INDIAN ECONOMY

(General Studies)

Prelims
(English Medium)
 Contents

Budget...................................................................................................................................................... 2

Economic Survey 2019-20 ..............................................................................................................17

About Indian Economy Growth Rate & Statistics....................................................................28

The Reserve Bank of India...............................................................................................................31

Money Market.....................................................................................................................................43

Capital Market.....................................................................................................................................64

Public Finance......................................................................................................................................76

Corporate Tax Rate Cuts...................................................................................................................78

Census 2011 | The basics and summary of important findings.........................................90

The Planning Commission, NITI Aayog......................................................................................97

Concepts of National Income..................................................................................................... 102

External Sector................................................................................................................................. 106

Agriculture......................................................................................................................................... 125

Infrastructure.................................................................................................................................... 135

Growth & Development................................................................................................................ 137

Reports/Committees/Summits/ Indexes................................................................................ 138

Budget At A Glance 2020-2021.................................................................................................. 148

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Economic Survey 2019-20
The Union Minister for Finance & Corporate Affairs,
Ms Nirmala Sitharaman presented the Economic Survey
2019-20 in the Parliament on January 31st, 2020. The key
highlights of the Economic Survey 2019-20 are as follows:
Creating Jobs and Growth by Specializing in
Network Products
™™ By integrating “Assemble in India for the world” into
Make in India, India can:
zz Raise its export market share to about 3.5 per
cent by 2025 and 6 per cent by 2030.
zz Create 4 crore well-paid jobs by 2025 and 8 crore
by 2030.
™™ The impact of India’s trade agreements on overall
trade balance:
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zz India’s exports increased by 13.4 per cent for
manufactured products and 10.9 per cent for
total merchandise
zz Imports increased by 12.7 per cent for
manufactured products and 8.6 per cent for total
merchandise.
zz India gained 0.7 per cent increase in trade surplus
per year for manufactured products and 2.3 per
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cent per year for total merchandise.
™™ Promote 'pro-business' policies that unleash the
power of competitive markets to generate wealth
as against 'pro-crony' policies that may favour
incumbent private interests.
Targeting Ease of Doing Business in India
™™ A jump of 79 positions to 63 in 2019 from 142 in 2014
in World Bank’s Doing Business rankings.
™™ The turnaround time of ships in India has almost
halved to 2.48 days in 2018-19 from 4.67 days in
2010-11.
Thalinomics: The Economics of a Plate of Food in
India
™™ The Survey tries to relate economics to the common
person using something that an individual encounter
every day - a plate of food i.e., a Thali.
™™ Post 2015-16:
zz Average household gained close to Rs 11,000
(US$ 155.69) on average per year from the
moderation in prices in the case of vegetarian
Thali.
zz Average household that consumes two non-
vegetarian Thalis gained close to Rs 12,000 (US$
169.85) on average per year during the same
period.
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™™ From 2006-07 to 2019-20:
zz Affordability of vegetarian Thalis improved 29
per cent.
zz Affordability of non-vegetarian Thalis improved
by 18 per cent.
India’s Economic Performance in 2019-20
™™ India’s GDP growth is expected to grow in the range
of 6.0 to 6.5 per cent in 2020-21.
™™ GDP growth moderated to 4.8 per cent in H1 of
2019-20, amidst a weak environment for global
manufacturing, trade and demand.
™™ In 2019-20, fiscal deficit was budgeted at Rs 7.04
lakh crore (US$ 99.56 billion) (3.3 per cent of GDP), as
compared to Rs 6.49 lakh crore (US$ 91.86 billion) (3.4
per cent of GDP) in 2018-19.
™™ Inflation increased from 3.3 per cent in H1 of 2019-
20 to 7.35 per cent in December 2019-20 due to
temporary increase in food inflation.
™™ Reforms undertaken during 2019-20 to boost
investment, consumption and exports:
zz Speeding up the insolvency resolution process
under Insolvency and Bankruptcy Code (IBC).
zz Easing of credit, particularly for the stressed real
estate and NBFC sectors.
zz The National Infrastructure Pipeline for the
period FY 2020-2025 launched.
Fiscal Developments
™™ Revenue Receipts registered a higher growth during
the first eight months of 2019-20, compared to the
same period last year, led by considerable growth in
Non-Tax revenue.
™™ Gross GST monthly collections have crossed the mark
of Rs 1 lakh crore (US$ 14.15 billion) for a total of five
times during 2019-20 (up to December 2019).
External Sector
™™ India’s Balance of Payments (BoP) position improved
from US$ 412.9 billion of forex reserves in end March
2019 to US$ 433.7 billion in end September 2019.
™™ Foreign reserves stood at US$ 461.2 billion as on 10th
January 2020.
™™ The Current Account Deficit (CAD) narrowed to 1.5
per cent of GDP in H1 of 2019-20 from 2.1 per cent
in 2018-19.
™™ India’s top five trading partners continue to be USA,
China, UAE, Saudi Arabia and Hong Kong.
™™ India improved its ranking from 143 in 2016 to 68 in
2019 under the indicator, “Trading across Borders”,
monitored by World Bank in its Ease of Doing
Business Report.
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 ™™ WPI inflation fell from 4.7 per cent in 2018-19 (April to
December 2018) to 1.5 per cent during 2019-20 (April
to December 2019).

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™™ Indian Logistics industry expected to reach US$ 215 Sustainable Development and Climate Change
billion by 2020 from US$ 160 billion, currently. ™™ India moving forward on the path of SDG
™™ According to World Bank's Logistics Performance implementation through well-designed initiatives
Index, India ranked 44th in 2018 globally, up from ™™ SDG India Index:
54th rank in 2014. zz Himachal Pradesh, Kerala, Tamil Nadu,
™™ Net FDI inflows continued to be buoyant in 2019-20 Chandigarh are front runners.
attracting US$ 24.4 billion in the first eight months,
zz Assam, Bihar and Uttar Pradesh come under the
higher than the corresponding period of 2018-19.

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category of Aspirants.
™™ Net FPI in the first eight months of 2019-20 stood at
™™ Forest and tree cover increased and has reached
US$ 12.6 billion.
80.73 million hectares covering 25.56 per cent of the
™™ Net remittances from Indians employed overseas geographical area of the country.
continued to increase, receiving US$ 38.4 billion in
H1 of 2019-20 which is more than 50 per cent of the
previous year level.
™™ External debt remained low at 20.1 per cent of GDP
as at end September 2019.
Monetary Management and Financial
Intermediation
™™ Repo rate was cut by 110 basis points in four
consecutive MPC meetings in the financial year due
to slower growth and lower inflation.
™™ The Gross Non-Performing Advances ratio remained
unchanged for Scheduled Commercial banks at 9.3
per cent between March and September 2019.
™™ Bank Credit growth (YoY) moderated from 12.9 per
cent in April 2019 to 7.1 per cent as on December 20,
2019.
™™ Capital to Risk-weighted Asset Ratio of SCBs increased
from 14.3 per cent to 15.1 per cent between March
and September 2019. Performance of key sectors:
Prices and Inflation Agriculture and Food Management
™™ Consumer Price Index (CPI) inflation increased from ™™ GVA at Basic Prices for 2019-20 from ‘Agriculture,
3.7 per cent in 2018-19 (April to December 2018) to Forestry and Fishing’ sector is estimated to grow by
4.1 per cent in 2019-20 (April to December 2019). 2.8 per cent.
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™™ Livestock sector grew at a CAGR of 7.9 per cent during
last five years.
™™ During the last 6 years ending 2017-18, Food
Processing Industries sector grew at an Average
Annual Growth Rate (AAGR) of around 5.06 per cent.
The sector constitutes as much as 8.83 per cent
and 10.66 per cent of GVA in Manufacturing and
Agriculture sector respectively in 2017-18 at 2011-12
prices.
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Industry and Infrastructure
™™ The industrial sector as per Index of Industrial
Production (IIP) registered a growth of 0.6 per cent
in 2019-20 (April-November) as compared to 5.0 per
cent during 2018-19 (April-November).
™™ Fertilizer sector achieved a growth of 4.0 per cent
during 2019-20 (April-November) as compared to (-)
1.3 per cent during 2018-19 (April-November).
™™ Steel sector achieved a growth of 5.2 per cent during
2019-20 (April-November) as compared to 3.6 per
cent during 2018-19 (April-November).
™™ Total telephone connections in India touched 119.43
crore as on September 30, 2019.
™™ The installed capacity of power generation has
increased to 3, 64,960 MW as on October 31, 2019
from 3,56,100 MW as on March 31, 2019.
™™ Report of the Task Force on National Infrastructure
Pipeline, released on 31.12.2019, has projected total
infrastructure investment of Rs 102 lakh crore (US$
1.44 trillion) during the period FY 2020-2025 in India.
Services Sector
Services sector in the Indian economy
contributes:
™™ About 55 per cent of the total size of the economy
and GVA growth.
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™™ Two-third of total FDI inflows into India.
™™ About 38 per cent of total exports.
™™ More than 50 per cent of GVA in 15 out of the 33
states and UTs.
Social Infrastructure, Employment and Human
Development
™™ The expenditure on social services (health, education
and others) by the Centre and States as a proportion
of GDP increased from 6.2 per cent in 2014-15 to 7.7
per cent in 2019-20 (BE).
™™ India’s ranking in Human Development Index (HDI)
improved to 129 in 2018 from 130 in 2017, with 1.34
per cent average annual HDI growth.
™™ The share of regular wage/salaried employees has
increased by 5 percentage points from 18 per cent in
2011-12 to 23 per cent in 2017-18.
™™ A significant jump of around 2.62 crore new jobs with
1.21 crore in rural areas and 1.39 crore in urban areas
in this category.
™™ Total formal employment in the economy increased
from 8 per cent in 2011-12 to 9.98 per cent in 2017-
18.
™™ Access to health services inter-alia through Ayushman
Bharat and Mission Indradhanush across the country
has improved.
™™ Mission Indradhanush has vaccinated 3.39 crore
children and 87.18 lakh pregnant women of 680
districts across the country.
™™ About 76.7 per cent of the households in the rural
and about 96 per cent in the urban areas had houses
of pucca structure.
™™ A 10-year Rural Sanitation Strategy (2019-2029)
launched to focus on sustaining the sanitation
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 behaviour change and increasing access to solid and 5. Amalgamation: It means: ‘merger’. As per the
liquid waste management. requirement of the market; when two or more
than two companies are merged into a new large
company, it is called merger. In this process old firms
completely lose their identity when the merger is
completed.
6. Arbitrage: When a person performs the job of middle
man and buys and sells goods at a particular time to
cash the price difference of two markets. Purchases
are made in those markets where prices are low and
sold at high price market.
7. Balance of Trade: It is the difference between export
and import of visible goods only. Services are not
included in this count. It comes under the umbrella
of Balance of Payment (BOP).
8. Bank rate: It’s a rate at which Reserve Bank of India
lends money to the commercial banks of the country.

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Repo rate and bank rate both are similar in nature but
former is called a short term interest rate while later is
The most important words to enhance your a long term rate of interest.
knowledge of Economics.
1. Monetary policy: This comprises the instruments
used by the Reserve bank of India to regulate the
flow of money or liquidity in the economy. Its main
instruments are interest rate, CRR, SLR, cash reserve
ratio, repo rate, reverse repo rate, bank rate.

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2. Fiscal policy: this policy is mainly used by the finance
ministry. It deals in the government economic policy
like taxation, public expenditure, public debt etc. this
policy decides the infrastructural development and
expenditure on the social welfare schemes within the
country.
3. Budget deficit: It is the difference between the
estimated public expenditure and public receipts.
The government meets this deficit by the printing of
new currency or by borrowing.
4. Lorenz curve: This curve shows the degree of
inequalities of a frequency distribution in a graphical
manner. This curve is commonly used to depict
income distribution showing the cumulative 9. Reverse Repo Rate: Reverse repo rate is the rate
percentage of people from the poorest up and their at which the central bank of a country (Reserve
cumulative share of national income. Bank of India in case of India) borrows money from
commercial banks within the country. It is a monetary
policy instrument which can be used to control the
money supply in the country.
10. Blue chip: It is concerned with such equity shares
whose purchase is extremely safe. It a safe investment
and does not involve any risk.
11. Consumer Price Index: It is the method used to
know the price of retail market in India. It is also
known as the cost of living index. This index compiled
by Central Statistical Organisation (CSO) which tries
to encompass the entire population under its ambit.

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12. Whole Sale Price Index: Under this method the price
of goods and services are measured on the basis of
wholesale prices. Inflation rate of India is calculated
on the basis of this index.
13. Cost Push Inflation: If the rate of inflation rises due
to increase in the cost of factors of production (land.
Labour ,capital and entrepreneur)
14. Deflation: Deflation is the state of falling prices in
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the economy. In this satiation the Price of goods and
services falls in the absence of their demand. It’s an
opposite situation of inflation.
15. Disinflation: It refers to the process of bringing down
the prices moderately from their high level without
any adverse impact on production and employment.
Thus disinflation is an anti inflationary measure.
16. Laffer Curve: It’s a curve given by the American
economist Arthur Laffer. It represents the relationship
between the total tax revenue and corresponding
tax rate. If tax rate is increased then tax revenue
decreases and vice versa.
17. Liquidity: Any asset which can easily be converted
into cash very easily is called most liquid asset. ‘Land’
takes a long time to get converted into cash. Currency
(100, 500 and 1000 notes) is most liquid because you
can easily use them to purchase goods and services.
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18. Mixed Economy: It refers to an economic system
where public (ONGC) and private (TCS) system exists
together. India is the example of a mixed economy.
19. Monopoly: It refers to a market where there is only
one seller in the market. This seller controls the full
supply of the market so he/she charges higher price
for goods and services.
20. Plastic Money: This type of money refers to the
generally credit card and debit card.
21. Privatization: When the 51% shares of a public
company are sold to private investor/many investors
then this company is termed as the private company;
although government may have 49% shares of this
company.
22. Shadow Price: It is an imputed value for a good
based on the opportunity costs of the resources used
to produce it such values are of particular significance
in resolving the problems of resource allocating with
respect to the effect on welfare.
23. Trickle down Theory: This theory signifies the
attempt of transferring the benefits of high growth
rate of national income to the lowest strata of
the society. This theory ensures to reduce income
disparities in the society.
24. Statutory Liquidity Ratio: The amount of liquid
assets, such as cash, precious metals (Gold) or other
short term securities that a financial institution must
maintain in its reserves. Every bank is required to
maintain a minimum proportion of their net demand
and time liabilities as liquid assets in the form of cash,
gold and unencumbered approved securities.
25. VAT: Its expansion is Value added tax. VAT seeks to
tax the value added at every stage of manufacturing
and sale, with a provision of refunding the amount of
VAT already paid at the earlier stage to avoid double
taxation.
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The Association of South-east Asian Nations
(ASEAN): It is a political, economic, and cultural
organization of countries located in South-east Asia—
Thailand, Indonesia, Malaysia, Singapore, the Philippines,
Brunei Darussalam, Cambodia, Laos, Myanmar and
Vietnam.
Balance of Payments (BOP): It is a statistical
statement summarizing all the external transactions
(receipts and payments) on current and capital account
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in which a country is involved over a period of time, say,
a year. As the BOP shows the total assets and obligations
over a time-period, it always balances.
Barriers to Entry: This refers to the factors which
make it disadvantageous for new entrants to enter an
industry as compared with the firms already established
within the industry.
Better Compliance: Obeying or complying with the
Government regulation. It is referred to usually in case of
payment of taxes and dues to the Government.
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Bilateral Trade Agreements: The agreements relating
to exchange of commodities or services between two
countries.
Brundtland Commission: A Commission established
by United Nations Organization in 1983 to study the
world’s environmental problems and propose agenda for
addressing them. It came out with a report. The definition
provided by the Commission for the term, ‘sustainable
development’, is very popular and widely cited all over
the world.
Budgetary Deficit: A situation when the
government’s income and tax receipts fail to cover its
expenditures.
Bureau of Energy Efficiency (BEE): It is a government
organization that aims to develop policies and strategies
with a thrust on self regulation and market principles. It
promotes energy conservation in different sectors of the
economy and undertakes measures against the wasteful
uses of electricity.
Business Process Outsourcing (BPO): Outsourcing
of business processes (activities constituting a service) by
companies to other companies. This term is frequently
associated with outsourcing of such activities (e.g.
receiving and making calls on behalf of other companies
popularly known as call centres), by foreign companies to
Indian companies in the field of IT-enabled services.
Carrying Capacity: It is the measure of habitat to
indefinitely sustain a population at a particular density.
A more technical definition for carrying capacity is
the largest size of a density-dependent population for
which the population growth rate is zero. Hence, below
carrying capacity, populations will tend to increase, while
they will decrease above carrying capacity. Population
size decreases above carrying capacity due to either
reduced survivorship (e.g. due to insufficient space or
food) or reproductive success (e.g. due to insufficient
food, or behavioural interactions), or both. The carrying
capacity of an environment will vary for different species
in different habitats, and can change over time due to
a variety factors, including trends in food availability,
environmental conditions and space.
Cascading Effect: When tax imposition leads to a
disproportionate rise in prices, i.e. by an extent more than
the rise in the tax, it is known as cascading effect.
Cash Reserve Ratio (CRR): A proportion of the total
deposits and reserves of the commercial banks that is to
be kept with the central bank (RBI) in liquid form. It is used
as a measure of control of RBI over the commercial banks.
Casual Wage Labourer: A person, who is casually
engaged in others’ farm or non-farm enterprises and, in
return, receives wages according to the terms of the daily
or periodic work contract.
Colonialism: The practice of acquiring colonies by
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conquest or other means and making them dependent. It
also means extending power, control or rule by a country
over the political and economic life of areas outside its
borders. The main feature of colonialism is exploitation.
Demographic Transition: It is a concept developed
by demographer Frank Note stein in 1945 to describe the
typical pattern of falling death and birth rates in response
to better living conditions associated with economic
development. Note stein identified three phases of
demographic transition, pre-industrial, developing and
modern industrialised societies. Later another phase,
post-industrial was also included.
De-reservation: Allowing an individual or group of
enterprises to produce goods and services which were
hitherto produced by a particular individual or group
of enterprises. In India, it refers to allowing large-scale
industries to produce goods and services which were
produced only by the small-scale industries.
Devaluation: A fall in the external value of domestic
currency while internal value remains unchanged.
Disinvestment: A deliberate sale of a part of the

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Commercialisation of Agriculture: It implies
production of crops for the market rather than for
self-consumption i.e. family consumption. During
the British rule, the commercialisation of agriculture
acquired a different meaning—it became basically
capital stock of a company to raise resources and change
the equity and/or management structure of a company.
Employers: Those self-employed workers who by
and large, run their enterprises by hiring labourers.
Enterprise: An undertaking owned and operated
by an individual or by group of individuals to produce
and/or distribute goods and/or services mainly for the
purpose of sale, whether fully or partly. Equities: Shares in
the paid up capital or stock of a company whose holders

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are considered as owners of the company with voting
commercialisation of crops. The British started offering
rights and dividends in the profit.
higher price to farmers for producing cash crops rather
than for food crops. They used these cash crops as raw
materials for industries in Britain.
Communes: Known as people’s communes, or
Renmin Gongshe in China, was formerly the highest of
three administrative levels in rural areas in the period
from 1958 to 1982-85, when they were replaced by
townships. Communes, the largest collective units, were
divided in turn into production brigades and production
teams. The communes had governmental, political, and
economic functions.
Consumption Basket: Group of goods and services
consumed by a household. In order to estimate the
consumption pattern of people, statistical agencies
identify such items. For instance NSSO has indentified
19 groups of items in the consumption basket. Some of
them are (i) cereals (ii) pulses (iii) milk and milk products
(iv) edible oil (v) vegetables (vi) fuel and light and (vii)
clothing.
Default: Failure to make repayment of the principal
and interest on a debt e.g. sovereign debt (loan obtained
by the government) to the lenders, say, international Establishment: An enterprise which has got at least
financial institutions, on the scheduled date, causing loss one hired worker for major part of the period of operation
of credibility as a debtor. in a year.
Deficit Financing: A situation in which the European Union: It is a union of twenty-five
government borrows money from the internal, external independent states founded to enhance political,
and prints notes (by the RBI) factors to run the economy. economic and social cooperation within the European

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continent. The member countries of European Union
are Austria, Belgium, Cyprus, Czech Republic, Denmark,
Estonia, Finland, France, Germany, Greece, Hungary,
Ireland, Italy, Latvia, Lithuania, Luxembourg, Netherlands,
Portugal, Spain, Sweden, United Kingdom, Malta, Poland,
Slovakia and Slovenia.
Export Duties: Taxes imposed on goods exported
from a country.
Export Promotion: A set of measures (including
fiscal and commercial support measures and steps aimed
at removal of trade barriers) taken by a government
to promote the export of goods with a view to achieve
higher economic growth and accumulation of foreign
exchange earnings.
Export-Import Policy: The economic policies of the
government relating to its exports and imports.
Family labour/Worker: A member who works
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without receiving wages in cash or in kind in a farm, an
industry, business or trade conducted by the members of
the family.
Financial Institutions: Institutions that engage
in mobilisation and allocation of savings. They include
commercial banks, cooperative banks, developmental
banks and investment institutions.
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Fiscal Management: The use of taxation and
government expenditure to regulate the economic
activities.
Fiscal Policy: All the planned actions of a
government in mobilising financial resources for meeting
its expenditure and regulating the economic activities in
a country.
Foreign Direct Investment: Investment of foreign
assets into domestic structures, equipment and
organisations. It does not include foreign investment into
the stock markets. Foreign direct investment is thought
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to be more useful to a country than investments in the
equity of its companies because equity investments are
potentially ‘hot money’ which can leave at the first sign
of trouble, whereas FDI is durable and generally useful
whether things go well or badly.
Foreign Exchange: Exchange of a Currency or bonds
with currency of other country.
Foreign Exchange Markets: A market in which
currencies are bought and sold at rates of exchange fixed
now, for delivery at specified dates in the future.
Foreign Institutional Investment: Foreign
investments which come in the form of stocks, bonds, or
other financial assets. This form of investment does not
entail active management or control over the firms or
investors. Foreign Institutional Investors (FIIs): Banking
and non-banking financial institutions of foreign origin
e.g. commercial banks, investment banks, mutual funds,
pension funds or other such institutional investors (as
distinct from the domestic financial institutions investing)
whose investment in stocks and bonds in the country
through stock markets have significant influence.
Formal Sector Establishments: All the public sector
establishments and those private sector establishments
which employ 10 or more hired workers.
G-20: Group of developing countries established to
focus on issues relating to trade and agriculture in the
World Trade Organisation. The group includes Argentina,
Bolivia, Brazil, Chile, China, Cuba, Egypt, Guatemala,
India, Indonesia, Mexico, Nigeria, Pakistan, Paraguay,
Philippines, South Africa, Thailand, Tanzania, Venezuela,
and Zimbabwe.
G-8: The Group of Eight (G-8) consists of Canada,
France, Germany, Italy, Japan, the United Kingdom of
Great Britain and Northern Ireland, the United States of
America, and Russian Federation. The hallmark of the
G-8 is an annual economic and political summit meeting
of the heads of government with international officials,
though there are numerous subsidiary meetings and
policy research. The Presidency of the group rotates every
year. For the year 2006 it was held by Russia.
Gratuity: An amount of money given by the
employer to the employee at the time of retirement for
services rendered by the employee.
Gross Domestic Product: The total value of final
goods and services produced within a country’s borders
in a year, regardless of ownership. It is used as one of
many indicators of the standard of living in a country, but
there are limitations with this view.
Household: A group of persons normally living
together and taking food from a common kitchen.
The word ‘normally’ means that temporary visitors are
excluded and those who temporarily staying away is
included.
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Import Licensing: Permission required from the
government to import goods into a country.
Import Substitution: A policy of the state for
development of economy in which import of goods is
generally substituted by domestic production (through
import controls, tariffs and other restrictions) with a
view to encourage domestic industry on grounds of self-
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sufficiency and domestic employment.
Infant Mortality Rate: It is the number of deaths of
infants before reaching the age of one, in a particular year,
per 1,000 live births during that year.
Inflation: A sustained rise in the general price level.
Informal Sector Enterprises: Those private sector
enterprises, which employ less than 10 workers on a
regular basis.
Integration of Domestic Economy: A situation
where the policies of government facilitate free trade and
investment with other countries making the domestic
economy work together with other economies in an
efficient and mutually interdependent way.
Invisibles: Various items enter in the current account
of the balance of payments, some of which are not
visible goods. Invisibles are mainly services, like tourism,
transport by shipping or by airways, and financial services
such as insurance and banking. They also include gifts
sent abroad or received from abroad and private transfer
of funds, government grants and interests, profits and
dividends.
Labour Laws: All the rules and regulations framed by
the government to protect the interests of the workers.
Land/Revenue Settlement: With the British acquiring
territorial rights in different parts of India, administration
of territories was formulated on the basis of survey of
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land. It was decided in the interests of government in
terms of revenues to be collected from each parcel of
land in possession of either a Ryot (means peasant) or
a Mahal (revenue village) or a Zamindar (a proprietary
land holder). Decision in each of these cases was meant
for the rights of the latter over land for the purposes of
either ownership of land or rights to cultivation. This
system is known as land/revenue settlement. There were
different land settlements formulated in India. They are
(i) system of permanent settlement, which is also known
as the Zamindari system (ii) Ryotwari system (a system
of revenue settlement entered into by the government
with individual tenants) (iii) Mahalwari system (a system
of revenue settlement entered into by the government
with a Mahal).
Life Expectancy at Birth (years): The number of
years a newborn infant would live if prevailing patterns
of age-specific mortality rates at the time of birth were to
stay the same throughout the child’s life.
Maternal Mortality Rate: It is the relationship
between the number of maternal deaths due to
childbearing by the number of live births or by the sum of
live births and foetal deaths in a given year.
Merchant Bankers: Banks or financial institutions,
also known as investment bankers, those specialize
in advising the companies and managing their equity
and debt requirement (often referred to as portfolio
management) through floatation and sale/purchase of
stocks and bonds. Morbidity: It is the propensity to fall ill.
It affects a person’s work by making him or her temporarily
disabled. Prolonged morbidity may lead to mortality. In
our country, acute respiratory infections and Diarrhoea
are two major causes of morbidity.
Mortality Rate: The word ‘mortality’ comes from
‘mortal’ which originates from the Latin word Mors
(meaning death). It is the annual number of deaths (from
a disease or in general) per 1,000 people. It is distinct from
morbidity rate, which refers to the number of people who
have a disease compared to the total number of people
in a population.
MRTP Act: An Act (Monopolies Restrictive Trade
Practices Act) framed to prevent monopolistic practices
and regulate the conductor business practices of firms
that are not in public interest.
Multilateral Trade Agreements: Trade agreements
made by a country with more than two nations to
exchange goods and services.
National Product/Income: Total value of goods and
services produced in a country plus income from abroad.
Nationalisation: Transfer of ownership from
private sector to public sector. This involves takeover of
companies owned by individuals or group of individuals
by either state or central government. In some contexts, it
25
also involves transfer of ownership from state government
to central government.
New Economic Policy: A term used to describe the
policies adopted in India since 1991.
Non-renewable Resources: Resources that cannot
be renewed. They have a finite, even if large, stock. Some
examples are fossils fuels such as oil and coal and mineral
resources—iron, lead, aluminium, uranium.
Non-tariff Barriers: All the restrictions on imports by
a government in the form other than taxes. They mainly
include restrictions on quantity and quality of goods
imported.
Opportunity Cost: It is defined with respect to a
particular value or action and is equal to the value of the
foregone alternative choice or action. Pension: A monthly
payment to a worker who has retired from work. Per
Capita Income: Total national income of a country divided
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by its population in a specific period.
Permit License Raj: A term used to denote the rules
and regulations framed by the government to start, run
and operate an enterprise for production of goods and
services in India.
Poverty Line: The per capita expenditure on certain
minimum needs of a person including food intake of a
daily average of 2,400 calories in rural areas and 2,100
calories in urban areas.
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Private Sector Establishments: All those
establishments, which are owned and operated by
individuals or group of individuals. Productivity: Output
per unit of input employed. Increase in the efficiency
on the part of capital or labour leads to increase in
productivity. This term is generally used to refer to
productivity increase in labour inputs.
Provident Fund: A savings fund in which both
employer and employee contribute regularly in the
interest of the employee. It is maintained by the
government and given to the employee when he or she
resigns or retires from work.
Public Sector Establishments: All those
establishments which are owned and operated by
the government. They may be run either by local
government, state government or by central government
independently or jointly.
Quantitative Restrictions: Restrictions in the form
of total quantities or quotas imposed on imports to
reduce balance of payments (BOP) deficit and protect
domestic industry.
Regular Salaried/Wage Employee: Persons, who
work in others’ farm or non-farm enterprises and, in
return, receive salary or wages on a regular basis (i.e. not
on the basis of daily or periodic renewal of work contract).
They include not only persons getting time wage but
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also persons receiving piece wage or salary and paid
apprentices, both full time and part-time.
Renewable Resources: Resources that can be
renewed through natural processes if they are used
wisely. Forests, animals and fishes, if not overexploited,
get easily renewed. Water is also in that category.
South Asian Association for Regional Cooperation
(SAARC): It is an association of eight countries of South
Asia — Bangladesh, Bhutan, India, Maldives, Nepal,
Pakistan, Sri Lanka and Afghanistan. SAARC provides a
platform for the peoples of South Asia to work together
in a spirit of friendship, trust and understanding. It
aims to accelerate the process of economic and social
development in member countries.
Self-Employed: Those who operate their own farm
or non-farm enterprises or are engaged independently
in a profession or trade with one or a few partners. They
have freedom to decide how, where and when to produce
and sell or carry out their operation. Their earning is
determined wholly or mainly by sales or profits from their
enterprises.
Social Security: A government or privately
established system of measures, which ensures material
security for the elderly, disabled, destitute, widows and
children. It includes pension, gratuity, provident fund,
maternal benefits, health care etc.
Special Economic Zone (SEZ): It is a geographical
region that has economic laws different from a country’s
typical economic laws. Usually the goal is to increase
foreign investment. Special Economic Zones have been
established in several countries, including the People’s
Republic of China, India, Jordan, Poland, Kazakhstan, the
Philippines and Russia.
Stabilisation Measures: Fiscal and monetary
measures adopted to control fluctuations in the balance
of payments and high rate of inflation.
State Electricity Boards (SEBs): These are part of
the state administration that generate, transmit and
distribute electricity in different states.
Statutory Liquidity Ratio (SLR): A minimum
proportion of the total deposits and reserves to be
maintained by the banks in liquid form as per the
regulations of the central bank (RBI). Maintenance of
SLR, in addition to the Cash Reserve Ratio (CRR), is an
obligation of the banks.
Stock Exchange: A market in which the securities
of governments and public companies are traded. It
provides the facilities for stock brokers to trade company
stocks and other securities.
Stock Market: An institution where stocks and
shares are traded.
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 Structural Reform Policies: Long-term measures
like liberalisation deregulation and privatisation aimed
to improve the efficiency and competitiveness of the
economy.
Tariff: A tax on imports, which can be levied either
on physical units, e.g. per tonne (specific) or on value.
Tariffs may be imposed for a variety of reasons including:
to raise government revenue, to protect domestic
industry from subsidised or low-wage imports, to boost
domestic employment, or to ease a deficit on the balance
of payments. Apart from the revenue that they raise tariffs
achieve little good—they reduce the volume of trade
and increase the price of the imported commodity to
consumers.
Tariff Barriers: All the restrictions on imports by a
government in the form of taxes.
Trade Union: An organisation of workers formed
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for the purpose of addressing its members’ interests in
respect of wages, benefits, and working conditions.
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Unemployment: A situation in which all those who,
owing to lack of work, are not working but either seek
work through employment exchanges, intermediaries,
friends or relatives or by making applications to
prospective employers or express their willingness or
availability for work under the prevailing condition of
work and remunerations.
Urbanisation: Expansion of a metropolitan area,
namely the proportion of total population or area in
urban localities or areas (cities and towns), or the increase
of this proportion over time. It can thus represent a level of
urban population relative to total population of the area,
or the rate at which the urban proportion is increasing.
Both can be expressed in percentage terms, the rate of
change expressed as a percentage per year, decade or
period between censuses.
Worker-Population Ratio: Total number of workers
divided by the population. It is expressed in percentage.
27
 ™™
About Indian Economy Growth Rate & Statistics
Introduction
India has emerged as the fastest growing major
economy in the world and is expected to be one of the
top three economic powers in the world over the next
™™
10-15 years, backed by its robust democracy and strong
partnerships.
™™
Market size
India’s GDP (at constant 2011-12 prices) was
estimated at Rs 26.9 trillion (US$ 363.49 billion) for the
™™
first quarter of FY2020-21, against Rs 35.35 trillion (US$
477.67 billion) in the first quarter of FY2019-20, showing a
contraction of 23.9%, compared with 5.2% growth in the
first quarter of FY2019-20.
™™
India is the fourth-largest unicorn base in the world
with over 21 unicorns collectively valued at US$ 73.2
India's Foreign Direct Investment (FDI) equity
inflow reached US$ 469.99 billion between April
2000 to March 2020, with maximum contribution
from services, computer software and hardware,
telecommunications, construction, trading, and
automobiles.
India’s Index of Industrial Production (IIP) for 2019-20
stood at 129.2.
The combined index of eight core industries stood at
137 in March 2020. Its cumulative growth was 0.6%
in 2019-20.
Consumer Price Index (CPI) - Combined inflation was
5.9% in March 2020 as compared to 6.6% in February
2020. The annual consumer price inflation increased
to 4.8% in 2019-20 from 3.4% in 2018-19.
India improved its ranking in World Bank's Doing
Business Report by 14 spots over last year and was

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billion, as per the Hurun Global Unicorn List. By 2025,
India is expected to have ~100 unicorns by 2025 and will
create ~1.1 million direct jobs according to the Nasscom-
Zinnov report ‘Indian Tech Start-up’.
India needs to increase its rate of employment growth
and create 90 million non-farm jobs between 2023 and
2030's, for productivity and economic growth according
to McKinsey Global Institute. Net employment rate needs
to grow by 1.5% per year from 2023 to 2030 to achieve
ranked 63 among 190 countries in the 2020 edition
of the report.
™™ India is expected to have 100,000 start-ups by 2025,
which will create employment for 3.25 million people
and generate US$ 500 billion in value as per Mr T V
Mohan Das Pai, Chairman, Manipal Global Education.
Government Initiatives
The first Union Budget of the third decade of 21st
century was presented by Minister for Finance & Corporate

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8-8.5% GDP growth between 2023 and 2030.
India's foreign exchange reserve was Rs 39 .64 trillion
(US$ 542.01 billion) in the week up to September 4, 2020
according to data from the RBI.
Affairs, Ms Nirmala Sitharaman in the Parliament on
February 1, 2020. The budget aimed at energising the
Indian economy through a combination of short-term,
medium-term, and long-term measures.

Recent Developments Total expenditure for 2020-21 is budgeted at Rs 37.14

With an improvement in the economic scenario,
there have been investments across various sectors of
the economy. The mergers and acquisition (M&A) activity
in India stood at US$ 35.1 billion in the first half of 2020,
while private equity (PE) deals stood at US$ 13 billion.
Some of the important recent developments in Indian
economy are as follows:
™™ India’s overall exports from April 2020 to August 2020
are estimated to be US$ 182.13 billion, (a 19.32%
decrease compared with the same period last year).
Overall imports from April 2020 to August 2020 are
estimated to be US$ 167.94 billion, (a 38% decrease
compared with the same period last year).
™™ According to IHS Markit, Purchasing Managers' Index
(PMI) for manufacturing stood at 46 in July 2020
against 47.2 in June 2020, showing contraction in the
sector because of coronavirus-related restrictions.
™™ Gross tax revenue stood at Rs 3.80 trillion (US$ 51.35
billion) in the first quarter (from April 2020 to July
2020) of 2020-21.
™™ The first quarter of FY 2021 witnessed four initial
public offerings (IPO) worth US$ 2.08 million.
trillion (US$ 531.53 billion), an increase of 13% from 2019-
20 (revised budget estimates).
Numerous foreign companies are setting up their
facilities in India on account of various Government
initiatives like Make in India and Digital India. Mr Narendra
Modi, Prime Minister of India, launched Make in India
initiative with an aim to boost country’s manufacturing
sector and increase purchasing power of an average Indian
consumer, which would further drive demand and spur
development, thus benefiting investors. The Government
of India, under its Make in India initiative, is trying to
boost the contribution made by the manufacturing
sector with an aim to take it to 25% of the GDP from the
current 17%. Besides, the Government has also come up
with Digital India initiative, which focuses on three core
components: creation of digital infrastructure, delivering
services digitally and to increase the digital literacy.
Some of the recent initiatives and developments
undertaken by the Government are listed below:
™™ The Prime Minister of India, Mr Narendra Modi
announced various economic packages, having a
cumulative worth of around Rs 20 trillion (US$ 283.73
billion) and being almost 10% of India's GDP.

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™™ On July 6, 2020, World Bank and Government of India
signed a US$ 750 million agreement for ‘Emergency
Response Programme’ for micro, small and midsized
enterprises.
™™ As of August 17, 2020, 12.2 million Kisan credit cards
were sanctioned with credit limit of Rs 1,020.7 billion
(US$ 13.98 billion) under the special saturation drive
to revive rural economy and accelerate agricultural
growth.
™™ In September 2020, ADB & India signed US$ 500
million loan for the ‘Delhi-Meerut Regional Rapid
Transit System (RRTS) Corridor’ to improve regional
connectivity and mobility in India’s national capital
region (NCR).
™™ In September 2020, Government of India, Government
of Himachal Pradesh and World Bank signed a US$
82 million loan to implement the Himachal Pradesh
State Roads Transformation Project, to improve
India is also focusing on renewable sources to
generate energy. It is planning to achieve 40% of its
energy from non-fossil sources by 2030, which is currently
30%, and have plans to increase its renewable energy
capacity from to 175 gigawatt (GW) by 2022.
India is expected to be the third largest consumer
economy as its consumption may triple to US$ 4 trillion
by 2025, owing to shift in consumer behavior and
expenditure pattern, according to a Boston Consulting
Group (BCG) report. It is estimated to surpass USA
to become the second largest economy in terms of
purchasing power parity (PPP) by 2040 as per a report by
PricewaterhouseCoopers.
20 Important facts about Indian Economy-2020
Mauritius has the highest FDI inflow (31% of the
total Indian FDI) in India From April 2000 To December
2019. The Indian economy is composed of the three

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the condition, safety, resilience, and engineering
standards of state road network.
™™ Pradhan Mantri Garib Kalyan Package (PMGK)
was introduced in April 2020 to provide relief to
underprivileged and help them fight the battle
against COVID-19. The budget allocated to the
scheme was Rs 1.70 trillion (US$ 24.12 billion).
™™ India is expected to attract investment of around US$
100 billion in developing the oil and gas infrastructure
major sectors like i.e., Services sector, Industry sector,
and Agriculture sector. The contribution of the Services
sector in the Indian economy is around 54.30%. The Value
of India's Export stood at US$ 356.96 billion in between
April-November 2019.
India's economy has become the 5th largest economy
(in terms of nominal GDP) in the world.
The size of major economies of the world is as follows;
(in terms of Nominal GDP-IMF Estimates 2019)

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during 2019-23. 1. U.S.A - $21.43 trillion.
™™ The Government of India is going to increase public 2. China - $14.14 trillion.
health spending to 2.5% of the GDP by 2025.
3. Japan - $5.15 trillion.
™™ For implementation of Agriculture Export Policy,
4. Germany - $3.86 trillion.
Government approved an outlay Rs 2.068 billion (US$
29.59 million) for 2019, aimed at doubling farmers 5. India - $ 2.93 trillion
income by 2022. 6. U.K. - $2.74 trillion.
™™ On September 12, 2020, Prime Minister Mr Narendra 7. France - $2.70 trillion.
Modi addressed the ‘Grih Pravesham’ programme This article contains all the latest data related to the
and inaugurated 0.2 million houses built under the Indian economy. Let’s have a look
‘Pradhan Mantri Awaas Yojana-Gramin’ at Madhya
1. Demographic profile of India;
Pradesh.
zz Total Population: 1.35 billion
™™ In the mid-term review of Foreign Trade Policy (FTP)
2015-20, the Ministry of Commerce and Industry zz Population Growth Rate: 1.08% (2019)
enhanced the scope of Merchandise Exports from zz Literacy: 74.04% (2011 census)
India Scheme (MEIS) and Service Exports from India
zz Male: 82.14%
Scheme (SEIS), increased MEIS incentive for ready-
made garments and made-ups by 2%, SEIS incentive zz Female: 65.46%
by 2% and increased the validity of Duty Credit zz Life Expectancy: 67.4 years (men), 70.2 years
Scrips from 18 months to 24 months. In April 2020, (women) (2012-16, National Health Profile-2019)
Government extended FTP for one more year (up to zz Languages: Hindi, English and at least 16 other
March 31, 2021). official languages
Road Ahead zz Religions:
India's GDP is expected to reach US$ 5 trillion by FY25 a. Hinduism (79.8%))
and achieve upper-middle income status on the back of
b. Islam (14.2%)
digitization, globalization, favorable demographics, and
reforms. c. Christianity (2.3%)

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 d. Sikhism (1.7%) 12. Per Capita GDP in India: US$ 2171 International
e. Buddhism (0.7%) Monetary Fund (2019)
f. Jainism (0.4%)
2. Area:
zz Total Area: 3,287,263 sq km. (3,214 km from
North to South and 2,933 km from East to West)
zz Land: 2,973,190 sq km
zz Water: 314,070 sq km
3. Natural Resources found: Coal (fourth-largest
reserves in the world), petroleum, natural gas,
bauxite, iron ore, mica, manganese, diamonds, gold
and limestone.
4. Gross Value Added (GVA) Composition by Sector
(2017-18 2nd Advance Estimate)
a. Services Sector: 54.53% 13. Major Sectors Attracting Highest FDI Equity Inflows:
(April 2000 – June 2019)
b. Industry Sector: 29.6%

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a. Services Sector (18%)
c. Agriculture Sector: 16.14%
b. Telecommunications (8%)
5. Fiscal Year: April 01 – March 31
c. Computer Software and Hardware (9.5%)
6. Foreign Exchange Reserves: US$ 481.922 billion
(March. 2020) d. Construction Development (6%)

7. Value of India's Exports: US$ 356.96 billion in April- e. Automobile (5.8%)

November 2019. f. Trading (6%)
8. Crucial export partners of India: USA, UAE, China, g. Drugs and Pharmaceuticals (4%)
Hongkong, Singapore UK, Bangladesh h. Chemicals (4%)

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9. Share of Top Investing Countries FDI Equity Inflows: i. Power (3%)
April 2000 – June 2019) j. Construction Activities (4%)
a. Mauritius (32%)
b. Singapore (20%)
c. UK (6%)
d. Japan (7%)
e. Netherlands (7%)
f. USA (6%)
g. Germany (3%)
Countrywise FDI in India
Country FDI inflow (Rs crore) % Share FDI Inflow in India:- (2014 to 2018)
1. Mauritius 790,280.98 31.07 S. No. Financial Year Total FDI Inflow (amount in US$ million)
2. Singapore 587,820.17 20.72 1 2014-15 45,148
3. Japan 193,069.72 7.24 2 2015-16 55,559
4. Netherland 186,963.20 6.76 3 2016-17 60,220
5. U.S.A 165,967.16 6.21 4 2017-18 (P) 60,974
6. United Kingdom 148,437.69 6.12 5 2018-19 (P) 62,001
7. Germany 68,050.40 2.64 Total 283,902
8. Cyprus 53,230.40 2.21
14. Airports: Managed by the Airports Authority of India
9. France 40,038.02 1.55
zz Total Airports in India: 137
10. UAE 41,168.87 1.51
zz International Airports: 23
10. External Debt on India: USD 557.4 billion (March
2020) zz Civil enclaves: 20

11. Gold Reserves in India: 618.16 Tonnes Q4 quarter of 15. Railways:

2019 zz Railways Network: 108,706 km
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 zz Passenger Trains: 13452
zz Freight Trains: 9141
zz Total Railways Stations: 7,172
zz Daily Travellers: 23 million
16. Roadways:
zz Total Road Network: 4.87 million km (second
largest in the world)
zz Indian roads carry about 65% of freight and 85%
of passenger traffic.
17. Current Account Deficit (CAD): US$1.4 billion in the
third quarter of 2019/20
18. Waterways: 14,500 km
19. Major Ports of Entry: Mumbai, Chennai, Kolkata,
Haldia, Kandla, Ennore, Paradip, Tuticorin and
Vishakhapatnam, Jawaharlal Nehru Port Trust, Kochi,
Mormugao and New Mangalore.
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Above mentioned figures show the Indian economy
has very good growth prospects in the coming years.
These data are very crucial for all the competitive
exams held in India, so aspirants need to pay full
attention while going through them.
The Reserve Bank of India
Establishment
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The Reserve Bank of India was established on April
1, 1935 in accordance with the provisions of the Reserve
Bank of India Act, 1934.
The Central Office of the Reserve Bank was initially
established in Calcutta but was permanently moved to
Mumbai in 1937. The Central Office is where the Governor
sits and where policies are formulated.
Though originally privately owned, since
nationalisation in 1949, the Reserve Bank is fully owned
by the Government of India.
Preamble
The Preamble of the Reserve Bank of India describes
the basic functions of the Reserve Bank as:
"to regulate the issue of Bank notes and keeping of
reserves with a view to securing monetary stability in
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India and generally to operate the currency and credit
system of the country to its advantage; to have a modern
monetary policy framework to meet the challenge of an
increasingly complex economy, to maintain price stability
while keeping in mind the objective of growth."
Legal Framework
I. Acts administered by Reserve Bank of India
™™ Reserve Bank of India Act, 1934
™™ Public Debt Act, 1944/Government Securities Act,
2006
™™ Government Securities Regulations, 2007
™™ Banking Regulation Act, 1949
™™ Foreign Exchange Management Act, 1999
™™ Securitisation and Reconstruction of Financial Assets
and Enforcement of Security Interest Act, 2002
(Chapter II)
™™ Credit Information Companies(Regulation) Act, 2005
™™ Payment and Settlement Systems Act, 2007
zz Payment and Settlement Systems Regulations,
2008 and Amended up to 2011 and BPSS
Regulations, 2008
zz The Payment and Settlement Systems
(Amendment) Act, 2015 - No. 18 of 2015
™™ Factoring Regulation Act, 2011
Functions of RBI
As a central bank, the Reserve Bank has significant
powers and duties to perform. For smooth and speedy
progress of the Indian Financial System, it has to
perform some important tasks. Among others it includes
maintaining monetary and financial stability, to develop
and maintain stable payment system, to promote and
develop financial infrastructure and to regulate or control
the financial institutions.
For simplification, the functions of the Reserve
Bank are classified into the traditional functions, the
development functions and supervisory functions
Monetary Authority:
™™ Formulates implements and monitors the monetary
policy.
™™ Objective: maintaining price stability while keeping
in mind the objective of growth.
Regulator and supervisor of the financial system:
™™ Prescribes broad parameters of banking operations
within which the country's banking and financial
system functions.
™™ Objective: maintain public confidence in the
system, protect depositors' interest and provide cost-
effective banking services to the public.
Manager of Foreign Exchange
™™ Manages the Foreign Exchange Management Act,
1999.
31
™™ Objective: to facilitate external trade and payment
and promote orderly development and maintenance
of foreign exchange market in India.
Issuer of currency:
™™ Issues and exchanges or destroys currency and coins
not fit for circulation.
™™ Objective: to give the public adequate quantity of
supplies of currency notes and coins and in good
quality.
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Developmental role
™™ Performs a wide range of promotional functions to
support national objectives.
Related Functions
™™ Banker to the Government: performs merchant
banking function for the central and the state
governments; also acts as their banker.
™™ Banker to banks: maintains banking accounts of all
scheduled banks.
Traditional Functions of RBI
Traditional functions are those functions which every
central bank of each nation performs all over the world.
Basically these functions are in line with the objectives
with which the bank is set up. It includes fundamental
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functions of the Central Bank. They comprise the following
tasks.
Issue of Currency Notes: The RBI has the sole right or
authority or monopoly of issuing currency notes except
one rupee note and coins of smaller denomination.
These currency notes are legal tender issued by the RBI.
Currently it is in denominations of Rs. 2, 5, 10, 20, 50, 100,
500, and 1,000. The RBI has powers not only to issue and
withdraw but even to exchange these currency notes for
other denominations. It issues these notes against the
security of gold bullion, foreign securities, rupee coins,
exchange bills and promissory notes and government of
India bonds.
Banker to other Banks: The RBI being an apex
monitory institution has obligatory powers to guide, help
and direct other commercial banks in the country. The
RBI can control the volumes of banks reserves and allow
other banks to create credit in that proportion. Every
commercial bank has to maintain a part of their reserves
with its parent’s viz. the RBI. Similarly in need or in urgency
these banks approach the RBI for fund. Thus it is called as
the lender of the last resort.
Banker to the Government: The RBI being the apex
monitory body has to work as an agent of the central and
state governments. It performs various banking function
such as to accept deposits, taxes and make payments on
behalf of the government. It works as a representative
of the government even at the international level. It
maintains government accounts, provides financial
advice to the government. It manages government
public debts and maintains foreign exchange reserves on
behalf of the government. It provides overdraft facility to
the government when it faces financial crunch.
Exchange Rate Management: It is an essential
function of the RBI. In order to maintain stability in the
external value of rupee, it has to prepare domestic policies
in that direction. Also it needs to prepare and implement
the foreign exchange rate policy which will help in
attaining the exchange rate stability. In order to maintain
the exchange rate stability it has to bring demand and
supply of the foreign currency (U.S Dollar) close to each
other.
Credit Control Function: Commercial bank in the
country creates credit according to the demand in the
economy. But if this credit creation is unchecked or
unregulated then it leads the economy into inflationary
cycles. On the other credit creation is below the required
limit then it harms the growth of the economy. As a
central bank of the nation the RBI has to look for growth
with price stability. Thus it regulates the credit creation
capacity of commercial banks by using various credit
control tools.
Supervisory Function: The RBI has been endowed
with vast powers for supervising the banking system in
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the country. It has powers to issue license for setting up
new banks, to open new branches, to decide minimum
reserves, to inspect functioning of commercial banks in
India and abroad, and to guide and direct the commercial
banks in India. It can have periodical inspections an audit
of the commercial banks in India.
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Developmental / Promotional Functions of RBI
Along with the routine traditional functions, central
banks especially in the developing country like India
have to perform numerous functions. These functions
are country specific functions and can change according
to the requirements of that country. The RBI has been
performing as a promoter of the financial system since its
inception. Some of the major development functions of
the RBI are maintained below.
Development of the Financial System: The
financial system comprises the financial institutions,
financial markets and financial instruments. The sound
and efficient financial system is a precondition of the
rapid economic development of the nation. The RBI has
encouraged establishment of main banking and non-
banking institutions to cater to the credit requirements of
diverse sectors of the economy.
Development of Agriculture: In an agrarian
economy like ours, the RBI has to provide special
attention for the credit need of agriculture and allied
activities. It has successfully rendered service in this
direction by increasing the flow of credit to this sector. It
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has earlier the Agriculture Refinance and Development
Corporation (ARDC) to look after the credit, National Bank
for Agriculture and Rural Development (NABARD) and
Regional Rural Banks (RRBs).
Provision of Industrial Finance: Rapid industrial
growth is the key to faster economic development. In
this regard, the adequate and timely availability of credit
to small, medium and large industry is very significant.
In this regard the RBI has always been instrumental in
setting up special financial institutions such as ICICI Ltd.
IDBI, SIDBI and EXIM BANK etc.
Provisions of Training: The RBI has always tried
to provide essential training to the staff of the banking
industry. The RBI has set up the bankers’ training colleges
at several places. National Institute of Bank Management
i.e. NIBM, Bankers Staff College i.e. BSC and College of
Agriculture banking i.e. CAB are few to mention.
Collection of Data: Being the apex monetary
authority of the country, the RBI collects process and
disseminates statistical data on several topics. It includes
interest rate, inflation, savings and investments etc. This
data proves to be quite useful for researchers and policy
makers.
Publication of the Reports: The Reserve Bank has
its separate publication division. This division collects and
publishes data on several sectors of the economy. The
reports and bulletins are regularly published by the RBI.
It includes RBI weekly reports, RBI Annual Report, Report
on Trend and Progress of Commercial Banks India., etc.
This information is made available to the public also at
cheaper rates.
Promotion of Banking Habits: As an apex
organization, the RBI always tries to promote the banking
habits in the country. It institutionalizes savings and takes
measures for an expansion of the banking network. It has
set up many institutions such as the Deposit Insurance
Corporation-1962, UTI-1964, IDBI-1964, NABARD-1982,
NHB-1988, etc. These organizations develop and promote
banking habits among the people. During economic
reforms it has taken many initiatives for encouraging and
promoting banking in India.
Promotion of Export through Refinance: The RBI
always tries to encourage the facilities for providing
finance for foreign trade especially exports from India.
The Export-Import Bank of India (EXIM Bank India) and
the Export Credit Guarantee Corporation of India (ECGC)
are supported by refinancing their lending for export
purpose.
Supervisory Functions of RBI
The reserve bank also performs many supervisory
functions. It has authority to regulate and administer
the entire banking and financial system. Some of its
supervisory functions are given below.
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Granting license to banks: The RBI grants license to
banks for carrying its business. License is also given for
opening extension counters, new branches, even to close
down existing branches.
Bank Inspection: The RBI grants license to banks
working as per the directives and in a prudent manner
without undue risk. In addition to this it can ask for
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periodical information from banks on various components
of assets and liabilities.
Control over NBFIs: The Non-Bank Financial
Institutions are not influenced by the working of a
monitory policy. However RBI has a right to issue
directives to the NBFIs from time to time regarding their
functioning. Through periodic inspection, it can control
the NBFIs.
Implementation of the Deposit Insurance
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Scheme: The RBI has set up the Deposit Insurance
Guarantee Corporation in order to protect the deposits of
small depositors. All bank deposits below Rs. One lakh are
insured with this corporation. The RBI work to implement
the Deposit Insurance Scheme in case of a bank failure.
Monetary Policy - Its Meaning, Definitions
™™ The term monetary policy is also known as the ‘credit
policy’ or called ‘RBI’s money management policy’
in India. How much should be the supply of money
in the economy? How much should be the ratio of
interest? How much should be the viability of money?
Etc. Such questions are considered in the monetary
policy. From the name itself it is understood that it
is related to the demand and the supply of money.
Monetary policy refers to the policy of the central
bank with regard to the use of monetary instruments
under its control to achieve the goals specified in the
Act.
™™ The Reserve Bank of India (RBI) is vested with the
responsibility of conducting monetary policy. This
responsibility is explicitly mandated under the
Reserve Bank of India Act, 1934.
Objectives of Monetary Policy
The objectives of a monetary policy in India are
similar to the objectives of its five year plans. In a nutshell
planning in India aims at growth, stability and social
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justice. After the Keynesian revolution in economics,
many people accepted significance of monetary policy in
attaining following objectives.
™™ Rapid Economic Growth
™™ Price Stability
™™ Exchange Rate Stability
™™ Balance of Payments (BOP) Equilibrium
™™ Full Employment
™™ Neutrality of Money
™™ Equal Income Distribution
™™ These are the general objectives which every central
bank of a nation tries to attain by employing certain
tools (Instruments) of a monetary policy. In India, the
RBI has always aimed at the controlled expansion of
bank credit and money supply, with special attention
to the seasonal needs of a credit.
The Monetary Policy Framework
™™ The amended RBI Act explicitly provides the
legislative mandate to the Reserve Bank to operate
the monetary policy framework of the country.
™™ The framework aims at setting the policy (repo) rate
based on an assessment of the current and evolving
macroeconomic situation; and modulation of
liquidity conditions to anchor money market rates at
or around the repo rate. Repo rate changes transmit
through the money market to the entire the financial
system, which, in turn, influences aggregate demand
– a key determinant of inflation and growth.
™™ Once the repo rate is announced, the operating
framework designed by the Reserve Bank envisages
liquidity management on a day-to-day basis through
appropriate actions, which aim at anchoring the
operating target – the weighted average call rate
(WACR) – around the repo rate.
™™ The operating framework is fine-tuned and revised
depending on the evolving financial market and
monetary conditions, while ensuring consistency
with the monetary policy stance. The liquidity
management framework was last revised significantly
in April 2016.
The Monetary Policy Process
™™ Section 45ZB of the amended RBI Act, 1934 also
provides for an empowered six-member monetary
policy committee (MPC) to be constituted by the
Central Government b2y notification in the Official
Gazette. Accordingly, the Central Government in
September 2016 constituted the MPC as under:
1. Governor of the Reserve Bank of India –
Chairperson, ex officio;
2. Deputy Governor of the Reserve Bank of India, in
charge of Monetary Policy – Member, ex officio;
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 3. One officer of the Reserve Bank of India to be
nominated by the Central Board – Member, ex
officio;
4. Shri Chetan Ghate, Professor, Indian Statistical
Institute (ISI) – Member;
5. Professor Pami Dua, Director, Delhi School of
Economics – Member; and
6. Dr. Ravindra H. Dholakia, Professor, Indian
Institute of Management, Ahmedabad –
Member.
(Members referred to at 4 to 6 above, will hold office
for a period of four years or until further orders,
whichever is earlier.)
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™™ The MPC determines the policy interest rate required
to achieve the inflation target. The first meeting of
the MPC was held on October 3 and 4, 2016 in the
run up to the Fourth Bi-monthly Monetary Policy
Statement, 2016-17.
™™ The Reserve Bank’s Monetary Policy Department
(MPD) assists the MPC in formulating the monetary
policy. Views of key stakeholders in the economy, and
analytical work of the Reserve Bank contribute to the
process for arriving at the decision on the policy repo
rate.
™™ The Financial Markets Operations Department
(FMOD) operationalises the monetary policy,
mainly through day-to-day liquidity management
operations. The Financial Markets Committee (FMC)
meets daily to review the liquidity conditions so as to
ensure that the operating target of monetary policy
(weighted average lending rate) is kept close to the
policy repo rate.
™™ Before the constitution of the MPC, a Technical
Advisory Committee (TAC) on monetary policy with
experts from monetary economics, central banking,
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financial markets and public finance advised the
Reserve Bank on the stance of monetary policy.
However, its role was only advisory in nature. With
the formation of MPC, the TAC on Monetary Policy
ceased to exist.
Policy Repo Rate 4.00%
Reverse Repo Rate 3.35%
Marginal Standing Facility Rate 4.25%
Bank Rate 4.25%
CRR 3%
SLR 18.0%
Instruments of Monetary Policy
There are several direct and indirect instruments that
are used for implementing monetary policy.
™™ Repo Rate: The (fixed) interest rate at which the
Reserve Bank provides overnight liquidity to banks
against the collateral of government and other
approved securities under the liquidity adjustment
facility (LAF).
™™ Reverse Repo Rate: The (fixed) interest rate at which
the Reserve Bank absorbs liquidity, on an overnight
basis, from banks against the collateral of eligible
government securities under the LAF.
™™ Liquidity Adjustment Facility (LAF): The LAF
consists of overnight as well as term repo auctions.
Progressively, the Reserve Bank has increased the
proportion of liquidity injected under fine-tuning
variable rate repo auctions of range of tenors. The
aim of term repo is to help develop the inter-bank
term money market, which in turn can set market
based benchmarks for pricing of loans and deposits,
and hence improve transmission of monetary policy.
The Reserve Bank also conducts variable interest
rate reverse repo auctions, as necessitated under the
market conditions.
™™ Marginal Standing Facility (MSF): A facility under
which scheduled commercial banks can borrow
additional amount of overnight money from
the Reserve Bank by dipping into their Statutory
Liquidity Ratio (SLR) portfolio up to a limit at a penal
rate of interest. This provides a safety valve against
unanticipated liquidity shocks to the banking system.
™™ Corridor: The MSF rate and reverse repo rate
determine the corridor for the daily movement in the
weighted average call money rate.
™™ Bank Rate: It is the rate at which the Reserve Bank is
ready to buy or rediscount bills of exchange or other
commercial papers. The Bank Rate is published under
Section 49 of the Reserve Bank of India Act, 1934. This
rate has been aligned to the MSF rate and, therefore,
changes automatically as and when the MSF rate
changes alongside policy repo rate changes.
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™™ Cash Reserve Ratio (CRR): The average daily balance
that a bank is required to maintain with the Reserve
Bank as a share of such per cent of its Net demand
and time liabilities (NDTL) that the Reserve Bank may
notify from time to time in the Gazette of India.
™™ Statutory Liquidity Ratio (SLR): The share of NDTL
that a bank is required to maintain in safe and
liquid assets, such as, unencumbered government
securities, cash and gold. Changes in SLR often
influence the availability of resources in the banking
system for lending to the private sector.
™™ Open Market Operations (OMOs): These include
both, outright purchase and sale of government
securities, for injection and absorption of durable
liquidity, respectively.
™™ Market Stabilisation Scheme (MSS): This instrument
for monetary management was introduced in 2004.
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Surplus liquidity of a more enduring nature arising
from large capital inflows is absorbed through sale
of short-dated government securities and treasury
bills. The cash so mobilised is held in a separate
government account with the Reserve Bank.
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Open and Transparent Monetary Policy Making
Under the amended RBI Act, the monetary policy
making is as under:
™™ The MPC is required to meet at least four times in a
year.
™™ The quorum for the meeting of the MPC is four
members.
™™ Each member of the MPC has one vote, and in the
event of an equality of votes, the Governor has a
second or casting vote.
™™ The resolution adopted by the MPC is published
after conclusion of every meeting of the MPC in
accordance with the provisions of Chapter III F of the
Reserve Bank of India Act, 1934.
™™ On the 14th day, the minutes of the proceedings of
the MPC are published which include:
(a) The resolution adopted by the MPC;
(b) The vote of each member on the resolution,
ascribed to such member; and
(c) The statement of each member on the resolution
adopted.
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™™ Once in every six months, the Reserve Bank is
required to publish a document called the Monetary
Policy Report to explain:
(a) The sources of inflation; and
(b) The forecast of inflation for 6-18 months ahead.
Reforms in the Indian Monetary Policy During
1990s
The Monetary policy of the RBI has undergone
massive changes during the economic reform period.
After 1991 the monetary policy is disassociated from the
fiscal policy. Under the reform period an emphasis was
given to the stable macro economic situation and low
inflation policy.
The major changes in the Indian Monetary policy
during the decade of 1990.
Reduced Reserve Requirements: During 1990s
both the Cash Reserve Ratio (CRR) and the Statutory
Liquidity Ratio (SLR) were reduced to considerable extent.
The CRR was at its highest 15% plus and additional CRR of
10% was levied, however it is now reduced by 4%. The SLR
is reduced from 38.5% to a minimum of 20%.
Increased Micro Finance: In order to strengthen the
rural finance the RBI has focused more on the Self Help
Group (SHG). It comprises small and marginal farmers,
agriculture and non-agriculture labour, artisans and rural
sections of the society. However still only 30% of the
target population has been benefited.
Fiscal Monetary Separation: In 1994, the
Government and the RBI signed an agreement through
which the RBI has stopped financing the deficit in the
government budget. Thus it has separated the monetary
policy from the fiscal policy.
Changed Interest Rate Structure: During the 1990s,
the interest rate structure was changed from its earlier
administrated rates to the market oriented or liberal rate
of interest. Interest rate slabs are now reduced up to 2 and
minimum lending rates are abolished. Similarly, lending
rates above Rs. Two lakh are freed.
Changes in Accordance to the External Reforms:
During the 1990, the external sector has undergone
major changes. It comprises lifting various controls on
imports, reduced tariffs, etc. The Monetary policy has
shown the impact of liberal inflow of the foreign capital
and its implication on domestic money supply.
Higher Market Orientation for Banking: The
banking sector got more autonomy and operational
flexibility. More freedom to banks for methods of assessing
working funds and other functioning has empowered
and assured market orientation.
Monetary Policy Committee
The Reserve Bank of India Act, 1934 (RBI Act) has
been amended by the Finance Act, 2016, to provide
36
for a statutory and institutionalised framework for a
Monetary Policy Committee, for maintaining price
stability, while keeping in mind the objective of growth.
The Monetary Policy Committee would be entrusted with
the task of fixing the benchmark policy rate (repo rate)
required to contain inflation within the specified target
level. A Committee-based approach for determining the
Monetary Policy will add lot of value and transparency to
monetary policy decisions. The meetings of the Monetary
Policy Committee shall be held at least 4 times a year and
it shall publish its decisions after each such meeting.
The provisions of the RBI Act relating to Monetary
Policy have been brought into force through a Notification
in the Gazette of India Extraordinary on 27.6.2016. The
factors constituting failure to meet inflation target
under the Monetary Policy Committee Framework have
also been notified in the Gazette on 27.6.2016. The
Government, in consultation with RBI, has notified the
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inflation target in the Gazette of India Extraordinary
dated 5th August 2016 for the period beginning from the
date of publication of this notification and ending on the
March 31, 2021, as under:-
Inflation Target : Four per cent
Upper tolerance level : Six per cent
Lower tolerance level : Two per cent
As per the provisions of the RBI Act, out of the six
IAS
Members of Monetary Policy Committee, three Members
will be from the RBI and the other three Members of MPC
will be appointed by the Central Government. In exercise
of the powers conferred by section 45ZB of the Reserve
Bank of India Act, 1934, the Central Government has
accordingly constituted, through a Gazette Notification
dated 29th Sept 2016, the Monetary Policy Committee of
RBI, with the following composition, namely:-
(a) The Governor of the Bank—Chairperson, ex officio;
(b) Deputy Governor of the Bank, in charge of Monetary
Policy—Member, ex officio;
(c) One officer of the Bank to be nominated by the
Central Board—Member, ex officio;
(d) Shri Chetan Ghate, Professor, Indian Statistical
Institute (ISI) —Member
(e) Professor Pami Dua, Director, Delhi School of
Economics (DSE) — Member
(f ) Dr. Ravindra H. Dholakia, Professor, Indian Institute of
Management (IIM), Ahmedabad— Member
The Members of the Monetary Policy Committee
appointed by the Central Government shall hold office
for a period of four years, with immediate effect or until
further orders, whichever is earlier.
Inflation and Price Policy
Inflation is defined as a general rise in prices of all
commodities. Inflation is a market situation in which the
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price of goods and services increases consistently over a
period of time. So inflation reduces the value of money
hence too much money chases too few goods.
There are various methods to calculate inflation i.e.
Wholesale Price Index (WPI), Consumer Price Index (CPI),
Producer Price Index (PPI), Commodity Price Index, Cost of
Living Index, Capital Goods Price Index and GDP Deflator.
But WPI and CPI are widely used indexes to calculate
inflation all over the world.
Consumer Price Index (CPI) is a price index that
represents the average price of a basket of goods
over time. CPI calculates the average price paid by the
consumer to the shopkeepers.
Measures of Inflation
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
zz Manufactured products = 65% approx (64.2%
now)
zz Primary articles = 20% approx (22.6% now)
zz Fuel and power = 15% approx (13.1% now)
™™ The WPI basket includes 676 (Changed to 697 now)
commodities in total- all of these are only goods and
whose prices are captured at the wholesale/producer
level. The CPI considers inflation at the retail end,
while also including services.
™™ It is measured by Ministry of commerce and industry
with base year as 2004-05 (Changed to 2011-12 now).
New WPI Series
™™ Base year has been changed from 2004-05 to 2011-12
™™ The number of items covered in the new series of the
WPI has increased from 676 to 697.
™™ Under the primary articles, new vegetables and fruits
like radish, carrot, cucumber, bitter gourd, mosambi
(sweet lime), pomegranate, jackfruit, and pear have
been added.
™™ Under the mineral group, new items like copper
concentrate, lead concentrate and garnet have been
added and other items like copper ore, gypsum,
kaolin, dolomite, and magnesite have been dropped.
™™ Under the manufacturing items, 173 new items
including conveyer belt, rubber tread, steel cables,
tissue paper, and wooden splint have been added,
while 135 items like khandsari, poppadom, and video
CD players have been taken out.
™™ Under the new series of WPI, weight of manufactured
items has decreased to 64.2 per cent from 64.9 per
cent in old series.
™™ Similarly, the weight of fuel and power has decreased
to 13.1 per cent from 14.9 per cent.
37
™™ On the other hand, the weight of primary items has
increased to 22.6 per cent from 20.1 per cent.
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
zz CPI (Industrial Workers)
zz CPI (Urban Non- Manual Employees)
zz CPI (Agricultural Labour)
zz 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
Both these indices are the weighted averages of
prices of a specified set of goods and services.
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1. Data on Wholesale Price Index (WPI) is available
every week, while data on Consumer Price Index
(CPI) is only available every month, so there is a time
lag in CPI data availability compared to WPI data
availability, which can impact decision making both
for RBI and the Government of India, as the previous
answer states.
2. In India, we do not have one CPI calculated per se.
Earlier, there were 4 CPIs calculated for 4 different
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sets of workers, and now we have three such CPIs,
out of which the most famous is CPI for Industrial
Workers (CPI-IW). The others used currently are CPI
for agricultural laborers and CPI for rural laborers.
The argument used therefore is that there is no one
CPI value which can be used for decision making by
either RBI or the Government of India.
3. According to our policy makers/decision makers at
RBI and elsewhere, or so it seems, WPI has a broader
coverage compared to all the CPIs, in terms of the
commodities covered, quotations, larger number
of non-agricultural products and tradeable items,
which are missing in the CPIs.
Also, interest rates which the RBI controls may not
have much of a correlation with high food prices
and therefore decision makers may feel that since
they can’t target inflation across major sections
constituting the CPI, they would rather focus on WPI
constituted of goods on whose demand interest
rates may have a more significant impact.
4. WPI is calculated on an all India basis, while CPI is
calculated for specific centres in India and then this is
aggregated to an all India index.
CPI is better than WPI
™™ Conceptually, retail inflation—price rise driven by
potential consumer demand and available supply—
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is a better indicator of inflation for guiding monetary
policy decisions than WPI inflation.
™™ WPI excludes prices of services such as education,
healthcare, and rents. However, services now account
for nearly 60 per cent of GDP and a vast majority of
these services are not traded with other countries.
Conversely, the new CPI measure assigns nearly 36%
weightage on services and includes price changes
in housing, education, healthcare, transport and
communication, personal care and entertainment
™™ WPI assigns nearly 15% and 10.7% weightage for
the fuel group and metal and metal products group,
respectively.Any sharp movements in international
prices of fuels and metals, therefore, lead to sharp
changes in WPI.CPI shows the consumer trends of the
common man
Recent changes in CPI methodology
™™ The Central Statistics Office (CSO), Ministry of
Statistics and Programme Implementation has
revised the Base Year of the Consumer Price Index
(CPI) from 2010 to 2012.
™™ In this revised series, many methodological changes
have been incorporated, in order to make the indices
more robust
™™ The new index will include school uniforms, pyjamas,
skirts, infant clothing, kurtas, belle shoes, shoes and
chappals as well
™™ The methodology of calculating inflation will also
see a change from the present average method to
geometric mean, which will take care of a particular
category driving the entire index, an internationally
accepted practice
Implication of these changes?
™™ These changes reflect the falling share of household
expenditure on food and the rising share of the non-
food items. In addition, the number of items will also
increase from 437 to 448 in the rural basket and from
450 to 460 in the urban basket
™™ Weightage for food is down from 47.58 percent to
45.86 percent. This means future increases in food
prices will impact the index marginally less than in
the old CPI. As incomes rise, people spend less on
food
™™ The weightage for housing and clothing are higher.
™™ The sharp downward reduction in the weightage
for fuel – from 9.49 percent to 6.84 percent. This will
have the effect of reducing the deflationary impact of
recent oil prices decreases – which means overall CPI
will look higher than in the old index
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 Difference between WPI and CPI is as follows; commodity by consumers in the market relative to its
Basis For Wholesale Price Index Consumer Price Index
supply, the owner will naturally increase the prices. In this
Comparison (WPI) (CPI) case, demand has increased, but supply has remained
Meaning WPI, amounts to the CPI, indicates the constant.
average change in prices average change
There are some factors behind rapid increase in
of commodities at the in the prices of
wholesale level commodities, at the demand and relatively slow growth over the past few
retail level. decades. This is as follows:
Published by Office of Economic Central Statistics ™™ Increase in money supply.
Advisor (Ministry of Office (Ministry
Commerce & Industry) of Statistics and ™™ Massive increase in government expenditure.
Programme
Implementation) ™™ Rapid increase in population.
Measures prices Goods only Goods and Services ™™ Growth of black money.
of both
Liquidity: The term Liquidity is usually used to
Measurement of The first stage of the The final stage of the identify hard cash. In fact Liquidity just means money
Inflation transaction transaction
in any form. Liquidity is also referred to the ability and
Prices paid by Manufacturers and Consumers
wholesalers
ease with which an asset could be converted to money.
For e.g. cash is the most liquid asset. Savings-account
How many items 697 (Primary, 448 (Rural Basket)

