CURRENT AFFAIRS, ECONOMICS

(2016-2017)

MARCH, 2017

March 17, 2017

Start-up firms may soon find it easy to wind up

Details :

Why in news?

To enable faster exit for start-ups and to bring the winding up process in line with global best
practices, the Department of Industrial Policy and Promotion (DIPP) has written to the Ministry of
Corporate Affairs (MCA) to notify start-ups as ‘Fast Track firms.’
The DIPP is the nodal Central government body for the Start-up India initiative, while the MCA is the
concerned authority for notifications on winding up of companies.

News Summary

Once this is notified, start-ups shall be able to wind up their business within a period of 90 days from
making an application for the same.
Fast Track firms will be start-ups with simple debt structures or those meeting certain criteria that will
be specified.

Bharat Navodaya: Start-Up India Reform Report

The Report was prepared by the Infosys founder N.R. Narayana Murthy-chaired Alternative
Investment Policy Advisory Committee (AIPAC), following a request from capital markets regulator
SEBI.
The SEBI had asked AIPAC to spell out the issues being faced by start-ups in India and recommend
reform measures.
The ‘Bharat Navodaya: Start-Up India Reform Report’ (released in March, 2017) had recommended
expediting the company winding up process in India.
The report said expediting the company winding up process in India would require the notification
of Sections 304-323 of the Companies Act, 2013, relating to voluntary winding up.
The benefits of voluntary winding up operations involve no court supervision. The report also
 noted that the entrepreneur leaves from his previous venture and starts a new venture.
So, there should be a provision to carry forward the losses of the failed venture to the new
venture.
Therefore, it recommended that the unutilised losses of an eligible start-up, which is being wound
up, should be allowed to be carried forward and set off by the founder of that start-up, against the
profits of a new eligible start-up set up within a period of three years from date of winding up of
the failed start-up.

March 16, 2017

Centre unveils plan for export infra

Details : THE
NEWS

The Centre has unveiled a scheme to create export-related infrastructure and boost the
competitiveness of India’s shipments.

Trade Infrastructure for Export Scheme (TIES)

The scheme would be implemented from FY’18 till FY’20 and have a budgetary allocation of Rs. 600
crore, with an annual outlay of Rs. 200 crore per year.
The focus is to create sustained infrastructure.
An inter-ministerial empowered committee for sanctioning and monitoring of the project was set
up for the scheme. It will be headed by the commerce secretary.
The idea of this scheme is to address those gaps in infrastructure which are not addressed by any
other scheme. It will help to ensure smoother movement of export cargo and also ensure quality
standards and certification.
The scheme would provide assistance for setting up and upgrading infrastructure projects with
overwhelming export linkages — like border haats, land customs stations, quality testing and
certification labs and cold chains.
The other salient features of the scheme includes promotion of leveraging of funds from other
sources including bank financing; no recurring costs of the land to be included; and operating &
maintenance costs to be met through pay and use charges.
The central and state agencies, including Export Promotion Councils, Commodities Boards, SEZ
authorities and apex trade bodies recognised under the EXIM policy of government; are eligible
for financial support under this scheme.

Objective:

To enhance export competitiveness by bridging gaps in export infrastructure, creating focused export
infrastructure.
To create first mile and last mile connectivity for export-oriented projects. To address quality
and certification measures.
March 13, 2017

Reforming trade in agri-products

Details :

Why in news?

Trading of agricultural commodities in India has been crippled by multiple structural and regulatory
issues.
Traditionally, the lack of liquidity, quality testing and assurance, and guarantee of delivery kept
small farmers as well as institutional traders sceptical of the market.
The grant of repository licences to CDSL and NCDEX and the ongoing discussions by SEBI to
introduce commodity options are positive signs.

Note: Please read with your class economy notes and material on markets and trading.

Current method:

Currently, a farmer can take the produce from the farm to a certified warehouse, get the quality
inspected and receive a negotiable warehouse receipt (WR) with a unique identity (ISIN).
This WR can be traded on the exchange like any other negotiable instrument. Theoretically, this works
fine and has several advantages.
It provides better price realisation for farmers, safer collateral for lenders like banks (WR can be
used as collateral to borrow), a more efficient market place for hedgers and speculators, and
better quality and lower disruptions in supply for the end customer.
But, in practice, the system faces many issues.

Issues with current method:

The typical farm size in India is very small and the total produce of a farm would probably be
lower than a single tradable lot at the exchange.
Creating a pool of farmers through initiatives like Farmer Producer Companies (FPC) is a good idea, but
the initiatives have been slow to take off.
Usually the farmer, either directly or through a broker, sells the produce based on the prevailing
MSP. Storing produce in a warehouse is often not an option for these farmers.
The main reason for this is that the MSP has become the market price instead of being the
minimum assured price.
It means that the farmer is not incentivised to carry the goods.
The other issue is that the storage cost at certified warehouses is higher than the cost at the non-
certified ones, this directly impacts the percentage of produce that gets dematerialised
(converting physical farm produce into electronic items like WRs that can be traded).
Issues due to Government intervention:

Market intervention by the government is a major deterrent to private participation.

The suspension of forwards contracts, ban on trading of chana and castor in 2016 have had an
impact on the volumes and market confidence.

Take steps to encourage private companies to directly buy from the farmers:

Currently, due to the above issues, only a niche set of private companies use the agriculture
contracts on the exchanges.
In order to encourage private companies to directly buy from the farmers, the rules for purchase
and payments at various APMCs need to be standardised. The government should consider
introducing standard price adjustments based on location of the farm and the quality parameters.
This will help the farmer sell goods at the farm gate conveniently with minimum wastage (so
purchaser can take care of warehousing and transport).
It will help private companies adjust the MSP based on the pre-set transportation costs and
quality of produce.

Conclusion:

Our current state in trading agriculture produce is a reflection of the journey we have chosen based on
our needs as a country.
Food security and rural economy have rightly been the main factors influencing government policies in
this sector.
The government now needs to create an efficient and robust market to attract investments and
talent required for ensuring a bright future for agriculture in India.

March 9, 2017

India gold demand to revive in 2017, says World Gold Council

Details : THE
NEWS
 The World Gold Council (WGC) expects a revival in demand for the yellow metal in India in the
current calendar year.
The year 2016 ended on a dismal note on account of a surge in gold price coupled with factors like
an increase in excise duty and demonetisation.

Inferences from the Survey conducted by WGC

The global body expects Indian gold demand to be about 650-750 tonnes in 2017.
The year 2016 saw gold demand in India falling to its lowest level since 2009. According to WGC,
the government policies promise to deliver a stronger and more transparent economy. This will
support gold demand.
The economic growth and greater transparency within India’s gold market will push demand
higher.
Demonetisation is also boosting large jewellery retailers and they will continue to grab a larger
share of the market.
Over time, consumers will move away from cash towards digital payments and organised players
should benefit from this trend.
This change in market dynamics will result in more transparency and a better deal for consumers,
protecting them from shady practices such as under– carating.

World Gold Council

The World Gold Council is the market development organisation for the gold industry.
The council is aimed to stimulate and sustain the demand for gold.
The council is headquartered in UK and has offices in India, China, Singapore, Japan and US.
March 7, 2017
NIIF in talks with two sovereign funds

Details :

Why in news?

The National Investment and Infrastructure Fund (NIIF) has begun talks with two sovereign wealth
funds (SWF) to become the first investors to come on board.

NIIF:

The Government of India has placed investment in infrastructure as one of the key drivers of
development of the Indian economy.
Since infrastructure investments require long term patient capital, the Government announced
the setting up of National Investment and Infrastructure Fund (NIIF), as a quasi-sovereign wealth
fund.
Apart from the Government of India's investment (about $3 billion), NIIF will also raise third party
capital from long term international investors, such as a Sovereign Wealth Funds, Insurance and
Pension Funds, endowments etc.

Summary:

The talks with SWF follow the recent signing of a government commitment to infuse Rs. 20,000 crore
(about $ 3 billion) into the fund.
After SWFs, large global pension funds and insurance companies will be invited as well.
The NIIF plans to leverage the Centre’s financing to invest a far higher amount in infrastructure
firms and projects, in partnership with global, long-term investors with interest in infrastructure
assets, and fund managers that could create dedicated infra sector funds.
The anchor investment by the government in NIIF will be split into two buckets:
$ 1 billion will be earmarked for a ‘NIIF Direct’ fund that could directly invest in
 existing or new infrastructure firms or projects
$2 billion be used to work with fund managers to create funds that can become partners with NIIF in
investing

Opportunities in Infrastructure:

India is more attractive to foreign investors interested in infrastructure investments in emerging

markets as it now has several privately executed projects that are operational or are close to
completion.
Some investors prefer post-construction assets, some like to take a risk on construction but require a
higher return.
There are estimates that about $600 billion equivalent of operating or mostly constructed assets are
available.

Sovereign Wealth Fund:

A Sovereign Wealth Fund (SWF) is a state-owned investment fund that is established from central
bank reserves that accumulate as a result of budget and trade surpluses, and from revenue
generated from the exports of natural resources.
The types of acceptable investments included in each SWF vary from country to country.
Some countries have created SWFs to diversify their revenue streams. For example, the United
Arab Emirates (UAE) relies on oil exports for its wealth. Therefore, it devotes a portion of its
reserves to an SWF that invests in diversified assets, including infrastructure in other countries,
which can act as a shield against oil-related risk.
The amount of money in the SWF is substantial. The estimated value of all SWFs in the World is
pegged at $7.1 trillion.

(Source: http://www.investopedia.com/terms/s/sovereign_wealth_fund.asp)

March 6, 2017

Policy drags e-commerce exports

Details :

Why in news?
 Several restrictions under Foreign Trade Policy (FTP) 2015-20 are slowing down the growth of e-
commerce exports.

Background:

Earlier, Centre decided to provide incentives in the Foreign Trade Policy (FTP) 2015-20 to promote
e-commerce exports.
However, exporters have now identified several ‘restrictions’ under the FTP and related norms that
are preventing them from maximising the potential of e-
 commerce exports.

FTP incentives:

As per India’s FTP 2015-20, the incentives for e-commerce exports are under the Merchandise
Export from India Scheme (MEIS).
The rewards are in the form of freely transferable duty credit scrips/certificates (that gives duty
benefits for imports of inputs or capital goods
for manufacturing exported products).
The FTP incentives for e-commerce exports are only for low-value goods - in the category of
handloom products, books and periodicals, leather footwear, toys and customised fashion
garments - having free-on-board value up to 25,000 per consignment and finalised using the e-
commerce platform.
As per the norms, the payment for goods purchased on e-commerce platform shall be done
through international credit or debit cards and as per the RBI norms.
The FTP further says that the Department of Revenue shall fast track the implementation of Electronic
Data Interchange (EDI) mode at courier terminals.

Commerce Ministry assessment of e-commerce exporters:

According to Federation of Indian Export Organisations (FIEO), there is a market opportunity of

about $5 billion in the near-term, say in the next 2-3 years, for Indian e-commerce retail exports.
For this to frutify, the concerns of such exporters are addressed expeditiously by the government.
A survey had found that those selling their items using eBay employ about 6.5 employees on an
average.
Thus, Indian e-commerce exports can lead to greater direct and indirect employment generation.
An assessment was done by the commerce ministry and FIEO found that there are more than
25,000 Indian exporters, small and medium firms and entrepreneurs present on the American
multinational e-commerce company eBay alone, exporting their items directly to the consumers
across the world. It is estimated that there are more than two lakh such Indian business-to-
consumer (B2C) exporters are making use of their own websites or other e- commerce platforms
and social media sites.

Competition in e-commerce exports:

According to the World Trade Organisation, in 2015, e-commerce in goods and services was worth
about $22 trillion globally, and has grown the fastest in emerging economies.
India’s e-commerce retail exporters are also facing major competition from their counterparts in
China and South Asia.
There is intense competition in the e-commerce exports space. Several countries are actively
promoting e-commerce exports.
UK's e-Exporting programme:

The U.K. government’s Department for International Trade (DIT) has an ‘E- Exporting Programme’ to
help U.K. companies sell their products or services
 overseas through e-commerce.
It enables U.K. companies to to get expert international trade advice and support.
The programme also helps U.K. companies to develop and implement an international e-commerce
strategy.
It helps them set up on e-marketplaces and identify new e-marketplaces around the world,
through DIT’s ‘Selling online overseas’ tool.
It also enables U.K. companies to “access better than commercial rates to list on some e-
marketplaces, including lower commission fees and ‘try for free’ periods.

What do Indian exporters want?

The FTP currently limits incentives to just a handful of items, thereby restricting the growth of
Indian exporters using the e-commerce mode.
The list of items for incentives should be expanded to include jewellery, which is among the
biggest finished product exports from India, as well as health & beauty items, auto spare parts
and musical instruments.
Also, in order to promote exports from the country’s MSMEs through e- commerce, the value limit
for availing MEIS benefits should be enhanced up to Rs. 5 lakh from the current level of Rs. 25,000
per consignment.
The clearance process under the MEIS scheme is currently manual and not EDI- enabled.
Therefore, it is necessary to open EDI-based clearance for e- commerce export.
The application fee was too high for e-commerce exports to avail benefits under MEIS. The fee
may be reduced substantially or waived off.
Return of goods must be exempted from customs tariff.
Currently, when a buyer sends an item back to e-commerce exporter, import duty is charged.
However, in the case of exports other than through the e- commerce route, customs duties are
exempted on return of exported goods. The exporters also said presently, the Courier Shipping
Bill (CSB-II) is highly cumbersome and requires lots of information to be furnished even for low-
value shipments. A new CSB form be introduced and notified at the earliest.
There is no provision for ‘commercial shipment’ in the forms provided by Customs. e-commerce
exports through India Post or via the commercial courier mode are ticked as “samples” or “gifts”
and not as ‘Commercial Shipment’.
Therefore, such documents are not recognised by Value Added Tax (VAT) authorities, despite
proof of receipt of foreign exchange through bank realisation certificate. This leads to a situation
where VAT and service tax are not refunded in such cases of e-commerce exports as there are no
Custom- stamped documents in such cases to prove ‘Commercial Shipment’, thereby reducing the
competitiveness of Indian products.
March 5, 2017

By air or road, Tezu is now a vantage point

Details :
THE NEWS

Firming up India’s strategic space, the mountainous regions of Arunachal Pradesh are set to
acquire all-weather connectivity.

News Summary

In major infrastructure push, Centre has built a civilian airport and two major bridges across Lohit
River in Arunachal.
The new bridges across the Lohit River and the new commercial airport in Tezu will smoothen
transport to several high-altitude districts near the India-China border.
The airport, first in the State, will be equipped with night-landing facility. The bridges at the
Dhola-Sadiya ghat and at Digaru ghat have been built to reduce the transport time.
The bridge at Sadiya (9.15 km) will be the longest bridge in India once it is formally inaugurated.
Vehicular traffic across the river required a risky boat ride carrying large and small vehicles to Tezu
town.

Socio-Economic Importance
 Apart from the airport, the two mega-bridges over the Lohit river will reduce hurdles in moving
men and material to the eastern sector of the India-China border.
The smaller bridge of 2.1 km built at the Digaru ghat that will reduce the distance between
Arunachal Pradesh and Assam and bring the State closer to the rest of India.

