major non-US global currencies. It also comprises of investments in US
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Treasury bonds, bonds of other selected governments, deposits with foreign central and
commercial banks.
 Movement in FCA occur mainly on account of purchase and sale of foreign exchange by
RBI, income arising out of deployment of Forex reserves, external aid receipts of
government and revaluation of assets.
 SDR is an international reserve asset created by IMF and allocated to its members in
proportion of their quota at IMF.
 The gold reserves stand at ~$27 billion.
 SDRs’ stands at ~$1.5 billion.
 RBI’s reserve position with the IMF stands at ~$3.6 billion
 FCA > Gold > RBI reserve with IMF > SDR
Significance of Forex Reserves:

 Comfortable Position to Government: The rising forex reserves give comfort to the
government and the RBI in managing India’s external and internal financial issues at a
time of major contraction in economic growth.
 Managing BoP Crisis: It serves as a cushion in the event of a Balance of Payment (BoP)
crisis on the economic front. It is enough to cover the import bill of the country for a year.
 External Debt Obligations: Assist the government in meeting its foreign exchange needs
and external debt obligations.
 Strengthening of Rupee: The rising reserves have helped the rupee to strengthen against
the dollar. The foreign exchange reserves to GDP ratio is around 15 per cent.
 Confidence in Market: Reserves will provide a level of confidence to markets and
investors that a country can meet its external obligations.
Purchasing Managers Index
 The Purchasing Managers’ Index (PMI) is an indicator of the economic health of the
manufacturing and services sector.
 The PMI is based on five major indicators :
o New orders,
o Inventory levels,
o Production,
o Supplier deliveries and
o Employment environment.
 The purpose of the PMI is to provide information about current business conditions to
company decision makers, analysts and purchasing managers.
 It is a survey-based measure that asks respondents about changes in their perception of
some key business variables from last month.
 It is calculated separately for manufacturing and services sectors and then composite index
is constructed.
 IHS Markit compiles the index.
 The headline PMI is a number from 0 to 100.
 A PMI above 50 represents an expansion when compared with the previous
month.
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 A PMI reading under 50 represents a contraction, and a reading at 50

indicates no change.
Monetary Policy
Monetary Policy
 It is the macroeconomic policy laid down by the central bank. It involves management of
money supply and interest rate and is the demand side economic policy used by the
government of a country to achieve macroeconomic objectives like inflation, consumption,
growth and liquidity.
 In India, monetary policy of the Reserve Bank of India is aimed at managing the quantity
of money in order to meet the requirements of different sectors of the economy and to
increase the pace of economic growth.
 The RBI implements the monetary policy through open market operations, bank rate
policy, reserve system, credit control policy, moral persuasion and through many other
instruments.
Accommodative and Tight Monetary Policy

 To avoid inflation, most central banks alternate between the accommodative monetary
policy and the tight monetary policy in varying degrees to encourage growth while keeping
inflation under control.
 Accommodative monetary policy is adopted when central banks expand the money supply
to boost the economy.
 These measures are meant to make money less expensive to borrow and encourage more
spending.
 A tight monetary policy is implemented to contract economic growth.
 Converse to accommodative monetary policy, a tight monetary policy involves increasing
interest rates to constrain borrowing and to stimulate savings.
Consumer Price Index (CPI)
 Consumer Price Index (CPI) is based on the final prices of goods at the retail level.
 Because of the wide disparities in the consumption baskets for different segment of
consumers, India has adopted four CPIs.
o CPI (Industrial Workers)
o CPI (Urban Non- Manual Employees)
o CPI (Agricultural Labour)
o CPI (Rural Worker)
 In India, RBI uses CPI (combined) released by CSO for inflation purpose with base year
as 2012.
 The number of items in CPI basket include 448 in rural and 460 in urban.
 The headline Consumer Price Index (CPI) was made the nominal anchor for monetary
policy, replacing the Wholesale Price Index(WPI) as per the recommendations of the
Urjith Patel committee in 2014.
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 CPI data is released on monthly basis by CSO under Ministry of Statistics and Policy
Implementation.
 The Labour and Employment Ministry revised the base year of the Consumer Price Index
for Industrial Workers (CPI-IW) from 2001 to 2016.
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Capital expenditure
 Capital expenditure or capex is the money spent to buy, maintain, or improve the
government’s fixed assets.
 The expenditures are incurred for long term benefits.
 These expenditures serve the purpose of increasing the capacity or capabilities of the long
term asset by either enhancing or adding new assets.
 Capital expenditure is the part of the government spending that goes into the creation of
assets like schools, colleges, hospitals, roads, bridges, dams, railway lines, airports and
seaports. Capital expenditure also covers the acquisition of equipment and machinery by
the government, including those for defence purposes. Capital expenditure also includes
investment by the government that yields profits or dividend in future.
Disinvestment
 Disinvestment means sale or liquidation of assets by the government, usually Central and
state public sector enterprises, projects, or other fixed assets.
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 The government undertakes disinvestment to reduce the fiscal burden on the exchequer,
or to raise money for meeting specific needs, such as to bridge the revenue shortfall from
other regular sources.
 Strategic disinvestment is the transfer of the ownership and control of a public sector
entity to some other entity (mostly to a private sector entity). Unlike the simple
disinvestment, strategic sale implies a kind of privatization.
 The Department of Investment and Public Asset Management (DIPAM) under the
Ministry of Finance is the nodal department for the strategic stake sale in the Public
Sector Undertakings (PSUs).
 Strategic disinvestment in India has been guided by the basic economic principle that
the government should not be in the business to engage itself in manufacturing/producing
goods and services in sectors where competitive markets have come of age.
 The economic potential of such entities may be better discovered in the hands of the
strategic investors due to various factors, e.g. infusion of capital, technology up-gradation
and efficient management practices etc.
New Disinvestment/ Strategic Disinvestment Policy:

 Under the proposed Disinvestment/Strategic Disinvestment Policy, Government has kept
four areas as strategic where bare minimum CPSEs will be maintained:
o Atomic energy, Space and Defence;
o Transport and Telecommunications;
o Power, Petroleum, Coal and other minerals;
o Banking, Insurance and financial services
 In the non-strategic sectors, CPSEs will be privatised, otherwise shall be closed.
 Excluded are central public sector enterprises concerned with:
 assisting farmers in getting access to seeds;
 promoting innovation in agriculture;
 procurement and distribution of food for the public distribution system.
Sovereign Credit Rating
 A sovereign credit rating is credit rating of country or sovereign entity.

 It gives investors insight into level of risk associated with investing in particular country,
including its political risk.
 At request of country, credit rating agency evaluates country’s economic and political
environment to determine representative credit rating.
 Obtaining good sovereign credit rating is usually essential for developing countries in
order to access funding in international bond markets.
 Fitch Ratings, Moody’s Investors Service and Standard & Poor’s (S&P) are big three
international credit rating agencies controlling approximately 95% of global ratings
business.
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Green Tax
What is Green Tax?

 Green tax is also called pollution tax or environmental tax. It is the tax levied on goods
that cause environmental pollution.
 Purpose of Green Tax: The tax will discourage people from using vehicles that damage the
environment. It will motivate them to switch to newer, less polluting vehicles and reduce
the overall pollution level and make the polluter pay for it.
Off Budget Borrowing
Off Budget Borrowings:

 Off Budget Borrowings are loans that are taken by PSUs or other public institutions on
the directions of the central government.
 These loans are not taken by the Centre directly and hence are not calculated under the
budget.
 Such borrowings are used to fulfil the expenditure needs of these institutions.
 Are these borrowings included in the fiscal deficit? The liability to repay these loans is not
formally on the Centre. Thus, they are not included in the national fiscal deficit. This
helps keep the country’s fiscal deficit within acceptable limits.
 CAG Report: In 2019, Comptroller and Auditor General report has pointed out that this
route of financing puts major sources of funds outside the control of Parliament.
 How are off-budget borrowings raised? The government can ask a PSU to raise the
required funds from the market through loans or by issuing bonds.
 Example: In the Budget 2020-21, the government paid only half the amount budgeted for
the food subsidy bill to the Food Corporation of India. The shortfall was met through a
loan from the National Small Savings Fund. This allowed the Centre to halve its food
subsidy bill.
 What will be the fiscal deficit if we include off-budget borrowings? Due to various
sources of off-budget borrowing, the true fiscal deficit is difficult to calculate. However, in
July 2019, the CAG had pegged the actual fiscal deficit for 2017-18 at 5.85% of GDP
instead of the government version of 3.46%.
Non-convertible debentures(NCDs)
What are Non-convertible debentures(NCDs)?

 Debentures are long-term financial instruments which acknowledge a debt obligation
towards the issuer.
 Some debentures have a feature of convertibility into shares after a certain point of time at
the discretion of the owner.
 The debentures which can’t be converted into shares or equities are called non-convertible
debentures (or NCDs).
 NCDs are used as tools to raise long-term funds by companies through a public issue.
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 To compensate for this drawback of non-convertibility, lenders are usually given a higher
rate of return compared to convertible debentures.
 Besides, NCDs offer various other benefits to the owner such as high liquidity through
stock market listing, tax exemptions at source and safety since they can be issued by
companies which have a good credit rating.
Initial Public Offering (IPO)
 IPO is the selling of securities to the public in the primary market.

 Primary market deals with new securities being issued for the first time. It is also known
as the new issues market.
 It is different from the secondary market where existing securities are bought and sold. It
is also known as the stock market or stock exchange.
 It is when an unlisted company makes either a fresh issue of securities or an offer for
sale of its existing securities or both for the first time to the public.
 Unlisted companies are companies that are not listed on the stock exchange.
 It is generally used by new and medium-sized firms that are looking for funds to grow and
expand their business.
 Benefits:
o The funds raised by IPO allows the company to invest in new capital
equipment and infrastructure.
o An IPO paves way for listing and trading of the issuer’s securities on the
Stock exchange market.
o The IPO also allows the company to attract top talent because it can offer
stock options to its employees. This enables the company to pay its executives
fairly low wages initially. And later, in return, the employees as promised can
cash out with the IPO.
K-shaped Recovery
K-Shaped Recovery:
 A K-shaped recovery occurs when, following a recession, different parts of the economy
recover at different rates, times, or magnitudes. This is in contrast to an even, uniform
recovery across sectors, industries, or groups of people.
 A K-shaped recovery leads to changes in the structure of the economy or the broader
society as economic outcomes and relations are fundamentally changed before and after
the recession.
 This type of recovery is called K-shaped because the path of different parts of the
economy when charted together may diverge, resembling the two arms of the Roman
letter "K."
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 Examples:
Industries like technology, retail, and software services have recovered while
o
the travel, entertainment, hospitality, and food services industries have
continued to decline.
o India’s stock market is healthy while millions have lost their jobs and private
consumption has collapsed.
 Why in News: According to Economists, Indian economy is heading for a K-shaped
recovery.
Strategic Disinvestment
 Strategic disinvestment is the transfer of the ownership and control of a public sector
entity to some other entity (mostly to a private sector entity).
 Strategic Disinvestment is guided by the basic economic principle that the Government
should discontinue its engagement in manufacturing/producing goods and services in
sectors where the competitive markets have come of age, and such entities would most
likely perform better in the private hands due to various factors e.g. technology up-
gradation and efficient management practices; and would thus add to the GDP of the
country.
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Current Account
What is Current Account?

 Current account maintains a record of the country’s transactions with other nations, in
terms of trade of goods and services, net earnings on overseas investments and net transfer
of payments over a period of time, such as remittances.
 This account goes into a deficit when money sent outward exceeds that coming inward.
What does Current account constitute?

The current account constitutes:
 net income,
 interest and dividends
 transfers such as foreign aid, remittances, donations etc.
It is measured as a percentage of GDP.
Current Account = Trade gap + Net current transfers + Net income.
Why does Current account matter? Current account balance measures the external strength or
weakness of an economy.
 A current account surplus implies the country is a net lender to the rest of the world,
while a deficit indicates it is a net borrower.
 A country with rising Current Account Deficit(CAD) shows that it has become
uncompetitive, and investors are not willing to invest there. They may withdraw their
investments.
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What is Current Account Deficit?

 It means the value of imports of goods/services/investment incomes is greater than the
value of exports.
 It is sometimes informally referred to as a trade deficit.
 The major contributor to India's Current Account Deficit (CAD) has been imports of
Gold and Crude Oil.
Impact of CAD
 Sustained period of CAD has led to currency depreciation, high rates of inflation which
further effects the incoming foreign investment.
 Fall in gold imports and lower oil import bill in recent time led to shrinkage in the deficit.
 A current account surplus means an economy is exporting a greater value of goods and
services than it is importing.
 There is no hard and fast rule about what will happen if a country has a current account
surplus. It depends on the size of the current account and the reasons for the current
account surplus.
 In the case of India, slow growth in imports, reflecting the persisting weakness in the
investment sentiment, is the prominent reason behind this.
Municipal Bonds
 A municipal bond is a bond (debt security) issued by a local government, or their agencies.
 ‘Muni bonds’ are very popular among investors in many developed nations, especially in
the U.S., where these have attracted investments totalling over $500 billion and are among
preferred avenues for household savings.
 The Bangalore Municipal Corporation was the first municipal corporation to issue a
municipal bond of Rs.125 crore with a State guarantee in 1997. However, the access to
capital market commenced in January 1998, when the Ahmedabad Municipal
Corporation (AMC) issued the first municipal bonds in the country without State
government guarantee for financing infrastructure projects in the city. AMC raised Rs.100
crore through its public issue.
 Among others, Hyderabad, Nashik, Visakhapatnam, Chennai and Nagpur municipal
authorities have issued such bonds
 As per guidelines of the Urban Development Ministry, only bonds carrying interest rate
up to maximum 8% per annum shall be eligible for being notified as tax-free bonds.
 Institutional investors, as well as the public, can buy these bonds.
 The corporations can use the revenues earned from the developmental projects like
Metro rail network to repay the interest and principal on these bonds.
 These municipal bonds have now been permitted for public offering by SEBI.
Significance:
 Money needed for urban governance can be raised via this route
 India needs 1 trillion dollar for infrastructure development. Bond market can be an
effective way to raise this money.
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How is the Central Government promoting Municipal Bonds?

 Under the Atal Mission for Rejuvenation and Urban Transformation (AMRUT) scheme,
urban local bodies (ULBs) are encouraged to tap the bond market.
 AMRUT Scheme: It was launched in 2015 by the Ministry of Housing and Urban
Affairs. It aims to ensure universal coverage of drinking water supply and substantial
improvement in coverage and treatment capacities of sewerage and septage along with
storm water drainage, non-motorized urban transport and green spaces & parks.
 The government also pays ULBs Rs 13 crore for every Rs 100 crore raised via bonds
subject to a ceiling of Rs 26 crore for each. This incentive takes care of the repayment that
the ULB must make to the lender including the interest component.
Why in news?
 SEBI governor has asked the Municipal bodies to move to a standard accounting practice.
This will not only attract better credit rating but also demand from more investors
 He has also asked stakeholders to engage with other financial regulators such as IRDAI
(insurance regulator), PFRDA (pension regulator) and EPFO (employee provident fund
organization)
 Lucknow Municipal Bonds listed on BSE.
Zero Coupon Bonds
Zero Coupon Bonds:

 These are debt security that does not pay interest but instead trades at a deep discount,
rendering a profit at maturity, when the bond is redeemed for its full face value.
 The difference between the purchase price of a zero-coupon bond and the par value
indicates the investor’s return.
 For Ex. Rs 100 zero coupon bonds of 10 year maturity issued by GoI today is bought at
Rs 50. When it is returned after 10 years, bearer will get Rs 100. Thus, bearer will earn a
profit of Rs 50 and GoI will pay no interest.
Bitcoin
 Bitcoin is a type of digital currency that enables instant payments to anyone.

 Bitcoin was introduced in 2009.
 Bitcoin is based on an open-source protocol and is not issued by any central authority.
 It is not regulated by any central bank or government.
 They aren’t printed, like dollars or euros – they’re produced by people, and increasingly
businesses, running computers all around the world, using software that solves
mathematical problems.
 It is also called a “cryptocurrency” since it is decentralized and uses cryptography to
prevent double-spending, a significant challenge inherent to digital currencies.
 Bitcoin is a distributed peer-to-peer digital currency that functions without the inter-
mediation of any central authority.
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 It can also be traded on an open market and its exchange rate fluctuates much like a stock
market i.e. based on the demand.
Why are Bitcoins popular?