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covered fuel & power and deposit could also be called liquid asset. How is Liquidity
manufactured products) related to Inflation you may ask? The answer is simple.
460 (Urban It's because of Demand-Pull Inflation. The demand for
Basket) the commodity is directly influenced by the amount of
What type of Manufacturing inputs Education, money that people have. The Government or Central
items covered and intermediate goods communication,
Bank can directly influence demand-pull inflation by
like minerals, machinery transportation,
basic metals etc. recreation, apparel, controlling liquidity.
foods and beverages,
housing and medical
Consequences or effects of rising price
care Inflation had caused serious imbalances in the Indian

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Base year 2011-12 2012 economy. Price relationships were badly distorted and
Used by Only a few countries 157 countries production pattern had gone out of line with demand.
including India
™™ Adverse effect on production.
Data released on Primary articles, fuel, Monthly basis
and power (Weekly ™™ Adverse effect on the distribution of income.
basis) & overall (monthly
RBI aligning accounting year with a fiscal year
basis since 2012)
The Reserve Bank of India (RBI) is aligning its July-
So from the above table, it must be clear that what
June accounting year with the government’s April-March
are the differences between the CPI & WPI indexes. Here
fiscal year in order to ensure more effective management
it is worth mentioning that CPI is a worldwide accepted
of the country’s finances.
mode of calculating the inflation as compared to the WPI.
™™ When it commenced operations on April 1, 1935,
Causes of Rising Prices with Sir Osborne Smith as its first Governor, the RBI
Its causes could be nailed down to Cost-Push inflation followed a January-December accounting year.
and Demand-Pull inflation. ™™ On March 11, 1940, however, the bank changed its
Cost-Push Inflation is caused by rise in the cost of accounting year to July-June.
factors of production. ™™ Now, after nearly eight decades, the RBI is making
There are some of factors that have contributed to another switch: the next accounting year will be a
increase in cost of production are as follows: nine-month period from July 2020 to March 31, 2021,
and thereafter, all fi nancial years will start from April,
™™ Fluctuation in output and supply.
as it happens with the central and state governments.
™™ Increase in taxes i.e. taxation, as a factor in rising costs
™™ The Bimal Jalan Committee on Economic Capital
and prices.
Framework (ECF) of the RBI had proposed a more
™™ Changes in administered prices. transparent presentation of the RBI’s annual accounts,
™™ Hike in oil prices and global inflation. and a change in its accounting year to April-March
Demand-Pull Inflation is another type of inflation. from the financial year 2020-21.
In this case, the cost of factors of production remains ™™ It said the RBI would be able to provide better
same. However, due to increase in the demand of the estimates of projected surplus transfers to the

vkLFkk IAS : M-1A, Jyoti Bhawan, Mukherjee Nagar, Delhi-110009 39

 government for the financial year for budgeting
purposes.
™™ It is also expected to result in better management of
the transfer of dividend or surplus to the government.
™™ Moreover, as governments, companies, and other
institutions follow the April-March year, it will help
with effective management of accounting.
Economic capital framework
™™ Economic capital framework refers to the risk capital
required by the central bank while taking into
account different risks.
™™ The economic capital framework refl ects the capital
that an institution requires or needs to hold as a
counter against unforeseen risks or events or losses
in the future.
Meaning of Foreign Exchange Market
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The term market has been interpreted in Economics
as the place where both the buyers as well as the sellers
meet and they buy and or sell goods.
The foreign exchange market is a place where the
transactions in foreign exchange are conducted. In
practical world the external transaction requires the use
of foreign purchasing power i.e. foreign currency. The
foreign exchange market facilitates such transactions by
performing number of functions.
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In simple words, the foreign exchange market is a
market in which national currencies are bought and sold
against one another.
Functions of Foreign Exchange Market
(A) Transfer Function: As mentioned above, the foreign
exchange markets are exchange markets engaged
in transferring the purchasing power between two
nations and two currencies. It is prime function of
this market. In simple terms, it is conversion of one
currency into another such as converting Indian
Rs. into U.S. $ and vice versa at some rate. Various
instruments like bank drafts, exchange bills, are
used for transferring the purchasing power. In this
regard international clearing to both the direction
is important to because it simplifies the conduct of
international trade as well as capital movements
from one country to another.
(B) Credit Function: Under this function the foreign
exchange market provides credit to the traders
such as exporters and importers. Exporters can get
credit such as reshipment and post-shipment credit.
Recently started Euro-Dollar market is a leading
credit market at international level. This function of
making credit available plays a crucial role in growth
and expansion of the international trade.
(C) Hedging: Hedging is a specific function. Under this
function the foreign exchange market tries to protect
vkLFkk IAS : M-1A, Jyoti Bhawan, Mukherjee Nagar, Delhi-110009
the interest of the persons dealing in the market
from any unforeseen changes in the exchange rate.
The exchange rates (price of one currency expressed
in another currency) under free market situation
can go up and down. This can either bring gains or
losses to the concerned parties. Foreign exchange
market guards the interest of both exports as well as
importers, against any changes in the exchange rate.
Thus, these are various functions performed by the
foreign exchange market. To perform above functions it
uses the following instruments.
Instruments of Foreign Exchange Market
The instruments, with the help of which the
international payments are effected. They are,
Cheques and Bank Drafts: Persons dealing with
foreign exchanges can use bank cheques as well as bank
drafts in order to make payments. The cheque is drawn on
particular bank instead of a person.
Bills of Exchange: It is also called as foreign bill of
exchange which is an unconditional order in writing
addressed by one person to another. It mentions the
person to whom a certain sum is to be paid either on
demand or on specific date.
Mail Transfer (MT): Under this, funds are transferred
from one account of a destination to the another
destination in the nation by mail. For international
payments air-mail is used.
Telegraphic Transfers (TT): By this method a sum
can be transferred from one place to another place in the
world by cable or telex. This is the quickest method of
transferring fund from one place to another.
Thus, these are various instruments / methods used
for inflecting International payments.
Meaning of Exchange Rate
The concept of exchange rate has great significance
because in case of the open economy transactions there
is an existing of at least two currencies. Exchange rate
refers to the price of one national currency expressed in
terms of any other foreign currency. External economic
transactions need an essential symmetry between two
currencies
Definition of Exchange Rate
Exchange Rate can be defined as, “the amount of the
foreign currency that may be bought for one unit of the
domestic currency.”
It can also be defined as, “the cost in domestic
currency of purchasing one unit of the foreign currency.”
Suppose the exchange rate between Indian Rupee
and the U.S. Dollar is expressed as Re. 1 = $0.0211227 or $
1 = Rs.47. It simply means the value of one Indian Rupee
is 0.02127 dollars or in other words one dollar costs Rs.47.
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 Thus, exchange rate is the price of one currency
expressed in any other currency. In order to simplify the
fulfillment of international transactions an expression of
exchange rate is must in external economic transactions.
Suppose an Indian importer wish to import goods from
New York, then he must convert his Indian rupees in to
U.S. dollars in order to make payments. However, on the
other side when the U.S. importer buys goods in India,
then he has to convert U.S. dollars in to the Indian Rupees.
The rate at which this conversion takes place is called as
an exchange rate.
How this symmetry between two currencies is
expressed i.e. how the exchange rate is determined
is mentioned in the next section. However, it is to be
understood that there are two fundamental types of the
exchange rates.
Two Fundamental Types of the Exchange Rates
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(A) Spot Exchange Rate: This refers to the price of foreign
exchange in terms of domestic money payable for
the immediate delivery of particular foreign currency.
It is an existing or day-to-day exchange rate. It is an
exchange of currencies on the spot. In simple words
that rate of exchange, which is effective for spot
transactions is known as the spot exchange rate.
(B) Forward Exchange Rate: There are several future
transactions whose delivery would be made
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sometime in the future. The rates at which these
transactions are consummated are called as forward
rate of exchange. It is the rate fulfilling the agreement
between two parties based on future delivery of
goods. The exchange rate which is applicable for
forward transaction is called as forward exchange
rate. The forward rate is expressed at par, at premium
and at a discount.
Theories for Determination of Exchange Rate
Three important theories for the exchange rate
determination are.
Mint Parity Theory (Gold Standard): However,
the gold standard had collapsed during the First World
War (1914 - 1918). Under the mint parity the exchange
rate was determined on a weight-to-weight basis of the
two currencies. However, after the break-down of the
gold standard, there was confusion in determination of
the exchange rate. Gustav Cassel a Swedish economist
enunciated the theory of determination of the equilibrium
exchange rate which was based in the parity between
two currencies of the countries.
Money Supply and Inflation
Supplying the money in the market is the sole
responsibility of the central bank of the country (Reserve
Bank of India in case of India). RBI prints the currency and
supplies money in the economy. Coins are minted by the
Ministry of Finance but circulated by the RBI in the whole
vkLFkk IAS : M-1A, Jyoti Bhawan, Mukherjee Nagar, Delhi-110009
country. Supply of money decides the rate of inflation
in the economy. If supply of money increases in the
economy then inflation starts rising and vice versa.
Supplying the money in the market is the sole
responsibility of the central bank of the country (Reserve
Bank of India in case of India). RBI prints the currency and
supplies money in the economy. Coins are minted by the
Ministry of Finance but circulated by the RBI in the whole
country. Supply of money decides the rate of inflation
in the economy. If supply of money increases in the
economy then inflation starts rising and vice versa.
The currency issued by the central bank is in fact
a liability of the central bank and the government. In
general therefore this liability must be backed by an equal
value of assets consisting mainly of gold and foreign
exchange reserves, especially in terms of high power
foreign currencies.
In India money supply is done on the basis of
Minimum Reserve System since 1956. The RBI required
holding a reserve of Gold and foreign securities and it is
empowered to issue currency to any extent. Since 1957,
the Minimum Reserve System changed to Gold reserve of
Rs. 115 cr. and rupee securities of 85 cr. Hence RBI needs
to keep 200 cr. as security to print any amount of currency
in the economy.
How to Measure Inflation in India
1. GDP Deflator: The GDP deflator is another indicator
of inflation, which is often considered to be broader
than the CPI and the WPI. The GDP deflator in most
countries is obtained by using a variety of primary
price indices. These are used to deflate individual
components of the GDP valued at current prices
(either from the production or the demand side
estimates) to obtain volume estimates.
2. The GDP deflator is then defined implicitly as the
ratio of the estimate at current prices to the one at
constant prices. When this process is followed, the
GDP deflator is legitimately recognized as a high
quality measure of inflation. Nonetheless, given the
delay in publication of national accounts it is seldom
used as a headline indicator of inflation in a real-time
setting.
3. Consumer Price Index: The overall CPI is meant to
represent the cost of a representative basket of goods
and services consumed by an average household.
However, in India, the existing CPIs refer to specific
segments of the population.
Currency in Circulation
It is the total value of the currency (coins and paper
currency) that has ever been issued by the Reserve Bank
of India minus the amount that has been withdrawn by it.
Currency in circulation comprises of:
1. Currency notes and coins with the public
2. Cash in hand with banks.
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 It is a major liability component of a central bank’s
balance sheet.
Reserve money (M0)
Reserve money is also called central bank money,
monetary base, base money, high-powered money, and
sometimes narrow money. In the most simple language,
Reserve Money is Currency in Circulation plus Deposits of
Commercial Banks with RBI.
Reserve money equals:
1. currency in circulation plus
2. bankers’ deposits with RBI plus
3. ‘other’ deposits with RBI.
It is the base level for the money supply or the high-
powered component of the money supply.
‘Money supply’ (M1-M3)?
The money supply is the total stock of money
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circulating in an economy. In general terms, it is also
called broad money. In the most simple language,
Reserve Money is Currency in Circulation plus Deposits in
Commercial Banks.
Money supply consists of:
1. Total currency circulating in the public plus
2. The non-bank deposits with a commercial bank.
Money supply includes deposits generated in the
banking system resulting from a multiplier effect of
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movement of currency in the banking system as well as
other forms of liquid assets.
Money Aggregates: Standard Measures of Money
Supply
In short, there are two types of money.
1. Central bank money (M0)- obligations of a central
bank, including currency and central bank depository
accounts.
2. Commercial bank money (M1-M3)– obligations of
commercial banks, including current accounts and
savings accounts.
In the money supply statistics, central bank money is
M0 while the commercial bank money is divided up into
the M1-M3 components.
Generally, the types of commercial bank money that
tend to be valued at lower amounts are classified in the
narrow category of M1 while the types of commercial
bank money that tend to exist in larger amounts are
categorized in M2 and M3, with M3 having the largest.
Reserve Money (M0):
™™ = Currency in circulation + Bankers’ deposits with the
RBI + ‘Other’ deposits with the RBI
™™ = Net RBI credit to the Government + RBI credit to the
commercial sector + RBI’s claims on banks + RBI’s net
foreign assets + Government’s currency liabilities to
the public – RBI’s net non-monetary liabilities.
vkLFkk IAS : M-1A, Jyoti Bhawan, Mukherjee Nagar, Delhi-110009
M1:
™™ =Currency with the public + Deposit money of the
public (Demand deposits with the banking system +
‘Other’ deposits with the RBI).
M2:
™™ =M1 + Savings deposits with Post office savings
banks.
M3: (Broad concept of the money supply)
™™ = M1+ Time deposits with the banking system
™™ = Net bank credit to the Government + Bank credit to
the commercial sector + Net foreign exchange assets
of the banking sector + Government’s currency
liabilities to the public – Net non-monetary liabilities
of the banking sector (Other than Time Deposits).
M4:
™™ =M3 + All deposits with post office savings banks
(excluding National Savings Certificates).
Money Multiplier (m)
The money multiplier is an approach used to
demonstrate the maximum amount of broad money that
could be created by commercial banks for a given fixed
amount of base money and reserve ratio.
™™ The money multiplier, m, is the inverse of the reserve
requirement, R:
™™ For example, with the reserve ratio of 20 percent, this
reserve ratio, R, can also be expressed as a fraction:
™™ So then the money multiplier, m, will be calculated
as:
This number is multiplied by the amount of reserves
to estimate the maximum potential amount of the money
supply. For example, from Rs.100 can be multiplied by 5
to generate Rs.500 money supply if Reserve Ratio is 1/5
(20%) or when Money Multiplier is 5. When Reserve Ratio
is 1/4 (25%) or when Money Multiplier is 4, that would
generate only Rs. 400 as money supply.
Demonetisation affect reserve money and money
supply
When a currency note of a particular denomination
ceases to be legal tender, the central bank’s liabilities are
reduced to that extent and also the amount of currency in
circulation declines.On November 8, 2016 Government of
India made Rs. 500 and Rs. 1000 notes invalid. This meant
that around Rs. 15 lakh crore worth of high-value legal
tender being withdrawn from circulation.So, the entire
liability of Rs. 15 lakh crore due to Rs.500 and Rs.1000
notes in circulation was nullified.But the demonetisation
impact is neutralised when the demonetised currency
is replaced with new accepted currency notes. You may
note that, even if an individual chooses to park the cash as
deposits with banks, it forms a part of the overall money
supply.Thus, say for example, if the banks or RBI got Rs.10
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lakh crore as deposits after the demonetization scheme
was introduced until December 31, 2016, that figure
forms part of the overall money supply. You may also note
that in this example Rs.5 lakh crore never made entry into
the banking records.Now the net-liability = Rs.15 lakh
crore – Rs.5 lakh crore = Rs.10 lakh crore. This liability
figure is less than the initial liability of Rs. 15 lakh crore. So
RBI and banks gain by the demonetization move, at least
on paper.
Currency in circulation a liability to RBI or
government
Let us examine what is the status of the currency we
hold in our hands.
Section 26 of the Reserve bank of India Act 1934 (“RBI
Act”) states as follows:
(1) Subject to the provisions of sub-section (2), every
bank note shall be legal tender at any place in 4 [India] in
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payment or on account for the amount expressed therein,
and shall be guaranteed by the 5 [Central Government].
This means that the money the public hold in hand or
in the bank is a debt guaranteed by the government (to
us). Currency thus represents a ‘public debt’ owed by the
government to the holders of the bank notes – the public.
Demonetisation affect the RBI’s balance sheet
If people choose not to declare and surrender their
high-denomination currency notes, then RBI stands to
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gain to the extent that its currency liabilities are lowered.
The gains it makes in the process are transferred to
its reserves and then appropriated in its profit and loss
account. This gives it leeway to transfer higher amounts
as dividends to the government.
Money Market
There are two types of financial markets viz., the
money market and the capital market. The money market
in that part of a financial market which deals in the
borrowing and lending of short term loans generally for a
period of less than or equal to 365 days. It is a mechanism
to clear short term monetary transactions in an economy.
Definitions of Money Market
Following definitions will help us to understand the
concept of money market.
According to Crowther, “The money market is a name
given to the various firms and institutions that deal in the
various grades of near money.”
According to the RBI, “The money market is the
centre for dealing mainly of short character, in monetary
assets; it meets the short term requirements of borrowers
and provides liquidity or cash to the lenders. It is a place
where short term surplus investible funds at the disposal
of financial and other institutions and individuals are
bid by borrowers, again comprising institutions and
individuals and also by the government.”
vkLFkk IAS : M-1A, Jyoti Bhawan, Mukherjee Nagar, Delhi-110009
Functions of Money Market
Money market is an important part of the economy.
It plays very significant functions. As mentioned above it
is basically a market for short term monetary transactions.
Thus it has to provide facility for adjusting liquidity to
the banks, business corporations, non-banking financial
institutions (NBFs) and other financial institutions along
with investors.
The major functions of money market are given
below:-
To maintain monetary equilibrium. It means to keep
a balance between the demand for and supply of money
for short term monetary transactions.
To promote economic growth. Money market can
do this by making funds available to various units in the
economy such as agriculture, small scale industries, etc.
To provide help to Trade and Industry. Money market
provides adequate finance to trade and industry. Similarly
it also provides facility of discounting bills of exchange for
trade and industry.
To help in implementing Monetary Policy. It provides
a mechanism for an effective implementation of the
monetary policy.
To help in Capital Formation. Money market makes
available investment avenues for short term period.
It helps in generating savings and investments in the
economy.
Money market provides non-inflationary sources of
finance to government. It is possible by issuing treasury
bills in order to raise short loans. However this dose not
leads to increases in the prices.
Apart from those, money market is an arrangement
which accommodates banks and financial institutions
dealing in short term monetary activities such as the
demand for and supply of money.
Structure of Indian Money Market
The entire money market in India can be divided
into two parts. They are organised money market and
the unorganized money market. The unorganised
money market can also be known as an unauthorized
money market. Both of these components comprise
several constituents. The following chart will help you in
understanding the organisational structure of the Indian
money market.
Components, Sub Markets of Indian Money
Market
After studying above organisational chart of the
Indian money market it is necessary to understand
various components or sub markets within it. They are
explained below.
Call Money Market: It an important sub market
of the Indian money market. It is also known as money
at call and money at short notice. It is also called inter
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bank loan market. In this market money is demanded for
extremely short period. The duration of such transactions
is from few hours to 14 days. It is basically located in the
industrial and commercial locations such as Mumbai,
Delhi, Calcutta, etc. These transactions help stock brokers
and dealers to fulfill their financial requirements. The rate
at which money is made available is called as a call rate.
Thus rate is fixed by the market forces such as the demand
for and supply of money.
Commercial Bill Market: It is a market for the short
term, self liquidating and negotiable money market
instrument. Commercial bills are used to finance the
movement and storage of agriculture and industrial
goods in domestic and foreign markets. The commercial
bill market in India is still underdeveloped.
Treasury bill Market: This is a market for sale and
purchase of short term government securities. These
securities are called as Treasury Bills which are promissory
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notes or financial bills issued by the RBI on behalf of the
Government of India. There are two types of treasury
bills. (i) Ordinary or Regular Treasury Bills and (ii) Ad Hoc
Treasury Bills. The maturity period of these securities
range from as low as 14 days to as high as 364 days. They
have become very popular recently due to high level of
safety involved in them.
Market for Certificate of Deposits (CDs): It is again
an important segment of the Indian money market. The
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certificate of deposits is issued by the commercial banks.
They are worth the value of Rs. 25 lakh and in multiple
of Rs. 25 lakh. The minimum subscription of CD should
be worth Rs. 1 Crore. The maturity period of CD is as
low as 3 months and as high as 1 year. These are the
transferable investment instrument in a money market.
The government initiated a market of CDs in order to
widen the range of instruments in the money market and
to provide a higher flexibility to investors for investing
their short term money.
Market for Commercial Papers (CPs): It is the market
where the commercial papers are traded. Commercial
paper (CP) is an investment instrument which can be
issued by a listed company having working capital more
than or equal to Rs. 5 cr. The CPs can be issued in multiples
of Rs. 25 lakhs. However the minimum subscription
should at least be Rs. 1 cr. The maturity period for the CP
is minimum of 3 months and maximum 6 months. This
was introcuced by the government in 1990.
Short Term Loan Market: It is a market where the
short term loan requirements of corporates are met by
the Commercial banks. Banks provide short term loans
to corporates in the form of cash credit or in the form
of overdraft. Cash credit is given to industrialists and
overdraft is given to businessmen.
Banking in India
The Indian banking system consists of 12 public
sector banks, 22 private sector banks, 46 foreign banks, 56
vkLFkk IAS : M-1A, Jyoti Bhawan, Mukherjee Nagar, Delhi-110009
regional rural banks, 1485 urban cooperative banks and
96,000 rural cooperative banks in addition to cooperative
credit institutions. As on January 31, 2020, the total
number of ATMs in India increased to 210,263 and is
further expected to increase to 407,000 by 2021.
Public sector banks’ assets stood at Rs 72.59 lakh
crore (US$ 1,038.76 billion) in FY19.
In the modern sense, originated in the last decades of
the 18th century. Among the first banks were the Bank of
Hindustan, which was established in 1770 and liquidated
in 1829–32; and the General Bank of India, established in
1786 but failed in 1791.
The largest bank, and the oldest still in existence, is
the State Bank of India (S.B.I). It originated as the
Bank of Calcutta in June 1806. In 1809, it was renamed
as the Bank of Bengal.
™™ The Bank of Bombay in 1840 and
™™ The Bank of Madras in 1843.
The three banks were merged in 1921 to form the
Imperial Bank of India,
Which upon India's independence, became the State
Bank of India in 1955.
For many years the presidency banks had acted
as quasi-central banks, as did their successors, until the
Reserve Bank of India was established in 1935, under the
Reserve Bank of India Act, 1934.
In 1960, the State Banks of India was given control
of eight state-associated banks under the State Bank of
India (Subsidiary Banks) Act, 1959. These are called its
associate banks.
In 1969 the Indian government nationalised 14 major
private banks, one of the big bank was Bank of India. A
second dose of nationalisation of 6 more commercial
banks followed in 1980. These nationalised banks are
the majority of lenders in the Indian economy. They
dominate the banking sector because of their large size
and widespread networks.
The Indian banking sector is broadly classified
into Scheduled banks and Non-scheduled banks. The
scheduled banks are those included under the 2nd
Schedule of the Reserve Bank of India Act, 1934. The
scheduled banks are further classified into: nationalised
banks; State Bank of India and its associates; Regional
Rural Banks (RRBs); foreign banks; and other Indian
private sector banks. The term commercial banks refer to
both scheduled and non-scheduled commercial banks
regulated under the Banking Regulation Act, 1949.
Liberalisation in the 1990s
In the early 1990s, the then government embarked
on a policy of liberalisation, licensing a small number of
private banks. These came to be known as New Generation
tech-savvy banks, and included Global Trust Bank (the first
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of such new generation banks to be set up), which later
amalgamated with Oriental Bank of Commerce, UTI Bank
(since renamed Axis Bank), ICICI Bank and HDFC Bank.
This move, along with the rapid growth in the economy
of India, revitalised the banking sector in India, which
has seen rapid growth with strong contribution from all
the three sectors of banks, namely, government banks,
private banks and foreign banks.
The next stage for the Indian banking has been set
up, with proposed relaxation of norms for foreign direct
investment. All foreign investors in banks may be given
voting rights that could exceed the present cap of 10%
at present. It has gone up to 74% with some restrictions.
The new policy shook the Banking sector in India
completely. Bankers, till this time, were used to the 4–6–
4 method (borrow at 4%; lend at 6%; go home at 4) of
functioning. The new wave ushered in a modern outlook
and tech-savvy methods of working for traditional banks.
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All this led to the retail boom in India. People demanded
more from their banks and received more.
Current Period
The Indian banking sector is broadly classified
into scheduled banks and non-scheduled banks. All
banks included in the Second Schedule to the Reserve
Bank of India Act, 1934 are Scheduled Banks. These
banks comprise Scheduled Commercial Banks and
Scheduled Co-operative Banks. Scheduled Co-operative
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Banks consist of Scheduled State Co-operative Banks
and Scheduled Urban Cooperative Banks. Scheduled
Commercial Banks in India are categorised into five
different groups according to their ownership and/or
nature of operation:
™™ State Bank of India and its Associates
™™ Nationalised Banks
™™ Private Sector Banks
™™ Foreign Banks
™™ Regional Rural Banks.
Merger of Banks
™™ Merger was proposed through a ministerial panel
called Alternative Mechanism headed by Finance
Minister.
™™ The idea of bank mergers floated since 1998, when
2nd M. Narasimham Committee recommended
the government to merge banks into three-tiered
structure —
zz Three large banks with an international presence
at top,
zz eight to ten national banks and
zz a large number of regional and local banks.
™™ PJ Nayak Committee in 2014 had also suggested that
government either merge or privatize state-owned
banks.
vkLFkk IAS : M-1A, Jyoti Bhawan, Mukherjee Nagar, Delhi-110009
™™ Public Sector Banks (PSBs) in India are fragmented,
with some of them reeling under the mounting
pressures of Non Performing Assets (NPAs).
™™ Economic Survey points out that constant failure
of banks to provide credit to both emerging and
existing industries has resulted in stagnation in the
economic growth of the nation.
Recent History of Bank Mergers
™™ In April 2017, 5 associate banks were merged with
SBI – State Bank of Bikaner and Jaipur, State Bank of
Hyderabad, State Bank of Travancore, State Bank of
Mysore and State Bank of Patiala.
™™ Bhartiya Mahila Bank was also merged along with
RBI.
™™ Government also initiated amalgamation of Regional
Rural Banks under Phase 3 consolidation, bringing
them down from 56 to 38.
In the bank group-wise classification, IDBI Bank Ltd.
is included in Nationalised Banks. Industrial Development
Bank of India (IDBI Bank Limited or IDBI Bank or IDBI) was
established in 1964 by an Act to provide credit and other
financial facilities for the development of the fledgling
Indian industry. Many national institutes finds their roots
in IDBI like SIDBI, Exim bank, NSE and NSDL.
Initially it operated as a subsidiary of Reserve Bank
of India and later RBI has transferred it to Government
of India. On June 29, 2018 Life Insurance Corporation of
India (LIC) has got a technical go-ahead from Insurance
Regulatory and Development Authority of India (IRDAI)
to increase stake in IDBI Bank up to 51%. LIC completed
acquisition of 51% controlling stake on January 21,
2019 making it the majority shareholder of the IDBI
Bank. Reserve Bank of India has clarified vide a Press
Release dated March 14, 2019, that IDBI Bank stands
re-categorized as a Private Sector Bank for regulatory
purposes with effect from January 21, 2019.
On 17 September 2018, the Government of India
proposed the merger of Dena Bank and Vijaya Bank with
the Bank of Baroda, pending approval from the boards of
the three banks. The merger was approved by the Union
Cabinet and the boards of the banks on 2 January 2019.
Latest Development in Banking Sector The Reserve
Bank of India (RBI) announced that the merger of 10 state-
run banks into four lenders came into effect on 1 April
amid the lockdown triggered by coronavirus outbreak.
The branches of merging banks will operate as of the
banks in which the banks have been amalgamated.
Highlights:
™™ On 4 March 2020, GoI announced the amalgamation
schemes for 10 state-owned banks into four as part
of its consolidation plan. The move aimed to create
bigger size stronger banks in the public sector.
45
™™ The amalgamation of 10 PSBs into four Banks
include: (i) United Bank of India and Oriental Bank
of Commerce (OBC) into Punjab National Bank (PNB)
(ii) Syndicate Bank into Canara Bank (iii) Corporation
Bank and Andhra Bank into Union Bank of India (iv)
Allahabad Bank into Indian Bank
™™ The customers of the merging banks will be treated
as customers of the banks in which these banks
have been merged. Benefit: The major objective of
the merger is to achieve India's vision to make a $5
trillion economy. The merger will reduce the lending
cost and enhance the capacity in order to increase
credit. It will also improve the ability to raise market
resources.
Regional Rural Banks
™™ RRBs are financial institutions which ensure adequate
credit for agriculture and other rural sectors.
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™™ Regional Rural Banks were set up on the basis of
the recommendations of the Narasimham Working
Group (1975), and after the legislation of the Regional
Rural Banks Act, 1976.
™™ The first Regional Rural Bank “Prathama Grameen
Bank” was set up on 2nd October, 1975.
™™ Stakeholders: The equity of a regional rural bank is
held by the Central Government, concerned State
Government and the Sponsor Bank in the proportion
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of 50:15:35.
™™ The RRBs combine the characteristics of a cooperative
in terms of the familiarity of the rural problems and a
commercial bank in terms of its professionalism and
ability to mobilise financial resources.
™™ Each RRB operates within the local limits as notified
by the Government.
™™ The main objectives of RRBs are
™™ To provide credit and other facilities to the small and
marginal farmers, agricultural labourers, artisans and
small entrepreneurs in rural areas.
™™ To check the outflow of rural deposits to urban areas
and reduce regional imbalances and increase rural
employment generation.
Amalgamation
Currently, RRB's are going through a process of
amalgamation and consolidation. 25 RRBs have been
amalgamated in January 2013 into 10 RRBs. This counts
67 RRBs till the first week of June 2013. This counts 56 as
of March 2015. On 31 March 2016, there were 56 RRBs
(post-merger) covering 525 districts with a network of
14,494 branches. All RRBs were originally conceived as
low cost institutions having a rural ethos, local feel and
pro poor focus. However, within a very short time, most
banks were making losses. The original assumptions as
to the low cost nature of these institutions were belied.
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This may be again amalgamated in near future. With the
third phase of amalgamation of RRB bringing down the
number of such entities to 38 from 56. As of 1st April 2020,
there are 43 RRBs in India.
Recapitalization of Regional Rural Banks (RRBs)
The Cabinet Committee on Economic Affairs (CCEA)
chaired by Prime Minister Narendra Modi approved to
continue the process of recapitalization of Regional
Rural Banks (RRBs). Highlights: The Cabinet approved to
provide minimum regulatory capital to RRBs for another
year, that is, up to 2020-21 for those RRBs which are
unable to maintain minimum Capital to Risk-weighted
Assets Ratio (CRAR) of 9% which was set as per the
regulatory norms prescribed by the Reserve Bank of India
(RBI). The CCEA also approved the RRB's to utilize Rs.670
crore as central government share for the scheme of
Recapitalization of RRBs that are subject to the condition
that the release of the Central Government’s share will
be contingent upon the release of the proportionate
share by the sponsor banks. Earlier, it was decided that
50% of the total recapitalization support of Rs.1340
crore will be shared by the government. Background: RBI
introduced disclosure norms for CRAR of RRBs with effect
from March 2008. Based on the recommendation of Dr.
K.C. Chakrabarty chaired the committee, a Scheme for
Recapitalization of RRBs was approved by the Cabinet on
10 February 2011. As per the scheme, the National Bank
for Agriculture and Rural Development (NABARD) will
identify the RRBs that require recapitalization assistance
to maintain the mandatory CRAR of 9%. The scheme will
provide recapitalization support of Rs.2,200 crore to 40
RRBs. Also, an additional amount of Rs.700 crore will be
given as a contingency fund to meet the requirement
of the weak RRBs, particularly in the North-Eastern and
Eastern Region.
Structure of Cooperative Banking in India
The structure of cooperative network in India can be
divided into 2 broad segments-
1. Urban Cooperative Banks
2. Rural Cooperatives
Urban Cooperatives
Urban Cooperatives can be further divided into
scheduled and non-scheduled. Both the categories are
further divided into multi-state and single-state. Majority
of these banks fall in the non-scheduled and single-state
category.
™™ Banking activities of Urban Cooperative Banks are
monitored by RBI.
™™ Registration and Management activities are managed
by Registrar of Cooperative Societies (RCS). These
RCS operate in single-state and Central RCS (CRCS)
operate in multiple state.
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Rural Cooperatives
The rural cooperatives are further divided into
short-term and long-term structures. The short-term
cooperative banks are three tiered operating in different
states. These are-
1. State Cooperative Banks: They operate at the apex
level in states
2. District Central Cooperative Banks: They operate at
the district levels
3. Primary Agricultural Credit Societies: They operate at
the village or grass-root level.
Likewise, the long-term structures are further divided
into –
1. State Cooperative Agriculture and Rural Development
Banks (SCARDS)- These operate at state-level.
2. Primary Cooperative Agriculture and Rural
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Development Banks (PCARDBS)-They operate at
district/block level.
The rural banking cooperatives have a complex
monitoring structure as they have a dual control which
has led to many problems. A Forum called State Level Task
Force on Cooperative Urban Banks (TAFCUB) has been
set-up to look into issues related to duality in control.
™™ All banking activities are regulated by a shared
arrangement between RBI and NABARD.
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™™ All management and registration activities are
managed by RCS.
Now cooperative banks under RBI regulation
The Union Cabinet approved the proposal to amend
the Banking Regulation Act. The move comes after the
Punjab and Maharashtra Co-operative (PMC) Bank crisis.
Amendment to Banking Regulation Act:
™™ The amendment will bring the cooperative banks
under the regulatory mechanism of the Reserve Bank
of India (RBI).
™™ It will ensure greater accountability and transparency
in the functioning of cooperative banks.
™™ The cooperative banks need to fulfill regulatory
requirements set for scheduled commercial banks.
™™ The amendment will give RBI the power to take
control of weak co-operative banks.
™™ As per the proposed amendment, the cooperative
bank should take RBI approval for the appointment
of the CEO and do audits as per RBI guidelines.
Background: In September 2019, RBI has imposed a
ban on the operation of PMC bank. The PMC bank
was not allowed to issue loans or open fixed deposit
accounts after a multi-crore scam. The withdrawal
limit was set to Rs.50,000.
The Reserve Bank of India (RBI) has revised its
Supervisory Action Framework (SAF) for urban co-
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operative banks (UCBs). The move is to expedite the
resolution of UCBs experiencing financial stress. The
revised framework released by the RBI on 6 January
2020. It stipulates the thresholds for various parameters
that could trigger corrective action by the UCBs or a
supervisory action by RBI. Reason: The move comes
after the scam in Punjab and Maharashtra Cooperative
(PMC) Bank that caused distress to over 9 lakh depositors.
Revised SAF:
™™ As per the revised SAF, a UCB may be placed under
SAF when its Net nonperforming assets (NPA) exceed
6% of its net advances, its Capital to Risk (Weighted)
Assets Ratio (CRAR) falls below 9%.
™™ When a UCB incurs losses for two consecutive
financial years or has accumulated losses on its
balance sheet, it will be placed under SAF.
™™ The type of action would depend on the severity of
stress.
™™ RBI will undertake different actions like the imposition
of all-inclusive directions under section 35A of the
Banking Regulation Act, 1949, as applicable to co-
operative societies.
™™ Cancellation of banking license may be considered
by RBI will be continued normal functioning of the
UCB is no longer considered to be in the interest of
its depositors.
™™ Supervisory action already taken by RBI under the
earlier SAF will be reviewed and revised instructions,
if any, will be issued to the UCBs concerned.
Reserve Bank of India directed large cooperative
banks to report all exposures of Rs 5 crore and more to
the Central Repository of Information on Large Credits
(CRILC) at early recognition of financial distress. Reserve
Bank of India created a CRILC of commercial banks all
India financial institutions, and individual non-banking
financial companies with multiple objectives, which,
among others, include strengthening offsite supervision
and early recognition of financial distress. RBI announced
that to bring UCBs with assets of Rs 500 crore and above
under the CRILC reporting framework. The Primary
(Urban) Co-operative Banks (UCBs) having total assets of
Rs 500 crore and above on all borrowers having aggregate
exposures of Rs 5 crore and above with them to CRILC
maintained by the Reserve Bank. The total exposure will
include all fund-based and non-fund based exposure
(like partial credit enhancement), including investment
exposure on the borrower. The UCBs will be required to
submit the CRILC report on a quarterly basis with effect
from December 31, 2019.
Small finance banks
To further the objective of financial inclusion, the
RBI granted approval in 2016 to ten entities to set up
small finance banks. Since then, all ten have received the
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necessary licenses. A small finance bank is a niche type
of bank to cater to the needs of people who traditionally
have not used scheduled banks. Each of these banks is to
open at least 25% of its branches in areas that do not have
any other bank branches (unbanked regions). A small
finance bank should hold 75% of its net credits in loans to
firms in priority sector lending, and 50% of the loans in its
portfolio must be less than Rs.25 lakh (US$38,000).
There are ten small finance banks
1. AU Small Finance Bank Ltd.
2. Capital Small Finance Bank Ltd.
3. Equitas Small Finance Bank Ltd.
4. ESAF Small Finance Bank Ltd.
5. Fincare Small Finance Bank Ltd.
6. Jana Small Finance Bank Ltd.
7. North East Small Finance Bank Ltd.
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8. Suryoday Small Finance Bank Ltd.
9. Ujjivan Small Finance Bank Ltd.
10. Utkarsh Small Finance Bank Ltd.
RBI released Guidelines for on tap licensing of
SFBs
Reserve Bank of India (RBI) released Guidelines for
'on tap' licensing of Small Finance Banks (SFBs) in the
Private Sector after making few changes. The previous
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guidelines were released on 27 November 2014. New
Changes: Major changes from the earlier Guidelines on
Small Finance Banks are:
™™ The new guidelines stated that the minimum paid-
up voting equity capital or net worth requirement
should be Rs.200 crore
™™ As per the new guidelines, licensing window will be
open on-tap
™™ For Primary (Urban) Co-operative Banks (UCBs),
which want to transit into Small Finance Banks (SFBs),
the initial requirement shall be Rs.100 crore. It should
be increased to Rs.200 crore within five years from
the date of commencement of business.
™™ Upon the commencement of operations, the SFBs
will be given scheduled bank status immediately and
will have general permission to open banking outlets.
™™ Payments Banks can be transit into SFB after five
years of operations if they are otherwise eligible as
per these guidelines.
Payment Bank
Payments bank is a new model of banks conceptualized
by the Reserve Bank of India (RBI). These banks can accept
a restricted deposit, which is currently limited to 1 lakh
per customer. These banks may not issue loans or credit
cards, but may offer both current and savings accounts.
Payments banks may issue ATM and debit cards, and offer
vkLFkk IAS : M-1A, Jyoti Bhawan, Mukherjee Nagar, Delhi-110009
net-banking and mobile-banking.The draft guidelines for
licensing of payments banks in the private sector were
formulated and released for public comments on July
17, 2014. The banks will be licensed as payments banks
under Section 22 of the Banking Regulation Act, 1949,
and will be registered as public limited company under
the Companies Act, 2013.
As of February 2020, there are seven active payments
banks:
1. Airtel Payments Bank Ltd.
2. Fino Payments Bank Ltd.
3. India Post Payments Bank Ltd.
4. Jio Payments Bank Ltd.
5. NSDL Payments Bank Ltd.
6. PayTm Payments Bank Ltd.
7. Aditya Birla Idea Payments Bank Ltd.
NPCI launched the Vajra Platform for a fast and
secure platform
The National Payments Corporation of India (NPCI)
launched the Vajra Platform to make payments fast and
secure. The platform is based on blockchain technology.
Aim: The main objective of the Vajra Platform is to provide
automated clearing and settlement of payments and
drastically reduce the need for manual reconciliation.
Features:
™™ Vajra Platform uses distributed ledger technology
(DLT)
™™ The platform uses a permissions model in order to
ensure that only approved parties are a part of the
network
™™ Payment companies can apply and register to be a
part of the network
™™ After getting the approval, the companies can deploy
the platform using an application programming
interface (API) that will be provided by NPCI. Benefits:
The benefits of the Vajra Platform:
™™ Near real-time clearing and settlement of transactions
™™ Minimal reconciliation of transactions
™™ Improved security and reduced operational and
financial risks
™™ Legitimate audit trail as DLT is incorruptible
™™ Vajra Platform will be used for Aadhaar authentication
by the Unique Identification Authority of India (UIDAI)
Basel III Leverage Ratio Framework
The experience drawn from the global financial
crisis suggests that the build-up of excessive on-balance
sheet, as well as off-balance sheet leverage in the banking
system was at the core of the financial fragilities that
were witnessed during the global financial crisis. Based
on recent recommendations of the Basel Committee on
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Banking Supervision (BCBS), the Reserve Bank will issue
revised guidelines on the leverage ratio.
Review of the exposure limits for single/ group
borrowers
With a view to gradually aligning them with the
revised global standards the Reserve Bank proposes
to review exposure norms in 2014-15. The tightening
of exposure norms will also help in risk mitigation
during cyclical downturns as banks exposure under the
framework will be more granular and diversified to a
large number of unrelated counterparties rather than
being concentrated to a handful of large and related
counterparties.
Improving the financial system’s ability to cope
with distress
It is important to improve the financial system’s ability
to cope with stress and distress by not only providing for
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counter-cyclical buffers, but also by directly dealing with
stress through effective resolution regimes. The Reserve
Bank in 2013-14 has taken several initiatives in this regard
and plans to carry the agenda forward by strengthening
the corporate debt restructuring mechanism, credit
information and the resolution regime. In coordination
with Financial Stability and Development Council (FSDC),
the Reserve Bank intends to take the process forward by
seeking necessary legal and institutional changes and by
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creating of a resolution fund.
Implementation of Ind AS by banks
The Reserve Bank is in the advanced stages
of finalising a roadmap for implementation of Ind
Accounting Standards to be adopted by banks and Non-
Banking Finance Companies.
Banking Sector Reform In India
Indian banking sector has undergone major changes
and reforms during economic reforms. Though it was a
part of overall economic reforms, it has changed the very
functioning of Indian banks. This reform has not only
influenced the productivity and efficiency of many of the
Indian Banks, but has left everlasting footprints on the
working of the banking sector in India.
Let us get acquainted with some of the important
reforms in the banking sector in India.
Reduced CRR and SLR: The Cash Reserve Ratio
(CRR) and Statutory Liquidity Ratio (SLR) are gradually
reduced during the economic reforms period in India.
By Law in India the CRR remains between 3-15% of the
Net Demand and Time Liabilities. It is reduced from the
earlier high level of 15% plus incremental CRR of 10% to
current 4% level. Similarly, the SLR Is also reduced from
early 38.5% to current minimum of 20% level. This has left
more loanable funds with commercial banks, solving the
liquidity problem.
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Deregulation of Interest Rate: During the
economics reforms period, interest rates of commercial
banks were deregulated. Banks now enjoy freedom of
fixing the lower and upper limit of interest on deposits.
Interest rate slabs are reduced from Rs.20 Lakhs to just
Rs. 2 Lakhs. Interest rates on the bank loans above Rs.2
lakhs are full decontrolled. These measures have resulted
in more freedom to commercial banks in interest rate
regime.
Fixing prudential Norms: In order to induce
professionalism in its operations, the RBI fixed prudential
norms for commercial banks. It includes recognition
of income sources. Classification of assets, provisions
for bad debts, maintaining international standards in
accounting practices, etc. It helped banks in reducing and
restructuring Non-performing assets (NPAs).
Introduction of CRAR: Capital to Risk Weighted
Asset Ratio (CRAR) was introduced in 1992. It resulted in
an improvement in the capital position of commercial
banks, all most all the banks in India has reached the
Capital Adequacy Ratio (CAR) above the statutory level of
9%.
Operational Autonomy: During the reforms period
commercial banks enjoyed the operational freedom. If a
bank satisfies the CAR then it gets freedom in opening
new branches, upgrading the extension counters, closing
down existing branches and they get liberal lending
norms.
Banking Diversification: The Indian banking sector
was well diversified, during the economic reforms period.
Many of the banks have stared new services and new
products. Some of them have established subsidiaries
in merchant banking, mutual funds, insurance, venture
capital, etc which has led to diversified sources of income
of them.
New Generation Banks: During the reforms period
many new generation banks have successfully emerged
on the financial horizon. Banks such as ICICI Bank, HDFC
Bank, UTI Bank have given a big challenge to the public
sector banks leading to a greater degree of competition.
Improved Profitability and Efficiency: During the
reform period, the productivity and efficiency of many
commercial banks has improved. It has happened due
to the reduced Non-performing loans, increased use
of technology, more computerization and some other
relevant measures adopted by the government.
These are some of the import reforms regarding the
banking sector in India.
With these reforms, Indian banks especially the
public sector banks have proved that they are no longer
inefficient compared with their foreign counterparts as
far as productivity is concerned.
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Financial Inclusion
™™ Financial inclusion may be defined as the process
of ensuring access to financial services like banking,
insurance, stock exchange and pension services
timely where needed by vulnerable groups such
as weaker sections and low income groups at an
affordable cost.
™™ In a diverse country like India, financial inclusion
is a critical part of the development process. Since
independence, the combined efforts of successive
governments, regulatory institutions, and the civil
society have helped in increasing the financial-
inclusion net in the country.
™™ The state of financial inclusion has improved
considerably over time. However, the financial
inclusion hasn’t reached the poorest of the poor and
there exist many bottlenecks and challenges which
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need immediate attention.
Financial Inclusion Initiatives
Jan Dhan-Aadhar-Mobile (JAM) Trinity
™™ The combination of Aadhaar, PMJDY, and a surge
in mobile communication has reshaped the way
citizens access government services.
™™ As per the estimates in March 2020, the total number
of beneficiaries under Jan Dhan scheme have been
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more than 380 million.
™™ By significantly changing the concept of individual
identity, Aadhaar has not only brought about a secure
and easily verifiable system but also easy to obtain as
well to help in the financial inclusion process.
™™ The government has also launched many flagship
schemes to promote financial inclusion and provide
financial security to empower the poor and unbanked
in the country.
These include the Pradhan Mantri Mudra Yojana,
Stand-Up India Scheme, Pradhan Mantri Jeevan Jyoti
Bima Yojana, Pradhan Mantri Suraksha Bima Yojana, and
Atal Pension Yojana.
Expansion of financial services in Rural and Semi-
Urban Areas
™™ Reserve Bank of India (RBI) and National Bank for
Agriculture and Rural Development (NABARD) have
taken initiatives to promote financial inclusion in
rural areas.
zz These include the opening of bank branches in
remote areas.
zz Issuing Kisan Credit Cards (KCC)
zz Linkage of self-help groups (SHGs) with banks.
zz Increasing the number of automated teller
machines (ATMs)
zz Business correspondents model of Banking, etc.
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Promotion of Digital Payments
™™ With the strengthening of the Unified Payment
Interface (UPI) by NPCI, digital payments have been
made secure, compared to the past.
™™ The Aadhar-enabled payment system (AEPS) enables
an Aadhar enabled bank account (AEBA) to be used
at any place and at any time, using micro ATMs.
™™ The payment system has been made more accessible
due to offline transaction-enabling platforms, like
Unstructured Supplementary Service Data (USSD),
which makes it possible to use mobile banking
services without internet, even on a basic mobile
handset.
Enhancing Financial Literacy
The Reserve Bank of India has undertaken a project
titled "Project Financial Literacy".
The Objective of the project is to disseminate
information regarding the central bank and general
banking concepts to various target groups, including,
school and college going children, women, rural and
urban poor, defence personnel and senior citizens.
National Strategy for Financial Inclusion 2019-24
The Reserve Bank of India (RBI) unveiled a National
Strategy for Financial Inclusion 2019-24. The RBI's Strategy
is aimed at providing access to formal financial services
in an affordable manner. It aims to promote financial
literacy among customers. Formed by: The Financial
Inclusion Advisory Committee of the RBI in consultation
with the Government of India, Securities Exchange Board
of India (SEBI), Insurance Regulatory and Development
Authority of India (IRDAI), and Pension Fund Regulatory
and Development Authority of India (PFRDA) provided
the National Strategy for Financial Inclusion 2019-24.
National Strategy for Financial Inclusion 2019-24:
™™ National Strategy for Financial Inclusion method
recommends many ways in which the objective can
be fulfilled.
™™ It suggested methods to provide access to financial
service provides in every village within a range of 5
km.
™™ Every adult registered under Pradhan Mantri Jan
Dhan Yojana (PMJDY) should be enrolled in insurance,
pension schemes.
™™ The public credit registry should be made fully
operational by March 2022. The strategy directed to
strengthen the digital financial services to facilitate
less-cash society.
™™ Every new entrant should be given information on
government livelihood programme.
Lead Bank Scheme:
™™ The Lead Bank Scheme was introduced in 1969, to
guide commercial, regional, rural and Co-operatives
50
 to improve their facilities in rural areas and deliver
effective services.
™™ The Reserve Bank of India on the basis of the study
group under the Chairmanship of Prof. D.R. Gadgil
and a committee of Bankers headed by F.K.F.Nariman
evolved the Lead Bank Scheme.
™™ A “district credit” plan combined with government
schemes is prepared and monitored by the lead bank.
™™ The effectiveness of the Lead Bank Scheme depends
on the dynamism of the District Collectors and the
Lead District Managers (LDMs).
Aim of the Scheme:
™™ The aim of the scheme is providing adequate
banking and credit in rural areas through an ‘service
area approach’, with one bank assigned for one area.
Objectives of the Lead Bank Scheme:
overdue for a period of more than 90 days in respect
of a term loan.
™™ The account remains ‘out of order’ in respect of an
Overdraft/Cash Credit (OD/CC).
™™ The bill remains overdue for a period of more than 90
days in the case of bills purchased and discounted.
™™ The installment of principal or interest thereon
remains overdue for two crop seasons for short
duration crops.
™™ The installment of principal or interest thereon
remains overdue for one crop season for long
duration crops.
™™ The amount of liquidity facility remains outstanding
for more than 90 days, in respect of a securitisation
transaction undertaken in terms of guidelines on
securitisation dated February 1, 2006.