Strategic Importance

Tezu is the nearest town to Walong, where a legendary battle between Indian and Chinese
soldiers took place in 1962.
The improvement in connectivity is significant in view of the statements by Beijing’s officials
asserting China’s territorial claims over Arunachal Pradesh. The new bridges will provide the
necessary support for the strategic preparedness for the forces in the mountains, which will be
critical for India where the new Mountain Strike Corps is likely to focus.
The planned high altitude airfields in the Himalayan range would also be helped by the enhanced
connectivity of Tezu.
The route to Tezu is critical from a strategic point of view as the Himalayan range, which became
famous as ‘the hump’ during World War II, can be accessed only through the mountain roads that
begin at Tezu.

Centre unveils training scheme for traders

Details : THE
NEWS
 The Centre rolled out a programme to train small and medium-sized traders in various modes of
digital payments.

Training Program

The National Institute of Electronics and Information Technology, under the Ministry of IT and
Electronics, will conduct the programme through five regional workshops, 30 state workshops and
100 Digi Dhan campaigns.
The programme will target about 13,500 small and medium unorganized or self organized businesses
and traders.
This follows the government’s move to push for less-cash economy post demonetisation of high-value
currency.

Objective

The objective of the training programme is to help understand and adopt simplified digital
payment mechanisms like Unified Payments Interface (UPI), Unstructured Supplementary Service
Data (USSD) and Aadhaar-enabled payment system (AEPS).
This will contribute towards establishing digital economy and convey benefits of digital payments to
traders through capacity-building programs.

Related Link:

About Digital Payments: https://lms.vajiramandravi.com/current-affairs/aadhaar- to-be-pivot-of-

payments/5854dceeb680d376c85467d9/
March 1, 2017

OECD cuts GDP growth forecast to 7% in 2016-17

Details : THE
NEWS

The Organisation for Economic Cooperation and Development (OECD) cut its growth projection for
India in 2016-17 to 7% from the 7.4% it had projected last year.

OECD’s Economic Survey of India 2017 Report

The OECD in its Economic Survey of India 2017 report forecast a growth rate of 7.3% for 2017-18 and
7.7% for 2018-19.
The growth of 7% is more than double the current global growth figure and four times the OECD
average.
According to report, the inflation, the current account deficit and the central government deficit have
all been brought down in the past few years.
The report raised some issues that could alter the performance of the Indian economy including the
bank NPA issue and geopolitical risks.
Highly-leveraged companies and public banks with large non-performing loans are exposed to
major shocks emanating from domestic and foreign financial markets.
Within tax reform, the survey report highlighted some key measures that were needed to increase
revenue and align the system to international standards.
High corporate income tax rates and a narrow base distort the allocation of resources, discourage
foreign investment and make tax evasion and avoidance more attractive.
In India tax disputes are frequent and also take long to resolve. Staff numbers and
training levels are low in the tax administration.
In order to rectify this, the OECD recommended implementing the reduction of the corporate tax
rate from 30% to 25%, provide certainty regarding tax rules and their implementation, and
increase the number and training of staff employed in the tax administration.

Organisation for Economic Co-operation and Development

OECD is an intergovernmental economic organisation which is aims to promote policies that will
improve the economic and social well-being of people around the world.
The organisation was established in 1961, when 18 European countries plus the United States and
Canada joined forces to create an organisation dedicated to economic development.
It is headquartered at Paris, France and has 35 countries as its member states.
 India is not a member of the organisation.

GDP growth pegged at 7.1%, belying demonetisation drag

Details : THE
NEWS
The Central Statistics Office (CSO) has kept its January estimate for growth in gross domestic
product (GDP) in 2016-17 unchanged at 7.1%.
The CSO released its second advance estimates of economic growth which showed GDP
growth slowing to 7%, from 7.3% in the second quarter of the financial year.
The numbers signal that independent economic forecasters may have overstated the drag on the
economy on account of withdrawal of high-value currency notes.

New GDP Methodology

 New methodology was adopted to bring our GDP estimates in line with the international best
practices.
Under the old method, GDP was calculated at factor cost. Presently, there will be gross value
added (GVA) at basic prices.
The difference between the two is that indirect production taxes and subsidies are included in
GVA at basic prices.
GDP at factor cost represents what a producer gets from the activity. Taxes on production or subsidies
provided for production were not included.
For arriving at the new gross value added (GVA) at basic prices, production taxes, such as property
tax, are added and subsidies by government are subtracted from GDP at factor cost.
The new GDP is then calculated by summing the Gross Value Added (GVA) per institutional sector
(Agricultural sector, Irrigation, Livestock products, Manufacturing, etc).
In the new way of calculating, GDP is calculated at market prices, while sectoral numbers - agriculture,
industry and services - are given in basic prices.
The new GDP is calculated at Market prices. So, product taxes (Sales tax etc) are added and
subsidies are subtracted.

FEBRUARY, 2017

Feb. 26, 2017

Low cost solar imports from China hurting Centre’s Make in India mission

Details :
Why in news?

Cheap Chinese imports of solar panels are hurting GoI's Make in India mission.

Summary:

Cheap Chinese imports and the prevailing tax structure in India are making it increasingly attractive for
solar manufacturers to choose imports over manufacturing the parts themselves.
 This could hurt the government’s Make in India mission, which was hoping to create jobs in solar
equipment manufacturing.
The basic components that are used are panels and invertors. But the panels make up about 50%
of the cost of the entire system.
Solar power developers have to quote low tariffs (price per unit of power) during the bids for
setting up their units.
Solar tariffs recently touched a historic low of less than Rs 3 per unit in a reverse auction bid in
Madhya Pradesh.
Reverse auction is where government becomes buyer and not seller. That means,
government will buy power from those who win the bid to set up solar power unit. The one
who wins the bid is the one who will sell the power to government (buyer) for the lowest
price.
To be able to create power at low cost, they have no option but to use cheaper Chinese imports,
as the Indian made ones are costlier with manufacturing in India not being very efficient and low-
cost.

Problems of low pricing of power:

Industry experts warn that such low tariffs force companies to cut their costs, and this could lead
to a drop in the quality of inputs being used.
The focus currently seems to be only on generation to help India reach its ambitious targets (100
GW by 2022).
The singular focus on lowering cost, if done at the cost of quality, can harm the long-term viability of
these projects.
Standardisation and quality are key to sustain and build the solar industry.

Need level-playing field:

There is a need to provide a level playing field to domestic manufacturers against cheap,
subsidised imports in this segment.
Without government intervention, it is only going to get worse for domestic manufacturers since
China can undercut (sell cheaper than) Indian prices at virtually any point.
The outlook for domestic solar component and solar cell manufacturers over the next few years
does not look too good since the prices of the Chinese imports are so low.
Even if our solar component manufacturing becomes competitive, there are fears of China
'dumping' their products in India as Chinese manufacturing has over-capacity. India has to stay
guarded against China's dumping, through instruments such as anti-dumping duties.

Government promises new policy:

Ministry of New and Renewable Energy will bring out a new policy for the Indian manufacturing of
solar components soon.
The policy seeks to harness the growing international interest in manufacturing solar components in
India.
It aims to make manufacturing in India competitive.
They are thinking of promoting the manufacturing of panels, and are talking about providing
cheaper land and cheaper power for manufacturing,
--
Problems of Solar Water heaters:

The problem of Chinese imports being cheaper is an issue faced by domestic solar water heater
manufacturers as well.
Here, not only do Chinese manufacturers have the advantage of being able to sell at lower prices,
they also enjoy a tax advantage over Indian counterparts. The countervailing duty (CVD)
exemption still exists for the imports of individual components, though it has been removed on
the import of the full solar water heating system.
It also makes sense for the industry players to import the parts since local manufacturers have to pay
excise duty, making them more expensive.
Indian industry is asking the government to withdraw all CVD exemptions available on
components in solar water heating systems.
The solar water heater makers have also asked the government to make it mandatory for such
systems to compulsorily come with a BIS certification (Bureau of Indian Standards). They believe
that Chinese manufacturers will not seek to get certified under Indian quality norms.

Feb. 25, 2017

Wind tariffs at a low of Rs.3.46 per unit

Details : THE
NEWS
 Wind power tariffs closed at ₹3.46 per kWh in India's first-ever auction for wind energy projects.

News Summary

The price realised at the maiden auction for wind projects follows the historically low solar tariffs.
The bid was called by government-owned Solar Energy Corporation of India for 1 GW of wind
capacity.
The five lowest bidders have quoted Rs 3.46 per unit rate for the 1,000 MW capacities on block
The country is aiming to tap renewable energy to overcome its power shortages.
The power from these 1,000 MW capacity will be supplied to states which do not have adequate
wind resources.
SECI is the nodal agency for implementation of this scheme and is working on the e-bidding
process followed by e-reverse auction for eligible bidders.
Under the scheme, the government will not acquire land or equipment as developers will have to
do that on their own. They will also run and maintain their plants.
The choice of location is with the bidder so that they can choose to locate the project where there is
enough wind resource.
Low Price: Good or Bad?

The tighter pricing speaks about the growing confidence of the players in their ability to deliver
projects on terms that are globally competitive.
This will pave the way for the secular growth of the Indian renewable energy sector.
However low tariffs could prove to be a problem for developers since the focus will now have to
shift to ensuring low costs.

Wind Energy in India

The wind power deployment in the country started in early 1990s.

The current wind power installed capacity is nearly 28.08 gigawatt, accounting for around 9% of
the total installed capacity of 310 gigawatt.
Globally, India is at the fourth position after China, the US and Germany, in terms of wind capacity
installation.
The auction assumes significance because India has set an ambitious target of having 60 gigawatt of
wind power capacity by 2022.

Feb. 24, 2017

‘Legally vetted’ pact on services tabled at WTO

Details : THE
NEWS
 India has submitted to the World Trade Organisation (WTO) a legally vetted proposal on a global
services pact, a day after TFA in goods came into force. India is seeking to push the proposal at the
upcoming biannual WTO ministerial meeting in Argentina.

The Proposal

Like the agreement in goods trade, the proposed agreement is expected to cover discrepancies in
trade in services as well as procedural and administrative issues and principles that apply to all.
The proposal for a Trade Facilitation in Services (TFS) Agreement will be taken up by an expert
committee at the WTO headquarters following which it will be put up for discussion among all the
WTO members.
According to India, the proposed TFS pact is also about ‘facilitation’ – that is making market access
effective and commercially meaningful and not about ‘new’ (or greater) market access.
It will not delve into market access issues because that will involve domestic regulations which the
proposed agreement does not seek to address.

Aims

The pact aims to ease norms for movement of skilled workers across borders for short-term work.
To ensure portability of social security contributions
To establish a single window mechanism for foreign investment approvals. Ensure cross-border
insurance coverage to boost medical tourism.

TFA in goods
The TFA in goods came into force after the required 110 members ratified the
 agreement out of the total 164 members.
It is the first multilateral trade deal in 21 years signed in Bali in 2013 for easing cross-border custom
rules for faster movement of goods.
The TFA in Goods aims to streamline, simplify and standardise customs procedures.
By doing so, it will help to cut trade costs around the world.
By 2030 the (TFA in Goods) Agreement could add 2.7% points per year to world trade growth and
more than half a percentage point per year to world GDP growth.
TFA in goods will also lead to effective functioning of ports and reduce transaction costs.
All the ports will be connected electronically and the export and import data can be obtained on a
real time basis.

Feb. 23, 2017

Roche can’t hang on to breast cancer drug: HC

Details :

Why in news?

The Delhi High Court told Swiss pharma major Roche that it cannot forever hang on to its breast
cancer drug Trastuzumab.

Summary:

The Delhi high court was hearing pleas of Roche and other pharma firms such as Biocon, Mylan
and Reliance Life Sciences, on the issue of marketing and sale of drugs biosimilar to the Roche’s
Trastuzumab.
Biocon and Mylan have taken the stand that Roche no longer holds a patent in India for
Trastuzumab, the salt used for making the breast cancer medication. The HC said that Roche
enjoyed the fruits of the patent and now cannot hang on to its drug Trastuzumab forever. That
means other pharma companies can also manufacture the drug.
Biosimilars:

A biosimilar is a biologic medical product which is almost an identical copy of an original product that
is manufactured by a different company.
A biologic medical product is manufactured in, extracted from, or
semisynthesized from biological sources.
When the patent surrounding a biologic's formula is no longer protected, multiple companies can
release a drug with the same chemical recipe, driving the cost down. That new biologic drug is a
biosimilar.

How are Biologic products different from other drugs?

There is difference between small-molecule drugs and biologics.

Small-molecule drugs are small and fairly simple in their structure. They are synthesized from
chemicals in a consistent process so that manufacturers can be sure that each pill has the same
effect every time. Thus, their generics are easier to manufacture and consistent.
Biologic drugs, on the other hand, are made by a living cell, typically an engineered bacterium or a
yeast. Thus, they are chemically much more complicated. They’re bigger and heavier, and often
less stable, so they require special handling like refrigeration.

Arguments:
Roche argued that Biocon, Mylan and Reliance cannot term their medicine merely Trastuzumab
and ought to call it Biocon’s Trastuzumab or Mylan’s Trastuzumab as these companies have not
followed the entire protocol of tests and studies, as was done by it.
To this, the Bench said the advantage of biosimilarity was that it was an abbreviated process
and companies like Biocon and Mylan need not go through the entire strenuous process, as was
 done by Roche.

Feb. 22, 2017

Acharya sets timeline on NPAs

Details : THE
NEWS

Newly appointed Reserve Bank of India deputy governor Viral Acharya, came down heavily on the
way lenders approached the problem of bad loans and set a timeline to resolve the issue.

Suggestions for Non-Performing Assets

Almost one sixth of the public sector banks’ gross advances are stressed and a significant majority of
these are non-performing assets (NPAs).
For resolution of stressed assets, Deputy Governor made following suggestions:

1. Private Asset Management Company (PAMC): Such a company would be suitable for sectors
where the stress is such that assets are likely to have economic value in the short-run, with
moderate levels of debt forgiveness. Some of such sectors seeing heavy stress are metals, telecom,
and textiles.
2. National Asset Management Company (NAMC): This type of company would be necessary for
sectors where the problem of excess capacity and economically unviable assets in the short- to
medium-term.
3. Disinvestment: Some banks should be allowed to shrink and disinvestment should also be an
option. This would help banks in handling the losses due to stressed assets.
About NPAs: https://lms.vajiramandravi.com/current-affairs/steel-sector-showing- signs-of-turning-
around-jaitley/57dcf976b680d332dcb5f805/
Feb. 21, 2017

Europe keen on resuming trade talks

Details : THE
NEWS

The Members of the European Parliament (MEP)- Delegation for Relations with India has urged the
government to consider a six-month extension of bilateral investment treaties.
They want the extension till the Free Trade Agreement or the comprehensive BTIA (Bilateral Trade
and Investment Agreement) negotiations are restarted. There has been no movement on the
BTIA/FTA talks that were suspended in 2013 after 16 rounds of negotiation.

What MEP said?