 Bitcoins continue to remain attractive as a store of value.
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 A major reason seasoned speculators find bitcoins irresistible is its deflationary nature,
which makes it inflation-proof. Since there can only ever be 21 million bitcoins, unlike a
fiat currency, it cannot suffer a loss in value due to inflation.
History:
The origin of Bitcoin is unclear, as is who founded it. A person, or a group of people, who went by the
identity of Satoshi Nakamoto are said to have conceptualised an accounting system in the aftermath of
the 2008 financial crisis.
Use:
Originally, Bitcoin was intended to provide an alternative to fiat money and become a universally
accepted medium of exchange directly between two involved parties.
 Fiat money is a government-issued currency that is not backed by a commodity such as
gold.
 It gives central banks greater control over the economy because they can control how
much money is printed.
 Most modern paper currencies, such as the US dollar and Indian Rupee are fiat currencies.
Acquiring Bitcoins:
 One can either mine a new Bitcoin if they have the computing capacity, purchase them via
exchanges, or acquire them in over-the-counter, person-to-person transactions.
 Miners are the people who validate a Bitcoin transaction and secure the network with their
hardware.
 The Bitcoin protocol is designed in such a way that new Bitcoins are created at a fixed rate.
 No developer has the power to manipulate the system to increase their profits.
 One unique aspect of Bitcoin is that only 21 million units will ever be created.
 A Bitcoin exchange functions like a bank where a person buys and sells Bitcoins with
traditional currency. Depending on the demand and supply, the price of a Bitcoin keeps
fluctuating.
Legitimacy of Bitcoins (or cryptocurrencies) in India:

 Government push back: In the 2018-19 budget speech, the Finance Minister announced
that the government does not consider cryptocurrencies as legal tender and will take all
measures to eliminate their use in financing illegitimate activities or as a part of the
payment system.
 RBI Ban: In April 2018, Reserve Bank of India (RBI) notified that entities regulated by it
should not deal in virtual currencies or provide services for facilitating any person or entity
in dealing with or settling virtual currencies.
 SC struck down ban: However, the Supreme Court struck down the ban on trading of
virtual currencies (VC) in India, which was imposed by the RBI.
 The Supreme Court has held that cryptocurrencies are in the nature of commodities and
hence they can not be banned.
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Call or Notice Market
 The call/notice money market forms an important segment of the Indian Money Market.
 Under call money market, funds are transacted on an overnight basis and under notice
money market funds are transacted for a period between 2 days and 14 days.
 Why in News? Reserve Bank of India(RBI) has allowed regional rural banks (RRBs) to
access the liquidity adjustment facility(LAF), marginal standing facility(MSF) and call or
notice money markets with the aim to facilitate better liquidity management for these
lenders.
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Marginal Standing Facility
 Marginal standing facility is a window for banks to borrow from Reserve Bank of India in
emergency situation when inter-bank liquidity dries up completely.
 Banks borrow from the central bank by pledging government securities at a rate higher
than the repo rate under liquidity adjustment facility or LAF in short.
 It is rate at which the scheduled banks can borrow funds overnight from RBI against
government securities.
 It is a very short term borrowing scheme for scheduled banks.
lenders.
Liquidity Adjustment Facility
 It is a facility extended by the Reserve Bank of India to the banks to avail liquidity in case
of requirement or park excess funds with the RBI in case of excess liquidity on an
overnight basis against the collateral of Government securities including State Government
securities.
lenders.
RBI's Inflation Targeting
 Maintaining price stability and balancing it with growth objectives is the core agenda of
the monetary policy.
 Price stability is a prerequisite for sustained growth.
 India has adopted an inflation-targeting framework, taking a cue from several other
countries like New Zealand and Finland, who found a certain degree of success with this
method in containing inflation
 Statutory backing for inflation targeting was provided in the year 2016 by amending the
Reserve Bank of India 1935 Act.
 The RBI and the Central Government would arrive at a certain inflation rate that they
deem fit and RBI through it’s Monetary Policy Committee shall strive to keep the
inflation rate within the pre-decided range.
 According to the inflation-targeting framework, the CPI inflation target was fixed at 4%
with a +/- 2% band.
 The RBI must take into account:
o current levels of inflation,
o prices of goods and services and
o inflation expectation of consumers and financial markets.
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 The above-mentioned data will provide the necessary insight into the state of inflation.
 Taking into consideration all this, MPC is expected to devise a monetary policy that will
contain inflation without sabotaging growth prospects.
Actionable Claims
 A claim to any debt other than a debt secured by mortgage of immovable property or
hypothecation or pledge of movable property.
 Hypothecation occurs when an asset is pledged as collateral to secure a loan.
 Some examples of actionable claims:
o Insurance Policy which is not secured by way of mortgage or hypothecation
or pledge.
o Claim for arrear of rent is actionable claim since it is not secured on anything.
o Right to claim provident fund.
o Claim for unsecured debt.
o Claim in profit by a partner in a firm.
 Why in news?
o SC decision that lottery, batting, gambling etc are taxable under GST.
o Only activities relating to lottery, betting and gambling are subject to
GST and except these three, no actionable claim is covered under GST.
V Shaped Recovery
 V-shaped recovery is characterized by a quick and sustained recovery in measures of

economic performance after a sharp economic decline.
 Significance: Because of the speed of economic adjustment and recovery in
macroeconomic performance, a V-shaped recovery is a best case scenario given the
recession.
 Example: The recoveries that followed the recessions of 1920-21 and 1953 in the U.S.
are examples of V-shaped recoveries.
 Why in news? Finance Ministry’s Monthly Economic Review report has stated that the
Indian Economy is witnessing a V-shaped recovery as the decline in the GDP has
narrowed to 7.5% in the second quarter of 2020-21 from 23.9% in April-June quarter.
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Various Types of Recoveries:
Eight Core Sectors
 Core industry can be defined as the main industry. In most countries, there is a particular
industry that seems to be the backbone of all other industries and it qualifies to be the
core industry.
 In India, there are eight core sectors comprising of :
1. Refinery products (28.04%)
2. Electricity (19.85%)
3. Steel (17.92%)
4. Coal (10.33%)
5. Crude oil (8.98%)
6. Natural gas (6.88%)
7. Cement (5.37%)
8. Fertilisers (2.63%)
 These eight Core Industries comprise nearly 40.27% of the weight of items included in
the Index of Industrial Production (IIP), which measures factory output.
 Index of Eight Core Industries is released by Ministry of Commerce and Industry.
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Fiscal Deficit
 The difference between total revenue and total expenditure of the government is
termed as fiscal deficit. It is an indication of the total borrowings needed by the
government.
 A deficit is usually financed through borrowing from either the central bank of the
country or raising money from capital markets by issuing different instruments like
treasury bills and bonds.
 In India, the Fiscal Responsibility and Budget Management Act suggests that
bringing the fiscal deficit down to about 3 percent of the GDP is the ideal target.
 However, successive governments have not been able to achieve this target.
 FD this year:
 For the financial year, the government had pegged the fiscal deficit at Rs
7.96 lakh crore or 3.5 per cent of the GDP in the budget, presented by
the Finance Minister in February 2020.
 Fiscal deficit further widened to ₹9.53 lakh crore, or close to 120% of
the annual budget estimate, at the end of October of the current fiscal
(2020-21).
 The deficit widened mainly due to poor revenue realisation.
Crypto Currencies
Crypto Currencies
 Crypto Currencies or Virtual Currencies are type of unregulated digital money.
 They are mainly peer-to-peer system, and transacted between users directly, without an
intermediary.
 These transactions are verified by network nodes and recorded in public distributed ledger
called blockchain.
 They are neither issued by central bank/public authority, nor is necessarily attached to fiat
currency, but is used and accepted among the members of a specific virtual community.
 They are being transferred, stored or traded electronically.
Government stand on Crypto Currencies:

 Government does not consider cryptocurrencies legal tender and it will take all measures
to eliminate use of crypto assets in financing illegitimate activities or as part of payment
system.
 Earlier, Government had issued repeated warnings against digital currency investments,
saying these were like “ponzi schemes” that offer unusually high returns to early investors.
Global Conference on Criminal Finances and Cryptocurrencies:

 The annual Conference is an initiative of the Working Group on Cryptocurrencies and
Money Laundering established in 2016 by Interpol, Europol and the Basel Institute on
Governance.
 Aim: To strengthen knowledge, expertise and best practices for investigations into
financial crimes and intelligence on virtual assets and cryptocurrencies.
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Inflation
 Inflation refers to the rise in the prices of most goods and services of daily or common use,
such as food, clothing, housing, recreation, transport, consumer staples, etc.
 Inflation measures the average price change in a basket of commodities and services over
time.
 Inflation is indicative of the decrease in the purchasing power of a unit of a country’s
currency. This could ultimately lead to a deceleration in economic growth.
 However, a moderate level of inflation is required in the economy to ensure that
production is promoted.
 In India, inflation is primarily measured by two main indices — WPI (Wholesale Price
Index) and CPI (Consumer Price Index) which measure wholesale and retail-level price
changes, respectively.
Core Inflation
 Core Inflation excludes volatile goods from the basket of commodities tracking Headline
Inflation.
 These volatile commodities mainly comprise food and beverages (including vegetables)
and fuel and light (crude oil).
 Core inflation = Headline inflation – (Food and Fuel) inflation
 Increase in core inflation suggests improvement in demand conditions
Wholesale Price Index (WPI)
Wholesale Price Index (WPI) is based on the price prevailing in the wholesale markets or the price at
which bulk transactions are made.
It includes three components:

 Manufactured products = 64.2%
 Primary articles = 22.6%
 Fuel and power = 13.1% now
Base year has been changed from 2004-05 to 2011-12.
The Wholesale Price Index is released by the Office of Economic Advisor (OEA), Department of
Industrial Policy and Promotion, Ministry of Commerce and Industry.
Economic Terminology
 Gross Domestic Product (GDP) is the final value of the goods and
services produced within the geographic boundaries of a country during a specified period
of time, normally a year.
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 Expansionary Phase: When the overall output of goods and services typically measured by
the GDP increases from one quarter (or month) to another.
 Recessionary Phase: When the overall output of goods and services typically measured by
the GDP decreases from one quarter (or month) to another.
 Business Cycle: It is composed of concerted cyclical upswings and downswings in the
broad measures of economic activity which are output, employment, income, and sales in
other words it is a cycle created by the expansionary and recessionary phases clubbed
together.
 Recession: It is a macroeconomic term that refers to a slowdown or a massive
contraction in economic activities for a long enough period, or it can be said that when a
recessionary phase sustains for long enough, it is called a recession.
 Depression: It is a deep and long-lasting period of negative economic growth, with output
falling for at least 12 months and GDP falling by over 10% or it can be referred to as a
severe and prolonged recession.
What is Sheltering of Taxes?
What is a Tax Shelter?

 A tax shelter is a financial vehicle that an individual can use to help them lower their tax
obligation and, thus, keep more of their money.
 It is a legal way for individuals to “stash” their money and avoid getting it taxed.
 A tax shelter is entirely different from a tax haven because the latter exists outside the
country and its legality can, at times, be questionable.
 A tax shelter, on the other hand, is entirely legal and keeps all monies within an
individual’s home country.
Interest Rate Derivatives (IRDs)
The RBI has proposed allowing foreign portfolio investors (FPIs) to undertake exchange-traded rupee
interest rate derivatives transactions subject to an overall ceiling of ₹5,000 crores.
Interest Rate Derivatives (IRDs)

 An IDR is a financial instrument with a value that is linked to the movements of an
interest rate or rates.
 These may include futures, options, or swaps contracts.
 They are often used by institutional investors, banks, companies, and individuals to
protect themselves against changes in market interest rates.
 The proposed directions by RBI are aimed at encouraging higher non-resident
participation, enhance the role of domestic market makers in the offshore market, improve
transparency, and achieve better regulatory oversight, according to the central bank.
Foreign portfolio investment (FPI)

 FPI involves holding financial assets from a country outside of the investor’s own.
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 FPI holdings can include stocks, ADRs, GDRs, bonds, mutual funds, and exchange-
traded funds.
 Along with foreign direct investment (FDI), FPI is one of the common ways for investors
to participate in an overseas economy, especially retail investors.
 Unlike FDI, FPI consists of passive ownership; investors have no control over ventures or
direct ownership of property or a stake in a company.
FPI vs FDI
 With FPI—as with portfolio investment in general—an investor does not actively manage
the investments or the companies that issue the investments.
 They do not have direct control over the assets or the businesses.
 In contrast, foreign direct investment (FDI) lets an investor purchase a direct business
interest in a foreign country.
How are inflation rate and interest rate linked?
The Monetary Policy Committee of the RBI has decided to keep the benchmark interest rates of the
economy unchanged.
What is the link between growth, inflation and interest rates?
 In a fast-growing economy, incomes go up quickly and more and more people have the
money to buy the existing bunch of goods.
 As more and more money chases the existing set of goods, prices of such goods rise.
 In other words, inflation (which is nothing but the rate of increase in prices) spikes.
How interest rates dominate?

 To contain inflation, a country’s central bank typically increases the interest rates in the
economy.
 By doing so, it incentivizes people to spend less and save more because saving becomes
more profitable as interest rates go up.
 As more and more people choose to save, money is sucked out of the market and inflation
rate moderates.
What happens when growth rate decelerates or contracts?

 When growth contracts or when its growth rate decelerates, people’s incomes also get hit.
 As a result, less and less money is chasing the same quantity of goods.
 These results in either the inflation rate decline.
 In such situations, a central bank cuts down the interest rates so as to incentivise spending
and by that route boost economic activity in the economy.
 Lower interest rates imply that it is less profitable to keep one’s money in the bank or any
similar saving instrument.
 As a result, more and more money comes into the market, thus boosting growth and
inflation.
Why has RBI not raised interest rates this quarter?
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 RBI is facing an odd situation at present: GDP is contracting even as inflation is rising.
 This is happening because the pandemic has reduced demand, on the one hand, and
disrupted supply on the other.
 As a result, both things are happening — falling growth and rising inflation.
 It is true that for containing inflation, RBI should raise interest rates.
 And under normal circumstances, it would have done just that. But raising interest rates at
this stage would be catastrophic for India’s GDP growth.
Risks of altering interest rates

 If the RBI cuts the interest rate, it may be fuelling retail inflation further. It must be
remembered that inflation hits the poor the hardest.
 So, the RBI has chosen to do what many expected it to do: stay put and waits for another
couple of months to figure out how growth and inflation are shaping up.
Monetary Policy Committee (MPC)

 The RBI Act, 1934 (RBI Act) was amended by the Finance Act, 2016, to provide for a
statutory and institutionalized framework for an MPC, for maintaining price stability,
while keeping in mind the objective of growth.
 The MPC is entrusted with the task of fixing the benchmark policy rate (repo rate)
required to contain inflation within the specified target level.
 The meetings of the MPC are held at least 4 times a year and it publishes its decisions
after each such meeting.
 As per the provisions of the RBI Act, out of the six members of the committee, three
members are from the RBI and the other three Members of MPC are appointed by the
Central Government.
 Governor of the RBI is ex officio Chairman of the committee.
Debt-to-GDP Ratio
India’s public debt ratio, which remarkably remained stable at about 70% of the GDP since 1991, is
projected to jump by 17 percentage points to almost 90% a/c to IMF.
Why such a spike?

 The increase in public spending, in response to COVID-19, and the fall in tax revenue
and economic activity, will make public debt jump by 17 percentage points to almost
90% of GDP.
What is Debt-to-GDP Ratio?

 The Debt-to-GDP ratio is the ratio between a country’s government debt and its gross
domestic product (GDP).
 It measures the financial leverage of an economy.
 A country able to continue paying interest on its debt-without refinancing, and without
hampering economic growth, is generally considered to be stable.
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 A country with a high debt-to-GDP ratio typically has trouble paying off external debts
(also called “public debts”), which are any balances owed to outside lenders.
 In such scenarios, creditors are apt to seek higher interest rates when lending.
Extravagantly high debt-to-GDP ratios may deter creditors from lending money altogether.
 A low debt-to-GDP ratio indicates an economy that produces and sells goods and services
sufficient to pay back debts without incurring further debt.
 Geopolitical and economic considerations – including interest rates, war, recessions, and
other variables – influence the borrowing practices of a nation and the choice to incur
further debt.
Money Laundering
 Money laundering is the process by which large amounts of illegally received money is
given the appearance of having originated from a legitimate source.
 In India, the money laundering is regulated by the Prevention of Money Laundering Act
2002(PMLA) which came into force in 2005.
 The act defines money laundering offence and provides for the freezing, seizure and
confiscation of the proceeds of crime.
 The provisions of this act are applicable to all financial institutions like banks, mutual
funds, insurance companies, and their financial intermediaries.
 The act was amended thrice, first in 2005, then in 2009 and 2012. PMLA(Amendment)
Act, 2012 has enlarged the definition of money laundering by including activities such as
concealment, acquisition, possession and use of proceeds of crime as criminal activities.

Regularly updated
Online access
Unlimited attempts
Contact:
www.ias4sure.com
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Advance Pricing Agreement
What is Advance Pricing Agreement?

 It is an agreement between taxpayers (corporates) and the central tax authority (in case of
India it is CBDT)
 It determines transfer pricing methodology for determining the value of assets and taxes
on intra-group overseas transactions.
 Transfer pricing is referred to the fixing of the price for goods and services sold between
related legal subsidiaries (entities) within an enterprise.
 It introduces certainty in tax laws and reduces compliance cost
 It makes tax regime investment friendly
 It aims to avoid disputes between taxpayer and tax regulator
What is Advance Pricing Agreement (APA) Programme?

 The APA Programme was introduced by Finance Act, 2012 with a view to provide a
predictable and non-adversarial tax regime and to reduce litigation in Indian transfer
pricing arena. Rollback of APAs was announced in the Budget in July 2014.
 An APA is usually signed between taxpayer and central tax authority on an appropriating
transfer pricing methodology for determining the value of assets and taxes on intra-group
overseas transactions.
 An APA can be entered into for a maximum of 5 years at a time.
 It seeks to introduce certainty in tax law by reducing compliance costs and make tax
regime investment friendly.
 It provides certainty to taxpayers regarding transfer pricing that aim to avoid disputes
between taxpayer and tax regulator.
What are benefits of APAs?

 Boost to economy and ease of doing business.
 Provide alternative path to the investors with rollback provision to reduce litigation.
 Strengthen Government’s mission of fostering a non-adversarial tax regime.
 Introduces certainty in tax law by reducing compliance costs and make tax regime
investment friendly.
 Provides certainty to taxpayers regarding transfer pricing to avoid disputes between
taxpayer and tax regulator.
All about GST
 Goods and Services Tax is a comprehensive indirect tax which is to be levied on the
manufacture, sale and consumption of goods and services in India.
 GST eliminates the cascading effect of taxes because it is taxed at every point of business
and the input credit is available in the value chain.
 France was the first country to introduce GST system in 1954.
 More than 140 countries have implemented the GST.
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 The Genesis of GST occurred during the previous NDA Government under Atal Bihari
Vajpayee Government when it set up the Asim Dasgupta committee to design a model for
GST.
 The UPA Government took the matter further and announced in 2006 that this tax
would be introduced from April 1, 2010. However, so far it was not introduced.
 All the GST bills including Constitution (101st Amendment) Act have been passed now
and GST is set to come into force from July 1, 2017.
 GST would replace almost all vital indirect taxes and cesses on Goods & services in the
country.
 Among the taxes levied by centre, GST will subsume the following:
1. Central Excise Duty & Service Tax,
2. Duties of Excise (Medicinal and Toilet Preparations),
3. Additional Duties of Excise (Goods of Special Importance),
4. Additional Duties of Excise (Textiles and Textile Products),
5. Additional Duties of Customs (commonly known as CVD),
6. Special Additional Duty of Customs (SAD), and
7. Central Surcharges and Cesses.
 Among the state taxes that would be replaced by GST include
1. State VAT,
2. Central Sales Tax
3. Luxury Tax,
4. Entry Tax (all forms),
5. Entertainment and Amusement Tax (except when levied by the local bodies),
6. Taxes on advertisements,
7. Purchase Tax,
8. Taxes on lotteries, betting and gambling, and
9. State Surcharges and Cesses.
Anti-Dumping Duty
What is Anti-Dumping Duty?

