Economy Current Affairs by NextGen IAS – February & March 2021

Contents

{Economy – 2021/02} Bad Bank: Economy – Money and Banking ................................................................................ 2

State PSC Mains Previous Question: ................................................................................................................................................. 2

{Economy – 2021/02} Digital Delivery: Economy – Public Finance ............................................................................... 3

{Economy – 2021/02} Empowering Electricity Consumers: Economy - Infrastructure ................................................ 5

UDAY ................................................................................................................................................................................................. 5

{Economy – 2021/02} Government Budgeting : Economy - Budget ............................................................................. 6

Budget: .............................................................................................................................................................................................. 7

{Economy – 2021/02} Kochi-Mangaluru LNG pipeline: Economy - Infrastructure .................................................... 12

‘One Nation, One Gas Grid’ ............................................................................................................................................................. 12

{Economy – 2021/02} Monetary Policy: Economy – Money and Banking .................................................................. 13

Inflation Targeting: .......................................................................................................................................................................... 14
Digital lending: Economy – Money and Banking ............................................................................................................................. 15

{Economy – 2021/02} NBFC: Economy – Money and Banking..................................................................................... 16

Non-Banking Financial Company (NBFC)......................................................................................................................................... 16

{Economy – 2021/02} Shipping Sector: Economy - Infrastructure .............................................................................. 18

{Economy – 2021/02} Urban Unemployment: Economy - Unemployment ................................................................ 20
Gig Economy : Is it a solution to Urban Unemployment? ............................................................................................................... 20

{Economy – 2021/03} Asset reconstruction company (ARC): ...................................................................................... 21

{Economy – 2021/03} China back as top India trade partner: ..................................................................................... 22

{Economy – 2021/03} Equalisation levy: ........................................................................................................................ 22

{Economy – 2021/03} Faceless tax assessment scheme: .............................................................................................. 22

{Economy – 2021/03} Foodgrains production: ............................................................................................................. 22

{Economy – 2021/03} FRP/SAP of sugarcane:............................................................................................................... 23

{Economy – 2021/03} GDP back in positive territory ................................................................................................... 24

Back to Basics: Gross Domestic Product (GDP) ............................................................................................................................... 25
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{Economy – 2021/03} Human Capital Index: ................................................................................................................ 26

{Economy – 2021/03} International Financial Service Centre (IFSC): .......................................................................... 27

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{Economy – 2021/03} MSS (Market Stabilisation Scheme):......................................................................................... 27

{Economy – 2021/03} National Hydrogen Energy Mission: ......................................................................................... 28

{Economy – 2021/03} Paradip Port achieves 100 MT-mark in cargo handling: ......................................................... 29
 {Economy – 2021/03} RBI wants govt help to help tackle liquidity: ........................................................................... 29
Back to Basics: Headline Inflation ................................................................................................................................................... 29

{Economy – 2021/03} Zero MDR: ................................................................................................................................... 30

Feedback/Suggestions/Complaints: nextgenias1@gmail.com

{Economy – 2021/02} Bad Bank: Economy – Money and Banking

IE | GS3 > Indian Economy & Issues Relating to Planning, Mobilization of Resources, Growth,
Development & Employment

• A bad bank is a Asset Reconstruction Company (ARC) that takes over the bad loans of commercial
banks, manages them and finally recovers the money over a period of time.
• Bad Bank is not involved in lending and taking deposits.
• First the concept was created in US after which it has been implemented in other countries including
Sweden, Finland, France and Germany.
• The economic survey 2016-17 also argued in favour of setting up a “Public Sector Rehabilitation Agency” to
tackle the problem of bad loans.

RBI deputy governor Viral Acharya suggested two models to solve the problem of stressed assets.

1) First is a private asset management company (PAMC), which is suitable for stressed assets where assets
are likely to have economic value in the short run, with moderate levels of debt forgiveness.
2) The second model is the National Asset Management Company (NAMC), which would be necessary for
sectors where the problem is not just one of excess capacity but possibly also of economically unviable
assets in the short to medium terms
• The bad banks is funded by the government initially, with banks and other investors co-investing in due
course.
• Currently loans in which the borrower fails to pay principal and/or interest charges within 90 days are
classified as non-performing assets (NPA)
• The latest financial stability report, found that gross non-performing loans of the banking system could rise
to 13.5% of advances by September 2021, up from 7.5% last year.
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State PSC Mains Previous Question:

NextGen IAS

Discuss the challenges of banking sector in India.

{Economy – 2021/02} Digital Delivery: Economy – Public Finance

FE | Prelims + Mains | GS3 > Inclusive Growth and issues arising from it

• The key objective of the Government of India is to enforce direct benefit transfers (DBT) on a large scale.
• Direct Benefit Transfer or DBT is a part of the Indian government’s anti-poverty programme where
government is trying to alter the method of transferring subsidies.
• In DBT, benefit or subsidy will be directly transferred to citizens living below the poverty line.
• DBT is applied in programmes & schemes like Student Scholarship, LPG subsidy etc.
• JAM, a model that involves integration of Jan Dhan Yojana, Aadhar and mobile technology, shall help the
Government in implementing DBT on a large scale.
• The journey started with the launch of Pradhan Mantri Jan-Dhan Yojana (PMJDY) in 2014.

• 'JAM Trinity' of the Jan Dhan-Aadhaar-Mobile, made it easier to identify bogus beneficiaries and
preventing leakages in government schemes.
• In the last 6 years, Rs 12,95,468 crore have been disbursed to beneficiaries' accounts under the DBT plan.
• In 2020-21, Rs 2,10,244 crore were sent directly to the accounts as part of schemes such as MGNREGA,PDS,
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Pradhan Mantri Awas Yojana, among others.

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• India has been building on the momentum from JAM and DBT. The next phase of financial inclusion will be
about digital delivery that is sharpened by leveraging of consent-based data sharing.
• Powered by India Stack and the JAM trinity, today, nearly 400 million people benefit from it—with 63.6%
account-holders in rural areas and 55.2% of them women.
• The latest iteration leveraging this architecture is the Svanidhi scheme, with which 13,56,600 loans up to Rs
10,000 each have been disbursed to street vendors.
• Indians have been rapidly accessing and adopting digital services in the last six years. The lower socio-
economic strata is becoming data-wealthy before becoming economically wealthier.