MEP warned that the impasse in the India-European Union free trade negotiations could also hurt
investment into India.
There was a need for a greater sense of urgency, given that BITs with most EU countries would lapse
within the first half of 2017.
The delegation said that the countries would like to invest in India only once the government
guarantees the process in India, which would follow the conclusion of the BTIA.
The MEPs also pointed out that in the wake of US decision to pull out of the Trans Pacific
Partnership (TPP) with Asian countries and leave the Transatlantic Trade and Investment
Partnership (TIPP) in limbo should worry India as well.

About India-EU FTA:

https://lms.vajiramandravi.com/current-affairs/eu-may-re-engage-with-india-on-free- trade-
talks/57e63321b680d332d8fd3650/
Feb. 13, 2017

Second PSB recapitalisation plan on the anvil

Details : THE
NEWS

After the Asset Quality Review (AQR) exercise by the RBI, the numbers will be re-looked at and a
revised programme of capitalisation will be issued as part of ‘Indradhanush 2.0’.

Asset Quality Review

As a part of exercise, the RBI had asked banks to recognise some top defaulting accounts as non-
performing assets (NPAs) and make adequate provisions for them.
The exercise is aimed to clean up the balance sheets of PSBs.
Indradhanush Plan
 The ‘Indradhanush’ was launched in 2015.
The government had announced an infusion of ₹70,000 crore in state-run banks over four years
while the banks will have to raise a further ₹1.1 lakh crore from the markets.
The funds are to be used to meet the capital requirements of banks in line with global risk norms,
known as Basel-III.
The seven elements include of Indradhanush includes:

1. Appointments
2. Board of bureau
3. Capitalisation
4. De-stressing
5. Empowerment
6. Framework of accountability
7. Governance reforms.

Indradhanush 2.0

It will be a comprehensive plan for recapitalisation of public sector lenders, with a view to make
sure they remain solvent and fully comply with the global capital adequacy norms, Basel-III.

Basel-III

Basel III is a comprehensive set of reform measures, developed by the Basel Committee on
Banking Supervision, to strengthen the regulation, supervision and risk management of the
banking sector.
These measures aim to:

1. Improve the banking sector's ability to absorb shocks arising from financial and economic stress,
whatever the source
2. Improve risk management and governance
3. Strengthen banks' transparency and disclosures.

Related question: UPSC Prelims, 2015: QUESTION:

‘Basel III Accord’ or simply ‘Basel 111′, often seen in the news, seeks to
(a) develop national strategies for the conservation and sustainable use of biological diversity
(b) improve banking sector’s ability to deal with financial and economic stress and improve risk
management
(c) reduce the greenhouse gas emissions but places a heavier burden on developed countries
(d) transfer technology from developed countries to poor countries to enable them to replace the use
of chlorofluorocarbons in refrigeration with harmless chemicals
Answer: (b)
Feb. 11, 2017

Govt. sets up inter-departmental task force to crack down on benami firms

Details : THE
NEWS

A task force comprising members of various regulatory Ministries and enforcement agencies has
been set up for a major crackdown on shell companies.

Background:

Few days back, the government, during a small sample analysis of such companies, found that
Rs. 1,238 crore in cash was deposited in shell companies during the November-December
period, after demonetisation. Shell Companies, in this context, are companies which does not
conduct any operations and indulge in large-scale money laundering and tax evasion.
The Serious Fraud Investigation Office (SFIO) has also initiated criminal prosecution against entry
operators (who accept cash and route it through several companies to avoid detection) involved
in running a group of shell companies.
There are about 15 lakh registered companies in India and only 6 lakh of them file their annual
returns, raising suspicion that a large number of these companies are indulging in financial
irregularities.
About Task Force:

Following the findings on shell companies, Prime Minister’s Office held a meeting with top
functionaries of the departments concerned to review their functioning, and set up a task force.
The companies which are used for large-scale money laundering and tax evasion will be targeted.
The agencies will invoke the stringent Benami Transactions (Prohibition) Amendment Act against
the shell companies to freeze their accounts and strike off the names of dormant companies.
The Benami Transactions (Prohibition) Amendment Act, 2016, gives the government powers to
confiscate benami assets i.e. those held in the name of another person or under a fictitious name
to avoid taxation and conceal unaccounted-for wealth.
The task force, constituted under the co-chairmanship of the Revenue Secretary and the Corporate
Affairs Secretary, will monitor the actions taken by various agencies.
Disciplinary action will be initiated against professionals abetting the companies and entry operators
who are used to launder unaccounted-for incomes into the banking system for projecting them as
white money.

Feb. 10, 2017

SEBI to form panel to facilitate crowdfunding
Details :

Why in news?

The Securities Exchange Board of India (SEBI) is forming an advisory committee on financial
technology to facilitate crowdfunding.

Crowdfunding:

Until recently, financing a business, project or venture involved asking a few people for large sums
of money.
Crowdfunding switches this idea around, using the internet to reach out to a large number of
people.
Crowdfunding is a way of raising finance by asking a large number of people each for a small
amount of money.

Summary:

SEBI is forming an advisory committee on financial technology and related issues.

SEBI wants to promote crowdfunding but does not want to let anonymous entities raise funds
without any safeguards.
The committee would look at safeguards that can be put in place to facilitate crowdfunding of
genuine ventures and mobilise more household savings into the financial markets.
The current household savings invested in capital markets are very low. SEBI Chairman said
that people are ready to invest but issues related to convenience are holding them back,
such as getting KYC done.
The committee would make recommendations on how to harness technology to enable persons in
small towns to invest small amounts.
Sebi is also working in the direction of having a single KYC across the entire financial sector, so that
the increasing number of investors coming into the system do not have to register themselves
multiple times for KYC for different entities.

Feb. 9, 2017

RBI to set up in-house enforcement cell

Details : THE
NEWS
 The Reserve Bank of India has decided to set up an enforcement department to speed up regulatory
compliance.

Enforcement Cell of RBI

The department of enforcement will be operational from the next financial year. It will mainly deal
with the penalties imposed on banks for violation of norms.
Currently, the penalties are decided by the banking and non-banking supervision departments.
With a view to develop a sound framework and process for enforcement action, it has been
decided to establish a separate Enforcement Department.

Need for a separate department

There are three important facets of financial sector:

1. Regulations: Regulations determine the framework in which financial entities function so that
prudence, transparency and comparability are ensured and customer interests are protected.
2. Surveillance: It is the process through which adherence to the regulations is monitored.
3. Enforcement: It deals with cases of non-compliance with regulations noticed either through the
surveillance process or otherwise.

Currently, at the Reserve Bank, there is a clear demarcation of regulatory and surveillance functions
but enforcement functions were not so clear.
Enforcement is an integral part of the supervisory process.
The focussed attention by a separate department is expected to increase the regulatory compliance.
Digital payment costs are a hindrance: TRAI
Details :

Why in news?

TRAI says that the costs on Digital payments are a hindrance in move to a less- cash economy.

Summay:

TRAI says that the surge in digital payments in the country, driven largely by short-term incentives,
will become sustainable only if the costs of making such payments are addressed.
If a person has Rs. 100 in his pocket, he gets Rs. 100 worth of goods. But if he has to pay Rs. 1 or
Rs. 2 for paying the same digitally, it imposes an unfair cost on him.
Another example of costs on digital payments is the merchant discount rate (MDR) that is levied on
transactions done through credit and debit cards. TRAI chairman said the ‘work done’ at the back-
end for card payments is not enough to justify the costs.

Cost, Convenience and Confidence:

Digital financial transactions are not sustainable unless you address the issues of cost,
convenience and confidence.
If costs are not addressed, the digital payments will go down as the incentives go down.
If convenient payment modes are not available, people will shift back to using cash.
While people are getting more comfortable with digital payments, the TRAI chief said it is
important to build confidence in the systems and ensure that all relevant software is tested for
cyber-security and other security risks.

Feb. 7, 2017

Ministries, sectoral regulators to screen FDI proposals

Details : THE
NEWS
The Centre had proposed to abolish the Foreign Investment Promotion Board (FIPB) in its Budget
for 2017-18.
The applications on foreign direct investment (FDI) in India in sectors under the approval route which
are considered by the inter-ministerial Foreign Investment Promotion Board (FIPB) will soon be taken
up by the concerned ministries and sectoral regulators.
Phasing out FIPB

The Centre had in the Budget 2017-18, proposed that the FIPB, which offered a single window
clearance mechanism for FDI applications in sectors under the approval route, will be abolished in
Financial Year 18.

FDI route in India

More than 92% of the FDI inflows were through the automatic route.
As majority of the investments coming in are through the automatic route, a superfluous or an
additional layer in the form of FIPB is not any longer required. For the rest of the FDI (about 8% of
the total FDI inflows), every department concerned has a framework or a regulator.
According to Ministry of Commerce, these regulators of the respective ministries are more than
adequately endorsed to take care of screening such applications.
The Department of Industrial Policy and Promotion (DIPP) is the nodal agency on FDI issues.

Merits

The abolition of FIPB is in line with the government’s policy of maximum governance and minimum
government.
The abolition will also help in making doing business in India easier.

Feb. 6, 2017

Company staff must pay tax on gifts

Details :

Why in news?

Company employees receiving large gifts, valued at more than Rs.

 50,000, whether from the company itself or from somebody else will now have to pay tax on it.

Summary:

According to changes made in this year's Budget, Company employees receiving large gifts from
the company will now have to pay tax if the gifts are valued at more than Rs. 50,000.
Currently, there is a provision that if you give a gift to any individual above Rs. 50,000 then it will be
taxed. But this does not apply to companies.
A large number of companies reward or compensate their senior employees with non-cash gifts.
Now amendments will be made to ensure that large gifts by companies will also be taxed.

Taxing the Non-cash gifts:

Section 56 of the Income Tax Act makes exemptions from tax for certain kinds of gifts received
from certain types of persons (like relatives). This includes gifts from close family, on the occasion
of the marriage of the individual, by way of inheritance etc.
Large gifts received by company employees were also exempted from tax.
The Finance Bill 2017 seeks to widen the scope of the Section 56 by applying it to more kinds of
assessees and the rule will also be made applicable to companies.
Now any gift received by a person from his/ her employer that is worth over Rs 50,000 will be subject
to taxation.
Also, many of the existing exceptions contained in the section are proposed to be rationalised.
The amendments made to Section 56 of the Income Tax Act will come into force from the next
financial year.

Need for the amendment:

There was a need to continuously update the provisions of the Income Tax Act since people were
always looking for ways to bypass and evade tax.
To plug the loopholes, amendments are made, including introduction of new sections in the Income
Tax Act.

Receiving more than Rs. 3 lakh in cash to attract equal penalty

Details :

Why in news?
Any cash transaction of more than Rs. 3 lakh will now attract 100% penalty, to be paid by the
receiver.
Summary:

Demonetisation brought to account the stock of black money and now the government wants to stop
any future generation of black money.
In the Budget 2017-18, a ban on cash transaction of more than Rs. 3 lakh has been proposed.
Any transaction of more than 3 lakh in cash will now attract 100% penalty. The receiver will have to
pay an amount equivalent to the cash received.

The amendment:

Finance Minister has proposed to insert Section 269ST in the Income-Tax Act. According to it, no
person shall receive an amount of Rs. 3 lakh or more by way of cash in aggregate from a person in
a day, in respect of a single transaction or in respect of transactions relating to one
event/occasion from a person.
The restrictions will not apply to the government, any banking company, post office savings bank
or co-operative bank.
It comes into effect on April 1.

Motive:

The provision is to deter people from doing large cash transactions to prevent generation of black
money.
The government will track all large cash transactions and also curb the avenues of conspicuous
consumption through cash.
People with large sum of unaccounted money usually spend it on holidaying or buying luxury items
like cars, watches and jewellery.
The new cash curbs will mean that such spending avenues are curtailed, disincentivising people from
generating black money.

Feb. 2, 2017

DAIRY INDUSTRY FUND

Details : THE
NEWS
 Finance Minister, in the budget 2017-18, has announced the establishment of Dairy Industry fund.
The proposed Rs 8,000-crore Dairy Processing and Infrastructure Development Fund will be set up
under the NABARD.
The fund will have an initial corpus of Rs 2,000 crores that will be quadrupled in three years.
The fund will be used to enable expansion of milk processing capacity in the country.

Need for Fund

There has been no government programme for investment in the dairy sector since the Operation
Flood that was implemented by the National Dairy Development Board during 1970-94.
A large number of plants set up under the programme have turned old and obsolete.
India is world's largest milk producer and co-operative sector commands a major share in the dairy
industry of the country.

STRUCTURE OF INDIAN DAIRY INDUSTRY

Breaking down Budget

Details :

The government merged the Railway Budget with the main Budget this year. Why does it need a
Budget at all?
Any large and complex entity with financial dealings, like a company or a government,
must keep accounts of what it earns and spends and how. The Budget is a statement of
those accounts.
Under Article 112 of the Constitution, the Government of India must present to the
representatives of the people an “annual financial statement” of “the estimated receipts and
expenditure” of the government for that year financial year.
India’s financial year runs from April 1 to March 31.
 Unlike the general Budget, there is no constitutional or legal requirement for a Railway Budget.
Many Railway Ministers have been accused of using the Railway Budget for populist reasons
rather than to run the Railways efficiently. It had been argued for several years that the Rail
Budget should be scrapped.

Why can’t individual ministries have their own budgets?

Individual ministries or departments work out their demands for grants i.e. the expenditure they
expect to incur on projects or programmes and payment of salaries, which are incorporated in the
Union Budget
Once Parliament approves the proposals, they can start spending.
It would be cumbersome and impractical to have the hundreds of departments of the government
individually seeking Parliament’s approval for their spending.

The Budget has traditionally been presented on the last day of February. Why was it advanced to
February 1?

According to government, it will speed up the process of getting the Budget approved by
Parliament.
Once that is done by March-end, spending can begin from April 1.
Until now, Parliament has signed off on the Budget only by May and spending has been postponed
in some cases until after the end of the monsoon in September.

How does the government raise resources?

The government’s revenues come largely from taxes, which can be either ‘direct’ or ‘indirect’.

1. Direct taxes include income tax or corporate tax, where the money is collected directly from a
person or entity.
2. An indirect tax on a good or service results in a higher price for that good or service. Excise duty,
service tax, value-added tax, stamp duty and entertainment tax are major indirect taxes.

GLOSSARY:
Fiscal Deficit

When a government is unable to raise enough revenues to meet its expenditure needs, it has
to borrow.
This it does either by issuing securities or bonds or by borrowing from financial institutions such as
the World Bank.
Nearly all governments borrow, and their debt is referred to as national debt or sovereign debt.
Fiscal deficit is the excess of expenditure over revenue, minus borrowings.
The Budget has proposed to bring down the fiscal deficit for 2017-18 to 3.2% of the GDP, and to 3% in
the following year.

Revenue Expenditure

This is the money the government spends on salaries of its employees and constitutional
functionaries, interest payments on borrowings, and subsidies.

Capital Expenditure

This is the expenditure on anything that leads to the creation of an asset. For example: building roads,
power plants, health facilities.

Plan Expenditure

This is expenditure on development schemes during a certain period like the Five-Year Plan.
The Five-Year Plans have been executed by the NITI Aayog since the Planning Commission was
abolished in 2014. The 12th Five-Year Plan period is from 2012-17.
Non-Plan Expenditure

This is spending on pension payments and wages, defence, interest on

 borrowings, and subsidies.
Both revenue and capital expenditure can be categorised as either Plan or Non- Plan Expenditure.