 Anti-Dumping Duty is a trade levy imposed by any government on imported products
which have prices less than their fair normal values in their domestic market.
 Thus, it is protectionist tariff that seeks to stop dumping process where company exports
a product at a price lower than price it normally charged in domestic market of importing
countries’.
 Anti-Dumping Duty is imposed under the multilateral World Trade Organisation (WTO)
regime and varies from product to product and from country to country.
 In India, anti-dumping duty is recommended by the Union Ministry of Commerce (i.e. by
DGAD), while the Union Finance Ministry imposes it.
Balance of Payments
Countries trade with one another to buy goods not produced in domestic economy. With the advent
of globalization, investment to and fro have also increased many fold. A country’s trade and other
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economic exchanges with the world are recorded on its external account in the form of balance of
payment (BoP) transactions.
There are two components of BoP

1. Current Account
2. Capital Account
Current Account – It deals with current, ongoing, short term transactions like trade in goods, services
(invisible) etc. It reflects the nation’s net income. For instance, if you a buy a laptop from US, it will
be a current account transaction and it will be debit on current account as you have to pay to US.
There are 4 components of Current Account:

1. Goods – trade in goods
2. Services (invisible) – trade in services e.g. tourism
3. Income – investment income
4. Current unilateral transfers – donations, gifts, grants, remittances Note that grants might
appear as component of capital account but are included in current account as they are
unilateral, create no liability. Recipient does not have to give anything back in return.
Capital Account – It deal with capital transactions i.e. those transactions which create assets or
liabilities. It reflects the net changes in the ownership of national assets.
For instance, if you buy a stocks or property in US, it will be a capital account transaction and it will
be debit on capital account as you have to pay to US to buy the asset.
Components of Capital Account

1. Foreign Direct Investment (FDI)
2. Foreign Portfolio Investment (FPI)
3. External Borrowings such as ECB
4. Reserve Account with the Central Bank
Note here that foreign investment is under capital account but dividends and income from investment
comes under current account in the category income from abroad as dividend is transferred
periodically, does not result in creation of asset or liability.
Balance of Payment (BoP) = Current Account + Capital Account = 0
Why?
Current Account and Capital Account always balance each other because a country always has to pay
for its imports. It does so by exports or other two components of current account. If it cannot, it runs
deficit on current account and has to pay off by drawing off on its assets i.e. running capital account
surplus.
What is Current Account Deficit?

It’s simply deficit on all 4 components of current account.
(Export – Import) + Net income from abroad + Net Transfers
(Export – Import) is trade deficit
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CAD = Trade Deficit + Net Income From Abroad + Net transfers

Note that Trade Deficit and CAD are not one and the same. Trade deficit is only a component of
CAD.
What does deficit on Current Account imply?

If we forget income and transfers for a moment, what it means is that we import more than what we
export.
How do we pay for that extra import?

Either we get more foreign investment (FDI & FII) and pay via that or we borrow from foreign banks
(ECB) or we will have to dip into our external reserves to pay for that amount and in the process our
forex reserves come down. When forex reserves come down below a critical level, country appears on
the brink of BoP crisis.
So, is CAD such a bad thing?

Depends on what you do with those extra imports and how you finance the deficit!
CAD is bad because:
 If a CAD is financed through borrowing, it is unsustainable because borrowing lead to
high interest payments in the future.
 Attracting capital flows (hot money, FII) to finance the deficit is risky as when confidence
falls, hot money flows dry up, leading to a rapid devaluation and crisis of confidence. Eg.
East Asian Crisis.
Run a CAD necessarily means running a surplus on the capital account. This means foreigners have an
increasing claim on your assets, which they could redeem any time.
However a current account deficit is not necessarily harmful

CAD during a period of inward investment particularly stable long term FDI may not be a bad things
as investment can create jobs. Investments will lead to higher growth will be able to pay debts back.
Developing countries may use CAD to buy Capital goods and later export consumer goods and thus
repay the debt.
Moderate current account deficit (2% of GDP) financed mainly by stable foreign investments which
creates jobs and infrastructure in the economy can be helpful in the long run as it improves
productivity.
What is this twin deficit?

Current Account Deficit and Fiscal Deficit together are knows as twin deficits and often both
reinforce each other i.e. High fiscal deficit leads to higher CAD and vice versa.
Basel III (Third Basel Accord)
What are Basel reforms?

Basel series of norms are broad supervisory standards formulated by BCBS to ensure that financial
institutions have enough capital on account to meet obligations and absorb unexpected losses.
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What is Basel III?

 Basel III is a global, voluntary regulatory framework.
 It deals with :
o Bank capital adequacy,
o Market liquidity risk and
o Stress testing.
 It was agreed by Basel Committee on Banking Supervision (BCBS) members in 2010–11.
 It focuses primarily on the risk of a run on the bank, requiring differing levels of reserves
for different forms of bank deposits and other borrowings.
 It does not, supersedes the guidelines known as Basel I and Basel II for the most part,
rather works alongside them.
 In March 2014, RBI had extended Basel III deadline up to March 31, 2019, instead of as
on March 31, 2018.
Why in news?
The government is in talks with the Reserve Bank of India to postpone implementation of Basel-III
norms in the Indian banking sector, which is struggling with the issue of surmounting bad debts.
Base Effect
 The base effect refers to the impact of the rise in price level (i.e. last year’s inflation) in the
previous year over the corresponding rise in price levels in the current year (i.e., current
inflation)
 If the price index had risen at a high rate in the corresponding period of the previous year
leading to a high inflation rate, some of the potential rise is already factored in, therefore a
similar absolute increase in the Price index in the current year will lead to a relatively lower
inflation rates. Ex. If inflation in June 2016 was 8% and absolute increase in Price index
in June 2017 was say 9%, then, inflation in June 2017 will be low i.e. 1%
 On the other hand, if the inflation rate was too low in the corresponding period of the
previous year, even a relatively smaller rise in the Price Index will arithmetically give a high
rate of current inflation. Ex. If inflation in June 2016 was 1% and absolute increase in
Price index in June 2017 was say 4%, then, inflation in June 2017 will be low i.e. 3%
Composition Scheme under GST
Composition Scheme under GST

 Goods and Services Tax has brought in a new regime of business compliance in India.
Large organizations have the requisite resources and expertise to address these
requirements. On the flip side, many startups and Small and Medium Enterprises (SMEs)
may struggle to comply with these provisions. To resolve such scenarios, the government
has introduced Composition Scheme under GST, which is merely an extension of the
scheme under VAT law.
 When opting for the Composition Scheme under GST, a taxpayer will be required to file
summarized returns on a quarterly basis, instead of three monthly returns (as applicable
for normal businesses).
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Who can opt for Composition Scheme?

 Businesses dealing only in goods can only opt for composition scheme. Services providers
have been kept outside the scope of this scheme. However, restaurant sector taxpayers may
also opt for the scheme.
Countervailing duty
 It is imposed to safeguard domestic industry against unfair trade subsidies provided by

local governments of exporting nations.
 It is basically country specific.
 It is generally equal to excise duty paid by manufacturers when same product is produced
in home country.
 It is mainly levied to neutralize effect of subsidies in exporting country on price and
domestic market of importing country.
 For instance: If Rs 100 subsidy is paid by China government to reduce the cost of some
product by Rs 100 and Indian producer has to pay excise duty of Rs 20 on same product.
Then, Indian government might impose countervailing duty of Rs 120 on Chinese
products to bring cost of Chinese import of the product same of India's product.
 Why in news? India has imposed CVD on Chinese Steel products
Double Taxation Avoidance Agreement
 A DTAA is a tax treaty signed between two or more countries.

 Its key objective is that tax-payers in these countries can avoid being taxed twice for the
same income.
 A DTAA applies in cases where a tax-payer resides in one country and earns income in
another.
 DTAA with Singapore, Mauritius and Cyprus give full exemption on capital gains to
investors as there's no cap gains in contracting countries. These agreements were misused
for round tripping black money.
 To curb revenue loss and check menace of black money through automatic exchange of
information, India recently revised treaties with Mauritius and Cyprus and joint
declaration was signed with Switzerland.
 The Section 90 of Income Tax (IT) Act, 1961 empowers Central Government to enter
into agreement with foreign country or specified territory for avoidance of double taxation
of income and for exchange of information for prevention of evasion or avoidance of
income-tax chargeable under IT Act, 1961.
Exchange-traded funds (ETFs)
 ETFs are Index Funds

 An ETF is a basket of stocks that reflects the composition of an Index, like S&P CNX
Nifty or BSE Sensex.
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 They are listed and traded on exchanges like stocks.

 They enable investors to gain broad exposure to entire stock markets in different
Countries and specific sectors with relative ease, on a real-time basis and at a lower cost
than many other forms of investing.
 ETFs trading value is based on the net asset value of the underlying stocks that it
represents
 They are similar to mutual funds in a certain manner but are more liquid as they can be
sold quickly on stock exchanges like shares.
 Their price changes daily as they are traded throughout day.
 ETF route is considered as safer mode of investment as it shields investors against stock
market volatility.
Why in news?
 Finance Ministry has launched Bharat 22, an ETF. Bharat 22 comprise of 22 stocks
including those of central public sector enterprises (CPSEs), public sector banks (PSBs)
and its holdings under the Specified Undertaking of Unit Trust of India (SUUTI).
 Second tranche of Bharat 22 ETF was oversubscribed 2.57 times.
E-way bill
 E-way bill is an electric document generated on the GST Portal, which is a common and
shared information technology (IT) infrastructure between the Centre and States; and
acts as evidence for movement of goods.
 A company or an entity can upload relevant information prior to movement of a goods
consignment from one state to another.
 Subsequently, the E-way bill for that consignment is generated via the GST portal.
 It may be noted that such a mechanism helps reduce the burden of tax collection under
the GST regime and it is only applicable to transport of goods amounting to more than
Rs 50,000.
Fiat Digital Currency
 Fiat Digital Currency (or Central bank digital currency) is the digital form of fiat money
which is currency established as money by government regulation or law.
 As opposed to private digital tokens, fiat digital currency will be issued by central bank.
 Fiat Digital Currency will constitute liability of central bank, and will be in circulation in
addition to widely used paper and metallic currency.
 They will be based on blockchain technology which is backbone of unregulated virtual
currencies like bitcoin.
 They will be legal tender as compared to virtual currencies that raise concerns of consumer
protection, market integrity and money laundering, among others.
 Blockchain technology behind it has potential benefit for financial inclusion and
enhancing efficiency of financial system.
_______________________________________________________________
Why in news?
The Reserve Bank of India (RBI) has constituted an inter-departmental group to study and provide
guidance on feasibility to introduce fiat digital currency backed by it. It will be submitted by end-June
2018.
What is happening in other countries?

 Central banks around world are exploring options of introducing ‘fiat’ digital currencies in
landscape of rapidly changing payments industry with technological evolution.
 The emergence of private digital tokens such as virtual currencies and rising costs of
managing fiat paper and metallic money have led them to explore option of introducing
‘fiat’ digital currencies.
 The Bank of England was one of the first to initiate a global discussion on prospects for
introduction on Fiat digital currency.
 In November 2017, the central bank of Uruguay had announced to begin test to issue
digital Uruguayan pesos.
 The Central bank of Sweden is however the closest to consider its implementation.
Foreign Exchange Management Act (FEMA)
 The Foreign Exchange Management Act (FEMA) was passed by Parliament in 1999.
 It had replaced FERA (Foreign Exchange Regulations Act), 1973 which had become
incompatible after economic reforms and pro-liberalization policies of government.
 It aims at facilitating external trade and payments and for promoting the orderly
development and maintenance of foreign exchange market in India.
 It makes offenses related to foreign exchange civil offenses.
 It enables new foreign exchange management regime consistent with emerging framework
of World Trade Organisation (WTO).
Foreign portfolio investment (FPI)
 FPI consists of securities and other financial assets passively held by foreign investors.
 It does not provide investor with direct ownership of financial assets.
 It is relatively liquid depending on volatility of the market.
 In India, FPIs are allowed to invest in various debt market instruments such as
government bonds, treasury bills, state development loans (SDLs) and corporate bonds,
but with certain restrictions and limits.
 FPI is part of country’s capital account and shown on its balance of payments (BOP).
Differences between FPI and FDI

 FPI lets investor purchase stocks, bonds or other financial assets in foreign country.
 In this case, investor does not actively manage investments or companies that issue
investment.
 It also does not have control over securities or business.
 In contrast, FDI lets investor purchase direct business interest in foreign country.
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 The investor also controls his monetary investments and actively manages company into
which he puts money.
 FPI is more liquid and less risky than FDI.
GDP Model Vs GVA Model
The Reserve Bank of India switched back to gross domestic product (GDP) model from the gross
value added (GVA) methodology to provide its estimate of economic activity in the country. The
switch to GDP is mainly to conform to international standards and global best practices.
Key Facts
 The GVA methodology gives picture of state of economic activity from producers’ side or
supply side whereas the GDP model gives picture from consumers’ side or demand
perspective.
 Globally, performance of most economies is gauged in terms of GDP model.
 This is also approach followed by multilateral institutions, international analysts and
investors because it facilitates easy cross-country comparisons.
Background
 Government had started analysing growth estimates using GVA methodology from
January 2015 and had also changed the base year to 2018 from January 2018.
 Even the Central Statistical Office (CSO) has started using GDP model as supply-side
measure of economic activity as main measure of economic activities since January 15,
2018.
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GDP Vs GNP
 GDP: Gross Domestic Product (GDP) is the total money value of final goods and services
produced in the economic territories of a country in a given year.
 GDP stands for total value of goods and services produced inside the territory of India
irrespective of whom produced it – whether by Indians or foreigners.
 GNP: Gross National Product (GNP) is the total value of goods and services produced
by the people of a country in a given year. It is not territory specific.
 If we consider the GNP of India, it can be seen that GNP is lesser than GDP.
Gratuity
What is Gratuity?
 Gratuity is the monetary benefit provided by the employer to his/her employee for the
services rendered by him during the period of employment.
 A minimum of five years of service with an organisation is mandatory for availing the
benefit of gratuity.
 The Payment of Gratuity Act 1972 makes it mandatory for the employers to pay their
employees gratuity at the time of quitting, provided certain conditions were met.
 An organisation comes under the purview of the Payment of Gratuity Act 1972 if it has
10 or more employees on any single day in the preceding 12 months.
 The Payment of Gratuity Act follows the rule of ‘Once Covered, Always Covered’ which
implies that that once an organisation comes under the Act, it will always remain covered
even if the number of employees falls below 10.
 The Ministry of Finance has now enhanced the income tax exemption for gratuity under
Section 10 (10) (iii) of the Income Tax Act, 1961 to Rs 20 lakhs.
Gross value added
Gross value added (GVA):

 Gross value added (GVA) is the measure of the value of goods and services produced in
an area, industry or sector of an economy.
 Relationship to gross domestic product
 GVA is linked as a measurement to gross domestic product (gdp), as both are measures of
output. The relationship is defined as:
 GVA + taxes on products – subsidies on products = GDP
Gross fixed capital formation:

 Gross fixed capital formation (GFCF) refers to the net increase in physical assets
(investment minus disposals) within the measurement period.
 It does not account for the consumption (depreciation) of fixed capital, and also does not
include land purchases.
 It is a component of expenditure approach to calculating GDP.
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GST
 Goods & Services is an Indirect Tax levied on the supply of goods and services.
 It has replaced many Indirect Taxes that previously existed in India.
 On 29th March 2017, Goods and Service Tax Act was passed in Parliament and Act
came into effect on 1st July 2017.
 It is one Indirect Tax for entire country and is a multi-stage, comprehensive, destination-
based tax that is levied on every value addition.
 Under GST regime, tax is levied at every point of sale (PoS).
 In case of Intra-state sales, Central GST (CGST) and State GST (SGST) are charged and
the Inter-state sales are chargeable to Integrated GST (IGST).
 GST has transformed India into ‘one nation, one Tax, and integrated country into an
Economic Union and into single common market by breaking barriers to inter-state trade
and commerce.
Import Duty
 It is a tax collected on imports and some exports by customs authorities of country.

 It is usually based on value of goods that are imported. Depending on context, import
duty may also be referred to as tariff, import tax, customs duty and import tariff.
 The purpose of import duty is to raise income for local government and to give market
advantage to locally grown or produced goods that are not subject to import duties.
 It is sometimes used as tool to penalize a particular nation by charging high import duties
on its products.
Index of Industrial Production (IIP)
Main Changes:
 Base year has been changed from 2004-05 to 2011-12
 Number of items has been changed (See details below)
 There will be 407 item groups
 The new series of IIP will include technology items like smart phones, tablets, LED
television etc.
 A technical review committee has also been established to identify new items by ensuring
that the series remains relevant. The committee is slated to meet at least once a year.
 The revised IIP (2011-12) reflects the changes in industrial sector and also aligns it with
base year of other macroeconomic indicators like Wholesale Price Index (WPI) and Gross
Domestic Product (GDP).
About IIP
 IIP is compiled and published by Central Statistics Office(CSO)
 It is published every month
 It covers 865 (Older series 682) items comprising :
o Manufacturing (809 items, Older series 620 items),
_______________________________________________________________
Mining (55 items, Older Series 61 items) &

o
o Electricity (1 item).
 The weights of the three sectors are :
o Manufacturing - 77.63%,
o Mining - 14.37%,
o Electricity - 7.99%
 Base year for IIP is 2011-2012 (Earlier 2004-05) i.e. it is calculated on the basis of their
share of GDP at factor cost during 2011-12.
 The eight Core Industries comprise nearly 40.27 % of the weight of items included in IIP.
They are :
o Coal (10.33%)
o Crude oil (8.98%)
o Natural gas (6.88%)
o Refinery products (28.04%)
o Fertilisers (2.63%)
o Steel (17.92%)
o Cement (5.37%)
o Electricity (19.85%)
 In IIP, the decreasing order of core industries among them is as:
REFINERY PRODUCTS>ELECTRICITY> STEEL> COAL> CRUDE OIL>
NATURAL GAS>CEMENT> FERTILIZERS
Initial Coin Offering (ICO)
 ICO is an unregulated means of crowd funding for project via use of cryptocurrency such
as Bitcoin, Ethereum, Monero, DASH, Litecoin, Z-cash etc.
 It is like an equity initial public offer (IPO) where right of ownership or royalties of
project is offered to investors in form of digital coins in exchange for legal tender or other
cryptocurrencies.
 ICO is mostly used to raise funds by start-up firms dealing in block chain technology and
virtual currencies.
 Unlike an IPO, which is governed by SEBI regulations, there is no regulator for this kind
of crowd sourcing in India.
 China’s Central Bank recently had banned ICO as dubbed it as an illegal public finance
mechanism used for issue of securities and money laundering.
Land Pooling Method
What is Land Pooling Method?