Challenges:

• Aadhar registrations presently covered around 91% of population. Since DBT is linked with Aadhar for
schemes, there is need to improve Aadhar linkage to 100% so that not a single person can be left out.
• Low level of digital literacy in the rural areas poses one of the major challenge in implementing this
mechanism.
• India has reached 81% financial inclusion and this will potentially exclude people from the rural
background.
• Lack of banking facilities will exclude people to access facilities. Here PMJDY will play a pivotal role.
• Bank Correspondents face numerous challenges to reach people, who do not have bank account. Banking
correspondents also struggle with connectivity and technical problems.
• Banking services at rural level needs to be improved to reach benefits to all.

UPSC CSE Prelims Previous Question 2015: Pradhan Mantri Jan-Dhan Yojana’ has been
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launched for

a) providing housing loan to poor people at cheaper interest rates

 b) promoting women’s Self-Help Groups in backward areas
c) promoting financial inclusion in the country
d) providing financial help to the marginalized communities

UPSC CSE Mains Previous Question:

In what way good replacement of price subsidy with Direct Benefit Transfer (DBT) change the scenery of
subsidies in India? Discuss.

{Economy – 2021/02} Empowering Electricity Consumers: Economy -

Infrastructure

TH | GS3 > Infrastructure: Energy, Ports, Roads, Airports, Railways etc.

• The new Electricity Rules 2020 has promising feature of Universal Electrification with supply of electricity to
rural and small consumers.
• It promises to address the grievances among consumers through Consumer Grievance Redressal Forum.
• However the issues of DISCOMS is still a concern. There are problems of supply of electricity as well as their
standard operating procedures.
• The government should focus of strengthening the State Electricity Regulatory Commission to address the
issues of SOP’s.
• Also, the new rules does not have provisions supporting renewable energy and solar electricity.
• Thus to address the need of people, centre and state should cooperate to have regular report to enhance
performance of DISCOMS.

Supply quality issue:

• Many States have not been able to provide quality supply, especially to rural and small electricity
consumers.
• Guarantee of round the clock supply is a provision that should be emphasised.

Net-metering:
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• Rules guarantee net metering for a solar rooftop unit less than 10 kW.
• There is no clarity if those above 10 kW can also avail net metering.
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UDAY
• Govt. of India launched the Ujwal DISCOM Assurance Yojana (UDAY) in November 2015. It was designed
to turn around the precarious financial position of state power distribution companies (discoms).
• Discoms are responsible for buying electricity from the generation companies and selling them to
consumers.
• Discom losses, which had progressively reduced in the first couple of years (since the inception of
UDAY), have rebounded in 2019 to nearly double the losses recorded the previous year
• According to PRAAPTI portal, the discoms’ total outstanding dues to power gencos (power generating
companies) rose 48% to Rs 81,010 crore in October 2019.
• The primary reason for this is the failure of discom to collect the full cost that they pay for power.

Issues in the Power Distribution Sector:

• India now generates more power than it needs (surplus power). But, the practical experience signals that
scheduled and unscheduled power cuts are the norms in cities, and situation in most rural areas is worse.
• This means the consumption of power has consistently lagged behind availability.

Reasons for financial losses of discoms:

• The discoms suffer Aggregate Technical and Commercial (AT&C) Losses.

• Technical Loss: It is due to the flow of power in transmission and distribution system. Almost 25% of the
power is lost, and never gets billed.
• Commercial Loss: It is due to the theft of electricity, deficiencies in metering, etc.
• As a result, by March 2015, discoms' accumulated losses were approximately Rs 3.8 lakh crore — more than
3.5% of the GDP.

UPSC CSE Prelims Previous Question 2016: Which one of the following is a purpose of 'UDAY', a
scheme of the Government?

a) Providing technical and financial assistance to start-up entrepreneurs in the field of renewable sources
of energy
b) Providing electricity to every household in the country by 2018
c) Replacing the coal-based power plants with natural gas, nuclear, solar, wind and tidal power plants over
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a period of time
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d) Providing for financial turnaround and revival of power distribution companies

{Economy – 2021/02} Government Budgeting : Economy - Budget

IE | Prelims + Mains | GS3 > Government Budgeting

Budget:

• Budget comes from the old French bougette, meaning 'little bag'
• Budget Circular is issued in the month of September during the Budget cycle. It marks the beginning of the
Budget process.
• Made through a consultative process involving Ministry of Finance, NITI Aayog and spending Ministries
• Prepared by the Budget Division Department of Economic Affairs of the Ministry of Finance
annually. The Finance Minister is the head of the budget making committee.
• Nodal body responsible for producing the Budget ➔ Budget Division of the Department of
Economic Affairs
• The printing process of the Union Budget papers is marked by the customer 'Halwa Ceremony' held at
North Block in Delhi
• Before presentation of the Budget, President's recommendation is obtained under Article 117(1) and
117(3) for introduction and consideration in the lower house of Parliament.
• Presented by Finance Minister
• According to Article 112 of the Constitution of India, the Union Budget of a year is a statement of the
estimated receipts and expenditure of the govt. for that particular year.

State of the Economy:

• GDP fell sharply when activities were restricted during lockdown and has bounced back once lockdowns
were lifted because infection-fatality rate of coronavirus in India has turned out be lower than expected.
• The urban residential real estate sector after struggling for more than 5 years is also seeing a revival.
• There is a increase in demand for manufacturing sector also.
• The pick-up in government spending is adding to the recovery as private demand is still growing.
• Most government departments cannot work from home during lockdown and they are trying to catch up
on their annual targets.

Key issues that must be kept in mind as we assess the impact of the Union Budget on growth.
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(1) The recovery is still fragile and fiscal interventions are still necessary.
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(2) There are constraints in Govt’s execution capacity.