Goods and Services Tax

The Goods and Services Tax or GST will subsume other taxes such as excise, customs duty and service
tax into one tax.

Feb. 1, 2017

Note ban a radical measure: CEA

Details :

What CEA said?

The government’s Chief Economic Adviser Mr. Arvind Subramanian termed the move to cancel the legal
tender nature of high-value currency notes a radical currency- cum-governance-cum-social engineering
measure to permanently and punitively raise the cost of illicit and unaccounted transactions.

Demonetisation is an unusual and unique monetary experiment with long term benefits for the
economy.

Growth Curve
The Survey pegs economic growth in 2016-17 at 7.1%.

After a temporary slowdown in GDP growth, the Survey expects the economy to return to normal.

By March, the scrapped currency will be replaced by new currency.

In the long run, tax revenues and GDP growth would be bolstered on account of greater tax compliance
and a reduction in real estate prices.

Push to solve India’s twin balance sheet problem

Details : THE
NEWS
 The Economic Survey called for a need to set up a government-owned asset reconstruction company,
PARA (Public Sector Asset Rehabilitation Agency).

About PARA

The Public Sector Asset Rehabilitation Agency can tackle India’s twin balance sheet problem
(Corporates and Banks):

1. Over-leveraged companies
2. The rising bad loans in public sector banks

The agency could take charge of the largest bad assets and make tough decisions to reduce debt.
The main obstacle in resolving the twin balance sheet (TBS) concern is finding the funds needed by
the public sector banks.
PARA will be funded by the gain to the government.
The Survey says that PARA could be in addition to the efforts at bad debt reduction by Asset
Reconstruction Companies (ARCs).

Why PARA?

The twin balance sheet problem is a serious drag on credit growth.

Over the past few years NPAs of public sector banks have been rising and is a cause for concern
warranting large write downs.
The setting up of a centrally-assisted rehabilitation agency will help in taking difficult decisions which
the public sector banks are unable to take.
Private run Asset Reconstruction Companies (ARCs) have not been successful in resolving bad debts.
The international experience shows that a professionally-run central agency with government
backing can overcome the difficulties that have impeded progress.
Budget Highlights

Details :
FINANCIAL SECTOR

REVENUE AND EXPENDITURE

DIGITAL ECONOMY
FUNDING OF POLITICAL PARTIES
INFRASTRUCTURE
DigiGaon INITIATIVE
HEALTH AND DISEASES
 #Budget 2017

1.5 lakhhealthsub-centres to be transformed to

Health Wellness Centres

To ensure adequate availability of specialised doctors,

steps to be taken to create additional 5000 Post-Graduate
seats per annum

2 AIIMs to be set up in Jharkhand & Gujarat

Proposes to amend Drug& Cosmetics Rules to ensure availability

of drugs at reasonable prices

New rules regarding medical devices to be formulated

1 Mln1$try of lnfon:n•tion
a.ndB tlng
C0\'1'.!rnmcntof J nd iA
LEGISLATIVE REFORMS FOR LABOUR SECTOR
FOR POOR AND UNDERPRIVILEGED
EDUCATION SECTOR
Trivia Time!
Details :

Some lesser known facts about Union Budget:

The word 'budget' is derived from the Middle English word 'bowgette', which came from 'bougette'
which means a leather bag in French.
The first Budget was introduced in India on April 7, 1860 by East India Company.
James Wilson, the financial member of Indian Council advised the Indian Viceroy and presented the
Budget designed on an English framework for the first time The Annual financial statement in the
Article 112 of the Constitution of India is commonly known as the Union Budget of India.
The President of India fixes the date of the Budget presentation by the finance minister.
From this year, the Union Budget will be presented by the Finance Minister of India in the
Parliament on the first working day of February unlike how it was presented on the last working
day of February.
This move it to facilitate the materialisation of the reforms by the commencement of the new
financial year in April.
The Union Budget presented by the finance minister has a Finance Bill and an Appropriation Bill,
both of which have to be passed by the Lok Sabha and the Rajya Sabha before it can be
implemented from April 1.
The first ever Union Budget of India was presented by the first Finance Minister of India RK
Shanukham Chetty in 1947.
Former Prime Minister of India and then Finance Minister Morarji Desai has presented the maximum
number of Budgets - 10 - and an interim budget between 1959 and 1964.
First woman Prime Minister of India Indira Gandhi was also the only woman finance minister in
the history of India. She presented a Budget while serving as the Prime Minister.
Former Finance Minister of India, Yashwant Sinha changed the practice inherited from the British
era of announcing the Budget at 5 PM on the last working day of February to announcing the
Budget at 11 AM.
For the first time in 92 years, the Rail Budget will be merged with the Union Budget of 2017.
The Budget presentation is preceded by a Halwa ceremony wherein a sweet dish is served to the
officers and staff involved in the printing of the budget documents, following the traditional belief
that having something sweet before any important task is auspicious.
The printing of the Budget documents starts roughly a week before the date of the Budget
presentation. The employees involved in the process are kept in complete isolation (quarantine) in
the Finance Ministry during this time till the
 Budget is presented.
The Union Budget of India for the year 1997-98 was called the "Dream Budget" by media,
possibly because the highlight of the budget was a road map for economic reforms in India
including lowering income tax rates, removal of the surcharge on corporate taxes, and reduced
corporate tax rates. The Budget of fiscal year 1973-74 is known as the "Black Budget" as the
nation had a deficit of Rs 550 crore.

JANUARY, 2017

Jan. 31, 2017

BASIC: Making of the Budget

Details :

Ever wondered how budget is made? Have a look at

the making of the budget:
https://www.youtube.com/watch?v=DsdD7cnqZgk

WHO MAKES THE BUDGET?

The Budget is made through a consultative process involving ministry of finance, NITI Aayog and
spending ministries.
Finance ministry issues guidelines for spending based on which ministries present their demands.
The Budget Division of the Department of Economic Affairs in the finance ministry is the nodal body
responsible for producing the Budget.
HOW IS THE BUDGET MADE?

In September the Budget Division issues a circular to all Union ministries, states, UTs,
autonomous bodies, departments and the defence forces for preparing the estimates for the
next year.
After ministries & departments send in their demands, extensive consultations are held between
Union ministries and the Department of Expenditure of the finance ministry.
At the same time, the Department of Economic Affairs and Department of Revenue meet various
stakeholders such as farmers, businessmen, FIIs,
 economists and civil society groups to take their views.
Once the , pre-Budget meetings are over a final call on the tax proposals is taken by the finance
minister. The proposals are discussed with the PM before the Budget is frozen.

BUDGET PRESENTATION

The Secretary General of the Lok Sabha Secretariat seeks approval of President after the Speaker
agrees to the date suggested by the government.
Finance Minister presents the budget in the Lok Sabha outlining key estimates and proposals.
Finance Minister briefs the cabinet on the budget proposals through a 'summary for the cabinet'
just before he presents the budget.
The 'Annual Financial Statement' is laid on the Table of the Rajya Sabha after the FM's speech.

Related Question, UPSC Prelims 2015:

With reference to the Union Government consider the following statements.

1. The Department of Revenue is responsible for the preparation of Union

Budget that is presented to the parliament
2. No amount can be withdrawn from the Consolidated Fund of India without the
authorization of Parliament of India.
3. All the disbursements made from Public Account also need the Authorization from the
Parliament of India

Which of the following statements given above is/are correct?

a) 1 and 2 only

b) 2 and 3 only

c) 2 only

d) 1, 2 and 3

Solution: c)
Jan. 30, 2017
Rail budget – a requiem

Details :

Unique Indian Railways

(Pamban Rail Bridge)

The Indian Railways (IR) is a behemoth employing 1.3 million workmen, lifting more than 1 billion
tonnes of freight annually and carrying 24 million passengers in its 12,000 passenger trains each
day.
Indian Railways is also helping Indian economy in many ways like by providing fast and reliable
transport medium for various needy articles across the country.
Only a few railway systems in the world match or outdo these indices, but one factor that no
other railway had matched was that the Indian Railways had its own budget.
The railway budget, until last year, was presented every year on the floor of the Parliament.
2017 will go down in history as the first year when the Rail Budget was subsumed in the General
Budget.
The term Railway budget does not appear in the Constitution, but the budget is introduced and
passed in the Lok Sabha under Articles 112 and Rule 204 of the Constitution, in two distinct parts –
the Railway Budget and the General Budget.

Separate Rail Budget

 A separate rail budget has its genesis in the recommendations of the Acworth Committee of 1920.
The committee under the chairmanship of Sir William Acworth pointed out the need for unified
management of the entire railway system and that the Finance department should cease to
control the internal finances of the railway, that the railway should have a separate budget of its
own.
This was considered necessary because the railway’s revenues far outstripped the general
revenue.
A ‘separation convention’ on September 20, 1924 dissociated the railway finances from the
general finances.
In 1947, when independence was achieved, railway revenues were still 6% more than the general
revenue.
The Railway Convention Committee headed by Sir Gopalaswamy Ayyangar recommended that
the separation of Railway finances from General finance should continue.
A resolution to this effect was approved by the Constituent Assembly in 1949. The revised
convention was to be effective for a period of five years starting 1950-51, but continued for 66
years.

Why a Unified Budget now?

By the 1970s the size of rail revenues had shrunk and was about 30% the size of general
revenues.
By 2015-16 the size of revenue came down to 11.5%.
It was now that many economists like Swaminathan S.A.Aiyar and Bibek Debroy raised the pitch for
discontinuance of the rail budget.
Could the Indian Railway have avoided this fate?

The railways erred on two facets:

1. Subsidized Fares:

The passenger fares had always been subsidized at the expense of higher freight rates.
Freight rates now are at such high levels that road hauliers successfully compete with railways on
grounds of being cheaper.
The rail share in the overall freight kitty has gone down from 89% in 1950-51 to less than 30% in
2014-15.
The non-AC fares have remained static for the past 12 years though the cost of transportation has
risen during that period.

2. Withdrawal from Core areas:

The railways themselves have been withdrawing from their core areas of operations and
concentrating on peripheral items.
They have withdrawn themselves from all urban transport activities which could have benefitted both
the people of India and the railways.
In the 1990s, a situation was created, which made transportation of petroleum products cheaper
by pipeline. At that time, movement of petroleum products was the most profitable business for
the railways and it had a lion’s share of 75% in this sector and it is now down to 10%.

Retrieval of Railways

A retrieval of the railways’ financial health is quite within reach, if due focus is laid on the core
sectors of freight operation and enhanced productivity of assets.
The government should speed up the process of implementation of the recommendations of Bibek
Debroy Committee.
Jan. 29, 2017

India Post gets payments bank licence to start services

Details :

Why in news?

India Post has received payments bank licence from the Reserve Bank of India (RBI).

Summary:

India Post has received payments bank licence from the RBI to start rollout of banking operations
commercially as India Post Payments Bank (IPPB).
Operations are expected to start before March 31 and will be gradually rolled out in 650 districts
using the network of 1.54 lakh post offices.
The postal payment bank will use postmen to help deliver banking services. In 2015, RBI had
granted ‘in-principle’ approval to 11 entities, including Department of Posts, to set up
payments banks.
However, some have dropped their plan to roll out payments bank.
India Post Payments Bank is the third entity to receive payments bank permit after Bharti Airtel
and Paytm.
Payment Banks:

They are different from banks, but offer some banking services. But, they can be of immense help
in taking banking services across the country and in remote areas.
The objectives of setting up of payments banks will be to further financial inclusion by providing:
Small savings accounts and
Payments/remittance services to migrant labour workforce, low income households, small
businesses, other unorganised sector entities etc.
Scope of activities:
Acceptance of demand deposits, but with a maximum balance of Rs. 1,00,000 per individual
customer.
Issuance of ATM/debit cards. However, they cannot issue credit cards. Payments and
remittance services through various channels.
The payments bank cannot undertake lending activities. Can act as
Banking Correspondent (BC) of another bank
They can also provide access to third party financial services such as insurance, mutual funds
etc.
Centre focussing on infrastructure to reduce logistics costs: Gadkari

Details :
Summary:
Union Minister for Road, Transport and Highways Nitin Gadkari said that the
government is working on boosting infrastructure, particularly ports, roads and waterways, to
significantly reduce logistics costs. The logistics cost is very high in India at 18%.
He said it is more costly and complicated to take material from Mumbai to Delhi than to take it from
Mumbai to Dubai or London.
He said that port-led development is crucial for higher economic growth. Sagarmala Program is
the government's flagship port-led development initiative to bring down logistics cost and boost
investment, exports, and jobs.

India's logistics (including transport, inventory, handling etc.):

The current logistics system in India falls far short of international standards in terms of cost,
efficiency, sustainability and safety.
Poor logistics makes exports less competitive and also contribute to higher cost of doing business
and higher prices for goods and services in the economy. For example for power plants located in
the hinterland, the cost of coal transportation alone could contribute 30-35% of total cost of
power produced.
The total cost of EXIM container movement in India is significantly higher compared to other
countries. The transit time is highly variable (7 to 17 days), making it difficult for exporters to plan
container logistics and to commit to tight deadlines to their customers.
The modal mix of Indian logistics is skewed towards road, accounting for 55% of the tonne-kms
(as compared to more economical and environment-friendly modes such as railways and
waterways/coastal shipping). The modal split in India currently in Bn ton KMs (BTKM) is as
below:
Sagarmala:

Sagarmala is an ambitious national initiative aimed at bringing about a step change in India’s logistics
sector performance, by unlocking the full potential of India’s coastline and waterways.
The vision of Sagarmala is to reduce logistics cost for both domestic and EXIM cargo with optimized
infrastructure investment.
Right modal mix, with increase in transport over waterways can lead to great savings. It aims to
harness India's 7,500-km long coastline and tap the potential of 116 rivers across the nation as
waterways.
Port-led development focuses on logistics intensive industries (where transportation either
represents a high proportion of costs, or timely logistics are a critical success factor). These
industries can be structurally competitive if developed proximate to coast/waterways.
They would be supported by efficient and modern port infrastructure and seamless multi modal
connectivity (through network or roads and railways connecting to ports).
The synergistic and coordinated development of the four components, namely logistics intensive
industries, efficient ports, seamless connectivity and requisite skill-base - leads to
unlocking of economic value.
In addition, existing industrial capacities situated in the hinterland can significantly benefit from
the focus in Sagarmala on enhancing connectivity to key ports.
Sagarmala envisages the creation of Coastal Economic Zones (CEZs). Each CEZ would cover a length
of 300-400 km of coastline, and incorporate up to 4 ports. A total of 14 CEZs have been identified
along the coastline.
Jan. 28, 2017

Footwear without back strap is sandal, not chappal: HC

Details : THE
NEWS
The Delhi High Court ruled earlier this week that a woman’s footwear with a back strap is a
“sandal”.
Dispute:

The Centre ordered that export of sandals attracts 10% customs duty drawback while export of
chappals attracts only 5% drawback.
The judgment came after a Chennai-based footwear manufacturer challenged the Centre’s
position that a woman’s footwear without a back strap is a chappal and not a sandal.
The manufacturer demanded duty drawback at 10%, claiming their products were sandals but the
Centre and Revenue Department claimed they were chappals and hence the company was
entitled to only 5% drawback.