 Under land pooling mechanism, group of land-owners pool their land and hand it over to
government agency for development of infrastructure projects.
 After the development of land, the agency redistributes the land after deducting some
portion as compensation towards infrastructure costs.
 Generally, people who part with their land parcels get 60-70% of their holdings back after
infrastructure is developed on it.
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 This is done to develop potential infrastructure to reduce the load on the existing
congested and saturated areas.
 This method already has been used in Gujarat, Andhra Pradesh and Maharashtra.
Why this method is being adopted?

This is being done to overcome challenges that come with unavailability of land due to surge in land
compensation cost after Right to Fair Compensation and Transparency in Land Acquisition,
Rehabilitation and Resettlement Act, 2013 (or Land Acquisition Act, 2013) came in to force.
Liberalised Remittance Scheme (LRS)
 LRS is facility provided by RBI for all resident individuals including minors to freely
remit up to certain amount in terms of US Dollar for current and capital account
purposes or combination of both.
 The scheme was introduced in February 2004 and its regulations are provided under
Foreign Exchange Management Act (FEMA), 1999.
 After it was launched, the LRS limit was US $25,000, but it has been revised in stages
consistent with prevailing macro and micro economic conditions.
 At present, LRS limit for all resident individuals, including minors, is US $2,50,000 (Rs.
1.5 crore) per financial year.
 Under LRS, individuals can make remittances for overseas education, travel, medical
treatment, maintenance to relatives living abroad, gifting and donations.
 The remitted money can be used for purchase of shares and property as well.
 Individuals can also open, maintain and hold foreign currency accounts with overseas
banks for carrying out transactions under it.
Restrictions:
 Under LRS, remittances cannot be used for trading on foreign exchange markets, purchase
of Foreign Currency Convertible Bonds issued abroad by Indian companies and margin or
margin calls to overseas exchanges and counterparties.
 Similarly, individuals are not allowed to send money to countries identified as ‘non
cooperative jurisdictions’ by Financial Action Task Force (FAFT).
 It also prohibits remittances to entities identified as posing terrorist risks.
 The definition of relatives under LRS has been now aligned with definition of relative
with definition given in Companies Act, 2013 instead of Companies Act, 1956.
Marginal Cost of funds based Lending Rate (MCLR)
Marginal Cost of funds based Lending Rate (MCLR)

 It refers to the minimum interest rate of a bank below which it cannot lend, except in
some cases allowed by the RBI.
 It is an internal benchmark or reference rate for the bank. MCLR actually describes the
method by which the minimum interest rate for loans is determined by a bank – on the
basis of marginal cost or the additional or incremental cost of arranging one more rupee to
the prospective borrower.
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 This new methodology replaces the base rate system introduced in July 2010.
Reasons for introducing MCLR

 RBI decided to shift from base rate to MCLR because the rates based on marginal cost of
funds are more sensitive to changes in the policy rates.
 This is very essential for the effective implementation of monetary policy. Prior to MCLR
system, different banks were following different methodology for calculation of base rate
/minimum rate – that is either on the basis of average cost of funds or marginal cost of
funds or blended cost of funds. Thus, MCLR aims
 To improve the transmission of policy rates into the lending rates of banks.
 To bring transparency in the methodology followed by banks for determining interest
rates on advances.
 To ensure availability of bank credit at interest rates which are fair to borrowers as well as
banks.
 To enable banks to become more competitive and enhance their long run value and
contribution to economic growth.
Merchant Discount Rate
 MDR is charge or fee imposed on merchant by bank for accepting payment from their
customers in credit and debit cards every time card is used for payments (like swiping) in
their stores.
 MDR charges are usually shared in pre-agreed proportion between them and are expressed
in percentage of transaction amount.
 MDR compensates bank issuing card, bank which puts up swiping machine (Point-of-
Sale or PoS terminal) and network providers such as Mastercard or Visa for their
services.
 In India, the RBI specifies maximum MDR charges that can be levied on every card
transaction.
 According to recent RBI notification, from January 1 2018, small merchants will pay a
maximum MDR of 0.40% of bill value and larger merchants will shell out 0.90%. RBI
has also set monetary cap at Rs.200 per bill for small merchants and Rs.1,000 for large
ones.
 As per RBI rules, merchant has to pay MDR out of his own pocket and cannot pass it on
to the customer.
 Why in news? The Union Cabinet has decided that Government will borne Merchant
Discount Rate (MDR) charges on transactions up to Rs. 2,000 made through debit cards,
BHIM UPI or Aadhaar-enabled payment systems (AePS) to promote digital transactions.
It will be for two years with effect from 1 January, 2018 by reimbursing the same to the
banks.
Non-Banking Financial Company
What is a Non-Banking Financial Company (NBFC)?

_______________________________________________________________
 A NBFC is a financial institution that provides banking services without meeting the legal
definition of a bank, i.e. one that does not hold a banking license.
 It is established as a company registered under the Companies Act, 1956 but its
operations are often still covered under a country’s banking regulations.
 NBFCs may be engaged in the business of loans and credit facilities, savings products,
investments and money transfer services.
 The Reserve Bank of India is entrusted with the responsibility of regulating and
supervising the Non-Banking Financial Companies by virtue of powers vested under
Reserve Bank of India Act, 1934
What is difference between banks and NBFCs?

 NBFCs business activities are akin to that of banks as they can lend and make investments;
however there are a few differences between them.
 NBFCs cannot accept demand deposits.
 They cannot issue cheques as they do not form part of the payment and settlement system.
 Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not
available to depositors of NBFCs, unlike in case of banks.
Peer-to-Peer Lending
 P2P lending is a form of crowd-funding used to raise loans which are paid back with
interest.
 It enables individuals to borrow and lend money – without use of an official financial
institution as an intermediary.
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 It can use an online platform that matches lenders with borrowers in order to provide
unsecured loans.
 P2P lending gives access to credit to borrowers who are unable to get it through
traditional financial institution.
 It boosts returns for individuals who supply capital and reduces interest rates for those
who use it.
Why needed?
 P2P lending is one of the crowd-funding business model that has gathered momentum
globally and is taking root in India.
 It promotes alternative forms of finance, where formal finance is unable to reach.
 It has potential to soften lending rates as result of lower operational costs and enhanced
competition with traditional lending channels.
 If properly regulated, P2P lending platforms can do this more effectively.
 Though it is in nascent stage but it is not significant in value yet, but it promises potential
benefits to various stakeholders (borrowers, lenders, agencies etc).
Real Estate Investment Trusts (REITs)
 Reits are investment vehicles that can be used by real estate players to attract private
investment, while investors (both retail and institutional) can gain dividends generated
from income-producing real estate assets like office buildings, shopping malls etc.
 They are similar to mutual funds which provide opportunity to invest in equity stocks,
whereas REITs allow one to invest in income-generating real estate assets.
 In REITs, most of the earnings via sale / rent of such investments are distributed to its
shareholders.
 Its purpose is to improve the liquidity position of Real Estate developers and give a secure
avenue to investors to invest in long term.
 REITs are only for completed projects not the under-construction projects.
 They are primarily for commercial projects and mainly serve as an alternative investment.
Safeguard Duty
 Safeguard Duty is tariff barrier imposed by government on the commodities to ensure that
imports in excessive quantities do not harm the domestic industry.
 It is mainly temporary measure undertaken by government in defence of the domestic
industry which is harmed or has potential threat getting hared due to sudden cheap surge
in imports.
SARFAESI Act 2002
 It lets banks as well as other financial institutions (FIs) of India auction commercial or
residential properties (of defaulters) for purpose of loan recovery.
 Asset Reconstruction Companies (ARC) was established under this act.
_______________________________________________________________
 It was made to identify and rectify problem of Non-Performing Assets (NPAs) via
multiple mechanisms.
Share Buyback
What is share buyback?

 A buyback is a mechanism through which a listed company buys back shares from the
market.
 A buyback can be done either through open market purchases or through the tender offer
route.
 Under the open market mechanism, the company buys back the shares from the secondary
market while under tender offer, shareholders can tender their shares during the buyback
offer. Historically, most companies had preferred the open market route.
Why does a firm go in for a buyback?

 Buybacks are typically done when a company has a significant cash reserve and feels that
the shares are not fairly valued at the current market price.
 Since the shares that are bought back are extinguished, the stake of the remaining
shareholders rise. Promoters also use this mechanism to tighten their grip on the firm.
What are the benefits?

 Since the bought back shares are extinguished, the earnings per share (EPS) rise by default.
Also, since a buyback is usually done at a price higher than the then prevailing market
price, shareholders get an attractive exit option, especially when the shares are thinly
traded. It is also more tax-efficient than dividends as a way to reward shareholders.
How can a company execute a buyback?

 A company can use a maximum of 25% of the aggregate of its free reserves and paid-up
capital for a buyback. A special resolution needs to be passed at a general meeting.
However, if the company plans to use less than 10% of its reserves then only a board
resolution is required.
Can a firm opt for regular buybacks to boost EPS?

A company cannot do a second buyback offer within one year from the date of the closure of the last
buyback. Also, there are time-bound limitations on further share issuances like preferential allotment
or bonus issue post a buyback. These checks have been put in place so that companies do not misuse
the buyback mechanism.
Swiss Challenge model
 Swiss challenge method is a process of giving contracts.

 Any person with credentials can submit a development proposal to the government.
 That proposal will be made online and a second person can give suggestions to improve
and beat that proposal.
_______________________________________________________________
 It is a method where third parties make offers (challenges) for a project within a
designated period to avoid exaggerated project costs
Unified Payment Interface (UPI)
What is UPI?
 It is a common platform through which a person can transfer money from his bank
account to any other bank account in the country instantly using nothing but his/her UPI
ID.
 It is developed by the National Payments Corporation of India (NPCI) under the
guidelines of the RBI.
 The interface will be based on the Immediate Payment Service (IMPS) platform.
 The UPI app merges a number of banking features, facilitating seamless and secure fund
transfer and merchant payments at single platform.
 It also allows Peer to Peer collection request.
How will it work?

 A customer can transfer money to another person through a unique virtual address, or
mobile number, or Aadhaar. Therefore, customers do not need to know the payee's IFSC
code, bank account details, etc. and this will make the process simpler.
 A customer can have multiple virtual addresses for multiple accounts in various banks.
There is no account number mapper anywhere other than the customer's own bank. This
allows the customer to freely share the financial address with others.
Why in news?
Google has launched its own UPI app named "Tez"
Viability Gap Funding
 Viability Gap Funding (VGF) Means a grant one-time or deferred, provided to support
infrastructure projects that are economically justified but fall short of financial viability.
 The lack of financial viability usually arises from long gestation periods and the inability
to increase user charges to commercial levels.
 Infrastructure projects also involve externalities that are not adequately captured in direct
financial returns to the project sponsor. Through the provision of a catalytic grant
assistance of the capital costs, several projects may become bankable and help mobilise
private investment in infrastructure.
Ways and Means Advances (WMA)
What is Ways and Means Advances (WMA)?

 Ways and Means Advances is the temporary loan facility provided by the RBI to the
centre and state governments.
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 The WMA scheme was introduced in 1997 to meet any temporary mismatches in the
receipts and payments of the government.
 The WMA needs to be vacated after 90 days. The interest rate for WMA is currently
charged at the repo rate.
 The limits for WMA are decided by the RBI and in consultation with the Government of
India.
 Further, the RBI provides an overdraft facility when the WMA limit is breached. The
overdraft is not allowed beyond 10 consecutive working days. The interest rate on
overdrafts would be 2 per cent more than the repo rate.
WMA Scheme for State Governments

 For the State Governments, there are two types of WMA –
o Special WMA
o Normal WMA.
 Special WMA is provided against the collateral of the government securities held by the
State Government.
 After the exhaustion of the special WMA limit, the State Government are provided with a
normal WMA which is based on a three-year average of actual revenue and capital
expenditure of the state.
Foreign Direct Investment (FDI)
FDI:
 It is an investment in the form of a controlling ownership in a business in one country by
an entity based in another country.
 It is thus distinguished from a foreign portfolio investment by a notion of direct control.
 Data on FDI is released by Department for Promotion of Industry and Internal
Trade(DPIIT).
Facts:
 The Foreign direct investment(FDI) inflows has increased by 15% to $30 billion during
April-September compared to $26 billion the corresponding period last year.
 Singapore continues to be the top source of FDI for India followed by the United States,
Cayman Islands and Mauritius.
Funds in News
Pradhan Mantri Swasthya Suraksha Nidhi (PMSSN)
 The Union Cabinet approves the Pradhan Mantri Swasthya Suraksha Nidhi (PMSSN).
 This program will ensure access to universal & affordable health care through a fund that
does not lapse at the end of the financial year.
 Features:
o It has been set up as a single non-lapsable reserve fund for a share of Health.
_______________________________________________________________
oIt will be made from the share of health in the proceeds of Health and
Education Cess.
o The fund will be administered and maintained by the Ministry of Health &
Family Welfare
 Finance Minister announced the 4% Health and Education Cess during the Budget 2018-
19. It replaced the existing 3% Education Cess.
 How will the fund be utilised? The fund will be utilized for the following flagship
schemes of the Ministry of Health & Family Welfare:
o Ayushman Bharat – Pradhan Mantri Jan Arogya Yojana (AB-PMJAY)
o Ayushman Bharat – Health and Wellness Centres (AB-HWCs)
o National Health Mission
o Pradhan Mantri Swasthya Suraksha Yojana (PMSSY)
o Emergency & disaster preparedness and responses during health emergencies
o Any future programme/scheme that targets to achieve progress towards
SDGs and the targets set out in the National Health Policy (NHP) 2017.

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Universal Service Obligation Fund
Universal Service Obligation Fund

 It was given statutory status under the Indian Telegraph (Amendment) Act, 2003.
 Provides subsidies to ensure internet services are provided to everyone across India.
_______________________________________________________________
 It is headed by the USOF Administrator who reports to the Secretary, Department of

Telecommunications (DoT).
 Funds come from the Universal Service Levy (USL) of 5% charged from all the telecom
operators on their Adjusted Gross Revenue (AGR) which are then deposited into the
Consolidated Fund of India, and require prior parliamentary approval to be dispatched.
 The USOF works through a bidding process, where funds are given to the enterprise
quoting the lowest bid.
 However, the funds for NOFN were made an exception to this process since BBNL was
the sole party involved in the implementation having being specifically created for it.
 USOF money is used for NOFN project.
ESG funds
ESG funds are witnessing a growing interest in the Indian mutual fund industry these days.
What are the ESG funds?
 ESG means using Environmental, Social and Governance factors to evaluate companies
and countries on how far advanced they are with sustainability.
 ESG investing is used synonymously with sustainable investing or socially responsible
investing.
 While selecting a stock for investment, the ESG fund shortlists companies that score high
on the environment, social responsibility and corporate governance, and then looks into
financial factors.
 So, the scheme focuses on companies with environment-friendly practices, ethical business
practices and an employee-friendly record.
 They imbibe the environment, social responsibility and corporate governance in their
investing process.
Why so much focus on ESG now?

 Modern investors are re-evaluating traditional approaches and look at the impact their
investment has on the planet.
 As a result of this paradigm change, asset managers have started incorporating ESG factors
into investment practices.
 Companies with good ESG scores tick most of the checkboxes for investing, tend to
mitigate environmental and social risks and tends to have stronger cash flows, lower
borrowing costs and durable returns.
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Hybrid Funds
Hybrid Fund
 A hybrid fund is one that invests in both equity and bonds. So, such funds ought to help
investors with their asset allocation decision.
 This refers to how you allocate your annual savings between equity and bond investments.
 Suppose you are unsure of the proportion of equity and bond investments to have in your
portfolio.
 By investing in a hybrid fund, you could outsource your asset allocation decision to the
manager of the fund, so the argument goes.
 The issue is that each goal you pursue requires different asset allocation. For instance, the
asset allocation for your child’s education portfolio must be different from your
retirement portfolio.
 Hybrid funds cannot consider your individual goal requirement as it is a collective
investment vehicle.
Tax efficiency of the fund

 Based on current tax laws, a hybrid fund that holds 65% or more in equity is considered
as an equity fund.
 So, if you redeem your units in such hybrid funds after a holding period of more than 12
months, you have to pay long-term capital gains tax of 10%.
 If a hybrid fund holds less than 65% in equity, you have to pay 20% capital gains tax
with indexation if you sell your units after a holding period of more than 36 months.
Stocks vs. Bonds vs. Equity

 A stock represents a collection of shares in a company which is entitled to receive a fixed
amount of dividend at the end of the relevant financial year which are mostly called
Equity of the company.
 Bonds term is associated with debt raised by the company from outsiders which carry a
fixed ratio of return each year and can be earned as they are generally for a fixed period of
time.
 Bonds are actually loans that are secured by a specific physical asset.
 It highlights the amount of debt taken with a promise to pay the principal amount in the
future and periodically offering them the yields at a pre-decided percentage.
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 Equity is ownership of assets that may have debts or other liabilities attached to them.
Equity is measured for accounting purposes by subtracting liabilities from the value of an
asset.
SWAMIH Investment Fund
Union Minister for Finance has informed that so far Rs 8767 crore has been approved for 81 projects
under Special Window for Affordable and Mid-Income Housing (SWAMIH) Investment Fund I.
SWAMIH Fund
 In November 2019, the Finance Minister had cleared a proposal to set up a ‘Special
Window’ called SWAMIH in to provide priority debt financing for the completion of
stalled housing projects.
 SWAMIH Investment Fund has been formed to complete the construction of stalled,
brownfield, RERA registered residential developments that are in the affordable housing
/ mid-income category.
 The Sponsor of the Fund is the Secretary, Department of Economic Affairs, Ministry of
Finance, and Government of India on behalf of the Government of India.
 The fund is set up as a Category-II AIF (Alternate Investment Fund) debt fund registered
with SEBI and would be professionally run.
Why need such funds?