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™™ To identify unbanked and underbanked centres in
districts and to evaluate their physiographic, agro
climatic end Socio-economic conditions through
economic survey.
™™ To help in removing regional imbalances through
appropriate credit deployment;
™™ To extend banking facilities to unbanked areas;
™™ To estimate credit gaps in various sectors of an
economy of a district and prepare a credit plan
™™ In respect of derivative transactions, the overdue
receivables representing positive mark-to-market
value of a derivative contract, if these remain unpaid
for a period of 90 days from the specified due date
for payment.
™™ Categories of Non-Performing Assets (NPAs)
™™ Based upon the period to which a loan has remained
as NPA, it is classified into 3 types:
Categories of NPAs

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zz
accordingly. zz Criteria
™™ To identify economically viable and technically zz Substandard Assets
feasible schemes.
™™ An asset which remains as NPAs for less than or equal
™™ To effect structural and procedural changes in to 12 months.
banking sector.
™™ Doubtful Assets
™™ To develop co-operation amongst financial and non-
™™ An asset which remained in the above category for
financial institutions, in overall development of the
12 months.
districts.
™™ Loss Assets
™™ To serve as a clearing house for discussions of
problems arising out of financing priority sectors. ™™ Asset where loss has been identified by the bank or
the RBI, however, there may be some value remaining
Lead banks are in terms of doubling the income of
in it. Therefore loan has not been not completely
farmers by 2022 advised to:
written off.
™™ Work closely with NABARD in preparation of Potential
™™ How serious is India’s NPA issue?
Linked Plans (PLPs) & Annual Credit Plans.
™™ More than Rs. 7 lakh crore worth loans are classified
™™ Include ‘Doubling of Farmer’s Income by 2022’ as a
as Non-Performing Loans in India. This is a huge
regular agenda under Lead Bank Scheme
amount.
None Performing Assets (NPA)
™™ The figure roughly translates to near 10% of all loans
NPAs definition by Reserve Bank of India (RBI) given.
™™ An asset, including a leased asset, becomes ™™ This means that about 10% of loans are never paid
nonperforming when it ceases to generate income back, resulting in substantial loss of money to the
for the bank. banks.
™™ Technical definition by RBI on NPA on different cases ™™ When restructured and unrecognised assets are
™™ NPA is a loan or an advance where… added the total stress would be 15-20% of total loans.
™™ Interest and/ or installment of principal remain ™™ NPA crisis in India is set to worsen.
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™™ Restructuring norms are being misused.
™™ This bad performance is not a good sign and can
result in crashing of banks as happened in the sub-
prime crisis of 2008 in the United States of America.
™™ Also, the NPA problem in India is worst when
comparing other emerging economies in BRICS.
Reasons for NPAs
™™ Diversification of funds to unrelated business/fraud.
™™ Lapses due to diligence.
™™ Busines losses due to changes in business/regulatory
environment.
™™ Lack of morale, particularly after government
schemes which had written off loans.
™™ Global, regional or national financial crisis which
results in erosion of margins and profits of companies,
therefore, stressing their balance sheet which finally
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results into non-servicing of interest and loan
payments. (For example, the 2008 global financial
crisis).
™™ The general slowdown of entire economy for
example after 2011 there was a slowdown in the
Indian economy which resulted in the faster growth
of NPAs.
™™ The slowdown in a specific industrial segment,
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therefore, companies in that area bear the heat and
some may become NPAs.
™™ Unplanned expansion of corporate houses during
boom period and loan taken at low rates later being
serviced at high rates, therefore, resulting into NPAs.
™™ Due to mal-administration by the corporates, for
example, willful defaulters.
™™ Due to misgovernance and policy paralysis which
hampers the timeline and speed of projects, therefore,
loans become NPAs. For example Infrastructure
Sector.
™™ Severe competition in any particular market segment.
For example Telecom sector in India.
™™ Delay in land acquisition due to social, political,
cultural and environmental reasons.
™™ A bad lending practice which is a non-transparent
way of giving loans.
™™ Due to natural reasons such as floods, droughts,
disease outbreak, earthquakes, tsunami etc.
™™ Cheap import due to dumping leads to business loss
of domestic companies. For example Steel sector in
India.
Impact of NPAs
™™ Lenders suffer lowering of profit margins.
™™ Stress in banking sector causes less money available
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to fund other projects, therefore, negative impact on
the larger national economy.
™™ Higher interest rates by the banks to maintain the
profit margin.
™™ Redirecting funds from the good projects to the bad
ones.
™™ As investments got stuck, it may result in it may result
in unemployment.
™™ In the case of public sector banks, the bad health of
banks means a bad return for a shareholder which
means that government of India gets less money as
a dividend. Therefore it may impact easy deployment
of money for social and infrastructure development
and results in social and political cost.
™™ Investors do not get rightful returns.
™™ Balance sheet syndrome of Indian characteristics
that is both the banks and the corporate sector have
stressed balance sheet and causes halting of the
investment-led development process.
™™ NPAs related cases add more pressure to already
pending cases with the judiciary.
Various steps taken to tackle NPAs
NPAs story is not new in India and there have been
several steps taken by the GOI on legal, financial, policy
level reforms. In the year 1991, Narsimham committee
recommended many reforms to tackle NPAs. Some of
them were implemented.
The Debt Recovery Tribunals (DRTs) – 1993
To decrease the time required for settling cases.
They are governed by the provisions of the Recovery of
Debt Due to Banks and Financial Institutions Act, 1993.
However, their number is not sufficient therefore they
also suffer from time lag and cases are pending for more
than 2-3 years in many areas.
Credit Information Bureau – 2000
A good information system is required to prevent
loan falling into bad hands and therefore prevention of
NPAs. It helps banks by maintaining and sharing data of
individual defaulters and willful defaulters.
Lok Adalats – 2001
They are helpful in tackling and recovery of small
loans however they are limited up to 5 lakh rupees
loans only by the RBI guidelines issued in 2001. They are
positive in the sense that they avoid more cases into the
legal system.
Compromise Settlement – 2001
It provides a simple mechanism for recovery of NPA
for the advances below Rs. 10 Crores. It covers lawsuits
with courts and DRTs (Debt Recovery Tribunals) however
willful default and fraud cases are excluded.
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SARFAESI Act – 2002
The Securitization and Reconstruction of Financial
Assets and Enforcement of Security Interest (SARFAESI)
Act, 2002 – The Act permits Banks / Financial Institutions
to recover their NPAs without the involvement of the
Court, through acquiring and disposing of the secured
assets in NPA accounts with an outstanding amount of Rs.
1 lakh and above. The banks have to first issue a notice.
Then, on the borrower’s failure to repay, they can:
1. Take ownership of security and/or
2. Control over the management of the borrowing
concern.
3. Appoint a person to manage the concern.
Further, this act has been amended last year to make
its enforcement faster.
ARC (Asset Reconstruction Companies)
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The RBI gave license to 14 new ARCs recently after
the amendment of the SARFAESI Act of 2002. These
companies are created to unlock value from stressed
loans. Before this law came, lenders could enforce their
security interests only through courts, which was a time-
consuming process.
Corporate Debt Restructuring – 2005
It is for reducing the burden of the debts on the
company by decreasing the rates paid and increasing the
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time the company has to pay the obligation back.
5:25 rule – 2014
Also known as, Flexible Structuring of Long Term
Project Loans to Infrastructure and Core Industries. It was
proposed to maintain the cash flow of such companies
since the project timeline is long and they do not get the
money back into their books for a long time, therefore,
the requirement of loans at every 5-7 years and thus
refinancing for long term projects.
Joint Lenders Forum – 2014
It was created by the inclusion of all PSBs whose loans
have become stressed. It is present so as to avoid loan to
same individual or company from different banks. It is
formulated to prevent the instances where one person
takes a loan from one bank to give a loan of the other
bank.
Mission Indradhanush – 2015
The Indradhanush framework for transforming
the PSBs represents the most comprehensive reform
effort undertaken since banking nationalization in the
year 1970 to revamp the Public Sector Banks (PSBs) and
improve their overall performance by ABCDEFG.
A-Appointments: Based upon global best practices
and as per the guidelines in the companies act, separate
post of Chairman and Managing Director and the CEO
will get the designation of MD & CEO and there would
vkLFkk IAS : M-1A, Jyoti Bhawan, Mukherjee Nagar, Delhi-110009
be another person who would be appointed as non-
Executive Chairman of PSBs.
B-Bank Board Bureau: The BBB will be a body of
eminent professionals and officials, which will replace
the Appointments Board for appointment of Whole-time
Directors as well as non-Executive Chairman of PSBs
C-Capitalization: As per finance ministry, the capital
requirement of extra capital for the next four years up
to FY 2019 is likely to be about Rs.1,80,000 crore out of
which 70000 crores will be provided by the GOI and the
rest PSBs will have to raise from the market.
D-Distressing: PSBs and strengthening risk control
measures and NPAs disclosure.
E-Employment: GOI has said there will be no
interference from Government and Banks are encouraged
to take independent decisions keeping in mind the
commercial the organizational interests.
F-Framework of Accountability: New KPI (key
performance indicators) which would be linked with
performance and also the consideration of ESOPs for top
management PSBs.
G-Governance Reforms: For Example, Gyan Sangam,
a conclave of PSBs and financial institutions. Bank board
Bureau for transparent and meritorious appointments in
PSBs.
Strategic debt restructuring (SDR) – 2015
Under this scheme banks who have given loans to a
corporate borrower gets the right to convert the complete
or part of their loans into equity shares in the loan taken
company. Its basic purpose is to ensure that more stake
of promoters in reviving stressed accounts and providing
banks with enhanced capabilities for initiating a change
of ownership in appropriate cases.
Asset Quality Review – 2015
Classify stressed assets and provisioning for them
so as the secure the future of the banks and further
early identification of the assets and prevent them from
becoming stressed by appropriate action.
Sustainable structuring of stressed assets (S4A)
– 2016
It has been formulated as an optional framework for
the resolution of largely stressed accounts. It involves the
determination of sustainable debt level for a stressed
borrower and bifurcation of the outstanding debt into
sustainable debt and equity/quasi-equity instruments
which are expected to provide upside to the lenders
when the borrower turns around.
Insolvency and Bankruptcy Code
™™ The Supreme Court upheld the Insolvency and
Bankruptcy Code (IBC), backing the government’s
efforts to deal with the bad-debt burden of banks.
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™™ The Court rejected challenges put forth by the
promoters of defaulting companies barred by the
law from regaining control of their firms.
™™ This ruling has far-reaching implications for the
promoters of big defaulting companies on the block
such as Essar Steel and Bhushan Power & Steel.
Classification of financial creditors
The Code defines two types of creditors: (I) financial creditors,
who have extended a loan or financial credit to the debtor, and (ii)
operational creditors, who have provided goods or services to the
debtor, the payment for which is due.
Financial creditors could be secured or unsecured. Secured creditors
are those whose loans are backed by collateral (security).
Insolvency and Bankruptcy Code
™™ The code has four pillars of institutional infrastructure.
™™ The first pillar of institutional infrastructure is a class
of regulated persons, the ‘Insolvency Professionals’.
They would play a key role in the efficient working of
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the bankruptcy process. They would be regulated by
‘Insolvency Professional Agencies.
™™ The second pillar of institutional infrastructure is a
new industry of `Information Utilities’. These would
store facts about lenders and terms of lending in
electronic databases. This would eliminate delays and
disputes about facts when default does take place.
™™ The third pillar of institutional infrastructure is in
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adjudication. The NCLT will be the forum where firm
insolvency will be heard and DRTs will be the forum
where individual insolvencies will be heard. These
institutions, along with their Appellate bodies, viz.,
NCLAT and DRATs will be adequately strengthened
so as to achieve world class functioning of the
bankruptcy process.
™™ The fourth pillar of institutional infrastructure is a
regulator, ‘The Insolvency and Bankruptcy Board of
India’. This body will have regulatory over-sight over
the Insolvency Professional, Insolvency Professional
agencies and information utilities.
The Insolvency and Bankruptcy Code (Second
Amendment) Bill, 2018 – Key features:
™™ Allottees under a real estate project should be
treated as financial creditors (debate is open for want
of clarity over secured/unsecured creditors).
™™ The voting threshold for routine decisions taken by
the committee of creditors has been reduced from
75% to 51%.
™™ During the insolvency resolution process, a
committee consisting of financial creditors will be
constituted for taking decisions (by voting) on the
resolution process.
™™ The Code prohibits a person from being a resolution
applicant if his account has been identified as a non-
performing asset (NPA) for more than a year.
vkLFkk IAS : M-1A, Jyoti Bhawan, Mukherjee Nagar, Delhi-110009
™™ The Code also bars a guarantor of a defaulter from
being an applicant.
™™ A resolution applicant may withdraw a resolution
application, from the National Company Law Tribunal
(NCLT), after such process has been initiated. Such
withdrawal will have to be approved by a 90% vote
of the committee of creditors.
™™ The ineligibility criteria for resolution applicants
regarding NPAs and guarantors will not be applicable
to persons applying for resolution of MSMEs.
Pubic ARC vs. Private ARC – 2017
This debate is recently in the news which is about
the idea of a Public Asset Reconstruction Companies
(ARC) fully funded and administered by the government
as mooted by this year’s Economic Survey Vs. the private
ARC as advocated by the deputy governor of RBI Mr. Viral
Acharya. Economic survey calls it as PARA (Public Asset
Rehabilitation Agency) and the recommendation is based
on the similar agency being used during the East Asian
crisis of 1997 which was a success.
Bad Banks – 2017
Economic survey 16-17, also talks about the
formation of a bad bank which will take all the stressed
loans and it will tackle it according to flexible rules and
mechanism. It will ease the balance sheet of PSBs giving
them the space to fund new projects and continue the
funding of development projects.
Changing Role of Banks in India
The role of banks in India has changed a lot since
economic reforms of 1991. These changes came due to
LPG, i.e. liberalization, privatization and globalization
policy being followed by GOI. Since then most traditional
and outdated concepts, practices, procedures and
methods of banking have changed significantly. Today,
banks in India have become more customer-focused and
service-oriented than they were before 1991. They now
also give a lot of importance to their rural customers. They
are even willing ready to help them and serve regularly
the banking needs of country-side India.
The changing role of banks in India can be glanced in
points depicted below.
The following points briefly highlight the changing
role of banks in India.
™™ Better customer service,
™™ Mobile banking facility,
™™ Bank on wheels scheme,
™™ Portfolio management,
™™ Issue of electro-magnetic cards,
™™ Universal banking,
™™ Automated teller machine (ATM),
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™™ Internet banking,
™™ Encouragement to bank amalgamation,
™™ Encouragement to personal loans,
™™ Marketing of mutual funds,
™™ Social banking, etc.
The above-mentioned points indicate the role of
banks in India is changing. Now let’s discuss how banking
in India is getting much better day after day.
1. Better Customer Service
Before 1991, the overall service of banks in India was
very poor. There were very long queues (lines) to receive
payment for cheques and to depositmoney. In those
days, some bank staffs were very rude to their customers.
However, all this changed remarkably after Indian
economic reforms of 1991.
Banks in India have now become very customer and
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service focus. Their service has become quick, efficient
and customer-friendly. This positive change is mostly
due to rising competition from new private banks and
initiation of Ombudsman Scheme by RBI.
2. Mobile Banking
Under mobile banking service, customers can easily
carry out major banking transactions by simply using
their cell phones or mobiles.
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Here, first a customer needs to activate this service
by contacting his bank. Generally, bank officer asks the
customer to fill a simple form to register (authorize)
his mobile number. After registration, this service is
activated, and the customer is provided with a username
and password. Using secret credentials and registered
phone, customer can now comfortably and securely,
find his bank balance, transfer money from his account
to another, ask for a cheque book, stop payment of a
cheque, etc.Today, almost all banks in India provide a
mobile-banking service.
3. Bank on Wheels
The ‘Bank on Wheels’ scheme was introduced in the
North-East Region of India. Under this scheme, banking
services are made accessible to people staying in the far-
flung (remote) areas of India. This scheme is a generous
attempt to serve banking needs of rural India.
4. Portfolio Management
In portfolio management, banks do all the
investments work of their clients.
Banks invest their clients’ money in shares,
debentures, fixed deposits, etc. They first enter a contract
with their clients and charge them a fee for this service.
Then they have the full power to invest or disinvest their
clients’ money. However, they have to give safety and
profit to their clients.
vkLFkk IAS : M-1A, Jyoti Bhawan, Mukherjee Nagar, Delhi-110009
5. Issue of Electro-Magnetic Cards
Banks in India have already started issuing Electro-
Magnetic Cards to their customers. These cards help to
carry out cash-less transactions, make an online purchase,
avail ATM facility, book a railway ticket, etc.
Banks issue many types of electro-magnetic cards,
which are as follows:
Credit cards help customers to spend money (loaned
up to a certain limit as previously settled by the bank)
which they don’t have in hand. They get a monthly
statement of their purchases and withdrawals. Along with
the transacted amount, this statement also includes the
interest and service fee. The entire amount (as reflected
in the statement of credit card) must be paid back to the
bank either fully or in installments, but before due date.
Debit cards help customers to spend that money
which they have saved (credited) in their individual bank
accounts. They need not carry cash but instead can use
a debit card to make a purchase (for shopping) and/or
withdraw money (get cash) from an ATM. No interest is
charged on the usage of debit cards.
Charge cards are used to spend money up to a certain
limit for a month. At the end of the month, customer
gets a statement. If he has a sufficient balance, then he
only had to pay a small fee. However, if he doesn’t have
a necessary balance, he is given a grace period (which is
generally of 25 to 50 days) to repay the money.
Smart cards are currently being used as an alternative
to avail public transport services. In India, this covers
Railways, State Transport and City (Local) Buses. Smart
card has an integrated circuit (IC) embedded in its plastic
body. It is made as per norms specified by ISO.
Kisan credit cards are used for the benefit of the rural
population of India. The Indian farmers (kisans) can use
this card to buy agricultural inputs and goods for self-
consumption. These cards are issued by both Commercial
and Co-operative banks.
6. Universal Banking
In India, the concept of universal banking has gained
recognition after year 2000. The customers can get all
banking and non-banking services under one roof.
Universal bank is like a super store. It offers a wide range
of services, including banking and other financial services
like insurance,merchant banking, etc.
7. Automated Teller Machine (ATM)
There are many advantages of ATM. As a result, many
banks have opened up ATM centres to offer convenience
to their customers. Now banks are operating ATM centres
not only in their branches but also at public places like
airports, railway stations, hotels, etc. Some banks have
joined together and agreed upon to set up common ATM
centres all over India.
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8. Internet Banking
Internet banking is also called as an E-banking or net
banking. Here, the customer can do banking transactions
through the medium of the internet or world wide web
(WWW). The customer need not visit the bank’s branch.
Through this facility, the customer can easily inquiry
about bank balance, transfer funds, request for a cheque
book, etc. Most large banks offer this service to their tech-
savvy customers.
9. Encouragement to Bank Amalgamation
Failure of banks is well-protected with the facility of
amalgamation. So depositors need not worry about their
deposits. When weaker banks are absorbed by stronger
banks, it is called amalgamation of banks. Since 1st
April 2017 5 associates bank and Bharatiya Mahila Bank
merged in SBI.
10. Encouragement to Personal Loans
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Today, the purchasing power of Indian consumers
has increased dramatically because banks give them easy
personal loans. Generally, interest charged by the banks on
such loans is very high. Interest is calculated on reducing
balance. Large banks offer loans up to a huge amount
like one crore. Some banks even organise Loan Mela
(Fair) where a loan is sanctioned on the spot to deserving
candidates after they submit proper documents.
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11. Marketing of Mutual Funds
A mutual fund collects money from many investors
and invests the money in shares, bonds, short-term
money market instruments, gold assets; etc. Mutual
funds earn income by interest and dividend or both from
its investments. It pays a dividend to subscribers. The rate
of dividend fluctuates with the income on mutual fund
investments. Now banks have started selling these funds
in their own names. These funds are not insured like other
bank deposits. There are different types of funds such as
open-ended funds, closed-ended funds, growth funds,
balanced funds, income funds, etc.
12. Social Banking
Marginal Cost of Lending Rate Repo-Linked Loan
Linked to bank’s cost of funds Linked to RBI’s lending rate
Takes 4-6 months to move after Responds immediately to RBI rate
RBI rate cut cut
RBI rate cuts not fully passed on Rate cuts are automatically
to borrowers passed on
Resets annually for most banks Reset every three months
Changes by 5-10 bps Usually changes 25bps or more
Revised every month Reviewed bimonthly
Low volatility Higher volatility
100bps=1% | RBI’s lending rate to banks
The government uses the banking system to alleviate
poverty and unemployment. Many social development
programmes are initiated by the banks from time to time.
vkLFkk IAS : M-1A, Jyoti Bhawan, Mukherjee Nagar, Delhi-110009
The success of these programmes depends on financial
support provided by the banks. Banks supply a lot of
finance to farmers, artisans, scheduled castes (SC) and
scheduled tribe (ST) families, unemployed youth and
people living below the poverty line (BPL).
External Benchmark Rates
The Reserve Bank of India has made it mandatory for
all banks to link all new floating rate loans (i.e. personal/
retail loans, loans to MSMEs) to an external benchmark
with effect from 1st October 2019.
™™ The move is aimed at faster transmission of monetary
policy rates.
™™ Banks can choose from one of the four external
benchmarks — repo rate, threemonth treasury
bill yield, six-month treasury bill yield or any other
benchmark interest rate published by Financial
Benchmarks India Private Ltd.
™™ At present, interest rates on loans are linked to a
bank’s marginal cost of fund-based interest rate,
known as the Marginal Cost of Lending Rate (MCLR).
™™ Existing loans and credit limits linked to the MCLR,
base rate or Benchmark Prime Lending Rate, would
continue till repayment or renewal.
™™ Those customers wanting to switch to the repo-
linked rate can do so on mutually acceptable terms.
™™ Adoption of multiple benchmarks by the same bank
is not allowed within a loan category.
™™ The interest rate under the external benchmark shall
be reset at least once every three months.
Fixed vs Floating Interest Rate
™™ The fixed interest rate on loan means repayment
of loans in fixed equal instalments over the entire
period of the loan. In this case, the interest rate
doesn’t change with market fluctuations.
™™ Floating interest rate by name implies that the rate of
interest varies with market conditions.
Financial Benchmarks India Private Ltd
™™ It was incorporated on 9th December 2014 under the
Companies Act 2013.
™™ It was recognised by the Reserve bank of India as an
independent Benchmark administrator on 2nd July
2015.
™™ The main objective of the company is to act as
the administrators of the Indian interest rate and
foreign exchange benchmarks and to introduce and
implement policies and procedures to handle the
benchmarks.
™™ It is located in Mumbai.
™™ The transmission of policy rate changes to the lending
rate of banks under the current MCLR framework has
not been satisfactory.
56
™™ RBI in its August Policy, 2019 pointed out that
although it had brought down the repo rate by 75
basis points, the weighted average MCLR of banks
had come down by only 29 basis points.
™™ Banks argue that the MCLR formula is calculated
based on the cost of funds and thus it comes down
only gradually after a repo rate cut.
™™ There is a strong likelihood that RBI will cut rates
further to spur demand.
™™ The external benchmark was first proposed by the
former governor Urjit Patel in 2018. The norms for
external benchmark linking of interest rates was
scheduled to be operational from April 1, but owing
to protest by the banks, the same was deferred.
Marginal Cost of Lending Rate
™™ It came into effect in April 2016.
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™™ It is a benchmark lending rate for fl oating-rate loans.
™™ This is the minimum interest rate at which commercial
banks can lend.
™™ This rate is based on four components—the marginal
cost of funds, negative carry on account of cash
reserve ratio, operating costs and tenor premium.
™™ MCLR is linked to the actual deposit rates. Hence,
when deposit rates rise, it indicates the banks are
likely to hike MCLR and lending rates are set to go up.
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Ponzi Scheme
™™ It is a form of fraud in which belief in the success of
a non-existent enterprise is fostered by the payment
of heavy returns to the first investors from money
invested by later investors.
™™ The scheme leads victims to believe that profits are
coming from product sales or other means, and
they remain unaware that the later investors are the
source of their returns.
™™ A Ponzi scheme can maintain the illusion of a
sustainable business as long as new investors
contribute to funds and as long as most of the
investors do not demand full repayment and still
believe in the non-existent assets of the enterprise.
™™ The scheme traces its origin to a person named
Charles Ponzi, who became notorious for using the
technique in the 1920s.
Characteristics of Ponzi scheme
™™ High investment returns with little or no risk:
Every investment carries some degree of risk, and
investments yielding higher returns typically involve
more risk. The Ponzi schemes give guaranteed
investment opportunity which is suspicious.
™™ Overly consistent returns: Investment values
tend to go up and down over time, especially those
offering potentially high returns. A Ponzi scheme
vkLFkk IAS : M-1A, Jyoti Bhawan, Mukherjee Nagar, Delhi-110009
continues to generate regular positive returns
regardless of overall market conditions and hence is
considered suspicious.
™™ Unregistered investments: Ponzi schemes typically
involve investments that have not been registered
with state regulators.
™™ Unlicensed sellers: Most Ponzi schemes involve
unlicensed individuals or unregistered firms.
™™ Secretive or complex strategies: The investments
in Ponzi schemes cannot be understood and do not
give complete information.
™™ Difficulty receiving payments: Clients have failures
to receive a payment or have difficulty cashing out
their investments in these schemes. The scheme’s
promoters routinely encourage participants to “roll
over” investments and sometimes promise even
higher returns on the amount rolled over.
RBI’s Financial Stability Report
The Reserve Bank of India recently released the 19th
issue of the Financial Stability Report (FSR).
™™ The RBI since 2010 is publishing India Financial
Stability Report, biannually, to assess financial
stability scenario in the country. Financial stability
is now one of the three important objectives of
monetary policy besides price stability and credit
support.
™™ The FSR reflects the collective assessment on risks to
financial stability and the resilience of the financial
system of India. The Report also discusses issues
relating to development and regulation of the fi
nancial sector.
Key Points of the FSR 2019
™™ Global and Domestic Macro-Financial Risks
™™ Geopolitical developments like BREXIT, Gulf Crisis
and Trade tensions like US-China Trade War, are
taking a toll on business and consumer confidence.
™™ Due to reduced private consumption and widening
current account deficit, domestic economy was hit.
Financial Institutions: Performance and risks
™™ Banks: Credit growth of scheduled commercial
banks (SCBs) picked up, with public sector banks
(PSBs) registering near double digit growth. The
non-performing asset (NPA) cycle seems to have
turned around as macro stress tests show gross non-
performing assets (NPAs) may decline to 9 percent in
March 2020, from 9.3 percent in March 2019.
™™ NBFCs: Non-banking financial companies (NBFC)
sector are now under greater market discipline as
the better performing companies continued to raise
funds while those with asset – liability mismatch
were subjected to higher borrowing costs.
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™™ Financial Sector: Regulation and developments
™™ The revised prudential framework on stressed assets
issued by the Reserve Bank is expected to act as
incentive for early adoption of a resolution plan (RP).
™™ Securities and Exchange Board of India (SEBI) has
introduced Guidelines for Enhanced Disclosures by
Credit Rating Agencies.
™™ The Insolvency and Bankruptcy Board of India (IBBI) is
showing steady progress in the resolution of stressed
assets.
Utkarsh 2022
The Reserve Bank of India (RBI) board, which met in
New Delhi, finalised a three- year roadmap to improve
regulation and supervision, among other functions of the
central bank.
™™ It is a three-year road map for medium term objective
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to be achieved for improving regulation, supervision
of the central bank
™™ This medium term strategy — named Utkarsh
2022 — is in line with the global central banks
plan to strengthen the regulatory and supervisory
mechanism
™™ It is a roadmap to improve regulation and supervision,
currency management and payment system etc.
™™ An internal committee was formed, which was
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anchored by outgoing Deputy Governor Viral
Acharya, to identify issues that needed to be
addressed over the next three years.
Need for Utkarsh/Objectives:
™™ Worldwide, all central banks strengthen the
regulatory and supervisory mechanism, everybody
is formulating a long-term plan and a medium-term
plan. So, the RBI has also decided it will formulate a
pragramme to outline what is to be achieved in the
next three years.
™™ The idea is that the central bank plays a proactive
role and takes preemptive action to avoid any crisis
highlighting the IL & FS debt default issue and the
crisis of confi dence the non-banking financial sector
faced in the aftermath.
™™ Further, the board has also approved the RBI’s budget
for the July 2019 to June 2020 period.
™™ The objective of the policy is to improve regulation
and supervision of the central bank.
NBFC
™™ A company is treated as an NBFC if its financial assets
are more than 50% of total assets and income from
financial assets is more than 50% of the gross income.
™™ NBFC means Non-banking financial company. A non-
banking financial company (NBFC) is a company
registered under the Companies Act, 1956 and is
vkLFkk IAS : M-1A, Jyoti Bhawan, Mukherjee Nagar, Delhi-110009
engaged in the business of loans and advances,
acquisition of shares/stock/bonds/debentures/
securities issued by government or local authority
or other securities of like marketable nature, leasing,
hire-purchase, insurance business, chit business, but
does not include any institution whose principal
business is that of agriculture activity, industrial
activity, sale/purchase/construction of immovable
property. NBFCs are similar to banks; however they
do not accept demand deposits.
NBFC Crisis
Non-Banking Financial Companies (NBFC) are facing
severe liquidity issues which have been attributed to their
mismanagement of asset liability mixes. It is important
to assess the situation and look at possible solutions,
because if not tackled, the non-bank crisis can have a
contagious effect on the economy.
™™ Non-Banking Financial Companies (NBFC) and
some housing companies are facing liquidity issues.
Troubles began when major shadow bank IL&FS
Group unexpectedly defaulted.
™™ IL & FS was a systemically important fi nance company
with a very large balance sheet.
™™ IL&FS defaulting on its interest and loan repayments
set off a panic reaction from lenders across the
spectrum, which also led to the crash in the stock
markets.
™™ It prompted a broader shock that made it hard for
many companies to refi nance their debts.
™™ NBFCs are thus increasingly fi nding it hard to access
funding.
™™ History: A few years ago banks were constrained by
new regulations and the weight of bad loans on their
books, thus outsourcing part of their lending activity
to shadow banks. The share of NBFCs in overall credit
rose sharply to over 20% from 10% a mere seven
years ago.
zz These non-banks played a key role in ensuring
credit to risky sectors such as real estate, even
while ensuring that banks did not have to bear
the risk.
zz However, these shadow banks were much
more under-capitalized and underregulated
compared to the traditional banks.
zz And at the slightest hint of trouble (the IL & FS
default), the shadow banking sector came under
a cloud, making it diffi cult for shadow banks to
recover the debts.
zz This created a liquidity squeeze in sectors such as
real estate that were dependent on the shadow
banks.
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IL & FS default
™™ The problem with IL&FS was that it had been
borrowing very short-term money through
commercial papers (CP) and certifi cates of deposits
(CDs) to invest in infrastructure projects, which have
very long and sometimes very uncertain gestation
periods.
™™ It increased vulnerability to asset-liability mismatches
(ALM; this refers to the fact that these lenders have
short-dated borrowings and long-dated assets).
™™ In the wake of demonetization in 2016, the lack of
cash eroded liquidity for several months, thereby
delaying loan recoveries. The system was just about
recovering from the effects of demonetization when
IL & FS collapsed.
™™ When the cash flows from its many road and other
infrastructure projects did not complete on time,
Merger of Banks
Context: Finance Minister Nirmala Sitharaman had
recently announced a slew of banking reform measures,
including merger of 10 public sector banks into four
entities.
Background:
™™ After the second half of 2018, the global economic
growth continues to get weaken in advanced as well
as emerging market economies.
™™ Several forces responsible for this slowdown are:
escalations of trade tensions, uncertainty over
BREXIT, volatile crude prices, slowing down of
Chinese Economy etc.
Current Merger Decision
Benefits of Merger
Competitive: The consolidation of PSBs helps in

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™™

IL & FS found itself with a severe mismatch in its strengthening its presence globally, nationally and
borrowing and lending tenors. regionally. This will also end the unhealthy and
™™ This resulted in the inevitable default and the fallout intense competition going on even among public
spilling onto other NBFCs and mutual funds (MFs). sector banks as of now.

NBFC as a sector affected ™™ Capital and Governance: The government’s

intention is not just to give capital but also give
™™ Most large NBFCs are well capitalised, but have got
good governance. Hence, post-consolidation, boards
exposed due to excessive short-term borrowing (CDs
will be given the flexibility to introduce the chief
and CPs).
general manager level as per business needs. They

IAS
™™ The IL & FS default signalled the end of easy money — will also recruit chief risk officer at market-linked
that is, using cheaper, short term market instruments compensation to attract the best talent.
to fund longer-term assets.
™™ Efficiency: It has the potential to reduce operational
™™ The logjam acquired crisis proportions when many costs due to the presence of shared overlapping
NBFCs were forced to sell profi table assets to networks. And this enhanced operational efficiency
generate cash to repay maturing debts. will reduce the lending costs of the banks.
™™ The defaults came around the same time as liquidity ™™ Technological Synergy: All merged banks in a
in banking sector as a whole also got stressed. Banks, particular bucket share common Core Banking
which were already reeling under the weight of past Solutions (CBS) platform synergizing them
debts, became exceedingly risk-averse to lend to
technologically.
NBFCs.
™™ Self-Suffi ciency: Larger banks have a better ability
™™ Shying to set a precedent, RBI did not give NBFCs
to raise resources from the market rather than relying
necessary leeway of a liquidity window but instead
on State exchequer.
resorted to slashing rates.
™™ Recovery: The loan tracking mechanism in PSU
Banks to be merged Size of merged Total business
entity
banks is being improved for the benefit of customers.
Punjab National Bank, Oriental 2nd Largest PSB Rs. 18 Lakh cr. Digital Payment - Definition
Bank of Commerce and United The Payment and Settlement Act, 2007 has defi ned Digital Payments
Bank as any “electronic funds transfer” that is any transfer of funds which is
Canara Bank and Syndicate Bank 4th Largest PSB Rs. 15.2 Lakh cr. initiated by a person by way of instruction, authorization or order to a
bank to debit or credit an account maintained with that bank through
Union Bank, Andhra Bank and 5th Largest PSB Rs. 14.6 Lakh cr. electronic means and includes point of sale transfers; automated
Corporation Bank teller machine transactions, direct deposits or withdrawal of funds,
Indian Bank and Allahabad Bank 7th largest PSB Rs 8.08 Lakh cr. transfers initiated by telephone, internet and, card payment.

™™ Since NBFCs also do not have access to RBI’s liquidity ™™ Monitoring: With the number of PSBs coming down
operations, which are restricted to commercial banks, after the process of merger – capital allocation,
a temporary systemic mismatch, which should have performance milestones, and monitoring would
been nipped in the bud, snowballed into a crisis. become easier for the government.

vkLFkk IAS : M-1A, Jyoti Bhawan, Mukherjee Nagar, Delhi-110009 59

™™ Consolidation helps in improving the professional
standards.
™™ After mergers, bargaining strength of bank staff will
become more and visible.
™™ Bank staff may look forward to better wages and
service conditions in future. The wide disparities
between the staff of various banks in their service
conditions and monetary benefi ts will narrow down.
™™ The burden on the central government to recapitalize
the public sector banks again and again will come
down substantially.
™™ This will also help in meeting more stringent norms
under BASEL III, especially capital adequacy ratio.
Challenges
™™ Decision Making: The banks that are getting merged
are expected to see a slowdown in decision making
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at the top level as senior officials of such banks would
put all the decisions on the backburner and it will
lead to a drop in credit delivery in the system.
™™ Geographical Synergy: During the process of
merger, the geographical synergy between the
merged banks is somewhat missing. In three of the
four merger cases, the merged banks serve only one
specific region of the country.
™™ However, the merger of Allahabad Bank (having a
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presence in East & North region) with the Indian
Bank (having a presence in South) increases its
geographical spread.
™™ Slowdown in Economy: The move is a good one
but the timings are not just apt. There is already a
slowdown in the economy, and private consumption
and investments are on a declining trend.
™™ Hence, there is a need to lift the economy and increase
the credit flow in the short-term, & this decision will
block that credit in the short-term.
™™ Weak Banks: A complex merger with a weaker
and under-capitalized PSB would stall the bank’s
recovery efforts as the weaknesses of one bank may
get transferred and the merged entity may become
weak.
™™ When a big bank books huge loss or crumbles, there
will be a big jolt in the entire banking industry. Its
repercussions will be felt everywhere Mergers will
result in clash of different organizational cultures.
Conflicts will arise in the area of systems and
processes too.
Digital Payments: Trends, Issues and
Opportunities in India
Context: According to a survey conducted by
ACI Worldwide and YouGov 42% Indians prefer digital
payments over cash during shopping.
vkLFkk IAS : M-1A, Jyoti Bhawan, Mukherjee Nagar, Delhi-110009
™™ According to NITI AYOG, the digital payments market
In India is all set to grow to $1 trillion by 2023 led by
growth in mobile payments, which are slated to rise
from 10 billion in 2017−18 to10 billion in 2017−18
to190 billion by 2023.
™™ In the light of such a tremendous growth of digital
payments, the regulations and security of the users’
data has become a challenge for the government.
™™ Accordingly, a committee on Digital Payments was
constituted by Department of Economic Affairs,
Ministry of Finance in August 2016 under the
Chairmanship of Ratan P. Watal to recommend
medium term measures of promotion of Digital
Payments Ecosystem in the country. The Committee
submitted its fi nal report to Hon’ble Finance Minister
in December 2016.
™™ On the basis of recommendations a group of
stakeholders from different Departments of
Government of India and RBI was constituted in NITI
Aayog under the chairmanship of Ratan P. Watal to
facilitate the work relating to development of a metric
for Digital Payments which was the most important
recommendation of Watal committe. This group
prepared a document on the measurement issues
of Digital Payments. Accordingly, a booklet titled
“Digital Payments: Trends, Issues and Challenges” was
released in July 2017.
Revised Banking Regulation Act
Recently, Union Cabinet approved amendments to
the Banking Regulation Act to empower the central bank
to have greater control over cooperative banks.
™™ Union cabinet cleared changes in Banking Regulation
Act to give RBI wider powers.
™™ Ambit: The amendments will apply to all urban co-
operative banks and multi-state cooperative banks.
™™ They will not be applicable to rural cooperatives.
™™ Objective: This was done in order to prevent
malpractices, ensure better regulation and
prevent frauds such as the one seen at Punjab and
Maharashtra Co-operative Bank Ltd (PMC).
zz Amendment to Banking Regulation Act aims to
strengthen cooperative banks and avoid PMC
Bank like crisis.
™™ PMC scam: Due to PMC scam lakhs of customers
faced diffi culties in withdrawing their money due to
restrictions imposed by the RBI.
zz Urban cooperative banks reported nearly 1,000
cases of fraud worth more than 220 crore in past
five fiscal years.
™™ Current Regulations: Cooperative banks are
currently under dual control of Registrar of
Cooperative Societies and RBI.
60
 zz The role of registrar of cooperative societies
includes incorporation, registration,
management, audit, supersession of board and
liquidation.
zz RBI is responsible for regulatory functions such
maintaining cash reserve and capital adequacy,
among others.
™™ New Changes: The administrative role will continue
to be done by the Registrar of Cooperative Societies.
Implications
™™ Audit under RBI norms: Cooperative banks will be
brought under the regulation of the RBI. They will be
audited according to RBI’s norms.
zz Cooperative banks will now be required to meet
stricter capital norms.
zz The amendments will now give legislative
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powers to the central bank.
™™ Appointments with permission of RBI:
Appointments of chief executives will also require
permission from the banking regulator, as is the case
for commercial banks.
™™ RBI takeover in case of stress: Central bank can
supersede the board and take control, in consultation
with state government, if any cooperative bank is
under stress.
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™™ Improve financial stability: To strengthen the
Cooperative Banks, amendments to the Banking
Regulation Act will help increase professionalism,
enable access to capital and improving governance
and oversight for sound banking through the RBI.
Observing the new changes will help strengthen
financial stability.
Additional Measures
™™ Increased deposit insurance: In order to ensure that
depositors’ money is safe, Budget 2020 permitted the
Deposit Insurance and Credit Guarantee Corporation
(DICGC) to increase deposit insurance coverage for
a depositor, which is now Rs 1 lakh, to Rs 5 lakh per
depositor.
Facts about Cooperatives
™™ Rural cooperatives are under state-policies: RBI
has considerable control over urban cooperative bank
but has a limited control over the rural cooperative
banks which are guided by state-level policies.
™™ Assets of rural cooperatives are higher: As per RBI’s
Trends and Progress in Banking Report, as of March-
end 2018, rural co-operative banks accounted for
64.7 percent of the total assets of cooperatives.
zz Rural cooperatives are also more in number as
compared to urban cooperative banks.
vkLFkk IAS : M-1A, Jyoti Bhawan, Mukherjee Nagar, Delhi-110009
Bharat Bill Payment System (BBPS)
Context: RBI has expanded the scope and coverage of
Bharat Bill Payment System (BBPS) to include all categories
of billers who raise recurring bills and payments (except
prepaid recharges) as eligible participants, on a voluntary
basis.
™™ At present, the facility of payment of recurring bills
through BBPS is available only in five segments
i.e. direct to home (DTH), electricity, gas, water and
telecom.
™™ Expansion of biller categories would increase the
user base of Bharat Bill Pay along with providing an
efficient, cost-effective alternative to existing systems
and enhance consumer confidence and experience.
BBPS
™™ The Bharat Bill Payment System (BBPS) is an RBI
conceptualised system driven by National Payments
Corporation of India (NPCI).
™™ It is a one-stop payment platform for all bills,
providing an interoperable and accessible “Anytime
Anywhere” bill payment service to customers across
the country.
™™ Payments through BBPS may be made using
cash, transfer cheques and electronic modes.
Bill aggregators and banks, who will function as
operating units, will carry out these transactions for
the customers.
NPCI
™™ National Payments Corporation of India (NPCI) is an
umbrella organization for all retail payments system
in India.
™™ It was set up with the guidance and support of
the Reserve Bank of India (RBI) and Indian Banks’
Association (IBA) under the provisions of the Payment
and Settlement Systems Act, 2007.
™™ It has been incorporated as a “Not for Profi t” Company
under the provisions of Section 8 of Companies Act
2013.
Portfolio of NPCI includes:
™™ RuPay: RuPay is a domestic card scheme of India.
™™ National Common Mobility Card: Rupay Contactless
™™ BHIM: BHIM is a mobile app to act as Client software
for the Unified Payments Interface.
™™ Unified Payments Interface: Unified Payments
Interface is a real-time interbank payment system for
sending or receiving money.
™™ Bharat Bill Payment System
™™ *99# USSD: An USSD channel service for UPI mobile
banking.
™™ National Financial Switch: Network of shared
automated teller machines in India.
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™™ Aadhaar Enabled Payment System
™™ Bharat QR: A common QR code developed by NPCI
in collaboration with Mastercard and Visa for ease of
payments and interoperability.
™™ National Electronic Toll Collection: National
Payments Corporation of India (NPCI) has developed
the National Electronic Toll Collection (NETC)
program to meet the electronic tolling requirements
of the Indian market. It provides an electronic
payment facility to customer to make the payments
at national, state and city toll plazas by identifying
the vehicle uniquely through a FASTag
Negative Rate Policy
Negative rate policy – once considered only for
economies with chronically low inflation such as Europe
and Japan – is becoming a more attractive option for
some other central banks.
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How does it work?
™™ Under a negative rate policy, financial institutions are
required to pay interest for parking excess reserves
with the central bank. That way, central banks
penalise fi nancial institutions for holding on to cash
in hope of prompting them to boost lending.
Merit of negative rates
™™ Lowers borrowing costs.
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™™ Help weaken a country’s currency rate by making
it a less attractive investment than that of other
currencies.
™™ A weaker currency gives a country’s export a
competitive advantage and boosts infl ation by
pushing up import costs.
Demerits of Negative rates
™™ Negative rates put downward pressure on the entire
yield curve.
™™ Narrow the margin of financial institutions earning
from lending.
™™ If prolonged ultra-low rates can hurt the health of
financial institutions too much, they could hold off
on lending and damage the economy.
™™ There are also limits to how deep central banks can
push rates into negative territory – depositors can
avoid being charged negative rates on their bank
deposits by choosing to hold physical cash instead.
Advisory Board for Banking Frauds (ABBF)
™™ The Central Vigilance Commission (CVC) has
constituted an ‘Advisory Board for Banking Frauds
(ABBF)’ to examine bank fraud of over Rs. 50 crore and
recommend action.
™™ Headquartered in Delhi, the Reserve Bank of India
(RBI) will provide required secretarial services, logistic
vkLFkk IAS : M-1A, Jyoti Bhawan, Mukherjee Nagar, Delhi-110009
and analytical support along with the necessary
funding to the board.
™™ Composition: Besides the chairman, the Board
consists of three other members. The tenure of the
Chairman and members would be for a period of two
years from 21st August, 2019.
Functions:
™™ The board’s jurisdiction would be confined to those
cases involving the level of officers of General
Manager and above in the Public Sector Banks
in respect of an allegation of fraud in a borrowal
account.
™™ It would function as the first level of examination
of all large fraud cases before recommendations or
references are made to the investigative agencies by
the respective public sector banks (PSBs).
Lenders would refer all large fraud cases above
™™
Rs. 50 crore to the board and on receipt of its
recommendation or advice, the bank concerned
would take further action in such matter.
™™ The Central Bureau of Investigation may also refer
any case or matter to the board where it has any
issue or difficulty or in technical matters with the PSB
concerned.
™™ It would also periodically carry out frauds analysis
in the financial system and give inputs for policy
formulation related to the fraud to the RBI.
Prepaid Payment Instruments (PPIs)
™™ Prepaid payment instruments are those which
facilitate purchase of goods and services against the
value stored on such instruments. Value stored on
them is paid by the holder using a medium (cash,
debit card, credit card etc).
™™ These are generally issued in the form of smart cards,
mobile wallets, paper vouchers, internet accounts/
wallets.
™™ Prepaid payment instruments (PPIs) come with a
pre-loaded value and in some cases a predefined
purpose of payment.
™™ They facilitate the purchase of goods and services as
well as inter-personal remittance transactions such
as sending money to a friend or a family member.
™™ These payment instruments are licensed and
regulated by the Reserve Bank of India.
™™ There are three types of PPIs—closed system PPIs,
semi-closed system PPIs and open system PPIs.
™™ The most common example of a closed system PPI
is a brand-specific gift card. Such cards, physical or
otherwise, can be used only at specific locations, and
cannot be used to transfer funds from one account
to another.
62
Currency Chest
Context: The Reserve Bank of India (RBI) has released
guidelines for banks to set up new currency chests.
™™ Currency chests are branches of selected banks
authorised by the RBI to stock rupee notes and coins.
™™ The responsibility for managing the currency in
circulation is vested in the RBI.
™™ The central bank advises the Centre on the number
of notes to be printed, the currency denominations,
security features and so on.
™™ The number of notes that need to be printed is
determined using a statistical model that takes the
pace of economic growth, rate of inflation and the
replacement rate of soiled notes.
™™ The Government has, however, reserved the right
to determine the amount of coins that have to be
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minted.
SWIFT (Society for Worldwide Interbank Financial
Telecommunications)
The Reserve Bank of India (RBI) has imposed a penalty
on seven banks for delayed implementation of SWIFT-
related operational controls.
™™ SWIFT is a cooperative society under Belgian law
owned by its member financial institutions with offi
ces around the world?
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™™ SWIFT messaging system is a messaging network
that financial institutions use to securely transmit
information and instructions through a standardized
system of codes. Under SWIFT, each fi nancial
organization has a unique code which is used to send
and receive payments.
™™ SWIFT does not facilitate funds transfer: rather, it
sends payment orders, which must be settled by
correspondent accounts that the institutions have
with each other.
™™ The SWIFT is a secure financial message carrier — in
other words, it transports messages from one bank to
its intended bank recipient.
™™ SWIFT India is a joint venture of top Indian public
and private sector banks and SWIFT (Society for
Worldwide Interbank Financial Telecommunication).
The company was created to deliver high quality
domestic financial messaging services to the Indian
financial community.
Financial Stability & Development Council (FSDC)
Context: Recently, a meeting of the Sub-Committee
of the Financial Stability and Development Council (FSDC)
headed by RBI Governor Shakti Kant Das was held to in
Mumbai.
™™ The Sub-Committee reviewed the major
developments on the global and domestic fronts
vkLFkk IAS : M-1A, Jyoti Bhawan, Mukherjee Nagar, Delhi-110009
that impinge on the fi nancial stability of the country.
™™ It discussed ways to address challenges pertaining
to the quality of credit ratings; and interlinkages
between housing fi nance companies and housing
developers.
™™ It also deliberated on interlinking of various
regulatory databases and National Strategy for
Financial Inclusion (NSFI).
™™ It reviewed the functioning of State Level
Coordination Committee (SLCCs) in various States
/ Union Territories (UTs), activities of its various
Technical Groups, and a thematic study on financial
inclusion and fi nancial stability.
What are the functions of FSDC?
As the name of the council itself states about its functions, the FSDC
is responsible for Financial stability and the Development of Financial
Sector in India.
Other than these two functions, FSDC is also responsible for Inter-
regulatory coordination, financial literacy and financial inclusion
within the country.
No funds are allocated separately to the council for undertaking its
activities.
Financial Stability and Development Council
™™ It is an apex regulatory body constituted by the
Government of India.
™™ FSDC was created after the global fi nancial crisis of
2008 when some similar institutions were created in
some other countries.
™™ FSDC has replaced the High-Level Coordination
Committee on Financial Markets, which was
facilitating the regulatory coordination functions
prior to setting up of FSDC, though it was not a
formal body.
™™ It was constituted on the recommendations of the
Raghuram Rajan Committee on Financial Sector
Reforms in 2008. The FSDC is an autonomous body
which deals with the financial regularities in the
entire financial sector of India.
Members of FSDC
™™ The Finance Minister of India is the chairman of
Financial Stability and Development Council.
Members from Regulatory Bodies
™™ RBI Governor (RBI Governor is also the head of FSDC
Sub-committee).
™™ Chairman of Securities and Exchange Board of India
i.e. SEBI.
™™ Chairman of Insurance Regulatory and Development
Authority of India i.e. IRDAI.
™™ Chairman of Pension Fund Regulatory and
Development Authority i.e. PFRDA.
™™ Chairman of Insolvency and Bankruptcy Board of
India i.e. IBBI.
63
Members from Government Departments
™™ Finance Secretary or Secretary of Department of
Economic Affairs.
™™ Secretary of Department of Financial Services.
™™ Secretary of Ministry of Corporate Affairs.
™™ Chief Economic Advisor, Ministry of Finance.
™™ Secretary of Ministry of Electronics & Information
Technology i.e. MeitY. (Included in May 2018 by
the Government of India through a Gazette notifi
cation. The reason to add was increased focus of the
government on the digital economy).
Basel Norms and Banking Stability
The Basel Accords refer to the banking supervision
Accords (recommendations on banking regulations)—
Basel I, Basel II and Basel III—issued by the Basel
Committee on Banking Supervision (BCBS).
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They are called the Basel Accords as the BCBS
maintains its secretariat at the Bank for International
Settlements in Basel, Switzerland and the committee
normally meets there. The Basel Accords is a set of
recommendations for regulations in the banking industry.
Basel is a city in Switzerland. It is the headquarters
of Bureau of International Settlement (BIS), which fosters
co-operation among central banks with a common goal
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of financial stability and common standards of banking
regulations.
Basel guidelines refer to broad supervisory standards
formulated by this group of central banks – called the
Basel Committee on Banking Supervision (BCBS).
The set of agreement by the BCBS, which mainly
focuses on risks to banks and the financial system are
called Basel accord.
The purpose of the accord is to ensure that financial
institutions have enough capital on account to meet
obligations and absorb unexpected losses.
India has accepted Basel accords for the banking
system.
Basel-I
In 1988, BCBS introduced capital measurement
system called Basel capital accord, also called as Basel 1.
It focused almost entirely on credit risk. It defined
capital and structure of risk weights for banks.
The minimum capital requirement was fixed at 8% of
risk weighted assets (RWA).
RWA means assets with different risk profiles.
For example, an asset backed by collateral would
carry lesser risks as compared to personal loans, which
have no collateral. India adopted Basel 1 guidelines in
1999.
vkLFkk IAS : M-1A, Jyoti Bhawan, Mukherjee Nagar, Delhi-110009
Basel-II
In June ’04, Basel II guidelines were published by
BCBS, which were considered to be the refined and
reformed versions of Basel I accord.
The guidelines were based on three parameters,
which the committee calls it as pillars:
Capital Adequacy Requirements: Banks should
maintain a minimum capital adequacy requirement of
8% of risk assets.
Supervisory Review: According to this, banks were
needed to develop and use better risk management
techniques in monitoring and managing all the three
types of risks that a bank faces, viz. credit, market and
operational risks.
Market Discipline: This need increased disclosure
requirements. Banks need to mandatorily disclose their
CAR, risk exposure, etc to the central bank. Basel II norms
in India and overseas are yet to be fully implemented.
Basel-III
In 2010, Basel III guidelines were released. These
guidelines were introduced in response to the financial
crisis of 2008.
A need was felt to further strengthen the system
as banks in the developed economies were under-
capitalized, over-leveraged and had a greater reliance on
short-term funding.
Also the quantity and quality of capital under Basel II
were deemed insufficient to contain any further risk.
Basel III norms aim at making most banking activities
such as their trading book activities more capital-
intensive.
The guidelines aim to promote a more resilient
banking system by focusing on four vital banking
parameters viz. capital, leverage, funding and liquidity.
Capital Market
Capital Market is a place where different financial
instruments are traded between different entities. On one
side there are entities that have abundant capital, much
more than they require and on the other side, there are
entities who need capital for various purposes.
Capital Markets – Types
Capital markets are mainly divided into 2 different
types.
1. Primary Markets: The primary market is the part of
the capital market that deals with the issuance and
sale of securities to investors directly by the issuer.
An investor buys securities that were never traded
before. Primary markets create long term instruments
through which corporate entities raise funds from
the capital market.
64
2. Secondary Markets: The secondary market, also
called the aftermarket and follow on public offering
is the financial market in which previously issued
financial instruments such as stock and bonds are
bought and sold
Capital Market – Examples
The examples of capital markets are given below
1. Stock Market: A stock market, equity market or
share market is the aggregation of buyers and sellers
of stocks, which represent ownership claims on
businesses
2. Bond Market: The bond market is a financial market
where participants can issue new debt, known as the
primary market, or buy and sell debt securities
3. Currency and Foreign Exchange Markets: The
foreign exchange market is a global decentralized or
over-the-counter market for the trading of currencies.
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This market determines foreign exchange rates for
every currency.
Stock market and Bond market are considered as the
most common capital markets.
Capital market is a cog in the wheel of the modern
economy since capital markets move money from the
entities that have money to the entities that require
money for productive use.
Capital Market – Features
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In capital markets, there are 2 entities, one who
supplies capital and the other entity is the one who needs
capital.
Usually, entities with surplus capital in the capital
markets are retail and institutional investors. Entities
seeking capital are people, governments and businesses.
Some common examples of suppliers of capital are
1. Pension funds: A pension fund, also known as a
superannuation fund in some countries, is any plan,
fund, or scheme which provides retirement income
2. Life insurance companies: Life insurance companies
offer contracts between an insurance policy holder
and an insurer or assurer, where the insurer promises
to pay a designated beneficiary a sum of money (the
benefit) in exchange for a premium, upon the death
of an insured person (often the policyholder). The
Insurance Development and Regulatory Authority
of India manage everything related to insurance in
India.
3. Non-financial companies: Non-financial companies
are those businesses which don’t accept deposits or
make loans. Examples of non-financial companies
are Healthcare, Technology, Industrial, sector related
companies.
4. Charitable foundations: A charitable foundation
is a category of a nonprofit organization that will
vkLFkk IAS : M-1A, Jyoti Bhawan, Mukherjee Nagar, Delhi-110009
typically provide funding and support for other
charitable organizations through grants.
Some common examples of users of capital
1. People looking to purchase vehicles, homes
2. Governments
3. Non-financial companies.
Capital Market – Structure
Capital markets structure is made of primary and
secondary markets.
Primary markets consist of companies that issue
securities and investors who purchase those securities
directly from the issuing company. These securities are
called Initial Public Offerings (IPO). Whenever a company
goes public it sells its stocks and bonds to large scales
institutional investors like hedge funds and mutual funds.
Secondary markets are places where the trade of
already issued certificates between investors are overseen
by regulatory bodies. Issuing companies play no part in
the secondary market. Examples of secondary markets
are New York Stock Exchange (NYSE), London Stock
Exchange (LSE), Bombay Stock Exchange (BSE).
To know more about the Major Stock Exchanges in
India, visit the linked article.
Capital Markets – Functions
1. Capital markets bring together those requiring
capital and those having excess capital.
2. Capital markets aim to achieve better efficiency in
transactions.
3. It helps in economic growth
4. It ensures there is the continuous availability of funds
5. By ensuring the movement and productive utilisation
of capital, it helps in boosting the national income.
6. Minimizes transaction costs and information costs.
7. Makes trading of securities easier for companies and
investors.
8. It offers insurance against market risk.
Capital market – Advantages
1. Money moves between people who need capital and
who have the capital.
2. There is more efficiency in the transactions.
3. Securities like shares help in earning dividend
income.
4. With the passage of time, the growth in value of
investments is high.
5. The interest rates provided by securities like Bonds
are higher than interest rates given by banks.
6. Can avail tax benefits by investing in stock markets.
7. Scope for a wide range of investments.
8. Securities of capital markets can be used as collateral
for getting loans from banks.
65
Stock Exchange
A stock exchange, securities exchange, or bourse is a
facility where stockbrokers and traders can buy and sell
securities, such as shares of stock and bonds and other
financial instruments. Stock exchanges may also provide
facilities for the issue and redemption of such securities
and instruments and capital events including the
payment of income and dividends. Securities traded on a
stock exchange include stock issued by listed companies,
unit trusts, derivatives, pooled investment products and
bonds. Stock exchanges often function as "continuous
auction" markets with buyers and sellers consummating
transactions via open outcry at a central location such
as the floor of the exchange or by using an electronic
trading platform.
Various Stock Exchanges In India - BSE, NSE and
OTCEI
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1. Bombay Stock Exchange BSE
BSE is the leading and the oldest stock exchange in
India as well as in Asia. It was established in 1887 with
the formation of “The Native Share and Stock Brokers’
Association”. BSE is a very active stock exchange with
highest number of listed securities in India. Nearly 70% to
80% of all transactions in the India are done alone in BSE.
Companies traded on BSE were 35,049 by July, 2020. BSE
is now a national stock exchange as the BSE has started
allowing its members to set-up computer terminals
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outside the city of Mumbai (former Bombay). It is the
only stock exchange in India which is given permanent
recognition by the government. At present, (Since 1980)
BSE is located in the “Phiroze Jeejeebhoy Towers” (28
storey building) located at Dalal Street, Fort, Mumbai. Pin
code - 400021.
In 2005, BSE was given the status of a full fledged public
limited company along with a new name as “Bombay
Stock Exchange Limited”. The BSE has computerized its
trading system by introducing BOLT (Bombay On Line
Trading) since March 1995. BSE is operating BOLT at 275
cities with 5 lakh (0.5 million) traders a day. Average daily
turnover of BSE is near Rs. 200 crores.
2. National Stock Exchange NSE
Formation of National Stock Exchange of India
Limited (NSE) in 1992 is one important development
in the Indian capital market. The need was felt by the
industry and investing community since 1991. The NSE is
slowly becoming the leading stock exchange in terms of
technology, systems and practices in due course of time.
NSE is the largest and most modern stock exchange in
India. In addition, it is the third largest exchange in the
world next to two exchanges operating in the USA.
The NSE boasts of screen based trading system. In
the NSE, the available system provides complete market
transparency of trading operations to both trading
members and the participates and finds a suitable match.
vkLFkk IAS : M-1A, Jyoti Bhawan, Mukherjee Nagar, Delhi-110009
The NSE does not have trading floors as in conventional
stock exchanges. The trading is entirely screen based with
automated order machine. The screen provides entire
market information at the press of a button. At the same
time, the system provides for concealment of the identify
of market operations. The screen gives all information
which is dynamically updated. As the market participants
sit in their own offices, they have all the advantages of
back office support, and facility to get in touch with their
constituents.
™™ Wholesale debt market segment,
™™ Capital market segment, and
™™ Futures & options trading.
3. Over the Counter Exchange of India OTCEI
The OTCEI was incorporated in October, 1990 as a
Company under the Companies Act 1956. It became
fully operational in 1992 with opening of a counter at
Mumbai. It is recognised by the Government of India as
a recognised stock exchange under the Securities Control
and Regulation Act 1956. It was promoted jointly by the
financial institutions like UTI, ICICI, IDBI, LIC, GIC, SBI, IFCI,
etc.
The Features of OTCEI are :-
™™ OTCEI is a floorless exchange where all the activities
are fully computerised.
™™ Its promoters have been designated as sponsor
members and they alone are entitled to sponsor a
company for listing there.
™™ Trading on the OTCEI takes place through a network
of computers or OTC dealers located at different
places within the same city and even across the
cities. These computers allow dealers to quote, query
& transact through a central OTC computer using the
telecommunication links.
™™ A Company which is listed on any other recognised
stock exchange in India is not permitted
simultaneously for listing on OTCEI.
™™ OTCEI deals in equity shares, preference shares,
bonds, debentures and warrants.
The Participants of OTCEI are:-
™™ Members and dealers appointed by OTCEI,
™™ Companies whose securities are listed,
™™ Investors who trade in the OTCEI,
™™ Registrar who keeps custody of scrip certificates,
™™ Settlement Bank which clears the payment between
counters, and
SEBI and Government who supervise and
regulate the working.
WORLD INDICES
Brazil Bovespa
France CAC 40
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 Germany DAX 7. Provides clearing house facility: Stock exchange
US Dow Jones provides a clearing house facility to members. It
UK FTSE 100
settles the transactions among the members quickly
Hong Kong Hang Seng
and with ease. The members have to pay or receive
only the net dues (balance amounts) because of the
Mexican IPC
clearing house facility.
Indonesia Jakarta
Malaysia KLSE 8. Facilitates healthy speculation: Healthy
US Nasdaq
speculation, keeps the exchange active. Normal
speculation is not dangerous but provides more
Japan Nikkei 225
business to the exchange. However, excessive
India Sensex
speculation is undesirable as it is dangerous to
South Korea Seoul
investors & the growth of corporate sector.
Singapore Straits Times
Switzerland Swiss Market
9. Serves as Economic Barometer: Stock exchange
indicates the state of health of companies and the
Taiwan Taiwan Weighted
national economy. It acts as a barometer of the
Functions of Stock Exchange - Main Functions In economic situation / conditions.
The Market
10. Facilitates Bank Lending: Banks easily know the

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1. Continuous and ready market for securities: Stock
exchange provides a ready and continuous market
for purchase and sale of securities. It provides ready
outlet for buying and selling of securities. Stock
exchange also acts as an outlet/counter for the sale
of listed securities.
2. Facilitates evaluation of securities: Stock exchange
is useful for the evaluation of industrial securities.
This enables investors to know the true worth of their
prices of quoted securities. They offer loans to
customers against corporate securities. This gives
convenience to the owners of securities.
Role Functions of SEBI in Monitoring the Stock
Exchange
Exchange Traded Fund
Edelweiss AMC recently got the government’s
permission to launch India’s first bond ETF (exchange

