Economy Current Affairs by Teju, NextGen IAS – December 2020

Contents

{Economy – 2020/12} Anti-Dumping Duty...................................................................................................................... 1

{Economy – 2020/12} Consumer Price Index (CPI) Inflation ......................................................................................... 1

{Economy – 2020/12} Credit Default Swaps (CDS) ............................................................................................................................................. 3

{Economy – 2020/12} Equalisation tax .................................................................................................................................................................... 3

{Economy – 2020/12} Foreign Portfolio Investment (FPI) ............................................................................................. 3

{Economy – 2020/12} Initial Public Offering (IPO) ......................................................................................................... 4

{Economy – 2020/12} Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) .................................. 5
{Economy – 2020/12} Misc. Topics............................................................................................................................................................................ 8

{Economy – 2020/12} Municipal Bonds or Muni Bonds ................................................................................................................................... 9

{Economy – 2020/12} Quarterly Employment Survey (QES) ......................................................................................................................... 10

{Economy – 2020/12} Technical Recession .................................................................................................................... 11

{Economy – 2020/12} White Goods ........................................................................................................................................................................ 13

{Economy – 2020/12} Anti-Dumping Duty

➔ Context: GOI in June 2020 restricted the import of tyres – a bulk of which came from China & Thailand —
to prevent dumping of cheap imports into the country.
➔ Anti-Dumping Duty is a protectionist tariff that a domestic government imposes on foreign imports
that it believes are priced below fair market value.
➔ India is one of the largest consumption economies in the world & a potential ground for dumping a wide
variety of goods, especially from China, Taiwan & South Korea.

{Economy – 2020/12} Consumer Price Index (CPI) Inflation

➢ CPI is a comprehensive measure used for estimation of price changes in a basket of goods & services
representative of consumption expenditure in an economy.
➢ In India, CPI is calculated on a monthly basis by Ministry of Statistics & Pro-gramme Implementation.
➢ Inflation is measured using CPI.
➢ The percentage change in this index over a period of time gives the amount of inflation over that specific
period, i.e. the increase in prices of a representative basket of goods consumed.

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➢ CPI Inflation Rate Projected by RBI for H1 FY 2022: 4.6 % to 5.2 %

Components (basket of goods & services) of Consumer Price Index (CPI)

1) FOOD & BEVERAGES 2) PAN, TOBACCO, & INTOXICANTS

3) CLOTHING & FOOTWEAR
1. Cereals & products
1. Clothing
2. Meat & Fish
2. Footwear
3. Egg
4. Milk & products 4) HOUSING
5. Oils & fats 5) FUEL & LIGHT
6) MISCELLANEOUS
6. Fruits
1. Household goods & services
7. Vegetables
2. Health
8. Pulses & products
3. Transport & communication
9. Sugar & confectionery
4. Recreation & amusement
10. Spices
5. Education
11. Non-alcoholic beverages
6. Personal care & effects
12. Prepared meals, snacks, sweets etc.

Highest Weight in Each Category

Category Highest Weight in the Category

Rural CPI Urban CPI

1) Food & Beverages Cereals > Milk > Snacks > Vege-
Cereals > Milk > Vegetables > Snacks > Meat >

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 Oils < Spices < Pulses < Fruits < Sugar < Non- tables (rest is similar to rural)

alcoholic beverages < Egg

2) Pan, Tobacco, & Intoxicants

No subcategory

3) Clothing & Footwear Same

Clothing > Footwear

4) Housing No subcategory
Housing inflation is not included in Rural CPI

5) Fuel & Light

No subcategory

6) Miscellaneous Transport > Education > Health

Transport > Health > Personal care > Household
goods > Education > Recreation

{Economy – 2020/12} Credit Default Swaps (CDS)

➔ CDS is a financial derivative (derives its value from an underlying asset — corporate bonds in this case).
➔ CDS scheme is introduced by RBI to allow corporate entities to hedge (protect against) risk against de-
fault in corporate bonds to which they subscribe.
➔ Foreign institutional investors (FIIs), banks, insurers, NBFCs, housing, etc. can buy credit protection under
the Credit Default Swaps (CDS) scheme.

{Economy – 2020/12} Equalisation tax

➔ It is a Direct Tax
➔ Introduced in India in 2016
➔ It is a tax on the digital transactions i.e. the income accruing to foreign e-commerce companies from
India.
➔ In India, a 6% equalisation tax is levied on gross payments received by global digital companies from
Indian residents for online advertising.

{Economy – 2020/12} Foreign Portfolio Investment (FPI)

➔ FPI is the entry of funds into a country where non-residents (the ones that are not residing in India: for-
eigners, NRIs) deposit money in a country's bank or invest in the country's stock & bond markets.
➔ In 1992, India opened up its economy & allowed foreign portfolio investment in its domestic stock markets.