 Several real estate projects have suffered due to a combined effect of two changes in the
real estate sector.
 On one hand, incremental launches and slow sales have increased unsold inventory in each
project.
 While the effect has then got compounded by the fact that consumer preference is now
towards completed projects rather than under-construction projects.
 This preference has developed as consumers are largely avoiding taking project completion
risk and instead are more inclined to completed projects.
Backward Regions Grant Fund (BRGF)
 Fund was created address regional imbalances in development

 Launched in 2007
 This fund is now defunct after replacement of Planning Commission by NITI Ayog
BHART Fund
 BHARAT stands for Better Health, Agriculture, Renewable and Technologies

 A $150 million fund for Startups in India
 It is a public-private-academia partnership set up by Indian Institute of Management (IIM)
Ahmedabad’s Centre for Innovation Incubation and Entrepreneurship (CIIE).
 The Fund will be managed and coordinated by CIIE at the IIM, Ahmedabad.
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 It will support innovation and innovative startups in areas of healthcare and life-sciences,
sustainability, and digital technologies.
 The Fund will use important tools such as labs, mentorship, funding, and networking to
support entrepreneurs who take on hard challenges of an ever-broadening Indian market.
 Launched in 2015
Central Road Fund
 Launched in 1988 by a resolution of Parliament

 It is used for development and maintenance of national highways and improvement of safety
at railway crossings
 It gets money by levy and cess, a duty of excise and duty of customs on petrol and high
speed diesel oil .
 Given a statutory status by Central Road Fund Act, 2000
Credit Enhancement Fund (CEF)
 CEF will provide credit enhancement for infrastructure projects which will help in
upgrading credit ratings of bonds issued by infrastructure companies and facilitate
investment from investors like pension and insurance funds.
 The initial corpus of the fund will be Rs 500 crore and will be sponsored by IIFCL (India
Infrastructure Finance Company).
 It will operate as a non-banking finance company (NBFC).
 IIFCL will hold 22.5% stake in the NBFC, while Asian Infrastructure Investment Bank
(AIIB) has been offered by the Government to pick up 10% stake.
Why this fund was needed?

At present, only $110 billion is being invested in infrastructure in India, against requirement of $200
billion, leading many analysts to classify India as infrastructure deficit country. Most of the present
infrastructure project financing is done by banking system. But all these lenders are saddled with
problem of non-performing assets (NPAs). So there is need for the private sector to be more active on
the infrastructure investment front. CEF will serve as alternative for rising of money for infrastructure
projects through corporate bonds.
Fisheries and Aquaculture Infrastructure Development Fund (FAIDF)
FAIDF:
 To double farmers’ income by 2022 the Cabinet Committee on Economic Affairs (CCEA)
has approved creation of FAIDF recently.
 The proposal for creation of fund was made in budget 2018-19.
Salient features of the fund

 The main aim is to boost fish production to achieve the target of producing 15 million
tonnes of fish production by 2020 and 20 million tonnes by 2022-23 from current
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production of 11.4 million tonnes. The aim to achieve this target was set under Blue
revolution.
 The nodal agencies for the fund will be National Bank for Agriculture and Rural
Development (NABARD), National Cooperatives Development Corporation (NCDC)
and scheduled banks.
 The fund being raised by nodal loaning entities (NLE).
 The estimated fund size is about 7522 crore that will benefit country in both inland and
marine fisheries areas.
 The fund will involve in attracting private investment and technologies in creation and
management of fisheries all around the country.
Krishi Kalyan Cess
Krishi Kalyan Cess:

 Imposed in 2016
 0.5% on all taxable services w.e.f. 1st June 2016.
 Proceeds from this would be exclusively used for financing initiatives for improvement of
agriculture and welfare of farmers
Krishi Kalyan Surcharge:

 7.5% of undisclosed income
 Proceeds to be used for agriculture and rural economy
Long Term Irrigation Fund (LTIF)
Facts:
 It is being raised from Extra Budgetary Resources of up to Rs, 9,020 crore during the
financial year 2017-18.
 The funds will be raised by the National Bank for Agriculture and Rural Development
(NABARD) through the issuance of Bonds at 6% per annum as per requirement.
Utilization of Funds
 The LTIF will be for the implementation of Accelerated Irrigation Benefits Programme
(AIBP) works of 99 ongoing prioritised irrigation projects along with their command area
development (CAD) works under the Pradhan Mantri Krishi Sinchayee Yojana (PMKSY).
Why this fund is being created?

 Large number of major and medium irrigation projects taken up under the AIBP were
languishing mainly due to inadequate provision of funds.
 To cater to the large fund requirement and ensure completion of these projects, the Union
Finance Minister in his Budget speech 2016-17, had announced creation of dedicated
LTIF in NABARD with an initial corpus of Rs. 20,000 crore for funding identified
ongoing projects under PMKSY (AIBP and CAD).
 The corpus of LTIF was to be raised through budgetary resources and market borrowings
to fast track implementation of incomplete major & medium irrigation projects
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Methanol Economy Fund
Context:
 The National Institution for Transforming India (NITI) Aayog is planning to set up
Methanol Economy Fund worth Rs 4,000-5,000 crore to promote production and use of
the clean fuel.
 The fund will be utilized for generation of cheaper, safer and pollution free methanol fuel
by converting high ash content coal and stranded gas assets into methanol.
Need of Methanol Economy Fund:

 The Niti Aayog has planned to set up production plants.
 It expects that two plants can be commissioned in the next 3-4 years.
 The first coal-based methanol plant will be set up in West Bengal by world’s largest coal
miner Coal India Ltd (CIL).
 The government think tank is also proposing road map to achieve its target of increasing
penetration of methanol as alternative fuel to petrol and diesel.
 The roadmap will be applicable from January 2018. Under it, NITI Aayog proposes
ramping up facilities to convert Coal, Stranded Gas and Biomass to methanol.
 NITI Aayog is also working on converting certain diesel-powered rail engines to work on
methanol. It also has planned to ensure that boats and ships used in inland waterways
initiative are also run on methanol.
Methanol
 Methanol can be used as energy producing fuel, transportation fuel and cooking fuel.
 It will help in cutting down India’s oil import bill by estimated 20% over next few years.
 It is simple alcohol and does not have carbon-carbon bond and therefore does not emit
particulate matter (PM) which causes pollution.
 It can be easily produced from renewable sources which include forest residue, bio waste
generated from houses, agriculture waste, biodegradable waste from other sources.
 Unlike CNG, using methanol as transportation fuel requires minimal inexpensive
alteration in vehicle engines so that they work as methanol engines.
 China is currently world’s largest producer of methanol.
 India’s current installed capacity of methanol production is 0.47 million tonne and total
domestic production is 0.2 million tonne. The total methanol consumption of country
was 1.8 million tonne in 2016.
National Clean Energy Fund
 Launched in 2010-11
 Used for funding research and innovative projects in clean energy technology
 It gets money from clean energy cess on coal produced in India and coal imported in India.
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National Culture Fund (NCF)
 NCF was established as Trust under Charitable Endowment Act, 1890 as funding
mechanism distinct from existing sources and patterns of funding for arts and culture in
India.
 It aims at inviting individuals as well as private institutions in the task of promoting,
protecting and preserving India’s cultural heritage.
 It is managed and administered by council headed by Union Culture Minister and decides
the policies.
 Its Executive Committee is headed by Secretary, Ministry of Culture which actualizes
those policies.
 All projects undertaken by NCF are completed within specified period in accordance with
MoU signed by it with concerned donor organization.
 Union Government had granted one-time corpus fund to NCF, apart from this, there is
no fund allocated to it from government.
 It receives contributions and voluntary donations as endowments from many other sources.
 Donations and contributions to NCF are eligible for 100% tax deduction under Income
Tax Act, 1961 subject to limits and conditions prescribed.
National Disaster Response Fund
 National Disaster Response Fund is defined in Section 46 of the Disaster Management

Act, 2005 (DM Act) as a fund managed by the Central Government for meeting the
expenses for emergency response, relief and rehabilitation due to any threatening disaster
situation or disaster.
 NDRF is constituted to supplement the funds of the State Disaster Response Funds
(SDRF) of the states to facilitate immediate relief in case of calamities of a severe nature.
 The DM Act defines “disaster” to mean ‘a catastrophe, mishap, calamity or grave
occurrence in any area, arising from natural or man-made causes, or by accident or
negligence which results in substantial loss of life or human suffering or damage to, and
destruction of, property, or damage to, or degradation of, environment, and is of such a
nature or magnitude as to be beyond the coping capacity of the community of the affected
area.’
 The July 2015 guidelines states that natural calamities of cyclone, drought, earthquake,
fire, flood, tsunami, hailstorm, landslide, avalanche, cloud burst, pest attack and cold wave
and frost considered to be of severe nature by Government of India (GoI) and requiring
expenditures by a state government in excess of the balances available in its own SDRF
will qualify for immediate relief assistance from NDRF.
 In the event of a disaster of ‘a severe nature’, in which the funds needed for relief
operations exceeded the balances in the SDRF account, additional assistance would be
provided from the NDRF after following prescribed procedures.
 The financial assistance from SDRF/NDRF is for providing immediate relief and is not
compensation for loss/damage to properties /crops.
 In other words, NDRF amount can be spent only towards meeting the expenses for
emergency response, relief and rehabilitation.
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 For projects exclusively for the purpose of mitigation, i.e, measures aimed at reducing the
risk, impact or effect of a disaster or threatening disaster situation a separate fund called
National Disaster Mitigation Fund has to be constituted.
Features of NDRF
 The primary purpose of NDRF is to supplement the SDRF, in case there is a calamity of
“severe nature” which requires assistance over and above the funds available under SDRF.
 NDRF is located in the “Public Accounts” of Government of India under “Reserve Funds
not bearing interest”
National Investment Fund
 Started in 2005
 Proceeds from disinvestment of Central Public Sector Enterprises were to be channelized
in NIF
 The corpus of the fund was to be of permanent nature and the same was to be
professionally managed in order to provide sustainable returns to the Government,
without depleting the corpus.
 NIF was to be maintained outside the Consolidated Fund of India
 Selected Public Sector Mutual Funds will be entrusted with the management of the corpus
of the Fund
 Earlier, 75% of the annual income of the Fund will be used to finance selected social
sector schemes, which promote education, health and employment. The residual 25% of
the annual income of the Fund will be used to meet the capital investment requirements of
profitable and revivable CPSEs that yield adequate returns, in order to enlarge their capital
base to finance expansion/ diversification
 In 2013, these restrictions were relaxed as follows:
o Disinvestment proceeds would go into "Public Account"
o NIF now could be used for following purposes:
 Purchasing shares of CPSE to maintain 51% ownership
 Recapitalisation of PSBs
 Investment by Government in RRBs/IIFCL/NABARD/Exim
Bank
 Equity infusion in Metro projects
 Investment in Bhartiya Nabhikiya Vidyut Nigam Limited and
Uranium Corporation of India Ltd
 Investment in Railways towards capital expenditure
National Sports Development Fund
 The National Sports Development Fund (NSDF) was established in 1998.

 Supports sportspersons to excel in the field by providing opportunities to train under
coaches of international repute with technical, scientific and psychological support and
also in getting exposure to international competitions.
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 Financial assistance is also provided to specific projects for promotion of sports and
games sponsored by reputed Organizations/Institutes, provided the facilities so created
are made available to a sizeable population of the area/region.
 The office of NSDF is located in Shastri Bhavan in the Ministry of Youth Affairs and
Sports.
Objectives
 To administer and apply the money of the Fund for promotion of sports in general and
specific sports disciplines and individual sports persons in particular for achieving
excellence at the National and International level
 To impart special training and coaching in relevant sports disciplines to sports persons,
coaches and sports specialists
 To construct and maintain infrastructure for promotion of sports and games
 To supply sports equipment to organizations and individuals for promotion of sports and
games
 To identify problems and take up research and development studies for providing support
to excellence in sports
 To promote international cooperation, in particular, exchanges which may promote the
development of sports
 To provide low interest or interest free loans for projects and activities related to any of
the aforesaid objects.
Note:
 The Fund is managed by a Council constituted by the Central Government with the
Union Minister for Youth Affairs and Sports as Chairperson.
 The Members of the Council include senior officers in the Department of Sports/Sports
Authority of India.
 The day to day working of the Fund is managed by the Executive Committee.
National Urban Housing Fund (NUHF)
The Union Cabinet has approved creation of Rs. 60,000 crores National Urban Housing Fund
(NUHF) to finance Pradhan Mantri Awas Yojana (Urban) which aims to build 1.2 crore affordable
houses in urban areas by 2022.
Fund:
 NUHF will be placed under aegis of Building Materials and Technology Promotion
Council (BMTPC).
 It will be raised from non-budgetary sources and will tap into existing government entities
such as Housing and Urban Development Corp. (Hudco).
 NUHF will facilitate raising requisite funds in next four years and plug any budgetary
shortfalls.
 It will smoothly sustained and construction of houses to address gap in Urban Sector
progresses by maintaining flow of Central Assistance under different verticals i.e.
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Affordable Housing in Parternership (AHP), Beneficiary Linked Construction (BLC), In-

Situ Slum Redevelopment (ISSR) and Credit Linked Subsidy Scheme (CLSS).
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Rashtriya Arogya Nidhi (RAN)
Ministry/Department : Ministry of Health & Family Welfare
 Provides for financial assistance to patients, living below poverty line who is suffering
from major life threatening diseases, to receive medical treatment at any of the super
specialty hospitals/institutes or other Govt. hospitals
 The patient must be getting treatment in Government hospitals.
Rural Infrastructure Development Fund
 Operated by NABARD
 Gets money out of the priority sector lending shortfall of the banks
 Used in creation of infrastructure in agriculture and rural sectors across the country.
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Senior Citizen Welfare Fund
 Fund gets money from unclaimed deposits of Public Provident Fund PPF and Employee
Provident Fund EPF.
 The money in accounts which have been inoperative for more than seven years will be
diverted in this fund.
 However, if someone comes back to claim the money even after seven years, the payment
will be made after furnishing the required documents.
 The fund will be administered by an Inter-Ministerial Committee, headed by a
Chairperson.
 The Committee will be competent to spend money from the fund for satisfying various
objectives.
State Disaster Response Fund
 Under Disaster Management Act 2005, a financial mechanism has been set up by way of
National Disaster Response Fund (NDRF) at national level and State Disaster Response
Fund (SDRF) at state level to meet rescue and relief expenditure during any notified
disaster.
 SDRF has been constituted in each State in which Centre, so far, had been contributing
75% for General Category States and 90% for Special Category States of hilly regions
every year. Now, Central government will contribute 90% and all States will contribute
10% to the SDRF.
 SDRF is resource available to States to meet expenses of relief operations of immediate
nature, for range of specified disasters.
 At any point, State Government has fair amount of funds available under SDRF.
 In case of any natural calamity beyond coping capacity of State, additional financial
assistance is provided by Central Government from NDRF as per norms in which 100%
funding is by Central Government.
Swachh Bharat Cess
 Swachh Bharat Cess is not another tax but a step towards involving each and every citizen
in making contribution to Swachh Bharat
 Imposed in 2015
 Rate - 0.5% on all services, which are presently liable to service tax
 The proceeds from this cess will be exclusively used for Swachh Bharat initiatives
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Miscellaneous
Poppy Cultivation
 Uttar Pradesh, Rajasthan and Madhya Pradesh are the three traditional opium-growing
States, where poppy cultivation is allowed based on licences issued annually by the Central
Bureau of Narcotics.
 The Union government has decided to rope in the private sector to commence production
of concentrated poppy straw from India’s opium crop.
 Among the few countries permitted to cultivate the opium poppy crop for export and
extraction of alkaloids, India currently only extracts alkaloids from opium gum at facilities
controlled by the Revenue Department in the Finance Ministry.
 This entails farmers extracting gum by manually lancing the opium pods and selling the
gum to government factories.
 The Ministry has decided to switch to new technologies, after trial cultivation reports by
two private firms showed higher extraction of alkaloids using the concentrated poppy
straw (CPS).
 The move is planned to boost the yield of alkaloids used for medical purposes and
exported to several countries.
 It is likely to require amendments to the Narcotic Drugs and Psychotropic Substances
(NDPS) Act, 1985.
HSN Code
About HSN Code:

 The HSN Code is a six-digit identification code. The World Customs Organization
(WCO) developed this code in 1988.
 Purpose: It is an international nomenclature for the classification of products. It allows
participating countries to classify traded goods on a common basis for customs purposes.
 The code is also called the universal economic language for goods. It is a multipurpose
international product nomenclature.
 The HSN code currently comprises around 5,000 commodity groups. Each Code is a
unique six-digit code that has numbers arranged in a legal and logical structure. There are
well-defined rules to achieve uniform classification.
 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.
 Significance: HSN Code helps in harmonizing customs and trade procedures. Thus, it
reduces the costs of international trade.
Contingency Funds of RBI
RBI’s risk provision accounts: The RBI’s main risk provision accounts are-:
 Contingency Fund(CF):
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This is a specific provision meant for meeting unexpected and unforeseen

o
contingencies including:
o Depreciation in the value of securities,
o Risks arising out of monetary/exchange rate policy operations,
o Systemic risks and any risk arising on account of the special responsibilities
enjoined upon the Reserve Bank.
 Currency and Gold Revaluation Account(CGRA):
o It is maintained by the Reserve Bank to take care of currency risk, interest rate
risk and movement in gold prices.
o CGRA provides a buffer against exchange rate/ gold price fluctuations. It can
come under pressure if there is an appreciation of the rupee vis-à-vis major
currencies or a fall in the price of gold.
 Investment Revaluation Account Foreign Securities(IRA-FS):
o The unrealized gains or losses on revaluation in foreign dated securities are
recorded in the IRA-FS account.
 Investment Revaluation Account-Rupee Securities(IRA-RS):
o The unrealized gains or losses on revaluation is accounted for in Investment
Revaluation Account-Rupee Securities(IRA-RS).
Blank-cheque company
About Blank-cheque Company:

 A Special Purpose Acquisition Company (SPAC), or a blank-cheque company, is an
entity specifically set up with the objective of acquiring a firm in a particular sector.
 The aim of this SPAC is to raise money in an Initial Public Offering (IPO), and at this
point in time, it does not have any operations or revenues.
 Once the money is raised from the public, it is kept in an escrow account, which can be
accessed while making the acquisition.
 If the acquisition is not made within two years of the IPO, the SPAC is delisted and the
money is returned to the investors.
Significance:
 These are attractive to investors, despite them essentially being shell companies, as the
blank-cheque companies are people sponsoring.
 It is a fresh way of thinking of how to structure and exit versus an expensive IPO.
The money is already raised by somebody who specialises in that area, and is now picking
those assets and building on them.
Type of Trade Agreements
Free Trade Agreement (FTA):

 A free trade agreement is an agreement in which two or more countries agree to provide
preferential trade terms, tariff concession etc. to the partner country.
 India has negotiated FTA with many countries e.g. Sri Lanka and various trading blocs as
well e.g. ASEAN.
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Preferential Trade Agreement (PTA):

 In this type of agreement, two or more partners give preferential right of entry to certain
products. This is done by reducing duties on an agreed number of tariff lines.
 Tariffs may even be reduced to zero for some products even in a PTA. India signed a
PTA with Afghanistan.
Comprehensive Economic Partnership Agreement (CEPA):

 Partnership agreement or cooperation agreement are more comprehensive than an FTA.
 CEPA covers negotiation on the trade in services and investment, and other areas of
economic partnership.
 India has signed CEPAs with South Korea and Japan.
Comprehensive Economic Cooperation Agreement (CECA):

 CECA generally covers negotiation on trade tariff and TRQ (Tariff Rate Quotas)
rates only. It is not as comprehensive as CEPA. India has signed CECA with Malaysia.
Currency Swap Facility
What is a Currency Swap Facility?