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holdings at any time. Comparison of companies in
the same industry is possible through stock exchange
quotations (i.e price list).
3. Encourages capital formation: Stock exchange
accelerates the process of capital formation. It
creates the habit of saving, investing and risk taking
among the investing class and converts their savings
into profitable investment. It acts as an instrument of
capital formation. In addition, it also acts as a channel
for right (safe and profitable) investment.
4. Provides safety and security in dealings: Stock
exchange provides safety, security and equity
(justice) in dealings as transactions are conducted as
per well defined rules and regulations. The managing
body of the exchange keeps control on the members.
Fraudulent practices are also checked effectively.
Due to various rules and regulations, stock exchange
functions as the custodian of funds of genuine
investors.
5. Regulates company management: Listed
companies have to comply with rules and regulations
of concerned stock exchange and work under
the vigilance (i.e supervision) of stock exchange
authorities.
6. Facilitates public borrowing: Stock exchange serves
as a platform for marketing Government securities. It
enables government to raise public debt easily and
quickly.
vkLFkk IAS : M-1A, Jyoti Bhawan, Mukherjee Nagar, Delhi-110009
traded fund) which will invest in central public sector
undertakings.
™™ Soon, Bond ETFs will be another investment vehicle
available to retail investors providing access to bonds
of state-run enterprises.
™™ Bond ETFs are similar to how equity ETFs invest in line
with indices covering specific baskets like the Nifty
50, Nifty Next 50 and Nifty Quality 30, among others
™™ While bond ETFs are not new in India, they have
not been very popular. At present, only three GSec
ETFs are available, all with miniscule assets and poor
trading volumes.
™™ The entry of newer bond ETFs comes at a time when
traditional bond funds are only just emerging from
a painful period of multiple credit defaults. Investors
are wary.
™™ Bond ETFs claim to be different from traditional bond
funds by offering high liquidity, transparency and
lower costs.
™™ The cost angle is the most distinguishing facet of
bond ETFs. Being passively managed products, these
charge a much lower fee than actively managed
bond funds. Sometimes even less than 0.5%.
™™ In the debt segment, there is not much the fund
manager can do to enhance returns. Any strategy
that can optimise costs is the need of the hour.
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™™ Globally, Bond ETFs have reported a healthy growth
over the last decade. The size of Global Bond ETFs
now accounts for over $1 trillion assets under
management (AUM) out of total $4 trillion AUM
across various ETFs.
™™ The key objectives of launching Bond ETF are:
zz To suffice borrowing needs of CPSEs
zz To increase retail participation
zz To deepen the bond market and increase
liquidity
What are ETFs?
™™ An exchange-traded fund (ETF) is a marketable
security, meaning it has an associated price that
allows it to be easily bought and sold.
™™ ETFs are in many ways similar to mutual funds;
however, they are listed on exchanges and ETF shares
trade throughout the day just like ordinary stock.
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™™ ETFs offer low expense ratios and fewer broker
commissions than buying the stocks individually.
™™ ETFs can contain all types of investments including
stocks, commodities, or bonds; some offer domestic
holdings only, while others are international.
Bond ETFs
™™ Bond ETFs are a type of ETF that exclusively invests
in bonds. Bond ETFs invest in various fixed-income
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securities such as corporate bonds, treasuries,
municipal, international, highyield, etc.
™™ Bond ETFs are passively managed and trade, much
like stock ETFs on major stock exchanges. This helps
promote market stability by adding liquidity and
transparency during times of stress.
™™ Bond ETFs allow ordinary investors to gain passive
exposure to benchmark bond indices in an
inexpensive way.
™™ Investors of bond ETFs are exposed to the risk of
interest rate changes.
™™ Bond ETFs are typically of two types: They either track
a specific maturity bucket like short, medium or long
term or they track a target maturity where they invest
in bonds with similar maturity as the product.
™™ Target Maturity Bond ETFs: They provide predictable
returns like Fixed Maturity Plans (FMPs), if they are
held till maturity.
Masala Bonds
™™ Kerala became the first state to tap into masala bond
market by listing the Kerala Infrastructure Investment
Fund Board (KIIFB)’s masala bond worth Rs 2,150
crore in London Stock Exchange (LSE)’s International
Securities Market (ISM).
™™ It has a fixed interest rate of 9.72% per annum.
Through this government focuses to get multinational
corporations to invest in the state.
vkLFkk IAS : M-1A, Jyoti Bhawan, Mukherjee Nagar, Delhi-110009
zz The first Masala bond was issued by the World
Bank- backed IFC in November 2014 when it
raised 1,000 crore bond to fund infrastructure
projects in India.
zz Later in August 2015 International Financial
Cooperation for the first time issued green
masala bonds and raised Rupees 3.15 Billion
to be used for private sector investments that
address climate change in India.
zz In July 2016 HDFC raised 3,000 crore rupees
from Masala bonds and thereby became the first
Indian company to issue masala bonds.
zz In the month of August 2016 public sector unit
NTPC issued first corporate green masala bonds
worth 2,000 crore rupees.
zz Masala bonds are those bonds issued outside
India but denominated in Indian Rupees, rather
than dollar or the local currency.
zz They are used by the companies to raise funds.
Till now Indian companies have been raising
debt from overseas markets for decades through
bond offerings, which have been denominated
in dollar or other currencies.
zz Any corporate, body corporate and Indian bank
is eligible to issue Rupee denominated bonds
overseas.
zz The objective of these bonds is to fund
infrastructure projects in India, fuel internal
growth via borrowings and internationalise the
Indian currency.
zz RBI mandates that the money raised through such
bonds cannot be used for real estate activities
other than for development of integrated
township or affordable housing projects.
zz It also can’t be used for investing in capital
markets, purchase of land and on-lending to
other entities for such activities.
How Masala Bonds help in supporting the rupee?
™™ The bonds are directly pegged to the Indian currency.
So, investors will directly take the currency risk or
exchange rate risks. If the value of Indian currency
falls, the foreign investor will have to bear the losses,
not the issuer which is an Indian entity or a corporate.
™™ If foreign investors eagerly invest in Masala Bonds or
bring money into India, this would help in supporting
the rupee.
™™ The issuer of these bonds is shielded against the risk
of currency fluctuation, typically associated with
borrowing in foreign currency. Besides helping in
diversifying funding sources, the costs of borrowing
via masala bonds could also turn out to be lower than
domestic markets.
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Where can these bonds be issued and who can
subscribe?
™™ The Rupee denominated bonds can only be issued
in a country and subscribed by a resident of such
country that is a member of financial action task force
and whose securities market regulator is a member of
International Organisation of Securities Commission.
™™ While residents of such countries can subscribe to
the bonds, it can also be subscribed by multilateral
and regional fi nancial institutions where India is a
member country.
Securities and Exchange Board of India (SEBI)
Securities and Exchange Board of India (SEBI) is an
apex body for overall development and regulation of the
securities market. It was set up on April 12, 1988. To start
with, SEBI was set up as a non-statutory body. Later on it
became a statutory body under the Securities Exchange
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Board of India Act, 1992. The Act entrusted SEBI with
comprehensive powers over practically all the aspects of
capital market operations.
Role Functions of SEBI
The important powers of SEBI (Securities and
Exchange Board of India) are:-
1. Powers relating to stock exchanges &
intermediaries: SEBI has wide powers regarding
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the stock exchanges and intermediaries dealing
in securities. It can ask information from the stock
exchanges and intermediaries regarding their
business transactions for inspection or scrutiny and
other purpose.
2. Power to impose monetary penalties: SEBI has been
empowered to impose monetary penalties on capital
market intermediaries and other participants for a
range of violations. It can even impose suspension of
their registration for a short period.
3. Power to initiate actions in functions assigned: SEBI
has a power to initiate actions in regard to functions
assigned. For example, it can issue guidelines to
different intermediaries or can introduce specific
rules for the protection of interests of investors.
4. Power to regulate insider trading: SEBI has power
to regulate insider trading or can regulate the
functions of merchant bankers.
5. Powers under Securities Contracts Act: For
effective regulation of stock exchange, the Ministry of
Finance issued a Notification on 13 September, 1994
delegating several of its powers under the Securities
Contracts (Regulations) Act to SEBI.
SEBI is also empowered by the Finance Ministry to
nominate three members on the Governing Body of
every stock exchange.
vkLFkk IAS : M-1A, Jyoti Bhawan, Mukherjee Nagar, Delhi-110009
6. Power to regulate business of stock exchanges:
SEBI is also empowered to regulate the business of
stock exchanges, intermediaries associated with the
securities market as well as mutual funds, fraudulent
and unfair trade practices relating to securities and
regulation of acquisition of shares and takeovers of
companies.
Stock Exchange Transactions - Terms Terminology
Glossary
List of Terms relating to Indian Stock Exchange
List of the important terms relating to Indian stock
exchange transactions.
1. Group A Shares: These are the listed equity shares of
large and well established companies having broad
investor base. These shares are actively traded and
for these shares the facility for carrying forward a
transaction from one accounting period to another
is available. Naturally, these shares attract a lot of
speculative multiples. These facilities are not available
for group B shares. However, shares can be moved
from Group B to Group A and vice versa depending
on criteria for shifting. For instance the Bombay Stock
Exchange has laid down several criteria for shifting
shares from Group B to Group A; such as, an equity
base of Rs. 10 crores, a market capitalization of Rs.
25-30 crores, a public holding of 35 to 40 percent, a
shareholding population of 15,000 to 20,000, good
dividend paying status, etc.
2. Group B Shares: These are those listed shares which
do not follow the criteria prescribed for Group A
shares. Group B shares are again divided into B1 and B
shares on BSE. B1 shares represent well traded scrips
among B group and they have weekly settlements.
3. Group C Shares: Under Group C, only odd lots and
permitted securities are included. A number of shares
that are less than the market lot are called odd lots.
Market lot refers to the minimum number of shares
of a particular security that must be transacted on
a stock exchange. Odd lots have settlement once in
fortnights or once on Saturdays. Permitted securities
are those that are not listed on a stock exchange but
are listed on other exchanges in India. So they are
permitted to be traded on BSE. Odd lots cannot be
easily transacted on the stock exchange and so they
are illiquid in nature.
4. Arbitration: Arbitration is a quasi-judicial process to
resolve a dispute which is faster and inexpensive. The
stock exchange facilitates the process of arbitration
between the member and their clients. The
disputes between the parties are resolved through
arbitration in accordance with the by-laws of the
exchange. Arbitration is required in the matters such
as settlement of claims, differences and disputes
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 between one member and another, between a
member and his clients, sub-brokers or authorised
clerks etc.
5. Arbitrage: Arbitrage is undertaken to make a profit
out of differences in prices of a security in two
different markets. It is a highly skilled speculative
activity. If the prices of a security differ substantially
in the two stock markets, the speculator purchases
the security in the market where it is cheap and sells
it at a profit in another market where it is quoted high
and thus makes huge profit. The speculator has to act
very fast since the prices are highly sensitive and they
may get equalised within a short span of time.
The arbitrage may be carried on between the two
markets within the country or in two different
countries. The former is called ‘domestic arbitrage’
and the latter ‘foreign arbitrage’. Arbitrage ultimately
helps in equalising the prices of securities at different
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places; hence, it is beneficial to market. The brokers
who carry arbitrage activity are called arbitragers.
6. Auction: An auction is a mechanism utilised by
the exchange to fulfill its obligation to a counter
party member when a member fails to deliver good
securities or make the payment. The stock exchange,
in such cases, arranges to buy good securities
through auction and deliver them to the buying
broker or arranges to realise the cash and pay it to
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the selling broker.
7. At Best Order: It is an order from an investor for the
purchase or sale of securities wherein the investor
does not specify a price at which the purchase or sale
of securities should be made by broker on his behalf.
Such order must be executed by the broker at best
possible price. The client may also fix a time frame
within which the order has to be executed. e.g. “Buy
200 Reliance Industries at best”.
8. Authorised Clerk: An authorised clerk is a
representative appointed by a stock broker to
assist him in the securities trading. A broker cannot
remain present all the time on trading floor of stock
exchange, hence he requires assistants to carry out
trading activities on his behalf. As per the rules of the
stock exchange, each broker can employ a specified
number of authorised clerks to transact his business.
They are also called ‘member assistants’. At Bombay,
Madras & Calcutta Stock exchanges the number of
authorised clerks allowed by a broker is 5, 3 and 8
respectively. Generally, authorized clerks are given
power of attorney to act on behalf of broker & hence
they can sign on behalf of brokers.
9. Bad Delivery Cell: A delivery of shares turns out to
be bad if there is a company objection on account of
signature difference, or if shares are fake, forged or
stolen etc. In such a case the investor can approach
vkLFkk IAS : M-1A, Jyoti Bhawan, Mukherjee Nagar, Delhi-110009
the bad delivery cell of stock exchange through
his broker for correction or replacement with good
delivery.
10. Bid and Offer: Bid refers to the price of a share which
a prospective buyer is ready to pay for particular
scrip. Offer is the price at which a share is offered for
a sale on stock exchange.
11. Brokerage: Brokerage means the commission
charged by a broker for purchase or sale of securities
done through him. The maximum brokerage
chargeable as stipulated by SEBI is at present 2.5 % of
the trade value.
12. BOLT: Bombay Stock Exchange has introduced BOLT.
That is, BSE - On - Line - Trading - System for listed
securities. Trading is order driven as quote driver
system is discontinued. For this purpose BSE classified
the listed securities into 5 categories. Viz. A, B1, B2, F,
G and Z. Out of these A, B1 and B2 groups represent
equity segment. Group F represents securities which
have fixed income, ‘G’ group represents Government
Securities whereas ‘Z’ represents those companies
which failed to comply with listing norms or failed
to redress investors’ complaints or failed to comply
with depository requirements. Trading of securities
of listed companies of other exchanges is also
permitted and these securities are categorised in
‘Permitted Securities.’
13. ‘Badla’ or Carry Forward Trading: Carry Forward or
‘Badla’ refers to the trading in which the settlement
of a transaction is postponed to the next settlement
period on payment of some charges by way of
interest known as Badla Charges. Carryover or Badla
is a facility given to the speculator by the other party
to carry forward the transaction from one settlement
period to another. The scrips in specified categories
(i.e. Group A) alone could be carried forward. Badla
charges vary from period to period and are fixed
fortnightly.
14. Bulls: Bulls are those brokers of stock exchange who
are very optimistic of the rise in prices of securities.
Hence, they go on buying shares in expectation
of selling them at higher prices later. Thus, in a bull
market there will be excess of purchase over sales.
Bulls are also called ‘Tejiwallas’.
15. Bears: Bears are those member brokers of stock
exchange who are always pessimistic in approach.
They expect a fall in prices of securities. Hence, they
go on selling securities. They are also called Mandi
wallas. A Bearish market refers to a market where
prices of shares are falling continuously where there
are excess of sales over purchases.
16. Blank transfers: Blank transfers facilitate speculative
activities through badla transactions. If a seller (or
transferer) of security simply signs the transfer form
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 without specifying the name of buyer (or transferee),
it is called a blank transfer. Badla transactions involve
temporary purchases and sales of securities. If they
have to be registered, it involves lot of inconveniences
due to registration fees, stamp duty, etc. Hence,
to avoid such inconveniences blank transfers are
increasingly used to carryover the transaction.
17. Circuit breakers: Its a mechanism by which Stock
Exchanges temporarily suspend the trading in a
security when its prices are volatile and tend to
breach the price band.
18. Clearing: Clearing is a process through which all
transactions between members of stock exchange
are settled through multilateral netting.
19. Company objection: For transfer of a security a
transferer sends a scrip certificate along with the
transfer deed to the company. In some cases the
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company refuses the registration of transfer on
account of signature difference, or fake, forged or
stolen shares. In such cases the company returns the
documents sent along with a letter which is termed
as a ‘company objection’.
20. Cornering: It refers to the process of holding entire
supply of a particular security by an individual or a
group of individuals with a view to dictating terms to
the short sellers and earning more profits.
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21. Clearing Settlement: Under this method, the
transactions are cleared and settled through the
clearing house. Usually those securities which are
frequently traded and are usually in demand are
cleared through the clearing house.
22. Client brokers: These brokers do simple braking
business by acting as intermediaries between the
buyers and sellers and they earn only brokerage for
their services rendered to the clients.
23. Cum-bonus: The shares are called cum-bonus when
a purchaser is entitled to receive the current bonus
declared by company.
24. Cum-rights: The share is described as cum-rights
when a purchaser is entitled to receive the current-
rights shares declared by the company.
25. Day order: A day order, as the name suggests, is an
order which is valid for the day on which it is entered.
If the order cannot be executed during the day, it
gets cancelled automatically.
26. Discretionary order: It is an order placed by a client
to buy or sell shares at whatever price the broker
thinks reasonable. This is possible only when the
client has complete faith on the broker.
27. Ex-bonus: The share is described as ex-bonus when a
purchaser is not entitled to receive the current bonus,
the right to which remains with the seller.
vkLFkk IAS : M-1A, Jyoti Bhawan, Mukherjee Nagar, Delhi-110009
28. Ex-rights: The share is described as ex-rights when a
purchaser is not entitled to receive the current rights,
the right of which remains with the seller.
29. Forward trading: Forward trading refers to trading
where contracts traded today are settled at some
future date at prices decided today.
30. Good-bad delivery: A share certificate together with
its transfer form which meets all the requirements
of title transfer from seller to buyer is called good
delivery in the market.
Delivery of a share certificate, together with a deed
to transfer, which does not meet requirements of title
transfer from seller to buyer is called a bad delivery in
the market.
31. Hand Delivery Settlement: Under this method,
the delivery of securities and payment are affected
within the time stipulated in the agreement or within
14 days from the date of contract whichever is earlier.
Most of the transactions are conducted on the basis
of hand delivery settlements.
32. Insider Trading: It means trading in a company’s
shares by a person who is associated with that
company. As a result of his association he has a secret
price sensitive information about the company
such as expansion plans, financial results, takeover
bid, bonus or right issue etc. He tries to exploit that
information and maximise his profit through trading
in the scrip of that company. It is a crime and hence
prohibited by stock exchanges.
33. Jumbo certificate: A jumbo share certificate is
a single composite share certificate issued by
consolidating-a large number of market lots.
34. Jobbers: A jobber is a professional independent
broker who deals in securities on his own behalf.
Like brokers he does not purchase or sell securities
on behalf of a client for a commission. Instead he
purchases the securities in his own name and sells
them out when the prices of those securities increase
and thereby earn a profit. He is like a stockist of
security of different companies. He buys securities as
a owner, keeps them for a very short period and sells
them for profit known as ‘jobbers turn’. He works for a
profit and not for a commission.
35. Lame ducks: Lame ducks are bear brokers (expecting
decline in prices) who ultimately sell the securities
ultimately at a loss by making wrong moves. They
lose in market due to the wrong prediction that
share prices will decline but in reality they increase.
Generally, they contract to sell securities which they
do not posses, therefore, they are caught in a wrong
foot.
36. Limit order: It is an order for the purchase or sale of
scrip at a fix price specified by the client. e.g. “Sell 100
TISCO shares @ Rs. 280”.
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37. Market Lot: Market lot refers to the minimum
number of shares of a particular security that must
be transacted on the exchange. Market lot may be 10
shares, 20 shares, 50 shares or 100 shares. Multiples
of the market lot may also be transacted. In demat
scrips the market lot is 1 share.
38. No-delivery period: Whenever a book closure
or record date is announced by a company, the
Exchange sets a no-delivery period for that security.
During this period, trading is permitted in that
security. However, these trades are settled only after
the no-delivery period is over. This is done to ensure
that investor’s entitlement for corporate benefits is
clearly determined.
39. Odd lot: A number of shares that are less than the
market lot are known as odd lots. Under the scrip
based delivery system, these shares are normally
traded at a discount to the prevailing price for the
marketable lot.
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40. Order-driven trading: It is a trading initiated by buy
I sell orders, from investors / brokers.
41. Over-the Counter trading: Trading in those stocks
which are not listed on a stock exchange.
42. Open order: It is an order to buy or sell a security
received from a client without fixing any time limit or
price limit on the execution of the order. It is similar
to discretionary order.
43. Pay-in: Pay-in day is the designated day on which
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the securities or funds are delivered / paid in by the
members to the clearing house of the Exchange.
44. Pay-out: Pay-out is the designated day on which
securities and funds are delivered I paid out to the
members by the clearing house of the Exchange.
45. Price band: The daily / weekly price limits within
which price of a security is allowed to rise or fall.
46. Price rigging (or Rigging the market): When a
person or persons acting in concert with each other
collude to artificially increase or decrease the price
of a security, that process is called price rigging or
rigging the market. It is an undesirable activity since
it prevents the free interplay of demand and supply.
Stock exchanges and SEBI try to discourage such
practice.
47. Quote-driven trading: Trading where brokers
/ market makers give buy I sell quote for a scrip
simultaneously.
48. Record date: Record date is the date on which the
beneficial ownership of an investor is entered into
the register of members. Such a member is entitled
to get all the corporate benefits.
49. Rematerialisation of shares: It is the process
through which shares held in electronic form in
depository are converted into physical form.
50. Screen based trading: When buying / selling of
securities is done using computers and matching of
trades is done by a stock exchange computer.
vkLFkk IAS : M-1A, Jyoti Bhawan, Mukherjee Nagar, Delhi-110009
51. Settlement: It refers to the scrip-wise netting of
trades by a broker after the trading period is over.
52. Settlement guarantee: Settlement guarantee is the
guarantee provided by the clearing corporation for
settlement of all trades even if a party defaults to
deliver securities or pay cash.
53. Splitting /Consolidation: The process of splitting
shares that have a high face value into shares of a
lower face value is known as splitting. The reverse
process of combining shares that have a low face
value into one share of higher value is known as
consolidation.
54. Spot trading: Trading by delivery of shares and
payment for the same on the date of purchase or on
the next day.
55. Stop transfer: It is an instruction given by a
registered holder of shares to the company to stop
the transfer of shares in his name as a result of theft,
misplacement, loss of share certificates.
56. Stags: Stags are those members in share market who
neither buy nor sell securities in stock exchange. They
simply apply for subscription to new issues expecting
to sell them at a higher price later when the issues
are quoted on stock exchange. Generally, stags buy
new issues and sell them on allotment or even before
allotment for a profit. Since they act fast they are
called stags - a fast runner.
57. Spot delivery settlement: These transactions are to
be settled by delivery and payment on the date of
contract or on the next day.
58. Special delivery: Delivery and payment made
anytime exceeding 14 days, but not exceeding 2
months, following the date of the contract as may
be stipulated when entering into the bargain and
permitted by the Governing Board or the President.
59. Stop Loss Order: It is an order by a client to sell as
soon as the prices fall upto a particular level or to
buy when the price rises up to a specified level. This
is mainly to protect the clients against a heavy fall or
rise in prices so that they may not suffer more than
the pre-specified amount.
60. Trade guarantee: Trade guarantee is the guarantee
provided by the clearing corporation for all trades
that are executed on the exchange. In contrast, at the
settlement guarantee, guarantees the settlement of
trade after multilateral netting.
61. Transfer deed: A transfer deed is a form that is
used for effecting transfer of shares or debentures
and is valid for a specified period. It should be sent,
to the company along with the share certificate for
registering the transfer. The transfer deed must be
duly stamped and signed by or on behalf of the
transferor and transferee and complete in all respects.
62. Wash Sales: Wash sales is a kind of fictitious
transaction through which a speculator is able to
reap huge profit by creating a misleading picture
in the market. He makes fictitious sale of a security
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 and then makes a purchase of the same security at
higher price through another broker. Thus, he creates
a misleading opinion in the market as if the price of a
security in question is rising. As a result of such false
opinion, when the price of the security actually rises
the speculator sells it to earn a good profit. Wash sale
is a kind of cheating hence stock exchanges impose
severe penalty on such sales.
63. Wolves: These are the brokers who are fast and smart
speculators. They quickly perceive changes in the
trends in the market and trade fast to make profit.
They are not generally caught in the wrong foot.
64. Money Market: Money market refers to lending and
borrowing short term funds- funds with a maturity
of less than one year. Banks and financial institutions
(IDBI, LIC etc) are the main lenders and borrowers
while individuals, companies, Government and
others are the main borrowers.
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65. Call Money / Notice Money: Call/Notice money is
money borrowed or lent for a very short period. If
the period is more than one day and upto 14 days
it is called ‘Notice money’ otherwise the amount is
known as ‘Call money’.
66. Treasury Bills:
zz Treasury bills are short-term money market
instruments, which are issued by the RBI on
behalf of the GOI. The GOI uses these funds to
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meet its short-term financial requirements of
the government. T-Bills are sovereign zero risk
instruments.
zz There are T-Bills of 14 days, 91 days, 182 days
and 364 days maturity. Minimum investment
required in case of T-Bills is Rs 25,000
Inter Bank Term Money
Inter bank market for deposits of maturity beyond
14 days and upto three months is referred to as the term
money market.
Certificates Of Deposit
After treasury bills, the next lowest risk category
investment option is the certificate of deposit (CD) issued
by scheduled commercial banks and FIs, Regional rural
banks and Local area banks can not issue CDs.
Commercial Paper
It represents short term unsecured promissory
notes issued by top rated corporates, primary dealers
(PDS), Satellite dealers(SDS) and the all-India financial
institutions (FIs).
Commercial Bills
Bills of exchange are negotiable instruments drawn
by the seller (drawer) of the goods on the buyer (drawee)
of the goods for the value of the goods delivered. These
bills are called trade bills. These trade bills are called
commercial bills when they are accepted by commercial
banks. If the bill is payable at a future date and the seller
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needs money immediately, he may approach his bank for
discounting the bill.
Capital Market
It refers to market for funds with a maturity of 1 year
and above, referred to as term funds that includes medium
and long term funds. The demand for these funds comes
from both the government for its investment purposes
and also the private sector. Banks, public financial
institutions like LIC and CIIC; development financial
institutions like ICICI, 1DBI etc; mutual funds like UTI are
the main participants in the market.
Gilt edged securities
™™ Government securities, or G-Secs as they are
popularly known, are securities issued by the RBI on
behalf of the Government of India to meet the latter’s
borrowing programme for financing fiscal deficit. The
G- Sec instrument is in the nature of a bond.
™™ GOI Dated Security can be held by any person,
firm, company, corporate body or institution, State
Governments, Provident Funds and Trusts.
™™ Non-Resident Indians (NRIs, viz., Indian citizens and
Individuals of Indian origin), Overseas corporate
bodies predominantly owned by NRIs and Foreign
Institutional, Investors registered with SEBI and
approved by Reserve Bank of India are also eligible to
invest in the Government Stock.
G-Secs have a maturity period ranging from one to
™™
30 years and they carry a coupon rate (interest rate)
which is paid semi-annually. They are issued both in
demat and physical form.
™™ The minimum investment in G-Secs is Rs 10,000.
G-Secs could be of the following types
(i) Dated Securities: They have fixed maturity and
fixed coupon rates payable half yearly and are
identified by their year of maturity.
(ii) Floating Rate Bonds: They are bonds with
variable interest rates with a fixed percentage
over a benchmark rate. There may also be a
cap and a floor rate attached, thereby fixing a
maximum and minimum interest rate payable
on it.
(iii) Capital Indexed Bonds: They are bonds where
the interest rate is a fixed percentage over the
wholesale price index. Redemption is linked to
the wholesale price index.
Merchant Banks/Investment Banks
MBs are those who manage and underwrite
(Underwriting an issue means to guarantee to purchase
any shares in a new issue of rights issue not fully subscribed
by the public) new public issues floated by companies
to raise funds from public. They advise corporate clients
on fund raising. They are also called investment banks (I
banks). They deal only with corporates and not general
public, essentially.
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Mutual Funds
Mutual funds raise money from public and invest
them in stock market securities, bonds etc. Mutual funds
were virtually synonymous with the Unit Trust of India
(UTI) till two decades ago when India witnessed financial
sector liberalization and many more public sector and
private mutual funds came up, SEBI regulates mutual
funds.
Venture Capital
Venture capital is money provided by financial
institutions who invest alongside management in young,
rapidly growing companies that have the potential to
develop into significant economic contributors. Venture
capital is an important source of equity for start-up
companies.
Qualified Institutional Placement
The QIP Scheme is open to investments made by
Qualified Institutional Placement which includes public
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financial institutions, mutual funds, foreign institutional
investors, venture capital funds and foreign venture
capital funds registered with the SEBI) in any issue of
equity shares / fully convertible debentures / partly
convertible debentures or any securities which are
convertible into or exchangeable with equity shares at a
later date (Securities).
Credit Default Swap
It is a form of insurance against debt default. When
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an investor buys corporate (or government) bonds he/
she faces the risks of default on part of the issuing agent.
The investor can insure its investment in such bonds
against default through a third party. The investor pays
a premium to the party providing insurance. In the event
of default by the bond issuer, the insurer would step in
and pay the investor. A CDS is just that insurance, which is
bought by those who fear default.
Participatory Notes
Investments through participatory notes (P-notes)
in the Indian capital market stood at Rs 79,088 crore in
August-end, registering the third consecutive month-on-
month decline.
™™ What are Participatory Motes (P- Notes)?
zz P-notes are issued by registered foreign portfolio
investors (FPIs) to overseas investors who wish
to be a part of the Indian stock market without
registering themselves directly after going
through a due diligence process.
™™ Who issues P- Notes and what is the process?
zz Participatory notes are issued by brokers and FIIs
registered with SEBI. The investment is made on
behalf of these foreign investors by the already
registered brokers in India.
zz For example, Indian-based brokerages buy India-
based securities and then issue participatory
notes to foreign investors. Any dividends or
capital gains collected from the underlying
securities go back to the investors.
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zz The brokers that issue these notes or trades in
Indian securities have to mandatorily report their
PN issuance status to SEBI for each quarter. These
notes allow foreign high networth individuals,
hedge funds and other investors to put money
in Indian markets without being registered with
SEBI, thus making their participation easy and
smooth.
™™ Advantages of participatory notes
zz Anonymity: Any entity investing in participatory
notes is not required to register with SEBI,
whereas all FIIs have to compulsorily get
registered. It enables large hedge funds to carry
out their operations without disclosing their
identity.
zz Ease of trading: Trading through participatory
notes is easy because they are like contract notes
transferable by endorsement and delivery.
zz Tax saving: Some of the entities route their
investment through participatory notes to take
advantage of the tax laws of certain preferred
countries.
zz P-Notes also aid in saving time and costs
associated with direct registrations.
™™ Disadvantages of P-notes
zz Because of the anonymous nature of the
instrument, the investors could be beyond the
reach of Indian regulators.
zz P-Notes are being used in money laundering
with wealthy Indians, like the promoters of
companies, using it to bring back unaccounted
funds and to manipulate their stock prices.
™™ Why SEBI is not in favour to ban P-Notes?
zz P-Notes are used globally in many markets.
zz According to SEBI’s and government’s views,
P-Notes are legitimate instruments that are
required for normal fi nancial transactions and
are prevalent in all the larger markets.
zz In an attempt to ban, P-Notes in 2007 due to
a surge in capital fl ows and excess liquidity,
markets crashed immediately which recognised
the importance of P-Notes in Indian economy.
Merchant Discount Rate (MDR)
All businesses with turnover worth Rs 50 crore or
above need to mandatorily provide certain electronic
payment modes facilities like RuPay debit cad, BHIM-UPI
(Unifi ed Payments Interface), BHIM-UPI QR Code and UPI
QR code. People making payments via these electronic
modes will not need to pay any charge including MDR
(Merchant Discount Rate) fee.
™™ Merchant Discount Rate is a fee charged from a
merchant by a bank for accepting payments from
customers through credit and debit cards in their
establishments.
™™ MDR compensates the card issuing bank, the lender
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 which puts the PoS terminal and payment gateways
such as Mastercard or Visa for their services.
™™ MDR charges are usually shared in pre-agreed
proportion between the bank and a merchant and is
expressed in percentage of transaction amount.
Core Investment Companies (CICs)
™™ The Reserve Bank had constituted a working group
to review the regulatory and supervisory framework
for core investment companies.
™™ The six-member working group was headed by Tapan
Ray, non-executive chairman, Central Bank of India
and former secretary, Ministry of Corporate Affairs.
CICs:
™™ CICs are non-banking financial companies with
asset size of Rs.100 crore and above which carry on
the business of acquisition of shares and securities,
subject to certain conditions.
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™™ CICs, which are allowed to accept public funds, hold
not less than 90% of their net assets in the form of
investment in equity shares, preference shares, bonds,
debentures, debt or loans in group companies.
™™ Investments of CIC in the equity shares (including
instruments compulsorily convertible into equity
shares within a period not exceeding 10 years from
the date of issue) in group companies constitutes not
less than 60% of its net assets.
™™ Exemption: CICs having asset size of below Rs 100
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crore are exempted from registration and regulation
from the RBI, except if they wish to make overseas
investments in the fi nancial sector.
Credit Rating
Credit rating is done for debt instruments such as
debentures, fixed deposits, commercial papers, bonds,
etc.
The company which issues debt instruments is called
an issuer or issuing company. The issuer, issues these
instruments to collect finance from the investors.
The investor looks at the credit rating of the
instrument and the issuer before investing. If the credit
rating is a high, investor will invest in the company. That
is, he will purchase the debentures, etc. issued by that
company. If the credit rating is low, he will not purchase
the debentures, etc. of that company. So, credit rating
guides the investor while investing.
Credit rating is an opinion about a debt instrument
and its issuer. It tells the investor, whether the debt
instrument is safe or risky. That is, it tells whether the
company will be able to pay the interest and repay the
principal amount in time. Credit rating is only an opinion.
It is not a recommendation. It does not ask an investor to
buy, hold or sell an instrument.
So, credit rating is an opinion about the future
ability and legal obligation of the issuer to make timely
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payments of principal amount and interest on their debt
instruments. Credit rating is done by independent credit-
rating agencies like S & P, which is based in USA, while
CRISIL, CARE and ICRA Ltd., which are based in India. Credit
rating is done by experts after examining various factors.
The rating is expressed in alphabetical or alphanumeric
symbols. For e.g. if the rating of debenture is AAA (Triple
A), then it is considered to have the highest safety for
the investor. However, if the credit rating is D, then the
debenture is considered to be very risky for the investor.
The issuing company asks the credit-rating agency to rate
its instrument. This is done before issuing the instrument.
The agency collects and studies information about the
issuing company. Then it gives a rating for the instrument.
This rating is not permanent. It is reviewed periodically.
Moody’s cut India’s Rating from Stable to
Negative
Ratings agency Moody’s has reacted predictably to
the turbulence in the economy by revising the outlook on
its sovereign rating for India from stable to negative.
™™ Moody’s Investor Service changed its outlook for
India’s sovereign rating (Baa2) from stable to negative,
saying that the domestic economic downturn could
be structural.
™™ The agency’s action does not amount to a rating
downgrade, but comes as a caution against policy
inaction. Moody’s credit rating of Baa2, the second-
lowest investment grade score, is better than those
of other agencies, such as S & P and Fitch, who have
assigned the lowest investment grade to India with a
stable outlook.
™™ However, the Union finance ministry said that India’s
potential growth rate remains unchanged, as evident
from the assessment by the International Monetary
Fund (IMF) and other multilateral organizations that
continue to hold a positive outlook on India.
™™ The government has undertaken a series of financial
sector and other reforms to strengthen the economy
as a whole. Government of India has also proactively
taken policy decisions in response to the global
slowdown. These measures would lead to a positive
outlook on India and would attract capital flows and
stimulate investments
™™ India has often criticized the methodology followed
by rating agencies.
™™ India’s ratings were upgraded to Baa2 from Baa3 in
2017 citing progress on ‘economic and institutional
reforms’ by the Narendra Modi Government.
™™ Moody’s said India’s potential gross domestic
product (GDP) growth and job creation will remain
constrained unless reforms are advanced to directly
reduce restrictions on the productivity of labour
and land, stimulate private sector investment, and
sustainably strengthen the financial sector.
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 Listed below are some of the taxes that are levied by the
Public Finance India Government:
Tax System in India Direct Taxes
This paper seeks to provide a bird eye’s view of the ™™ Banking Cash Transaction Tax
taxation structure in India. The topics broadly covered ™™ Capital Gains Tax
here are Direct Taxes (Income Taxes) and Indirect taxes (At ™™ Corporate Income Tax
Central Government level and State Government level). ™™ Fringe Benefit Tax
The other level of classification can be based on who
™™ Personal Income Tax
levies the taxes. It is an overview and not supposed to be
™™ Securities Transaction Tax
a comprehensive in-depth analysis of different taxes.
™™ Indirect Taxes
Central Government levies taxes on the following:
™™ Customs Duty
™™ Income Tax: Tax on income of a person
™™ Excise Duty
™™ Customs duties: Duties on import and export of
goods ™™ Service Tax

™™ Central excise: Taxes on Manufacturing of dutiable

goods

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™™ Service tax: Taxes on provision of services
State Governments can levy the following taxes:
™™ Value Added Tax (VAT): This is tax on sale of goods.
While intra-state sale of goods are covered by the VAT
Law of that state, inter-state sale of goods is covered
by the Central Sales Tax Act. Even the revenue
collected under Central Sales Tax Act is done so by
the State Governments themselves and actually the
Central Government has no role to play so.

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™™ Stamp duties and Land Revenue: Since land is a
matter on which only State Governments can govern,
thus the Stamp duties on transfer of immovable
properties are levied by State Governments.
™™ State Excise on Liquor and certain agricultural goods.
Apart from the above, certain powers of taxation
have been devolved in the hands of local bodies. These
local governing bodies can levy taxes on water, property,
shop and establishment charges etc.

Taxes Levied in India

Taxes Levied by the Central Government of India
The Central Indian Government that is officially
named as the "Union Government" is responsible for
the imposition of both direct taxes as well indirect taxes.

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Taxes Imposed by the State Governments remained in India for more than 182 days in a particular
Though the majority of the taxes are levied by the residential year. If he becomes resident in India, then his
Central Government of the country, there are some taxes, global income i.e. income earned even outside India is
which can not be levied by them. These kinds of taxes are taxable in India. This has to be noted very carefully by
the one of the sole responsibilities of the governments of Expatriates on deputation to India. They need to plan their
the individual states. To name a few of such taxes in India stay in such a manner as to avoid becoming a resident in
are: India. The following para explains this in a slightly more
™™ Dividend Tax detailed manner:
™™ Endowment Tax
™™ Estate Tax
™™ Gift Tax
™™ Flat Rate Tax or Flat Tax
™™ Fuel Tax
™™ Inheritance Tax
™™ Transfer Tax

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™™ Payroll Tax
™™ Poll Tax
™™ S. E. T. or Self Employment Tax
™™ Social Security Tax
™™ Usage Tax
™™ Value Added Tax or Sales Tax
™™ Wealth Tax Tax Resident
An individual is treated as resident in a year if present

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in India:
1. For 182 days during the year or
2. For 60 days during the year and 365 days during the
preceding four years.

Direct Taxes
They are called so as the burden of taxation falls
directly on the tax payer.
Under the Income Tax Act, 1961 The Central
Government levies direct taxes on the income of
individuals and business entities as well as Non business
entities also. The taxation level depends on the residential
status of individuals. The thumb rule of residential status So an expatriate has to time his stay in India by taking
is that an individual becomes resident in India if he has into account the above.

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 What is taxable for a Non-Resident?
Non-residents are taxed only on income that is
received in India or arises or is deemed to arise in India. He
is entitled to get benefit of any double taxation avoidance
agreement that his country of residence has signed with
India. Then he shall be liable for taxes at rates mentioned
in the Indian domestic tax laws or the rates mentioned in
the Double Taxation Avoidance Agreement whichever is
lower.

Corporate Tax Rate Cuts

Context: In its boldest gambit yet to stir up the
economy, the government has issued an ordinance to
reduce the corporate tax rate for domestic firms and
new manufacturing units by 10 to 12 percentage points,
effectively bringing India’s tax rates on par with its
competing Asian peers.

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™™ The Indian economy is currently going through its
worst deceleration in six years. The earliest markers
of an economy’s health are found in car showrooms,
retail malls and the rapidity of activity in farms.
Recent months’ data related to these suggests that
the Indian economy is going through a slowdown.
A resident who was not present in India for 730
™™ The latest measures are by far the biggest, and the
days during the preceding seven years or who was
boldest step to revive the Indian economy, which
nonresident in nine out of ten preceding years is treated
until recently, was feted as a global growth engine.

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as not ordinarily resident. A person not ordinarily resident
The goal is to turn India into an investors’ hub,
is taxed like a non-resident but is also liable to tax on
demonstrate the government’s intent to walk the talk
income accruing abroad if it is from a business controlled
on economic management, restore investors’ confi
in or a profession set up in India.
dence and boost sentiments and demand.
Tax rate changes
™™ The government has slashed the corporate income
tax rate from 30 percent to 22 percent for all
companies. Inclusive of cess and surcharges the
effective corporate tax rate in India now comes down
to corporate tax to 25.17 per cent.
™™ Newer companies, which are set up after October 1,
2019, will be subjected to an even lower effective tax
rate of 17 percent.
™™ The new rates bring India closer, in some cases lower,
to the rates prevalent in many of the emerging
and industrialised countries. The new corporate
income tax rates in India will be lower than USA (27
percent), Japan (30.62 percent), Brazil (34 percent),
and Germany (30 percent) and is similar to China (25
percent) and Korea (25 percent).
Minimum Alternative Tax (MAT)
Normally, a company is liable to pay tax on the
income computed in accordance with the provisions of
the income tax Act, but many a times due to exemptions
under the income tax Act, there is huge actual profit as
shown in the profit and loss account of the company but

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no taxable income. To overcome this issue, and in order
to bring such companies under the income tax act net,
the concept of Minimum Alternate Tax (MAT) has been
introduced. The present rate of MAT is 15%.
Another aspect which must be looked into is the
concept of Witholding Taxes; also called as Tax Deduction
at Source (TDS).
Tax Deduction at Source (TDS)
This point is being specifically mentioned because
the penalties of non-compliance are very stringent. As per
the provisions of the Indian tax laws, certain payments
are covered under tax withholding norms. Under this, the
person responsible for making any payment is required to
withhold a certain specified percentage of the payment
amount as taxes and deposit it with the Government
treasury. In addition, the person is required to prepare a
certificate of tax deduction and provide it to the person
on whose behalf the deductions are made. Every quarter
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i.e. 3 months, returns have to be filed by the deductor and
credit must be given to the deducted in the returns.
The following are the areas where tax withholding is
most common in the Indian scenario:
Salaries
The salaried employees of the drawing beyond the
minimum taxable salary would be covered under the tax
withholding requirements and annual tax withholding
returns are to be submitted with the Revenue authorities.
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Contractors
Payments made to a contractor for carrying out any
work would require withholding of tax at source from
such payments, ifcertain threshold limits are crossed.
Typical examples of such payments will include:
™™ Advertising payments
™™ Broadcasting and telecasting payments
™™ Office renovation payments
™™ Vehicle hire payments
™™ Catering payments.
™™ Job Work
™™ Courier
Professional Services
Payments made for professional and technical fees to
Doctors, Chartered Accountants, Lawyers, Management
Consultants, Engineers, Architects and other professionals
would fall under this section and tax would be required to
be withheld from their payments. Such withheld tax shall
be deposited with the Government.
Rentals
Payments for rentals would attract tax deduction at
source.
1. Capital Gains Tax:
Capital Gain tax as name suggests it is tax on gain
in capital. If you sale property, shares, bonds & precious
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material etc. and earn profit on it within predefined time
frame you are supposed to pay capital gain tax. The capital
gain is the difference between the money received from
selling the asset and the price paid for it.
Capital gain tax is categorized into short-term gains
and long-term gains. The Long-term Capital Gains Tax
is charged if the capital assets are kept for more than
certain period 1 year in case of share and 2 years in case
of property. Short-term Capital Gains Tax is applicable if
these assets are held for less than the above-mentioned
period.
Rate at which this tax is applied varies based on
investment class.
2. Securities Transaction Tax:
A lot of people do not declare their profit and avoid
paying capital gain tax, as government can only tax those
profits, which have been declared by people. To fight with
this situation Government has introduced STT (Securities
Transaction Tax) which is applicable on every transaction
done at stock exchange. That means if you buy or sell
equity shares, derivative instruments, equity oriented
Mutual Funds this tax is applicable.
This tax is added to the price of security during the
transaction itself, hence you cannot avoid (save) it. As this
tax amount is very low people do not notice it much.
Current STT Rates are:
3. Perquisite Tax:
Earlier to Perquisite Tax we had tax called FBT (Fringe
Benefit Tax) which was abolished in 2009, this tax is on
benefit given by employer to employee. E.g If your
company provides you non-monetary benefits like car
with driver, club membership, ESOP etc. All this benefit is
taxable under perquisite Tax.
In case of ESOP the employee will have to pay tax on
the difference between the Fair Market Value (FMV) of the
shares on the date of exercise and the price paid by him/
her.
Direct Tax Code
Recently, the draft legislation of the new Direct Tax
Code (DTC) was submitted by the task force, headed by
Akhilesh Ranjan, to the Government of India. More on the
news
™™ The Direct Tax Code (DTC) is an attempt by the
Government of India to simplify the direct tax laws
in India.
™™ It will revise, consolidate and simplify the structure
of direct tax laws in India into a single legislation. o
When implemented, it will replace the Income-tax
Act, 1961 (ITA), and other direct tax legislations like
the Wealth Tax Act, 1957. Trends of Direct tax
™™ There has been a growth of more than 80% in the
number of returns filed in the last four financial years
79
 and direct tax-GDP ratio rose to 5.98% in FY 2017-18,
the highest it has been in the last 10 years.
™™ Further, the number of persons filing income tax
returns also increased by about 65% during period
from 2014-2018.
™™ Moreover, Direct Tax-GDP ratio rose to 5.98% in FY
2017-18, which is highest in the last 10 years. This
shows a sign of improvement of Tax-Buoyancy in the
economy.
4. Indirect Taxes:
In India, indirect taxes is a vast ocean as there are
number of taxes to be paid on manufacture, import,
sale and even purchase in certain cases. Further the
law is governed less by the Acts and more by day to
day notifications, circulars and orders by the Governing
bodies. So an explicit understanding is very much
essential. A simplistic way to understand Indirect taxes is
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as follows:
5. Sales Tax:
Sales tax charged on the sales of movable goods. Sale
tax on Inter State sale is charged by Union Government,
while sales tax on intra-State sale (sale within State) (now
termed as VAT) is charged by State Government.
Sales can be broadly classified in three categories. (a)
Inter-State Sale (b) Sale during import/export (c) Intra-
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State (i.e. within the State) sale. State Government can
impose sales tax only on sale within the State.
CST is payable on inter-State sales is @ 2%, if C form
is obtained. Even if CST is charged by Union Government,
the revenue goes to State Government. State from which
movement of goods commences gets revenue. CST Act
is administered by State Government. This tax is merged
in GST.
6. Service Tax:
Most of the paid services you take you have to pay
service tax on those services. This tax is called service tax.
Over the past few years, service tax been expanded to
cover new services. Now this tax is merged in GST.
7. Value Added Tax:
The Sales Tax is the most important source of revenue
of the state governments; every state has their respective
Sales Tax Act. The tax rates are also different for respective
states.
Tax imposed by Central government on sale of goods
is called as Sales tax same is called as Value added tax by
state government.VAT is additional to the price of goods
and passed on to us as buyer (end user). Around 220+
Items are covered with VAT.VAT rates vary based on nature
of item and state.
VAT, service tax and sales tax merged in Goods service
tax (GST).
vkLFkk IAS : M-1A, Jyoti Bhawan, Mukherjee Nagar, Delhi-110009
8. Custom duty & Octroi (On Goods):
Custom Duty is a type of indirect tax charged on
goods imported into India. One has to pay this duty, on
goods that are imported from a foreign country into
India. This duty is often payable at the port of entry (like
the airport). This duty rate varies based on nature of items.
Octroi is tax applicable on goods entering in to
municipality or any other jurisdiction for use, consumption
or sale. In simple terms one can call it as Entry Tax.
9. Excise Duty:
An excise or excise duty is a type of tax charged on
goods produced within the country. This is opposite to
custom duty which is charged on bringing goods from
outside of country. Another name of this tax is CENVAT
(Central Value Added Tax).
If you are producer / manufacturer of goods or you
hire labour to manufacture goods you are liable to pay
excise duty.
10. Anti Dumping Duty:
Dumping is said to occur when the goods are
exported by a country to another country at a price lower
than its normal value. This is an unfair trade practice
which can have a distortive effect on international trade.
In order to rectify this situation Central Govt. imposes an
anti dumping duty not exceeding the margin of dumping
in relation to such goods.
Other Taxes:-
11. Professional Tax:
If you are earning professional you need to pay
professional tax. Professional tax is imposed by respective
Municipal Corporations. Most of the States in India charge
this tax.
This tax is paid by every employee working in Private
organizations. The tax is deducted by the Employer every
month and remitted to the Municipal Corporation and it
is mandatory like income tax.
The rate on which this tax is applicable is not same
in all states.
12. Dividend distribution Tax:
Budget 2020 abolished the Dividend Distribution Tax
(DDT).
™™ Budget 2020 has proposed to make dividend income
from shares and mutual funds taxable in the hands of
recipients at the applicable income tax slab rates to
the individual.
™™ Called the Dividend Distribution Tax (DDT), it
was hitherto levied on dividend income before
distribution by the company or mutual fund house.
™™ Dividend distribution tax is the tax imposed by the
Indian Government on Indian companies according
to the dividend paid to a company’s investors.
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™™ Dividend is the return given by a company to its
shareholders out of profi ts earned by the company
in a particular year.
™™ Dividend constitutes income in the hands of the
shareholders which ideally should be subject to
income tax. However, the income tax laws in India
provide for an exemption of the dividend income
received from Indian companies by the investors by
levying DDT on the company paying the dividend.
™™ Previously, in addition to corporate tax, companies
had to pay DDT at the time of distributing profi ts to
its shareholders.
The effective DDT rate is 56 per cent.
Although the government recently reduced the
effective corporate tax rate to 25.17/17.16 per cent, once
DDT was factored in, the effective tax rate for corporates
became 37.93 per cent.
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13. Municipal Tax:
Municipal Corporation in every city imposed tax in
terms of property tax. Owner of every property has to pay
this tax. This tax rate varies in every city.
14. Entertainment Tax:
Tax is also applicable on Entertainment; this tax
is imposed by state government on every financial
transaction that is related to entertainment such as movie
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tickets, major commercial shows exhibition, broadcasting
service, DTH service and cable service.
15. Stamp Duty, Registration Fees, Transfer Tax:
If you decide to purchase property than in addition
to cost paid to seller. You must consider additional cost to
transfer that property on your name.
That cost include registration fees, stamp duty and
transfer tax. This is required for preparing legal document
of property.
In simple sense this tax is imposed on the handing
over of the title of property ownership by one person to
another. It incorporates a legal transaction fee & stamp
duty. This amount varies from property to property based
on cost.
16. Education Cess, Surcharge:
Education cess is deducted and used for Education of
poor people in INDIA. All taxes in India are subject to an
education cess, which is 3% of the total tax payable. The
education cess is mainly applicable on Income tax, excise
duty and service tax.
Surcharge is an extra tax or fees that added to your
existing tax calculation. This tax is applied on tax amount.
17. Gift Tax:
If you receive gift from someone it is clubbed with
your income and you need to pay tax on it. This tax is
called as gift tax.
vkLFkk IAS : M-1A, Jyoti Bhawan, Mukherjee Nagar, Delhi-110009
This tax is applicable if gift amount or value is more
than 50000 Rs/- in a year.
18. Wealth Tax:
Wealth tax is a direct tax, which is charged on the net
wealth of the assessee. Wealth tax is chargeable in respect
of Net wealth corresponding to Valuation date.Net wealth
means all assets less loans taken to acquire those assets.
Wealth tax is 1% on net wealth exceeding 30 Lakhs (Rs
3,000,000). So if you have more money, assets you are
liable to pay tax.
Note:- Wealth tax is abolished by government in
budget 2015.Now onwards surcharge of 12% is applicable
on individual earning 1 crore and above.
19. Toll Tax:
At some of places you need to pay tax in order to use
infrastructure (road, bridge etc.) build from your money
given to government as Tax. This tax is called as toll tax.
This tax amount is very small amount but, to be paid for
maintenance work and good up keeping.
20. Swachh Bharat Cess:
Swacch Bharat Cess is recently being imposed by the
government of India. This tax is applicable on all taxable
services from 15thNovemeber, 2015. The effective rate of
Swachh Bharat Cess is 0.5%. After this tax we need to pay
14.5% service tax.
21. Krishi Kalyan Cess:
In budget 2016 finance minister has introduced new
tax namely KrishiKalyanCess. This cess is introduced in
order to extend welfare to the farmers. The effective rate
of KrishiKalyanCess is 0.5%. This tax will be imposed on
all taxable services. KrishiKalyanCess would come in force
with effect from June, 1, 2016. Once this cess is applied we
need to pay service tax @ 15%.
22. Dividend Tax:
In budget 2016 finance minister has introduced a
new tax on the dividend amount. It is proposed that 10%
additional tax will be imposed on dividend income above
10 Lac from 1st April 2016 onwards.
23. Infrastructure Cess:
New Infrastructure cess on car and utility vehicle
imposed recently in budget 2016. 1% infrastructure cess
is applicable on petrol/LPG/CNG-driven motor vehicles of
length not exceeding 4 meters and engine capacity not
exceeding 1200cc. 2.5% cess on diesel motor vehicles
of length not exceeding 4 meters and engine capacity
not exceeding 1500cc and 4% cess is applicable on big
sedans and SUVs.
24. Entry Tax:
This entry tax is imposed by Gujarat, Madhya Pradesh,
Assam, Delhi and Uttarakhand state government recently.
The tax rate is variable 5.5-10% depending upon the
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state. All items entering in the state boundaries ordered
via E-commerce are under this tax boundary.
GST (Goods and Services)
Goods and Services Tax (GST) is an indirect tax which
has been implemented in India on 1 July 2017. The main
objective behind the implementation of this tax is to
make a uniform tax system in the country. Due to the
implementation of the GST, incidence of tax evasion will
come down in the country. So GST will increase the total
tax collection of the government. In this article, we are
giving 20 key facts related to the goods and services tax
(GST).
With 66.79 lakh new dealers registered under the
Goods and Service Tax, GST Network has decided to
make Aadhaar authentication or physical verification
mandatory for new dealers from January 1, 2020, to check
malpractices.
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About GST
™™ GST is a destination-based indirect tax and is levied at
the final consumption point.
™™ Under GST, a gamut of 17 indirect taxes like excise
duty, VAT, service tax, luxury tax etc are subsumed. o
Taxes NOT subsumed under GST: Basic Custom Duty,
Anti-Dumping Duty, Central Excise on Petroleum
Products, VAT on alcohol for human consumption,
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Stamp Duty, Property Tax (levied by local bodies),
Professional Tax etc.
™™ GST is currently levied on every product [except
petroleum products, alcohol, real estate & electricity]
in four slabs of 5, 12, 18 and 28%.
™™ Most of the daily use articles have zero GST as per the
latest revision of the tax rates last year.
™™ In addition, a cess is levied on automobiles, luxury,
and demerit and sin goods.
™™ It was launched on 1st July, 2017 in a special session
of Parliament.
™™ GST collection rose 6% to cross Rs 1 lakh crore mark
in November
™™ GST collections had fallen 2.7% in September and
5.3% in October from the corresponding months in
2018.
™™ Centre has written to all States voicing concern
that due to the lower Goods and Services Tax (GST)
collections, the compensation cess might not be
enough to pay for losses arising out of the new tax
system.
zz Compensation cess is levied on luxury and sin
goods, and the proceeds are used to compensate
states for any loss they incur within the first five
years of GST implementation.
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Table
1. The Goods and Services Tax (GST) was first
implemented in France.
2. India's GST is based on the Canadian model.
3. GST in India was made on the recommendation of
Vijay Kelkar Committee.
4. GST in India was implemented on July 1, 2017
5. The first state which implemented the GST was
Assam.
6. Amitabh Bachchan has been made the brand
ambassador of GST.
7. GST has been implemented under Article 279 of the
Indian constitution.
8. GST Council was formed by the President of India in
September 2016.
9. At present Finance Minister Arun Jaitley is the
Chairman of the GST Council.
10. At present GST Council has 31 members.
11. GST has been implemented by the 101st Constitution
Amendment Act, 2016.
12. The GST was the 122nd constitutional amendment
bill to be introduced in the Parliament of India.
13. The President of India approved GST bill on 8th
September 2016.
14. During passing of GST bill in parliament; 336 votes
casted in the favour of GST bill and 11 votes were
against it.
15. There is a provision of 5 years imprisonment for those
who do not pay GST.
16. There are 5 rates of taxes in GST i.e. 0%, 5%, 12%, 18%
and 28%.
17. GST is an indirect tax in more broader terms it can be
said a federal tax.
18. After the implementation of GST, sales tax, service
tax, customs duty, excise duty, VAT, Octroi tax etc. will
not exist.
19. The biggest reason behind the implementation of
the GST is to bring uniformity in the tax system of the
country.
20. After the implementation of GST, tradition of 'Tax
upon Tax' will be eliminated.
Goods & Services Tax Appellate Tribunal
The Union Cabinet has approved the creation of
National Bench of the Goods and Services Tax Appellate
Tribunal (GSTAT).
™™ Goods and Services Tax Appellate Tribunal
zz GSTAT would serve as the forum of second
appeals to do with the applicability of GST, and
will also be the first common forum of dispute
resolution between the Centre and the States.
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 zz It will be situated in New Delhi.
™™ Composition
zz The tribunal has been established under Chapter
XVIII of the CGST Act which provides for the
Appeal and Review Mechanism for dispute
resolution under the GST Regime.
zz Section 109 under CGST Act empowers the
Central Government to constitute, on the
recommendation of Council, an Appellate
Tribunal known as the Goods and Services Tax
Appellate Tribunal for hearing appeals against
the orders passed by the Appellate Authority or
the Revisional Authority.
zz It will be presided over by its president. It will
consist of a technical member from the Centre
and a representative of the States.
Significance
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™™ The national bench of the GST Appellate Tribunal
will expedite resolution of disputes under GST laws.
Being a common forum, GST Appellate Tribunal
(national bench) will ensure that there is uniformity
in redressal of disputes arising under GST.
™™ The appellate authority is being seen crucial as
a forum for higher appeal for disputes under the
indirect tax regime and will also help in resolving the
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confusion created by contradictory rulings given by
Appellate Authority for Advance Rulings (AAAR) on
the same or similar issues in different states.
What is GST?
GST is an Indirect Tax which has replaced many Indirect Taxes in India.
The Act came into effect on 1st July 2017; Goods & Services Tax Law
in India is a comprehensive, multi-stage, destination-based tax that is
levied on every value addition.
What is GST Council?
Goods & Services Tax Council is a constitutional body for making
recommendations to the Union and State Government on issues
related to Goods and Service Tax. The GST Council is chaired by the
Union Finance Minister and other members are the Union State
Minister of Revenue or Finance and Ministers in-charge of Finance or
Taxation of all the States.
What is Appellate Authority for Advance Rulings (AAAR)?
™™ Any advance tax ruling is a written interpretation of tax laws. It
is issued by tax authorities to corporations and individuals who
request for clarifi cation of certain tax matters. An advance ruling
is often requested when the taxpayer is confused and uncertain
about certain provisions. Advance tax ruling is applied for, before
starting the proposed activity.
™™ The applicant or the offi cer aggrieved by any advance ruling can
appeal to the Appellate Authority. Appeal against advance ruling
must be made within 30 days (extendable by 30 days) from the
date of the advance ruling.
E-Way Bill
™™ The government’s decision to make some changes to
the E-way bill system effective November 16, 2018,
has not gone down well with transporters.
™™ Transporters have complained that they have not
vkLFkk IAS : M-1A, Jyoti Bhawan, Mukherjee Nagar, Delhi-110009
been communicated properly regarding the changes
made by the National Informatics Centre, which
handles the e-way bill project.
It is a document required to be carried by a person
in charge of the conveyance carrying any consignment
of goods of value exceeding fifty thousand rupees as
mandated by the Government in terms of Section 68 of
the Goods and Services Tax Act.
™™ It is generated from the GST Common Portal for e-Way
bill system by the registered persons or transporters
who cause movement of goods of consignment
before commencement of such movement.
™™ E-way bills are required:
zz To comply with Section 68 of the GST Act, and;
zz rule 138 of CGST Rules, 2017
™™ Who can generate e-way bill?
zz The consignor or consignee, as a registered
person or a transporter of the goods can
generate the e-way bill.
zz The unregistered transporter can enroll on the
common portal and generate the e-way bill for
movement of goods for his clients.
zz Any person can also enroll and generate the
e-way bill for movement of goods for his/her
own use.
™™ Whether the e-way bill is required for all the goods
that are being transported?
zz The e-way bill is required to transport all the
goods except exempted under the notifi cations
or rules. Movement of handicraft goods or
goods for job-work purposes under specified
circumstances also requires e-way bill even if the
value of consignment is less than fifty thousand
rupees.
™™ National Informatics Centre has categorised e-way
bills into four types:
zz Regular as mentioned above
zz Bill to /Ship to: Sometimes, the tax payer raises the
bill to somebody and sends the consignment to
somebody else as per the business requirements.
There is a provision in the e-way bill system to
handle this situation, called as ‘Bill to’ and ‘Ship
to’.
zz Bill from and Dispatch from: Sometimes, the
supplier prepares the bill from his business
premises to consignee, but moves the
consignment from some others’ premises to the
consignee as per the business requirements. This
is known as ‘Billing From’ and ‘Dispatching From’.
zz Combination of both (2) and (3) mentioned
above.
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Direct Benefit Transfer
Direct Benefit Transfer or DBT is an attempt to change
the mechanism of transferring subsidies launched by
Government of India on 1 January 2013. This program
aims to transfer subsidies directly to the people through
their bank accounts. It is hoped that crediting subsidies
into bank accounts will reduce leakages, delays, etc.
The success of an ambitious and a highly desirable
initiative like DBT depends on a set of a few critical factors.
For a heterogeneous and a large country like India, it
becomes imperative that these critical success factors are
ensured to achieve smooth rollout of a programme like
DBT. The key success factors or enablers for an efficacious
Implementation of DBT would include:
JAM Trinity
DBT by leveraging the JAM (Jan Dhan, Aadhaar and
Mobiles) trinity and the technological prowess offers to
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drastically improve the benefit delivery system in the
country. The JAM Trinity will enable this novel system
to transfer benefits in a leakage-proof, well targeted,
cashless and timely manner.
Programs part of DBT
™™ National Child Labour Project
™™ Student Scholarship
™™ LPG subsidy
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On 1 June 2013, the minister of Petroleum & Natural
Gas, M Veerappa Moily formally launched the scheme
direct benefit transfer for LPG (DBTL) Scheme in 20
high Aadhaar coverage districts. The subsidy on LPG
cylinders will be credited directly to consumers' Aadhaar-
linked bank accounts. All Aadhaar-linked domestic LPG
consumers will get an advance in their bank account as
soon as they book the first subsidized cylinder before
delivery. On receiving the first subsidized cylinder subsidy
for next will again get credited in their bank account,
which can then be available for the purchase of the next
cylinder at market rate until the cap of 12 cylinders per
year is reached.
Modified Version of DBTL Scheme : (November 2014)
Government of India Introduced Modified Direct Benefit
Transfer of LPG (DBTL) scheme in 54 districts in 11 states
including all in Kerala starting 15 November 2014 whereby
LPG consumers who have not yet availed the benefit will
be able to get cash subsidy amount transferred into their
accounts to buy Liquefied Petroleum Gas (LPG) cylinders
at market price.
The central DBT scheme covers as many as 439
schemes run by 56 ministries and departments and over
Rs 2.25 lakh crore has been paid out in the country in the
present financial year.
Definition of Union Budget
In simple words, the budget is an estimate of income
and expenditure for a definite duration. In economics,
vkLFkk IAS : M-1A, Jyoti Bhawan, Mukherjee Nagar, Delhi-110009
budget is a systematic list of revenue and expenditure or
we can say it's a plan for income and expenditure.
The word ‘budget’ has been borrowed from the
English word "Bowgette" which traces its origin from the
French word “Bougette”. Word “Bougette” has arrived
from the word, ‘Bouge’ which means a leather bag.
Why the Government works out a budget every year?
The Government performs two important functions
by making a budget every year-
1. The Government estimates the expected
expenditures for developmental works in different
sectors of the economy e.g. Industry, Manufacturing,
Education, Health, Transport, etc.
2. To meet the expenditures for the coming financial
year, the Government tries to work out the sources of
revenue. ( i.e. by imposing new taxes or increasing or
decreasing the previous rates of taxes, or to remove
or impose subsidy on any commodity.
In other words, the Governments decide about
the expenditure to be incurred on which commodities
primarily and how the money is going to be arranged
for these expenditures? The details of such income and
expenditures statements are known as ‘Budget’. Each
budget is made for a specified duration.
Types of Budget
1. Traditional or General Budget: The initial
structure of the present-day general budget is known
as the Traditional Budget. The main aim of the General
Budget is to set up financial control over the Executive
and the Legislative. This budget contains the details of
income and expenditure of the Government.
This budget contains the details of the expenditure in
different sectors done by the Government. However, the
result of this expenditure is not explained in this budget.
Thus the main idea behind the traditional budget that
is to solve the problems of independent India and to
achieve the developmental targets was defeated.
As a result, the need and importance of drafting a
‘Performance Budget was accepted and it was presented
as a complimentary budget to the earlier Traditional
budget.
2. Performance Budget: When the outcome of
any activity is taken as the base of any budget, such a
budget is known as ‘Performance Budget’. For the first
time in the world, the performance budget was made in
the USA. An Administrative Reforms Commission was set
up in 1949 in America under Sir Hooper. This commission
recommended for making a ‘Performance Budget’ in the
USA. In the Performance Budget, it is the compulsion of
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the government to tell that 'what is done', 'how much
done' by it for the betterment of the people. In India,
the Performance Budget is also known as the ‘Outcome
Budget’.
3. Zero Based Budget: There are two primary
reasons for adopting this type of Budget in India.
(i) The continuous revenue deficit in the budget of the
country.
(ii) Poor implementation of the Performance Budget.
In the zero-based budget, neither expenses incurred
during the previous financial years are not considered
nor the expenditure of the last financial year used for the
coming years.
Under Zero-based budgets, every activity is decided
based on Zero basis i.e. the previous expenditures are not
considered. This budget is also known as ‘Sun Set Budget’
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which means the finance department has to present the
zero-based budget before the end of the financial year.
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Peter Pyre is known as the father of ‘Zero Based
Budgeting’ who presented this sort of budget in 1970.
This system of budgeting was first used in the Georgia
State of USA by its Governor Jimmy Carter. Later in 1979,
The National Budget of America adopted this strategy.
In India, the Zero Based Budgeting was introduced
by the mainstream Research organization, Council
of Scientific and Industrial Research and the Central
Government adopted the same in 1987-88.
Outcome Budget: In India, development-related
schemes such as MGNREGA, NRHM, Mid Day Meal, PMGSY,
Digital India, Prime Minister Skill Development Council,
etc. are started every year. The large sum of money is
spent on these schemes every year. However, at present,
the government doesn’t have any parameters to measure
the results of these schemes.
Sometimes, the delay in implementation of the
schemes causes an increase in the cost of these schemes.
Therefore, in order to reduce this cost, the Government of
India introduced the Outcome Budget in 2005.
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Outcome Budget acts as a pathfinder for all the
Ministries and Departments which helps in improving
Services, the performance of the programmes.
Gender Budget: If a budget describes the schemes
and plans for the welfare of children and females, it is
known as Gender Budget. Through Gender Budget, the
Government declares an amount to be spent over the
development, Welfare, Empowerment schemes and
programmes for Females.
So it can be concluded that the government has
made all the necessary steps to utilised every penny of
the taxpayers.
Deficit Financing in India
™™ Deficit financing is defined as “borrowings from the
Reserve Bank of India against the issue of Treasury Bills
and running down of accumulated cash balances”.
™™ When the government borrows from the Reserve
Bank of India, it merely transfers its securities to
the Bank. On the basis of these securities the bank
issues more currency and puts them into circulation
on behalf of the government. This amounts to the
creation of money.
™™ Rationale for Deficit Financing: sometimes the
government fails to mobilise adequate resources.
In this situation, the option of deficit financing is
required to meet fiscal deficit targets. If the option of
deficit financing is not utilized the government ends
up compromising on growth targets.
FRBM Act
™™ The Fiscal Responsibility and Budget Management
Act, 2003 (FRBMA) is an Act of the Parliament of India
to institutionalize financial discipline, reduce India’s
fiscal deficit, improve macroeconomic management
and the overall management of the public funds by
moving towards a balanced budget.
Major Provisions of the FRBM Act, 2003
™™ The FRBM rule set a target reduction of fiscal deficit
to 3% of the GDP by 2008-09. This will be realized
with an annual reduction target of 0.3% of GDP per
year by the Central government.
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™™ Revenue deficit has to be reduced by 0.5% of the GDP
per year with complete elimination by 2008-09.
™™ Amendments to FRBM Act: Fiscal Responsibility and
Budget Management Act, 2003 was amended in
2012 that mandated the Central Government to lay
before the Houses of Parliament, Macro-Economic
Framework Statement, Medium Term Fiscal Policy
Statement and Fiscal Policy Strategy Statement along
with the Annual Financial Statement and Demands
for Grants.
™™ NK Singh committee, that was set up in 2016 to review
the FRBM Act, recommended that the government
must target a fiscal deficit of 3% of the GDP in the
years up to March 31, 2020, subsequently cut it to
2.8% in 2020-21 and to 2.5% by 2023.
Different Budgetary Deficits
A deficit is an amount by which the expenditures
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in a budget exceed the income. A Government Deficit
is the amount of money in the set budget by which
the government expenditure exceeds the government
income amount. This deficit provides an indication of
the financial health of the economy. To reduce the deficit
or the gap between the expenditures and income, the
government may cut back on certain expenditures and
also increase revenue-generating activities.
Types of Government Deficit
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Revenue Deficit
The shortfall between the total revenue received to
the total revenue expenditure is revenue deficit.
Revenue deficit = Total revenue expenditure – Total
revenue receipts
This deficit only includes current income and
current expenses. A high value of deficit indicates that
the government should cut down on its expenditures.
The government may increase its revenue receipts by
increasing tax income. Disinvestment which means
selling off assets is another remedial measure to reduce
revenue deficit.
Fiscal Deficit
A fiscal deficit is a gap by which government’s total
expenditures exceed the government’s total generated
revenue. This, however, does not include the government
borrowings.
Fiscal deficit = Total expenditure – Total receipts
excluding borrowings
Fiscal deficit indicates the amount of money that
the government will need to borrow during the financial
year. A greater deficit implies more borrowing by the
government and the extent of the deficit indicates the
amount of expense for which the money is borrowed.
A huge disadvantage or implication of fiscal deficit is
it may lead to a debt trap. Also, it may lead to unnecessary
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and wasteful expenditure by the government. Increased
fiscal deficit leads to uncontrolled inflation. Borrowing
is one way to reduce fiscal deficit. Another way is deficit
financing.
Deficit financing refers to the printing of new notes
to increase cash flow in the system. The fiscal deficit is a
positive outcome if it leads to the creation of assets. It is
detrimental to the economic condition of the nation if it
is used to simply cover revenue deficit.
Primary Deficit
A primary deficit is the amount of money that the
government needs to borrow apart from the interest
payments on the previously borrowed loans.
Primary deficit = Fiscal deficit – Interest payments on
previous loans
Measures to Reduce Government Deficit
™™ Increased emphasis on tax-based revenues and
appropriate measures to reduce tax evasion.
™™ Disinvestment should be done where assets are not
being used effectively
™™ Reduction in subsidies by the government will also
help reduce the deficit.
™™ Try and avoid unplanned expenditures.
™™ Borrowing from domestic sources.
™™ Borrowing from external sources.
™™ A broadened tax base may also help in reducing the
government deficit.
To summarize, a government deficit is a condition
where the budget expenditure exceeds the budget
revenue receipts. This could be due to a sudden shift
in budget requirements. A controlled deficit situation
causes an economy to grow.
An uncontrolled government deficit may lead to
deterioration in the financial health of the economy. The
agenda of the government should be to plan the revenues
and expenditures such that the economy moves towards
a balanced budget situation.
Definition of 'Consolidated Fund'
Consolidated Fund of India is the most important
of all government accounts. Revenues received by the
government and expenses made by it, excluding the
exceptional items, are part of the Consolidated Fund.
Description: This fund was constituted under Article
266 (1) of the Constitution of India. All revenues received
by the government by way of direct taxes and indirect
taxes, money borrowed and receipts from loans given by
the government flow into the Consolidated Fund of India.
All government expenditure is made from this
fund, except exceptional items which are met from the
Contingency Fund or the Public Account. Importantly,
86
no money can be withdrawn from this fund without the ™™
Parliament's approval
Definition of 'Contingency Fund'
Contingency Fund is created as an impress account
to meet some urgent or unforeseen expenditure of the
government.
Description: This fund was constituted by the
™™
government under Article 267 of the Constitution of
India. This fund is at the disposal of the President.
Any expenditure incurred from this fund requires
a subsequent approval from the Parliament and the
amount withdrawn is returned to the fund from the
Consolidated Fund.
™™
Report of the 15th Finance Commission for FY
2020-21
Report Summary
The Finance Commission is a constitutional body
Income distance: Income distance is the distance
of the state’s income from the state with the highest
income. The income of a state has been computed
as average per capita GSDP during the three-year
period between 2015-16 and 2017-18. States with
lower per capita income would be given a higher
share to maintain equity among states.
Demographic performance: The Terms of
Reference (ToR) of the Commission required
it to use the population data of 2011 while
making recommendations. Accordingly, the
Commission used only 2011 population data for its
recommendations.
The Demographic Performance criterion has been
introduced to reward efforts made by states in
controlling their population. It will be computed by
using the reciprocal of the total fertility ratio of each
state, scaled by 1971 population data. States with