DUTY DRAWBACK

A customs duty drawback is a refund given to business houses or manufacturers who import
machinery or raw material in order to export their product.
These manufacturers pay import duty on purchase of the raw material but can later claim a drawback,
or refund on the duty paid as they export their product. This is done to encourage exports.

Difference between Rebate and Drawback:

Jan. 27, 2017

India mulls reviving old gold mines.

Details : THE
NEWS

India is planning to revive a cluster of colonial-era gold mines.

The mines have been shut for 15 years but have an estimated $2.1 billion worth of deposits left.
India is the world’s biggest gold importer behind China and spends more than
$30 billion a year buying gold from abroad, making the metal its second- biggest import item after
crude oil.
It is now looking for ways to cut its trade deficit.
State-run Mineral Exploration Corp has started exploring the reserves at Kolar Gold Fields, in the
southern state of Karnataka, to get a better estimate of the deposits.
Gold in Indian society

Gold is a mainstay of Indian culture and serves as the primary vehicle for household savings.
Gold jewellery is considered one of the best gifts for gods and humans alike. The demand during
the wedding season is so high that it can move global prices.

Exploration at Kolar fields

The Kolar fields are located about 65 km northeast of the technology hub of Bengaluru.
These are among the world’s deepest gold mines.
Mining was started there by a British engineering firm in 1880.
India took over Kolar soon after independence in 1947, but struggled to profitably mine the
reserves.
In 2001, Bharat Gold was forced to cease operations due to mounting losses. This was mainly
because of a large, unproductive workforce and economically
 unviable methods of mining.
The central and state government went into dispute but have to agree because the federal
government has the “surface right” over the mines, but Karnataka is responsible for granting the
licence to operate there.
The central government has now sent a request to Karnataka to renew Bharat Gold’s mining lease.
The Kolar mines going would help the government bring down its import bill.

Jan. 25, 2017

Tax guidelines to target shell companies notified

Details : THE
NEWS

The Finance Ministry has issued the final guidelines on the Place of Effective Management (POEM).
Through these guidelines the government intends to target shell companies created to keep
income out of India even when real management is taking place within the country.

PLACE OF EFFECTIVE MANAGEMENT

 The Place of Effective Management is defined in the Income Tax Act as: A place where key
management and commercial decisions that are necessary for the conduct of the business of an
entity as a whole are made.
The norms emphasise substance over form.
It attempts to differentiate between shareholder control, management control and routine
decisions.
The government has clarified that the intent is not to target Indian multinationals which are
engaged in business activity outside India, but to target shell companies and companies which are
created for retaining income outside India although real control and management of affairs is
located in India.

Guidelines:

According to the guidelines, a company will be deemed to be engaged in active business outside India
if:

1. The passive income is not more than 50% of its total income and less than 50% of its total assets are
situated in India.
2. Less than 50% of the total number of employees are situated in India or are resident in India.
3. The payroll expenses on such employees are less than 50% of the total payroll expenditure.
Some definitions:

‘Passive income’ is “income from the transactions where both the purchase and sale of goods is
from/to its associated enterprises and income by way of royalty, dividend, capital gains, interest or
rental income”.
This definition, however, will not apply in the case of a banking company or public financial
institution.
‘Head Office’ of a company would be the place where the company's senior management and their
direct support staff are located or, if they are located at more than one location, the place where they
are primarily or predominantly located.
A company’s head office is not necessarily the same as the place where the majority of its employees
work or where its board typically meets.

Safegaurds:

The CBDT has provided adequate safeguards to ensure that the POEM guidelines do not become
an oppressive tool in the hands of revenue to harass genuine assesses.
The assessing officer can ascertain the residential status of foreign company on basis of POEM
guidelines only after taking two-stage approval:

1. First approval is required before initiating any proceedings.

2. Second approval is required before giving any final finding on residential status of foreign company.
Jan. 24, 2017

India rejects attempts by EU, Canada for global investment

agreement

Details : THE
NEWS:
India, along with Brazil, Argentina and some other nations, has rejected an informal attempt by
the European Union (EU) and Canada to work towards a global investment agreement at the
World Trade Organisation (WTO)-level. The agreement would incorporate a Investor-State
Dispute Settlement (ISDS) mechanism.
The ISDS mechanism has become contentious as it permits companies to drag governments to
international arbitration that too without exhausting the local remedies and the companies can claim
huge amounts as compensation citing losses they suffered due to various reasons, including policy
changes.

Statement from Ministry of Commerce on ISDC:

India summarily rejected such an idea.

Japan also opposed the idea on the grounds of the costs involved in international arbitration.
Such provisions could be a part of bilateral agreements but they can’t be allowed in a multilateral
agreement.

What India wants at WTO?- Trade Facilitation in Services

India has pushed for discussions on its proposal for a Trade Facilitation in Services (TFS)
Agreement at the WTO-level.
The pact aims to facilitate easier movement of skilled workers and professionals across borders
for short-term work.
India has floated a concept note saying the pact will reduce transaction costs by doing away with
unnecessary regulatory and administrative burden on trade in services.
India has proposed simplification of procedures and clarity in work permits and visas for smooth
movement of professionals.

Jan. 22, 2017

SEBI reviews rules for removal of firms’ independent directors

Details :

Why in news?

SEBI is set to review the norms for removal of independent directors in listed companies.
Background:

Since the removal of Tata Chairman Cyrus Mistry, boardroom politics in Tata group companies
have been frequently in the news.
In Decemeber 2016, Tata Steel removed its independent director Nusli Wadia (who was against
Mistry's removal) from the board.
However, some shareholders have moved the Bombay High Court against a rule in the Companies
Act on the removal of independent directors.
In January 2017, Nusli Wadia wrote to the Securities and Exchange Board of India (SEBI) for
intervention on the role of independent directors.

Independent directors:

For companies listed on stock exchanges, the Clause 49 of the Listing Agreement says that a good
part of the Board of the company (at least a third or half of all directors depending on the role of
Chairman) should comprise Independent directors.
Independent director means a non-executive director (one with no responsibility for daily
management of the company) of the company who, apart from receiving director’s remuneration,
does not have any material relationships or transactions with the company and its promoters. He
should not be a substantial shareholder of the company i.e. owning two percent or more of the
block of voting shares.
Clause 49 of SEBI guidelines has been formulated for the improvement of corporate governance in
all listed companies.
The independent directors are needed to protect the interests of all shareholders. They prevent
the promoters from taking decisions that could harm the shareholders.

News Summary:

This ongoing boardroom tussle in the Tata Group has compelled the SEBI to review the norms
for removal of independent directors in listed companies. It took note of the fact that
promoters by virtue of their majority holding in large listed companies can easily remove an
independent director.
A rule in the Companies Act allows promoters to vote on the removal of independent directors.
This destroys the spirit and purpose of having independent directors in the first place.
Some say that there is a need to provide independent directors a fair process and the opportunity
to debate their dismissal before the non-promoter independent shareholders.
An internal note presented to the SEBI board stated that the it should evaluate the option of
barring the promoters from voting on resolutions seeking removal of independent directors.
Jan. 21, 2017

Centre shifts disinvestment advice to new department

Details : THE
NEWS
The government has transferred the role of advising the government on how to utilise the
proceeds from disinvestment from the Department of Investment and Public Asset Management
(DIPAM) to the Department of Economic Affairs. In 2016 the previously known Department of
Investment was renamed as DIPAM.

Why New Department?

The Department of Economic Affairs is in charge of budget-making and the department decides what
to do with the proceeds from disinvestment.
Now the whole procedure will be handled by the Finance Ministry. The move is
intended to streamline the disinvestment process.
The proceeds from the disinvestment of Central Public Sector Enterprises (CPSEs) are channelised
into The National Investment Fund.

NATIONAL INVESTMENT FUND

Government had constituted the National Investment Fund (NIF) in 2005 into which the proceeds
from disinvestment of Central Public Sector Enterprises were to be channelized.
The corpus of NIF was to be of a permanent nature and NIF was to be professionally managed to
provide sustainable returns to the Government, without depleting the corpus..
As per this Scheme, 75% of the annual income of the NIF was to be used for financing selected social
sector schemes which promote education, health and employment.
The residual 25% of the annual income of NIF was to be used to meet the capital investment
requirements of profitable and revivable PSUs.
In view of the difficult economic situation caused by the global slowdown of 2008-09 and a severe
drought in 2009-10, Government approved a change in the policy for utilization of disinvestment
proceeds by granting exemption to utilize the disinvestment proceeds directly for selected Social
Sector Schemes allocated by Department of Expenditure/ Planning Commission.
In order to align the NIF with the disinvestment Policy, Government decided that the
disinvestment proceeds, with effect from the fiscal year 2013-14, will be credited to the existing
NIF which is a ‘Public Account’ under the Government Accounts and the funds would remain there
until withdrawn/invested for the approved purposes. It was also simultaneously decided that the
NIF would be utilized for the following purposes:
Draft steel policy to enable Rs.10 lakh crore investments

Details :

Why in news?

The Ministry of Steel has prepared the draft steel policy named “The National Steel Policy (NSP),
2017” and has invited suggestions.

Prospects for steel industry:

The Indian steel industry has significant potential for growth. The per capita steel consumption in
the country stands at 61 kilograms, and is likely to reach 160 kilograms by 2030-’31.
At the current rate of GDP growth, the steel demand is expected to grow three- folds over the next
fifteen years to touch 212-247 million tonnes by 2030-’31.
Increased government spending in infrastructure development, expansion of
 railway networks, the revival in domestic shipbuilding sector, private participation in defense
sector and anticipated growth in automobile and construction industry is expected to boost steel
demand in the country.
With increase in domestic demand and efforts to improve exports, steels sector is perfectly placed
to grow at fast pace.
A new steel policy is envisaged to ensure that the steel sector follows a sustainable path of
development of augmenting capacity, quality of steel products, use of technology to reach the
global efficiency benchmarks and steer the industry to achieve its future potential.

SUMMARY:

The Ministry of Steel has prepared the draft steel policy named “The National Steel Policy (NSP), 2017. Some
of the proposed measures include:

Higher efficiency:

It focuses on impediments like high input costs, availability of raw materials, import dependency
and financial stress plaguing the steel sector.
To cut down reliance on expensive imports of coking coal, the policy has mooted gas-based steel
plants and technologies such as electric furnaces to bring down the use of coking coal in blast
furnaces.
It has proposed setting up greenfield steel plants along India’s coastline (under the aegis of
Sagarmala project) to import raw materials such as coking coal at lower costs and export the
output in a more cost-effective manner.
Higher investments:
The steel sector presently employs about 25 lakh people and has a capacity of little over 120
million tonnes.
The policy envisages more than doubling India’s domestic steel production capacity to 300
million tonnes by 2030-31, and create at least 11 lakh new jobs.
To achieve this, 10 lakh crore of fresh investments would be needed.

Cluster based approach for MSMEs:

The Steel Ministry will also promote cluster based approach particularly in MSME steel sector,
with common infrastructure for optimum land use, easy availability of raw materials and
economies of scale.

Exports:
The draft policy proposes to develop export market for Indian steel products by targeting those
overseas markets where steel demand is expected to grow.
Pradhan Mantri Garib Kalyan Yojana, 2016: Co-operative banks cannot take deposits under PMGKY

Details : THE
NEWS:
The government has barred co-operative banks from accepting deposits under the Pradhan
Mantri Garib Kalyan Yojana, 2016.
This comes in the backdrop of the Income Tax department finding that a number of such banks
were suspected of converting black money into white, during the demonetisation drive from
November 8 to December 30.

PRADHAN MANTRI GARIB KALYAN YOJANA

Under the scheme, taxpayers have to deposit 25 per cent of the declared amount as interest-free
deposits for four years.
This is apart from the 50 per cent tax that has to be paid by declarants under the scheme.
 Under the scheme, holders of unaccounted cash willing to avail the offer will have to first pay the
tax amount and then fill up a challan form provided by the bank for availing the four-year deposit
scheme.
The authorised banks have to electronically furnish the details of deposit to the revenue department
on the next working day to enable information verification of the deposit before accepting the
declaration under the PMGKY.
This amount is proposed to be utilised for the schemes of irrigation, housing, toilets, infrastructure,
primary education, primary health, livelihood, etc.

Why the Co-operative banks have been barred?

The RBI had allowed all the banks to accept the deposit.
But now, cooperative banks have been barred from accepting such deposits. This is because
during the 50-day demonetisation period, the income tax department had found various
irregularities in co-operative banks’ operations such as backdating of cash deposits, structuring
deposits in multiple accounts to escape reporting norms, their management using the bank to
launder personal unaccounted cash.
Jan. 19, 2017

Cabinet boosts corpus for small enterprises

Details : THE
NEWS:
 The Union Cabinet gave ex-post facto approval for enhancement in corpus of Credit Guarantee
Trust Fund for Micro and Small Enterprises from Rs. 2,500 crore to Rs. 7,500 crore.

Credit Guarantee Fund Scheme for Micro and Small Enterprises

The non-availability of timely and adequate credit at reasonable interest rate is one of the biggest
problems faced by Indian MSEs.
The major cause for low availability of bank finance to this sector is the high risk perception of the
banks in lending to MSEs and consequent insistence on collaterals which are not easily available
with these enterprises.

The Scheme

The Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGS) was launched by the
Government of India (GoI) to make available collateral-free credit to the micro and small
enterprise sector.
Both the existing and the new enterprises are eligible to be covered under the scheme.
The Ministry of Micro, Small and Medium Enterprises, GoI and Small Industries Development
Bank of India (SIDBI), established a Trust named Credit Guarantee Fund Trust for Micro and Small
Enterprises (CGTMSE) to implement the Credit Guarantee Fund Scheme for Micro and Small
Enterprises.
The corpus of CGTMSE is being contributed by the GoI and SIDBI in the ratio of 4:1 respectively.

Eligible Lending Institutions

The Banks / Financial Institutions which are eligible under the scheme are:

1. Scheduled commercial banks (Public Sector Banks/Private Sector Banks/Foreign Banks).

2. Select Regional Rural Banks.

Cap set on sops for electronics

Details : THE
NEWS
Cabinet has approved changes to incentive scheme for electronics manufacturing: Modified
Special Incentive Package Scheme(M-SIPS).
Amendments:
 Incentives of ₹10,000 crore have been allowed.
The proposals under MSIPS will be accepted till December 2018 or till such time that an incentive
commitment of ₹10,000 crore is reached, whichever is earlier
If there is investment of more than $1 billion, then a high-powered committee presided over by the
Cabinet secretary will give approval for the project.
The high powered committee will be headed by the Cabinet secretary and will comprise of CEO, NITI
Aayog; expenditure secretary and MeitY secretary.

MODIFIED SPECIAL INCENTIVE PACKHAGE SCHEME (M-SIPS)

The scheme was started to offset disability and attract investments in Electronics manufacturing.
The scheme was notified in 2012 for both new and expansion projects.

AIM: The MSIPS aimed at boosting domestic electronic product manufacturing.

INCENTIVES

The scheme provides for capital subsidy of 20-25%.