 The term swap means exchange. Under this agreement, two contracting countries loan
each other a specified amount in local currencies.
 The parties agree to swap back this amount at a specified date. It uses the same exchange
rate as agreed initially.
 This facility uses the local currencies of the countries under agreement. Thus, it eliminates
the need for the currency of any other country like US Dollars.
Benefits of Currency Swap facility:
 The swap operations carry no exchange rate or other market risks. The transaction terms
are set in advance.
 It reduces the need of maintaining foreign exchange reserves for bilateral trade. Thus, it
promotes bilateral trade.
 Hence, it ensures financial stability (protecting the health of the banking system).
Examples of Currency Swap Arrangement:

 India-Japan Currency Swap:
o In 2018, India and Japan had signed a bilateral currency swap agreement.
o Under this, RBI will get a certain amount of yen or dollars and the Bank of
Japan will get an equivalent amount in Indian rupees on a decided swap rate.
o After a specified period, both the countries will repay the amount at the same
swap rate.
 SAARC Currency Swap Framework 2019-22:
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It came into operation in 2012. In 2019, the RBI revised the framework from
o
2019-2022. Under this, RBI will continue to offer swap arrangement within
the overall corpus of USD 2 billion.
o The currency swap facility will be available to all SAARC member countries
subject to their signing the bilateral swap agreements.
o Based on the terms and conditions of the framework, the RBI would enter
into bilateral swap agreements with SAARC central banks who want to avail
swap facility.
o The drawls can be made in US Dollars, Euro, or Indian Rupee. The
framework also provides certain concessions for swap drawals in Indian
Rupee.
 The Central Bank of Sri Lanka(CBSL) has settled a $400 million currency swap facility
from the Reserve Bank (RBI) of India.
Economic Survey
 The Department of Economic Affairs, Ministry of Finance presents the Economic Survey
of India in Parliament every year, just before the Union Budget.
 This document is submitted to both houses of Parliament during the Budget Session.
 The Economic Survey reviews the developments in the Indian economy over the previous
12 months.
 It highlights the policy initiatives of the government, summarizes the performance on
major development programs, and shows the growth prospects of the economy.
Domestically Systemically Important Insurers
Domestic Systemically Important Insurers

 The Life Insurance Corporation of India (LIC), General Insurance Corporation of
India and The New India Assurance Co have been identified as Domestic Systemically
Important Insurers (D-SIIs) for 2020-21 by Insurance Regulatory and Development
Authority of India (IRDAI).
 D-SIIs refer to insurers of such size, market importance and domestic and global
interconnectedness whose distress or failure would cause a significant dislocation in the
domestic financial system.
 IRDAI, just like the banking regulator RBI did to identify such “too big to fail” banks
and NBFCs, had endeavoured to identify such companies in the insurance business in the
March of 2019, in the aftermath of the collapse of IL&FS which triggered a massive
liquidity crisis in the financial markets.
 The International Association of Insurance Supervisors (IAIS) has also asked all member
countries to have a regulatory framework to deal with Domestic-SIIs.
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FRBM Act
FRBM Act:
 FRBM Act is an act of the parliament that set targets for the Government of India to
establish financial discipline, improve the management of public funds, strengthen fiscal
prudence, and reduce its fiscal deficits.
 The Fiscal Responsibility and Budget Management (FRBM) Bill was introduced in the
parliament of India in the year 2000 by Atal Bihari Vajpayee Government for providing
legal backing to the fiscal discipline to be institutionalized in the country.
 Subsequently, the FRBM Act was passed in the year 2003.
Why was the FRBM Act passed?

The primary objective was the elimination of revenue deficit and bringing down the fiscal deficit. (RD
to 0% and FD to 3%)
The other objectives included:
 Introduction of a transparent system of fiscal management within the country
 Ensuring equitable distribution of debt over the years
 Ensuring fiscal stability in the long run
The act also intended to give the required flexibility to the Central Bank for managing inflation in
India.
Features of the FRBM Act

It was mandated by the act that the following must be placed along with the Budget documents
annually in the Parliament:
1. Macroeconomic Framework Statement
2. Medium Term Fiscal Policy Statement and
3. Fiscal Policy Strategy Statement
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.
Targets and Fiscal Indicators as per the FRBM Act

The central government agreed to the following fiscal indicators and targets, after the enactment of the
FRBMA
 Revenue deficit to be eliminated by the 31st of March 2009. A minimum annual
reduction of 0.5% of GDP.
 Fiscal Deficit to be brought down to at least 3% of GDP by 31st of March 2008. A
minimum annual reduction – 0.3% of GDP.
 Total Debt to be reduced to 9% of the GDP (a target increased from the original 6%
requirement in 2004–05). An annual reduction of – 1% of GDP.
 The purchase of government bonds by RBI must cease from 1 April 2006.
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Note: Many questions have been asked on FRBM Act. So, read carefully. Also, this can be extensively
used in answers related to fiscal management.
Currency Manipulator Monitoring List
 The United States has added India along with Taiwan and Thailand to the ‘monitoring
list’ of currency manipulating countries that includes major trading partners like China
and six others.
 India had been included in the watch list in 2018 and it was removed in 2019. So it is not
the first time.
 Definition of Currency Manipulator: The US Treasury department defines currency
manipulation as when countries deliberately influence the exchange rate between their
currency and the US dollar to gain unfair competitive advantage in international trade.
 Criteria: To be labelled a manipulator by the U.S. Treasury, countries must
o At least have a $20 billion-plus bilateral trade surplus with the U.S.
o Foreign currency intervention exceeding 2% of gross domestic product and
o Global current account surplus exceeding 2% of GDP.
 Implications:
o Once a country is designated as a currency manipulator by the U.S., the next
step taken by the US government is to seek negotiations with the government
accused of manipulation.
o The surge of global liquidity added by global central banks have led to strong
inflows into emerging economies like India.
o In the past, a sudden appreciation in the rupee had led to disruptive
corrections.
o To prevent this sudden appreciation, the RBI has absorbed a large chunk of
forex inflows.
o With India on the watchlist, it could lead to RBI being somewhat guarded on
aggressive forex intervention.
Diversity Requirements for Indian Companies
Requirement under Companies Act:

 All public companies which are listed on stock exchanges and companies with either a
paid-up capital of Rs 100 crore or annual turnover over Rs 300 crore are required to have
at least one woman board member under the Companies Act.
SEBI Requirement:
 The Securities and Exchange Board of India(SEBI) further requires, from April 1, 2020,
that the top 1000 listed companies by market capitalization have a woman board member
who is also an independent director.
Compliance Status:
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According to the data compiled by Institutional Investor Advisory Services(IiAS), 17% of directors in
the Nifty 500 companies were women as of the end of the last fiscal with the exception of several
public sector enterprises(PSEs).
Why in news?
NASDAQ stock exchange in the US may soon require all companies listed to include at least one
female board member as well as one member from a racial minority group or from the LGBTQ
community on their board of directors.
Project Kirana
 United States Agency for International Development (USAID) and MasterCard has
launched Project Kirana.
 Purpose: It is a two-year project that will focus on increasing revenue streams, expanding
financial inclusion and improving digital payments adoption of kirana shops that are
owned or operated by women.
Reserve Bank Innovation Hub(RBIH)
Reserve Bank of India(RBI) has announced the setting up of an Innovation Hub under the
chairmanship of Kris Gopalakrishnan. It has also selected two entities for testing products under
regulatory sandbox structure.
Facts:
 Aim: To create an ecosystem that would focus on promoting access to financial services
and products and will also promote financial inclusion.
 Features:
o The Hub will collaborate with financial sector institutions, technology
industry and academic institutions and coordinate efforts for exchange of
ideas and development of prototypes related to financial innovations.
o It would also develop internal infrastructure to promote fintech research and
facilitate engagement with innovators and start-ups.
Additional Facts:
 Regulatory Sandbox: It is an infrastructure that helps financial technology (FinTech)
players live test their products or solutions before getting the necessary regulatory
approvals for a mass launch.
International Financial Services Centres Authority (Banking) Regulations, 2020.
News: International Financial Services Centres Authority(IFSCA) has approved the

International Financial Services Centres Authority (Banking) Regulations, 2020.
Facts:
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Salient Features of the Banking Regulations include:

 Laying down the requirements for setting up IFSC Banking Units (IBUs)
 Permitting persons resident outside India (having net worth not less than USD 1
Million) to open foreign currency accounts in any freely convertible currency at
IFSC Banking Units(IBUs)
 Laying down the permissible activities of IBUs which includes credit enhancement,
credit insurance, purchase of portfolios, engage in factoring and forfaiting of export
receivables and undertake equipment leasing, including aircraft leasing
 Permitting IFSCA to determine business that a Banking Unit may be permitted to
conduct in INR with persons resident in India and persons resident outside India.
More Facts:
 IFSC Banking Units(IBUs): It is equivalent to an Overseas Branch for all practical

purposes.It facilitates a base for world class International Banking services in the
country.
 IFSCA: It was established to regulate the financial services market in the
International Financial Services Centres set up under the Special Economic Zones
Act, 2005.
New Guidelines for Digital News Platforms.
News: The Central Government has announced new guidelines for digital news platforms.
Facts:
 Who will these guidelines apply to: The guidelines will be applicable to the
following categories of entities registered or located in India:
 Digital media entities which streams/uploads news and current affairs on websites,
apps or other platforms.
 News agency which gathers, writes and distributes/transmits news, directly or
indirectly, to digital media entities and/or news aggregators.
 News aggregator: It is an entity which uses software of web applications to aggregate
news content from various sources, such as news websites, blogs, podcasts, video
blogs, user submitted links in one location.
 What are the Guidelines for Digital Media?
 The government has put emphasis on compliance to the 26% Foreign Direct
Investment(FDI) cap under the government approval route in digital media.
 26% FDI through the government approval route in the digital media sector was
brought in 2019.FDI in print media is capped at 26% and that in TV news is 49%.
 The majority of the directors on the company’s board and the Chief Executive
Officer(CEO) of the company would have to be an Indian citizen.
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 All foreign employees working for more than 60 days would need security
clearance.If the government denies or withdraw security clearance, the digital media
company will ensure that the concerned person resigns or his/her services are
terminated.

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Co-Lending Model Scheme
News: Reserve Bank of India has announced the Co-Lending Model (CLM) scheme which
is an improvement over the co-origination of loan scheme announced by the RBI in 2018
which seeks to provide greater flexibility to the lending institutions.
Facts:
 CLM Scheme: It aims to improve the flow of credit to the unserved and underserved
sector of the economy.
 Features of the scheme:
 Under CLM, banks will be able to co-lend with all registered NBFCs (including
HFCs) to the priority sector borrowers based on a prior agreement.
 However, Banks cannot enter into a co-lending arrangement with an NBFC
belonging to the promoter group.
 NBFCs shall also be required to retain a minimum of 20% share of the individual
loans on their books.
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About Priority Sector lending(PSL):

 It means those sectors which the Government and RBI consider as important for the
development of the basic needs of the country and are to be given priority over other
sectors.The banks are mandated to encourage the growth of such sectors with
adequate and timely credit.
 Under this, Commercial banks including foreign banks are required to mandatorily
earmark 40% of the adjusted net bank credit for priority sector lending.Regional
rural banks and small finance banks will have to allocate 75% of adjusted net bank
credit to PSL.
 Categories:
a) Agriculture
b) Micro, Small and Medium Enterprises
c) Export Credit
d) Education
e) Housing
f) Social Infrastructure
g) Renewable Energy
h) Startups among others.
Delhi–Meerut Regional Rapid Transit System (RRTS)
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The first look of India’s first RRTS train on Delhi-Ghaziabad-Meerut corridor has been unveiled.
About the RRTS train
 The Delhi–Meerut RRTS is an 82.15 km long, under-construction, semi-high speed rail
corridor connecting Delhi-Ghaziabad-Meerut.
 It is one of the three rapid-rail corridors planned under Phase-I of Regional Rapid
Transport System (RRTS) project of National Capital Region Transport Corporation
(NCRTC).
 With a maximum speed of 160 km/h (99.42 mph), the distance between Delhi and
Meerut will be covered in around 62 min (1.03 h).
 With radiating stainless steel outer body, these aerodynamic RRTS trains will be
lightweight and fully air-conditioned.
 Each car will have six automatic plug-in type wide doors, three on each side for ease of
access and exit.
CAROTAR 2020 Rules
The Customs (Administration of Rules of Origin under Trade Agreements) Rules, 2020
(CAROTAR, 2020) shall come into force from September 21.
CAROTAR rules
 Importers will have to do their due diligence to ensure that imported goods meet the
prescribed ‘rules of origin’ provisions.
 This is the essential availing concessional rate of customs duty under free trade agreements
(FTAs).
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 A list of minimum information, which the importer is required to possess, has also been
provided in the rules along with general guidance.
 Also, an importer would now have to enter certain origin related information in
 the Bill of Entry, as available in the Certificate of Origin.
Why need CAROTAR

 CAROTAR 2020 supplements the existing operational certification procedures
prescribed under different trade agreements.
 India has inked FTAs with several countries, including Japan, South Korea and ASEAN
members.
 Under such agreements, two trading partners significantly reduce or eliminate
import/customs duties on the maximum number of goods traded between them.
 The new rules will assist customs authorities in the smooth clearance of legitimate imports
under FTAs.
Its significance
 The ASEAN FTA allows imports of most items at nil or concessional basic customs duty
from the 10-nation bloc.
 Major imports to India come from five ASEAN countries — Indonesia, Malaysia,
Thailand, Singapore and Vietnam.
 The benefit of concessional customs duty rate applies only if an ASEAN member country
is the country of origin of goods.
 This means that goods originating from China and routed through these countries will
not be eligible for customs duty concessions under the ASEAN FTA.
What are SAROD-Ports?
Union Ministry of Shipping has e-launched ‘SAROD-Ports’ (Society for Affordable Redressal of
Disputes – Ports).
SAROD Ports
SAROD-Ports are established under the Societies Registration Act, 1860 with the following
objectives:
1. Affordable and timely resolution of disputes in a fair manner
2. Enrichment of Dispute Resolution Mechanism with the panel of technical experts as
arbitrators.
 They consist of members from the Indian Ports Association (IPA) and Indian Private
Ports and Terminals Association (IPTTA).
 They will advise and assist in settlement of disputes through arbitrations in the maritime
sector, including ports and shipping sector in Major Port Trusts, Non-major Ports,
including private ports, jetties, terminals and harbours.
 It will also cover disputes between granting authority and Licensee/Concessionaire
/Contractor.
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Open Credit Enablement Network (OCEN) Protocol
Open Credit Enablement Network (OCEN)

 OCEN is a credit protocol infrastructure, which will mediate the interactions between
loan service providers, usually fintech and mainstream lenders, including all large banks
and NBFCs.
 It is developed by a think tank, Indian Software Products Industry Round Table
(iSPIRT).
 With this, a credit will become more accessible for a large number of entrepreneurs and
small businesses in the country.
 Private equity and venture capital players, angel investors, high net worth individuals and
others also could be part of this exercise as investors.
How will it work?

 iSpirit is partnering with key leaders such as SBI, HDFC Bank Ltd., ICICI Bank Ltd.,
IDFC First Bank Ltd., Axis Bank Ltd. etc. for this new credit rail.
 Account Aggregators which will be using these APIs to embed credit offerings in their
applications, and will be called ‘Loan Service Providers’, which will play a crucial role in
democratizing access to credit, and lowering interest rates for customers.
Why need OCEN?

 The cost of lending being too high in India, small value loans becomes very unfeasible.
 OCEN which seeks to connect lenders to marketplaces and thereby to borrowers is a
technology system.
 If implemented, the technology can democratize lending to micro-enterprises and street
vendors in a big way.
‘Act of God’
Amid disruptions caused by Covid-19, the Finance Minister has referred to an Act of God while
businesses are looking at a legal provision, force majeure, to cut losses.
Note the key differences between the Act of God and Force Majeure.
Evoking “Act of God”
 The force majeure or “Act of God” clause has its origins in the Napoleonic Code.
 The finance ministry had issued an office memorandum inviting attention to the force
majeure clause (FMC) in the 2017 Manual for Procurement of Goods issued by the
Department of Expenditure.
 It clarified that the pandemic should be considered a case of natural calamity and FMC
may be invoked, wherever considered appropriate.
What is a force majeure clause?

 The law of contracts is built around a fundamental norm that the parties must perform
the contract.
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 When a party fails to perform its part of the contract, the loss to the other party is made
good.
 However, the law carves out exceptions when the performance of the contract becomes
impossible for the parties.
 A force majeure clause is one such exception that releases the party of its obligations to an
extent when events beyond their control take place and leave them unable to perform their
part of the contract.
 FMC is a clause that is present in most commercial contracts and is a carefully drafted
legal arrangement in the event of a crisis.
 When the clause is triggered, parties can decide to break from their obligations
temporarily or permanently without necessarily breaching the contract.
 Companies in such situations use the clause as a safe exit route, sometimes in
opportunistic ways, without having to incur the penalty of breaching the contract.
Difference between the two

 Both concepts elicit the same consequences in law.
 Generally, an “Act of God” is understood to include only natural unforeseen
circumstances, whereas force majeure is wider in its ambit and includes both naturally
occurring events and events that occur due to human intervention.
What situations legally qualify for use of force majeure?