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formed by the President of India to give suggestions
on centre-state financial relations. The 15th Finance
Commission (Chair: Mr N. K. Singh) was required to
submit two reports. The first report, consisting of
recommendations for the financial year 2020-21, was
tabled in Parliament on February 1, 2020. The final report
with recommendations for the 2021-26 period will be
submitted by October 30, 2020.
Key recommendations in the first report (2020-21
a lower fertility ratio will be scored higher on this
criterion. The total fertility ratio in a specific year is
defined as the total number of children that would
be born to each woman if she were to live to the end
of her child-bearing years and give birth to children
in alignment with the prevailing age-specific fertility
rates.
™™ Forest and ecology: This criterion has been arrived
at by calculating the share of dense forest of each

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period) include: state in the aggregate dense forest of all the states.
Devolution of taxes to states: The share of states in ™™ Tax effort: This criterion has been used to reward
the centre’s taxes is recommended to be decreased from states with higher tax collection efficiency. It has
42% during the 2015-20 period to 41% for 2020-21. The been computed as the ratio of the average per capita
1% decrease is to provide for the newly formed union own tax revenue and the average per capita state
territories of Jammu and Kashmir, and Ladakh from the GDP during the three-year period between 2014-15
resources of the central government. The individual and 2016-17.
shares of states from the divisible pool of central taxes is Grants-in-aid
provided in Table 3 in the annexure. In 2020-21, the following grants will be provided to
Criteria for devolution states: (i) revenue deficit grants, (ii) grants to local bodies,
Table 1 below shows the criteria used by the and (iii) disaster management grants. The Commission
Commission to determine each state’s share in central has also proposed a framework for sector-specific and
taxes, and the weight assigned to each criterion. We performance-based grants. State-specific grants will be
explain some of the indicators below. provided in the final report.
Table 1: Criteria for devolution (2020-21) ™™ Revenue deficit grants: In 2020-21, 14 states are
Criteria 14th FC 2015-20 15th FC 2020-21
estimated to have an aggregate revenue deficit of
Rs 74,340 crore post-devolution. The Commission
Income Distance 50.0 45.0
recommended revenue deficit grants for these states
Population (1971) 17.5 -
(see Table 4 in the annexure).
Population (2011) 10.0 15.0
™™ Special grants: In case of three states, the sum of
Area 15.0 15.0
devolution and revenue deficit grants is estimated to
Forest Cover 7.5 -
decline in 2020-21 as compared to 2019-20. These
Forest and Ecology - 10.0 states are Karnataka, Mizoram, and Telangana. The
Demographic Performance - 12.5 Commission has recommended special grants to
Tax Effort - 2.5 these states aggregating to Rs 6,764 crore.
Total 100 100 ™™ Sector-specific grants: The Commission has
Sources: Report for the year 2020-21, 15 Finance Commission; PRS.
th
recommended a grant of Rs 7,375 crore for nutrition

vkLFkk IAS : M-1A, Jyoti Bhawan, Mukherjee Nagar, Delhi-110009 87

 in 2020-21. Sector-specific grants for the following
sectors will be provided in the final report: (i) nutrition,
(ii) health, (iii) pre-primary education, (iv) judiciary, (v)
rural connectivity, (vi) railways, (vii) police training,
and (viii) housing.
™™ Performance-based grants: Guidelines
for performance-based grants include: (i)
implementation of agricultural reforms, (ii)
development of aspirational districts and blocks,
(iii) power sector reforms, (iv) enhancing trade
including exports, (v) incentives for education, and
(vi) promotion of domestic and international tourism.
The grant amount will be provided in the final report.
™™ Grants to local bodies: The total grants to local
bodies for 2020-21 has been fixed at Rs 90,000 crore,
of which Rs 60,750 crore is recommended for rural
local bodies (67.5%) and Rs 29,250 crore for urban
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local bodies (32.5%). This allocation is 4.31% of the
divisible pool. This is an increase over the grants for
local bodies in 2019-20, which amounted to 3.54%
of the divisible pool (Rs 87,352 crore). The grants
will be divided between states based on population
and area in the ratio 90:10. The grants will be made
available to all three tiers of Panchayat- village, block,
and district.
Disaster risk management: The Commission
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™™
recommended setting up National and State Disaster
Management Funds (NDMF and SDMF) for the
promotion of local-level mitigation activities. The
Commission has recommended retaining the existing
cost-sharing patterns between the centre and states
to fund the SDMF (new) and the SDRF (existing). The
cost-sharing pattern between centre and states is (i)
75:25 for all states, and (ii) 90:10 for north-eastern
and Himalayan states.
Recommendations on fiscal roadmap
™™ Fiscal deficit and debt levels: The Commission
noted that recommending a credible fiscal and debt
trajectory roadmap remains problematic due to
uncertainty around the economy. It recommended
that both central and state governments should focus
on debt consolidation and comply with the fiscal
deficit and debt levels as per their respective Fiscal
Responsibility and Budget Management (FRBM) Acts.
™™ Off-budget borrowings: The Commission observed
that financing capital expenditure through off-
budget borrowings detracts from compliance with
the FRBM Act. It recommended that both the central
and state governments should make full disclosure of
extra-budgetary borrowings. The outstanding extra-
budgetary liabilities should be clearly identified and
eliminated in a time-bound manner.
vkLFkk IAS : M-1A, Jyoti Bhawan, Mukherjee Nagar, Delhi-110009
™™ Statutory framework for public financial
management: The Commission recommended
forming an expert group to draft legislation to
provide for a statutory framework for sound public
financial management system. It observed that an
overarching legal fiscal framework is required which
will provide for budgeting, accounting, and audit
standards to be followed at all levels of government.
™™ Tax capacity: In 2018-19, the tax revenue of state
governments and central government together stood
at around 17.5% of GDP. The Commission noted that
tax revenue is far below the estimated tax capacity
of the country. Further, India’s tax capacity has
largely remained unchanged since the early 1990s.
In contrast, tax revenue has been rising in other
emerging markets. The Commission recommended:
(i) broadening the tax base, (ii) streamlining tax rates,
(iii) and increasing capacity and expertise of tax
administration in all tiers of the government.
™™ GST implementation: The Commission highlighted
some challenges with the implementation of the
Goods and Services Tax (GST). These include:
(i) large shortfall in collections as compared to
original forecast, (ii) high volatility in collections,
(iii) accumulation of large integrated GST credit, (iv)
glitches in invoice and input tax matching, and (v)
delay in refunds. The Commission observed that the
continuing dependence of states on compensation
from the central government (21 states out of 29
states in 2018-19) for making up for the shortfall in
revenue is a concern. It suggested that the structural
implications of GST for low consumption states need
to be considered.
Other recommendations
Financing of security-related expenditure: The
ToR of the Commission required it to examine whether
a separate funding mechanism for defence and internal
security should be set up and if so, how it can be
operationalised. In this regard, the Commission intends to
constitute an expert group comprising representatives of
the Ministries of Defence, Home Affairs, and Finance. The
Commission noted that the Ministry of Defence proposed
following measures for this purpose: (i) setting up of a
non-lapsable fund, (ii) levy of a cess, (iii) monetisation of
surplus land and other assets, (iv) tax-free defence bonds,
and (v) utilising proceeds of disinvestment of defence
public sector undertakings. The expert group is expected
to examine these proposals or alternative funding
mechanisms.
Some Other Developments
Need for an independent Fiscal Council
The most standout feature of this year’s Union Budget
discussion has been the concern with the credibility of
the budget numbers.
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™™ It has been observed that revenues are systematically
overestimated while spending is systematically
underestimated in the budget.
™™ The NK Singh committee on fiscal responsibility and
budget management had recommended setting up
an independent fiscal council to keep tabs on and
better manage public debt.
™™ Countries with independent fiscal councils tend to
produce relatively more accurate budget forecasts
and stick better to fiscal rules, research suggests.
™™ The over-ambitious revenue targets combined with
the lack of transparency in tax administration lead
overzealous tax men to exceed their brief in a quest
to fulfil unrealistic targets.
™™ Also, a 2017 CAG report found that the tax department
had resorted to ‘irregular’ and ‘unwarranted’ methods
to meet targets.
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™™ Thus, the FRBM report has recommended establishing
a fiscal council to advise and assess government’s
spending and fiscal policy,
™™ The FRBM Review Committee headed by NK Singh
was appointed by the government to review the
implementation of FRBM.
™™ In its report submitted in January 2017, titled,
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vkLFkk IAS : M-1A, Jyoti Bhawan, Mukherjee Nagar, Delhi-110009
‘The Committee in its Responsible Growth: A Debt
and Fiscal Framework for 21st Century India’, the
Committee suggested that a rule based fiscal policy
by limiting government debt, fiscal deficit and
revenue deficits to certain targets is good for fiscal
consolidation in India.
™™ Fiscal councils are now part of the institutional fiscal
apparatus of over 80 countries, including several
emerging and developing economies.
™™ Also, in past, it has been observed, that the finance
ministry tends to overstate revenue projections and
understate expenditures.
™™ One way to such problems is to institute an
independent and statutory watchdog to oversee
the state of public finances and to come up with
its own assessments, if not its own projections, of
government revenues and expenditures.
™™ In 2018, the D.K. Srivastava committee on fiscal
statistics established by the National Statistical
Commission (NSC) also suggested the establishment
of a fiscal council that could co-ordinate with all
levels of government to provide harmonized fiscal
statistics across governmental levels and provide an
annual assessment of overall public sector borrowing
requirements.
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 ™™ Among the major states, highest decadal growth in
Census 2011 | The basics and summary of
population has been recorded in Bihar (25.4 per cent)
important findings while 14 states and Union Territories have recorded
population growth above 20 per cent.
The census is a very important source of statistics on
various indicators. Given here is an introduction to the Top Populous of the Country
census and a discussion of the important findings of the 1. Uttar Pradesh 19,98,12,341
2011 Census. 2. Maharashtra 11,23,74,333
Census is nothing but a process of collecting, 3. Bihar 10,40,99,452
compiling, analyzing, evaluating, publishing and 4. West Bengal 9,12,76,115
disseminating statistical data regarding the population. 5. Andhra Pradesh 8,45,80,777
It covers demographic, social and economic data and are Least Populous of the Country
provided as of a particular date. 1. Lakshadweep 64,473
Census operations started in India long back during 2. Daman and Diu 2,43,247
the period of the Maurya dynasty. It was systematized 3. Dadra and Nagar Haveli 343,709
during the years 1865 to 1872, though it has been 4. Andaman and Nicobar Islands 3,80,581
conducted uninterruptedly from the year 1881 being a 5. Sikkim 6,10,577
trustworthy resource of information.

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Highest Populous UT Delhi
Importance of census
Least Populous UT Lakshadweep
1. The Indian Census is the most credible source
Highest Populous state Uttar Pradesh
of information on Demography (Population
Least populous state Sikkim
characteristics), Economic Activity, Literacy and
Education, Housing & Household Amenities, Highest urban Population in india Maharashtra - 4,11,00,980
(state & UT)
Urbanisation, Fertility and Mortality, Scheduled
Lowest urban Population in india (state Lakshadweep - 26,967
Castes and Scheduled Tribes, Language, Religion, & UT)
Migration, Disability and many other socio-cultural Highest Rular Population in india (state Uttar Pradesh - 13,16,58,339
and demographic data since 1872. Census 2011 is the & UT)

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15th National Census of the Country. This is the only
source of primary data in the village , town and ward
level, It provides valuable information for planning
and formulation policies for Central and the State
Governments and is widely used by National and
International Agencies, scholars, business people,
industrialists, and many more.
2. The delimitation/reservation of Constituencies –
Parliamentary/Assembly/Panchayats and other Local
Bodies is also done on the basis of the demographic
data thrown up by the Census. Census is the basis for
reviewing the country’s progress in the past decade,
monitoring the ongoing Schemes of the Government
and most importantly, plan for the future.
Key findings of 2011 census
SOURCE
1. Population –
™™ India’s total population stands at 1.21 billion, which is
17.7 per cent more than the last decade, and growth
of females was higher than that of males.
™™ There was an increase of 90.97 million males and
increase of 90.99 million females. The growth rate of
females was 18.3 per cent which is higher than males
— 17.1 per cent. India’s population grew by 17.7 per
cent during 2001-11, against 21.5 per cent in the
previous decade.
Lowest Rular Population in india (state Lakshadweep - 33,683
& UT)
2. Rural and urban population –
™™ Altogether, 833.5 million persons live in rural area
as per Census 2011, which was more than two-third
of the total population, while 377.1 million persons
live in urban areas. Urban proportion has gone up
from 17.3 per cent in 1951 to 31.2 per cent in 2011.
Empowered Action Group (EAG) states have lower
urban proportion (21.1 per cent) in comparison to
non-EAG states (39.7 per cent).
™™ Highest proportion of urban population is in NCT
Delhi (97.5 per cent). Top five states in share of urban
population are Goa (62.2 per cent), Mizoram (52.1
per cent), Tamil Nadu (48.4 per cent), Kerala (47.7 per
cent) and Maharashtra (45.2 per cent).
3. Literacy –
™™ Literacy rate in India in 2011 has increased by 8 per
cent to 73 per cent in comparison to 64.8 per cent in
2001.
™™ While male literacy rate stands at 80.9 per cent –
which is 5.6 per cent more than the previous census,
the female literacy rate stands at 64.6 per cent — an
increase of 10.9 per cent than 2001.
™™ The highest increase took place in Dadra and Nagar
Haveli by 18.6 points (from 57.6 per cent to 76.2 per

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 cent), Bihar by 14.8 points (from 47.0 per cent to 61.8
per cent), Tripura by 14.0 points (from 73.2 per cent
to 87.2 per cent)
™™ Improvement in female literacy is higher than males
in all states and UTs, except Mizoram (where it is same
in both males and females) during 2001-11.
™™ The gap between literacy rate in urban and rural areas
is steadily declining in every census. Gender gap in
literacy rate is steadily declining in every census. In
Census 2011, the gap stands at 16.3 points.
™™ Top five states and UTs, where literacy rate is the
highest, are Kerala (94 per cent), Lakshadweep (91.8
per cent), Mizoram (91.3 per cent), Goa (88.7 per cent)
and Tripura (87.2).
™™ The bottom five states and UTs are Bihar (61.8 per
cent), Arunachal Pradesh (65.4 per cent), Rajasthan
(66.1 per cent), Jharkhand (66.4 per cent) and Andhra
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Pradesh (67 per cent).
Literacy Rate in India
Total Person Literacy Rate 74%
Males 82.14%
Females 65.46%
Highest Literacy Rate in State Kerala (94%)
Lowest Literacy Rate in State Bihar (61.8%)
Hightest Literacy Rate in UT Lakshadweep (91%)
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Lowest Literacy Rate in UT Dadra and Nagar Haveli (76.24%)
4. Density –
™™ The density of population in the country has also
increased from 325 in 2001 to 382 in 2011 in per
sq km. Among the major states, Bihar occupies the
first position with a density of 1106, surpassing West
Bengal which occupied the first position during 2001.
™™ Delhi (11,320) turns out to be the most densely
inhabited followed by Chandigarh (9,258), among all
states and UT’s, both in 2001 and 2011 Census. The
minimum population density works out in Arunachal
Pradesh (17) for both 2001 and 2011 Census.
5. Sex ratio –
™™ The sex ratio of population in the country in 2011
stands at 940 female against 1000 males, which is 10
per cent more than the last census when the number
female per thousand male stood at 933. Haryana has
the dubious distinction of having the worst male-
female ratio among all states while Kerala fares the
best.
™™ The number of females per 1000 males in Haryana in
2011 stands at 879 followed by Jammu and Kashmir
(889 female) and Punjab (895 females).
™™ The other two worst-performing states in terms of
skewed sex ration are Uttar Pradesh (912 females)
and Bihar (918 females).
vkLFkk IAS : M-1A, Jyoti Bhawan, Mukherjee Nagar, Delhi-110009
™™ Five top performing states in terms of sex ratio were
Kerala (1,084 females), Tamil Nadu (996), Andhra
Pradesh (993), Chhattisgarh (991), Odisha (979).
Sex Ratio (Females per 1000 Males)
Sex ratio in India 943
Highest sex ratio in state Kerala (1084)
Lowest sex ratio in state Haryana (879)
Highest sex ratio in UT Pondicherry (1037)
Lowest sex ratio in UT Daman and Diu (618)
Child (0-6 years) sex ratio 914
Highest child (0-6) sex ratio in state Mizoram (971)
Lowest child (0-6) sex ratio in state Haryana (830)
6. Child population –
™™ Child population in the age of 0 to 6 years has seen an
increase of 0.4 per cent to 164.5 million in 2011 from
163.8 million in 2001.
™™ The child population (0-6) is almost stationary. In 17
states and UTs, the child population has declined in
2011 compared to 2001.
™™ With the declaration of sex ratio in the age group 0-6,
the Census authorities tried to bring out the recent
changes in the society in its attitude and outlook
towards the girl child. It was also an indicator of the
likely future trends of sex ratio in the population.
™™ There has been a decline of 8 per cent in the sex
ratio of 0-6 age group. In 2011, the child sex ratio
(0-6) stands at 919 female against 1000 male in
comparison to 927 females in 2001.
™™ Male child (0-6) population has increased whereas
female child population has decreased during 2001-
11. Eight states, Jammu and Kashmir, Rajasthan,
Uttar Pradesh, Bihar, Jharkhand, Arunachal Pradesh,
Mizoram, and Meghalaya have proportion of child
population more than 15 per cent.
™™ The worst performing states in regard to sex ration
in the age group of 0 to 6 years are Haryana (834
females), Punjab (846), Jammu and Kashmir (862),
Rajasthan (888) and Gujarat (890).
™™ The best performing states are Chhattisgarh
(969), Kerala (964), Assam (962), West Bengal (956)
Jharkhand (948) and Karnataka (948).
7. SC/ST data –
™™ According to the Census, Scheduled Castes are
notified in 31 states and UTs and Scheduled Tribes
in 30 states. There are altogether 1,241 individual
ethnic groups, etc. notified as SC’s in different states
and UT’s.
™™ The number of individual ethnic groups, etc. notified
as ST’s is 705. There has been some changes in the list
of SC’s/ST’s in states and UT’s during the last decade.
™™ The SC population in India now stands at 201.4
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 million, which is 20 per cent more than the last
census. The ST population stands at 104.3 million in
2011 – 23.7 per cent more than 2001.
8. Religious demographics–
The religious data on India Census 2011 was released
by the Government of India on 25 August 2015. Hindus
are 79.8% (966.3 million), while Muslims are 14.23% (172.2
million) in India. For the first time, a “No religion” category
was added in the 2011 census. 2.87 million Were classified
as people belonging to “No Religion” in India in the 2011
census. – 0.24% of India’s population of 1.21 billion. Given
below is the decade-by-decade religious composition of
India till the 2011 census. There are six religions in India
that have been awarded “National Minority” status –
Muslims, Christians, Sikhs, Jains, Buddhists and Parsis.
9. Median marriage age–
The median age increased for men – from 22.6 (2001)
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to 23.5 (2011) and for women – from 18.2 (2001) to 19.2
(2011)
Population Dividend
™™ India has 62.5% of its population in the age group of
15-59 years which is ever increasing and will be at the
peak around 2036 when it will reach approximately
65%.
™™ These population parameters indicate an availability
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of demographic dividend in India, which started in
2005-06 and will last till 2055-56.
™™ According to Economic Survey 2018-19, India’s
Demographic Dividend will peak around 2041, when
the share of working-age,i.e. 20-59 years, population
is expected to hit 59%.
Demographic Dividend: Definition
™™ According to United Nations Population Fund
(UNFPA), demographic dividend means, "the
economic growth potential that can result from
shifts in a population’s age structure, mainly when
the share of the working-age population (15 to 64)
is larger than the non-working-age share of the
population (14 and younger, and 65 and older)".
™™ With fewer births each year, a country’s working-
age population grows larger relative to the young
dependent population. With more people in the
labor force and fewer children to support, a country
has a window of opportunity for economic growth
if the right social and economic investments and
policies are made in health, education, governance,
and the economy.
Demographic Dividend in India
™™ India has one of the youngest populations in an
aging world. By 2020, the median age in India will be
just 28, compared to 37 in China and the US, 45 in
Western Europe, and 49 in Japan.
vkLFkk IAS : M-1A, Jyoti Bhawan, Mukherjee Nagar, Delhi-110009
™™ Since 2018, India’s working-age population (people
between 15 and 64 years of age) has grown larger
than the dependant population — children aged 14
or below as well as people above 65 years of age. This
bulge in the working-age population is going to last
till 2055, or 37 years from its beginning.
™™ This transition happens largely because of a decrease
in the total fertility rate (TFR, which is the number of
births per woman) after the increase in life expectancy
gets stabilised.
zz A study on demographic dividend in India by
United Nations Population Fund (UNFPA) throws
up two interesting facts.
zz The window of demographic dividend
opportunity in India is available for five decades
from 2005-06 to 2055-56, longer than any other
country in the world.
zz This demographic dividend window is available
at different times in different states because
of differential behaviour of the population
parameters.
Unemployment in India, statistics has traditionally
been collected, compiled and disseminated once every
five years by the Ministry of Labour and Employment
(MLE), primarily from sample studies conducted by the
National Sample Survey Office.[1][2] Other than these
5-year sample studies, India has – except since 2017 –
never routinely collected monthly, quarterly or yearly
nationwide employment and unemployment statistics.
In 2016, Centre for Monitoring Indian Economy – a non-
government entity based in Mumbai, started sampling
and publishing monthly unemployment in India statistics.
The unemployment rate in India fell to 7% in
September 2020 from the record high of 29% since the
country went into lockdown from March 2020, says the
report of CMIE – Centre For Monitoring Indian Economy.
The lockdown to contain the coronavirus outbreak has
forced many industries to shut down thus increasing
unemployment across the country.
Unemployment is a situation when a person
actively searches for a job and is unable to find work.
Unemployment indicates the health of the economy.
The unemployment rate is the most frequent measure
of unemployment. The unemployment rate is the number
of people unemployed divided by the working population
or people working under labour force.
Unemployment rate = (Unemployed Workers / Total
labour force) × 100
National Sample Survey Organization (NSSO) defines
employment and unemployment on the following
activity statuses of an individual. NSSO, an organization
under MoSPI – Ministry of Statistics and Programme
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Implementation measures India’s unemployment on
three approaches:
1. Daily Status Approach: unemployment status of a
person under this approach is measured for each day
in a reference week. A person having no gainful work
even for one hour in a day is described as unemployed
for that day.
2. Weekly Status Approach: This approach highlights
the record of those persons who did not have gainful
work or were unemployed even for an hour on any
day of the week preceding the date of the survey.
3. Usual Status Approach: This gives the estimates of
those persons who were unemployed or had no
gainful work for a major time during the 365 days.
Types of Unemployment in India
In India, there are seven types of unemployment. The
types of unemployment are discussed below:
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1. Disguised Unemployment: This is a type of
unemployment where people employed are more
than actually needed. Disguised unemployment
is generally traced in unorganised sectors or the
agricultural sectors.
2. Structural Unemployment: This unemployment arises
when there is a mismatch between the worker’s skills
and availability of jobs in the market. Many people
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in India do not get job matching to their skills or
due to lack of required skills they do not get jobs
and because of poor education level, it becomes
important to provide them related training.
3. Seasonal Unemployment: That situation of
unemployment when people do not have work
during certain seasons of the year such as labourers
in India rarely have occupation throughout the year.
4. Vulnerable Unemployment: People are deemed
unemployed under this unemployment. People
are employed but informally i.e. without proper
job contracts and thus records of their work are
never maintained. It is one of the main types of
unemployment in India.
5. Technological Unemployment: the situation when
people lose their jobs due to advancement in
technologies. In 2016, the data of the World Bank
predicted that the proportion of jobs threatened by
automation in India is 69% year-on-year.
6. Cyclical Unemployment: unemployment caused
due to the business cycle, where the number of
unemployed heads rises during recessions and
declines with the growth of the economy. Cyclical
unemployment figures in India are negligible.
7. Frictional Unemployment: this is a situation when
people are unemployed for a short span of time
while searching for a new job or switching between
vkLFkk IAS : M-1A, Jyoti Bhawan, Mukherjee Nagar, Delhi-110009
jobs. Frictional Unemployment also called Search
Unemployment, is the time lag between the
jobs. Frictional unemployment is considered as
voluntary unemployment because the reason for
unemployment is not a shortage of jobs, but in fact,
the workers themselves quit their jobs in search of
better opportunities.
Government Initiative To Control Unemployment
Several policies have been initiated by the
government to reduce the unemployment problem in
the economy. The policies to reduce unemployment are
highlighted below:
™™ In 1979 the government launched TRYSEM – Training
of Rural Youth for Self-Employment The objective of
this scheme was to help unemployed youth of rural
areas aged between 18 and 35 years to acquire skills
for self-employment. The priority under this scheme
was given to women and youth belonging to SC/ST
category.
™™ The Government launched the IRDP – Integrated
Rural Development Programme (IRDP) in the year
1980 to create full employment opportunities in rural
areas.
™™ A new initiative was tried namely RSETI/RUDSETI in
1982 jointly by Sri Dharmasthala Manjunatheshwara
Educational Trust, Canara Bank and Syndicate
Bank. The aim of RUDSETI, the acronym of Rural
Development And Self Employment Training Institute
was to mitigate the unemployment problem among
the youth. Rural Self Employment Training Institutes/
RSETIs are now managed by Banks with active
cooperation from the state and central Government.
™™ The Jawahar Rozgar Yojana (JRY) was started in April
1989 by merging the two existing wage employment
programme i.e. RLEGP – Rural Landless Employment
Guarantee Programme and NREP – National Rural
Employment Programme on an 80:20 cost-sharing
basis between the state and centre.
™™ MNREGA – Mahatma Gandhi National Rural
Employment Guarantee Act launched in 2005
providing the right to work to people. An employment
scheme of MGNREGA aimed to provide social security
by guaranteeing a minimum of 100 days paid work
per year to all the families whose adult members opt
for unskilled labour-intensive work. For details on
MNREGA check the link provided.
™™ PMKVY – Pradhan Mantri Kaushal Vikas Yojana was
launched in 2015. The objective of PMKVY was to
enable the youth of the country to take up industry-
relevant skill training in order to acquire a secured
better livelihood. For further details on Pradhan
Mantri Kushal Vikas Yojana check the given link.
™™ The government launched the Start-Up India Scheme
in 2016. The aim of Startup India programmes was to
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 develop an ecosystem that nurtures and promotes ™™
entrepreneurship across the nation. Check detailed
information on Startup India Scheme in the given
link.
™™ Stand Up India Scheme also launched in 2016 ™™
aimed to facilitate bank loans to women and SC/ST
borrowers between Rs 10 lakh and Rs. 1 crore for
setting up a greenfield enterprise. Details on Stand-
Up India is given in the linked page. Problems of Labour Market in India
™™ National Skill Development Mission was set up in ™™
November 2014 to drive the ‘Skill India’ agenda in a
‘Mission Mode’ in order to converge the existing skill
training initiatives and combine scale and quality of
skilling efforts, with speed. Check the National Skill
Development Mission in detail.
PM Garib Kalyan Yojana ™™
The latest announcement on PMGKY was made
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™™
on 29th June 2020. Earlier on 26th March 2020, the
government took an initiative towards the loss caused
by the outbreak. The lockdown in the nation due to
Coronavirus expected to cost the Indian Economy a cost
of around 9 lakh crores.
Announcements made by the Finance Minister,
Nirmala Sitharaman on 26th March 2020 are mentioned ™™
below:
™™ To provide insurance cover of Rs 50 lakhs per health
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worker affected by COVID-19.
™™ To provide free resources of 5 kg wheat or rice and 1
kg of preferred pulses for 80 crore poor people for the
next three months under the PM Garib Kalyan Anna
Yojana.
™™ 20 crore Women Jan Dhan account holders will be
provided Rs 500 per month for the next three months. ™™
To know more about the PM Jan-Dhan Yojana, refer ™™
to the linked article.
™™
™™ There will be an increase in MNREGA wage to Rs 202
Low labour Productivity:
per day to benefit 13.62 crore families.
Agenda for labour Reforms
™™ The Central Government has given orders to State
Governments to use the Building and Construction ™™
Workers Welfare Fund to provide relief to Construction
Workers. ™™
Labour Reforms
Industrial Relations Code was introduced in the ™™
Parliamentary by Minister of Labour.
™™ Labour reforms essentially mean taking steps in
increasing production, productivity, and employment Steps Taken by Government
opportunities in the economy in such a manner that ™™
the interests of the workers are not compromised.
™™ Essent ially, it means skill development, retraining,
redeployment, updating knowledge base of workers- ™™
teachers, promotion of leadership qualities, etc.
Labour reforms also include la bour law reforms.
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Labour laws are conc erned with the trade union
rights of the worke rs, industrial relations and job
security and policies relating to wages, bonus and
other in centive schemes.
Labour reforms are of great important as the laws
enacted in the labour market aim at regulating the
market, protecting employment and ensuring social
security of workers.
Indian labour market is characterised by a sharp
dichotomy.
zz Organised sector is stringently regulated while
the unorganized sector is virtually free from any
outside control and regulation with little or no
job security.
Poor Social Security
Multiplicity of Archaic Labour Laws
zz Labour Laws govern trade unions, industrial rel
ations, and job security
zz Labour is a concurrent subject and more than 40
Central laws more than 100 state laws govern the
subject.
Trade Union Issues
zz Frequent Strikes
zz Inter-union rivalry and political rivalries are cons
idered to be the major impediments to have a
sound industrial relation system in India.
zz Indian labour laws are highly protective of labour,
and labour markets are relatively infl exible. As
usual, these laws are applicable in the organised
sector only.
Rigid Laws
Unskilled labour
Gender gap
Consolidation and simplification of numerous States’
and Centre labour laws
Streamlining of Minimum Wages in the country and
ensuring they reach the benefi ciaries.
Introduction of fixed term employment, to curb
tendency for employing (socially insecure) contract
labour.
Four Labour Codes aims at simplification,
amalgamation and rationalisation of Central Labour
Laws
Child labour (prohibition and Regulation)
Amendment Act, 2016 provides complete ban on
employment of children below 14 years of age.
94
™™ Maternity Benefit Amendment Act, 2017 has
increased paid maternity leave from 12 weeks to 26
weeks
™™ The 2nd National Commission of labour had
recommended simplifi cation, amalgamation and
rationalisation of Central Labour Laws. The central
government is compressing of 44 central labour laws
into four ‘codes’ or broad categories — wages, social
security, industrial relations and occupational health
and safety.
Introduction
™™ Poverty is a state or condition in which a person
or community lacks the financial resources and
essentials for a minimum standard of living. Poverty
means that the income level from employment is so
low that basic human needs can't be met.
™™ According to World Bank, Poverty is pronounced
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deprivation in well-being, and comprises many
dimensions. It includes low incomes and the inability
to acquire the basic goods and services necessary
for survival with dignity. Poverty also encompasses
low levels of health and education, poor access to
clean water and sanitation, inadequate physical
security, lack of voice, and insufficient capacity and
opportunity to better one's life.
™™ In India, 21.9% of the population lives below the
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national poverty line in 2011.
™™ In 2018, almost 8% of the world’s workers and their
families lived on less than US$1.90 per person per
day (international poverty line).
Types of Poverty: There are two main classifications
of poverty:
™™ Absolute Poverty: A condition where household
income is below a necessary level to maintain
basic living standards (food, shelter, housing). This
condition makes it possible to compare between
different countries and also over time.
zz It was first introduced in 1990, the “dollar a day”
poverty line measured absolute poverty by the
standards of the world's poorest countries. In
October 2015, the World Bank reset it to $1.90 a
day.
™™ Relative Poverty: It is defined from the social
perspective that is living standard compared to
the economic standards of population living in
surroundings. Hence it is a measure of income
inequality.
zz Usually, relative poverty is measured as the
percentage of the population with income less
than some fixed proportion of median income.
Poverty Estimation in India
™™ Poverty estimation in India is carried out by NITI
Aayog’s task force through the calculation of poverty
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line based on the data captured by the National
Sample Survey Office under the Ministry of Statistics
and Programme Implementation (MOSPI).
™™ Poverty line estimation in India is based on the
consumption expenditure and not on the income
levels.
™™ Poverty is measured based on consumer expenditure
surveys of the National Sample Survey Organisation.
A poor household is defined as one with an
expenditure level below a specific poverty line.
™™ The incidence of poverty is measured by the poverty
ratio, which is the ratio of the number of poor to the
total population expressed as a percentage. It is also
known as head-count ratio.
™™ Alagh Committee (1979) determined a poverty line
based on a minimum daily requirement of 2400 and
2100 calories for an adult in Rural and Urban area
respectively.
™™ Subsequently different committees; Lakdawala
Committee (1993), Tendulkar Committee (2009),
Rangarajan committee (2012) did the poverty
estimation.
™™ As per the Rangarajan committee report (2014),
the poverty line is estimated as Monthly Per Capita
Expenditure of Rs. 1407 in urban areas and Rs. 972 in
rural areas.
™™ Two-thirds of people in India live in poverty: 68.8%
of the Indian population lives on less than $2 a day.
Over 30% even have less than $1.25 per day available
- they are considered extremely poor. This makes the
Indian subcontinent one of the poorest countries
in the world; women and children, the weakest
members of Indian society, suffer most.
™™ India is the second most populous country after
China with about 1.2 billion people and isthe seventh
largest country in the world with an area of 3,287,000
km². The highly contrasted country has enjoyed
growth rates of up to 10% over many years and is one
of the largest economies in the world, with a gross
domestic product (GDP) of 1,644 billion US dollars.
But only a small percentage of the Indian population
has benefited from this impressive economic boom
so far, as the majority of people in India are still living
in abject poverty.
Poverty in India impacts children, families and
individuals in a variety of different ways through:
™™ High infant mortality
™™ Malnutrition
™™ Child labour
™™ Lack of education
™™ Child marriage
™™ HIV / AIDS
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Ways to Measure Poverty in India
American President praised India for having lifted
“over 270 million people out of poverty” in “a single
decade”, and said that “12 Indian citizens are lifted out of
extreme poverty every single minute of every single day”.
Poverty can be defined as a condition in which an
individual or household lacks the financial resources to
™™ However, this method does not consider the different
food groups that are essential for health — this is
why the Tendulkar Committee targeted nutritional
outcomes.
™™ The Lakdawala Committee assumed that health
and education is provided by the state — therefore,
expenditure on these items was excluded from the
consumption basket it proposed.
™™ Since expenditure on health and education rose
significantly in the 1990s, the Tendulkar Committee
included them in the basket.
™™ As a result of revisions to the basket and other
changes in the method of estimation, the percentage
of people living below the poverty line in 1993-94
rose from 35.97% to 45.3%.

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afford a basic minimum standard of living.
Economists and policymakers estimate “absolute”
poverty as the shortfall in consumption expenditure from
a threshold called the “poverty line”.
™™ The official poverty line is the expenditure incurred
to obtain the goods in a “poverty line basket” (PLB).
™™ Poverty can be measured in terms of the number
of people living below this line (with the incidence
of poverty expressed as the head count ratio). The

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“depth” of poverty indicates how far the poor are India at risk of losing hard-won gains against
below the poverty line. poverty, says World Bank
™™ Six official committees have so far estimated the The coronavirus pandemic is pushing millions of
number of people living in poverty in India Indians into poverty and eroding the hard-fought gains
zz The working group of 1962 made in the past two decades, the World Bank said.
zz V N Dandekar and N Rath in 1971 “Between 2011-12 and 2015, poverty declined from
zz Y K Alagh in 1979 21.6% to an estimated 13.4% at the international poverty
zz D T Lakdawala in 1993 line (2011 PPP $1.90 per person per day), continuing
the earlier trend of rapid poverty reduction. However,
zz Suresh Tendulkar in 2009
preliminary analysis following the national covid-19
zz C Rangarajan in 2014 lockdown suggests these gains are eroding," the World
The government did not take a call on the report Bank said in its India Development Update on Wednesday.
of the Rangarajan Committee; therefore, poverty is “A recent telephonic survey across 10 states found poor
measured using the Tendulkar poverty line. households expected to lose around 60% of their average
™™ As per this, 21.9% of people in India live below the monthly income in April following the national lockdown."
poverty line.
™™ What does the basket of goods include?
The PLB comprises goods and services considered
essential to a basic minimum standard of living — food,
clothing, rent, conveyance, and entertainment.
The price of the food component can be estimated
using calorie norms or nutrition targets.
Until the 1990s, the calorie norms method was used
— it was based on the minimum number of calories
recommended by the Indian Council of Medical Research
(ICMR) for a household of five members.
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 implementation challenges of indirect tax reforms,
the stress in the rural economy, and high youth
urban unemployment rates. Social inequalities in
poverty, well-being, and access to jobs, particularly
for women and tribal communities, are expected to
amplify differences in how the evolving economic
crisis impacts different social groups," the report said.

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Almost half of India’s population was vulnerable to
slipping back into poverty even prior to covid-19, with
consumption levels precariously close to the poverty
line, despite absolute poverty reduction in the past two
decades. “A contraction in high-frequency consumption
indicators, such as quarterly sales of two-wheeled
vehicles, FMCG (fast-moving consumer goods), and retail
personal credit disbursements, also suggests increased ™™ About 90% of the workforce is informal, without
access to significant savings or workplace-based

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vulnerabilities for poorer households. These households
are likely to slip back into poverty because of income and social protection benefits such as paid sick leave or
job losses triggered by covid-19," it said. social insurance. The latest Indian Periodic Labour
Force Survey (2018-19) showed only 47.2% of urban
male workers and about 55% of urban female
workers were regular wage or salaried employees.
These proportions are much lower for rural workers.
™™ “Even among workers in formal employment in the
non-agricultural sector, about 70% did not have
written job-contracts and about 52% were not
eligible for social security benefits. These workers
are at risk of (temporarily, depending on the pace
of recovery) falling into poverty due to wage and
livelihood losses triggered by shrinking economic
activity, government-imposed closures, and social-
distancing protocols," the World Bank cautioned.
™™ In India, seasonal inter-state migrants dominate low-
paying, hazardous, and informal market jobs in key
sectors, such as construction, in urban areas.

The Planning Commission, NITI Aayog

™™ The National Sample Survey Office data suggests that The Planning Commission was set up by a Resolution
a 30-day period without work can reduce household of the Government of India in March 1950 in pursuance
consumption expenditures for the poorest quintile of declared objectives of the Government to promote
by 10%. a rapid rise in the standard of living of the people by
™™ “Impacts of the global covid-19 pandemic will efficient exploitation of the resources of the country,
also compound pre-existing concerns that the increasing production and offering opportunities to all
pace of poverty reduction had been disrupted by for employment in the service of the community. The
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Planning Commission was charged with the responsibility
of making assessment of all resources of the country,
augmenting deficient resources, formulating plans for
the most effective and balanced utilisation of resources
and determining priorities. Jawaharlal Nehru was the first
Chairman of the Planning Commission.
The first Five-year Plan was launched in 1951 and
two subsequent five-year plans were formulated till 1965,
when there was a break because of the Indo-Pakistan
Conflict. Two successive years of drought, devaluation
of the currency, a general rise in prices and erosion of
resources disrupted the planning process and after three
Annual Plans between 1966 and 1969, the fourth Five-
year plan was started in 1969.
The Eighth Plan could not take off in 1990 due to the
fast changing political situation at the Centre and the
years 1990-91 and 1991-92 were treated as Annual Plans.
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The Eighth Plan was finally launched in 1992 after the
initiation of structural adjustment policies.
For the first eight Plans the emphasis was on a
growing public sector with massive investments in
basic and heavy industries, but since the launch of the
Ninth Plan in 1997, the emphasis on the public sector
has become less pronounced and the current thinking
on planning in the country, in general, is that it should
increasingly be of an indicative nature.
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™™ The Planning Commission
™™ Formed-15 March 1950
™™ Dissolved-17 Aug 2014
™™ Superseding agency-NITI Aayog
™™ Headquarters-Yojana Bhavan, New Delhi
™™ In his first Independence Day speech in 2014, Prime
Minister Narendra Modi announced his intention to
dissolve the Planning Commission. It has since been
replaced by a new institution named NITI Aayog.
Rudimentary economic planning, deriving from
the sovereign authority of the state, was first initiated in
India in 1938 by Congress President and Indian National
Army supreme leader Netaji Subhash Chandra Bose,
who had been persuaded by Meghnad Saha to set up
a National Planning Committee. M. Visvesvaraya had
been elected head of the Planning Committee. Meghnad
Saha approached him and requested that he step down,
putting forward the argument that planning needed a
reciprocity between science and politics. M. Visvesvaraya
generously agreed and Jawaharlal Nehru was made head
of the National Planning Committee.The so-called "British
Raj" also formally established the Advisory Planning Board
under K. C. Neogy that functioned from 1944 to 1946.
Industrialists and economists independently
formulated at least three development plans. Some
scholars have argued that the introduction of planning as
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an instrument was intended to transcend the ideological
divisions between Mahatma Gandhi and Nehru.[3] Other
scholars have argued that the Planning Commission, as
a central agency in the context of plural democracy in
India, needs to carry out more functions than rudimentary
economic planning.
After India achieved independence, a formal model
of planning was adopted, and accordingly the Planning
Commission, reporting directly to the Prime Minister
of India, was established on 15 March 1950, with Prime
Minister Jawaharlal Nehru as the Chairman. Authority for
creation of the Planning Commission was not derived
from the Constitution of India or statute; it is an arm of
the Central Government of India.
The first Five-Year Plan was launched in 1951, focusing
mainly on development of the agricultural sector. Two
subsequent Five-Year Plans were formulated before 1965,
when there was a break because of the Indo-Pakistan
conflict. Two successive years of drought, devaluation
of the currency, a general rise in prices and erosion of
resources disrupted the planning process and after three
Annual Plans between 1966 and 1969, the fourth Five-
Year Plan was started in 1969.
The Eighth Plan could not take off in 1990 due to the
fast changing political situation at the Centre, and the
years 1990–91 and 1991–92 were treated as Annual Plans.
The Eighth Plan was finally launched in 1992 after the
initiation of structural adjustment policies.
For the first eight Plans the emphasis was on a
growing public sector with massive investments in
basic and heavy industries, but since the launch of the
Ninth Plan in 1997, the emphasis on the public sector
has become less pronounced and the current thinking
on planning in the country, in general, is that it should
increasingly be of an indicative nature.
In 2014, Narendra Modi government decided to wind
down the Planning Commission. It was replaced by the
newly formed NITI Aayog to better represent the present
needs and aspirations of people of India.
Organisation
The composition of the Commission underwent
considerable changes since its initiation. With the Prime
Minister as the ex officio Chairman, the committee
had a nominated Deputy Chairman, with the rank of
a full Cabinet Minister. Cabinet Ministers with certain
important portfolios acted as ex officio members of the
Commission, while the full-time members were experts
in various fields like economics, industry, science and
general administration.
Ex officio members of the Commission included the
Finance Minister, Agriculture Minister, Home Minister,
Health Minister, Chemicals and Fertilisers Minister,
Information Technology Minister, Law Minister, Human
98
Resource Development Minister and Minister of State for
Planning.
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List of five year plans of India
The present NDA government has stopped the
formation of five-year plans. So the 12th five-year plan
would be called the last five-year plan of India. The
decades-old Five-Year Plans will make way for a three-year
action plan, which will be part of a seven-year strategy
paper and a 15-year vision document. The Niti Aayog has
replaced the Planning Commission in the Modi Cabinet
and has launched a three-year action plan from April 1,
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2017, onwards.
1. First Five Year Plan:
I. It was made for the duration of 1951 to 1956, under
the leadership of Jawaharlal Nehru.
II. It was based on the Harrod-Domar model with a few
modifications.
III. Its main focus was on the agricultural development
of the country.
IV. This plan was successful and achieved a growth rate
of 3.6% (more than its target of 2.1%).
V. At the end of this plan, five IITs were set up in the
country.
2. Second Five Year Plan:
I. It was made for the duration of 1956 to 1961, under
the leadership of Jawaharlal Nehru.
II. It was based on the P.C. Mahalanobis Model made in
the year 1953.
III. Its main focus was on the industrial development of
the country.
IV. This plan lags behind its target growth rate of 4.5%
and achieved a growth rate of 4.27%.
V. However, this plan was criticized by many experts
and as a result, India faced a payment crisis in the
year 1957.
3. Third Five Year Plan:
I. It was made for the duration of 1961 to 1966, under
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the leadership of Jawaharlal Nehru.
II. This plan is also called ‘Gadgil Yojna’, after the Deputy
Chairman of Planning Commission D.R. Gadgil.
III. The main target of this plan was to make the economy
independent. The stress was laid on agriculture and
the improvement in the production of wheat.
IV. During the execution of this plan, India was engaged
in two wars: (1) the Sino-India war of 1962 and (2)
the Indo-Pakistani war of 1965. These wars exposed
the weakness in our economy and shifted the focus
to the defence industry, the Indian Army and the
stabilization of the price (India witnessed inflation).
V. The plan was a flop due to wars and drought. The
target growth was 5.6% while the achieved growth
was 2.4%.
Welfare Programmes by the Government of India
4. Plan Holidays:
I. Due to the failure of the previous plan, the
government announced plan holidays from 1966 to
1969.
II. The main reason behind the plan holidays was the
Indo-Pakistani war and the Sino-India war, leading to
the failure of the third Five Year Plan.
III. During this plan, annual plans were made and equal
priority was given to agriculture its allied sectors and
the industry sector.
IV. In a bid to increase the exports in the country, the
government declared devaluation of the rupee.
5. Fourth Five Year Plan:
I. Its duration was from 1969 to 1974, under the
leadership of Indira Gandhi.
II. There were two main objectives of this plan i.e.
growth with stability and progressive achievement
of self-reliance.
III. During this time, 14 major Indian banks were
nationalized and the Green Revolution was started.
Indo-Pakistani War of 1971 and Bangladesh Liberation
War took place.
IV. This plan failed and could achieve a growth rate of
3.3% only against the target of 5.6%.
99
6. Fifth Five Year Plan:
I. Its duration was 1974 to 1978.
II. This plan focussed on Garibi Hatao, employment,
justice, agricultural production and defence.
III. The Electricity Supply Act was amended in 1975,
Twenty-point programme was launched in 1975, the
Minimum Needs Programme (MNP) and the Indian
National Highway System was introduced.
IV. Overall this plan was successful which achieved a
growth of 4.8% against the target of 4.4%.
V. This plan was terminated in 1978 by the newly
elected Moraji Desai government. Garibi hatao
7. Rolling Plan:
I. After the termination of the fifth Five Year Plan, the
Rolling Plan came into effect from 1978 to 1990.
II. In 1980, the Congress rejected the Rolling Plan and a
II. Two annual programmes were formed for the year
1990-91& 1991-92.
11. Eighth Five Year Plan:
I. Its duration was from 1992 to 1997, under the
leadership of P.V. Narasimha Rao.
II. In this plan, the top priority was given to the
development of human resources i.e. employment,
education, and public health.
III. During this plan, Narasimha Rao Govt. launched the
New Economic Policy of India.
IV. This plan was successful and got an annual growth
rate of 6.8% against the target of 5.6%.

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new sixth Five Year Plan was introduced.
III. Three plans were introduced under Rolling plan: (1)
For the budget of the present year (2) this plan was
for a fixed number of years- 3,4 or 5 (3) Perspective
plan for long terms-- 10, 15 or 20 years.
IV. The plan has several advantages as the targets could
be mended and projects, allocations, etc. were
variable to the country's economy. This means that
if the targets can be mended each year, it would be

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difficult to achieve the targets and will result in the
destabilization in the Indian economy.
8. Sixth Five Year Plan:
I. Its duration was from 1980 to 1985, under the
leadership of Indira Gandhi.
II. The basic objective of this plan was economic
liberalisation by eradicating poverty and achieving
technological self-reliance.
III. It was based on investment Yojna, infrastructural
changing and trend to the growth model.
IV. Its growth target was 5.2% but it achieved a 5.7%
growth.
9. Seventh Five Year Plan:
I. Its duration was from 1985 to 1990, under the
leadership of Rajiv Gandhi.
II. The objectives of this plan include the establishment
12. Ninth Five Year Plan:
of a self-sufficient economy, opportunities for
productive employment and up-gradation of I. Its duration was from 1997 to 2002, under the
tecnology. leadership of Atal Bihari Vajpayee.
III. For the first time, the private sector got the priority II. The main focus of this plan was “growth with justice
over public sector. and equity”.
IV. Its growth target was 5.0% but it achieved 6.01%. III. It was launched in the 50th year of independence of
10. Annual Plans: India.
I. Eighth Five Year Plan could not take place due to the IV. This plan failed to achieve the growth target of 7%
volatile political situation at the centre. and achieved a growth rate of 5.6%.