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➔ Since then, foreign portfolio investment has emerged as a major source of private capital inflow.
➔ FPI & FDI are both important sources of funding for most economies.

Foreign Direct Investment (FDI) vs Foreign Portfolio Investment (FPI)

✓ FDI is an investment made by a firm or individual in one country into business interests located in
another country.
✓ FPI refers to investments made in securities and other financial assets issued in another country.

➔ FDI in the April-September 2020 period rose 15% from a year ago to $30 billion.
➔ FPI was at a monthly record of 62,782 crore (~$ 8.5 billion) in November 2020.
 Inference ➔ FPI received/month > FDI received/month
➔ SEBI brought new FPI Regulations, 2019, replacing the erstwhile FPI Regulations of 2014.

{Economy – 2020/12} Initial Public Offering (IPO)

➔ Context: Burger King India's IPO was a success & the shares are proposed to be listed on BSE & NSE.
➔ An IPO is the process by which a private company can go public by sale of its stocks to general public.
➔ In an IPO, companies can
✓ raise equity capital (funds paid to the company by investors in exchange for stock) by issuing new
shares to the public or
✓ the existing shareholders can sell their shares to the public without the company raising any fresh
capital.
➔ Through the IPO, the company gets its name listed on the stock exchange.
➔ After IPO, the company's shares are traded in an open market.
➔ Primary market: deals with new securities being issued for the first time.
➔ It is also known as the new issues market.
➔ Secondary market: existing securities are bought & sold.
➔ It is also known as the stock market or stock exchange.

Q1. UPSC CSE Prelims Question (2000): A rise in ‘SENSEX’ means

a) a rise in prices of shares of all companies registered with Bombay Stock Exchange

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 b) a rise in prices of shares of all companies registered with National Stock Exchange
c) an overall rise in prices of shares of group of companies registered with Bombay Stock Exchange
d) a rise in prices of shares of all companies belonging to a group of companies registered with Bombay
Stock Exchange

Explanation
a) Wrong because some companies’ share price fall but still there can be a rise in SENSEX.
b) While NSE’s index, Nifty 50, gives top 50 stock index, BSE’s index, SENSEX, gives top 30 stock index.
c) Some stock might see a rise while some other might see a fall but at the end it’s the overall perfor-
mance of the 30 stock indexes that matters.

Answer: an overall rise in prices of shares of group of companies registered with BSE (c)

SENSEX

➔ It is a free-float market-weighted stock market index of 30 well-established & financially sound

companies listed on Bombay Stock Exchange.
➔ These 30 companies are known as Blue chip companies.
➔ Published since 1986, the S&P BSE SENSEX is regarded as the pulse of the domestic stock market.
➔ The base value of the SENSEX was taken as 100 on 1 April 1979 & its base year as 1978–79.
➔ On July 25, 2001 BSE launched DOLLEX-30, a dollar-linked version of the SENSEX.

Bombay Stock Exchange

➔ Located at Dalal Street, Mumbai

➔ Established in 1875 (Asia's oldest stock exchange)
➔ In 1957, the BSE became the first stock exchange to be recognized by the Indian Government under
the Securities Contracts Regulation Act.
➔ BSE established India INX in 2016
➔ India INX is the first international exchange of India

{Economy – 2020/12} Mahatma Gandhi National Rural Employment Guarantee

Act (MGNREGA)

➔ Context: Person days of work generated under MGNREGA fell to its lowest in this fiscal in November2020.

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Q2. UPSC CSE Prelims Previous (2011): Among the following who are eligible to benefit from
the “mahatma Gandhi national rural employment guarantee act” ?

a) Adult members of only the scheduled caste & scheduled tribe households.
b) Adult members of below poverty line (BPL) households.
c) Adult members of households of all backward communities.
d) Adult members of any household.

Q3. Prelims Practise: Consider the following statements

1) MGNREGA aims to guarantee the 'right to work' for rural & urban household volunteers
2) All volunteers above the age of 14 years are eligible for enrolling in MGNREGA
3) Right to work is a Fundamental Right

Which of the above statements are false?

a) 1 & 2 only
b) 2 & 3 only
c) 1 & 3 only
d) All

Explanation

➔ MGNREGA aims to guarantee the 'right to work' for rural household volunteers
➔ All adult volunteers (18+) are eligible for enrolling in MGNREGA
➔ Indian Constitution does not explicitly recognise the 'right to work' as a fundamental right.
➔ It is placed in Part IV (Directive Principles of State Policy) of the Constitution under Article 41, which
hence makes it unenforceable in the court of law.
➔ But in case of MGNREGA, “right to work” is a legal entitlement (enforceable in the court of law).