(3) State government budgets may matter more as they together spend 70% to 90% more than the centre.
 (4) Budget has 2 distinct parts: fiscal accounting and budget speech. The speech is significant in laying
down the medium-term roadmap and boost growth.

Key numbers (deficits, growth, inflation and revenue projections) to look in the Budget:
GDP growth estimate: The nominal GDP is estimated to grow at a rate of 14.4% in 2021-22. In Budget
2020-21, GDP was estimated to grow at 10%, which was revised to -13%.
Deficits:

• Revenue deficit is targeted at 5.1% of GDP, and fiscal deficit is targeted at 6.8% of GDP in 2021-22.
• The target for primary deficit (which is fiscal deficit excluding interest payments) is 3.1% of GDP.
• In 2020-21, as per the revised estimate, revenue deficit is 7.5% of GDP, and fiscal deficit is 9.5% of GDP.

Inflation:

• If we critically analyse the changes in FRBM Act, we observe that the govt. has allocated Rs. 34.83 lakh
crore for expenditure, which is 15.6% of GDP and in the recent past.
• No union budget has exceeded the limit of 13.5%.
• Since the Capital expenditure got a big boost i.e., from Rs. 4.12 lakh crore to Rs. 5.5 lakh crore so we are
able to curtail the risk of inflation in the future by not increasing the revenue expenditure.

Revenue:

• Gross tax revenue is estimated at Rs 22,17,029 crore (annual increase of 5% over 2019-20).
• Net tax revenue of the central government (excluding states’ share in taxes) is estimated to be Rs
15,45,397 crore in 2021-22.

How to increase consumption demand and disposable income ?

Redistribution function of Govt. Budget

• The total national income of the country goes to either the private sector, that is, firms and households
(known as private income) or the government (known as public income).
• Out of private income, what finally reaches the households is known as personal income and the
amount that can be spent is the personal disposable income.
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• The government sector affects the personal disposable income of households by making
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transfers and collecting taxes.

• It is through this that the government can change the distribution of income and bring about a
distribution that is considered ‘fair’ by society.
 • This is the redistribution function.

Stabilisation Function of Government Budget:

• The government may need to correct fluctuations in income and employment.

• The overall level of employment and prices in economy depends upon level of aggregate demand
which depends on spending decisions of millions of private economic agents apart from the govt.
• These decisions, in turn, depend on many factors such as income and credit availability.
• In any period, the level of demand may not be sufficient for full utilisation of labour and other resources
of the economy.
• Since wages and prices do not fall below a level, employment cannot be brought back to the earlier
level automatically.
• The government needs to intervene to raise the aggregate demand.
• There may be times when demand exceeds available output under conditions of high employment and
may give rise to inflation. In such situations, restrictive conditions may be needed to reduce demand.
• The intervention of the government whether to expand demand or reduce it constitutes the
stabilisation function.

As the pandemic hurt lower-income households and smaller and informal firms, implementing the direct tax
code committee recommendations and cuts to indirect taxes can boost disposable income and consumption
demand.
Ways to boost Job Creation (The Biggest Challenge):

• Support to enhance housing projects and infrastructure construction can be boosted to create jobs.
• Rapid growth has to be central to any employment strategy for the simple reason that a faster growing
economy will generate more jobs.
• The biggest opportunity for generating more employment in manufacturing lies in exporting simpler
consumer goods to the world market.'
• Small and medium enterprises generate much more employment than large capital-intensive
enterprises but it still remains less focused.
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• The government has already announced allocations to Production-Linked Incentive (PLI) schemes for
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several labour intensive sectors such as food processing and man-made textiles.

Employment generation has been a recurring theme in the budget

 o Proposed higher expenditure (capex), for example, NIP
o Creation of textile parks
o Enhancement of emergency credit line to MSMEs
o Disinvestment – the private sector is expected to revive these units
o Launch of a new portal that will collect relevant information on gig, building and construction
workers among others. This is expected to help in the formulation of schemes for the migrant
workers

Healthcare sector:
Positive Side:

• As per National Health Profile (NHP) data of 2019, India spends just over 1% percent of its GDP on
public health, which is drastically low.
• In light of this, there is a Budget allocation of Rs 2,23,846 crore towards healthcare, a whopping 137%
rise from the budget last year.
• The increased spends on the healthcare sector through PM Atmanirbhar Swasth Bharat Yojana will
improve infrastructure.
• In addition to budget for sanitation, supplementing primary health care capacity and improving its
quality can help the country be better prepared for future pandemics.
• Better utilisation of private health care facilities and a National Digital Health Mission – with a national
digital ID, registries for medical facilities, practitioners and medica records etc. – can help.
• Affordable housing, provision of water and sanitation to the urban poor are also important as there was
surge in the pandemic in urban slums.

Negative Side:

• The reduction in GST on active pharmaceutical ingredients (API) from 18% to 12% to reverse the
inverted duty structure, was expected in the Budget.
• The reduction of import duty on medical devices would have reduced the cost of healthcare services for
citizens.
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Reforms in banking and financial sector:

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• 10 PSBs consolidated into 4 PSBs. Rs. 3,50,000 crore capital infused.

• DICGC permitted to increase Deposit Insurance Coverage to Rs. 5 lakh from Rs. 1 lakh per
depositor.
 • Govt. to sell its balance holding in IDBI Bank to private, retail and institutional investors through the
stock exchange.
• NBFCs eligibility limit for debt recovery reduced from Rs. 500 crore to Rs 100 crore asset size
and Rs 1 crore to Rs 50 lakh loan size.
• Lack of capacity in the financial system is one of the structural problems in the Indian economy.
• Govt. can choose to privatise some PSBs or separate ownership from management for all PSBs by
creating a bank investment company.
• Govt. can also create a well-capitalised Development Finance Institution to support financing needs as
the national infrastructure pipeline is expanded.

Direct Fiscal Stimulus:

Pro-growth fiscal interventions can help the recovery if it is particularly targeted on the urban poor, affordable
housing or infrastructure construction.