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13. Tenth Five Year Plan:
I. Its duration was from 2002 to 2007, under the
leadership of Atal Bihari Vajpayee and Manmohan
Singh.
II. This plan aims to double the Per Capita Income of
India in the next 10 years.
III. It aims to reduce the poverty ratio of 15% by 2012.
IV. Its growth target was 8.0% but it achieved only 7.2%.
14. Eleventh Five Year Plan:
I. Its duration was from 2007 to 2012, under the
leadership of Manmohan Singh.
II. It was prepared by the C. Rangarajan.
III. Its main theme was “rapid and more inclusive growth”.
IV. It achieved a growth rate of 8% against a target of 9%
growth.
15. Twelfth Five Year Plan:
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I. Its duration is from 2012 to 2017, under the leadership
of Manmohan Singh.
II. Its main theme is “Faster, More Inclusive and
Sustainable Growth”.
III. Its growth rate target was 8%.
The NDA government has dissolved the Planning
Commission with the NITI Aayog. Thus, there will be no
thirteen Five Year Plan, however, the five-year defence plan
is still made. It is important to note that the documents of
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the NITI Aayog have no financial role. They are only policy
guide maps for the government.
The three-year action plan only provides a broad
roadmap to the government and does not outline any
schemes or allocations as it has no financial powers.
Since it doesn't require approval by the Union Cabinet, its
recommendations are not binding on the government.
NITI Aayog
The NITI Aayog (Hindi for Policy Commission)
(abbreviation for National Institution for Transforming
India) is a policy think tank of the Government of
India, established with the aim to achieve sustainable
development goals with cooperative federalism by
fostering the involvement of State Governments of India
in the economic policy-making process using a bottom-
up approach. Its initiatives include "15-year road map",
"7-year vision, strategy, and action plan", AMRUT, Digital
India, Atal Innovation Mission, Medical Education Reform,
agriculture reforms (Model Land Leasing Law, Reforms
of the Agricultural Produce Marketing Committee Act,
Agricultural Marketing and Farmer Friendly Reforms Index
for ranking states), Indices Measuring States’ Performance
in Health, Education and Water Management, Sub-
Group of Chief Ministers on Rationalization of Centrally
Sponsored Schemes, Sub-Group of Chief Ministers on
Swachh Bharat Abhiyan, Sub-Group of Chief Ministers on
Skill Development, Task Forces on Agriculture and up of
Poverty, and Transforming India Lecture Series.
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NITI Aayog
™™ Formed
™™ 1 January 2015
™™ Preceding
™™ Planning Commission
It was established in 2015, by the NDA government,
to replace the Planning Commission which followed a
top-down model. The NITI Aayog council comprises all
the state Chief Ministers, along with the Chief Ministers
of Delhi and Puducherry, the Lieutenant Governor of
the Andaman and Nicobar Islands, and a vice-chairman
nominated by the Prime Minister. In addition, temporary
members are selected from leading universities and
research institutions. These members include a chief
executive officer, four ex-official members, and two part-
time members.
Members
The NITI Aayog comprises the following:
The Prime Minister as the Chairperson.
™™ A Governing Council composed of Chief Ministers of
all the States and Union territories with Legislatures
and lieutenant governors of Union Territories(except
Delhi and Pondicherry)
™™ Regional Councils composed of Chief Ministers of
States and Lt. Governors of Union Territories in the
region to address specific issues and contingencies
impacting more than one state or a region.
™™ Full-time organizational framework composed of a
Vice-Chairperson,
™™ Four full-time members,
™™ Two part-time members (from leading universities,
research organizations and other relevant institutions
in an ex-officio capacity),
™™ Four ex-officio members of the Union Council of
Ministers, a Chief Executive Officer (with the rank
of Secretary to the Government of India) who looks
after administration, and a secretariat.
™™ Experts and specialists in various fields.
™™ With the Prime Minister as the Chairperson, presently
NITI Aayog consists of:
™™ Vice Chairperson: Rajiv Kumar
™™ Ex-Officio Members: Amit Shah, Rajnath Singh,
Nirmala Sitaraman and Narendra Singh Tomar
™™ Special Invitees: Nitin Gadkari, Piyush Goyal, Thawar
Chand Gehlot and Rao Inderjit Singh
™™ Full-time Members: V. K. Saraswat (former DRDO
Chief ), Ramesh Chand (Agriculture Expert) and Dr.
Vinod Paul (Public Health expert)
™™ Chief Executive Officer (CEO): Amitabh Kant
™™ Governing Council: All Chief Ministers of States (and
Delhi and Puducherry), Lieutenant Governor of
Andaman & Nicobar Islands, and Special Invites
101

Concepts of National Income
The important concepts of national income are:
1. Gross Domestic Product (GDP)
2. Gross National Product (GNP)
3. Net National Product (NNP) at Market Prices
4. Net National Product (NNP) at Factor Cost or National
Income
5. Personal Income
6. Disposable Income
Let us explain these concepts of National Income in
detail.
1. Gross Domestic Product (GDP): Gross Domestic
Product (GDP) is the total market value of all final goods
and services currently produced within the domestic
territory of a country in a year.
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Four things must be noted regarding this definition.
First, it measures the market value of annual output
of goods and services currently produced. This implies
that GDP is a monetary measure.
Secondly, for calculating GDP accurately, all goods
and services produced in any given year must be counted
only once so as to avoid double counting. So, GDP should
include the value of only final goods and services and
ignores the transactions involving intermediate goods.
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Thirdly, GDP includes only currently produced goods
and services in a year. Market transactions involving
goods produced in the previous periods such as old
houses, old cars, factories built earlier are not included in
GDP of the current year.
Lastly, GDP refers to the value of goods and services
produced within the domestic territory of a country by
nationals or non-nationals.
2. Gross National Product (GNP): Gross National
Product is the total market value of all final goods and
services produced in a year. GNP includes net factor
income from abroad whereas GDP does not. Therefore,
GNP = GDP + Net factor income from abroad.
Net factor income from abroad = factor income
received by Indian nationals from abroad – factor income
paid to foreign nationals working in India.
3. Net National Product (NNP) at Market Price:
NNP is the market value of all final goods and services
after providing for depreciation. That is, when charges for
depreciation are deducted from the GNP we get NNP at
market price. Therefore’
NNP = GNP – Depreciation
Depreciation is the consumption of fixed capital or
fall in the value of fixed capital due to wear and tear.
4. Net National Product (NNP) at Factor Cost
(National Income): NNP at factor cost or National Income
vkLFkk IAS : M-1A, Jyoti Bhawan, Mukherjee Nagar, Delhi-110009
is the sum of wages, rent, interest and profits paid to
factors for their contribution to the production of goods
and services in a year. It may be noted that:
NNP at Factor Cost = NNP at Market Price – Indirect
Taxes + Subsidies.
5. Personal Income: Personal income is the sum
of all incomes actually received by all individuals or
households during a given year. In National Income there
are some income, which is earned but not actually received
by households such as Social Security contributions,
corporate income taxes and undistributed profits. On
the other hand there are income (transfer payment),
which is received but not currently earned such as old
age pensions, unemployment doles, relief payments, etc.
Thus, in moving from national income to personal income
we must subtract the incomes earned but not received
and add incomes received but not currently earned.
Therefore,
Personal Income = National Income – Social Security
contributions – corporate income taxes – undistributed
corporate profits + transfer payments.
Disposable Income: From personal income if
we deduct personal taxes like income taxes, personal
property taxes etc. what remains is called disposable
income. Thus,
Disposable Income = Personal income – personal
taxes.
Disposable Income can either be consumed or saved.
Therefore,
Disposable Income = consumption + saving.
Measurement of National Income
Production generate incomes which are again spent
on goods and services produced. Therefore, national
income can be measured by three methods:
1. Output or Production method
2. Income method, and
3. Expenditure method.
Let us discuss these methods in detail.
1. Output or Production Method: This method
is also called the value-added method. This method
approaches national income from the output side.
Under this method, the economy is divided into different
sectors such as agriculture, fishing, mining, construction,
manufacturing, trade and commerce, transport,
communication and other services. Then, the gross
product is found out by adding up the net values of all the
production that has taken place in these sectors during a
given year.
In order to arrive at the net value of production of
a given industry, intermediate goods purchase by the
producers of this industry are deducted from the gross
value of production of that industry. The aggregate or
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net values of production of all the industry and sectors
of the economy plus the net factor income from abroad
will give us the GNP. If we deduct depreciation from the
GNP we get NNP at market price. NNP at market price –
indirect taxes + subsidies will give us NNP at factor cost or
National Income.
The output method can be used where there exists a
census of production for the year. The advantage of this
method is that it reveals the contributions and relative
importance and of the different sectors of the economy.
2. Income Method: This method approaches
national income from the distribution side. According to
this method, national income is obtained by summing
up of the incomes of all individuals in the country. Thus,
national income is calculated by adding up the rent of
land, wages and salaries of employees, interest on capital,
profits of entrepreneurs and income of self-employed
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people.
This method of estimating national income has the
great advantage of indicating the distribution of national
income among different income groups such as landlords,
capitalists, workers, etc.
3. Expenditure Method: This method arrives at
national income by adding up all the expenditure made
on goods and services during a year. Thus, the national
income is found by adding up the following types of
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expenditure by households, private business enterprises
and the government:-
(a) Expenditure on consumer goods and services by
individuals and households denoted by C. This is
called personal consumption expenditure denoted
by C.
(b) Expenditure by private business enterprises on
capital goods and on making additions to inventories
or stocks in a year. This is called gross domestic private
investment denoted by I.
(c) Government’s expenditure on goods and services i.e.
government purchases denoted by G.
(d) Expenditure made by foreigners on goods and
services of the national economy over and above
what this economy spends on the output of the
foreign countries i.e. exports – imports denoted by
(X – M). Thus,
GDP = C + I + G + (X – M).
Difficulties in the Measurement of National
Income
There are many difficulties in measuring national
income of a country accurately. The difficulties involved
are both conceptual and statistical in nature. Some of
these difficulties or problems are discuss below:
1. The first problem relates to the treatment of non-
monetary transactions such as the services of
vkLFkk IAS : M-1A, Jyoti Bhawan, Mukherjee Nagar, Delhi-110009
housewives and farm output consumed at home.
On this point, the general agreement seems to be to
exclude the services of housewives while including
the value of farm output consumed at home in the
estimates of national income.
2. The second difficulty arises with regard to the
treatment of the government in national income
accounts. On this point the general viewpoint is
that as regards the administrative functions of the
government like justice, administrative and defense
are concerned they should be treated as giving
rise to final consumption of such services by the
community as a whole so that contribution of general
government activities will be equal to the amount of
wages and salaries paid by the government. Capital
formation by the government is treated as the same
as capital formation by any other enterprise.
3. The third major problem arises with regard to the
treatment of income arising out of the foreign firm
in a country. On this point, the IMF viewpoint is that
production and income arising from an enterprise
should be ascribed to the territory in which
production takes place. However, profits earned
by foreign companies are credited to the parent
company.
Special Difficulties of Measuring National Income
in Under-developed Countries
In under-developed countries like India, we face
some special difficulties in estimating national income.
Some of these difficulties are:
1. The first difficulty arises because of the prevalence of
non-monetised transactions in such countries so that
a considerable part of the output does not come into
the market at all. Agriculture still being in the nature
of subsistence farming in these countries, a major
part of output is consumed at the farm itself.
2. Because of illiteracy, most producers have no idea
of the quantity and value of their output and do not
keep regular accounts. This makes the task of getting
reliable information very difficult.
3. Because of under-development, occupational
specialization is still incomplete, so that there is
lack of differentiation in economic functioning. An
individual may receive income partly from farm
ownership, partly from manual work in industry in the
slack season, etc. This makes the task of estimating
national income very difficult.
4. Another difficulty in measuring national income
in under-developed countries arises because
production, both agriculture and industrial, is
unorganized and scattered in these countries. In
India, agriculture, household craft, and indigenous
banking are the unorganized and scattered sectors.
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 An assessment of output produced by self-employed
agriculturist, small producers and owners of
household enterprises in the unorganized sectors
requires an element of guesswork, which makes the
figure of national income unreliable.
5. In under-developed countries there is a general
lack of adequate statistical data. Inadequacy, non-
availability and unreliability of statistics is a great
handicap in measuring national income in these
countries.
Gross Value Added (GVA) Vs. GDP
Gross value added (GVA) is defined as the value of
output less the value of intermediate consumption. Value
added represents the contribution of labour and capital
to the production process. When the value of taxes on
products (less subsidies on products) is added, the sum of
value added for all resident units gives the value of gross
domestic product (GDP). Thus, Gross Domestic Product
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(GDP) of any nation represents the sum total of gross
value added (GVA) (i.e, without discounting for capital
consumption or depreciation) in all the sectors of that
economy during the said year after adjusting for taxes
and subsidies.
Introduction of GVA at basic prices in India
In India, GDP is estimated by Central Statistical
Office (CSO). Under the Fiscal Responsibility and Budget
Management Act 2003 and Rules thereunder, Ministry of
Finance uses the GDP numbers (at current prices) to peg
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the fiscal targets. For this purpose, Ministry of Finance
makes their own projections about GDP for the coming
two years while specifying future fiscal targets.
In the revision of National Accounts statistics done by
Central Statistical Organization (CSO) in January 2015, it
was decided that sector-wise wise estimates of Gross Value
Added (GVA) will now be given at basic prices instead of
factor cost. In simple terms, for any commodity the basic
price is the amount receivable by the producer from the
purchaser for a unit of a product minus any tax on the
product plus any subsidy on the product. However, GVA
at basic prices will include production taxes and exclude
production subsidies available on the commodity. On
the other hand, GVA at factor cost includes no taxes and
excludes no subsidies and GDP at market prices include
both production and product taxes and excludes both
production and product subsidies.
The relationship between GVA at Factor Cost and
GVA at Basic Prices and GDP at market prices and GVA at
basic prices is shown below:
GVA at factor cost + (Production taxes less Production
subsidies) = GVA at basic prices
GDP at market prices = GVA at basic prices + Product
taxes- Product subsidies
Production taxes or production subsidies are paid or
received with relation to production and are independent
of the volume of actual production. Some examples
of production taxes are land revenues, stamps and
registration fees and tax on profession. Some production
vkLFkk IAS : M-1A, Jyoti Bhawan, Mukherjee Nagar, Delhi-110009
subsidies include subsidies to Railways, input subsidies
to farmers, subsidies to village and small industries,
administrative subsidies to corporations or cooperatives,
etc. Product taxes or subsidies are paid or received on
per unit of product. Some examples of product taxes are
excise tax, sales tax, service tax and import and export
duties. Product subsidies include food, petroleum and
fertilizer subsidies, interest subsidies given to farmers,
households, etc. through banks.
The concept of GVA at basic prices follows from
the United Nation's System of National Accounts (SNA)
introduced in 1993 and carried forward in an identical
fashion in SNA 2008 as a part of revision of compilation
and classification systems. This has been adopted by CSO
in its base revision carried out in January 2015.
GVA at Basic Price Vs Producers' Price Vs Factor
Costs as in The UN System of National Accounts
(2008)
In the SNA, intermediate inputs are valued and
recorded at the time they enter the production process,
while outputs are recorded and valued as they emerge
from the process. (The difference between the value of
the intermediate inputs and the value of the outputs is
gross value added.)
More than one set of prices may be used to value
outputs and inputs depending upon how taxes and
subsidies on products, and also transport charges,
are recorded. Moreover, value added taxes (VAT), and
similar deductible taxes may also be recorded in more
than one way. Intermediate inputs are normally valued
at purchasers’ prices and outputs at basic prices, or
alternatively at producers’ prices if basic prices are not
available.
Thus the SNA utilizes two kinds of prices to measure
output, namely, basic prices and producers’ prices:
The basic price is the amount receivable by the
producer from the purchaser for a unit of a good or service
produced as output minus any tax payable, and plus any
subsidy receivable, by the producer as a consequence of
its production or sale. It excludes any transport charges
invoiced separately by the producer.
The producer’s price is the amount receivable by the
producer from the purchaser for a unit of a good or service
produced as output minus any VAT, or similar deductible
tax, invoiced to the purchaser. It excludes any transport
charges invoiced separately by the producer.
Basic prices exclude any taxes on products the
producer receives from the purchaser and passes on to
government but include any subsidies the producer
receives from government and uses to lower the prices
charged to purchasers. Both producers’ and basic prices
are actual transaction prices that can be directly observed
and recorded. The basic price measures the amount
retained by the producer and is, therefore, the price most
relevant for the producer’s decision-taking. The basic
price is obtained from the producer’s price by deducting
any tax on products payable on a unit of output (other
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than invoiced VAT already omitted from the producer’s
price) and adding any subsidy on products receivable on
a unit of output. In consequence, no taxes on products
or subsidies on products are to be recorded as payables
or receivables in the producer’s generation of income
account when value added is measured at basic prices,
the preferred valuation basis in the SNA.
Gross value added at basic prices is defined as output
valued at basic prices less intermediate consumption
valued at purchasers’ prices. Here the GVA is known by
the price with which the output is valued. From the point
of view of the producer, purchasers’ prices for inputs and
basic prices for outputs represent the prices actually paid
and received. Their use leads to a measure of gross value
added that is particularly relevant for the producer.
Gross value added at producers’ prices is defined
as output valued at producers’ prices less intermediate
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consumption valued at purchasers’ prices. In the absence
of VAT, the total value of the intermediate inputs consumed
is the same whether they are valued at producers’ or at
purchasers’ prices, in which case this measure of gross
value added is the same as one that uses producers’ prices
to value both inputs and outputs. It is an economically
meaningful measure that is equivalent to the traditional
measure of gross value added at market prices. However,
in the presence of VAT, the producer’s price excludes
invoiced VAT, and it would be inappropriate to describe
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this measure as being at “market” prices.
By definition, the value of output at producers’ prices
exceeds that at basic prices by the amount, if any, of the
taxes on products, less subsidies on products so that the
two associated measures of gross value added must differ
by the same amount.
Gross value added at factor cost is not a concept used
explicitly in the SNA. However, it can easily be derived
from either of GVA at basic prices or GVA at producer's
price by subtracting the value of any taxes on production
and adding subsidies on production, payable out of gross
value added as defined. For example, the only taxes on
production remaining to be paid out of gross value added
at basic prices consist of “other taxes on production” which
are not charged per unit. These consist mostly of current
taxes (or subsidies) on the labour or capital employed in
the enterprise, such as payroll taxes or current taxes on
vehicles or buildings. Gross value added at factor cost can
thus be derived from gross value added at basic prices
by subtracting other taxes on production and adding
subsidies on production.
The conceptual difficulty with gross value added at
factor cost is that there is no observable set of prices such
that gross value added at factor cost is obtained directly
by multiplying this set of prices by the sets of quantities
of outputs. By definition, other taxes or subsidies on
production are not taxes or subsidies on products that
vkLFkk IAS : M-1A, Jyoti Bhawan, Mukherjee Nagar, Delhi-110009
can be eliminated from the input and output prices.
Thus, despite its traditional name, gross value added
at factor cost is not strictly a measure of value added;
it is essentially a measure of income and not output. It
represents the amount remaining for distribution out of
gross value added, however defined, after the payment
of all taxes on production and the receipt of all subsidies
on production. It makes no difference which measure of
gross value added is used to derive this income measure
because the alternative measures of value added
considered above differ only in respect of the amounts of
the taxes or subsidies on production that remain payable
out of gross value added.
Deriving GDP from the GVA
From these various concepts of GVA, one can arrive at
an estimate of GDP in the following manner:
GDP = the sum of the gross value added at producers’
prices, plus taxes on imports, less subsidies on imports,
plus non-deductible VAT.
GDP = the sum of the gross value added at basic
prices, plus all taxes on products, less all subsidies on
products.
GDP = the sum of the gross value added at factor cost
plus all taxes on products, less all subsidies on products,
plus all other taxes on production, less all other subsidies
on production.
In cases (b) and (c), the items taxes on products and
subsidies on products includes taxes and subsidies on
imports as well as on outputs.
The government has approved the merger of
National Sample Survey Office (NSSO) with the Central
Statistics Office (CSO) under the Ministry of Statistics and
Programme Implementation (MoSPI).
The restructuring is in line with the proposed National
Policy on Official Statistics which was floated last year. The
policy suggests discontinuing with the role of the Chief
Statistician of India as secretary to the National Statistical
Commission (NSC) and doing away with the usage of the
terms CSO and NSSO Instead, the two will be treated as
being under a single entity called the National Statistical
Organisation (NSO).
The policy is based on a 2005 decision in the United
Progressive Alliance (UPA) government’s tenure, following
the recommendations of the report of the National
Statistical Commission, headed by former Reserve Bank
of India governor C Rangarajan.
MoSPI said the restructuring will “streamline and
strengthen the present nodal functions” and “to bring in
more synergy by integrating its administrative functions
within the ministry.”
The proposed NSO would be headed by MoSPI
secretary.
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External Sector
Balance of Payment (BOP): Definition and
Components
Balance of Payment (BOP) of ac country can be defined
as a systematic statement of all economic transactions of a
country with the rest of the world during a specific period
usually one year. The systematic accounting is done on
the basis of double entry book keeping (both sides of
transactions credit and debit are included). Economic
transaction includes all such transactions that involve
the transfer of title or ownership of goods and services,
money and assets.
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BOP Explanation
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Definition of Balance of Payment (BOP)
Balance of Payment (BOP) of a country can be defined
as a systematic statement of all economic transactions
of a country with the rest of the world during a specific
period usually one year.
The systematic accounting is done on the basis of
double entry book keeping (both sides of transactions
credit and debit are included). Economic transaction
includes all such transactions that involve the transfer
of title or ownership of goods and services, money and
assets.
The Balance of Payments (BOP) is the method
countries use to monitor all international monetary
transactions at a specific period of time. Usually, the BOP
is calculated every quarter and every calendar year. All
trades conducted by both the private and public sectors
are accounted for in the BOP in order to determine how
much money is going in and out of a country.
If a country has received money, this is known as
a credit, and, if a country has paid or given money, the
transaction is counted as a debit. Theoretically, the
BOP should be zero, meaning that assets (credits) and
liabilities (debits) should balance. But in practice this is
rarely the case and, thus, the BOP can tell the observer if
a country has a deficit or a surplus and from which part of
the economy the discrepancies are stemming.
vkLFkk IAS : M-1A, Jyoti Bhawan, Mukherjee Nagar, Delhi-110009
Purposes of calculation of Balance of Payment:
1. The basic purpose of BOP accounting is to know
the strength and weaknesses of the Economy in
international relations.
2. By analyzing the BOP accounts of the last year one
can come to know the overall gains and losses
from international trade. It can be ascertained that
whether composition and direction of international
trade and capital movements have improved or
caused deterioration in the economic condition of
the country.
3. BPO statements give warning signals for future policy
formation.
For preparing a BOP accounts, economic transactions
between a country and rest of the world are grouped
under two broad categories:
A. Current Account
B. Capital Account
C. Financial Account
A. Current Account: It includes export and import
of gods and services i.e. visible and invisible trade. This
type of transaction changes (increase or decreases) the
current level of consumption of the country.
Within the current account are credits and debits on
the trade of merchandise, which includes goods such as
raw materials and manufactured goods that are bought,
sold or given away (possibly in the form of aid). Services
refer to receipts from tourism, transportation (like the levy
that must be paid in Egypt when a ship passes through
the Suez Canal), engineering, business service fees (from
lawyers or management consulting, for example), and
royalties from patents and copyrights. When combined,
goods and services together make up a country's balance
of trade (BOT).
The BOT is typically the biggest bulk of a country's
balance of payments as it makes up total imports and
exports. If a country has a balance of trade deficit, it
imports more than it exports, and if it has a balance of
trade surplus, it exports more than it imports.
Receipts from income-generating assets such as
stocks (in the form of dividends) are also recorded in
the current account. The last component of the current
account is unilateral transfers. These are credits that are
mostly worker's remittances, which are salaries sent back
into the home country of a national working abroad, as
well as foreign aids that are directly received.
B. Capital Account: Inflow and outflow of capital
including foreign investment, gold and foreign exchange
reserves. This is of stock nature.
The capital account is where all international capital
transfers are recorded. This refers to the acquisition or
disposal of non-financial assets (for example, a physical
106
asset such as land) and non-produced assets, which are
needed for production but have not been produced, like
a mine used for the extraction of diamonds.
The capital account is broken down into the
monetary flows branching from debt forgiveness, the
transfer of goods, and financial assets by migrants leaving
or entering a country, the transfer of ownership on fixed
assets (assets such as equipment used in the production
process to generate income), the transfer of funds
received to the sale or acquisition of fixed assets, gift and
inheritance taxes, death levies, and, finally, uninsured
damage to fixed assets.
C. The Financial Account: In the financial account,
international monetary flows related to investment in
business, real estate, bonds and stocks are documented.
Also included are government-owned assets such as
foreign reserves, gold, special drawing rights (SDRs) held
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with the International Monetary Fund, private assets held
abroad, and direct foreign investment. Assets owned by
foreigners, private and official, are also recorded in the
financial account.
The Balancing Act
The current account should be balanced against the
combined-capital and financial accounts. However, as
mentioned above, this rarely happens. We should also
note that, with fluctuating exchange rates, the change in
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the value of money can add to BOP discrepancies. When
there is a deficit in the current account, which is a balance
of trade deficit, the difference can be borrowed or funded
by the capital account.
If a country has a fixed asset abroad, this borrowed
amount is marked as a capital account outflow. However,
the sale of that fixed asset would be considered a current
account inflow (earnings from investments). The current
account deficit would thus be funded.
When a country has a current account deficit that is
financed by the capital account, the country is actually
foregoing capital assets for more goods and services. If a
country is borrowing money to fund its current account
deficit, this would appear as an inflow of foreign capital in
the BOP. When the export of a country exceeds the import,
then BOP is termed as the favourable BOP or surplus BOP.
But when import exceeds the export, then BOP is termed
as the unfavourable or deficit BOP.
Convertibility of Currency in India
Prior to the First World War the whole world was
having gold standard under which the currency in
circulation was allowed to get converted either in gold
or other currencies based on the gold standard. But after
the failure of Bretton woods system in 1971 this system
changed. Presently convertibility of money implies a
system where a country’s currency becomes convertible
in foreign exchange and vice versa. Since 1994, Indian
vkLFkk IAS : M-1A, Jyoti Bhawan, Mukherjee Nagar, Delhi-110009
rupee has been made fully convertible in current account
transactions.
After the collapse of Breton Woods’s system in 1971,
the various countries switched over to the floating foreign
exchange rate system. Under the floating or flexible
exchange rate system, exchange rates between different
national currencies are allowed to be determined through
market demand for and supply of the same.
Convertibility of Rupee:
For the first time, the Union Budget for 1992-93 has
made the Indian rupee partially convertible. This was an
inevitable move for the expeditious integration of Indian
economy with that of the world In order to face the serious
current account deficit in the balance of payments, the
Government of India introduced the partial convertibility
of rupee from March 1. 1992.
Under this system, which remained in operation
for a period of one year, 60 per cent of the exchange
earnings were convertible in rupees at market
determined exchange rate and the remaining 40 per
cent earnings were convertible in rupees at the officially
determined exchange rate. The term convertibility of
a currency indicates that it can be freely converted into
any other currency. Convertibility can also be identified
as the removal of quantitative restrictions on trade and
payments on current account. Convertibility establishes
a system where the market place determines the rate
of exchange through the free interplay of demand and
supply forces.
Current Account Convertibility: Meaning
Current account convertibility is the next phase for
attaining full convertibility of rupee. Current account
convertibility relates to the removal of restrictions on
payments relating to the international exchange of
goals, services and factor incomes, while capital account
convertibility refers to a similar liberalization of a country’s
capital transactions such as loans and investment, both
short term and long term.
Current account convertibility has been defined
as the freedom to buy or sell foreign exchange for the
following international transactions:
(a) All payments due in connection with foreign trade,
other current business, including services and normal
short term banking and credit facilities;
(b) Payments due as interest on loans and as net income
from other investments;
(c) Payments of moderate amount of amortization of
loans or for depreciation of direct investment; and
(d) Moderate remittances for family living expenses.
Capital Account Convertibility: Meaning
Capital account convertibility refers to a liberalization
of a country’s capital transactions such as loans and
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investment, both short term and long term as well as
speculative capital flows.
In a way, capital account convertibility removes all the
restrains on international flows on India’s capital account.
There is a basic difference between current account
convertibility and capital account convertibility. In the
case of current account convertibility, it is important
to have a transaction – importing and exporting of
goods, buying and selling of services, inward or outward
remittances, etc. involving payment or receipt of one
currency against another currency. In the case of capital
account convertibility, a currency can be converted into
any other currency without any transaction.
Current Status of Capital Account Convertibility
(a) Capital account convertibility exists for foreign
investors and Non-Resident Indians (NRIs) for
undertaking direct and portfolio investment in India.
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(b) Indian investment abroad up to US $ 4 million is
eligible for automatic approval by the RBI subject to
certain conditions.
(c) In September 1995, the RBI appointed a special
committee to process all applications involving
Indian direct foreign investment abroad beyond
US $ 4 million or those not qualifying for fast track
clearance.
Tara-pore Committee’s Second Report on Capital
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Account Convertibility (July 2006):
With the growing strength of balance of payments in
the post-1991 period and with external sector remaining
robust and gaining strength every year and the relative
macro economic stability with high growth providing a
conducive environment relaxation of capital controls,
RBI, in pursuance of the announcement the Prime
Minister constituted a committee on March 20, 2006
with Mr. S.S. Tarapore as its chairman for setting out a
roadways towards fuller capital account convertibility.
The committee submitted its Report to the RBI on July 31,
2006.
Advantages of Currency Convertibility
™™ Export promotion: An important advantage of
currency convertibility is that it encourages exports
by increasing their profitability. With convertibility
profitability of exports increases because market
foreign exchange rate is higher than the previous
officially fixed exchange rate. This implies that
from given exports, exporters can get more rupees
against foreign exchange (e.g. US dollars) earned
from exports. Currency convertibility especially
encourages those exports which have low import-
intensity.
™™ Incentive to Import Substitution: Since free or
market determined exchange rate is higher than
the previous officially fixed exchange rate, imports
become more expensive after convertibility of a
vkLFkk IAS : M-1A, Jyoti Bhawan, Mukherjee Nagar, Delhi-110009
currency. This discourages imports and gives boost
to import substitution.
™™ Incentive to send remittances from abroad: Thirdly,
rupee convertibility provided greater incentives
to send remittances of foreign exchange by Indian
workers living abroad and by NRI. Further, it
makes illegal remittance such ‘hawala money’ and
smuggling of gold less attractive.
™™ A self – Balancing Ability: Another important merit
of currency convertibility lies in its self-balancing
mechanism. When balance of payments is in deficit
due to over-valued exchange rate, under currency
convertibility, the currency of the country depreciates
which gives boost to exports by lowering their prices
on the one hand and discourages imports by raising
their prices on the other. In this way, deficit in balance
of payments get automatically corrected without
intervention by the Government or its Central bank.
The opposite happens when balance of payments is
in surplus due to the under-valued exchange rate.
™™ Integration of World Economy: Currency
convertibility gives the chance to Indian economy to
interact with the rest the world economy. As under
currency convertibility there is easy access to foreign
exchange, it greatly helps the growth of trade and
capital flows between the countries. The expan¬sion
in trade and capital flows between countries will
ensure rapid economic growth in the econo¬mies of
the world. In fact, currency convertibility is said to be
a prerequisite for the success of Globalisation.
The Benefits of Capital Account Convertibility:
The Tarapore Committee mentioned the following
benefits of capital account convertibility to India:
1. Availability of large funds to supplement domestic
resources and thereby promote economic growth.
2. Improved access to international financial markets
and reduction in cost of capital.
3. Incentive for Indians to acquire and hold international
securities and assets, and
4. Improvement of the financial system in the context
of global competition.
5. Freedom to convert local financial assets into foreign
ones at market-determined exchange rates
6. Leads to free exchange of currency at lower rates and
an unrestricted mobility of capital
Preconditions for Capital Account Convertibility:
The Tarapore Committee recommended that,
before adopting capital account convertibility (CAC),
India should fulfill three crucial pre-conditions:
(i) Fiscal deficit should be reduced to 2% per cent of GDP.
The Government should also set up a Consolidated
Sinking Fund (CSF) to reduce Government debt.
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(ii) The Governments should fix the annual inflation
target below 4 per cent. This was called mandated
inflation target — and give foil freedom to RBI to use
monetary weapons to achieve the inflation target.
(iii) The Indian financial sector should be strengthened.
For this, interest rates should be folly deregulated,
gross non-paying assets (NPAs) should be reduced
to 5 per cent, the average effective CRR should be
reduced to 3 per cent and weak banks should either
be liquidated or be merged with other strong banks.
Special Economic Zone
SEZ is a specifically delineated duty-free enclave
and deemed to be foreign territory for purposes of trade
operations and duties and tariffs.
™™ Objectives of SEZ Scheme include: generation of
additional economic activity, promotion of exports,
promotion of investment from domestic and foreign
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sources, creation of employment opportunities along
with development of infrastructure facilities. All laws
of India are applicable in SEZs unless specifically
exempted as per SEZ Act/ Rules.
™™ SEZ Rules provide for, simplified procedures for
conducting business, single window clearances,
simplified compliance procedures and emphasis on
self-certification.
™™ Exports from SEZs are growing at a faster rate than
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overall exports from the country
™™ Earlier Baba Kalyani committee had given
recommendations on making SEZ policy WTO
compatible, maximizing utilization of vacant
land in SEZs etc. Some recommendations are: o
Reincarnation of SEZs as employment and Economic
Enclaves (3Es) to shift focus from export to economic
and employment growth. o Align policy framework
to avoid competition among similar schemes of
industrial parks, export-oriented units, SEZ, NIMZ etc.
o provide ease of doing business to developers and
tenants
™™ Govt reforms special economic zones (SEZ) framework
o Under the present reforms, provisions for minimum
land area and sector-specific and multi-product SEZs
have been amended. o Henceforth, all existing and
new SEZs would become multi-sector SEZs thereby
enabling coexistence of an SEZ unit from any sector
along with any other SEZ unit.
™™ The minimum land area required for setting up
a multi-product SEZ has been revised from 500
hectares to 50 hectares.
™™ Similarly, the minimum built-up area requirements
for services have also been significantly reduced.
™™ Multi-sector SEZs are areas where units may be set
up for the manufacturing, trading and warehousing
of products within two or more sectors
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™™ Sector-specific SEZs are set up exclusively for
products or services within a particular sector.
Foreign Trade
The integration of domestic economy through
the twin channels of trade and capital flows has seen
acceleration over the last two decades as India’s GDP
reached Rs 203.39 trillion (US$ 2.88 trillion) in 2019–20*.
Simultaneously, the per capita income also nearly trebled
during these years. India’s trade and external sector had a
significant impact on the GDP growth as well as expansion
in per capita income.
Total export from India (Merchandise and Services)
stood at US$ 528.45 billion in 2019–20, while total
import was estimated at US$ 598.61 billion according
to data from the Ministry of Commerce and Industry.
Merchandise export stood at US$ 314.31 billion in 2019–
20, while merchandise import touched US$ 467.19 billion
in the same period. The estimated value of services export
and import for 2019–20 stood at US$ 214.14 billion and
US$ 131.41 billion, respectively.
In 2020–21 (till July 2020), total export from India
(merchandise and services) stood at US$ 141.82 billion,
while total import was estimated at US$ 127.76 billion
according to data from the Ministry of Commerce and
Industry. India registered a trade surplus of US$ 14.06
billion from April 2020 to July 2020.
Economic impact of Coronavirus
Oxford Economics warned that the spread of
Coronavirus to regions outside Asia could cost the global
economy 1.3% off global growth in 2020, the equivalent
of $1.1tn in lost income.
™™ Chinese Economy: China has become an
indispensable part of the global business. Due to the
spread of Coronavirus, various economic activities in
China have taken a hit. Businesses are dealing with
lost revenue and disrupted supply chains due to
China’s factory shutdowns. Travel to and from China
has also been restricted.
zz According to a Reuter’s poll of economists,
China’s economic growth expected to slow to
4.5% in the fi rst quarter of 2020 – the slowest
pace since the financial crisis.
zz Countries most hit: Based on the value of its
exportsto mainland China and Hong Kong
relative to GDP, Taiwan is likely to be the hardest
hit, followed by Vietnam, Malaysia, and South
Korea.
™™ Trade and commerce: Chinese economy accounts
for 16% of global output. China has grown into
the world’s factory, churning out products such as
iPhone, cars, luxury products and driving demand for
commodities like oiland copper.
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 zz Factory shutdowns are causing a shortage
of products and parts from China, affecting
companies around the world, including Apple
and Nissan.
zz Unavailability of workers: Factories delayed
opening after the Lunar New Year as workers
stayed home to help reduce the spread of the
virus.
zz Electronics, consumer goods, chemicals, auto
components and pharmaceuticals are seen as
the most vulnerable sectors.
zz Pharmaceuticals: Prices of some bulk drugs have
already risen.
™™ Global Supply Chains: There is a threat to global
supply chains (GVCs). Qualcomm (QCOM), the world’s
biggest maker of smartphone chips, warned of
uncertainty around demand for smart-phones, and
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supplies needed to produce them.
zz Auto parts shortages have forced Hyundai
(HYMTF) to close plants in South Korea and
caused Fiat Chrysler (FCAU) to make contingency
plans for plants in Europe.
zz Automobile sector: Car plants across China have
been ordered to remain closed, preventing
global automakers Volkswagen, Toyota (TM),
Daimler (DDAIF), General Motors (GM), Renault
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(RNLSY), Honda (HMC) and Hyundai (HYMTF)
from resuming operations in world’s largest car
market.
™™ Oil Industry: The petrochemical sector serves as
the backbone for various other manufacturing and
non-manufacturing sectors such as infrastructure,
automobile, textiles and consumer durables. China
is the world’s biggest oil importer. With Coronavirus
hitting manufacturing and travel, the International
Energy Agency (IEA) has predicted the first drop in
global oil demand in a decade, causing a drop in oil
prices.
zz Crude-dependent sectors: Sectors such as
aviation, shipping, road and rail transportation
are likely to gain from a sudden drop in crude oil
prices.
zz Benefit to oil-importing nations: Major oil
importers such as India will get a better bargain
with reduced oil prices.
US-China Trade War
Recently, the US President Donald Trump’s
administration raised import tariffs on $200 billion of
Chinese imports from 10% to 25%, effectively making
them 25% more expensive for US consumers.
China said it will raise tariffs on $60 billion worth of
U.S. goods from June 1, in retaliation to this U.S. tariff
vkLFkk IAS : M-1A, Jyoti Bhawan, Mukherjee Nagar, Delhi-110009
hike. The new rates will target a number of American
imports with tariffs ranging from 5% to 25%. In addition,
China may stop purchasing U.S. agricultural products and
energy, reduce Boeing orders and restrict the bilateral
service trade.
Further, US Trade Representative has published
plans to increase tariffs on another 3805 Chinese imports
valued at $300 billion hence covering almost all of China’s
import products.
™™ Impact on US economy:
zz Tariffs imposed on Chinese goods, in theory,
make US-made products cheaper than imported
ones, and encourage consumers to buy
American. This will boost the consumption of
domestic products and increase the profits of
American manufacturers rather than Chinese
manufacturers.
zz The increased tariffs by China could hamper the
US export industry, as the products of these US
industries will now have to compete will locally
available cheaper products of China.
™™ Impact on Chinese Economy:
zz The biggest Chinese import sector impacted by
the fresh round of tariff hikes is the $20 billionplus
category of Internet modems, routers, and other
data transmission devices segment.
zz This is followed by about $12 billion worth of
printed circuit boards used in a vast array of US-
made products.
zz Furniture, lighting products, auto parts, vacuum
cleaners, and building materials also face higher
levies.
™™ Impact on India:
zz The US manufacturers are setting up their bases
in India, in addition to already existent bases
in China. This will provide them an alternative
source for export of their products to deal with
such trade wars like situations. For India, this will
be beneficial as it would create more jobs for us.
zz There is a possibility that China could soon
start flooding excess steel and aluminium into
India’s market after this raised tariffs on Chinese
products by US.
zz Besides the steel sector, products in other
sectors like mobile phones, refrigerators,
washing machines, ACs, water purifiers, and
possibly electric vehicles will now see increased
investment flow directed towards India.
zz The Indian consumers will get the products at a
cheaper rate but the domestic producers of India
will have to compete with the Chinese imports
or else face loss.
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 zz With this increased tariffs on Chinese products
by the US, the Indian producers will get an
opportunity to fill this generated gap and
penetrate in the US market. This will increase
their trade and profit.
zz Besides this, there will be a short-term impact
on the stock markets. The benchmark Sensex at
the Bombay Stock Exchange has been falling in
line with global markets that have been spooked
by the escalating trade war between the US and
China.
zz The increased tariffs will lower the demand of
Chinese products in American market thereby
decreasing the profits earned by the Chinese
companies.
India withdrew Most Favoured Nation Status to
Pakistan
Does MFN status offer preferential treatment?
™™ MFN only ensures non-discriminatory trade. It makes
sure that any country receiving MFN status avoids
any disadvantageous situation in comparison to the
granter’s other trade partners.
™™ An MFN status helps reduce trade barriers and results
in a reduction in tariffs. Thereby, promoting freer
trade between two or more countries.
Financial Action Task Force
During the Financial Action Task Force (FATF) Week in
Paris, India had lobbied hard to get the global financial
body to blacklist Pakistan for noncompliance in curbing
terror financing.
Growing India-US Trade Conflict
™™ Recently, USA and Indian offi cials met in New Delhi
to discuss the trade relationship between their
countries.

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™™ As a retaliatory measure to a dastardly suicide ™™
bombing attack in Pulwama, the Indian government
has withdrawn “Most Favoured Nation” or MFN status
accorded to Pakistan.
™™
™™ The decision is intended to isolate Pakistan
diplomatically and squeeze the country’s industry.
It can led to stoppage of input materials such as
™™
chemicals and cotton from India, will push up costs
of production for the relevant Pakistani industries. ™™
India has a $22-billion trade surplus with the US and
this aspect is particularly annoying to the Trump
administration.
Under Trump’s “America first” doctrine, the US
administration is actively taking steps to reduce trade
deficit
US with its major trade partners.
With China, America has $566 billion trade deficit.

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™™
What is MFN status?
™™ Article 1 of General Agreement on Tariffs and Trade
(GATT), 1994, requires every WTO member country
to accord MFN status (or preferential trade terms
™™
with respect to tariffs and trade barriers) to all other
member countries.
™™ Accordingly, India accorded MFN status to all WTO
™™
member countries, including Pakistan, from the
date of entry into force of the so called Marrakesh
Agreement.
™™ Most Favoured Nation status is given to an international
trade partner to ensure nondiscriminatory trade
between all partner countries of the WTO.
™™ A country which provides MFN status to another
country has to provide concessions, privileges, and
immunity in trade agreements. It is the first clause in
the General Agreement on Tariffs and Trade (GATT).
™™ Since India and Pakistan are part of the WTO, both are
required to grant MFN status to each other and other
partner countries.
™™ India granted MFN status to Pakistan in 1996, just a
year after the formation of the WTO. On the other
hand, Pakistan is yet to award MFN status to India.
™™ The reason behind Pakistan’s move to not grant MFN
status to India is decades of conflict, mistrust and war.
USA has raised objections over India’s growing
protectionism. Indian tariffs on solar panels (ironically,
meant to control Chinese imports) prompted a U.S.
complaint at the World Trade Organization.
Then, an Indian attempt to fix the price of stents
caused the U.S. medical equipment industry to rise
up in protest.
US-India trade relations:
zz The United States and India view each other
as important strategic partners to advance
common interests regionally and globally.
zz Bilateral trade in goods and services is about 2%
of U.S. world trade, but tripled in value between
2005 and 2017, reaching $126 billion.
zz The trade relationship is more consequential
for India, for whom the United States was its
second largest export market (16% share) after
the European Union (EU, 17%), and third largest
source of imports (6%) after China (17%) and the
EU (10%) in 2017.
zz S.-India foreign direct investment (FDI) is small
but growing defence sales are significant in
bilateral trade as well.
zz Civilian nuclear commerce, stalled for years over
differences on liability protections, has produced
major potential U.S. supply contracts.

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™™ Why USA keeps a constant tab on Indian Economy:
zz India has one of the world’s fastest growing
economies and the third largest on a purchasing
power parity basis.
zz It is the second most populous country, with a
large and growing middle class.
zz Rising world energy prices place pressure on
India which imports about 80% of its oil needs.
zz Energy prices and other global factors have
caused India’s currency to depreciate against the
U.S. dollar, raising concerns about inflation.
zz Still, the economy is projected to grow by 7.3%
in 2018, up from 6.7% in 2017 (International
Monetary Fund data), as shocks abate from
domestic economic measures.
™™ Bone of contention:
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zz Now, India has chosen to wage battle against
U.S. companies on a completely new front: data
localization.
zz Reserve Bank of India told all payments
companies to “store the entire data related to
payments systems” solely in India.
zz The government followed up with draft policies,
one of which ordered e-commerce companies
to store user data in India and one which tells
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all internet companies to store personal data of
Indians in India.
zz E-commerce has also been a major flashpoint.
The government is going after foreign-owned
e-commerce web sites such as Amazon, telling
them that they can’t hold any inventory or allow
their platform to be used by companies they’d
invested in.
zz In other words, Amazon needs to find a
middleman to sell Kindles or Echos on its Indian
website.
zz Local companies face no such restrictions.
Generalised System of Preferences
™™ United States federal government withdrew
Generalised System of Preferences (GSP) for Indian
goods.
™™ GSP allowed India to export certain kinds of goods
to US markets duty free, therefore make them more
attractive to retailers and buyers in the US market.
™™ India is the world’s largest beneficiary of a scheme
that has been in force since the 1970s.
Who are the beneficiaries under GSP
™™ The beneficiaries of GSP are around 120 developing
countries. As of 2017, India and Brazil were the major
beneficiaries in terms of export volume realized
under GSP.
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™™ Imports from China and some developing countries
are ineligible for GSP benefits. The beneficiaries and
products covered under the scheme are revised
annually.
™™ According to the US Trade Representative Office
website, GSP promotes sustainable development
in beneficiary countries by helping these countries
to increase and diversify their trade with the United
States.
Product groups covered under GSP
™™ The products covered under GSP are mainly
agricultural products including animal husbandry,
meat and fisheries and handicraft products. These
products are generally the specialized products of
the developing countries.
Impact of GSP withdrawal on India
™™ India exports nearly 50 products of the 94 products
on which GSP benefits are stopped. The GSP removal
will leave a reasonable impact on India as the country
enjoyed preferential tariff on exports worth of nearly
$ 5. 6 billion under the GSP route out of the total
exports of $48 bn in 2017-18.
™™ India exports nearly 1,937 products to the USA under
GSP.
™™ According to the Washington Post, 90 percent of
Indian/Brazilian exports to America face normal US
tariffs and hence will remain unaffected from the exit
of the GSP program.
™™ Removal of GSP indicates a tough trade position
by the US; especially for countries like India who
benefited much from the scheme.
About FDI in India
Introduction
Apart from being a critical driver of economic growth,
Foreign Direct Investment (FDI) has been a major non-
debt financial resource for the economic development
of India. Foreign companies invest in India to take
advantage of relatively lower wages, special investment
privileges like tax exemptions, etc. For a country where
foreign investment is being made, it also means achieving
technical know-how and generating employment.
The Indian Government’s favourable policy regime
and robust business environment has ensured that
foreign capital keeps flowing into the country. The
Government has taken many initiatives in recent years
such as relaxing FDI norms across sectors such as defence,
PSU oil refineries, telecom, power exchanges, and stock
exchanges, among others.
Market size
According to Department for Promotion of Industry
and Internal Trade (DPIIT), FDI equity inflow in India stood
at US$ 469.99 billion during April 2000 and March 2020,
112
indicating that Government's effort to improve ease of
doing business and relaxing FDI norms has yield results.
FDI equity inflow in India stood at US$ 49.97 billion
in 2019-20. Data for 2019-20 indicates that service sector
attracted the highest FDI equity inflow of US$ 7.85 billion,
followed by computer software and hardware at US$ 7.67
billion, telecommunications sector at US$ 4.44 billion,
and trading at US$ 4.57 billion.
During 2019-20, India received the maximum FDI
equity inflow from Singapore (US$ 14.67 billion), followed
by Mauritius (US$ 8.24 billion), Netherlands (US$ 6.50
billion), USA (US$ 4.22 billion) and Japan (US$ 3.22 billion).
Investments/ Developments
Some of the significant FDI announcements made
recently are as follows:
™™ On September 08, 2020, Byju’s (an Indian education
technology firm) raised US$ 500 million in a new
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round of funding led by Silver Lake, a US-based
private equity company; this move pushed the
company’s valuation to US$ 10.8 billion.
™™ In September 2020, Cashaa, a London-based
neobank, raised US$ 5 million (Rs 360 million) in funds
from O1ex, a Dubai-based blockchain investment and
advisory firm, for its worldwide expansion, including
India, Africa and Caribbean markets. In India, the
company plans to tap the growing crypto user market
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by launching a neobank for crypto banking system.
™™ In September 2020, Unacademy, an Edtech platform,
raised US$ 150 million from SoftBank Group (a
Japanese conglomerate), boosting its valuation to
US$ 1.45 billion.
™™ On 21 August 2020, the Government of Singapore
announced investment of Rs 4.5 billion (US$ 63.84
million) in the qualified institutional placement (QIP)
offering of mall developer Phoenix Mills Ltd.
™™ On 14 August 2020, Israel-based Coralogix,
provider of machine-learning based log analytics
and monitoring solution, announced a strategic
expansion into India with a commitment to invest
over US$ 30 million in the next five years.
™™ From January 2020 to July 2020, US FDI in India crossed
US$ 40 billion, reflecting the high level of confidence
of American corporations on the country. India
witnessed an 18% increase in FDI from April 2020 to
June 2020 (during COVID-19 pandemic). In mid-July
2020, FDI by the technology firms amounted to ~US$
17 billion, driven by Google’s investments worth US$
10 billion and the other key investors included firms
such as Foxconn, Amazon and Facebook.
™™ India Inc’s outward foreign direct investment (OFDI)
dropped to US$ 5.724 billion in the first four months
(April 2020–July 2020) of 2020–2021 against US$
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11.130 billion for the corresponding period in 2019–
2020.
™™ Due to the halt in operations amid the ongoing
pandemic, the OFDI was slow in the first three
months (April 2020: US$1.018 billon; May 2020: US$
1.294 billion; and June 2020: US$ 893.18 million),
while a substantial growth was recorded in July
2020, when the OFDI reached US$ 2.518 billion,
as economies worldwide began to unlock and the
COVID-19 lockdown restrictions started to soften on
the operations.
Government Initiatives
In August 2020, the Indian government amended
Foreign Direct Investment Policy, 2017 on commercial
coal mining policy making it approved only under the
Government route. In 2019, the Central Government,
amended FDI Policy 2017, to permit 100% FDI under
automatic route in coal mining activities.
In May 2020, Government increased FDI in defence
manufacturing under the automatic route from 49% to
74%.
In April 2020, Government amended existing
consolidated FDI policy for restricting opportunistic
takeovers or acquisition of Indian companies from
neighboring nations.
In March 2020, Government permitted non-resident
Indians (NRIs) to acquire up to 100% stake in Air India.
Road ahead
India is going to be the most attractive emerging
market for global partners (GP) investment for the
coming 12 months as per a recent market attractiveness
survey conducted by Emerging Market Private Equity
Association (EMPEA).
Annual FDI inflow in the country is expected to rise
to US$ 75 billion over the next five years as per the report
by UBS.
The Government of India is aiming to achieve US$
100 billion worth of FDI inflow in the next two years.
Note: Conversion rate used for September 2020 is Rs
1 = US$ 0.01370
World Bank
The International Bank for Reconstruction and
Development (IBRD) was created in 1944 to help Europe
rebuild after World War II. Today, IBRD provides loans and
other assistance primarily to middle income countries.
IBRD is the original World Bank institution. It works
closely with the rest of the World Bank Group (IBRD, IDA,
IFC, MIGA) to help developing countries reduce poverty,
promote economic growth, and build prosperity. IBRD is
owned by the governments of its 188 member countries.
113

WORLD Bank is also known as The International
Bank for Reconstruction and Development (IBRD).
The Second World War damages the economies of the
world. So in 1945 it was realized to concentrate on the
reconstruction of that war damaged economies. The IBRD
was established in Dec. 1945 with the IMF on the basis
of recommendations of the Bretton woods conference
that is reason why IMF and World Bank are called Bretton
woods twin. IBRD started working in June 1946. As on
April 2019; the World Bank of 189 members.
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Objectives of World Bank:
i. To provide long term capital to members countries
for economic reconstruction and development.
ii. To induce long term capital investment for assuring
BOP equilibrium and balanced development of
international trade
iii. To promote capital investment in members countries
by following ways
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a. To provide guarantee on private loans or capital
investment
b. If capital is not available even after providing
guarantee, then IBRD provides loans for
productive activities on considerate conditions.
iv. To ensure the implementation of development
projects so as to bring about a smooth transference
from a war time to peace economy.
Capital Resource of World Bank:
Initial authorized capital of World Bank was $10,000
million, which was divided in one lakh shares of $ 1 each.
The authorized capital of World Bank has increased $ 24
bn to $27 bn. Members countries repay the share of the
World Bank in the following way:
i. Only 2% of allotted share are repaid in gold, US dollar
or SDR.
ii. Every member country is free to repay 18% of its
capital share in its own currency
iii. The remaining 80% is deposited by the member
country on demand by the World Bank.
Functions of the World Bank:
Presently the World Bank is playing the main role
of providing loans for development works to member
countries, especially to under developed countries. The
bank provides loans for various development projects of
5 to 20 years duration.
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i. Bank can grant loans to members countries up to 20
% of its share in paid up capital.
ii. Bank also provides loans to private investors
belonging to the members on its own guarantee, but
private investors need to take permission of its native
country. Banks charges 1% to 2% as service charge.
iii. The quantum of loan service, interest rate, terms and
conditions are decided by the World Bank itself.
iv. Generally bank grant loans for a particular project
duly submitted to the bank by the member country.
v. he debtor nation has to repay either in reserve
currencies or in the currencies in which the loan was
sanctioned.
Appraisal of the World Bank Activates:
Bank has sanctioned 75% of its loans to developing
countries of AFRICA, Asia and Latin America while only
25% was given to developed nations of the Europe.
But still it is believed by most of the countries that the
developed countries do have good command on the
governing body of World Bank because of their largest
contribution to the exchequer of the bank.
International Monetary Fund (IMF)
International Monetary Fund (IMF) and International
Bank for Reconstruction and Development (IBRD) were
established at the conference of 44 nations held at
Bretton Woods, New Hampshire, USA in July 1944. These
two international institutions are known as the Bretton
Woods twins.
In this article we have compiled important facts about
the IMF which is very important for all the competitive
exams to be held in India.
1. Establishment: The IMF was established in July 1944
at the United Nations Bretton Woods Conference in
New Hampshire, United States.
2. Founding Members: 44 countries
3. Total Membership: 189 countries. Generally every
member country of the IMF becomes the members
of the World Bank. Similarly a country which quits
IMF is automatically expelled from the World Bank.
India is founding member of the IMF.
4. Headquarters: Washington, D.C.
5. Primary Objectives;
(a) To Promote exchange stability throughout the
world
(b) To Promote international monetary cooperation;
(c) To Facilitate the expansion and balanced growth
of international trade;
(d) To Assist in the establishment of a multilateral
system of payments; and
(e) Make resources available to members
experiencing Balance of Payments difficulties.
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6. Publications: IMF provides periodic assessments of
global prospects in its "World Economic Outlook",
of financial markets in its "Global Financial Stability
Report", of public finance developments in its "Fiscal
Monitor", and of external positions of the largest
economies in its "External Sector Report", in addition
to a series of Regional Economic Outlooks.
7. Executive Board: 24 Directors each representing
a single country or groups of countries. Executive
directors are representing around 189 countries.
Every member country nominates 2 governor for
attending the meetings of Board of Governors.
Generally the Finance Minister of the member
country is the governor at the IMF meetings but in
his absence Governor of the Central Bank represents
the seat.
8. Staff: Approximately 2,700 from 150 countries
9. Total Quotas: SDR 477 billion (US$692 billion)
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10. Special Drawing Right Allocation: Total global
allocations of (Special Drawing Right) SDR are
currently about SDR 204 billion (some $296 billion).
11. SDR Basket: The value of SDR is determined by the
basket of 5 currencies i.e. Euro, US Dollar, Yen, Chinese
Yuan, Pound Sterling. Chinese Yuan was introduced
as the 5th currency in the SDR basket in Oct. 2016.
12. Currency Weightage in SDR: US dollar has highest
weightage (41.73%) in deciding the value of SDR
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followed by the Euro (30.93%).
13. Quota Share in IMF: Currently Indian quota in the
IMF is 2.76% (vote share). USA has biggest quota of
17.46% followed by the Japan (6.48%), China (6.41%).
14. Lending Capacity: The IMF is able to lend around $1
trillion dollar to its member countries.
15. Largest borrowers: Greece, Ukraine, Pakistan and
Egypt
The IMF was established to build a framework for
international economic cooperation and avoid repeating
the competitive currency devaluations that contributed
to the Great Depression of the 1930s.
The World Trade Organization (WTO)
Formation 1 January 1995; 25 years ago
Type International trade organization
Purpose Reduction of tariffs and other barriers to trade
Headquarters Centre William Rappard, Geneva, Switzerland
Coordinates 46°13='27"N 06°08'58"ECoordinates: 46°13'27"N
06°08'58"E
Region served Worldwide
Membership 164 member states
Official English, French, Spanish
languages
Director-General Vacant
The World Trade Organization (WTO) is the only global
international organization dealing with the rules of trade
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between nations. At its heart are the WTO agreements,
negotiated and signed by the bulk of the world’s trading
nations and ratified in their parliaments.
The WTO has 164 members (including European
Union) and 23 observer governments (like Iran, Iraq,
Bhutan, Libya etc).
™™ The GATT became the only multilateral instrument
(not an institution) governing international trade
from 1948 until the WTO was established in 1995.
™™ Despite its institutional deficiencies, the GATT
managed to function as a de facto international
organization, sponsoring eight rounds (A round is
a series of multilateral negotiations) of multilateral
trade negotiations.
™™ So, the GATT became the only multilateral instrument
governing international trade from 1948 until the
WTO was established in 1995.
™™ The Uruguay Round, conducted from 1987 to 1994,
culminated in the Marrakesh Agreement, which
established the World Trade Organization (WTO).
zz The WTO incorporates the principles of the GATT
and provides a more enduring institutional
framework for implementing and extending
them.
zz The GATT was concluded in 1947 and is now
referred to as the GATT 1947. The GATT 1947
was terminated in 1996 and WTO integrated its
provisions into GATT 1994.
™™ The GATT 1994 is an international treaty binding
upon all WTO Members. It is only concerned with
trade in goods.
The WTO and the United Nations (UN)
™™ Although the WTO is not a UN specialized agency, it
has maintained strong relations with the UN and its
agencies since its establishment.
™™ The WTO-UN relations are governed by the
“Arrangements for Effective Cooperation with other
Intergovernmental Organizations-Relations between
the WTO and the United Nations” signed on 15
November 1995.
™™ The WTO Director General participates to the Chief
Executive Board which is the organ of coordination
within the UN system.
Governance
Ministerial Conference
™™ The topmost decision-making body of the WTO is the
Ministerial Conference, which usually meets every
two years.
The Trade Policy Review Body (TPRB)
™™ The WTO General Council meets as the TPRB to
undertake trade policy reviews of Members under
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 the TPRM and to consider the Director-General's
regular reports on trade policy development.
™™ The TPRB is thus open to all WTO Members.
Dispute Settlement Body (DSU)
™™ The General Council convenes as the Dispute
Settlement Body (DSB) to deal with disputes between
WTO members.
WTO Ministerial Conferences (MC)
The first Ministerial Conference (i.e. MC1) was held in
Singapore in 1996 and the last one (MC11) was organised
in Buenos Aires in 2017. All these MCs have evolved
prevailing current global trading system.
Singapore, 9-13 December 1996 (MC1)
™™ Trade, foreign, finance and agriculture Ministers from
more than 120 World Trade Organization Member
governments and from those in the process of
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acceding to the WTO participated.
™™ The following four issues termed as the Singapore
issues were first brought up on which the multilateral
body could initiate negotiations:
zz trade and investment
zz trade facilitation
zz transparency in government procurement
zz trade and competition
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Geneva, Switzerland 18-20 May 1998 (MC2)
™™ The Ministerial Declaration included following work
programmes:
zz the issues, including those brought forward by
Members, relating to implementation of existing
agreements and decisions;
zz the future work already provided for under other
existing agreements and decisions taken at
Marrakesh;
zz possible future work on the basis of the work
programme initiated at Singapore;
zz Priority areas for the next round of comprehensive
negotiations on agriculture include Market
access, Export subsidies etc.
Seattle, USA November 30 – December 3, 1999
(MC3)
™™ There were two major issues,
zz first, whether to start a new comprehensive
round of negotiations such as the Uruguay
Round or confine negotiations to the so-called
"built in agenda" of agriculture and services
mandated at the last Ministerial.
zz Secondly, what should the negotiations
encompass, more specifically what should be
included in the agenda of the meeting.
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™™ The meeting was unable to resolve both issues, and
ended in stalemate.
™™ The deliberations were suspended without
agreement on a new round of negotiations and
without agreement on a ministerial declaration.
Doha, Qatar 9-13 November 2001 (MC4)
™™ Agriculture: The special and differential treatment
for developing countries shall be an integral part
of all elements of the negotiations to enable
developing countries to effectively take account of
their development needs, including food security
and rural development.
™™ Services: The negotiations on trade in services shall
be conducted with a view to promoting the economic
growth of all trading partners and the development
of developing and least-developed countries.
zz It recognizes the work already undertaken
in the negotiations, initiated in January 2000
under Article XIX of the General Agreement on
Trade in Services (GATS), and the large number
of proposals submitted by members on a wide
range of sectors and several horizontal issues, as
well as on movement of natural persons.
™™ Market access for non-agricultural products:
zz The negotiations shall take fully into account the
special needs and interests of developing and
least-developed country participants, including
through less than full reciprocity in reduction
commitments, in accordance with the relevant
provisions of Article XXVIII bis of GATT 1994.
™™ Transparency in government procurement:
zz Recognizing the case for a multilateral agreement
on transparency in government procurement
and the need for enhanced technical assistance
and capacity building in this area, it agreed that
negotiations would take place on the basis of a
decision to be taken, by explicit consensus.
Cancún, Mexico 10-14 September 2003 (MC5)
™™ The main task was to take stock of progress in
negotiations and other work under the Doha
Development Agenda.
Hong Kong, 13-18 December 2005 (MC6)
™™ The WTO member economies aimed to reach a
preliminary agreement on liberalization of farm
trade by reducing subsidies, and address other issues
at meeting, aiming for a successful conclusion of the
Doha Round in 2006.
™™ After an intense talk, WTO Members have produced
an interim package for the Doha Round negotiation:
zz the deadlines for the elimination of agricultural
export subsidies (2013) and cotton export
subsidies (2006),
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 zz and also mandates that duty and quota-free
access for at least 97% of products originating
from the least developed countries (LDCs) be
provided by 2008.
zz Regarding non-agricultural market access
(NAMA), Members adopted the "Swiss formula"
mandating greater cuts in higher tariffs, and
decided that modalities for tariff reduction be
established by April 30, 2006.
™™ The Swiss Formula (by the Swiss Delegation to the
WTO) is a suggested method for reducing tariff on
non-agricultural goods (NAMA) by both developed
and developing countries.
™™ It makes different coefficients for developed and
developing countries.
™™ Here, tariff-cuts are supposed to be undertaken such
that it cuts higher tariffs more steeply than it cuts
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lower tariffs.
™™ This meeting could have been the final step of the
Doha trade talks launched in 2001.
Geneva, Switzerland 30 November - 2 December
2009 (MC7)
™™ The theme of the Conference is “The WTO, the
Multilateral Trading System and the Current Global
Economic Environment”.
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™™ Unlike previous Conferences, this meeting was not a
Doha Round negotiating session, but rather a chance
for Ministers to reflect on all elements of WTO's work,
exchange ideas and extend guidance on the best
way forward in the years to come.
Geneva, Switzerland 15-17 December 2011 (MC8)
™™ The Conference approved the accessions of the
Russian Federation, Samoa and Montenegro.
™™ It adopted a number of decisions on intellectual
property, electronic commerce, small economies,
least developed countries’ accession, a services
waiver for least developed countries, and trade policy
reviews.
™™ It reaffirmed the integrality of special and differential
treatment provisions to the WTO agreements and
their determination to fulfil the Doha mandate to
review them with a view to strengthening them and
making them more precise, effective and operational.
Bali, Indonesia 3-6 December 2013 (MC9)
™™ The Conference adopted the “Bali Package”, a series
of decisions aimed at:
zz streamlining trade,
zz allowing developing countries more options for
providing food security,
zz boosting least-developed countries’ trade and
helping development more generally.
vkLFkk IAS : M-1A, Jyoti Bhawan, Mukherjee Nagar, Delhi-110009
™™ The Bali Package is a selection of issues from the
broader Doha Round negotiations.
™™ The Conference also approved accession of Yemen as
a new member of the WTO.
Nairobi, Kenya 15-19 December 2015 (MC10)
™™ It culminated in the adoption of the "Nairobi Package",
a series of decisions on agriculture, cotton and issues
related to least-developed countries (LDCs).
™™ Agriculture:
zz Special Safeguard Mechanism for Developing
Country Members;
zz Public Stockholding for Food Security Purposes;
zz Export Competition;
™™ Cotton: Stressing the vital importance of cotton to
a number of developing economies and particularly
the least-developed amongst them,
zz Developed country Members, and developing
country Members declaring themselves in a
position to do so, shall grant preferential trade
arrangements in favour of LDCs, as from 1
January 2016, duty-free and quota-free market
access for cotton produced and exported by
LDCs.
™™ LDC issues:
zz Preferential Rules of Origin for Least Developed
Countries;
zz Implementation of Preferential Treatment in
Favour of Services and Service Suppliers of Least
Developed Countries;
zz and Increasing LDC Participation in Services
Trade;
™™ The decision in Nairobi builds on the 2013 Bali
Ministerial Decision on preferential rules of origin for
LDCs.
™™ The “Nairobi Package” pays fitting tribute to the
Conference host, Kenya, by delivering commitments
that will benefit in particular the organization’s
poorest members.
Buenos Aires, Argentina 10-13 December 2017
(MC11)
™™ The Conference ended with a number of ministerial
decisions, including on fisheries subsidies and
e-commerce duties, and a commitment to continue
negotiations in all areas.
Nur-Sultan, Kazakhstan, 8-11 June 2020 (MC12)
™™ The WTO members have agreed that the
organization’s Twelfth Ministerial Conference (MC12)
will take place in June 2020 in Kazakhstan, which
joined the WTO in 2015.
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The Doha Round
™™ The Doha Round is the latest round of trade
negotiations among the WTO membership. Its aim is
to achieve major reform of the international trading
system through the introduction of lower trade
barriers and revised trade rules.
™™ The Round is also known semi-officially as the Doha
Development Agenda as a fundamental objective
is to improve the trading prospects of developing
countries.
™™ The Round was officially launched at the WTO’s
Fourth Ministerial Conference (MC4) in Doha, Qatar,
in November 2001.
™™ The Doha Ministerial Declaration provided the
mandate for the negotiations, including on following
subjects:
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zz Agriculture: More market access, eliminating
export subsidies, reducing distorting domestic
support, sorting out a range of developing
country issues, and dealing with non-trade
concerns such as food security and rural
development.
zz Non-agricultural market access (NAMA):
To reduce or as appropriate eliminate tariffs,
including the reduction or elimination of high
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tariffs, tariff peaks and tariff escalation (higher
tariffs protecting processing, lower tariffs on
raw materials) as well as non-tariff barriers, in
particular on products of export interest to
developing countries.
zz Services: To improve market access and to
strengthen the rules.
™™ Each government has the right to decide which
sectors it wants to open to foreign companies and
to what extent, including any restrictions on foreign
ownership.
™™ Unlike in agriculture and NAMA, the services
negotiations are not based on a “modalities” text.
They are being conducted essentially on two tracks:
(a) bilateral and/or plurilateral (involving only some
WTO members) negotiations
(b) multilateral negotiations among all WTO
members to establish any necessary rules and
disciplines
™™ Trade facilitation: To ease customs procedures and
to facilitate the movement, release and clearance of
goods.
zz This is an important addition to the overall
negotiation since it would cut bureaucracy and
corruption in customs procedures and would
speed up trade and make it cheaper.
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™™ Rules: These cover anti-dumping, subsidies and
countervailing measures, fisheries subsidies, and
regional trade agreements.
zz “Clarifying and improving disciplines” under the
Anti-Dumping and Subsidies agreements;
zz And to “clarify and improve WTO disciplines
on fisheries subsidies, taking into account
the importance of this sector to developing
countries.
™™ The environment: These are the first significant
negotiations on trade and the environment in the
GATT/ WTO. They have two key components:
zz Freer trade in environmental goods – Products
that WTO members have proposed include:
wind turbines, carbon capture and storage
technologies, solar panels.
zz Environmental agreements – Improving
collaboration with the secretariats of
multilateral environmental agreements and
establishing more coherence between trade and
environmental rules.
™™ Geographical indications (GI): multilateral register
for wines and spirits
zz Geographical indications are place names (in
some countries also words associated with a
place) used to identify products that come from
these places and have specific characteristics (for
example, “Champagne”, “Tequila” or “Roquefort”).
Under the TRIPS Agreement, all geographical
indications have to be protected at least to avoid
misleading the public and to prevent unfair
competition (Article 22).
zz This is the only intellectual property issue that is
definitely part of the Doha negotiations.
zz The objective is to “facilitate” the protection of
wines and spirits in participating countries. The
talks began in 1997 and were built into the Doha
Round in 2001.
™™ Other intellectual property issues: Some members
want negotiations on two other subjects and to
link these to the register for wines and spirits. Other
members disagree. Following these two topics are
discussed:
zz GI “extension”- Extending the higher level of
protection for geographical indications beyond
wines and spirits.
zz Biopiracy, benefit sharing and traditional
knowledge
™™ Dispute settlement: To improve and clarify the
Dispute Settlement Understanding, the WTO
agreement dealing with legal disputes.
119
 zz These negotiations take place in special sessions
of the Dispute Settlement Body (DSB).
™™ With Doha Round seemingly adrift (directionless), the
global Great Recession that began in the second half
of 2008 led to fears that the world may face a wave
of protectionism that the WTO would be powerless
to prevent. Negotiations continued after the 2008
global financial crisis with low expectations.
™™ The 2013 Ministerial Conference (MC9) in Bali,
Indonesia, delivered a significant achievement, the
first multilateral agreement since the creation of the
WTO.
™™ This was the Trade Facilitation Agreement (TFA),
which aims to speed up customs procedures and
make trade easier, faster, and cheaper.
™™ The TFA was only a small slice of the larger Doha
agenda, but the successful deal was a cause for
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optimism.
™™ The talks also reached an interim agreement (a
peace clause) on “public stockholding” continuing
exceptions that allow developing countries to
stockpile agricultural products to protect against
food shortages.
™™ 2015 Ministerial Conference Nairobi, Kenya (MC10)
focused on a selected number of issues that are part
of the Doha Development Agenda (DDA). Agreement
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was reached on following DDA issues:
zz Stopping the use of subsidies and other schemes
unfairly supporting agricultural exports
zz Ensuring that food aid for developing countries
is given in a way which does not distort local
markets
zz Seeking to simplify the conditions that exporters
from the poorest countries have to meet, so that
their products benefit from trade agreements
(so-called rules of origin)
zz Giving more opportunities for businesses from
the poorest countries to provide services in the
WTO's 164 member countries
™™ However, for many observers, Nairobi signalled the
end of the Doha talks, a sentiment that intensified
after the 2016 election of Trump.
zz President Trump made clear his preference
for bilateral trade when he withdrew from
the 12-country Trans-Pacific Partnership (TPP)
shortly after taking office.
™™ In 2017 Ministerial Conference Buenos Aires (MC11),
USA reflected the skepticism toward multilateralism
when it blocked agreement on a draft ministerial
declaration that would have “reaffirmed the
centrality of the multilateral trading system and the
development dimension of the organisation’s work.”
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zz Meanwhile, India, which has repeatedly
threatened to block WTO agreements (including
the Trade Facilitation Agreement) unless WTO
members conceded to its demands on public
stockholding for food security. India also
toughened its stand on new issues including
e-commerce and investment facilitation.
zz In the end, it was a relief to many that the United
States did not actively seek to dismantle the
WTO—as some had feared. But giving up its
traditional leadership role could lead to a similar
result, only more slowly.
™™ WTO agreements:
zz The WTO’s rules – the agreements – are the result
of negotiations between the members.
zz The current set is largely the outcome of the
1986- 94 Uruguay Round negotiations, which
included a major revision of the original General
Agreement on Tariffs and Trade (GATT).
zz Goods: From 1947 to 1994, the GATT was the
forum for negotiating lower tariffs and other
trade barriers; the text of the GATT spelt out
important rules, particularly non- discrimination.
After 1994, WTO ratified new, comprehensive,
integrated GATT as GATT 1994.
WTO and India
™™ India is a founder member of the General Agreement
on Tariffs and Trade (GATT) 1947 and its successor,
the WTO.
zz India's participation in an increasingly rule based
system in the governance of international trade
is to ensure more stability and predictability,
which ultimately would lead to more trade and
prosperity.
™™ Services exports account for 40% of India's total
exports of goods and services. The contribution of
Services to India's GDP is more than 55%.
zz The sector (domestic and exports) provides
employment to around 142 million people,
comprising 28% of the work-force of the country.
zz India's exports are mainly in the IT and IT enabled
sectors, Travel and Transport, and Financial
sectors.
zz The main destinations are the US (33%), the EU
(15%) and other developed countries.
zz India has an obvious interest in the liberalisation
of services trade and wants commercially
meaningful access to be provided by the
developed countries.
zz Since the Uruguay Round, India has
autonomously liberalised its Services trade
regime across the board.
120
™™ Ensuring food and livelihood security is critical,
particularly for a large agrarian economy like India.
zz India is persistently demanding for a permanent
solution on public stockholding subsidies at
WTO.
zz At 2013 Ministerial Conference (MC9) in Bali, an
interim agreement (a peace clause) was made
on “public stockholding” continuing exceptions
that allow developing countries to stockpile
agricultural products to protect against food
shortages.
™™ India strongly favours extension of higher levels of
protection to geographical indications for products
like Basmati rice, Darjeeling tea, and Alphonso
mangoes at par with that provided to wines and
spirits under the Trade-related Aspects of Intellectual
Property Rights (TRIPS) agreement.
Preferential Trade Area:
™™ A preferential trade area/agreement (PTA) is a trading
bloc that gives preferential access to certain products
from the participating countries.
™™ This is done by reducing tariffs but not by abolishing
them completely. A PTA can be established through a
trade pact. It is the fi rst stage of economic integration.
™™ Today simple PTA has evolved into bilateral PTAs
and Mega-PTAs. Mega-PTA is wide regional trade
agreements, such as the Transatlantic Trade and
Investment Partnership (TTIP) or Trans Pacific
Partnership (TPP).
™™ These tariff preferences create departures from the
normal trade relations principle.
Free Trade Area
™™ A Free Trade Area (FTA) is a group of countries who
have mutually agreed to limit or eliminate trade