The scheme provides capital subsidy of 20% in SEZ (25% in non-SEZ) for units engaged in electronics
manufacturing.
It also provides for reimbursements of excise for capital equipment for the non- SEZ units.
For some of the high capital investment projects it provides for reimbursement of Central Taxes
and Duties.

Jan. 17, 2017

India 60th in WEF's inclusive development index

Details :

INCLUSIVE DEVELOPMENT INDEX

 The Inclusive Development Index is based on a set of Key Performance Indicators (KPI) that
provides a multidimensional assessment of living standards.
The index ranks 109 countries (Both advance and developing) according to their current level of
inclusive development.
This new global index intends to convey a more integrated sense of the relative state of economic
development and recent performance.
It also provides a view on recent performance over 5 years. IDI scores are
based on a scale of 1-7.
The index is part of World Economic Forum’s Inclusive Growth and Development Report 2017
The Inclusive Development Index (IDI) is based on 12 performance indicators. The index has three
pillars:

1. Growth and Development

2. Inclusion and Intergenerational Equity
3. Sustainability

INDIA’s IDI SCORE

India with a score of 3.38, has been ranked 60th (below neighbouring China and Pakistan) in the
inclusive development index.
According to the report, Poverty has been falling but the country’s debt-to-GDP ratio is high which
is raising some questions about the sustainability of government spending.
With regard to Framework indicators, educational enrolment rates are relatively low across all levels
and quality varies greatly, leading to notable differences in performance among students from
different socioeconomic backgrounds.
While unemployment is not as high as in some other countries, the labor force participation rate is
low.
The informal economy is large and many workers are in vulnerable employment situations with little
room for social mobility.
A more progressive tax system would help raise capital for expenditure on infrastructure, healthcare,
basic services, and education.
India scores well in terms of access to finance for business development and real economy
investment.
However, new business creation continues to be held back by corruption, underdeveloped
infrastructure and the large administrative burden involved in starting and running companies.
OTHER COUNTRIES:

Lithuania tops the list of 79 developing economies that also features Azerbaijan
 and Hungary at second and third positions, respectively.
Many of the India’s neighbouring nations are ahead in the rankings: China is ranked at the 15th
position, Nepal at 27th, Bangladesh 36th and Pakistan 52nd. Two BRIC nations, Russia and Brazil,
are at 13th and 30th places, respectively. Among the advanced economies, Norway is at the top,
followed by Luxembourg (2nd), Switzerland (3th).

GST stalemate resolved, rollout deferred to July 1

Details :

Why in news?

GST Council reached consensus on some contentious issues and is now expected to roll out on July
1, 2017.

Summary:

The Goods and Services Tax (GST) Council arrived at a consensus on contentious issues such as
administrative control over tax payers in the new indirect tax regime.
This division of tax administration had been holding up the finalisation of GST tax laws.
The consensus reached now paves the way for GST to be introduced this year, although three
months after the Centre’s original rollout deadline of April 1, 2017.
GST is now expected to roll out on July 1, 2017.
The deferment also gives more time to the government to be ready with the infrastructure for
GST and also the industry and trade would have adequate notice to prepare themselves.

Issues of contention and resolution:

One of the issues was the formula for dual control of assessees:
It was agreed that, 90 per cent of those with a GST turnover up to Rs. 1.5 crore will be
assessed and administered (for the purposes of scrutiny and audit) by the States, and 10 per
cent by the administrative machinery of the Centre.
Those above a turnover of Rs. 1.5 crore would be assessed in the ratio of 50:50 between the
Centre and the States.
So, the entire taxation base will be shared between the assessment machinery of the Centre
and the States.
They agreed that each assessee would be assessed only by one authority, putting to rest fears
 over dual administration by both state and the Centre.
Another issue was the Interstate GST (IGST):
While the power to levy and collect the IGST will lie with the Central government, a special
provision would cross-empower the States to administer the same (in the same ratio agreed
upon for tax assessees). Any IGST disputes among states will be resolved by the Centre.
 Another area of contention between the Centre and the States was the issue of who would get to
collect tax on the economic activities taking place in Indian territorial waters (area of 12 nautical
miles from the baseline):
Territorial waters is a part of the Centre’s territory but, as per convention, the States will be
empowered to collect tax on any economic activity there.

Jan. 16, 2017

Market regulator tightens merger norms

Details : THE
NEWS:

In a bid to safeguard the interests of the public shareholders, the Securities and Exchange Board of
India (SEBI) has tightened the norms for merger of an unlisted company with a listed entity.

NEW NORMS

The board of the capital market regulator also decided that the holding of public shareholders post the
merger cannot be less than 25%.
The regulator has also made the e-voting of public shareholders mandatory in cases wherein the
stake of such shareholders reduces by more than 5% in the merged entity.
SEBI was concerned about these kind of mergers because there have been instances where the route
of merger was used to get an indirect listing for an unlisted company.
WHY NEW NORMS?

The regulations attempt to ensure that the rights of the public shareholders are protected.
To have a wider public shareholding and prevent very large unlisted company to get listed by
merging with a very small company.

ABOUT SECURITIES AND EXCHANGE BOARD OF INDIA

The Securities and Exchange Board of India was established on April 12, 1992 in accordance with
the provisions of the Securities and Exchange Board of India Act, 1992.
The role of SEBI as regulator of capital market is to protect the interests of investors in securities and
to promote the development of and to regulate the securities market and for matters connected
therewith.

Objectives:

Functions:

Registering and regulating the working of stock brokers, sub-brokers, share transfer agents,
bankers to an issue, trustees of trust deeds, registrars to an issue, merchant bankers, underwriters,
portfolio managers, investment advisers and such other intermediaries who may be associated
with securities markets in any manner.
Registering and regulating the working of venture capital funds and collective investment schemes,
including mutual funds.
 Promoting and regulating self-regulatory organisations.
Prohibiting fraudulent and unfair trade practices relating to securities markets. Promoting
investors' education and training of intermediaries of securities markets.
Prohibiting insider trading in securities.
Regulating substantial acquisition of shares and take-over of companies. Calling for information
from, undertaking inspection, conducting inquiries and audits of the stock exchanges, mutual
funds, other persons associated with the securities market, intermediaries and self- regulatory
organizations in the securities market.

Jan. 14, 2017

Number of unemployed in India to climb: ILO

Details :

Why in news?

International Labour Organisation (ILO) recently releases its World Employment and Social Outlook for
2017.

Summary:

According to the ILO report, the number of unemployed people in India is expected to rise by 1
lakh in 2017 and another 2 lakh in 2018. The number of jobless will increase from 17.7 million in
2016 to 18 million by 2018.
But the India's unemployment rate is expected to go down from 3.5 per cent to
3.4 per cent in 2017.
Globally, the number of jobless people will increase by 3.4 million in 2017.
The global unemployment rate is expected to rise modestly from 5.7 to 5.8 per cent in 2017.
This is because the rate of labour force growth is greater than the rate of job creation, as economic
growth continues to be slow.

Self-employment:
 Vulnerable forms of employment (which include family workers and self- employers) are expected to
stay above 42 per cent of total employment.
About 1.4 billion people are likely to be engaged in such employment in 2017 and the number is
rising by 11 million per year. Southern Asia and sub-Saharan Africa regions are the most affected.
Almost one in two workers in emerging countries and more than four in five workers in developing
countries are in vulnerable forms of employment.

Asia-Pacific region:
 Asia Pacific region accounts for nearly 60 per cent of the global workforce. The region saw net
employment rise by over 20 million (or 1.1 per cent) in 2016, and a similar expansion is
anticipated in 2017.
Southern Asia has created most of the new employment, with employment expanding by 13.4 million
in 2016. This is accounted by the fast labour force growth driven by growing population.
The majority of this new employment was created in India. Manufacturing growth has
underpinned India’s recent economic performance.

Old post on the portal on International Labour Organisation (ILO):

https://lms.vajiramandravi.com/current-affairs/pardon-the-gender-wage-gap-is-
showing/585b7b6bb680d376c730094a/

Jan. 11, 2017

India opposed to inclusion of ‘new issues’ in WTO

Details :

Why in news?

India opposed to inclusion of ‘new issues’ like e-Commerce in WTO negotiations.

Summary:

India opposed attempts for inclusion of ‘new issues’ into the formal agenda of the World Trade
Organisation (WTO) negotiations.
Developed nations are looking to introduce ‘new issues’, including e-commerce and investment,
into negotiations on liberalisation of global trade.
This comes ahead of a special meeting of trade ministers on the sidelines of the forthcoming World
Economic Forum at Davos.

India's position:

India says it agrees to have informal and non-binding discussions on these new issues.
But unless there is a consensus among all the WTO member countries, these issues cannot be
made part of the formal agenda.
India had for long maintained that member-countries must conclude the long- pending Doha
Development Round of the WTO, including on food security and special safeguard mechanism (SSM),
before taking up any new issues for negotiations.
However, at the Nairobi WTO Ministerial in December 2015, there was no
 concrete agreement on SSM to protect farmers in the developing countries against sudden import
surges, and no short deadline for a permanent solution on public stockholding for food security
purposes.
The Nairobi Ministerial outcomes was widely interpreted as the end of the road for Doha round
talks.

(Source: Economic Times)

What next?

Although India has not favoured inclusion of issues like e-commerce in WTO, it faces immense
pressure from developed countries to start a discussion.
India has begun studying papers submitted to the WTO on the issue to understand the various
views.
The WTO ministerial meeting will be held in the Argentine capital of Buenos Aires in December
2017.

RBI’s autonomy needs to be maintained: Jalan

Details :
Why in news?

Two former RBI governors commented that RBI autonomy was fundamental and needs to be
maintained.

Summary:

Two former RBI governors Y.V. Reddy and Bimal Jalan commented that RBI autonomy was
fundamental and needs to be maintained.
 On monetary policy – the autonomy of the RBI is that it can take very hard decisions, even when
government does not agree.
They said that the relationship between the government and RBI is ultimately a matter of
coordination.
The interventions by the two former governors after some allegations that the government
imposed itself over RBI while demonetizing high-value currency notes.
This led to criticism by global rating agencies like Standard and Poor’s.
Mr. Reddy said that for a central bank, reputation (including of autonomy) is everything and any risk to
reputation is the worst risk.
However, it needs to be noted that RBI’s board signed off on demonetisation before the public
announcement by the Prime Minister on 8 November.
Some analysts point out that Mr. Reddy was actually criticizing the Financial Sector Legislative
Reforms Commission that suggested dilution of RBI's regulatory powers. Its recommendations
were criticized by the then Governor Raghuram Rajan also.

Is RBI fully autonomous?

The RBI is not constitutionally independent, as the 1934 act governing its operation gives the
government power to direct it.
The government appoints the central bank governor and four deputies. However, there is a
growing convention that the RBI is allowed autonomy. RBI is allowed to take its decisions but
consultation takes place between the central bank and the finance ministry.
The RBI and government have often clashed often over monetary policy but RBI’s views have
prevailed.
But generally, the finance ministry and the RBI try to find common ground on issues concerning
monetary policy.

Jan. 10, 2017

Start-ups may soon be able to access insurance, pension funds

Details : THE
NEWS:
The Department of Industrial Policy and Promotion (DIPP) is the nodal government agency on the
start-up policy.
The agency held preliminary discussions on the proposal of insurance and pension funds
investing in start-ups with the regulators and stake-holders. The government will hold detailed
 discussions with insurance and pension regulators on a proposal to enable pension funds, and
insurance companies such as LIC to invest in start-ups.

START-UP INDIA
 Startup India is a flagship initiative of the Government of India, intended to build a strong eco-
system for nurturing innovation and Startups in the country. The program will help in driving
sustainable economic growth and generating large scale employment opportunities.
AIM: The Government through this initiative aims to empower Startups to grow through innovation
and design.
In order to meet the objectives of the initiative, Government of India has announced Start up India
Action Plan that addresses all aspects of the Startup ecosystem.
The Department of Industrial Policy and Promotion (DIPP) is the nodal government agency on the
start-up policy.

Jan. 9, 2017

Anti-avoidance tax rule to kick in from April 2017

Details :

Why in news?

IT department said that the legislation against tax avoidance, GAAR, will come into force from
April 1, 2017.

Summary:

IT department said that the legislation against tax avoidance, General Anti- Avoidance Rule (GAAR),
will come into force from April 1, 2017.
General Anti-Avoidance Rule (GAAR) was part of the 2012-13 Budget speech to check tax evasion and
avoidance.
However, its implementation was repeatedly postponed because of the apprehensions expressed by
foreign investors.
GAAR, which was originally to be implemented from April 1, 2014, will now come into effect from
April 1, 2017.
It contains provisions allowing the government to tax overseas deals involving local assets.

Tax Evasion and Tax Avoidance:

(Source: taxguru)

GAAR:

Tax evasion and avoidance are big problems for every country. Tax evasion is a
crime and there are laws to punish that.
GAAR provisions aims at reducing or preventing “impermissible tax avoidance”. This means tackling
those taking advantage of loopholes to get tax benefits not meant for them.
GAAR empowers the tax authorities to deny the tax benefits of transactions or arrangements if
their only purpose is achieving a tax benefit.
GAAR will also target Indian companies and investors trying to route investments through
Mauritius or other tax havens in order to avoid taxes.

Jan. 8, 2017

ATM, credit cards will become irrelevant by 2020

Details : THE
NEWS:
According to NITI Ayog CEO, Amitabh Kant, ATM cards and POS would become redundant by 2020.

What CEO said?

Due to demonetisation there is a huge push towards digital payments. Amitabh Kant stressed on
the need for digital transaction and creating a formal economy.
Over 85 per cent of the transaction was in cash and only a few were paying taxes in the
country. So, India needs to move from a non-formal to a formal economy.
India is the only country in the world with a billion mobile connection and a billion biometric.
With the adoption of technology and the kind of change happening in the digital payments space,
ATM cards and POS would become irrelevant by 2020.
The cards will become redundant in India as every Indian will be able to do transaction just by using
his thumb and mobile phones.
This kind of transaction can be done in few seconds through Aadhar-enabled technology.
The country can also use technology to overcome various issues in the areas of education, health,
among others.
AADHAR ENABLED PAYMENT SYSTEM
Ministry of Electronics and Information Technology is promoting an Aadhaar- enabled payment
system (AEPS) in coordination with the Finance Ministry.
AEPS was required because around 30 crore people still did not have mobile/smartphones and
could not do online transactions or use mobile wallets or e-wallets at any point in time.
People without mobile connections can use Aadhaar and thumb impression or iris scans for digital
payments.
In the next 6-7 months, every smartphone user will be able to make Aadhaar- based payments and
even will allow each phone to act as an ATM using a device that can attach to the phone and scan
fingerprints.
Jan. 7, 2017

GDP growth expected to be slower at 7.1% this year

Details :
Why in news?
India’s GDP is expected to grow at a slower pace of 7.1 per cent in 2016-17 compared to the 7.6 per cent
clocked in the previous year.