Answers: Adult members of any household (d) & All (d)

➔ Mahatma Gandhi National Rural Employment Guarantee Act, MGNREGA, is an Indian labour law & so-
cial security measure that aims to guarantee the 'right to work'.
➔ The act was first proposed in 1991 by P.V. Narasimha Rao.
➔ The act finally came into fruition in 2005 as Mahatma Gandhi Employment Guarantee Act.
➔ It was later renamed as Mahatma Gandhi National Rural Employment Guarantee Act, MGNREGA.
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➔ Commenced implementation in 625 districts of India.
➔ Based on this pilot experience, NREGA was scoped up to cover all the districts of India from April 1, 2008.
➔ MGNREGA is to be implemented mainly by gram panchayats.
➔ It is the Gram Sabha & the Gram Panchayat which approves the shelf of works under MGNREGA.
➔ The Gram Sabha is the principal forum for wage seekers to raise their voices & make demands.
➔ The Ministry of Rural Development (MRD) monitors the entire implementation of this scheme in associ-
ation with state governments.
➔ In its World Development Report 2014, the World Bank termed it a "stellar example of rural development".

Objectives of MGNREGA

➔ MGNREGA was initiated with the objective of

✓ enhancing livelihood security in rural areas
✓ by providing at least 100 days of guaranteed wage employment in a financial year,
✓ to every household whose adult members (18+) volunteer to do unskilled manual work"
➔ Another aim of MGNREGA is to create durable assets (such as roads) & reduce rural-urban migration.

Eligibility criteria

➔ Job seeker has completed 18 years of age at the time of application.

➔ The applicant must be part of a local household (i.e. application must be made with local Gram Panchayat).
➔ Applicant must volunteer for unskilled labour.

Legal Entitlement

➔ Employment is to be provided within 5 km of an applicant's residence, & minimum wages are to be

paid.
➔ If work is not provided within 15 days of applying, applicants are entitled to an unemployment al-
lowance.
➔ Thus, employment under MGNREGA is a legal entitlement.
➔ Individual beneficiary oriented works can be taken up on the cards of SC, ST, small or marginal farmers,
beneficiaries of land reforms, beneficiaries under the Indira Awaas Yojana of the Government of India.
➔ Social Audit of MGNREGA works is mandatory, which lends to accountability & transparency.

Role & Responsibilities of State Government in MGNREGA

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➔ Frame Rules on matters pertaining to State responsibilities.
➔ Set up the State Employment Guarantee Council (SEGC).
➔ Set up a State level MGNREGA implementation agency.
➔ Set up a State level MGNREGA social audit agency.
➔ Establish & operate a State Employment Guarantee Fund (SEGF).

{Economy – 2020/12} Misc. Topics

Repo Rate

➔ Current Repo Rate : 4%

➔ RBI lends money to banks for short term loans at this interest rate

Reverse Repo Rate

➔ Current Reverse Repo Rate: 3.35 %

➔ It is the rate at which banks lend funds to RBI

Indebtedness of States

➔ CRISIL report: States are likely to see the level of their indebtedness rise to a decade high of 36% of GSDP
➔ Reason: Fall in goods & services tax (GST) collections & sticky revenue expenditures
➔ GSDP: Volume of all goods & services produced within the boundaries of the State during a given peri-
od of time, accounted without duplication.

Financial Support to Cotton Farmers

➔ GOI has transferred 6,314 cr to over half a million farmers after procuring cotton valued at over 7,500 cr.
➔ On the recently approved production-linked incentives for the textiles sector, this is the first form of
financial support given by the government to the emerging industry.

K.V. Kamath Committee

➔ RBI has set up a committee headed by K.V. Kamath on restructuring of loans impacted by Covid-19.
➔ The panel was set up to deal with accounts where the aggregate exposure of the lending institutions at the
time of invocation of the resolution process is 1,500 crore & above.
➔ Panel defined recast thresholds for 26 stressed sectors.

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➔ Indian Banks’ Association (IBA) has asked the RBI to extend the restructuring window outlined by the KV
Kamath committee by another three months to March 31, 2021.

Fall in Exports

➔ India’s exports fell 9.07% from a year earlier in November, steeper than the 5.12% drop in October, to
$23.43 billion, according to preliminary data released by the commerce & industry ministry.
➔ Exports of rice, pharma & iron ore rose while those of petroleum products, engineering goods,chemicals &
plastics fell.