• The government can also utilise robust equity markets to exit from current government holdings and
privatise the PSUs at a larger scale.
• The government may provide support to sectors which are still affected by pandemic such as
hospitality, tourism and aviation.
• High fiscal deficits and monetisation by central bank may cause inflation but the current growth in
prices are a global phenomenon and have little to do with India’s fiscal choices.

UPSC CSE Mains PYQ:

The public expenditure management is a challenge to the Government of India in the context of budget
making during the post-liberalization period. Clarify it.

Other State PSC Mains PYQ:

1) Write short notes on meaning and importance of Budget.

2) Distinguish between revenue receipts and capital receipts. Explain their roles in the Public Budget.

UPSC CSE Prelims Previous Question 2015: With reference to the Union Government,consider
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the following statements

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1. The Department of Revenue isresponsible for the preparation ofUnion Budget that is presented to the
Parliament
 2. No amount can be withdrawn from the Consolidated Fund of India without the authorization from the
Parliament of India.
3. All the disbursements made from Public Account also need the authorization from the Parliament of
India.
Which of the statements given above is/are correct?
a) 1 and 2 only
b) 2 and 3 only
c) 2 only
d) 1, 2 and 3

{Economy – 2021/02} Kochi-Mangaluru LNG pipeline: Economy - Infrastructure

HT | GS3 > Infrastructure: Energy, Ports, Roads, Airports, Railways etc.

‘One Nation, One Gas Grid’

• Objective: All the willing rural households would be provided with cooking gas and electricity connection
by 2022 that is by the 75th year of India’s Independence.
• It will be high-voltage electric power transmission network connecting power stations and major
substations and ensuring that electricity generated anywhere can be used to satisfy demand elsewhere.
• Benefits:
o It would make a positive impact on the economic growth of both the states, improve the standard of
living of people and reduce expenses of both the poor and entrepreneurs alike
o The project will also play a major role in reducing pollution
o The pipeline, which involved generation of 1.2 million man-days of employment, will help develop a
new ecosystem of employment and self-employment
o It will also help India save thousands of crores of rupees in foreign exchange
o Better availability resulting in lesser power cuts
o More stability in power
o Better synchronisation
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• PM Narendra Modi inaugurated 450-km Kochi-Koottanad-Mangaluru LNG (liquified natural gas)

pipeline. It was a part of “one nation-one gas grid” policy.
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• Govt. would make substantial investments in coal and gas sectors. The plan was to increase the share of
natural gas in the energy sector from the present 6% to 15% by 2030.
Develop blue economy in coastal states:

• One nation, one gas grid would help shift to a gas-based economy and the government was taking policy
initiatives to increase the share of natural gas in India’s energy basket from 6% to 15%.
• On one hand, focus is being laid on natural gas to meet the country’s energy needs while on the other,
energy resources are being diversified. Efforts are on to produce ethanol from rice and sugarcane and a 10-
year goal has been set to blend 20% ethanol in petrol.
• Focus on renewable energy will also help India meet its COP-21 commitments for cutting carbon emissions.
• Measures have been initiated to help fishermen with deep sea fishing, form a separate fisheries department
and provide affordable loans and Kisan credit cards to those engaged in aquaculture.

Various govt. initiatives

• India’s quest to increase the share of natural gas in the overall energy mix hinges crucially on 2 factors: (1)
Development of pipelines (2) Hassle free exploration.
• The Hydrocarbon Exploration and Licensing Policy (HELP) is a policy indicating the new contractual and
fiscal model for the award of hydrocarbon acreages towards exploration and production (E&P).
• The govt. has envisaged developing and expanding the National Gas Grid. At present about 16,788 Km
natural gas pipeline is operational and about 14,239 Km gas pipelines are being developed.
• The Pradhan Mantri Urja Ganga (PMUG) pipeline project currently under will provide connectivity to
another flagship project, the North-East Gas Grid.
• The Pradhan Mantri Ujjwala Yojana, which aims to provide free cooking gas connections to poor families is
also a roaring success.
• Moreover, India is constantly moving to revive the 1,814 kilometre-long Turkmenistan-Afghanistan-
Pakistan-India (TAPI) transnational gas pipeline which is in shamble for years.

{Economy – 2021/02} Monetary Policy: Economy – Money and Banking

TH | GS3 > Indian Economy & Issues Relating to Planning, Mobilization of Resources, Growth,
Development & Employment

• RBI is the main decision maker for the country’s financial system and is mandated with ensuring its
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stability.
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• RBI currently uses inflation targeting as key to monetary policy.

• Monetary Policy Framework Agreement 2015 between RBI and the central government mandates RBI to
contain Consumer Price Inflation (CPI) within 4% with a band of (+/-) 2%.
In current scenario, the biggest challenge will be to manage the tension between restraining inflation and
supporting the recovery.
Inflation:

• Inflation is the main focus till recently. But of late, focus is on recovery and growth.
• Core inflation could firm up because of rising input prices.

Liquidity:

• A second and related challenge will be to withdraw the ‘excess’ liquidity in good time.
• Banks are routinely depositing trillions of rupees with the RBI every day, evidencing that all the money that
the central bank unleashed into the system is not doing much good anymore.

Financial Stability:

• Current account surplus this year together with massive capital flows has been putting upward pressure on
the rupee.
• RBI has absorbed nearly $90 billion this fiscal year to prevent exchange rate appreciation and to
maintain the competitiveness of the rupee.

Inflation Targeting:

Inflation targeting is basically a monetary policy system wherein RBI has a specific target inflation rate for the
medium-term and publicises this rate.
Like all monetary policy instruments, inflation targeting comes with its fair share of benefits and drawbacks,
they are the following:

• Inflation targeting allows monetary policy to “focus on domestic considerations and to respond to shocks
to the domestic economy”, which is not possible under a fixed exchange-rate system.
• Transparency is another key benefit of inflation targeting. Central banks in developed countries that
have successfully implemented inflation targeting tend to “maintain regular channels of communication
with the public”.
• An explicit numerical inflation target increases a central bank’s accountability, and thus it is less likely
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that the central bank falls prey to the time-inconsistency trap.