 While some contracts have clauses with standard circumstances, some contracts would
have specific circumstances that are more focused.
 For example, a shipping contract would have a force majeure clause that could cover a
natural disaster like a tsunami.
 If an event is not described, then it is interpreted in a way that it falls in the same category
of events that are described.
 An FMC is negotiated by parties, and events that could potentially hamper the
performance of the contract are catalogued.
 It is not invoked just by expressing that an unforeseen event has occurred.
 In case a contract does not have a force majeure clause, there are some protections in
common law that can be invoked by parties.
 For example, the Indian Contract Act, 1872 provides that a contract becomes void if it
becomes impossible due to an event after the contract was signed that the party could not
prevent.
Global precedents dealing with COVID-19 pandemic

 In China, where the Covid-19 outbreak originated, the Council for Promotion of
International Trade is issuing force majeure certificates to businesses.
 China’s Supreme People’s Court had recognised the 2002 SARS outbreak as a force
majeure event.
 Singapore enacted the Covid-19 (Temporary Measures) Act in April to provide relief to
businesses that could not perform their contractual obligations due to the pandemic.
 The Paris Commercial Court in July ruled that the pandemic could be equated to a force
majeure event.
_______________________________________________________________
 In the UK, the Financial Conduct Authority has brought in a test case before the High
Court to look into business insurance contracts and interpret the standard wordings in
such contracts.
 The International Chamber of Commerce has developed a Model Code on the force
majeure clause reflecting current international practice.
GIS-enabled Land Bank System
A prototype of the National GIS-enabled Land Bank System was e-launched by Commerce and
Industry Ministry for six States based on which land can be identified for setting up industries.
Land Bank System

 The system has been developed by the Integration of Industrial Information System (IIS)
with state GIS (Geographic Information System).
 IIS portal is a GIS-enabled database of industrial clusters/areas across the states.
 On the system, more than 3,300 industrial parks across 31 states/UTs covering about
4,75,000 hectares of land have also been mapped out on the system.
 The information available on the system will include drainage, forest; raw material heat
maps (horticulture, agricultural, mineral layers); multilayer of connectivity.
 IIS has adopted a committed approach towards industrial upgrading, resource
optimization, and sustainability.
Various stakeholders
 The initiative has been supported by the National e-Governance Division (NeGD),
National Centre of Geo-Informatics (NCoG), Invest India, Bhaskaracharya Institute for
Space Applications and Geo-Informatics (BISAG), and Ministry of Electronics and
Informational Technology.
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RBI’s Positive Pay system
The new ‘Positive Pay’ mechanism was recently introduced by the Reserve Bank of India
(RBI).
What is the move?
 Issuers will be able to send all details to their bank, thereby ensuring faster clearance
of cheques above Rs 50,000.
 All cheques will be processed as per the information sent by the account holder at
the time of issuance of cheques.
 This will cover approximately 20 per cent of transactions by volume and 80 per cent
by value.
 It will make cheque payments safer and reduces instances of frauds.
What is Positive Pay Mechanism?

 Positive Pay is a fraud detection tool adopted by banks to protect customers against
forged, altered or counterfeit cheques.
 It crosses verifies all details of the cheque issued before funds are encashed by the
beneficiary.
 In case of a mismatch, the cheque is sent back to the issuer for examination.
 By following such a system, a bank knows of a cheque being drawn by the customer
even before it is deposited by the beneficiary into his/her account.
How does the mechanism work?

 Under Positive Pay feature, the issuer will first share the details of the issued cheque
like cheque number, date, name of the payee, account number, amount and the likes
through his/her net banking account.
 Along with this, an image of the front and reverse side of the cheque is also required
to be shared, before handing it over to the beneficiary.
 When the beneficiary submits the cheque for encashment, the details are compared
with those provided to the bank through Positive Pay.
 If the details match, the cheque is honoured. However, in the case of mismatch, the
cheque is referred to the issuer.
 In this way, any cheque where any sort of fraud has happened cannot be cleared at all
and hence, a depositor’s money can be protected.
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Business Responsibility Report
In efforts to have a single source for all non-financial disclosures by corporates, a government-
appointed panel has made various proposals on business responsibility reporting, including putting in
place two formats for disclosing information.
What is the Business Responsibility Report (BRR)?
 Business Responsibility Report is a disclosure of the adoption of responsible business
practices by a listed company to all its stakeholders.
 This is important considering the fact that these companies have accessed funds from the
public, have an element of public interest involved, and are obligated to make exhaustive
disclosures on a regular basis.
 BSR is to be submitted as a part of the Annual Report.
 It contains a standardized format for companies to report the actions undertaken by them
towards the adoption of responsible business practices.
 It has been designed to provide basic information about the company, information related
to its performance and processes, and information on principles and core elements of the
BSR.
SEBI recommendations for BSR

 As per the report, reporting may be done by top 1,000 listed companies in terms of their
market capitalization or as prescribed by markets regulator SEBI.
 The reporting requirement may be extended by MCA (Ministry of Corporate Affairs) to
unlisted companies above specified thresholds of turnover and/ or paid-up capital.
 The panel has suggested two formats for disclosures — a comprehensive format and a
“lite version” — and also called for the implementation of the reporting requirements in a
gradual and phased manner.
 Smaller unlisted companies may adopt a lite version of the format, on a voluntary basis.
ASPIRE Portal
The International Centre for Automotive Technology (ICAT) is developing a technology platform for
the automotive industry called ASPIRE – Automotive Solutions Portal for Industry, Research and
Education.
ASPIRE Portal
 The key objective of this portal is to facilitate the Indian Automotive Industry to become
self-reliant by assisting in innovation and adoption of global technological advancements.
 It aims to bring together the stakeholders from various associated avenues.
 This includes bringing together the automotive OEMs, Tier 1 Tier 2 & Tier 3 companies,
R&D institutions and academia (colleges & universities) on matters involving technology
advancements.
 The activities would include R&D, Product Technology Development, Technological
Innovations, Technical and Quality Problem Resolution for the industry, Manufacturing
and Process Technology Development etc.
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 Apart from acting as a solution and resource platform, the portal will also host grand
challenges in line with the need of the industry as will be identified from time to time, for
development of key automotive technologies.
About ICAT
 International Centre for Automotive Technology (ICAT) is located at Manesar in
Gurugram district of Haryana.
 It is a govt entity owned by the Ministry of Heavy Industries.
 It has facilities for vehicle homologation and also testing laboratories for noise, vibration
and harshness (NVH) and passive safety.
 It also includes a powertrain laboratory, engine dynamometers, emission laboratory with
Euro-V capability, a fatigue laboratory, passive safety laboratory, and vehicle test tracks.
Google for India Digitization Fund (GIDF)
Technology giant Google will invest $10 billion (₹75,000 crores) in India as part of the ‘Google for
India Digitization Fund (GIDF)’.
About GIDF
 The GIDF focuses on digitizing the economy and building India-first products and
services.
 The plan is in line with big-tech’s bullish outlook on India. Earlier this year, Amazon said
it would invest an additional $1 billion in India.
 This was followed by a marquee investment announcement of $5.7 billion by Facebook in
the country’s largest telecom company Reliance Jio.
 Last month, Microsoft’s venture fund M12 said it would open an office in India to pursue
investment opportunities focusing on B2B software startups.
Focus areas
The investment will focus on four areas important to digitization including:
 Enabling affordable access and information for every Indian in their own language,
 Building products and services that are deeply relevant to India’s unique needs,
 Empowering businesses in their digital transformation journey and
 Leveraging technology and AI for social good, in areas like health, education, and
agriculture.
Rewa Solar Project
The PM has inaugurated the 750 MW Solar Project set up at Rewa, Madhya Pradesh.
Rewa Solar Project
 This project comprises of three solar generating units of 250 MW each located on a 500-
hectare plot of land situated inside a Solar Park (total area 1500 hectare).
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 The Solar Park was developed by the Rewa Ultra Mega Solar Limited (RUMSL), a Joint
Venture Company of Madhya Pradesh Urja Vikas Nigam Limited (MPUVN), and Solar
Energy Corporation of India (SECI), a PSU.
 The Project was the first solar project in the country to break the grid parity barrier.
 This project will reduce carbon emission equivalent to approx. 15 lakh ton of CO2 per
year.
Tariff management
 Compared to prevailing solar project tariffs of approx. Rs. 4.50/unit in early 2017, the
Rewa project achieved historic results.
 It has a first-year tariff of Rs. 2.97/unit with a tariff escalation of Rs. 0.05/unit over 15
years and a levelized rate of Rs. 3.30/unit over the term of 25 years.
Significance of the project
 The project is also the first renewable energy project to supply to an institutional
customer outside the State.
 The Delhi Metro will get 24% of energy from the project with the remaining 76% being
supplied to the State DISCOMs of Madhya Pradesh.
 The Project also exemplifies India’s commitment to attaining the target of 175 GW of
installed renewable energy capacity by the year 2022; including 100 GW of solar installed
capacity.
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Kozhikode-Wayanad Tunnel Project
Kerala CM has launched a tunnel road project that would connect Kozhikode with Wayanad.
Kozhikode-Wayanad Tunnel Project
 The 7-km tunnel, being described as the third-longest in the country, is part of an 8-km
road cutting through sensitive forests and hills of the Western Ghats.
 Its endpoints are at Maripuzha in Thiruvambady village panchayat (Kozhikode) and
Kalladi in Meppadi panchayat (Wayanad).
 The tunnel is an outcome of a decades-long campaign for an alternative road as the
Thamarassery Ghat Road is congested and gets blocked by landslides during heavy
monsoon.
How will the road impact the ecology?

 The Forest Department has identified the proposed route as a highly sensitive patch
comprising evergreen and semi-evergreen forests, marshlands and shola tracts.
 This region is part of an elephant corridor spread between Wayanad and Nilgiri Hills in
Tamil Nadu.
 Two major rivers, Chaliyar and Kabani that flows to Karnataka, originate from these hills
in Wayanad.
 Eruvazhanjipuzha, a tributary of Chaliyar and the lifeline of settlements in Malappuram
and Kozhikode, begins in the other side of the hills.
 The region, known for torrential rain during the monsoon, has witnessed several landslides,
including in 2019 at Kavalappura near Nilambur and at Puthumala, Meppadi in Wayanad.
Environmental clearance issues

 Proponents of the project have been stressing that the tunnel will not destroy forest (trees).
 The MoEFCC guidelines state that the Forest Act would apply not only to surface area
but the entire underground area beneath the trees.
 For tunnel projects, conditions relating to underground mining would be applicable.
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 As the proposed tunnel is 7 km long, it will require emergency exit points and air
ventilation wells among other measures, which would impact the forest further.
Next Generation Treasury Application (NGTA)
In a bid to improve its functioning, the RBI has decided to move to the Next Generation Treasury
Application (NGTA) for managing the country’s foreign exchange and gold reserves.
What is NGTA?
 The NGTA, according to the RBI, would be a web-based application providing scalability,
manoeuvrability and flexibility to introduce new products and securities, besides
supporting multi-currency transactions and settlements.
 It would be supporting various transactions in asset classes like Fixed Income (FI), Forex
(FX), Money Market (MM) and Gold.
 It would be used for managing the foreign exchange reserves in a more efficient way,
mitigate risk, achieve operational efficiencies, dealing in various asset classes and reporting.
Objectives of NGTA
The objectives of the proposed system include:
 dealing in various asset classes (like Fixed Income Securities, Forex, Money Market, Gold);
 portfolio management; workflow management; reserve management;
 integration with various third-party and in-house systems; and dashboards, reports,
widgets.
Features of NGTA
 The NGTA shall automatically fetch all the relevant details of a security/contract from a
trading platform.
 It shall support all internationally accepted conventions pertaining today count, interest
computation, holiday logic, shut period-dividend, ex-dividend, cash flows, and odd
coupon.
 With respect to transactions in gold, the NGTA shall support purchase, sale, deposit
(including rollover and premature withdrawal).
 On maturity of a gold deposit, there can be exact, under or over delivery.
Forex Reserves
 Reserve Bank of India Act and the Foreign Exchange Management Act, 1999 set the legal
provisions for governing the foreign exchange reserves.
 RBI accumulates foreign currency reserves by purchasing from authorized dealers in open
market operations.
 The Forex reserves of India consist of below four categories:
1. Foreign Currency Assets
2. Gold
3. Special Drawing Rights (SDRs)
4. Reserve Tranche Position
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 The IMF says official Forex reserves are held in support of a range of objectives like
supporting and maintaining confidence in the policies for monetary and exchange rate
management including the capacity to intervene in support of the national or union
currency.
 It will also limit external vulnerability by maintaining foreign currency liquidity to absorb
shocks during times of crisis or when access to borrowing is curtailed.
External Debt
 External debt data is released by RBI.

 India’s external debt stood at $558.5 billion in March 2020, an increase of $15.4 billion
compared with the year-ago period.
 Commercial borrowings remained the largest component of the external debt, with a share
of 39.4%, followed by non-resident deposits at 23.4% and short-term trade credit at
18.2%.
 Commercial borrowings > NRI Deposits > Short-term credit
 Appreciation of US dollar against Indian Rupee also impacts external debt.
 At the end of March, long-term debt, with an original maturity of above one year, saw a
rise of $17 billion over the level recorded in March 2019.
 U.S. dollar-denominated debt continued to be the largest component of India’s external
debt, with a share of 53.7% at end-March 2020, followed by the Indian rupee (31.9%),
yen (5.6%), SDR (4.5%) and the euro (3.5%).
 US Dollar > Indian Rupee > Yen > SDR > Euro
Forex Reserves hit a record high
India’s foreign exchange reserves touched a lifetime high of $555.12 billion, according to RBI data.
What are Forex Reserves?
 Reserve Bank of India Act and the Foreign Exchange Management Act, 1999 set the legal
provisions for governing the foreign exchange reserves.
 RBI accumulates foreign currency reserves by purchasing from authorized dealers in open
market operations.
 The Forex reserves of India consist of below four categories:
1. Foreign Currency Assets
2. Gold
3. Special Drawing Rights (SDRs)
4. Reserve Tranche Position
 The IMF says official Forex reserves are held in support of a range of objectives like
supporting and maintaining confidence in the policies for monetary and exchange rate
management including the capacity to intervene in support of the national or union
currency.
 It will also limit external vulnerability by maintaining foreign currency liquidity to absorb
shocks during times of crisis or when access to borrowing is curtailed.
_______________________________________________________________
Where are India’s forex reserves kept?

 The RBI Act, 1934 provides the overarching legal framework for the deployment of
reserves in different foreign currency assets and gold within the broad parameters of
currencies, instruments, issuers and counterparties.
 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 and 7.4 per cent is also deposited in
commercial banks abroad.
 In value terms, the share of gold in the total foreign exchange reserves increased from
about 6.14 per cent as at end-September 2019 to about 6.40
Rising above the 1991 crisis

 Unlike in 1991, when India had to pledge its gold reserves to stave off a major financial
crisis, the country can now depend on its soaring Forex reserves to tackle any crisis on the
economic front.
 The level of Forex reserves has steadily increased by 8,400 per cent from $5.8 billion as of
March 1991 to the current level.
Natural gas to come under GST
Officials have indicated that the government is considering bringing natural gas under the ambit of the
GST regime.
Why such demands?
 Global energy MNCs have called on the government to bring natural gas under the GST
regime.
 Currently petrol, diesel, aviation turbine fuel, natural gas and crude oil fall outside India’s
Goods and Services Tax (GST) regime.
Why is it important to bring natural gas under the GST regime?

 Bringing natural gas under the GST would lead to a reduction in the cascading impact of
taxes on industries such as power and steel, which used natural gas as an input.
 This would do away with the central excise duty and different value-added taxes imposed
by states.
 This would lead to an increase in the adoption of natural gas in line with the government’s
stated goal to increase the share of natural gas in the country’s energy basket from 6.3% to
15%.
GST
 GST launched in India on 1 July 2017 is a comprehensive indirect tax for the entire
country.
 It is charged at the time of supply and depends on the destination of consumption.
 For instance, if a good is manufactured in state A but consumed in state B, then the
revenue generated through GST collection is credited to the state of consumption (state B)
and not to the state of production (state A).
_______________________________________________________________
Ghogha-Hazira Ferry Service
PM has virtually inaugurated the Ghogha-Hazira Ro-Pax ferry service in Gujarat.