{Economy – 2020/12} Municipal Bonds or Muni Bonds

➔ Context: Lucknow Municipal Corporation raised Rs. 200 crore by listing its bonds on BSE.
➔ A municipal bond (muni bond) is a bond issued by a local government (municipality, panchayat, etc.).
➔ Muni bonds are issued to obtain finance for projects of public importance such as roads, schools, air-
ports & seaports, & infrastructure-related repairs.
➔ In 2015, market regulator SEBI had issued the framework for raising capital by way of muni bonds.

Similar Topic: Masala bonds

➔ Masala Bonds were introduced in India in 2014 by International Finance Corporation (IFC).
➔ IFC, a member of the World Bank Group, advances economic development by encouraging the growth
of the private sector in developing countries.
➔ Masala bonds are bonds issued outside India by Indian entities (both public & private) but denomi-
nated in Indian Rupees (rupee-denominated bonds).
➔ Thus, if the rupee rate falls, the investor will bear the loss instead of the borrower.
➔ This contrasts with dollar bonds, where the borrower takes the currency risk.
➔ The first Masala bond was issued by the IFC in 2014 to fund infrastructure projects in India.
➔ Later in 2015, IFC issued green masala bonds to fund private sector investments.
➔ In 2016, HDFC & public sector unit NTPC raised funds from Masala bonds.
➔ Indian entities or companies issue masala bonds outside India to raise money.
➔ The issue of these bonds is in Indian currency rather than local currency.
➔ Masala Bonds are rupee-denominated bonds issued outside India by Indian entities.
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➔ They are debt instruments which help to raise money in local currency from foreign investors.
➔ Both the government & private entities can issue these bonds.
➔ Investors outside India who would like to invest in assets in India can subscribe to these bonds.

UPSC CSE Prelims Question (2016): With reference to 'IFC Masala Bonds', sometimes seen in
the news, which of the statements given below is/are correct?

(1) The International Finance Corporation, which offers these bonds, is an arm of the World Bank.
(2) They are the rupee-denominated bonds & are a source of debt financing for the public & private sec-
tor.

Select the correct answer using the code given below.

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

Prelims Practise: With reference to 'IFC Masala Bonds', sometimes seen in the news, which of
the statements given below is/are correct?

1) They are debt instruments issued only by local governments in Indian currency.
2) They are debt instruments which help to raise money in any currency from foreign investors.
3) They are debt instruments where the lender bears all the currency risk.

Select the correct answer using the code given below.

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

Answers: c) Both 1 & 2; & b) 3 only

{Economy – 2020/12} Quarterly Employment Survey (QES)

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➔ It provides information on important characteristics of employment such as gender-wise employment, reg-
ular or contract & casual basis & part-time or full-time workers.
➔ Labour Bureau, Ministry of Labour & Employment, conducts QES.
➔ It is a survey, carried out with an objective to measure relative change in employment situation over
successive quarters for the establishments having 10 or more workers.

{Economy – 2020/12} Technical Recession

➔ RBI projects contraction for a 2nd consecutive quarter, which means the economy is in a ‘technical reces-
sion’.
➔ Contraction of Q2 is crucial because it implies India that has entered a “technical recession” for the
first time in its history.

➔ Recession means significant contraction in economic activity.

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➔ When a recessionary phase sustains for long enough, it is called a recession.
➔ In other words, when the GDP contracts for a long enough period, the economy is said to be in a reces-
sion.

Why was the concept of “Technical Recession” introduced?

 During the 2008 global financial crisis, 2009 was pegged as the end date for the recession but some metrics
did not recover for much longer.
 To get around these empirical technicalities, economists consider a recession to be in progress when real
GDP has declined for at least two consecutive quarters.
 That is how real quarterly GDP has come to be accepted as a measure of economic activity & a “bench-
mark” for ascertaining a “technical recession”.
 By this definition, as the data in the table shows, India entered a recession at the end of September.

UPSC CSE Prelims 2010: Consider the following actions by the Government:

1. Cutting the tax rates

2. Increasing the government spending
3. Abolishing the subsidies

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In the context of economic recession, which of the above actions can be considered a part of the “fiscal
stimulus” package?
a) 1 & 2 only
b) 2 only
c) 1 & 3 only
d) 1, 2 & 3

{Economy – 2020/12} White Goods

➔ Examples: Heavy consumer durables such as air conditioners, refrigerators etc.

➔ They are called as “White” goods as previously they used to be painted only in white enamel finish.
➔ Although they are available in different colors now, they are still called white goods.

Q4. UPSC CSE Prelims Question (1998): Some time back, the Government of India, decided to
delicense ‘white goods’ industry. ‘White goods’ include

a) stainless steel & aluminium utensils

b) milk & milk products
c) items purchased for conspicuous consumption
d) soaps, detergents & other mass consumption goods

Answer: conspicuous consumption (elimination method)

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