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• Easy money policy is needed to increase economic activity during slowdown. This is done by keeping
the interest rates low. Thus, RBI needs to balance inflation targeting and accelerated economic growth.
• Inflation targeting in India has coincided with a substantial rise in the real policy rate. This has been
accompanied by declining borrowing in the formal sector likely affecting investment and thereby growth.
• Inflation targeted policy cannot ensure enough employment creation in the country.
• Inflation in emerging markets such as India is very sensitive to exogenous shocks like global oil
prices, a weaker rupee and a poor monsoon.

Fiscal policy should be the primary tool to stabilize the economy. Better policies targeted at efficient taxation
and government spending should be used to influence the economy in the long run.

State PSC Mains Previous Question:

What are the main objectives of monetary policy adopted by Reserve Bank of India ? In this context discuss
some of the steps undertaken by RBI to encourage investment and maintain price stability in the last 2-3 years.

Digital lending: Economy – Money and Banking

https://www.financialexpress.com/industry/banking-finance/rbi-forms-working-group-to-evaluate-digital-
lending/2170429/
GS3 > Indian Economy & Issues Relating to Planning, Mobilization of Resources, Growth, Development &
Employment
Reserve Bank of India (RBI) has constituted a working group on digital lending — including online platforms
and mobile apps — to study all aspects of digital lending activities in the regulated financial sector as well as
by unregulated players.

• Digital lending has the potential to make access to financial products and services more fair, efficient and
inclusive.
• From a peripheral supporting role a few years ago, FinTech-led innovation is now at the core of the
design, pricing and delivery of financial products and services.
• While penetration of digital methods in the financial sector is a welcome development, the benefits and
certain downside risks are often interwoven in such endeavours.
• A balanced approach needs to be followed so that the regulatory framework supports innovation while
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ensuring data security, privacy, confidentiality and consumer protection.

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UPSC CSE Prelims Previous Question 2013: Priority Sector Lending by banks in India constitutes
the lending to
 a) agriculture
b) micro and small enterprises
c) weaker sections
d) All of the above

{Economy – 2021/02} NBFC: Economy – Money and Banking

TH | Prelims + Mains | GS3 > Mobilisation of Resources - Banking Sector & NBFCs

Non-Banking Financial Company (NBFC)

• It is a company registered under the Companies Act, 1956

• It provides financial services and banking facilities without meeting the legal definition of a Bank.
• NBFCs are also referred to as “shadow banks”.
• The term ‘shadow bank’ was coined by Paul McCulley in 2007, with specific reference to American NBFCs
that used short-term deposits to finance long-term loans.
• NBFCs are regulated by IRDA, SEBI, RBI, NHB and Dept. of Company Affairs.
o RBI regulates the companies which deal in lending, accepting deposits, financial leasing, hire purchase
and acquisition of shares / stocks etc.
o Companies that take up activities like stock broking, merchant banking etc. are regulated by SEBI.
o Nidhi and Chitfund companies are regulated by Department of Company Affairs.
o Housing finance companies are regulated by National Housing Bank.
o NBFCs registered with RBI to set up insurance joint ventures for undertaking insurance business are
required to obtain prior approval of IRDA.

Know the NO’s:

• NBFC cannot accept demand deposits.

• NBFCs do not form part of the payment and settlement system.
• NBFCs cannot issue cheques drawn on itself.
• DICGC is not available to depositors of NBFCs, unlike in case of banks.
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• Norms of Public Sector Lending does not apply to NBFCs.

• Cash Reserve Requirement also does not apply to NBFCs.
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RBI’s New Regulatory Framework for NBFCs:

• RBI is all set to release new regulatory framework for NBFCs. It had recently merged NBFC’s of 3
categories into a single one.
• Asset Finance Companies (AFC), Loan Companies (LCs) and Investment Companies (ICs), was merged into a
new category called NBFC - Investment and Credit Company (NBFCICC).

Reason:

• In order to provide NBFCs with greater operational flexibility, harmonisation of different categories of
NBFCs into fewer based on principle of regulation by activity rather than regulation by entity.

Postive Side:

• Market size of NBFC has almost doubled in last 10 years. In recent balance sheets of RBI, NBFC holds
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more than a quarter of the accounts.

• The success of NBFC is linked to large scale infrastructure and housing credits. Also due to large number of
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smaller NBFC coming up, their credit has penetrated into the remotest corners of the country.
• NBFCs helped to attain the objective of macroeconomic policies of creating more jobs in the country by
promoting Small and Medium scale Enterprises and private industries through lending them loans.
• NBFCs played an important role in promoting inclusive growth in the country, by catering to the diverse
financial needs of bank-excluded customers.
• NBFCs helped in rotation of resources, asset distribution and regulation of income to shape the economic
development.
• NBFCs enabled converting savings into investments and thus, helps in the mobilisation of resources in the
economy.

Negative Side:

• NBFC have faced large scale defaults and non-payment of dues.

• Asset-liability mismatch: Several NBFCs faced with a liquidity crunch, liabilities maturing and coming up
for payment faster than loans in the same tenure.
• Lack of a strong regulator, except for housing finance companies, is also one of the challenges faced by
NBFCs.
• A regulatory framework with provision of credit monitoring is required. The RBI and government should
frame a policy to ensure capitalization and credit monitoring of NBFC sector.

UPSC CSE Prelims Previous Question 2010: With the reference of the Non Banking Financial
Companies ( NBFCs ) in India, Consider the following statements:

1. They cannot engage in the acquisition of Securities issued by the government.

2. They can not accept demand deposit like Saving Account.
Which of the statements given above is /are correct?
a) 1 only
b) 2 only
c) Both 1 and 2
d) Neither 1 nor 2

{Economy – 2021/02} Shipping Sector: Economy - Infrastructure

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TH | GS3 > Infrastructure: Energy, Ports, Roads, Airports, Railways etc.

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• All Indian ports are regulated under Indian Ports Act, 1908. It defines jurisdiction of central and state govts
over ports, and lays down general rules for safety of shipping and conservation of port facilities.
• Major ports are under the jurisdiction of the Government of India and are governed by the Major Port
Trusts Act 1963, except Ennore port, which is administered under the Companies Act 1956.
• Major ports act as semi-autonomous bodies under the administrative wing of the Ministry of Shipping.
• Non-major ports come under the jurisdiction of the respective state Governments’ Maritime Boards (GMB).