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™™ Developed countries have been putting pressure
™™
on inclusion of non-trade issues such as labour
standards, environmental protection, human rights,
rules on investment, competition policy in the WTO
agreements.
™™
zz India is against any inclusion of non-trade issues
that are directed in the long run at enforcing
protectionist measures (based on non-trade
barriers - tariffs or quotas - among them.
FTAs tend to promote free trade and the international
division of labor, allowing countries to increase
specialization in their respective comparative
advantages.
To develop a FTA, participating nations must develop
rules for how the new FTA will operate and decide
upon the following:
zz Customs procedures that each country will

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issues, the developed countries like USA and
European Union are trying to ban the imports
of some goods like textile, processed food etc.),
particularly against developing countries.
Stages of Economic Integration
™™ The Regional Comprehensive Economic Partnership
(RCEP) is a proposed FTA of which India aims to be a
part of. The BREXIT proposal has also created pressure
on India to form FTAs with the UK. In this Context: it
is important to consider the meaning of FTA, and
various other stages of economic integration.
Independent Economy:
™™ In order to implement the principle of economic self-
sufficiency, one must build an independent national
economy.
™™ If an independent national economy is to be built,
the economy must be developed in a diversified
and integral manner. It requires development of
heavy industry and light industry and agriculture
simultaneously.
™™ It is necessary to establish reliable and independent
sources of raw materials and fuel. Technical
independence is also necessary.
™™ An independent economy is opposed to foreign
economic domination and subjugation; but it does
not rule out international economic cooperation.
follow
zz Tariffs, if any, that will be allowed and their costs
zz Trade despite resolution mechanism
zz Transportation of goods
zz Intellectual property rights protection and
management
zz FTA rules decide the scope and degree of how
“free” trade will actually be.
™™ Advantages: FTAs can benefit consumers, who get
increased access to less expensive and/or higher
quality foreign goods. Population may also see
increased living standards.
™™ Disadvantages: Producers can struggle with
increased competition, but they might also acquire
a greatly expanded market of potential customers or
suppliers.
zz Some jobs may be lost as production moves to
areas with comparative advantage.
zz Outcomes of FTA may represent the influence
of pressure groups, and rent-seeking behaviors
may increase.
zz FTAs may actually distort patterns of
international specialization and division of labor
by biasing and limiting trade toward trade blocs,
as opposed to allowing natural market forces
to determine patterns of production and trade
across countries.

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Customs Union
™™ A Customs Union (CU) involves the removal of
tariff barriers between members, and acceptance
of a common (unified) external tariff against non-
members.
™™ Countries that are part of a CU only need to make a
single payment (duty), once the goods have passed
through the border. Once inside the union goods can
move freely without additional tariffs. Tariff revenue
is then shared between members.
™™ Advantage: A common external tariff effectively
removes the possibility of arbitrage and is one
of the fundamental building blocks of economic
integration.
™™ Disadvantage: CU members are not free to negotiate
individual trade deals with nonmembers. For
example, if a member wishes to protect a declining
or infant industry it cannot do so through imposing
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its own tariffs.
Common Market
™™ A common (or single) market is the most significant
step towards full economic integration.
™™ A common market is the extension of free trade
from just tangible goods, to include all economic
resources. This means that all barriers are eliminated
to allow the free movement of goods, services,
capital, and labour.
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™™ Tariffs and all non-tariff barriers are also reduced and
eliminated.
™™ For a common market to be successful there must
also be a signifi cant level of harmonisation of micro-
economic policies, and common rules regarding
product standards, monopoly power and other anti-
competitive practices.
™™ There may also be common policies affecting key
industries, such as the Common Agricultural Policy
(CAP) and Common Fisheries Policy (CFP)
Economic Union
™™ An Economic Union is a type of trade bloc which
is composed of a common market with a customs
union. It has common trade policy towards non-
members, although members are free to pursue
independent macro-economic policies.
™™ The member countries have common policies on
product regulation, freedom of movement of goods,
services and factors of production (capital and
labour) and a common external trade policy.
™™ The European Union (EU) is the best known Economic
union, and came into force on November 1st 1993,
following the signing of the Maastricht Treaty
(formally called the Treaty on European Union.)
Monetary Union
™™ Monetary union is the first major step towards macro-
economic integration, and enables economies to
converge even more closely.
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™™ In monetary union, members adopt a single, shared
currency, such as the Euro for the Euro-17 countries,
and the East Caribbean Dollar for 11 islands in the
East Caribbean.
™™ This means that there is a common exchange rate,
a common monetary policy, including interest rates
and the regulation of the quantity of money, and a
single central bank, such as the European Central
Bank or the East Caribbean Central Bank.
Fiscal Union
™™ A fiscal union is an agreement to harmonise tax rates,
to establish common levels of public sector spending
and borrowing, and jointly agree national budget
deficits or surpluses.
™™ The majority of EU states agreed a fiscal compact in
2012. Though it is a less binding version of a full fiscal
union.
Economic and Monetary Union
™™ Economic and Monetary Union (EMU) is a key stage
towards compete integration, and involves a single
economic market, a common trade policy, a single
currency and a common monetary policy.
Complete Economic Integration
™™ Complete economic integration involves a single
economic market, a common trade policy, a single
currency, a common monetary policy, together with
a single fiscal policy, including common tax and
benefit rates – in short, complete harmonisation of
all policies, rates, and economic trade rules.
H1-B Visas
United States government has said that it is planning
to curb the distribution of H-1B visa to Indians. While the
fi nal decision is yet to be taken, Government of India has
expressed concerns to the US over the proposal.
™™ The US government had recently said that it is
planning to curb the distribution of H-1B visa to
Indians. Hence, at the 2+2 dialogue with the US, India
pitched its stand for H-1B visa holders.
™™ Objective: The reason H-1B visas may see changes
is to better protect US workers and wages, and save
them from competition from workers arriving from
outside countries like India and China.
™™ H-1B visa: The H-1B is a United States visa under
the Immigration and Nationality Act. It has roots
in the earlier issued H-1 visa which was later split
between H-1A (for nurses) and H-1B. H-1B is one of
the most popular visas for foreigners visiting the US
for business or trade purpose.
zz It is a non-immigrant visa that allows US
companies to employ foreign workers in
speciality occupations that require theoretical or
technical expertise.
zz Speciality occupations include specialized
fields like IT, finance, accounting, architecture,
engineering, mathematics, science, medicine,
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 etc. which usually require a bachelor’s degree or
higher.
zz US employers wishing to bring in staff for long-
term assignment prefer H1B visa because its
application is quicker than applying for a US
Green Card.
zz H-1B visa has its roots in the H1 visa of the
Immigration and Nationality Act; which split
between H-1A (for nurses) and H-1B in 1990.
™™ Who will be worst hit: Worst hit by the new H1B bill
will be Indian companies such as Infosys, TCS, and
Wipro, as well as US tech giants like Apple, Facebook
and Google, who use the H1B visa to fill positions that
cannot be filled by American workers.
How is H-1B visa important to India?
™™ Majority H-1B visa holder: India has been the only
country that takes 70 per cent of the 85,000 H-1B
visas applied annually. The H-1B visa is crucial for the
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IT sector in India.
™™ IT professionals: The technology companies of US
depend on it to hire tens of thousands of employees
each year from countries like India and China. Hence,
a cancellation of H-1B visas will most adversely affect
Indian IT professionals.
™™ Talent flow: The US should not obstruct the flow
of talent from India as it is an important part of the
economic cooperation and almost acts as a strategic
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bridge between the two countries, and is important
for the bilateral ties.
Problems that Indians face with current H-1B
rules
™™ Recent changes in H-1B visa rules: Recently,
US proposed revision of “specialty occupations”
definition for the H1B visa. H1B visas will be issued
to only the most-skilled foreigners or highest paid
beneficiaries.
zz USCIS can reject H1B applications that do not
provide the necessary required information
when submitted.
zz New rules require H-1B petitioners to first
electronically register with USCIS.
zz US can initiate deportation of expired H1-B
holders.
zz US Department of Homeland Security (DHS) is
also considering ban on work authorization for
spouses of H-1B visa holders.
™™ Problem in job switch: H-1B visa holders in the US
face problems in switching jobs even if the new job
requires the exact same skill set as before. The US
citizenship and Immigration Services (USCIS) has
denied several applications by new employers citing
that the new position does not constitute a ‘specialty
occupation’.
™™ If the H-1B holder starts working elsewhere and
the transfer is denied, the person could be ‘out of
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status’ with a bar on entry into the US, unless the old
employer is willing to take him/her back.
™™ Removing country-cap on green cards: Recently,
US also removed 7% country-cap on issue of Green
Cards. This too will agonise the wait of many skilled
professionals from India who had sought permanent
residency in USA.
India bans import of Refined Palm Oil
India has banned the imports of refined palm oil, a
government notification said, as New Delhi tries to curb
imports from Malaysia following criticism from Kuala
Lumpur on India’s actions in the Kashmir region and its
new citizenship law-- The Citizenship (Amendment) Act,
2019.
™™ India imports most of its refined palm oil from
Malaysia and crude palm oil from Indonesia.
™™ Indonesia and Malaysia are the top two producers of
palm oil, while India is the biggest importer of palm
oil.
™™ Indonesia and Malaysia make up over 85% of global
supply but there are 42 other countries that also
produce palm oil.
™™ India has cut import duty on crude palm oil (CPO) and
refined, bleached and deodorised (RBD) palm oil, and
also moved RBD oil from the “free” to the “restricted”
list of imports.
™™ While curbing oil imports was been under discussion
since the Budget presented in 2019.
What Is Palm Oil?
™™ It’s an edible vegetable oil that comes from the fruit of oil palm
trees; the scientific name is Elaeis guineensis.
™™ Two types of oil can be produced; crude palm oil and palm kernel
oil.
™™ Palm oil is in nearly everything – it’s in close to 50% of the
packaged products we find in the market.
™™ Palm oil is extremely versatile oil that has many
different properties and functions which makes it so
useful and so widely used.
™™ It is semi-solid at room temperature so can keep
spreads spreadable
™™ it is resistant to oxidation and so can give products a
longer shelf-life
™™ it’s stable at high temperatures and so helps to give
fried products a crispy and crunchy texture
™™ It’s also odourless and colourless so doesn’t alter the
look or smell of food products.
INSTEX – Instrument In Support of Trade
Exchanges
Six Countries - Belgium, Denmark, Finland, the
Netherlands, Norway and Sweden have recently joined
INSTEX.
™™ It is a payment mechanism being setup by the
European Union to secure trade with Iran and skirt
US sanctions after Washington pulled out of the
landmark nuclear deal last May.
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™™ Its mission is to facilitate non-USD transactions and
non-SWIFT to avoid breaking U.S. sanctions.
™™ It is registered at Paris with an initial 3,000 Euros in
the capital and a supervisory board with members
from France and Germany and chaired by the UK.
™™ It is a project of the governments of France, Germany
and United Kingdom and will receive the formal
endorsement of all 28 EU members.
™™ It will allow trade between the EU and Iran without
relying on direct financial transactions.
™™ It will initially be used for non-sanctionable trade,
including humanitarian goods such as medicine,
food and medical devices.
™™ This mechanism is the first concrete step by the EU to
counter Trump’s unilateral decision to withdraw from
the nuclear deal.
Currency Swap Arrangement
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With an objective to strengthen financial stability
and economic cooperation, the Reserve Bank of India has
revised the framework on currency swap arrangement for
SAARC countries till 2022.
™™ This is an arrangement, between two friendly
countries, which have regular, substantial or
increasing trade, to basically involve in trading in
their own local currencies, where both pay for import
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and export trade, at the pre-determined rates of
exchange, without bringing in third country currency
like the US Dollar.
™™ In such arrangements no third country currency
is involved, thereby eliminating the need to worry
about exchange variations.
™™ Currency swap agreement can be bilateral or
multilateral.
™™ The currency swap agreement is an important
measure in improving the confi dence in the Indian
market and it would not only enable the agreed
amount of capital being available to India, but it will
also bring down the cost of capital for Indian entities
while accessing the foreign capital market.
™™ The swap arrangement should aid in bringing greater
stability to foreign exchange and capital markets in
India. With this arrangement in place, prospects of
India would further improve in tapping foreign capital
for country’s developmental needs. This facility will
enable the agreed amount of foreign capital being
available to India for use as and when the need arises.
Overseas Bonds
The government plans to raise a part of its gross
borrowing in external markets.
Sovereign Bonds
™™ A government bond or sovereign bond is a form of
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debt that the government undertakes wherein it
issues bonds with the promise to pay periodic interest
payments and also repay the entire face value of the
bond on the maturity date.
™™ The government has been arguing that the quantum
of its borrowing within India is ‘crowding out’ the
private sector. In other words, it is saying that
government borrowing is at such a level that there
are not enough funds available for the private sector
to adequately meet its credit and investment needs.
™™ If the private sector cannot borrow adequately, then
it cannot invest as it wants to, and that cripples one
major engine of economic growth.
™™ Therefore, borrowing overseas allows the
government to raise funds in such a way that there
is enough domestic credit available for the private
sector.
™™ Sovereign external borrowing is also considered a
cheap source of raising money by the government as
interest rates in advanced countries are very low.
Implications
™™ It may facilitate the inclusion of India’s government
bonds in the global debt indices.
™™ India’s representation in global debt market indices is
small compared to other emerging markets.
This may lead to higher foreign inflows into India.
™™
Reciprocal Trade Agreements (RTAs)
The Commerce minister’s recent statement that non-
tariff barriers such as reciprocal access should be cut
down and should be made easy for Indian companies to
operate elsewhere, makes absolutely pragmatic sense.
™™ Countries use bilateral/regional trade agreements to
increase market access and expand trade in foreign
markets. These agreements are called reciprocal
trade agreements (RTAs) because members grant
special advantages to each other.
™™ RTAs include many types of agreements, such as
preferential arrangements, free trade agreements,
customs unions, and common markets, in which
members agree to open their markets to each other’s
exports by lowering trade barriers.
™™ Need: They have become an increasingly prominent
feature of the multilateral trading system in recent
years, in part, because of stalled global negotiations
taking place under the auspices of the World Trade
Organization (WTO).
™™ Many observers believe that RTAs deepen market
integration and complement efforts by the WTO to
liberalize international markets.
™™ Other observers contend that these agreements also
distort trade and discriminate against nonmember
countries.
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Agriculture
The share of agriculture and allied sectors in the Gross
Value Added (GVA) of the country at current prices has
declined from 18.2 per cent in 2014-15 to 16.5 per cent in
2019-20 . The share of agriculture and allied sectors in the
total GVA of the country has been declining on account of
relatively higher growth performance of non-agricultural
sectors. This is a natural outcome of development process
that leads to faster growth of non-agricultural sectors
owing to structural changes taking place in the economy.
The growth of GVA of agriculture and allied sectors has
witnessed a fluctuating trend. GVA at constant (2011-12)
prices for 2019-20 from ‘Agriculture, Forestry and Fishing’
sector is estimated to grow by 2.8 per cent as compared
to growth of 2.9 per cent in 2018-19.
Agriculture is the primary source of livelihood for
about 58% of India’s population. Gross Value Added (GVA)
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by agriculture, forestry and fishing was estimated at Rs
19.48 lakh crore (US$ 276.37 billion) in FY20 (PE). Growth
in GVA in agriculture and allied sectors stood at 4% in
FY20.
The Indian food industry is poised for huge growth,
increasing its contribution to world food trade every
year due to its immense potential for value addition,
particularly within the food processing industry. Indian
food and grocery market is the world’s sixth largest,
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with retail contributing 70% of the sales. The Indian food
processing industry accounts for 32% of the country’s
total food market, one of the largest industries in India
and is ranked fifth in terms of production, consumption,
export and expected growth.
Market Size
During 2019–20* crop year, food grain production
was estimated to reach a record 295.67 million tonnes
(MT). In 2020-21, Government of India is targeting food
grain production of 298 MT.
Production of horticulture crops in India was
estimated at a record 320.48 million metric tonnes (MMT)
in FY20 as per second advance estimates. India has the
largest livestock population of around 535.78 million,
which translates to around 31% of the world population.
Milk production in the country is expected to increase to
208 MT in FY21 from 198 MT in FY20, registering a growth
of 10% y-o-y.
Sugar production in India reached 26.46 MT between
October 2019 and May 2020 sugar season according to
Indian Sugar Mills Association (ISMA).
India is among the 15 leading exporters of agricultural
products in the world. Agricultural export from India
reached US$ 38.54 billion in FY19 and US$ 28.93 billion in
FY20 (till January 2020).
The organic food segment in India is expected to
grow at a CAGR of 10% during 2015-¬25 and is estimated
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to reach Rs 75,000 crore (US$ 10.73 billion) by 2025 from
Rs 2,700 crore (US$ 386.32 million) in 2015.
Investments
According to the Department for Promotion of
Industry and Internal Trade (DPIIT), the Indian food
processing industry has cumulatively attracted Foreign
Direct Investment (FDI) equity inflow of about US$ 9.98
billion between April 2000 and March 2020.
Some major investments and developments in
agriculture are as follows:
™™ In March 2020, Fact, the oldest large-scale fertiliser
manufacturer in the country, crossed one million
production and sales mark.
™™ Nestle India will invest Rs 700 crore (US$ 100.16
million) in construction of its ninth factory in Gujarat.
™™ In November-2019, Haldiram entered into an
agreement for Amazon's global selling program to
E-tail its delicacies in the United States.
™™ In November 2019, Coca-Cola launched ‘Rani Float’
fruit juices to step out of its trademark fizzy drinks.
™™ Two diagnostic kits developed by Indian Council
of Agricultural Research (ICAR) - Indian Veterinary
Research Institute (IVRI) and the Japanese Encephalitis
lgM ELISA were launched in October 2019.
™™ Investment worth Rs 8,500 crore (US$ 1.19 billion)
have been announced in India for ethanol production.
Government Initiatives
Agriculture in Budget 2020-21
Agriculture, Irrigation and Rural Development
22. Our government is committed to the goal of doubling
farmers’ incomes by 2022. We have provided energy
sovereignty through KUSUM and input sovereignty
through ParamparagatKrishiVikasYojana. We have
provided resilience for 6.11 crores farmers insured
under PM FasalBimaYojana. Focus on cultivation
of pulses, expansion of micro-irrigation through
KrishiSinchaiYojana, have raised the self-reliance of
the country. Provision of any annual supplement of
the income to the farmer, directly is done through
PM-KISAN. Connectivity through PMGSY, financial
inclusion have helped raise farm incomes.
22 (1). Prosperity to farmers can be ensured by making
farming competitive. For this, farm markets need
to be liberalised. Distortions in farm and livestock
markets need to be removed. Purchase of farm
produce, logistics and agri-services need copious
investments. Substantial support and hand-holding
of farm-based activities such as livestock, apiary, and
fisheries need to be provided for. Farmers desire
integrated solutions covering storage, financing,
processing and marketing.
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23. Adopting sustainable cropping patterns and bringing
in more technology are integral to our plan. All this
and more can be achieved through working with and
in cooperation with the States.
The following 16 action points indicate our focus:
23 (1). We propose to encourage those State
governments who undertake implementation of
following model laws already issued by the Central
government:
a) Model Agricultural Land Leasing Act, 2016
b) Model Agricultural Produce and Livestock
Marketing (Promotion and Facilitation) Act,
2017;, and
c) Model Agricultural Produce and Livestock
Contract Farming and Services (Promotion and
Facilitation) Act, 2018
23(2). Water stress related issues are now a serious
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concern across the country. Our government is
proposing comprehensive measures for one hundred
water stressed districts.
23(3). In the Budget speech of July 2019, I had stated
that “annadata” can be “urjadata” too. The PM-KUSUM
scheme removed farmers’ dependence on diesel
and kerosene and linked pump sets to solar energy.
Now, I propose to expand the scheme to provide 20
lakh farmers for setting up stand-alone solar pumps;
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further we shall also help another 15 lakh farmers
solarise their grid-connected pump sets. In addition,
a scheme to enable farmers to set up solar power
generation capacity on their fallow/barren lands and
to sell it to the grid would be operationalized.
23 (4). Our government shall encourage balanced use
of all kinds of fertilizers including the traditional
organic and other innovative fertilizers. This is a
necessary step to change the prevailing incentive
regime, which encourages excessive use of chemical
fertilisers.
23 (5). India has an estimated capacity of 162 million MT
of agri-warehousing, cold storage, reefer van facilities
etc. NABARD will undertake an exercise to map and
geo-tag them. In addition, we propose creating
warehousing, in line with Warehouse Development
and Regulatory Authority (WDRA) norms. Our
government will provide Viability Gap Funding for
setting up such efficient warehouses at the block/
taluk level. This can be achieved, where States can
facilitate with land and are on a PPP mode. Food
Corporation of India (FCI) and Central Warehousing
Corporation (CWC) shall undertake such warehouse
building on their land too.
23 (6). As a backward linkage, a Village Storage scheme
is proposed to be run by the SHGs. This will provide
farmers a good holding capacity and reduce their
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logistics cost. Women, SHGs shall regain their
position as “Dhaanya Lakshmi”.
23 (7).To build a seamless national cold supply chain
for perishables, inclusive of milk, meat and fish, the
Indian Railways will set up a “Kisan Rail” – through PPP
arrangements. There shall be refrigerated coaches in
Express and Freight trains as well.
23 (8).KrishiUdaan will be launched by the Ministry of
Civil Aviation on international and national routes.
This will immensely help improve value realisation
especially in North-East and tribal districts.
23 (9). Horticulture sector with its current produce of
311million MT exceeds production of food grains. For
better marketing and export, we propose supporting
States which, adopting a cluster basis, will focus on
“one product one district”.
23 (10). Integrated farming systems in rainfed areas shall
be expanded. Multi-tier cropping, bee-keeping, solar
pumps, solar energy production in non-cropping
season will be added. Zero-Budget Natural Farming
(mentioned in July 2019 budget) shall also be
included. The portal on “jaivikkheti” – online national
organic products market will also be strengthened.
23 (11). Financing on Negotiable Warehousing Receipts
(e-NWR) has crossed more than`6000 crore. This will
be integrated with e-NAM.
23 (12). Non-Banking Finance Companies (NBFCs)and
cooperatives are active in the agriculture credit
space. The NABARD re-finance scheme will be further
expanded. Agriculture credit target for the year
2020-21 has been set at ` 15 lakh crore. All eligible
beneficiaries of PM-KISAN will be covered under the
KCC scheme.
23 (13). Our government intends to eliminate Foot and
Mouth disease, brucellosis in cattle and also peste
des petits ruminants (PPR) in sheep and goat by 2025.
Coverage of artificial insemination shall be increased
from the present 30% to 70%. MNREGS would be
dovetailed to develop fodder farms. Further, we shall
facilitate doubling of milk processing capacity from
53.5 million MT to 108 million MT by 2025.
23 (14). Blue Economy: Our government proposes to put
in place a framework for development, management
and conservation of marine fishery resources.
23 (15). Youth in coastal areas benefit through fish
processing and marketing. By 2022-23, I propose
raising fish production to 200 lakh tonnes. Growing
of algae, sea-weed and cage Culture will also be
promoted.
Our government will involve youth in fishery
extension through 3477 SagarMitras and 500 Fish
Farmer Producer Organisations. We hope to raise
fishery exports to ` 1 lakh crore by 2024-25.
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23(16).Under DeenDayalAntyodayaYojana for alleviation
of poverty, 58 lakh SHGs have been mobilised. We
shall further expand on SHGs.
24. Now, for the fund allocation for the 16 different steps
mentioned above, they are being stated under two
different categories:
For the sector comprising of Agriculture and allied
activities, Irrigation and Rural Development an allocation
of about `2.83 lakh crore has been made for the year
2020-21 . Its divided, inter-alia;
a) For Agriculture, Irrigation & allied activities - ` 1.60
lakh crore
b) For Rural development &Panchayati Raj - ` 1.23 lakh
crore
Some of the recent major Government initiatives in
the sector are as follows:
™™ In 2019–20, Rs 202.5 crore (US$ 28.73 million) was
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allocated to the Rainfed Area Development, a sub-
scheme under Rashtriya Krishi Vikas Yojana (RKVY)
™™ In May 2020, Government announced the launch of
animal husbandry infrastructure development fund
of Rs 15,000 crore (US$ 2.13 billion).
™™ In September 2019, Prime Minister, Mr Narendra
Modi launched National Animal Disease Control
Programme (NADCP), expected to eradicate foot and
mouth disease (FMD) and brucellosis in livestock.
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In May 2020, Rs 13,343 crore (US$ 1.89 billion) was
allocated to the scheme.
™™ In May 2019, NABARD announced an investment of
Rs 700 crore (US$ 100 million) venture capital fund for
equity investment in agriculture and rural-focused
start-ups
™™ Under Union Budget 2019-20, Pradhan Mantri
Samman Nidhi Yojana was introduced where a
minimum fixed pension of Rs 3000 (US$ 42.92) was
to be provided to the eligible small and marginal
farmers, subject to certain exclusion clauses, on
attaining the age of 60 years.
™™ The Government of India came out with Transport
and Marketing Assistance (TMA) scheme to provide
financial assistance for transport and marketing of
agriculture products in order to boost agriculture
exports.
™™ The Agriculture Export Policy, 2018 was approved by
the Government of India in December 2018. The new
policy aimed to increase India’s agricultural export to
US$ 60 billion by 2022 and US$ 100 billion in the next
few years with a stable trade policy regime.
™™ The Government of India is going to provide Rs
2,000 crore (US$ 306.29 million) for computerization
of Primary Agricultural Credit Society (PACS) to
ensure cooperatives are benefitted through digital
technology.
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™™ The Government of India launched the Pradhan
Mantri Krishi Sinchai Yojana (PMKSY) with an
investment of Rs 50,000 crore (US$ 7.7 billion) aimed
at development of irrigation sources for providing a
permanent solution from drought.
™™ Government plans to triple the capacity of food
processing sector in India from the current 10% of
agriculture produce and has also committed Rs 6,000
crore (US$ 936.38 billion) as investments for mega
food parks in the country, as a part of the Scheme for
Agro-Marine Processing and Development of Agro-
Processing Clusters (SAMPADA).
™™ The Government of India has allowed 100% FDI in
marketing of food products and in food product
E-commerce under the automatic route.
Achievements in the sector
™™ The Electronic National Agriculture Market (e-NAM)
was launched in April 2016 to create a unified national
market for agricultural commodities by networking
existing APMCs. It had 16.6 million farmers and
131,000 traders registered on its platform until May
2020. Over 1,000 mandis in India are already linked to
e-NAM and 22,000 additional mandis are expected to
be linked by 2021-22.
™™ Sale of tractors in the country stood at 804,000 units
in 2019 with export of 80,475 units.
™™ During FY20 (till February 2020), tea export stood at
US$ 709.28 million.
™™ Coffee export stood at US$ 742.05 million in FY20.
India is expected to achieve the ambitious goal of
doubling farm income by 2022. The agriculture sector in
India is expected to generate better momentum in the
next few years due to increased investment in agricultural
infrastructure such as irrigation facilities, warehousing
and cold storage. Furthermore, the growing use of
genetically modified crops will likely improve the yield
for Indian farmers. India is expected to be self-sufficient in
pulses in the coming few years due to concerted effort of
scientists to get early maturing varieties of pulses and the
increase in minimum support price.
Going forward, the adoption of food safety and
quality assurance mechanisms such as Total Quality
Management (TQM) including ISO 9000, ISO 22000,
Hazard Analysis and Critical Control Points (HACCP),
Good Manufacturing Practices (GMP) and Good Hygienic
Practices (GHP) by the food processing industry will offer
several benefits. The agri export from India is likely to
reach the target of US$ 60 billion by the year 2022.
Farm Laws 2020
These Farm Acts are as follows:
1. Farmers' Produce Trade and Commerce (Promotion
and Facilitation) Act, 2020
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2. Farmers (Empowerment and Protection) Agreement
on Price Assurance and Farm Services Act, 2020
3. Essential Commodities (Amendment) Act, 2020
Farmers (Empowerment and Protection)
Agreement on Price Assurance and Farm Services
Act, 2020
™™ Citation: Act No. 20 of 2020
™™ Territorial extent: India
™™ Lok Sabha: The Bill was introduced in Lok Sabha on 14 September
2020, passed in Lok Sabha on 17 September 2020.
™™ Rajya Sabha: It was passed in Rajya Sabha on 20 September
2020.
™™ Presidential Assent: The Bill received Presidential Assent on 27
September 2020.
™™ Introduced by: Minister of Agriculture and Farmers Welfare,
Narendra Singh Tomar
1. Background: On 5 June 2020, The Farmers
(Empowerment and Protection) Agreement on Price
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Assurance and Farm Services Ordinance, 2020 was
promulgated by the Union Cabinet.
2. Act: It creates a national framework for contract
farming through an agreement between a farmer
and a buyer before the production or rearing of any
farm produces.
3. Provisions:
(a) Farming Agreement: The Act provides for a
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farming agreement between a farmer and a
buyer prior to the production or rearing of any
farm produce.
(b) Minimum Period of Farming Agreement: The
minimum period of the farming agreement shall
be for one crop season or one production cycle
of livestock.
(c) Maximum Period of Farming Agreement: The
maximum period of the farming agreement shall
be five years. It also states that if the production
cycle of any farming produce is longer and may
go beyond five years, the maximum period of
farming agreement may be mutually decided
by the farmer and the buyer and explicitly
mentioned in the farming agreement.
(d) Pricing of Farming Produce: The pricing
of farming produce and the process of price
determination should be mentioned in the
agreement. For prices subjected to variation,
a guaranteed price for the produce and a clear
reference for any additional amount above
the guaranteed price must be specified in the
agreement.
(e) Settlement of Dispute: The Act provides for
a three-level dispute settlement mechanism--
Conciliation Board, Sub-Divisional Magistrate
and Appellate Authority.
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Farmers' Produce Trade and Commerce
(Promotion and Facilitation) Act, 2020
™™ Citation: Act No. 21 of 2020
™™ Territorial extent: India
™™ Lok Sabha: The Bill was introduced in Lok Sabha on 14 September
2020, passed in Lok Sabha on 17 September 2020.
™™ Rajya Sabha: It was passed in Rajya Sabha on 20 September
2020.
™™ Presidential Assent: The Bill received Presidential Assent on 27
September 2020.
™™ Introduced by: Minister of Agriculture and Farmers Welfare,
Narendra Singh Tomar
1. Background: On 5 June 2020, the Farmers' Produce
Trade and Commerce (Promotion and Facilitation)
Ordinance, 2020 was promulgated by the Union
Cabinet.
2. Act: It permits intra and inter-state trade of farmers’
produce beyond the physical premises of Agricultural
Produce Market Committee (APMC) markets and
other markets notified under the state APMC Acts.
3. Provisions:
(a) Trade of Farmers' Produce: The Act allows the
farmers to trade in outside trade area such as
farm gates, factory premises, cold storages, and
so on. Previously, it could only be done in the
APMC yards or Mandis.
(b) Alternative Trading Channels: It facilitates
lucrative prices for the farmers via alternative
trading channels to promote barrier-free intra-
state and inter-state trade of agriculture produce.
(c) Electronic Trading: Additionally, it allows the
electronic trading of scheduled farmers’ produce
(agricultural produce regulated under any state
APMC Act) in the specified trade area. It will also
facilitate direct and online buying and selling of
the agricultural produce via electronic devices
and the internet.
(d) Market Fee Abolished: As per the Act, the
State Governments are prohibited from levying
any market fee or cess on farmers, traders and
electronic trading platforms for trading farmers’
produce in an 'outside trade area'.
Agricultural Produce Market Committee (APMC):
All you need to know
Essential Commodities (Amendment) Act, 2020
™™ Citation: Act No. 10 of 1995
™™ Territorial extent: India
™™ Status: Amended
™™ Lok Sabha: The Bill was introduced in Lok Sabha on 14 September
2020, passed in Lok Sabha on 15 September 2020.
™™ Rajya Sabha: It was passed in Rajya Sabha on 22 September
2020.
™™ Presidential Assent: The amendment received Presidential
Assent on 27 September 2020.
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1. Background: On 5 June 2020, the Essential
Commodities (Amendment) Ordinance, 2020 was
promulgated by the Union Cabinet.
2. Act: It is an act of Indian Parliament which was
enacted in 1955 to ensure the delivery of certain
commodities or products, the supply of which if
obstructed owing to hoarding or black-marketing
would affect the normal life of the people. This
includes foodstuff, drugs, fuel (petroleum products)
etc.
3. Powers of Central Government:
(a) The Government of India regulates the
production, supply, and distribution of a whole
host of commodities it declares ‘essential’ in
order to make them available to consumers at
fair prices.
(b) The Government can also fix the MRP of any
packaged product that it declares an 'essential
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commodity'.
(c) The Centre can add commodities in this list when
the need arises and can take them off the list
once the situation improves.
(d) If a certain commodity is in short supply and
its price is spiking, the Government can notify
stock-holding limits on it for a specified period.
4. Powers of State Government: The respective
IAS
State Governments can choose not to impose any
restrictions as notified by the Centre. However, if the
restrictions are imposed, traders have to immediately
sell any stocks held beyond the mandated quantity
into the market. This is done to improve supplies and
brings down prices.
5. Amendment: With the amendment in the Act, the
Government of India will list certain commodities
as essential to regulate their supply and prices only
in cases of war, famine, extraordinary price rises, or
natural calamities. The commodities that have been
deregulated are food items, including cereals, pulses,
potato, onion, edible oilseeds, and oils.
6. Stock Limit: As per the amendment, the imposition of
any stock limit on agricultural produce will be based
on price rise and can only be imposed if there's-- a
100% increase in the retail price of horticultural
produce and 50% increase in the retail price of non-
perishable agricultural food items.
7. Calculation: The increase will be calculated over
the price prevailing immediately preceding twelve
months, or the average retail price of the last five
years, whichever is lower.
It is to be noted that these restrictions will not be
applied to stocks of food held for public distribution in
India.
Criticism
(a) President of the Maharashtra Rajya Bazaar Samiti
vkLFkk IAS : M-1A, Jyoti Bhawan, Mukherjee Nagar, Delhi-110009
Sahakari Sangh, Dilip Mohite Patil claimed that
around 100-125 market committees in Vidarbha
and Marathwada regions have reported almost no
business and are on the verge of closure after the
announcement of the central Ordinance.
(b) Food Processing Industries Minister, Harsimrat Kaur
Badal of Shiromani Akali Dal resigned from her post
in protest against these Bills.
(c) Former Chief Minister of Punjab, Prakash Singh
Badal returned his Padma Vibhushan to protest 'the
betrayal of farmers by the Government of India'.
Pradhan Mantri Kisan Samman Nidhi (PM-KISAN)
Recently, Government has launched “Pradhan Mantri
Kisan Samman Nidhi (PM-KISAN)” programme to provide
an assured income support to the small and marginal
farmers.
Why it is needed
™™ Declining prices of agricultural commodities in the
international market and fall in food inflation in India
since 2017-18, relative to non-food sector, therefore
reduced the returns from farming.
™™ To increase the income of farmers as small and
fragmented land holdings and their further divisions
has contributed in declined income.
™™ To provide structured income support for procuring
inputs such as seeds, fertilizers, equipment, labour
and other needs.
Features of the programme
™™ Vulnerable landholding farmer families, having
cultivable land upto 2 hectares, will be provided
direct income support at the rate of Rs 6,000 per year.
™™ Income support will be transferred directly into the
bank accounts of beneficiary farmers, in three equal
installments of Rs 2,000 each.
™™ This programme will entail an annual expenditure of
Rs 75,000 crore and will be funded by Government
of India. Around 12 crore small and marginal farmer
families are expected to benefit from this.
™™ It came into effect on 1st December 2018 and the
first installment for the period upto 31st March 2019
would be paid during this year itself.
Other Important Income Support Schemes for Farmers
™™ Rythu Bandhu scheme (Telangana)/Farmers’ Investment Support
Scheme (FISS).
™™ It is a welfare program to support farmer’s investment for two
crops a year.
™™ The government is providing 58.33 lakh farmers, ?4000 per acre
per season to support the farm investment, twice a year, for rabi
and kharif seasons.
™™ This was the first direct farmer investment support scheme in
India, where the cash is paid directly.
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 Krushak Assistance for Livelihood and Income Augmentation
(KALIA)
™™ State Government of Odish aims to lend farmers with an all
inclusive and flexible support system, ensuring accelerated
agricultural prosperity.
™™ It will cover 92% of the small and marginal farmers of the State.
An amount of ?10,000 per family at the rate of ?5,000 for Kharif
and Rabi shall be provided as fi nancial assistance for taking up
cultivation.
™™ The farmers will have complete independence to take up
interventions as per their needs.
™™ This component is not linked to extent of land owned and will
greatly benefit share croppers and actual cultivators most of
whom own very small extent of land.
Pradhan Mantri Kisan Maan Dhan Yojana (PM-
KMY)
Prime Minister Narendra Modi launched the Pradhan
Mantri Kisan Maan Dhan Yojana at Ranchi, Jharkhand.
Need of such scheme
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™™ There is a felt need to create a social security net for
the farmers as old age may result in loss of livelihood
for many of them.
™™ Farming requires hard work in fields which becomes
difficult at an advanced age.
™™ The problem is compounded in respect of small and
marginal farmers as they have minimal or no savings
to provide for old age.
Key features of the Scheme:
IAS
™™ The PM-KMY is a Central Sector Scheme, administered
by the Department of Agriculture, Cooperation &
Farmers Welfare, Ministry of Agriculture & Farmers’
Welfare, Government of India in partnership with the
Life Insurance Corporation of India (LIC).
™™ The Life Insurance Corporation of India (LIC) shall
be the Pension Fund Managerand responsible for
Pension pay out.
™™ The Pradhan Mantri Kisan Maan-Dhan Yojana (PM-
KMY) provides for an assured monthly pension of Rs.
3000/- to all land holding Small and Marginal Farmers
(SMFs), whether male or female, on their attaining
the age of 60 years.
™™ The amount of the monthly contribution ranges
between Rs.55 to Rs.200 per month depending upon
the age of entry of the farmers into the Scheme.
™™ The Central Government will also make an equal
contribution of the same amount in the pension
fund.
™™ The spouse is also eligible to get a separate pension
of Rs.3000/- upon making separate contributions to
the Fund.
™™ In case of death of the farmer before retirement date,
the spouse may continue in the scheme by paying
the remaining contributions till the remaining age of
the deceased farmer.
vkLFkk IAS : M-1A, Jyoti Bhawan, Mukherjee Nagar, Delhi-110009
™™ If the farmer dies after the retirement date, the spouse
will receive 50% of the pension as Family Pension.
™™ After the death of both the farmer and the spouse,
the accumulated corpus shall be credited back to the
Pension Fund.
Eligibility:
™™ All Small and Marginal Farmers (SMFs) in all States
and Union Territories of the country, who are of the
age of 18 years and above and upto the age of 40
years, and who do not fall within the purview of the
exclusion criteria as mentioned in the guidelines, are
eligible to avail the benefits of this Scheme by joining
it.
™™ Farmers falling within the purview of the exclusion
criteria are not eligible for the benefit.
Kisan Credit Card
™™ The Indian Banking Association (IBA) has issued
advisory guidelines requesting banks to waive off the
processing, documentation, inspect+ion, ledger folio
charges and all other service charges for Kisan Credit
Card (KCC) /crop loans upto 3 Rs lakh.
™™ Ministry of Agriculture has launched a campaign for
enhanced registration of Kisan Credit Cards to those
who have remained untouched by it so far.
™™ The IBA advisory comes amidst reports that some of
scheduled commercial banks are collecting service
charges which are at a bit higher, irrespective of
whether the loan is sanctioned or not.
™™ This often acts as a deterrent for the farmers to
approach the banks for loans.
™™ Scheme was introduced in 1998 to facilitate and
make accessible credit availability to the farmers.
™™ It is issued on the basis of the land holdings so that
the farmer can avail credit for purchase of agriculture
input such as Seeds, Fertilizers, Pesticides and other
production needs.
™™ GOI provides interest subvention of 2% and Prompt
Repayment Incentive of 3% to the farmers, thus
making the credit available at a very subsidized rate
of 4% per annum.
™™ There are around 6.95 crore active KCCs as per latest
estimates
Doubling Farmers’ Income
Background:
™™ Agriculture and allied sector provides livelihood to
54.6% of the population of India (census 2011) and
it contributes 14.4% to the country’s Gross Value
Added (2018-19) as per Economic Survey 2019.
India ranks among the top countries in the world
in production of a number of crops including rice,
wheat, sugarcane, fruits and vegetables. Farmers
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 are, and will remain the drivers of Agricultural sector.
Since the development of Farm mechanisation in
India is still below the mark due to several factors
like small land holdings, equipment cost and poor
credit availability, the role of farmer in agriculture
holds crucial importance and it is our imperative to
ensure that farmers find Agriculture as a profitable
economic activity.
™™ In this backdrop, National Commission for Farmers
was constituted in 2004, chaired by Prof. M. S.
Swaminathan, to suggest methods for faster and more
inclusive growth for farmers. Then, the Government
of India in 2016 constituted an expert committee
headed by Ashok Dalwai to look into the entire
agriculture ecosystem in the country to suggest ways
and means to reform it so that farmers’ income can
be doubled by 2022. The Committee submitted its
final report to the Government in September 2018.
Now, the government is in the process of setting
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up a panel to monitor the implementation of the
recommendation of the Doubling Farmers’ Income
(DFI) committee.
Current Status of Farmers’ Income:
™™ The estimates for farmers’ income are not published
by CSO. The absence of adequate information makes
it difficultto analyse the growth trends in farmer’s
income.
According to NSSO survey, for the year 2012-13, the
IAS
™™
average annual income for a farm household from
farm as well as non-farm source was Rs.77,112.
™™ A study by Chand et al in 2015 reveals that it took 22
years (1993-94 and 2015-16) to double the farmers’
real income.
™™ More than 20% of the farmers in India are Below
Poverty Line.
™™ Key Information about Doubling Farmer Income
Initiative
™™ The reference year for farmer income is 2015-16 and
target year is 2022-2023.
™™ The aim is to double the Real Income of farmer and
not the nominal income.
™™ According to NITI Aayog, farmers’ income in 2015-16
was Rs. 44027 in real terms.
™™ In order t o achieve the aim, an annual growth of
10.41% is required in farmers’ income.
National Rural Economic Transformation Project
Context:
™™ The Union Cabinet approved the implementation
of an externally aided project namely National Rural
Economic Transformation Project (NRETP).
™™ It will be implemented under the Deendayal
Antyodaya Yojana – National Rural Livelihoods
Mission (DAY-NRLM) through loan assistance (IBRD
Credit) from World Bank.
vkLFkk IAS : M-1A, Jyoti Bhawan, Mukherjee Nagar, Delhi-110009
More on News:
™™ The development objective of the NRETP for India
is to establish efficient and effective institutional
platforms of the rural poor to enable them to increase
household income through sustainable livelihood
enhancements, and improved access to financial and
selected public services.
The additional financing will bring following
changes:
™™ The results target and the intermediate indicators are
updated to refl ect the changes introduced by the AF
™™ The project will co-locate areas for investment with
those selected under mission Antyodaya
™™ The project will update the following components-
™™ Institutional and human capacity development
™™ State livelihood support
™™ Innovation and partnership support
Aajeevika - National Rural Livelihoods Mission (NRLM)
™™ It was launched by the Ministry of Rural Development in June
2011.
™™ Aided in part through investment support by the World Bank,
the Mission aims at creating efficient and effective institutional
platforms of the rural poor.
™™ It is enabling them to increase household income through
sustainable livelihood enhancements and improved access to
financial services.
™™ NRLM set out with an agenda to cover 7 Crore rural poor
households, across 600 districts, 6000 blocks, 2.5 lakh Gram
Panchayats and 6 lakh villages in the country through self-
managed Self Help Groups (SHGs) and federated institutions and
support them for livelihoods collectives in a period of 8-10 years.
™™ In addition, the poor would be facilitated to achieve increased
access to rights, entitlements and public services, diversified risk
and better social indicators of empowerment.
™™ In November 2015, the program was renamed Deendayal
Antayodaya Yojana (DAY-NRLM).
New Agri Project- “Green Ag.”
The government launched a Global Environment
Facility (GEF) assisted project namely, “Green – Ag.” in
collaboration with the Food and Agriculture Organisation
(FAO) during September, 2018.
™™ ‘Green Ag.’ will help in transforming Indian
Agriculture for global environmental benefi ts and
the conservation of critical biodiversity and forest
landscapes.
™™ The aim of the project is to mainstream biodiversity,
climate change and sustainable land management
objectives and practices into Indian agriculture.
™™ It will also support harmonization between India’s
agricultural and environmental sector priorities and
investments so that the achievement of national and
global environmental benefits can be fully realized
without compromising India’s ability to strengthen
rural livelihoods and meet its food and nutrition
security.
™™ It started in high-conservation-value landscapes
of five States including- Madhya Pradesh: Chambal
131
 Landscape, Mizoram: Dampa Landscape, Odisha:
Similipal Landscape, Rajasthan: Desert National Park
Landscape and Uttarakhand: Corbett.
™™ Key missions that will be targeted for strengthening
include the National Mission on Sustainable
Agriculture; National Livestock Mission; National
Food Security Mission; National Initiative on Climate-
resilient Agriculture, National Mission for Horticulture
and Rashtriya Krishi Vikas Yojana.
One Nation - One Ration Card
The Department of Food & Public Distribution in
collaboration with all States/UTs is implementing a
Scheme namely “Integrated Management of Public
Distribution System (IM-PDS)” during 2018-19 and 2019-
20. The main objective of the scheme is to introduce
nation-wide portability of ration card holders under NFSA
through ‘One Nation One Ration Card’ System, to lift their
entitled foodgrains from any Fair Price Shop (FPS) in the
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country without the need to obtain a new ration card.
This system would largely benefit numerous migratory
beneficiaries who frequently change their place of
dwelling in search of work/employment or for other
reasons across the country and eventually get deprived
of their quota of subsidised foodgrains under NFSA due
to migration from their native place. Through this system
migatory beneficiaries shall be able to access their food
security entitlements from any FPS of their choice/
convenience by using their same/existing ration cards
IAS
after biometric/ Aadhaar authentication on electronic
Point of Sale (ePoS) devices at the FPS in another State/UT.
At present the facility of inter-State portability is enabled
in 8 States i.e. in four clusters of 2-adjoining States of
Andhra Pradesh & Telangana, Gujarat & Maharashtra,
Haryana & Rajasthan, and Karnataka & Kerala. It is further
envisaged that all four clusters, as above, and a few other
States having already implemented intra-State portability
shall be integrated together into single national platform.
Thereafter, rollout of National Portability in other States/
UTs shall be done as and when the national de-duplication
of all ration cards,beneficiaries under NFSA is completed
and biometric/Aadhaar authentication based distribution
is enabled in the State/UT.
Agri-Market Infrastructure Fund
The Cabinet Committee of Economic Affairs recently
approved creation of a corpus of Rs. 2000 crore for Agri-
Market Infrastructure Fund (AMIF).
™™ The fund would be created with NABARD for
development and up-gradation of agricultural
marketing infrastructure in Gramin Agricultural
Markets and Regulated Wholesale Markets.
™™ It will provide the State/UT Governments subsidized
loan for developing marketing infrastructure in 585
Agriculture Produce Market Committees (APMCs)
and 10,000 Grameen Agricultural Markets (GrAMs).
™™ States may also access AMIF for innovative integrated
vkLFkk IAS : M-1A, Jyoti Bhawan, Mukherjee Nagar, Delhi-110009
market infrastructure projects including Hub and
Spoke mode and in Public Private Partnership mode.
™™ In these GrAMs, physical and basic infrastructure
will be strengthened using MGNREGA and other
Government Schemes.
™™ After approval of AMIF Scheme, the interest subsidy
will be provided by DAC&FW to NABARD in alignment
with annual budget releases during 2018-19 and
2019-20 as well as upto 2024-25.
™™ The Scheme being demand driven, its progress is
subject to the demands from the States and proposals
received from them.
APMC
™™ Agricultural Produce Market Committee (APMC) is
a statutory market committee constituted by State
Governments for trade in certain notifi ed agricultural
or horticultural or livestock products, under the
Agricultural Produce Market Committee Act of the
respective state.
™™ APMCs are responsible for:
zz ensuring transparency in pricing system and
transactions taking place in market area;
zz providing market-led extension services to
farmers;
zz ensuring payment for agricultural produce sold
by farmers on the same day;
zz promoting agricultural processing including
activities for value addition in agricultural
produce;
zz publicizing data on arrivals and rates of
agricultural produce brought into the market
area for sale; and
zz setup and promote public private partnership in
the management of agricultural markets.
Grameen Agriculture Markets
™™ These are called by varied names like “Gramin Haats,
Haats, shandies, painths and fairs etc.
™™ They are owned by Local Bodies (Panchayats/
councils), Agricultural/ Horticultural Departments of
State Governments, Cooperatives, Marketing Boards/
APMCs and Private Sector.
™™ As per information provided by State Agricultural
Marketing Boards/State Governments, there are
22941 Rural Haats.
™™ State Marketing Boards provided only numbers
without other information like location, etc on village
haats under local bodies and under private sector.
Reforms in Agro-Economy
PM announces panel with CMs for deep reforms in
agriculture.
™™ In the fifth meeting of the Governing Council of NITI
Aayog, focus was on increasing investment in the
132
 agriculture sector, boosting exports, and addressing
issues of water supply and conservation.
™™ The focus towards reviving the agrarian sector
assumes signifi cance as it has been witnessing low
farm prices over the past few years leading to several
large-scale farm protests.
™™ The fifth meeting of the Governing Council of the
NITI Aayog comes in the backdrop of challenges on
the economic front and rising unemployment rates
(45-year high of 6.1 %).
Key Points discussed in the meeting:
Increasing Exports:
™™ The meeting focused on the need to increase
exports and explore untapped export potential in
several states in order to drive economic growth and
this will also provide a boost to both income and
employment.
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Need for structural reform in agriculture:
™™ Meeting emphasizes to focus on fisheries, animal
husbandry, horticulture, fruits, and vegetables.
™™ There is need to boost corporate investment,
strengthen logistics and provide ample market
support.
™™ The food processing sector should grow at a faster
pace than food grain production.
Scrapping of the Essential Commodities Act, 1955
IAS
™™
because it is thought to be an “impediment in the free
movement of commodities” given that the country is
now mostly self-sufficient.
™™ Flagship schemes like PM-KISAN, should reach
intended benefi ciaries well within time.
Water Supply and Conservation:
™™ Promoting efficient water conservation practices
with rain-water harvesting to be undertaken at the
household and community level with proactive
policy and investment support.
™™ Aside from addressing the issue of agriculture, PM
also focused on a collective fight against poverty,
unemployment, flood, pollution, corruption, and
violence. PM also called for effective steps to tackle
drought by adopting ‘per-drop, more-crop’ strategy.
™™ Meeting also underlined the need for states to
focus on their core competencies and work towards
increasing the GDP right from the district level so as
“India can become a $5 trillion economy by 2024.”
™™ PM also announces panel with CMs for deep reforms
in agriculture, which would submit its report in the
next few months.
™™ Additionally, with parts of India experiencing drought
situation, some States asked for changes in the
National Disaster Response Force and State Disaster
Response Fund (SDRF) guidelines. They will work
with MHA and Agriculture ministry to make changes.
vkLFkk IAS : M-1A, Jyoti Bhawan, Mukherjee Nagar, Delhi-110009
Food Processing
™™ Ministry of Food Processing Industries inaugurated
Computational Modelling and Nanoscale Processing
Unit at the Indian Institute of Food Processing
Technology (IIFPT) in Thanjavur, Tamil Nadu.
™™ The Ministry also inaugurated a National Conference
on Emerging Techniques in Food Processing.
Computational Modelling and Nano-scale
Processing Unit:
™™ Modelling is a powerful tool for optimizing and
improving process control over various unit
operations by acquiring an in-depth understanding
of the intricate transport phenomena in food systems.
™™ This unit will focus on the application of
computational fluid dynamics in various agri-food
processing applications.
Ministry of Food Processing Industries:
™™ It is responsible for formulation and administration
of the rules and regulations and laws relating to food
processing in India.
™™ Ministry has also been instrumental in helping
farmers and have approved 42 mega food parks.
™™ It provides financial support of 35% of the total cost
of plant and machinery for encouraging growth in
food processing.
™™ Other steps taken by Government of India (GOI)
towards food processing
™™ GOI has entrusted specialized agro-processing
financial institutions to finance/refi nance the
food processing sector, and has launched neoteric
initiatives such as ‘Operation Greens’, to monitor price
fluctuations.
Pradhann Mantri Kisan Sampada Yojna:
™™ (PMKSY) is approved by GOI and it is a central
sponsored scheme under Ministry of Food Processing
Industries. It is a scheme for Agro-Marine Processing
and Development of Agro-Processing Clusters.
™™ It is a big step towards doubling of farmer’s income
through the assets (Sampada) of farmer.
™™ It is a comprehensive package which will result in
creation of modern infrastructure with efficient
supply chain management from farm gate to retail
outlet.
™™ It will provide a big boost to the growth of food
processing sector in the country and creates huge
employment opportunities in the rural areas,
reducing wastage of agricultural produce and
increasing the food processing level and its export.
The following schemes will be implemented
under PMKSY:
™™ Mega Food Parks
™™ Integrated Cold Chain and Value Addition
Infrastructure
133
™™ Creation/ Expansion of Food Processing/ Preservation
Capacities (Unit Scheme)
™™ Infrastructure for Agro-processing Clusters
™™ Creation of Backward and Forward Linkages
™™ Food Safety and Quality Assurance Infrastructure
™™ Human Resources and Institutions
™™ Operation Greens
‘Meri Fasal Mera Byora’
The Haryana government announced the launch of
‘Meri Fasal Mera Byora’ portal whereby farmers can avail
benefi ts of several government schemes directly after
uploading their crop-related details.
‘Meri Fasal Mera Byora’ Portal
™™ It is a multi-level transparent system and this initiative
is a step forward towards doubling of farmer’s income
by 2022.
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™™ This simple system will enable farmers to self-report
their land and crop details and help them receive
benefits of several government schemes directly.
™™ The portal, fasalhry.in, has brought the departments
of agriculture and farmer’s welfare, revenue, food
civil supplies and consumer affairs and science and
technology on a single platform for the betterment
of the farmers.
IAS
™™ The portal has been designed to ensure that
the farmers get the benefits offered by the
State Government including insurance cover,
compensation on account of crop damage due to
natural calamities and other financial assistance
under different schemes.
™™ Through the portal, the government will also get the
accurate data of area and name of crop cultivated in
various parts of the state.
™™ The farmers will be required to upload information
like the name of crop sown, area under cultivation,
cropping month, bank account number and mobile
number on the portal at the nearby Common Service
Centres (CSCs) or Atal Seva Kendras with the help of
Village Level Entrepreneurs (VLEs) by July 31.
™™ The farmer would also be required to fill the details
about the non-cultivated land in case he has not
sown any crop yet.
™™ E-girdawari (harvest inspection) would be conducted
under this system and while conducting girdawari,
the concerned officer or official would have to remain
physically present at the field.
™™ Thereafter, the registration would be done by the
departments.
™™ When the crop is ready for harvesting, satellite
photography of the fi eld would be conducted by the
vkLFkk IAS : M-1A, Jyoti Bhawan, Mukherjee Nagar, Delhi-110009
Science and Technology Department. These images
would also be enclosed with their registration. In case
any discrepancy is found in the girdawari, a special
girdawari would be got conducted by the Deputy
Commissioner concerned
™™ Financial incentive of Rs 10 per acre or part thereof,
subject to minimum of Rs 20 and maximum of Rs 50,
would be provided to each farmer for registering on
the portal.
™™ Proportion of Indian population depending
directly or indirectly on agriculture for employment
opportunities is more than that of any other sectors
in India.
™™ The share of agriculture and allied sectors in the total
GVA of the country has been continuously declining
on account of relatively higher growth performance
of nonagricultural sectors, a natural outcome of
development process.
™™ GVA at constant (2011-12) prices for 2019-20 from
‘Agriculture, Forestry and Fishing’ sector is estimated
to grow by 2.8 per cent.
™™ Agriculture Mechanization helps the Indian farming
transform into commercial from the subsistence
farming. The overall farm mechanization in India is
about 40 per cent, which is lower compared to China
(59.5 per cent) and Brazil (75 per cent).
™™ The regional distribution of agricultural credit in India
shows a highly skewed pattern. It is seen that credit
is low in North Eastern, Hilly and Eastern States. The
share of North Eastern States has been less than one
percent in total agricultural credit disbursement.
™™ Livestock income has become an important
secondary source of income for millions of rural
families and has assumed an important role in
achieving the goal of doubling farmers’ income.
Livestock sector has been growing at a CAGR of 7.9
per cent during last five years.
™™ During the last 6 years ending 2017-18, Food
Processing Industries sector has been growing at an
Average Annual Growth Rate (AAGR) of around 5.06
per cent. The sector constituted as much as 8.83 per
cent and 10.66 per cent of GVA in Manufacturing and
Agriculture sector respectively in 2017-18 at 2011-12
prices.
™™ With the implementation of the National Food
Security Act from July 2013, the food subsidy bill
has increased from  113171.2 crore in 2014-15 to
 171127.5 crore in 2018-19. While the interests of
the vulnerable sections of the population need to
be safeguarded, for sustainability of food security
operations, the issue of burgeoning food subsidy bill
needs to be addressed
134