Summary:

The Central Statistics Office (CSO) released the First Advance estimates of national income for the
financial year 2016-17.
 India’s GDP is expected to grow at a slower pace of 7.1 per cent in 2016-17 compared to the 7.6 per
cent clocked in the previous year.
This forecast is based on data from the first seven months of the year and doesn’t factor in the
impact of demonetisation since November 8.
Chief Statistician of India TCA Anant said that the numbers from the September to December
quarter would be captured in the next growth projection to be released on February 28.
The agriculture sector saw significant growth with its gross value added (GVA) estimated to grow
4.1 per cent in 2016-17 up from 1.2 per cent in the previous year.
The service sector in aggregate is expected to grow 7.9 per cent in 2016-17, slower than the 8.1 per
cent seen in the previous year.
Manufacturing, on the other hand, is expected to witness a slowdown, with the sector’s GVA to
grow 7.4 per cent in 2016-17 down from 9.3 per cent in 2015- 16.

Note to students:

Please don't mug up the numbers. This is just to keep you in the loop. Wait for the economic
survey.
Let's now learn something useful making this news as a base.

Chief Statistician of India (CSI):

The Chief Statistician of India (CSI) is the Secretary to the National Statistical Commission (NSC).
He is also the Secretary, Ministry of Statistics and Programme Implementation (MoSPI).
The Central Statistics Office (CSO), in MoSPI, is responsible for the compilation of National
Accounts Statistics (NAS).

National Statistical Commission (NSC):

The Government of India through a Resolution in June 2005 decided to set up the National
Statistical Commission (NSC).
The commission is an advisory body on all statistical matters, set up to enhance public trust in
official statistics.
The NSC has a part-time Chairperson and four part-time Members.
Eminent statistician Radha Binod Barman took over as the chairperson in 2016. The Chief
Statistician of India is the Secretary to the NSC. He is also the Secretary to the Government of India
in the MoSPI.
TCA Anant is the current Chief Statistician of India (CSI).
Centre clears 26% strategic sale in BEML

Details : THE
NEWS:
 The centre will be making strategic disinvestment in defence manufacturing PSU.
Out of government’s shareholding of 54.03 percent, 26 per cent stake in defence equipment
manufacturer BEML (formerly Bharat Earth Movers Limited) will be sold.
The shareholding would be sold to the strategic buyer/s to be identified by the government by
following due procedure.
The NITI Ayog has identified the public sector units for sale of government’s majority stake to private
companies in order to bring in greater efficiency and professionalism in their functioning.

DISINVESTMENT AND STRATEGIC SALE:

Disinvestment is the sale of shares of the government to the retail public or any other eligible body.
It is essentially a money raising exercise with accompanying benefits. Strategic sale of a PSU is
different from the ordinary disinvestment.
If the government sells chunk of equity to single buyer- 26% 0r 51% or more, where the management
is also handed over, it is called strategic sale.
In disinvestment, the transfer of management does not take place. Whereas, in strategic sale the
buyer takes over the management control as well.
In case of strategic sale, the control and a significant proportion of a PSU’s share goes to a private
sector strategic partner.
This transaction has two elements:

1. Transfer of a block of shares to a Strategic Partner

2. Transfer of management control to the Strategic Partner

BEML

BEML was established in May 1964.

It operates on three major business verticals for associated equipment manufacturing:

1. Mining and construction

2. Rail and metro
3. Defence and aerospace.

The PSU is under the administrative control of defence ministry and provides equipment support to
Indian Army and other defence forces.
Jan. 5, 2017

GST: No accord on dual control

Details :
THE NEWS:

The eighth meeting of the Goods and Services Tax Council failed yet again to reach a consensus on
the critical issue of dual control.
The issue of dual control has become a major roadblock in the finalisation of the draft GST laws.

Issues:

There are two broad areas that need to be resolved legally are:

1. Definition of the word ‘territory’: The area of 12 nautical miles from the India coast is Indian
territory. Service tax in this area has been levied by the Government of India. But fishing in these
areas has been taxed by the States.
2. The issue of dual control: The issue of dual control envisage a division of control over tax
assesses between the states and the Centre under the proposed Goods and Services Tax (GST).

The States have also raised the issue of compensation and how the amount should be increased
due to the hit to State revenues caused by the demonetisation of high value currency notes.

Related Link:

About GST Council: https://lms.vajiramandravi.com/current-affairs/centre-moots-4- gst-

slabs/5806f8eab680d35eb687ae6f/

Jan. 4, 2017

Diamond contracts set to debut soon in India

Details : THE
NEWS:
India is all set to become the first country in the world where polished diamonds will be traded on a
commodity exchange.
The Indian Commodity Exchange Ltd (ICEX) is in the final stages of unveiling diamond contracts.
The contracts will allow individuals to trade in the precious stone in a transparent manner.
The exchange has already received the in-principle approval from SEBI (the regulatory body) for the
introduction of diamond contracts.
Once diamond contracts start trading on an exchange, it will become a financial investment product.
Diamond has never been able to become an investment product due to low transparency in pricing.
There is no current global benchmark price for diamond, making the stone less attractive than gold or
silver as an investment option.
While India is the third-largest consumer of diamond after the U.S. and China, it has the largest
share in diamond-cutting and polishing.
In consultation with markets regulator SEBI and on suggestions of an expert committee headed
by NITI Aayog member, the Centre added 6 new commodities that were allowed to be traded on
exchange platforms that include diamonds, tea, eggs, cocoa, pig iron and brass.
SEBI had started regulating commodity markets after the merger of Forward Markets Commission
(FMC) with the markets regulator.
Jan. 2, 2017

Opportunity to lower corporate tax rates: CII

Details :

Why in news?
Confederation of Indian Industry said that the widening of the tax net due to demonetisation will give the
Centre an opportunity to lower corporate tax rates.

Summary:

Confederation of Indian Industry (CII) said that the widening of the tax net due to demonetisation
will give the Centre an opportunity to lower corporate tax rates.
CII has called for reducing the corporate income tax rate to 18 per cent. They have also
advised the government to remove all tax incentives and concessions to corporates.
They said lower tax rate encourages higher compliance (as companies will not try to find ways to
avoid taxes).
The 18 per cent rate will bring India in line with attractive international investment destinations
such as Singapore and the U.K.
CII also recommended that the government boost its infrastructure investments, quicken
disinvestment in public sector enterprises and encourage public-private partnerships.

How can tax rates be reduced with widened tax net?

Widening of tax net means more people will need to pay taxes now.
After demonetization, many people who do business with cash but don't show income or pay taxes
were forced to deposit their cash in the banks.
Now government got to know the individuals who earn enough money to pay taxes. So, they will be
taxed and thus tax net is widened.
When fewer people pay taxes, tax rates especially the corporate tax is kept high so government
can earn revenues.
When number of people paying tax increases, the tax burden on each person or entity can be
reduced.
So CII hopes that government will now reduce tax on corporates, which is seen as too high in
India.

Confederation of Indian Industry (CII)?

The Confederation of Indian Industry (CII) is a business association that works to create and
sustain an environment conducive to the growth of industry in India.
To this end, it organizes advisory and consultative processes between Industry, Government, and civil
society.
Founded in 1895, it has over 8000 members, from the private as well as public sectors, including SMEs
and MNCs.
It works closely with Government on policy issues affecting businesses.
 DECEMBER, 2016

Dec. 30, 2016

Financial data management body mooted

Details :

Why in news?
A committee set up by the Finance Ministry recommended the setting up of a statutory financial data
management body.

Summary:

A committee set up by the Finance Ministry to study the financial data management legal framework
in India, say Financial Data Management Centre (FDMC).
It recommended the setting up of a statutory (created by law) financial data management body.
In 2015, the Financial Stability and Development Council (FSDC), chaired by the Finance Minister, first
suggested the creation of such a body.
But RBI objected to sharing company-specific confidential data with the body as it was not
statutory in nature.
FDMC, once created by law, will standardise data from all financial sector regulators (RBI, SEBI, IRDA
etc) in a single financial system database.
It will also provide analytical support to the Financial Stability and Development Council (FSDC) on
issues relating to financial stability.

Financial Stability and Development Council (FSDC):

We have different regulators for different segments of financial sectors, like the RBI for banks, SEBI
for capital market, IRDA for Insurers etc.
To enhance inter-regulatory coordination and promoting financial sector development, the
Government has formed the Financial Stability and Development Council (FSDC) in December
2010.
The Chairman of the Council is the Finance Minister and its members include the heads of
financial sector Regulators (RBI, SEBI, PFRDA, IRDA & FMC), Finance Secretary and/or Secretary,
Department of Economic Affairs etc.
 Along with regulators, the Council monitors supervises the economy. It also focuses on financial
literacy and financial inclusion.

Dec. 29, 2016

With gyms, supermarkets, Rajasthan villages sport a new look

Details :
THE NEWS:

Rural lifestyle in the desert State of Rajasthan is set to change with a number of gyms, supermarkets,
food joints and mini-banks coming up in villages following innovations of cooperative societies.
Primary agricultural credit societies (PACS) are in the forefront of these innovations.
PACS have come forward to provide new facilities to meet the needs of their members.
Till now, PACS were providing agricultural credit to farmers for buying and selling of seeds and
fertilizers.
State Cooperative Minister had given instructions for listing out services needed in the rural areas.
A pilot project is being executed in Sriganganagar district where one PACS in each block was
selected for opening new facilities.

PRIMARY AGRICULTURAL CREDIT SOCIETIES:

Primary Agricultural Credit Societies (PACS) are predominant in the co- operative credit structure
and form its base.
A PACS is organized at the grass roots level of a village or a group of small villages.
It is this basic unit which deals directly with the rural (agricultural) borrowers, give loans and
collects repayments of loans given.
It serves as the final link between the borrowers on the one hand and the higher financing agencies on
the other hand.
The health and strength of the co-operative credit movement depends upon the health and strength
of these societies.
Only the members of a PACS are entitled to borrow from it and most loans are for agricultural
purposes and are short-term.
Medium-term loans for such purposes as sinking or repair of wells, purchase of machinery (mostly
pump sets for irrigation) and cattle are also given.
A number of PACS also undertake non-credit activities such as handling the supply of farm
requisites, distribution of consumer goods among their
 members, constructing go-downs, and marketing of agricultural produce and the processing of it.

Dec. 27, 2016

India needs lower taxes, higher compliance: Jaitley

Details : THE
NEWS:
What Finance Minister said?

The Finance Minister said he foresaw an India in the coming decades where voluntary compliance
increases.
India needs lower taxes to compete globally and voluntary tax compliance by citizens should be
encouraged by a friendly administration.
Payment of legitimate taxes is part of a citizen’s duty.
Extraordinarily high taxation rates in the past had encouraged people to evade taxes.
Voluntary compliance in India can be increased.
Tax friendly administration is important for giving boost to voluntary compliance.

Way Forward:

High taxes discourage work and investment.

Taxes create a “wedge” between what the employer pays and what the employee receives.
High marginal tax rates also discourage people from working overtime or from making new
investments.
Lower tax rates are the key factor behind improved compliance.
When the lower rates are combined with an increased likelihood of being caught and stringent
punishment and penalities, then the risk/return ratio swings in favour of compliance.
If the tax rate is low then it is expected that more number of people will pay the tax regularly, thus
increasing the government’s revenue.
This increased revenue will in turn lead to increased spending by the government on public
utilities and developmental projects.
Such spending will help in decreasing unemployment rate and will also give a boost to eceonomy.
Dec. 19, 2016
Centre plans dedicated fund for infra finance

Details : THE
NEWS:
The country’s infrastructure sector requires investments of more than $1.5 trillion in the coming
ten years.
The system is set to get a boost with a dedicated fund of Rs.10,000 crore to provide credit
enhancement for commercially viable projects.
The fund through partial credit guarantee will help enhance the credit rating of bonds issued by
infrastructure firms so that they can attract long-term investments especially from global
insurance, pension and sovereign wealth funds.
The dedicated fund will be in the form of a Special Purpose Vehicle (SPV) and will be categorised
an NBFC-Infrastructure Finance Company.

(NBFC: Non Banking Finance Company)

Its promoters are likely to include Life Insurance Corporation of India (LIC), General Insurance
Corporation of India, State Bank of India, Bank of Baroda, Power Finance Corporation, Indian
Renewable Energy Development Agency and India Infrastructure Finance Company Ltd (IIFCL).
The government is keen on roping in international financial institutions such as Asian
Development Bank, Asian Infrastructure Investment Bank, New Development Bank (formerly
BRICS Development Bank), International Finance Corporation (World Bank Group).

NOTE: The creation of fund is still in planning stage. Details about it will be discussed as and when
the draft about the fund will be released.

Dec. 18, 2016

Masala Bonds Details :

DETAILS:
The term is used to refer to rupee-denominated borrowings by Indian entities in overseas markets.
The International Finance Corporation (IFC), the investment arm of the World Bank, issued a
₹1,000 crore bond to fund infrastructure projects in India.
IFC then named them Masala bonds to give a local flavour by calling to mind Indian culture and
cuisine.
While it may seem odd to name a staid debt instrument after food stuffs, it has been done in the
past. Chinese bonds, named Dim-sum bonds after a popular dish in Hong Kong and Japanese
bonds named Samurai after the country’s warrior class.
Importance:

Masala bonds are issued to foreign investors and settled in US dollars. Hence the currency risk lies
with the investor and not the issuer, unlike external commercial borrowings (ECBs), where Indian
companies raise money in foreign currency loans.
While ECBs help companies take advantage of the lower interest rates in international markets,
the cost of hedging the currency risk can be significant. If unhedged, adverse exchange rate
movements can adversely affect the borrower.

(A hedge is an investment to reduce the risk of adverse price movements in an asset. Normally, a hedge
consists of taking an offsetting position in a related security, such as a futures contract)

Competition from overseas markets may nudge the government and regulators to quicken the
development of our domestic bond markets.
A vibrant bond market can open up new avenues for bond investments by retail savers.
If Masala bonds are lapped up by overseas investors, this can help prop up the rupee. The rising
demand for Dim-sum bonds in 2011 promoted the use of the yuan in global trade and investment.
A full rupee convertibility Masala bonds can help the rupee go global. Masala bonds are a
good idea to shield corporate balance sheets from exchange rate risks.

Related Question, Prelims 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 and are a source of debt financing for the public and private
sector.

Select the correct answer using the code given below.

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

Answer: c
Ratan Watal Committee for Digital Payments

Details :
DETAILS:

The Committee on Digital Payments headed by Ratan P. Watal has submitted its final report to
the Union Finance Ministry.
It was 11-member committee notified in August 2016 by the Finance Ministry It was tasked to
review existing payment systems in the country and recommend appropriate measures for
encouraging Digital Payments.
It was having representatives from Reserve Bank of India (RBI), Unique Identification Authority of
India (UIDAI), tax department and various industry bodies in the payments space.