Problems:

• In the port sector, instead of creating regional cargospecific ports in peninsular India, the bureaucracy has
repeatedly allowed similar infrastructural developments in multiple cargo-handling ports.
• As a result, Indian ports compete for the same cargo.
• If we make major ports cargo-specific, develop infrastructure with global standards, and connect them with
hinterlands as well as international sea routes, they will automatically become transhipment hubs.
• Most of the global shipping companies which depend on Indian cargo for their business have Indians as
either commercial heads or Indian crew onboard their ships.

Issues and Challenges with Ports in India:

• High turnaround time: Ports in India suffer from high turnaround times for ships. For example, in
Singapore, average ship turnaround time is less than a day. However, in India, it is over two days.
• Port congestion: Port congestion due, container volume,shortage of handling equipment and
inefficient operations is a major concern. Example: Nhava Sheva port
• Sub-optimal Transport Modal Mix: Lack of requisite infrastructure for evacuation from major and
non-major ports leads to sub-optimal transport modal mix.
• Limited Hinterland Linkages: There is inefficiency due to poor hinterland connectivity through rail,
road, coastal shipping and inland waterways. This in turn increases cost of transportation and cargo
movement.
• Lengthy inspection and scrutiny: Though customs operations in India are rapidly going paperless and
converting to digital, inspections and scrutiny continue to be lengthy for cargo and other shipping
operations.
• Inadequate infrastructure and Technology Issues: Lack of adequate berthing facility, number of
berths, sufficient length for proper berthing of the vessels at the Non-Major Ports is another problem.
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• It is our long-cherished dream to be competent and cost-effective in international supply chain

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logistics. We need quality products to be available in global markets at a competitive price. This will
happen only if we develop balanced infrastructure onshore as well as at sea.
UPSC CSE Mains Previous Question:

Examine the development of Airports in India through joint ventures under PublicPrivate Partnership (PPP)
model. What are the challenges faced by the authorities in this regard?

{Economy – 2021/02} Urban Unemployment: Economy - Unemployment

TH | GS3 > Indian Economy & Issues Relating to Planning, Mobilization of Resources, Growth,
Development & Employment

• National Sample Survey Organization (NSSO) defines employment and unemployment on the following
activity statuses of an individual:
✓ Working (engaged in an economic activity) i.e. 'Employed'
✓ Seeking or available for work i.e. 'Unemployed'
✓ Neither seeking nor available for work
• A gig economy is a free market system in which temporary positions are common and organizations
contract with independent workers for short-term engagements.
• Examples of gig employees in the workforce could include freelancers, independent contractors, project-
based workers and temporary or part-time hires.
• Gig workers: workers outside of the traditional employer-employee relationship (e.g., freelancers)
• Platform workers: workers who access other organisations or individuals using online platforms and earn
money by providing them with specific services.
• Unorganised workers: home-based and self-employed workers

Gig Economy : Is it a solution to Urban Unemployment?

• Unemployment Rate in Dec 2020 ➔ 9.06%

• Recent Periodic Labour Force Survey from the Ministry of Statistics and Programme Implementation
shows unemployment rate at a 45-year high.
• Over the past two years domestic consumption has reduced, industrial growth has flatlined, private
investments are lower, and market volatility has hit drivers of employment.
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• Therefore providing quality gig employment is the only source of employment in urban areas.
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• The successful pilot of Swiggy’s Street Food Vendors programme under the PM SVANidhi, or PM Street
Vendor’s Atma Nirbhar Nidhi scheme, may prove to be an illustrative example.
• Swiggy has announced the onboarding of 36,000 street food vendors onto the platform under PM
SVANidhi, it has also looked to ensure that each vendor is registered and certified by FSSAI.
• Govt. has proposed to launch a portal to collect relevant information on gig workers to help formulate
social security schemes for them — and the migrant workers population at large.

Social Security:

• Social security refers to measures to ensure access to health care and provision of income security to
workers
• Code on Social Security, 2020 replaces 9 laws related to social security, including the Employees’
Provident Fund Act, 1952, the Maternity Benefit Act, 1961, and the Unorganised Workers’ Social Security
Act, 2008

UPSC CSE Prelims Previous Question 2012: Consider the following:

1. Hotels and restaurants

2. Motor Transport undertakings
3. Newspaper Establishments
4. Private Medical Institutions
The Employers of which of the above can have the “ Social Security coverage under Employees State
Insurance Scheme?
a) 1, 2 and 3 only
b) 4 only
c) 1, 3 and only 4
d) 1, 2, 3 and 4

State PSC Mains Previous Question:

Give a brief outline of the various programmes launched by the Govt. of India to tackle the problem of
unemployment in the country. Discuss how far MGNREGA has been successful in achieving its objectives.

{Economy – 2021/03} Asset reconstruction company (ARC):

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• New asset reconstruction company (ARC) proposed in the Union Budget is aimed at resolving a specific set
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of bad assets with some public sector banks (PSBs)

• ARC, which will have an Asset Management Company (AMC) to manage and sell bad assets, will look to
resolve stressed assets of Rs. 2-2.5 lakh crore that remain unresolved in around 70 large accounts.
• ARC is a specialized financial institution that buys the Non Performing Assets (NPAs) from banks and
financial institutions so that they can clean up their balance sheets.
• Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act,
2002 provides the legal basis for the setting up of ARCs in India.
• The transfer of stressed assets to the ARC will happen at net book value.
• The bank will get 15% cash and 85% security receipts against bad debt that will be sold to the ARC.

{Economy – 2021/03} China back as top India trade partner:

• China regained its position as India’s top trade partner in 2020

• Two-way trade between the longstanding economic and strategic rivals stood at $77.7 billion last year,
according to provisional data from India’s commerce ministry

{Economy – 2021/03} Equalisation levy:

• Equalization Levy was introduced in India in 2016, with the intention of taxing the digital transactions i.e.
the income accruing to foreign e-commerce companies from India.
• It is aimed at taxing business to business transactions.