Infrastructure
National Infrastructure Pipeline
Finance Minister has released Report of the Task Force
on National Infrastructure Pipeline for 2019-2025. She has
unveiled a ?102 lakh crore project which is in accordance
with the government’s vision to make India a $5 trillion
economy by 2024-25.
™™ It is estimated that India would need to spend $4.5
trillion on infrastructure by 2030 to sustain its growth
rate.
™™ The endeavour of the National Infrastructure Pipeline
(NIP) is to make this happen in an efficient manner.
™™ These projects are on top of Rs 51 lakh crore spent
by the Centre and the states during the last six years
and the new pipeline consists of 39 per cent projects
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each by the Centre and states and the balance by 22
per cent by private sector.
Benefits of National Infrastructure Pipeline
™™ Well-planned NIP will enable more infra projects,
grow businesses, creates job, improve ease of living
and provide equitable access to infrastructure for all,
making growth more inclusive.
™™ Well-developed infrastructure enhances level of
economic activity, creates additional fi scal space
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by improving revenue base of the government,
and ensures quality of expenditure focussed in
productive areas.
™™ Provides better view of project supply, provides time
to be better prepared for project bidding, reduces
aggressive bids/failure in project delivery, ensures
enhanced access to sources of finance as a result of
increased investor confi dence.
Features of National Infrastructure Pipeline
™™ To achieve this objective, a Task Force has been
constituted to draw up the National Infrastructure
Pipeline (NIP) for each of the years from FY 2019-20 to
FY 2024-25 with the approval of the Finance Minister.
™™ The Task Force is chaired by Secretary, DEA with CEO
(NITI Aayog), Secretary (Expenditure), Secretary of the
Administrative Ministries, and Additional Secretary
(Investments), DEA as members and Joint Secretary
(IPF), DEA as Member Secretary.
™™ Total project capital expenditure in infrastructure
sectors in India during the fi scals 2020 to 2025 is
projected at over Rs 102 lakh crore.
Northeast Gas Grid Project
Recently, the Cabinet Committee on Economic Affairs,
chaired by Prime Minister Narendra Modi, has given its
approval for viability Gap Funding/ Capital Grant of 60%
of the estimated cost of Rs. 9,265 crore for the Northeast
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Gas Grid project to Indradhanush Gas Grid Limited (IGGL)
who implements it.
™™ The Northeast Gas Grid Project will connect Guwahati
to the major Northeast cities and major load centers.
It is 1,656 km long.
™™ The project is being implemented under ambitious
Urja Ganga Gas Pipeline Project.
™™ Besides connecting all the state capitals in the region,
the pipeline will also connect with the National Gas
Grid through Barauni-Guwahati Gas Pipeline, which
is being laid by GAIL.
™™ The pipeline will enable the supply of piped cooking
gas to households and CNG to automobiles, besides
fuel to industry.
™™ Implementing Agency: The North-East pipeline grid
is to be implemented by Indradhanush Gas Grid, a
joint venture of state-owned GAIL India, Indian Oil
Corp (IOC), Oil and Natural Gas Corp (ONGC), Oil India
Ltd (OIL) and Numaligarh Refi nery Ltd (NRL).
Pradhan Mantri Urja Ganga project
™™ The gas pipeline project aims to provide piped cooking gas to
residents of Varanasi and later to millions of people in states like
Bihar, Jharkhand, West Bengal and Odisha.
™™ From Varanasi’s perspective, an 800-km long MDPI pipeline will
be laid and 50,000 households and 20,000 vehicles will get PNG
and CNG gas respectively. The government estimates that around
5 lakh gas cylinders will be sent at rural areas annually.
™™ According to GAIL, with the Urja Ganga project, 20 lakh
households will get PNG connections. The project is said to be
a major step towards collective growth and development of the
Eastern region of India.
™™ GAIL has built a network of trunk pipelines covering the length
of around 11,000 km. With Urja Ganga project, this number will
further increase by 2540 km.
Objectives of National Gas Grid
™™ To remove regional imbalance within the country
with regard to access for natural gas and provide
clean and green fuel throughout the country.
™™ To connect gas sources to major demand centres
and ensure availability of gas to consumers in various
sectors.
™™ Development of City Gas Distribution Networks in
various cities for the supply of CNG and PNG.
New FDI Guidelines for the e-Commerce
™™ Central government has brought out the new FDI
guidelines for the e-commerce that will come to
effect from February 2019.
™™ The government is launching stricter guidelines that
govern FDI in e-commerce firms.
™™ At present the DIPP provides guidelines on the
functioning of an e-commerce marketplace.
™™ The revised FDI policy issued by the centre explains
certain principles laid down in a 2017 circular on the
operations of online market places, wherein 100%
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 foreign direct investment, or full foreign ownership
is allowed.
™™ The new norms bar exclusive tie-ups between
e-commerce firms that follow the ‘market place
model’ and vendors using their platform.
™™ In a market place model, the e-commerce firm is not
allowed to directly or indirectly influence the sale
price of goods or services, and is required to offer a
level playing fi eld to all vendors.
™™ Now the cash back or services, such as quick delivery,
offered by e-tailers have to be applicable to all
vendors on their platforms.
™™ It also envisages that if a vendor sells more than 25%
of its wares through an e-commerce marketplace,
the latter will be deemed to have an inventory model,
in which FDI is not allowed.
™™ Although, the 25% cap existed earlier, but the onus
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of ensuring it, is now firmly on the e-commerce
platform, so that it does not find itself on the wrong
side of the law. It further said that e-commerce firms
will be barred from selling wares of related parties on
the inventory, of which it has a say.
Why are these changes significant?
™™ Offline traders have been complaining that
e-commerce platforms with access to FDI are able
to give deep discounts and other incentives through
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related-party vendors, which they cannot match.
™™ The changes are significant as its enforcement will
affect the flexibility that e-commerce platforms had
in doing business, and force them to be neutral to all
vendors.
SWAYATT and GeM Start-up Runway
Union Minister of Commerce & Industry and
Civil Aviation, Suresh Prabhu, launched SWAYATT and
also dedicated GeM Start-up Runway-an initiative of
Government e Marketplace (GeM).
SWAYATT
™™ It is an initiative to promote Start-ups, Women
and Youth Advantage Through e-Transactions on
Government e Marketplace (GeM).
™™ It will bring together the key stakeholders within the
Indian entrepreneurial ecosystem to Government
e-Marketplace the national procurement portal.
GeM Start-up Runway
™™ It is an initiative of GeM in association with Start
-up India is to facilitate Start-ups registered under
it to access the public procurement market and sell
innovative products and services to government
buyers.
™™ GeM, an online market place for procurement of
common use goods and services by government
ministries, departments and CPSEs was setup in 2016.
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Transport and Marketing Assistance
Context: Department of Commerce of the Ministry of
Commerce & Industry has notified a scheme for Transport
and Marketing Assistance (TMA) for Specified Agriculture
Products.
Transport and Marketing Assistance for Specified
Agriculture Products
™™ It aims to provide assistance for the international
component of freight and marketing of agricultural
produce.
™™ It will mitigate disadvantage of higher cost of
transportation of export of specifi ed agriculture
products due to trans-shipment
™™ It also aims to promote brand recognition for Indian
agricultural products in the specifi ed overseas
markets.
The scheme will be included in the Foreign Trade
™™
Policy (2015-20).
Coverage
™™ All exporters, duly registered with relevant Export
Promotion Council as per Foreign Trade Policy, of
eligible agriculture products shall be covered under
this scheme.
™™ The assistance, at notified rates, will be available
for export of eligible agriculture products to the
permissible countries, as specifi ed from time to time.
Applicability
™™ The Scheme would be applicable for a period as
specified from time to time. Presently the Scheme
would be available for exports effected from 1.3.2019
to 31.03.2020
Pattern of Assistance
™™ Assistance under TMA would be provided in cash
through direct bank transfer as part reimbursement
of freight paid.
™™ Free On Board supplies where no freight is paid by
Indian exporters are not covered under this scheme.
™™ The level of assistance would be different for different
regions as notified from time to time for export of
eligible products.
™™ The assistance shall be admissible only if payments
for the exports are received in Free Foreign Exchange
through normal banking channels.
™™ The scheme shall be admissible for the exports made
through Electronic Data Interchange (EDI) ports only.
™™ The scheme covers freight and marketing assistance
for export by air as well as by sea (both normal and
reefer cargo).
Competent Authority
™™ Directorate General of Foreign Trade will lay down
procedure for scrutiny of the claims, audit of the
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 payments made, recovery of the ineligible/excess
paid assistance, interest on such recoveries.
™™ The defaulters shall be liable for penal action under
the provisions of Foreign Trade (Development
& Regulation) Act, 1992, Rules and orders made
thereunder.
Directorate General of Foreign Trade
™™ DGFT is an attached office of the Ministry of Commerce and
Industry and is headed by Director General of Foreign Trade.
™™ Right from its inception till 1991, when liberalization in
the economic policies of the Government took place, this
organization has been essentially involved in the regulation and
promotion of foreign trade through regulation.
™™ Keeping in line with liberalization and globalization and the
overall objective of increasing of exports, DGFT has since been
assigned the role of “facilitator”.
™™ The shift was from prohibition and control of imports/exports to
promotion and facilitation of exports/imports, keeping in view
the interests of the country.
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Electronic Data Interchange( EDI) Ports
™™ EDI comprises of many types of “messages” which when
transmitted between two parties is designed to substitute other
forms of data transfer.
™™ EDI messaging is also used to send the data to Customs
(Manifest, Bill of Entry), Port (Container Stowage planning, Cargo
Dues, Load/Discharge list, Container moves), Principals (Load/
Discharge list, Container moves, Bookings).
Growth & Development
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Differences between Growth and Development
1. Growth mainly focuses on quantitative
improvement while development is associated with both
qualitative and quantitative improvement. For instance,
growth is associated with measurable changes in weight
and height. When your child’s weight increases from 35
kilograms to 40 kilograms, then the 5 kilogram increment
is attributed to growth.
On the other hand, development is identified when
substantial changes in IQ are recorded in your child’s
brain power. For instance, your child’s IQ level is relatively
low during childhood but can improve significantly into
adulthood. Your child’s IQ level can improve from 50 to 90
after honing their creative and critical thinking skills.
2. Growth ends at maturation while development
continues until an individual’s demise. As a teacher
or parent, it is important to note that growth ends at
maturation. Your child will experience various changes
associated with growth between childhood and
maturation at adolescence.
This means that your teaching approach will be
different at age 6 and age 15. At 6 years, your child needs
simplified information that they can understand because
their brain can only process basic information. At 15
years, your child’s brain has improved significantly, and
they are in a unique position to grasp and retain complex
information based on their improved information
processing skills.
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Development is a consistent process and continues
throughout life. Your child has the unique potential to
absorb as much knowledge and skills to handle various
life challenges into adulthood. Even at 50 years, they can
exhibit advanced skills such as oratory and problem-
solving skills based on their vast experience.
3. Growth is dependent on cellular changes
while development is dependent on organizational
transformation. Growth begins at conception and
progresses into adulthood. From conception, your child’s
body experiences massive changes based on changes in
cellular growth. An increase in cellular size and number
indicates that your child is undergoing growth.
Development is often witnessed at a home or
school environment when your child experiences skillset
changes. This simply means that any skills learnt such
as reading or arithmetic are indicative of your child’s
development changes. The older they get, the more likely
they are to understand complex skills associated with
computation and reasoning.
4. Growth is associated with the progressive
physical change from one stage to another. On the
other hand, development is the gradual transformation
of behavioral and skill set changes. Differences in body
size that are evident in clothing size changes reveal the
growth changes experienced by your child. Also, you
might have noticed that your child consumes more food
than before. This can only mean that they are growing.
Development is usually characterized by behavioral
and skillset changes. Your child might outgrow certain
childish behavior as they approach adolescence or
acquire advanced writing, oratory and computation skills.
These changes aren’t out of the ordinary but only attest
to the development changes experienced by your child.
5. Growth is external while development is internal
in nature. Regardless of your location or occupation, you
can observe your child’s growth based on visible external
features. These features include increased body parts sizes
such as hands, legs, ears, and much more. These changes
usually manifest over time based on improved nutrition
and general wellbeing. It is important to note that family
instability can also affect your child’s proper growth. Too
much stress from domestic strife subjects your child to
stunted growth.
Unlike growth, development is an internal process
and isn’t visible by the naked eye. Instead, it requires
a comprehensive evaluation of your child’s reasoning,
creativity and innovation to ascertain their development
status. This can be achieved by setting various tests
designed to evaluate your child’s IQ in relation with
creativity and reasoning. Based on their performance, you
should be in a unique position to accurately determine
their development level and the changes that ought to
be made to rectify the situation.
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 6. Growth dictates changes in physical appearance
while development dictates change in the character
of an individual. Growth is easily discernible based on
changes in physical appearance. These changes manifest
over time and include increased body size and voice
intonation. Whether such changes are visible based on
hair transformation or skin tone, you can rest assured
knowing that your child is experiencing growth changes.
On the other hand, development pays much
emphasis in the character changes of an individual. Your
child might have been naughty during their early age
but over time, they are likely to transform into a mature
young adult. With each passing day, they outgrow certain
habits that can only be traced back to character changes.
7. Growth takes place within a limited scope of
time while development takes place within a vast scope
of time. This means that growth spans from conception
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to adolescence depending on your child’s growth rate.
During this period, your child undergoes progressive
body changes designed to transform them into adults. By
25 years of age, your child’s growth rate will have peaked.
Development isn’t confined by time or age. Your child
can acquire a plethora of skills to handle various tasks and
challenges regardless of their location or background. The
best part about skill acquisition is that it can still happen
beyond 35 year old if the determination and commitment
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exists.
8. Growth focuses on one aspect of your child’s
life. On the other hand, development focuses on several
aspects of your child’s life such as emotional state,
intelligence and interpersonal skills. Naturally, growth is
a size-oriented process from conception to adulthood.
With every increase in body size, you can monitor your
child’s growth rate.
On the other hand, development is an all-inclusive
process designed to analyze various aspects of your
child’s life. This usually stems from the need to evaluate
their capacity to interact with their peers and adults in
an effective way. While their interpersonal skills might be
unpolished at a young age, your child is expected to make
improvements based on their advanced critical thinking
and reasoning skills as they get older.
Reports/Committees/Summits/ Indexes
Global Human Development Indicators
Explore human development data from around the
world using the interactive tools below. Data presented
here were used in the preparation of the 2019 Human
Development Report “Beyond income, beyond averages,
beyond today: Inequalities in human development in the
21st century”, released on 9 December 2019. The Human
Development Report Office releases five composite
indices each year: the Human Development Index (HDI),
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the Inequality-Adjusted Human Development Index
(IHDI), the Gender Development Index (GDI), the Gender
Inequality Index (GII), and the Multidimensional Poverty
Index (MPI). Data used in these indices and other human
development indicators included here are provided by a
variety of public international sources and represent the
best statistics available for those indicators at the time of
the preparation of the human development report.
India inched up one spot to rank 129th out of 189
countries on the 2019 Human Development Index (HDI)
released by the United Nations Development Programme
(UNDP) on Monday. Inequality and deprivation continue
to be high in the country.
“For countries like India, which have shown great
success in reducing absolute poverty, we hope that
the 2019 Human Development Report sheds light on
inequalities and deprivations that go beyond income.
How we tackle old and new inequalities, ranging from
access to basic services such as housing to things like
access to quality university education, will be critical to
whether we achieve the Sustainable Development Goals,”
said Shoko Noda, UNDP India Resident Representative in
an official release.
India’s HDI for 2018 improved to 0.647 compared
to 0.640 the year before. However, when the value is
discounted for inequality, the HDI falls to 0.477, a loss of
26.3 per cent due to inequity in the distribution of the HDI
dimension indices, the UNDP report stated.
This is higher than the average loss due to inequality
for medium HDI countries, at 25.9 per cent, and for South
Asia, at 25.9 per cent.
“...India’s development initiatives like the Pradhan
Mantri Jan Dhan Yojana (for financial inclusion) and
Ayushman Bharat (for universal health-care) are crucial in
ensuring that we meet our promise to leave no one behind
and fulfil the Prime Minister’s vision of development for
all,” Noda added.
Gender bias
The report also notes that more Indian men and
women were showing biases in gender social norms,
indicating a backlash to women’s empowerment.
India has a GII value of 0.501, ranking it 122 out of
162 countries in the 2018 index. “In India, 11.7 per cent of
Parliamentary seats are held by women (compared to 17.1
per cent in South Asia). And 39 per cent of adult women
have reached at least a secondary level of education (39.9
per cent in South Asia) compared to 63.5 per cent of their
male counterparts,” the report said.
Marking significant progress in poverty alleviation,
India managed to lift 27.1 crore people out of poverty
from 2005-06 to 2015-16, Noda said. Nevertheless, it
still accounts for 28 per cent of the 1.3 billion multi-
dimensional poor in the world.
138
Global Hunger Index (GHI) 2020
India ranked 94 among 107 nations in the Global
Hunger Index (GHI) 2020 and continues to be in the‘serious’
hunger category. Last year, India’s rank was 102 out of 117
countries. The Global Hunger Index data showed that
14 per cent of India’s population was undernourished.
Besides, the country recorded a 37.4 per cent stunting
rate among children under five and a wasting rate of 17.3
per cent. The under-five mortality rate stood at 3.7 per
cent. On the other hand, the neighbouring Bangladesh,
Myanmar and Pakistan ranked higher than India in
this year’s hunger index. While Bangladesh ranked 75,
Myanmar and Pakistan are in the 78th and 88th position.
17 nations, including China, Belarus, Ukraine, Turkey,
Cuba and Kuwait, bagged the top rank with GHI scores of
less than five.
™™ In 2010 three indices were launched to monitor
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poverty, inequality and gender empowerment across
multiple human development dimensions
™™ The Multidimensional Poverty Index (MPI),
™™ The Inequality-adjusted Human Development Index
(IHDI)
™™ The Gender Inequality Index (GII).
Human Development Dashboard
Quality of Human Development
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Quality of Health:
™™ India lost 13.9% in total life expectancy as health expectancy in
2016.
™™ There were only 7.6 physicians per 10,000 people in the period
2007-17 falling behind Pakistan who have a better physician to
people ratio with 9.8 physicians for every 10,000 people.
™™ There are only 7 beds for every 10,000 people in India where a
smaller nation like Nepal have 50 beds for every 10,000 people
and has a lot to catch up with international standard.
Quality of Education:
™™ There is only one teacher in primary schools for every 35 pupil in
India falling in the bottom tercile. International model standard
comes up to somewhere 15-18 pupils per children.
™™ Only 70% teachers in primary schools are trained to teach in
Indian schools.
Quality of Standard of Living:
™™ 77.5% of the employed people are engaged as unpaid family
workers and own account workers.
™™ 77.6% of the rural population had access to electricity in 2016.
™™ 87.6% of the total population was using improved drinking
water sources in 2015, with only 44.2 % people having access to
improved sanitation facilities in 2015.
2. Wholesale Price Index (WPI)
As Indian economy experiences demand slowdown
and quashing of growth forecasts, a close look at the WPI
can help gauge the extent of this slowdown.
™™ Wholesale Price Index (WPI)-based inflation used to
be the nominal anchor for the Reserve Bank of India’s
(RBI’s) monetary policy.
™™ With the adoption of inflation targeting, RBI changed
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its nominal anchor to Consumer Price Index (CPI)-
based inflation.
™™ This change made sense because services constitute
a big component of demand, and was not captured
by WPI.
™™ Recently, WPI is witnessing a persistent downward
trend. Manufactured products inflation have become
negative, and slipped into
™™ Falling WPI corroborates with slowdown in Economy.
What does declining trend in WPI mean?
™™ WPI captures the pricing power of manufacturers.
A prolonged period of low WPI indicates erosion in
pricing power of manufacturers/Indian companies.
™™ A sharp fall in WPI indicates that the demand
slowdown is pervasive in all parts of the economy.
™™ The depressed demand conditions mean producers
cannot raise prices, and may have to offer discounts
to break the trend of falling sales, as witnessed in the
auto sector
™™ The reason behind WPI collapse is fall in global
commodity prices (mostly basic metals prices).
3. Multidimensional Poverty Index
Context: The 2018 global Multidimensional Poverty
Index (MPI) released by the United Nations Development
Programme (UNDP) and the Oxford Poverty and Human
Development Initiative (OPHI) projected that about 3
billion people live in multidimensional poverty globally.
Highlights of UN Report
™™ The report shows that the experience of poverty can
differ within the same household, and that half of
children and young people under the age of 18 are
considered to be ‘multi-dimensionally poor’.
™™ The report not only considers income indicators but
also indicators of health, education, and standard of
living, thus providing a single ‘headline measure’ of
countries progress on at least seven different SDGs
(Sustainable Development Goals).
India’s Context
™™ India and Cambodia reduced their MPI values the
fastest — and they did not leave the poorest groups
behind. India’s MPI value reduced from 0.283 in 2005-
06 to 0.123 in 2015-16.
™™ India lifted 271 million people out of poverty between
2006 and 2016, recording the fastest reductions in
the multidimensional poverty index values during
the period with strong improvements in areas such
as “assets, cooking fuel, sanitation and nutrition.
™™ According to the report, Jharkhand in India reduced
the incidence of multidimensional poverty from 74.9
% in 2005-06 to 46.5 % in 2015-16. Mondol Kiri and
Rattanak Kiri in Cambodia reduced it from 71.0 % to
55.9 % between 2010 and 2014.
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™™ In 2005-2006, the population in India living in
multidimensional poverty stood at about 640 million
people (55.1 %) and this reduced to 369 million
people (27.9 %) living in poverty in 2015-16.
™™ India saw significant reductions in number of people
who are multidimensionally poor and deprived in
each of the 10 indicators over this time period.
™™ India reduced deprivation in nutrition, child mortality,
people deprived of cooking fuel, deprivation in
sanitation and those deprived of drinking water.
MPI Index
™™ It is an international measure of acute
multidimensional poverty covering over 100
developing countries.
™™ It complements traditional monetary-based poverty
measures by capturing the acute deprivations that
each person faces at the same time with respect to
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education, health and living standards.
™™ The global MPI was developed by OPHI with the UNDP
for inclusion in UNDP’s flagship Human Development
Report (HDR) in 2010.
™™ It is based on the idea that poverty is multidimensional.
4. Index of Industrial Production (IIP)
Context: Industrial growth slowed in February to
0.1% from 1.44% in January, driven by an across-the-board
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slowdown, especially in key sectors like manufacturing,
mining, capital goods, and infrastructure.
What is IIP?
™™ IIP is an index which shows the growth rates in
different industry groups of the economy in a
stipulated period of time.
™™ It is computed and published by the Central Statistical
Office (CSO) on monthly basis.
™™ It measures the growth rate of industry groups
classified under:
zz Broad sectors: Mining, Manufacturing and
Electricity
zz Use-based sectors: Basic Goods, Capital Goods
and Intermediate Goods.
™™ Currently, the base year has been shifted to 2011-12
from 2004-05.
Other findings of the report:
™™ The mining and quarrying sector saw growth slowing
to 2% in February from 3.92% in January.
™™ The manufacturing sector saw a contraction of 0.31%
from 1.05% in the same period.
™™ Growth in the infrastructure sector slowed to 2.38%
from 6.8%.
™™ The electricity sector was the sector that saw an
acceleration in growth, coming in at 1.18% in February
compared with a growth of 0.94% in January.
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™™ The consumer non-durables sector also saw growth
quickening, to 4.3% from 3.33% over the same period.
™™ This declination of index caused slowing down of the
economy, which was reflected in the quarterly GDP
data.
Central Statistical Office (CSO)
™™ It is an office under the Ministry of Statistics and Programme
Implementation (MoSPI).
™™ It coordinates the statistical activities in the country and evolves
statistical standards.
It has the following 5 divisions:
™™ National Accounts Division (NAD): This Division is responsible
for the preparation of national accounts, which includes Gross
Domestic Product, Government and Private Final Consumption
Expenditure, Fixed Capital Formation and other macro-economic
aggregates.
™™ Social Statistics Division (SSD): This Division is entrusted with
Statistical monitoring of the Millennium Development Goals,
Environmental Economic Accounting and Grant-in-aid for
research.
™™ Economic Statistics Division (ESD): This Division conducts
Economic Censuses, compiles All India Index of Industrial
Production(IIP), Energy Statistics and Infrastructure Statistics.
™™ Training Division: This Division is primarily responsible for the
training manpower in theoretical and applied statistics to tackle
the emerging challenges of data collection, collation, analysis
and dissemination required for evidence based policy making as
also for planning, monitoring and evaluation.
™™ Coordination and Publications Division (CAP): The Division
looks after co-ordination work within CSO as well as with the line
Ministries and State Governments in statistical matters, organizes
Conference of Central and State Statistical Organizations and
‘Statistics Day’ every year.
5. World Digital Competitiveness Ranking 2019
About:
™™ IMD World Digital Competitiveness Ranking measures
the capacity and readiness of 63 economies to adopt
and explore digital technologies as a key driver for
economic transformation in business, government
and wider society.
™™ India has jumped four places from 48th place in 2018
to 44th rank in 2019 in World Digital Competitiveness
Ranking (WDCR)
™™ To evaluate an economy, WDCR examines three
factors:
zz Knowledge: the capacity to understand and
learn the new technologies;
zz Technology: the competence to develop new
digital innovations;
zz Future readiness: the preparedness for the
coming developments.
™™ The US was ranked as the world’s most digitally
competitive economy, followed by Singapore in
second place.
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6. World Cost of Living Survey 2019
Context: The Economist Intelligence Unit has
released the report of the Worldwide Cost of Living
Survey 2019.
World Cost of Living Report
™™ The Worldwide Cost of Living is a biannual Economist
Intelligence Unit survey which compares more than
400 individual prices across over 150 products and
services in cities around the world.
™™ These include food, drink, clothing, household
supplies and personal care items, home rents,
transport, utility bills, private schools, domestic help
and recreational costs.
Highlights of the Report
™™ For the first time three cities share the title of the
world’s most expensive city – Singapore, Hong Kong
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and Paris.
™™ This year’s top ten is largely split between Asia and
Europe, with Singapore representing the only city
that has maintained its ranking from the previous
year.
™™ Three Indian cities - New Delhi, Bengaluru and
Chennai, are among the cheapest cities in the world.
™™ India is tipped for rapid economic expansion, but
in per-head terms, wage and spending growth
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will remain low. Income inequality means that low
wages are the norm, limiting household spending
and creating many tiers of pricing as well as strong
competition from a range of retail sources.
™™ Moreover, in India cheap and plentiful supply of
goods into cities from rural producers with short
supply chains as well as government subsidies on
some products, has kept prices down, especially by
Western standards.
™™ Syria’s capital, Damascus is the cheapest city in the
world. Joining Damascus at the bottom is Venezuela’s
capital, Caracas and Kazakhstan’s business centre,
Almaty, in the second and third position respectively.
™™ Others in the 10 cheapest cities list include Lagos at
the 4th place, Bengaluru (5th), Karachi (6th), Algiers (7th),
Chennai (8th), Bucharest (9th) and New Delhi (10th).
™™ Although the Indian subcontinent remains
structurally cheap, instability is becoming an
increasingly prominent factor in lowering the relative
cost of living of a location. This means that there is a
considerable element of risk in some of the world’s
cheapest cities.
™™ Singapore retained its title as the world’s most
expensive city for the fifth consecutive year.
Singapore was ranked ahead of Paris placed second
on the list, Zurich (3rd) and Hong Kong (4th).
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Economic Intelligence Unit
™™ It is the world leader in global business intelligence.
™™ It helps businesses, the financial sector and governments to
understand how the world is changing and how that creates
opportunities to be seized and risks to be managed.
™™ It helps to produce the highest-quality research, analysis and
data about countries, cities, industries and companies, and our
consultancy, advisory and networking solutions help our clients
to understand and navigate the toughest business challenges.
7. World Happiness Report 2019
Context: The United Nations has released the World
Happiness Report- 2019.
More on News:
™™ The report was released by the Sustainable
Development Solutions Network for the United
Nations
™™ March 20 was designated as the World Happiness
Day by the UN General Assembly in 2012.
™™ This is the 7th World Happiness Report. The first was
released in April 2012 in support of a UN High level
meeting on “Wellbeing and Happiness: Defining a
New Economic Paradigm”.
™™ The report ranks countries on six key variables that
support well-being: income, freedom, trust, healthy
life expectancy, social support and generosity.
™™ The happiness study ranks the countries of the world
on the basis of questions from the Gallup World Poll.
The results are then correlated with other factors,
including GDP and social security.
™™ This year’s focus is on happiness and community: how
happiness has been changing over the past dozen
years, and how information technology, governance
and social norms influence communities.
Highlights of the 2019 Report:
™™ Indians are not as happy in 2019 as they were in 2018
and the country figures at 140th place, seven spots
down from last year.
™™ The overall world happiness has fallen over the
past few years, which has mostly been fuelled by a
sustained drop in India.
™™ Finland has topped a global happiness ranking for
the second year in a row.
™™ It beat Nordic peers Denmark, Norway and Iceland
in a ranking of 156 countries by the United Nations
Sustainable Development Solutions Network.
™™ The UN’s seventh annual World Happiness Report
also noted that there has been an increase in negative
emotions, including worry, sadness and anger.
™™ Pakistan is ranked 67th, Bangladesh 125th and China
is place at 93rd.
™™ People in war-torn South Sudan are the unhappy
with their lives, followed by Central African Republic
141
 (155), Afghanistan (154), Tanzania (153) and Rwanda
(152).
What is Gallup Poll?
™™ It is a global analytics and advice firm that helps
leaders and organizations solve their most pressing
problems.
™™ It focuses on the choices and mood of employees,
customers, students and citizens in countries of the
world.
™™ It tries to know what matters most to them at work
and in life and how those priorities change over time.
United Nations Sustainable Development Solution Network
™™ The UN SDSN has been operating since 2012 under the auspices
of the UN Secretary- General.
™™ SDSN mobilizes global scientific and technological expertise
to promote practical solutions for sustainable development,
including the implementation of the Sustainable Development
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Goals (SDGs) and the Paris Climate Agreement.
™™ The aim is to accelerate joint learning and promote integrated
approaches that address the interconnected economic, social,
and environmental challenges confronting the world.
™™ SDSN works closely with United Nations agencies, multilateral
financing institutions, the private sector, and civil society.
™™ The organization and governance of SDSN aims to enable a large
number of leaders from all regions and diverse backgrounds to
participate in the development of the network.
™™ It acts as the board of SDSN. Much of SDSN’s work is led by
National or Regional SDSNs, which mobilize knowledge
institutions around the SDGs.
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™™ Several Thematic Networks mobilize experts from around the
world on the technical challenges of implementing the SDGs and
the Paris Climate Agreement.
™™ SDSN has a small secretariat with offices in New York, New Delhi,
and Paris.
8. Logistics Index Chart
Context: Gujarat has retained the top slot on the
logistics index chart, an indicator of the efficiency of
logistical services necessary for promoting exports and
economic growth.
About:
™™ According to the report by the Commerce Ministry -
LEADS (Logistics Ease Across Different States) 2019,
prepared with the help of consultancy firm Deloitte,
the findings would help in identifying the problem
areas in the sector and prepare policy responses to
deal with them.
™™ The index aims at enhancing the focus on improving
logistics performance across states which is essential
for improving the country’s trade and reducing
transactions cost.
™™ The index was based on the analysis of perception with
regard to nine parameters, including infrastructure,
quality of logistics, services, and timeliness of cargo
delivery, regulatory process and safety of cargo.
™™ It is based on the Logistics Performance Index created
by World Bank.
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9. Second Edition of Startup Ranking for 2019
Context: Department for Promotion of Industry and
Internal Trade (DPIIT) released second edition of Startup
Ranking for 2019.
Aim
™™ The Startup Ranking framework aims to rank the
States/UTs for establishing a robust ecosystem for
supporting Startups.
™™ The framework also encourages States and UTs to
identify, learn and replicate good practices from each
other.
™™ The ranking exercise aims to evaluate measures
taken by States/UTs during the assessment period
from May 1, 2018 to June 30, 2019.
Significance:
™™ The launch of the ranking framework in 2018
galvanized the States/UTs into action, there by giving
impetus to the Startup movement across the country.
™™ Till date, 25 States and UTs have launched their
dedicated Startup policies to incentivize Startups in
their jurisdiction.
™™ The Startup Ranking 2019 is expected to take forward
the Startup ecosystem in the country and give
impetus to the vision of India becoming a Startup
Nation.
Department for Promotion of Industry and Internal Trade
™™ It was established in 1995 and has been reconstituted in 2000
with the merger of the Department of Industrial Development.
™™ Recently, it was renamed from Department of Industrial Policy &
Promotion to Department for Promotion of Industry and Internal
Trade
Role and functions:
™™ Formulation and implementation of industrial policy and
strategies for industrial development in conformity with the
development needs and national objectives.
™™ Monitoring the industrial growth, in general, and performance
of industries specifically assigned to it, in particular, including
advice on all industrial and technical matters.
™™ Formulation of Foreign Direct Investment (FDI) Policy and
promotion, approval and facilitation of FDI
™™ Encouragement to foreign technology collaborations at
enterprise level and formulating policy parameters for the same
™™ Formulation of policies relating to Intellectual Property Rights
in the fields of Patents, Trademarks, Industrial Designs and
Geographical Indications of Goods and administration of
regulations, rules made there under
™™ Administration of Industries (Development & Regulation) Act,
1951
™™ Promoting industrial development of industrially backward
areas and the North Eastern Region including International
Co-operation for industrial partnerships and Promotion of
productivity, quality and technical cooperation.
10. Worldwide Education for the Future Index
2019
Context: India jumped five ranks in the Worldwide
Educating for the Future Index (WEFFI) 2019, as per a
report published by The Economist Intelligence Unit.
142
About: resources to implement strong policy and advance a
™™ Worldwide Educating for the Future Index (WEFFI) future skills agenda.
is the first comprehensive global index to evaluate ™™ Among the world’s largest economies, the US, UK,
inputs to education systems rather than outputs such France and Russia all fell back in the index, while
as test scores. China, India and Indonesia took steps forward.
™™ This is the third edition of the WEFFI, produced by 11.
Various Reports and their Publishing
The Economist Intelligence Unitand commissioned Organisations
by the Yidan Prize Foundation. Report/Index Publishing Organisation
™™ The index ranks 50 economies, which represent 1. Ease of Doing Business World Bank
nearly 93% of global GDP and 89% of the world’s 2. World Development Report World Bank
population. (WDR)

™™ With a focus on young people aged 15-24, it measures 3. Global Economic Prospect World Bank
Report
three pillarsas a means of readying young people to
4. World Economic Outlook IMF
meet the challenges of work and society in future:
5. Global Money Laundering Financial Action Task Force
zz education systems--policy approaches Report (FATF)
zz teaching conditions 6. Global Competitiveness World Economic Forum (WEF)
Report

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zz broader gauges of societal freedom and
7. Global Human Capital Index World Economic Forum (WEF)
openness
8. Inclusive Development Index World Economic Forum (WEF)
™™ It remains the only major ranking to assess inputs to
9. Global Gender Gap Index World Economic Forum (WEF)
education systems and stands in contrast to measures
10. Gender Inequality Index UN Development Programme
like the OECD’s Programme for International Student (UNDP)
Assessment, which looks at exam-like outputs. 11. World Investment Report UN Conference on Trade and
The Economist Intelligence Unit (The EIU) Development (UNCTAD)

™™ The Economist Intelligence Unit (The EIU) was created in 1946. 12. World Happiness Report UN Sustainable Development
Solutions Network (SDSN)
™™ It is a British business within the Economist Group providing

IAS
forecasting and advisory services through research and analysis, 13. World Intellectual Property World Intellectual Property
such as monthly country reports, five-year country economic Report Organization (WIPO)
forecasts, country risk service reports, and industry reports. 14. Intellectual Property Index US Chamber of Commerce
Key-findings of the index: 15. World Energy Outlook International Energy Agency
(IEA)
India:
16. Corruption Perception Index Transparency International
™™ India ranked 35th on the overall index in 2019 with a NGO
total score of 53, based on three categories: 17. World Press Freedom Index Reporters Without Borders
™™ Policy Environment: In 2019, India scored 56.3 in 18. Global Peace Index Institute of Economics and
Peace (IEP), Australia
policy environment falling from a 61.5 score in 2018.
19. Global Innovation Index Cornell University, INSEAD
™™ Teaching Environment: India scored 52.2 in and WIPO
the teaching environment category, increased 20. Global Cyber Security Index UN International
significantly from 32.2 in 2018. Telecommunication Union
(UN-ITU)
™™ Overall Socio-economic Environment: India scored
50.1 in the socio-economic environment category Thalinomics
increased significantly from 33.3 in 2018 The Economic Survey 2020 coined a new term called
™™ The country ranked 40th with an overall score of 41.2 ‘Thalinomics’ and the government pitched the term as
across categories in 2018. “economics for the common man”.
Global findings: ™™ The Economic Survey 2020 made a unique attempt
™™ The index is topped by Finland. Finland was first in to quantify the cost incurred in putting together one
previous year’s ranking as well, complete home-made meal — the healthy Indian
thali.
™™ Sweden and New Zealand ranked second and third,
with Sweden advancing two places and New Zealand ™™ Thali prices represent the total money spent on
maintaining its third position from 2018’s results. preparing dishes for a meal in a household.

™™ The Philippines, Ghana and Mexico all performed ™™ Thalinomics captures the economics of a plate of
strongly among a new income-adjusted ranking food in India.
due to their ability to channel their more limited ™™ Rise in Affordability: Despite recent concerns about
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 rising food prices, the Economic Survey has stated
that for a worker, a vegetarian thali is 29% more
affordable since 2006-07. And affordability of a non-
vegetarian thali improved by 18 per cent.
™™ It also looked at an industrial worker’s ability to pay
for two thalis a day for his/her household of five
individuals.
™™ Conclusion: Basically the survey attempts to calculate
the cost that an average worker incurs based on his
actual plate of food in India.
And on calculating that cost, the survey concludes
that works were able to save due to moderation in prices
of items that form part of a regular Indian thali.
8. Blue Economy
Commitment to the development of the Blue
Economy has been expressed by a mention in the budget
speech. This has laid the foundation and will provide the
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initial traction to create the space for implementation of
the strategy.
™™ The development of the Blue Economy can play a
critical role in nation building.
™™ It would enhance the GDP, not just by exploitation
of under-water resources but by developing it as a
platform for infrastructure expansion into the ocean,
especially when there is a shortage of space on land.
IAS
™™ The idea is to expand port activities on the sea rather
than on land.
Scopes of growth and development
™™ The sub-sectors includes blue trade in both goods
and services, including the development of marine
services (such as port services, ship repair, maritime
finance and insurance , marine ICT and digitisation)
™™ Blue investment (port and transloading in mid-seas,
coastal-to-hinterland connectivity)
™™ Blue SMEs — a sub-category of the SMEs as defined
by the Ministry of Small and Medium Enterprises
(MSME)
™™ Blue manufacturing (development of dedicated
industrial parks, as is being envisaged under the
Sagarmala, protection risks of coastal natural
calamities, etc.)
™™ Some time-tested paradigms of PPPs (Public Private
Partnerships) will be ideal for the growth and
development of the sector.
™™ A mechanism to coordinate the efforts of the coastal
districts/municipalities/panchayats, coastal state
governments, and the Union government will need
to be established.
Meaning of the term “Blue Economy”
™™ ‘Blue Economy’ is the integration of ocean economy
development with values of social inclusion and
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environmental sustainability, along with dynamic
and innovative business models.
™™ For India, however, blue economy extends beyond
being merely an economic and environmental
proposition. It presents India with an unprecedented
opportunity to meet its national objectives,
strengthen connectivity with neighbours, and exert
infl uence in the surrounding regions.
Gig Economy
The struggle for gig workers’ rights took a big step
forward this week when the California legislature passed
a law classifying many such workers — including Uber
and Lyft drivers — as “employees.”
™™ Gig Economy
zz In a gig economy, temporary, flexible jobs are
commonplace and companies tend toward
hiring independent contractors and freelancers
instead of full-time employees.
zz A gig economy undermines the traditional
economy of full-time workers who rarely change
positions and instead focus on a lifetime career.
zz The gig economy can benefit workers, businesses,
and consumers by making work more adaptable
to the needs of the moment and demand for
flexible lifestyles.
zz At the same time, the gig economy can have
downsides due to the erosion of traditional
economic relationships between workers,
businesses, and clients.
Adjusted Gross Revenue (AGR)
The Supreme Court has upheld the defi nition of
Adjusted Gross Revenue (AGR) calculation as stipulated
by the Department of Telecommunications. This means
that telecom companies will have to pay up as much as Rs
92,642 crore to the government.
AGR
™™ Adjusted Gross Revenue (AGR) is the usage and
licensing fee that telecom operators are charged by
the Department of Telecommunications (DoT).
™™ It is divided into spectrum usage charges and
licensing fees, pegged between 3-5 percent and 8
percent respectively.
™™ As per DoT, the charges are calculated based on all
revenues earned by a telco – including nontelecom
related sources such as deposit interests and asset
sales. Telcos, on their part, insist that AGR should
comprise only the revenues generated from telecom
services.
144
 List of Committees With Purposes
Name of Committee/Commission Purpose
Abhijeet Sen Committee
Abid Hussain Committee
Chakravarty Committee (1985)
G V Ramakrishna Committee
JJ Irani Committee
Kelkar Committee (2015)
Raja Chelliah Committee
Khusro Committee
Sarkaria Commission
Malegam Committee
Formulating food policy in the
long term
Small scale industries
Trade Policy Reform
Monetary policy
Disinvestment
Company laws; Formation of
the new Companies Act
Assessing PPP in India and Tax
Structure Reforms
Tax reforms in India
Agricultural Credit System
Relationship and power
balance between the Centre
and States
Microfinance
Kasturirangan Committee Draft National Education Policy
Kothari Commission To examine all aspects of the
educational sector in India
Kumaramangalam Birla Report Corporate Governance
and N.N. Vohra Committee Relations (Nexus) of Politicians
with Criminals
Radha Krishnan Commission (1948) Establishment of the University
Grant Commission
K. Santhanam Committee Establishment of CBI
Shivaraman Committee (1979) Establishment of NABARD
Swaminathan Commission (2004) To find the problems faced by
the farmers
Balwantrai Mehta Committee Panchayati Raj Institutions
(1957)
Justice A.K Mathur Commission 7th Pay Commission
Vaghul Committee Money market in India
Vasudev Committee NBFC sector reforms
Y B Reddy Committee Review of Income Tax rebates

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Narasimhan Committee
Mckinsey Report
Suresh Tendulkar Committee
Tarapore Committee
A Ghosh committee
Y B Reddy Committee
Bhagwati Committee
Banking Reforms
Aruna Sundararajan Committee Telecom sector revival
Merger Of seven Associate
Rajiv Kumar Committee Selling of OIL and ONGC fields
Banks with State Bank of India
to private companies
The methodology of estimation
Sushil Modi Committee To look into GST revenue
of poverty
shortfall faced by states
Capital Account Convertibility
Lokpal Search Committee (Justice For recommending names for
Malpractices in banks Ranjana Desai) Lokpal
Assessing Of Income Tax Injeti Srinivas Committee Corporate Social Responsibility
Rebates (CSR)
Unemployment and Public Punchhi Commission Centre-State relations

IAS
Welfare
Government Schemes
C Rao Committee Agricultural policy
Dharia Committee Public Distribution System In this article, we have compiled the list of important
Rangarajan Committee Computerization Of Banking
centrally sponsored schemes by the Modi government.
Industry and Public Sector Scheme / Starting date Objective of Scheme
Disinvestment programme
Lodha committee To recommend reforms for
cricket in India Jan Dhan Yojna 28 August, 2014 To connect more and more
peoples from the banking
Raghunath Anant Mashelkar panel To suggest the best services
technologies for Swachh
Bharat Abhiyaan Skill India Mission 28 August, 2014 Skill Development in Youth
K V Kamath Panel To examine the MSME sector
Make in India 28 September, Promoting manufacturing
Bibek Debroy Committee Railway restructuring
2014 Sector in the country
Justice B. M Shah Committee Black money
Swachh Bharat 2 October, 2014 Making India a clean country
A C Shah Committee Non-Banking Financial Mission till October 2, 1919
Company
Sansad Adarsh 11 October, Development in the villages
Ajit Kumar Committee Army pay scales
Gram Yojana 2014 which includes social
Athreya Committee Restructuring of IDBI development, cultural
Bhurelal Committee Increase in Motor Vehicle Tax development.

Bimal Jalan Committee Report on the working of
capital market infrastructure
institutions (MIIs)
Chandra Shekhar Committee Venture Capital
Dave Committee Pension Scheme
Unorganized Sector
Deepak Parekh Committee Financing Infrastructure
through PPP model
Hanumant Rao Committee Fertilisers
Janakiramanan Committee Securities Transactions
Shramew Jayate 16 October, Plan dedicated to labour
Yojana 2014 development
Beti Bachao Beti 22 January, 2015 The goal of this scheme
Padhao is to make girls socially
and financially self-reliant
for through education.
Hridaya Plan 21 January, 2015 To take care of world heritage
sites and to make these sites
economically viable.
PM Mudra Yojna 8 April , 2015 Loan to small businessmen
from 50 thousand to 10 lakh

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 Ujala Yojana 1 May, 2015 Distribution of LED bulbs at a banking services to all households in the country. With
low price to reduce electricity the outbreak of Covid-19 in India, the Finance Minister
consumption of India, Nirmala Sitharaman made an announcement
Atal Pension 9 May, 2015 Monthly pension for people to provide Rs. 500 per month to every Women Jan-
Yojna from the unorganized sector
b/w age of 18 to 40 years Dhan Account Holders for the next three months. This
Prime Minister 9 May, 2015 Life Insurance of Rs. 2 lakh
announcement was made on 26th March 2020 as an
Jyoti Jyoti Bima for people b/w 18 to 50 years initiative towards the loss caused by the outbreak.
Yojna (@Premium of Rs. 330 per
annum)
2. Make in India: PM Narendra Modi launched the
‘Make in India’ campaign that will facilitate investment,
Pradhan Mantri 9 May, 2015 General insurance/accident
Suraksha Bima insurance for people between foster innovation, enhanced protection for intellectual
Yojana 18 and 70 years of 2 lakh (at a property and build best in manufacturing infrastructure.
premium of 12 Rs. / year)
‘Make in India’ has identified 25 sectors in
Smart city 25 June, 2015 Developing 100 selected
scheme cities of the country as smart manufacturing, infrastructure and service activities and
cities from 2015 to 2020 detailed information is being shared through interactive
AMRUT Plan 25 June, 2015 Developing all the basic web-portal and professionally developed brochures.
amenities in more than 500
cities which have more than 3. Swachh Bharat Mission: Swachh Bharat
one lakh population Mission was launched in the entire country as a national

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Digital India 2 July, 2015 Making all government movement. The campaign aims to achieve the vision of
Mission services electronically a ‘Clean India’ by 2nd October 2019. The Swachh Bharat
available to the public
Abhiyan is the most significant campaign with regards to
G o l d 5 November, Putting inoperative gold
M o n e t i z a t i o n 2015 (lying at home and lockers) in
sanitation by the Government of India.
Scheme productive works. 4. Beti Bachao Beti Padhao: The goal of this
Sovereign Gold 5 November, To check the real demand of scheme is to make girls socially and financially self-reliant
Bond Scheme 2015 Gold; government introduced
through education.
the Sovereign Gold Bond
Scheme. 5. Atal Pension Yojna: Atal Pension Yojana
UDAY 20th November, Financial turnaround of Power is a pension scheme mainly aimed at providing a

IAS
2015 Distribution Companies of universal pension scheme for those who are a part
Public Sector
of the unorganized sector such as maids, gardeners,
Start-up India 16 January, 2016 To Promote new enterprises
delivery boys, etc. This scheme replaced the previous
Setu Bhartam 4 March , 2016 Construction of Over and
Yojna Under Bridge to make
Swavalamban Yojana which wasn’t well-received by the
National Highways Railway people.
Crossing free
6. Digital India Mission: The Digital India
Stand Up India 5 April, 2016 Loans up to 10 lacs to 1 crore programme is a flagship programme of the Government
for establishment of new
companies to Scheduled of India with a vision to transform India into a digitally
Castes / Tribes and Women empowered society and knowledge economy.
Entrepreneurs
7. Pradhan Mantri Shram Yogi Maan-dhan: It is a
Gramoday Se 14-24 April 2016 Emphasizing the
Bharat Uday development of villages for voluntary and contributory pension scheme, under which
proper development of the the subscriber would receive the following benefits:
country
(i) Minimum Assured Pension: Each subscriber under
Prime Minister 1 May, 2016 Providing the LPG connection
Ujjwala Plan to BPL families at subsidized the PM-SYM, shall receive minimum assured pension
rates of Rs 3000/- per month after attaining the age of 60
Namami Gange 7 July, 2016 Cleanliness of river Ganga years.
Yojana
(ii) Family Pension: During the receipt of a pension, if
About the Government Schemes the subscriber dies, the spouse of the beneficiary shall
Knowing all the government schemes is one thing, be entitled to receive 50% of the pension received by
but the candidates must also know their purpose. the beneficiary as a family pension. Family pension is
Candidates stand a better chance of scoring high marks applicable only to a spouse.
if and when they go through the purpose of each scheme (iii) If a beneficiary has given a regular contribution and
given below. died due to any cause (before age of 60 years), his/
1. Pradhan Mantri Jan Dhan Yojana: Pradhan her spouse will be entitled to join and continue
Mantri Jan Dhan Yojana is a National Mission on Financial the scheme subsequently by payment of regular
Inclusion that provides an integrated approach to bring contribution or exit the scheme as per provisions of
about a robust financial inclusion and ultimately provide exit and withdrawal.
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 8. Gold Monetisation Scheme: Gold Monetisation
Scheme was launched by Government of India in 2015,
under this scheme one can deposit their gold in any form
in a GMS account to earn interest as the price of the gold
metal goes up.
9. PM CARES Fund -Prime Minister’s Citizen
Assistance and Relief in Emergency Situation Fund:
Is a public charitable trust initiated by the Prime Minister
Narendra Modi. This national trust is created with the
objective to meet the distressed and dreadful situation
like COVID-19 in times ahead. PM CARES was initiated
on March 28, 2020, under the chairmanship of the Indian
Prime Minister with Ministry of Home Affairs, Defence
Minister and Finance Minister as the ex-officio Trustee.
10. Aarogya Setu: The Government of India took
the initiative to fight the Coronavirus pandemic. It
launched a mobile application to spread the awareness
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of COVID-19 among the citizens of India through an
app called Aarogya Setu. The Aarogya Setu mobile app
has been developed by the National Informatics Centre
(NIC) that comes under the Ministry of Electronics and
Information Technology. For detailed information, visit
the link of Aarogya Setu given above.
11. Ayushman Bharat: Launched in 2018 by Prime
Minister Narendra Modi Ayushman Bharat is a health
scheme. It is the largest government-funded healthcare
IAS
programme in the world with over 50 crore beneficiaries.
The Ayushman Bharath programme has two sub-missions
PM-JAY & HWCs.
™™ Pradhan Mantri Jan Arogya Yojana (PM-JAY), earlier
known as the National Health Protection Scheme
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(NHPS) will cover the financial protection for availing
healthcare services at the secondary and tertiary
levels.
™™ Health and Wellness Centres (HWCs) aimed at
improving access to cheap and quality healthcare
services at the primary level. Read about Ayushman
Bharat in detail in the link provided above.
12. UMANG – Unified Mobile Application for New-
age Governance is a mobile application launched by PM
Narendra Modi to provide secured access to the citizens
to multiple government services at one platform. UMANG
is a key component of the Digital India initiative of the
government that intends to make all traditional offline
government services available 24 * 7 online through a
single unified app.
13. PRASAD Scheme – Pilgrimage Rejuvenation And
Spirituality Augmentation Drive. The Scheme is launched
under the Ministry of tourism in the year 2015. The aims
of PRASAD Scheme is the integrated development of
pilgrimage destinations in a prioritised, planned, and
sustainable manner for providing complete religious
tourism experience. The focus of Pilgrimage Rejuvenation
And Spirituality Augmentation Drive- PRASAD is on
the development and beautification of the identified
pilgrimage destinations. Further details on PRASAD
scheme is given in the related page link given above in
the article.
The path to success in the Government and bank
exams is paved with difficulties but it is not an impossible
path to walk on. Practising with mock tests and brushing
up daily on study materials will lead to success.
147

Budget At A Glance 2020-2021
Budget at a Glance presents broad aggregates of the
Budget in a reader-friendly document. This document
shows receipts and expenditure as well as the Fiscal Deficit
(FD), Revenue Deficit (RD), Effective Revenue Deficit
(ERD), and the Primary Deficit (PD). of the Government of
India. Besides, it presents a pictorial account of sources of
receipts, their application, the details of debt and deficit
indicators, sources of deficit financing and trends and
composition of important budgetary variables through
charts and graphs.
2. Fiscal Deficit is the difference between the
Revenue Receipts plus Non-debt Capital Receipts (NDCR)
and the total expenditure. FD is reflective of the total
borrowing requirements of Government. Revenue Deficit
refers to the excess of revenue expenditure over revenue
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receipts. Effective Revenue Deficit is the difference
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between Revenue Deficit and Grants for Creation of
Capital Assets. Primary Deficit is measured as Fiscal Deficit
less interest payments.
3. Budget 2020-21 reflects the Government’s
firm commitment to substantially boost investment in
Agriculture, Social Sector, Education and Health. This is
substantiated by increase in expenditure of `3,43,678
crores over RE (2019-20) while keeping the fiscal deficit at
3.8% of GDP.
4. In RE 2019-20, the total expenditure has been
kept at `26,98,552 crore and is more than Provisional
Actual (2018-19) by `3,83,439 crore.
5. The total resources going to States including the
devolution of State’s share in taxes, Grants/Loans, and
releases under Centrally Sponsored Schemes in BE (2020-
21) is `13,90,666 crore, with an increase of `2,02,705
crore over RE (2019-20).
6. Actuals for 2018-19 are provisional.
148
 Actuals for 2018-19 are provi-
sional.

vkLFkk
IAS

vkLFkk IAS : M-1A, Jyoti Bhawan, Mukherjee Nagar, Delhi-110009 149

vkLFkk
IAS

vkLFkk IAS : M-1A, Jyoti Bhawan, Mukherjee Nagar, Delhi-110009 150

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Top
Rankers
1stRank (46 oha) 1stRank (48 oha) 2ndRank (53 oha) 5thRank (56 oha )
Amritendu Sekhar Prashant Singh Rajnish Kumar Rakesh Singh

Ms. Nayna Ms. Arshi Mr. Wasim Ms. Anita Mr. Nawazish Mr. Abhishek Mr. Shahzad Ms. Chandni Mr.Pankaj Mani Mr. Rakesh Mr.Chandra Kishore

Mr. Abhijeet Mr. Vinit Mr.Abhishek Mr. Jitesh Mr. Kishan Mr. Rajnish Mr. Rajeev Mr.Dr.Rabindra Mr. Manish Mr.Dheeraj Mr. Ajit

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Mr. Manoj
Kunal Pyare
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Ms. Atul
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Shashi Mr.
Anish
Monu Ms. Sweta Awadesh
Vinod Mr.Rajneesh Santosh Kapil Bidu
Mr.Somnath Ms.Swarnlata Mr.Dharambir