Ghogha-Hazira Ferry Service
 It will work as a Gateway to South Gujarat and Saurashtra region. It will reduce the
distance between Ghogha and Hazira from 370 km to 90 km.
 It has a load capacity of 30 trucks (of 50 MT each) on the main deck, 100 passenger cars
on the upper deck and 500 passengers plus 34 crew and hospitality staff on the passenger
deck.
 The reduced cargo travel time from 10 to 12 hours to about four hours will result in huge
savings of fuel (approx 9,000 litres per day) and lower the maintenance cost of vehicles
drastically.
 The ferry service, while making three round trips per day on the route, would annually
transport about 5 lakh passengers, 80,000 passenger vehicles, 50,000 two-wheelers and
30,000 trucks.
Benefits
 It will reduce the fatigue of truck drivers and enhance their incomes by giving them more
opportunity to do extra trips.
 It will give an impetus to the tourism industry with ease of access to the Saurashtra region
and lead to the creation of new job opportunities.
 With the onset of ferry services, the port sector, furniture and fertilizer industries in
Saurashtra and Kutch region will get a big boost.
 Eco-tourism and religious-tourism in Gujarat, especially in Porbandar, Somnath, Dwarka
and Palitana will grow exponentially.
 The benefits of enhanced connectivity through this ferry service will also result in
increased inflow of tourists in the famous Asiatic lion wildlife sanctuary at Gir.
Bharat-22 ETF
 Bharat 22 is a well-diversified ETF spanning six sectors — basic materials, energy, finance,
industrials, FMCG and utilities.
 It was launched by Union Government to meet some part of its disinvestment target of Rs.
80,000 crore in current fiscal.
 In the index, highest weightage is given to Industrial Sector.
_______________________________________________________________
_______________________________________________________________
Bharatiya Nirdeshak Dravya (BND-4201)
 It is India's first home-grown high purity gold reference standard

 High purity gold reference standard has been developed through collaboration between
IGM, Bhabha Atomic Research Centre (BARC) — Council of Scientific & Industrial
Research-National Physical Laboratory (New Delhi) and National Centre for
Compositional Characterisation of Materials (Hyderabad).
 The gold reference standard is indispensable in gold and jewellery hall marking.
 This reference will also be useful for Collection and Purity Testing Centres to certify
purity of gold deposits under gold monetization scheme.
Significance:
 India despites being second largest markets for gold after China, goldsmiths in the country
were depended on imported reference gold bars (mostly imported was sourced from
Canada and Switzerland) to check purity of their biscuits, coins and jewellery.
 BND-4201 standard reference material will help to minimise dependency on foreign
countries and add to Make in India campaign, saving foreign exchange.
 The BND-4201 standard gold bar are 25% cheaper than the imported version.
 It will also help jewellers to move towards more instrumental methods rather than
conventional fire assay methods for testing purity of gold, which time consuming and
non-environment friendly as poisonous gases are released.
Fair and Remunerative Price (FRP)
 The FRP is the minimum price that sugar mills have to pay to sugarcane farmers.
 It is determined on basis of recommendations of Commission for Agricultural Costs and
Prices (CACP) and after consultation with State Governments and other stake-holders.
 The final FRP is arrived by taking into account various factors such as cost of production,
domestic and international prices, overall demand-supply situation, inter-crop price parity,
terms of trade prices of primary by-products and its impact on general price level and
resource use efficiency.
Financial Sector Assessment Programme
The FSAP includes two major components:

 a financial stability assessment, which is the responsibility of the IMF, and
 a financial development assessment, the responsibility of the World Bank.
Financial Sector Assessment Programme aims to:

 To gauge the stability and soundness of the financial sector.
 To assess its potential contribution to growth and development.
The Financial Sector Assessment Program (FSAP) is a comprehensive and in-depth analysis of a
country’s financial sector.
_______________________________________________________________
Fugitive Economic Offender
Declaration of the Fugitive Economic Offender

 According to the Fugitive Economic Offenders Act, 2018 a fugitive economic offender is
a person against whom an arrest warrant has been issued for his or her involvement in
economic offences involving at least Rs. 100 crore or more and has left India to avoid
prosecution.
 The investigating agencies have to file an application in a Special Court under the
Prevention of Money-Laundering Act, 2002 containing details of the properties to be
confiscated, and any information about the person’s whereabouts.
 The Special Court will issue a notice for the person to appear at a specified place and date
at least six weeks from the issue of notice.
 Proceedings will be terminated if the person appears. If not the person would be declared
as a Fugitive Economic Offender based on the evidence filed by the investigating agencies.
 The person who is declared as a Fugitive Economic Offender can challenge the
proclamation in the High Court within 30 days of such declaration according to the
Fugitive Economic Offenders Act, 2018.
Why in news?
 The Prevention of Money Laundering (PMLA) court in Mumbai has declared Vijay
Mallya as a Fugitive Economic Offender.
 Vijay Mallya is the first businessman to be charged under the new fugitive economic
offender’s act 2018.
GAFA Tax
 An acronym for Google, Apple, Facebook and Amazon.

 The French parliament recently imposed it.
 The legislation will impose a 3% levy on sales generated in the country by non-tax paying
online giants.
 France will be 1st major economy to impose a tax on internet heavyweights.
 At present, digital companies pay nearly no tax in countries where they have large sales like
France.
 Objective: To stop multinationals from avoiding taxes by setting up headquarters in low-
tax European Union (EU) countries.
 The tax would be applied only to companies with global revenues in excess of €500
million and revenue of at least €25 million from UK activities.
Hydrocarbon Exploration and Licensing Policy (HELP)
 Central Government had launched Hydrocarbon Exploration and Licensing Policy

(HELP) in March 2016, as a new policy regime for Exploration & Production (E&P) in
petroleum and natural gas sector.
_______________________________________________________________
 Its main features are Revenue Sharing Contract (RCS), single Licence for exploration and
production of conventional as well as unconventional hydrocarbon resources, marketing
and pricing freedom etc.
 Open Acreage Licensing Policy (OALP) is also main innovative feature under HELP
wherein investor can carve out blocks of their own interest and submit an expression of
interest (Eol) throughout year.
 Based on areas for which EoI has been expressed bidding is conducted every 6 months.
India INX
 It is India's first International Exchange

 It is in International Financial Service Centre (IFSC) of GIFT (Gujarat International
Financial Tech) City Gandhinagar, Gujarat
 India INX is a wholly-owned subsidiary of the Bombay Stock Exchange (BSE).
 It will enable Indian firms to compete on equal footing with offshore firms
 India INX will initially trade in equity derivatives, currency derivatives, commodity
derivatives including index and Stocks. Subsequently, it will offer depository receipts and
bonds once required infrastructure is ready
 It will work for 22 hours in a day working from sunrise to sunset i.e. starting when Japan
exchanges begin and close when US markets end.
 It will have 250 trading members including commodity and overseas brokers.
 India INX is one of the most advanced technology platforms with turnaround time of 4
seconds.
 It will facilitate international investors and NRIs to trade from anywhere in the world
 It will provide benefits in terms of waiver of security transaction tax, commodity
transaction tax, dividend distribution tax, long term capital gain tax and income tax.
Petro Crypto Currency
 Petro is a crypto currency launched by Venezuela

 The Petro aims to help Venezuela to advance in issues of monetary sovereignty, to make
financial transactions and overcome financial blockade.
 It is based on blockchain technology.
 Its value will be pegged to price of barrel of Venezuelan oil from the previous day.
 Government will accept Petro as a form of payment of national taxes, fees, contributions
and public services
Brent and WTI Crude Price
Difference between Brent and WTI

Origin:
 Brent crude oil originates from oil fields in the North Sea between the Shetland Islands
and Norway.
_______________________________________________________________
 West Texas Intermediate (WTI) is sourced from US oil fields, primarily in Texas,
Louisiana, and North Dakota.
Light and Sweet:
 Both oils are relatively light, but Brent has a slightly higher API gravity, making WTI the
lighter of the two.
 American Petroleum Institute (API) gravity is an indicator of the density of crude oil or
refined products.
 WTI with a lower sulphur content (0.24%) than Brent (0.37%), is considered "sweeter".
Benchmark Prices:
 Brent crude price is the international benchmark price used by the OPEC while WTI
crude price is a benchmark for US oil prices.
 Since India imports primarily from OPEC countries, Brent is the benchmark for oil prices
in India.
Cost of Shipping:
 Cost of shipping for Brent crude is typically lower, since it is produced near the sea and it
can be put on ships immediately.
 Shipping of WTI is priced higher since it is produced in landlocked areas like Cushing,
Oklahoma where the storage facilities are limited.
Spectrum Auction
Spectrum Auction:
 Devices such as cell-phones and wireline telephones require signals to connect from one
end to another. These signals are carried on airwaves, which must be sent at designated
frequencies to avoid any kind of interference.
 The Union government owns all the publicly available assets within the geographical
boundaries of the country, which also include airwaves.
 With the expansion in the number of cell-phone, wireline telephone and internet users, the
need to provide more space for the signals arises from time to time.
 To sell these assets to companies willing to set up the required infrastructure to transport
these waves from one end to another, the central government through the DoT auctions
these airwaves from time to time.
 These airwaves are called spectrum, which is subdivided into bands which have varying
frequencies. All these airwaves are sold for a certain period of time, after which their
validity lapses, which is generally set at 20 years.
 The last spectrum auctions were held in 2016, when the government offered 2,354.55
MHz at a reserve price of Rs 5.60 lakh crore.
Kochi-Mangalore natural gas pipeline
 It is a 444-km-long natural gas pipeline launched in 2009.

 The pipeline will supply gas to all seven districts it passes through Kerala and the hilly
Wayanad district.
 Gas Authority of India Limited(GAIL) has completed it.
_______________________________________________________________
Foreign Direct Investment (FDI)
Foreign Direct Investment(FDI):

 Foreign Direct Investment(FDI) is the medium for acquiring ownership of assets in one
country (the home country) by residents of other countries. FDI may result in control of
the production, distribution, and other activities in a firm in the host country.
 FDI is considered a major source of non-debt financial resources for economic
development.
 However, FDI is distinguished from Foreign Portfolio Investors(FPI) in which a Foreign
investor merely purchases equities of companies.
Routes through which India gets FDI:

 Automatic Route: In this, the foreign entity does not require the prior approval of the
government or the RBI.
 Government route: In this, the foreign entity has to take the approval of the government.
Sector Specific Conditions for FDI:

 Mining and Exploration of metal and non-metal ore – 100% FDI through Automatic
Route
 Coal & Lignite — 100% FDI through Automatic Route
_______________________________________________________________
 Defence Industry — 100%. However, Automatic is only up to 74%. Beyond 74%, it is a

Government route wherever it is likely to result in access to modern technology or for
other reasons to be recorded.
 Print Media and Digital Media — 26% through Government Route
 Intermediaries or Insurance Intermediaries — 100% FDI through Automatic Route
 E-commerce activities — 100% FDI through Automatic Route
 Single Brand Product Retail Trading — 100% Automatic
 Multi Brand Retail Trading — 51% through Government route
 Railways Infrastructure —100% FDI through Automatic Route in the construction,
operation and maintenance of the railway transport sector: Suburban corridor projects
through PPP model and High-speed train projects.
Prohibited Sectors: FDI is prohibited in:

 Lottery Business including Government/private lottery, online lotteries, etc.
 Gambling and Betting including casinos etc.
 Chit funds
 Nidhi company
 Trading in Transferable Development Rights (TDRs)
 Manufacturing of cigars, cheroots, cigarettes, tobacco, or of tobacco substitutes
 Activities/sectors not open to private sector investment e.g.(I) Atomic Energy and (II)
Railway operations (other than permitted activities).
 Real Estate Business or Construction of Farm Houses
 ‘Real estate business’ shall not include development of townships, construction of
residential /commercial premises, roads or bridges and Real Estate Investment
Trusts(REITs) registered and regulated under the SEBI(REITs) Regulations 2014.
FDI in Insurance Sector
 The Union Cabinet has approved a proposal to amend the Insurance Act, 1938.
 It will increase the foreign direct investment (FDI) limit in the insurance sector to 74%
from 49%.
 Conditions: The increase in the foreign direct investment(FDI) limit in the insurance
sector comes with safeguards such as:
o The majority of directors on the Board and key management persons in
health and general insurance companies would be resident Indians.
o At least 50% of directors will be independent directors.
o The government will also specify a particular percentage of profits to be
retained as a general reserve.
 Significance of this move: Raising the foreign investment limit(FDI) in the insurance
sector is expected to provide the following benefits:
 Improve capital availability in the insurance sector.
 Help in developing the insurance industry as a channel for generating durable funds for
the creation of long-term assets.
 An increase in competition in the sector will help in lowering the cost of insurance
products.
_______________________________________________________________
 It would benefit small insurance players or the ones where the sponsors don’t have the
ability to infuse more capital.
 Improve Insurance Penetration in the country.
About Insurance Penetration:

 Insurance penetration is used as an indicator of insurance sector development within a
country. It is calculated as the ratio of total insurance premiums to the GDP in a given
year.
 Currently, Insurance penetration stands at just 3.71% of the GDP in the country.
Accredited Investors
Background:
 Currently, the Indian markets have the concept of Qualified Institutional Buyers (QIBs),
which include mutual funds, insurance companies or foreign portfolio investors. These
investors enjoy greater market access.
 However, an individual investor cannot obtain the QIB status. The concept of accredited
investor will provide QIB-like status to individual investors.
 Qualified Institutional Buyers: They are those institutional investors who are generally
perceived to possess expertise and the financial capacities to evaluate and invest in the
capital markets.
Accredited Investors:
 Accredited investors, also called qualified investors or professional investors, are
those who have an understanding of various financial products and the risks and returns
associated with them.
 They are able to make informed decisions regarding their investments and are recognised
by many securities and financial market regulators globally.
 Generally, they are allowed to trade securities that may not be registered with financial
authorities.
 They are entitled to this privileged access by satisfying requirements regarding their
income, net worth, asset size, governance status or professional experience.
SEBI’s Plan:
 SEBI has laid out eligibility criteria for both Indian and non-resident Indians and foreign
entities.
 It has allowed the validity of accreditation for a year from the day it is granted.
 Such accreditation is to be carried out via 'Accreditation Agencies’ which may be the
market infrastructure institutions or their subsidiaries.
Significance:
 The accredited investor concept may offer benefits to investors and financial
product/service providers such as:
 Flexibility in minimum investment amount.
 Flexibility and relaxation in regulatory requirements.
_______________________________________________________________
 Access to products/ services offered exclusively to accredited investors.
Green Bonds
Green Bonds
 Bonds are debt instruments which are issued to raise capital and investor gets fixed return.
 Green bond is a type of bond in which capital thus raised is used to fund green projects
relating to renewable energy or emission reductions etc.
 Green bonds typically come with tax incentives to enhance their attractiveness to
investors.
 The World Bank issued the first official green bond in 2009.
Green Bonds in India:

 Yes Bank was the first Indian Bank to issue Green Infrastructure Bonds (GIBs) in India in
2015.
 SEBI has allocated the following eight categories with the tag of green projects:
1. renewable energy
2. clean transportation
3. sustainable water management
4. climate change
5. energy efficiency
6. sustainable waste management
7. sustainable land use
8. biodiversity conservation.
Issues with Green Bond in India:

 Green bonds constituted only 0.7% of all the bonds issued in India since 2018.
 The average coupon rate for green bonds in India with maturities between 5 to 10 years
has generally remained higher than the corporate and government bonds with similar
tenure.
Suggestions:
 Better information management system in India may help in reducing maturity mismatches,
borrowing costs and lead to efficient resource allocation in Green Bonds.
Panda Bonds
 Panda bonds are Chinese renminbi-denominated bonds from a non-Chinese issuer, sold in
the People’s Republic of China.
 The first two Panda bonds were issued in October 2005 by the International Finance
Corporation and the Asian Development Bank on the same day.
 The Philippines issued its inaugural Panda bonds in 2018. It was the first ASEAN
member to issue Panda bonds.
 Why in news? Pakistan has decided to issue Panda Bonds.
_______________________________________________________________
Participatory Notes (P-notes)
 P-notes are offshore/overseas derivative instruments (ODIs) issued by registered foreign

portfolio investors (FPIs) to overseas investors who wish to be part of the Indian stock
market without registering themselves directly.
 They, however, need to go through due diligence process.
 P-Notes are not used within the country but are mainly used outside India for making
investments in shares listed in the Indian stock market.
 SEBI had permitted FIIS to participate and register in the Indian stock market in 1992.
 Earlier, investing through P-Notes is very simple and is very popular amongst FPIs, FIIs.
 Note: Investments through participatory notes (P-notes) into Indian capital markets-
equity, debt, and derivatives have plunged to over nine-year low due to stringent SEBI
norms.
Masala Bonds
 The Masala bond refers to a rupee-denominated bond through which Indian entities can
raise money from foreign markets in rupee, and not in foreign currency
 Bonds are instruments of debt that are typically used by corporates to raise money from
investors
 By issuing bonds in rupees, an Indian entity is protected against the risk of currency
fluctuation, typically associated with borrowing in foreign currency
 Masala bonds also help in internationalization of the rupee and in expansion of the Indian
bond markets. These bonds are usually traded on a foreign exchange like the LSE and not
in India
 Why in new?
o HDFC became first Indian company to issue masala bonds.
o The Reserve Bank of India (RBI) has increased corporate bond investment
limit for foreign investors by taking out Masala bonds (rupee-denominated
bonds) from ambit of total debt investment limit.
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ECONOMY REVISION NOTES

Updated up to 10 April 2021

Published by: www.ias4sure.com

Liquidity Adjustment Facility...............................................................................................................................31

Co-Lending Model Scheme ................................................................................................................................ 79

Prompt corrective action(PCA) Framework

What is Prompt corrective action(PCA) Framework?

When was the PCA framework introduced?

When does RBI invoke PCA?

What are the restrictions on Banks when PCA is invoked?

Systemically Important Banks

What is a Systematically Important Bank?

Domestic Systemically Important Banks(D-SIBs):

Positive Pay Mechanism

 Positive Pay Mechanism: It involves a process of reconfirming key details of large-value

White Label ATMs

SWIFT (Society for World Interbank Financial Telecommunication System) platform

What is Islamic Banking?

How RBI going to implement it?

Prevention of Money Laundering Act

Regional Rural Banks (RRBs)

 RRBs were set up as government-sponsored, regional based rural lending institutions

Monetary Policy Committee

What is Monetary Policy Committee?

National Infrastructure and Investment Fund (NIIF)

 NIIF stands for National Infrastructure and Investment Fund

National Authority of Ship Recycling (NASR)

Recycling of Ships Act, 2019

 NPC is a national level organization to promote productivity culture in India.

Why ISO status?

 EXIM stands for Export-Import

Goods and Services Tax Network (GSTN)

 It is a not for profit, non-Government, private limited company incorporated in 2013.

Composition of GST Council

Functions of GST Council

Insolvency and Bankruptcy Code, 2016

Insolvency and Bankruptcy Code, 2016

Salient Features of the law

Public Credit Registry (PCR)

 PCR is digital registry of authenticated granular credit information.

Why PCR is needed?

Difference between Surcharge and Cess:

Foreign Exchange Reserve

Significance of Forex Reserves:

Purchasing Managers Index

 A PMI reading under 50 represents a contraction, and a reading at 50

Accommodative and Tight Monetary Policy

Consumer Price Index (CPI)

IAS4Sure MCQ Factory

New Disinvestment/ Strategic Disinvestment Policy:

Sovereign Credit Rating

 A sovereign credit rating is credit rating of country or sovereign entity.

What is Green Tax?

Off Budget Borrowing

Off Budget Borrowings:

What are Non-convertible debentures(NCDs)?

Initial Public Offering (IPO)

 IPO is the selling of securities to the public in the primary market.

What is Current Account?

What does Current account constitute?

Current Account = Trade gap + Net current transfers + Net income.

What is Current Account Deficit?