{Economy – 2021/03} Faceless tax assessment scheme:

• Central Government introduced the Faceless Assessment Scheme to provide greater transparency,
efficiency and accountability in Income Tax assessments.
• It is an attempt to remove individual tax officials discretion and potential harassment for income
taxpayers.
• All provisions introduced under Faceless Assessment, under the Income Tax Act, 1961, are introduced to
1) Eliminate the interface between the Assessing Officer and the assesses during the course of
proceedings, to the extent that is technologically feasible
2) Optimize the utilization of resources through the economies of scale and functional specialization
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3) Introduce a team-based determination of arm’s length price with dynamic jurisdiction

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{Economy – 2021/03} Foodgrains production:

• The country’s food grains production is estimated to be a record 303 million tonne (MT) during 2020-
21 crop year (July-June)
• Reason ➔ All-time high output in rice, wheat and maize aided by above-normal and well-distributed
monsoon rains.
• Higher output will help boost the agriculture gross value added (GVA)
• The farm and allied sector is expected to grow at 3.4% in real term in FY21, remaining the brightest
spot in an otherwise gloomy year, as overall gross value added in the economy is projected to shrink by
7.2%.

UPSC CSE Prelims Previous Question 1984: The foodgrains production in 1983-84 is an all-time
record estimated at approximately

a) 133 million tonnes

b) 144 million tonnes
c) 146 million tonnes
d) (d) 150 million tones

{Economy – 2021/03} FRP/SAP of sugarcane:

• Central Government announces Fair and Remunerative Prices which are determined on the
recommendation of the Commission for Agricultural Costs and Prices (CACP) and are announced by
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the Cabinet Committee on Economic Affairs, which is chaired by Prime Minister.

• State Advised Prices (SAP) are announced by key sugarcane producing states which are generally
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higher than FRP.

• FRP is the minimum price that the sugar mills have to pay to farmers.
• Commission for Agricultural Costs and Prices (CACP) is an attached office of the Ministry of Agriculture and
Farmers Welfare, Government of India. It came into existence in January 1965.

Differences between FRP and SAP:

FRP SAP

Fair remunerative package State administered price

Central Govt. issues price State Govt. issues price

Generally lower Generally higher

UPSC CSE Prelims Previous Question 2015: Fair and Remunerative Price (FRP) of sugarcane is
approved by the

a) Cabinet Committee on Economic Affairs

b) Commission for Agricultural Costs and Prices
c) Directorate of Marketing and Inspection, Ministry of Agriculture
d) (d) Agricultural Produce Market Committee

{Economy – 2021/03} GDP back in positive territory

• Indian economy registered a flat growth of 0.4% after two consecutive quarters of deep contraction caused
by the pandemic ➔ POSITIVE
• Data → Released by National Statistical Office
• Reasons for Recovery:
o Private consumption, largely driven by release of pent-up demand by affluent households and sections
of the middle class
o Government investments
o Solid performance by the agriculture sector
o Revival of manufacturing, construction, banking and real estate
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Back to Basics: Gross Domestic Product (GDP)

• Gross Domestic Product (GDP) is the market value of all final goods and services produced within the
boundary of a nation inclusive of all taxes and subsidies on products, during a year.
• The word domestic (In GDP) suggests the inclusion of all economic activities done within the boundary
of a nation/ country.

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UPSC CSE Prelims Previous Question 2010: With reference to the Indian economy, consider the
following statements:

1. The Gross Domestic Product (GDP) has increased by four times in the last 10 years.
2. The percentage share of Public Sector in GDP has declined in the last 10 years.
Which of the statements given above is/are correct?
a) 1 only
b) 2 only
c) Both 1 and 2
d) Neither 1 nor 2

{Economy – 2021/03} Human Capital Index:

• Human Capital Index (HCI) is been brought out by World Bank, which is first of its kind index.
• HCI is based on 5 parameters
1) Child survival
2) School enrolment
3) Quality of learning in schools
4) Healthy and safe environment for growth
5) Adult survival
• Human Capital Index ranks 157 countries based on outcomes in education and health indicators and the
impact they have on future productivity.
• HCI is a number between 0 and 1 indicating the expected productivity of a child born now after they
attain 18 years of age under the present conditions.

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UPSC CSE Prelims Previous Question 2012: Multi-Dimensional Poverty Index developed by
Oxford Poverty and Human Development Initiative with UNDP support covers which of the
following?

1. Deprivation of education, health, assets and services at household level

2. Purchasing power parity at national level
3. Extent of budget deficit and GDP growth rate at national level
Select the correct answer using the codes given below:
a) 1 only
b) 2 and 3 only
c) 1 and 3 only
d) d) 1, 2 and 3

{Economy – 2021/03} International Financial Service Centre (IFSC):

• Finance Minister said that the government is committed to make the International Financial Services Centre
(IFSC) in GIFT City a global financial hub.
• Gujarat International Finance Tec-City (GIFT City), Gandhinagar is the country's only international
financial services centre.
• IFSC is a zone that provides a platform to world-class financial services to non-residents and residents
in a currency other than the domestic currency (Indian rupee) of the location where the IFSC is located.
• With an IFSC in India, India now competes against global financial hubs like Dubai and Singapore to
attract foreign investors who are willing to trade in foreign currencies.
• GIFT City is a multi-services that provides a special economic zone (SEZ) which has set up the first
International Financial Service Centre in India (IFSC) in accordance with the SEZ Act 2005.

{Economy – 2021/03} MSS (Market Stabilisation Scheme):

• MSS (Market Stabilisation Scheme) securities are issued with the objective of providing the RBI with a
stock of securities with which it can intervene in the market for managing liquidity.
• Reserve Bank under Governor YV Reddy initiated the MSS scheme in 2004.
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• These securities are issued not to meet the government's expenditure.

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• These are special bonds floated on behalf of government by RBI for the specific purpose of mopping up
the excess liquidity in the system when regular government bonds prove inadequate.
• These are mostly shorter-tenure bonds, of less than 6 months maturity. But the tenure differs
depending on the requirement.
• The bonds issued under MSS have all the attributes of the existing treasury bills and dated securities. These
securities will be issued by way of auctions to be conducted by the RBI.
• The timing of issuance, amount and tenure of such securities will be decided by the RBI.
• The money obtained under MSS should be kept with the RBI in a separate account called MSS
Account. It should not be transferred to the government. This is because, if it is transferred, government
will spend the money in the economy thereby adding to liquidity.
• Interest payments have to be given to the institutions who buys bond. Here, for the interest payment, the
government allocates money from its budget to the RBI. This expenditure to service interest payment for
MSBs is called carrying cost.

{Economy – 2021/03} National Hydrogen Energy Mission:

• Finance Minister Nirmala Sitharaman included the introduction of National Hydrogen Energy Mission. The
Government has also started holding Green Hydrogen auctions.

Significance:

o Hydrogen is said to be the alternative fuel and would replace fossil fuels
o India has set its goals to de-carbonize itself by 2050.
o This along with its ambitious goal of 175 GW of renewable energy capacity that was given
impetus in the Union Budget 2021-22 would also get to raise INR 1500 crore finance.

Types of Hydrogen:

• Green Hydrogen: It is produced from renewable resources of energy and not fossil fuels. The by products
are water and water vapour
• Blue Hydrogen: It is sourced from fossil fuels. The emission or the by products such as CO2 and CO are
stored. It is better than grey hydrogen.
• Grey Hydrogen: India's bulk comes from fossil fuels at present. This type of hydrogen is called grey
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hydrogen.
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UPSC CSE Prelims Previous Question 2019: Atal Innovation Mission is set up under the

a) Department of Science and Technology

 b) Ministry of Labour and Employment
c) NITI Aayog
d) Ministry of Skill Development and Entrepreneurship

{Economy – 2021/03} Paradip Port achieves 100 MT-mark in cargo handling:

• Paradip Port, one of the 12 major ports in the country, achieved 100 million tonne (MT) cargo handling for
the fourth year in a row
• Paradip Port is a natural, deep-water port.
• Location: Jagatsinghpur district, Odisha
• Government of India declared Paradip Port as the 8th Major Port of India on 18 April 1966 making it the
FIRST MAJOR PORT in the East Coast commissioned after independence.

UPSC CSE Prelims Previous Question 1991: How many major ports are there at present in India
?

a) 8
b) 10
c) 12
d) 15

{Economy – 2021/03} RBI wants govt help to help tackle liquidity:

• Over the October 2016 to March 2020 period, headline inflation averaged 3.9%
• Trend inflation estimates stood in the range of 3.8 – 4.3% for the flexible inflation targeting (FIT) period
• Centre has decided to retain the inflation target of 4%, with a tolerance band of +/- 2 percentage
points for the Monetary Policy Committee of RBI for the coming 5 years.

Back to Basics: Headline Inflation

• A measure of the total inflation within an economy, including commodities such as food and energy
prices (e.g., oil and gas), which tend to be much more volatile and prone to inflationary spikes.
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• RAW Inflation figure

Back to Basics: Inflation Targeting

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• It is a central banking policy that revolves around adjusting monetary policy to achieve a specified
annual rate of inflation.
• The principle of inflation targeting is based on the belief that long-term economic growth is best achieved
by maintaining price stability, and price stability is achieved by controlling inflation.
• Strict inflation targeting is adopted when the central bank is only concerned about keeping inflation as
close to a given inflation target as possible, and nothing else.
• Flexible inflation targeting is adopted when the central bank is to some extent also concerned about
other things, for instance, the stability of interest rates, exchange rates, output and employment.
• Flexible Inflation Target (FIT) was adopted in 2016.
• Reserve Bank of India Act, 1934 was amended to provide a statutory basis for a FTI framework. The
amended Act provides for the inflation target to be set by the Government, in consultation with the
RBI, once every 5 years.
• India adopted a flexible inflation targeting mandate of 4 (+/-2) % and headline consumer price
inflation was chosen as a key indicator.

UPSC CSE Prelims Previous Question 2015: With reference to inflation in India, which of the
following statements is correct?

a) Controlling the inflation in India is the responsibility of the Government of India only
b) The Reserve Bank of India has no role in controlling the inflation
c) Decreased money circulation helps in controlling the inflation
d) Increased money circulation helps in controlling the inflation

{Economy – 2021/03} Zero MDR:

• In an indirect fallout of the zero-merchant discount rate (MDR) regime on Unified Payments Interface (UPI)
and RuPay cards, some state-owned establishments have disabled the netbanking option for certain banks
and card networks.
• The idea behind the move is to save on MDR outgo especially on low-margin transactions by nudging
customers to pay using UPI or RuPay cards.
• Merchant Discount Rate is the cost paid by a merchant to a bank for accepting payment from their
customers via digital means. The merchant discount rate is expressed in percentage of the transaction
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amount.
• MDR is applicable for online transactions and QR-based transactions.
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• The amount that the merchant pays for every transaction gets distributed among 3 stakeholders--the bank
that enables the transaction, vendor that installs the point of sale (PoS) machine and the card network
provider such as Visa, MasterCard, RuPay.
• MDR is currently capped at 0.9% of the transaction value for payment channels other than credit cards,
for which the MDR is market-determined.
• In December 2019, the government had exempted all UPI and RuPay-based transactions from MDR in a bid
to encourage the adoption of digital payments.

UPSC CSE Prelims Previous Question 2018: Which one of the following best describes the term
“Merchant Discount Rate” sometimes seen in news ?

a) The incentive given by a bank to a merchant for accepting payments through debit cards pertaining to
that bank.
b) The amount paid back by banks to their customers when they use debit cards for fnancial transactions
for purchasing goods or services.
c) The charge to a merchant by a bank for accepting payments from his customers through the bank’s
debit cards.
d) (d) The incentive given by the Government to merchants for promoting digital payments by their
customers through Point of Sale (PoS) machines and debit cards.

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