Recommendations:
The Committee has recommended medium term strategy for accelerating growth of Digital
Payments in India.
The strategy must be backed with regulatory regime which is conducive to bridging the Digital
divide by promoting competition, interoperability and open access in payments.
It also recommends inclusion of financially and socially excluded groups and assimilation of emerging
technologies in the market.
It calls for need of safeguarding security of Digital Transactions and providing level playing to all
stakeholders and new players who will enter this new transaction space.
It has suggested inter-operability of payments system between banks and non- banks, up-gradation of
digital payment infrastructure and institutions.
To award new innovations for greater use of Aadhaar and mobile numbers for making digital
payments as easy as cash.
The panel called for inter-operable payments between bank and non-banks as well as within non-
banks.
The committee proposed to make regulation of payments independent from the function of central
banking to give the entire digital payments boost.
Give Board for Regulation and Supervision of Payment and Settlement Systems (BPSS) independent
statutory status within overall structure of RBI.
Called for amendments to the Payments and Settlement Systems Act, 2007 to provide BPSS explicit
mandate for competition and innovation, consumer protection, open access and interoperability,
regulations on systemic risks and data protection.
Operations of payment systems like National Electronic Fund Transafer (NEFT) and Real Time Gross
Settlement (RTGS) can be outsourced after a cost benefit analysis.
Dec. 17, 2016

Aadhaar to be pivot of payments

Details : THE
NEWS:
Ministry of Electronics and Information Technology will promote an Aadhaar- enabled payment
system (AEPS) in coordination with the Finance Ministry.
AEPS was required because around 30 crore people still did not have mobile/smartphones and
could not do online transactions or use mobile wallets or e-wallets at any point in time.
People without mobile connections can use Aadhaar and thumb impression or iris scans for digital
payments.
In the next 6-7 months, every smartphone user will be able to make Aadhaar- based payments
and even will allow each phone to act as an ATM using a device that can attach to the phone and
scan fingerprints.

AADHAAR ENABLED PAYMENT SYSTEM:

Financial inclusion is expected to be a key application of Aadhaar authentication. Adoption of

Aadhaar and Aadhaar authentication in Indian banking system is expected to change the financial
landscape of country.
To enable same, UIDAI has partnered with various stakeholders including RBI, NPCI, IBA and banks
to develop two key platforms:

1. Aadhaar Payments Bridge (APB) – A system that facilitates seamless transfer of all welfare scheme
payments to beneficiary residents' Aadhaar Enabled Bank Account (AEBA)
2. Aadhaar Enabled Payment System (AEPS) – A system that leverages Aadhaar online authentication
and enables AEBAs to be operated in anytime-anywhere banking mode by the marginalized
financially excluded segments of society through microATMs
Aadhaar Payments Bridge:

APB is a repository of Aadhaar number of residents and their primary bank account number used
for receiving all social security and entitlement payments from various government agencies.
It requires using Aadhaar number as the primary key for all entitlement payments.
This would weed out all fakes and ghosts from the system and ensure that the benefits reach the
intended beneficiaries.
This benefit has an even greater ramification as more and more social security programs are moving
from in-kind to in-cash subsidies.

Aadhaar Enabled Payment System:

The Report of the Committee on Financial Inclusion chaired by Dr. C. Rangarajan, made two
important observations:

1. Technology has to enable the banks to go where the customer is present, instead of the
other way around.
2. Technology should allow interoperability among different systems adopted by different banks.

The Aadhaar Payment System is intended to address both the above issues. AEPS empowers the
marginalised and excluded segments to conduct financial transactions (Credit, Debit, Remittances,
Balance Enquiry, etc) through microATMs deployed by Banks in their villages.
The key steps in doing transactions via AEPS are:

Resident provides his/her Aadhaar number, details of financial transaction sought and fingerprint
impression at the microATM device.
Digitally signed and encrypted data packets are transferred via Bank Switch to NPCI to UIDAI.
UIDAI processes the authentication request and communicates the outcome in form of Yes/No.
If the authentication response is Yes, bank carries out the required authorization process and
advises microATM on suitable next steps.

Conclusion

AEPS may be costly than UPI and USSD but it gives a lot of convenience to the rural people. It would
bring bank to their doorstep and save much time and transport expense. It would be just like a visit of
ATM at every doorstep. That is why government calls the POS as micro ATM.

Related Link:
About Aadhaar: https://lms.vajiramandravi.com/current-affairs/aadhaar-id-for- more-exams-under-
study/584faa77b680d376d0cd12ba/

Dec. 16, 2016

Pradhan Mantri Krishi Sinchayee Yojana

Details :

THE SCHEME:

PMKSY has been formulated by amalgamating ongoing schemes viz. Accelerated Irrigation Benefit
Programme (AIBP) of the Ministry of Water Resources, River Development & Ganga Rejuvenation
(MoWR,RD&GR), Integrated Watershed Management Programme (IWMP) of Department of Land
Resources (DoLR) and the On Farm Water Management (OFWM) of Department of Agriculture
and Cooperation (DAC).
The scheme will be implemented by Ministries of Agriculture, Water Resources and Rural
Development.
Ministry of Rural Development is to mainly undertake rain water conservation, construction of
farm pond, water harvesting structures, small check dams and contour bunding etc.
Ministry of Water Resource is to undertake various measures for creation of assured irrigation source,
construction of diversion canals, field channels, water diversion/lift irrigation, including development
of water distribution systems.
Ministry of Agriculture will promote efficient water conveyance and precision water application
devices like drips, sprinklers, pivots, rain-guns in the farm “(Jal Sinchan)”, construction of micro-
irrigation structures to supplement source creation activities, extension activities for promotion of
scientific moisture conservation and agronomic measures.
The major objective of the PMKSY is:

To achieve convergence of investments in irrigation at the field level. Expand cultivable

area under assured irrigation (Har Khet ko pani) Improve on-farm water use efficiency to
reduce wastage of water.
Enhance the adoption of precision-irrigation and other water saving technologies (More crop per
drop)
Enhance recharge of aquifers and introduce sustainable water conservation practices by exploring
the feasibility of reusing treated municipal based water for peri-urban agriculture.

Rupee slips after Fed's decision

Details :

Why in news?
The rupee weakened against the U.S. dollar after the Federal Reserve raised its benchmark interest rate by
25 basis points.

Summary:

The U.S. Federal Reserve raised its benchmark interest rate by 25 basis points (0.25 per cent).
This boosted the value of the dollar and weakened the rupee against the U.S. dollar.
However, experts say the impact on the rupee-dollar pair due to such interest rate hikes is
expected to be relatively modest.
This is because India has large foreign exchange reserves and RBI can intervene to stabilize the
exchange rate.

Why the impact on rupee?

US is the world's strongest economy. So, most foreign investors always prefer to invest in the US,
like buying government securities.
But interest rates are low in the US.
So, investors put money into the emerging markets like India where interest rates are high.
But when interest rates are increased in US, many of them take out their investments in markets like
India and invest again in the US.
Also US interest rate hike give an indication that US economy is in good shape. So, this leads to
capital outflow from emerging markets since investors will prefer to invest in US market.
Thus, rupee weakens against the dollar.
Since the investors are moving out, the stock markets will also fall as a consequence.
(Those interested can read a bit more here: https://advisesure.com/blog/how- would-us-interest-
rate-hike-impact-india )
 Federal Reserve:

The Federal Reserve System (also known as the Federal Reserve or simply the Fed) is the central
banking system of the United States.
For simplicity, we can look at it as the RBI of the U.S.
The key objectives for monetary policy in the Federal Reserve Act include stabilizing prices, and
moderating long-term interest rates.
It manage the nation's money supply through monetary policy.
Its duties have expanded over the years to include supervising and regulating banks and maintaining
the stability of the financial system.

Dec. 15, 2016

Cabinet clears Bill to give autonomy to 12 major ports

Details : THE
NEWS:

The Union Cabinet on Wednesday approved the draft Major Port Authorities Bill, 2016 to replace the
existing Major Port Trusts Act, 1963.
The bill aims to empower 12 major ports to perform with greater efficiency on account of full
autonomy in decision-making.
The bill is aimed at reorienting the governance model in central ports to the landlord port model, in
line with successful global practices.
In the landlord port model, the publicly governed port authority acts as a regulatory body and as
landlord. While private companies carry out port operations and cargo-handling activities.
In governance model, the port authority maintains ownership of the port, while the infrastructure is
leased to private firms that provide and maintain their own superstructure and install own
equipment to handle cargo.
Highlights of the bill:

Under the proposed Bill, Port Authority has now been given powers to fix tariff which will act as a
reference tariff for purposes of bidding for PPP projects.
The Bill also proposes to reduce the size of the board of the Port Authority from 17-19 to 11
members.
The Board will include representatives of respective state governments, Railways Ministry,
Defence Ministry and Department of Revenue along with a member representing employees of
the Major Ports Authority.
The Board of the Port Authority has been allowed to fix the scale of rates for other port services
and assets including land.
An independent review Board has been proposed to carry out the residual function of the erstwhile
Tariff Authority for Major Ports (TAMP) for major ports, to look into disputes between ports and
PPP concessionaires, to review stressed PPP projects and suggest measures to revive such
projects.
It has been proposed to give the Board full powers to enter into contract, over planning and
development, fixing of tariff except in national interest, security and emergency arising out of
inaction and default. (The present law requires the Centre’s approval in 22 such cases.)
Port boards would not need government approval for raising loans, appointment of consultants,
execution of contracts and creation of service posts.
Merits:

The bill would help to impart faster and transparent decision-making.

The move will benefit the stakeholders and improve the project execution capability.
The bill is expected to spur the much needed private investments in port projects.
It also seeks to infuse professionalism among board members. It will help ports
to function with greater efficiency.

Dec. 14, 2016

Centre to finance digital discounts

Details :

Why in news?

The Centre has decided to bear the burden imposed on public sector firms on account of the many
discounts and incentives offered to promote digital payments.

Summary:

After demonetisation, the central government took many steps to promote a cashless economy.
For this the government has offered many incentives and discounts on transactions online or using
cards, especially through public sector insurance companies and oil-marketing companies (at
petrol pumps).
Now the centre has decided to bear the burden of these discounts on public sector firms.
This means the government will refund the discounts given by these public sector companies.

Digital Payments:

Going forward, all government organisations, public sector undertakings and authorities have been
advised to review rules and regulations to support digital payments.
Bharatkosh (bharakosh.gov.in) has been developed to enable users to make non-tax payments to
the government for many categories including spectrum charges, RTI application fees, and
purchase forms online, without going to either a bank or a government office.
All 5.5 lakh fair price shops (ration shops) run by the government are being equipped with PoS
terminals/micro ATMs, which will enable them to undertake digital payment transactions.
A jump of 1.1 million in the deployment of PoS/mobile PoS machines (from 14
lakh to 25 lakh) is expected to take place by March 2017.
Micro ATMs:

It is a card swipe machine with a fingerprint scanner attached to it.

These machines are typically used by business correspondents (agents who represent banks in
rural areas) of banks to connect customers who are far away from branches.
The user swipes his card and his transactions is recorded by the bank. The banking/business
correspondent then physcially conducts the transaction by paying the user or collecting deposit
from him.

Related Links:

https://lms.vajiramandravi.com/current-affairs/govt-to-hold-lucky-draws-to-boost- digital-
transactions-centre-dangles-the-carrot-go-digital-win- prizes/584d39fdb680d376c854269e/

https://lms.vajiramandravi.com/current-affairs/panel-to-study-security-risks-amid- centres-digital-
push/584cf609b680d33c7e906621/
Dec. 2, 2016

Manufacturing PMI down in November on demonetisation effect

Details : THE
NEWS:
Demonetisation has adversely impacted manufacturing growth in November. The data was
released by Nikkei India Manufacturing.
The headline figure for the PMI for India was 52.3 in November, with a reading over 50 indicating
an expansion in activity. However it was down from October’s high of 54.4.
PMI data for November showed that the sudden withdrawal of high-value banknotes in India caused
problems for manufacturers, as cash shortages hampered growth of new work, buying activity and
production.

What is a PMI?

The Purchasing Managers' Index (PMI) is an indicator of the economic health both of the
manufacturing and service sector.
The PMI is based on five major indicators: new orders, inventory levels, production, supplier
deliveries and the employment environment.
The purpose of the PMI is to provide information about current business conditions to company
decision makers, analysts and purchasing managers.
It is a survey-based measure that asks the respondents about changes in their perception of some key
business variables from the month before.

How is the PMI derived?

The PMI is derived from a series of qualitative questions.

The questions asked are whether key indicators such as output, new orders, business expectations
and employment were stronger than the month before and executives are asked to rate them.

How does one read the PMI?

A figure above 50 denotes expansion in business activity and anything below 50 denotes
contraction.
Higher is the difference from this mid-point, greater is the expansion or contraction.
The rate of expansion can also be judged by comparing the PMI with that of the previous month
data. If the figure is higher than the previous month's then the economy is expanding at a faster
rate. If it is lower than the previous month then it is growing at a lower rate.
What are its implications for the economy?

The PMI is usually released at the start of the month, much before most of the official data on
industrial output, manufacturing and GDP growth becomes available.
It is, therefore, considered a good leading indicator of economic activity. Economists consider the
manufacturing growth measured by the PMI as a good indicator of industrial output, for which official
statistics are released later.
Central banks of many countries also use the index to help make decisions on interest rates.

(With inputs from Economic Times)

NOTE: PMI is released by private agencies. The article is to give you a basic idea about the index and the
effect of demonetization on the sector as a conceptual question can be asked in UPSC Prelims and GS
Mains.

Dec. 1, 2016

Agriculture spurs GDP growth to 7.3%

Details :

Why in news?
The Central Statistics Office (CSO) released the data for the second quarter of this financial year.
Summary:

GDP growth accelerated in the second quarter of this financial year to 7.3 per cent.
Gross value added for the second quarter grew by 7.1 per cent.
Both GDP and GVA growth were lower in the second quarter of this financial year as compared
with the same period in the previous year.
GVA + taxes on products - subsidies on products = GDP.
The agriculture sector buoyed overall growth, registering a 3.3 per cent GVA growth rate in Q2 of this
financial year as compared with 1.8 per cent in the previous quarter and 2 per cent in Q2 of 2015-16.
Agriculture did a little better than last year, largely due to the improved monsoon, which caused
the increase in the sown area.
Manufacturing has shown a slowdown in growth. It was attributed to due to very poor
performance in fabricated metal products, furniture manufacturing, and apparel, all of which play
a major role in the informal manufacturing sector. Private investment is down substantially, which
needs to be watched. And some of the growth in GDP is on the strength of government spending.
Basically, it means most of the economic activity is being driven by government spending in
activities like roads, power etc while private players are not investing much.

Note to students: No need to mug up the numbers. But useful to have an eye on the trends and how various
sectors are performing.
Trade costs of India remain high: UN body
Details :

Basics about Asia-Pacific Trade and Investment Report:

The Asia-Pacific Trade and Investment Report (APTIR) is a major annual publication of the Trade,
Investment and Innovation Division of United Nations ESCAP.
It aims to deepen understanding of trends and developments in trade and investment in the Asia-
Pacific region, emerging issues in trade, investment and trade facilitation policies and impacts of these
policies on countries' abilities to meet the challenges of achieving inclusive and sustainable
development.
It offers innovative policy options to meet the challenges of achieving sustainable trade and
investment.

THE NEWS:

The United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) released Asia-
Pacific Trade and Investment Report 2016.

Asia-Pacific Trade and Investment Report 2016 states:

International and intra-regional trade costs of India remained higher compared with the trade
costs of best-performing economies in Asia and the Pacific, although a declining trend has been
observed since 2009.
In addition to India’s robust economic growth and large domestic market, the Government’s
“Make in India” initiative and easing of FDI regulations for about 15 sectors may contribute to the
FDI attractiveness of India.
Overseas investment from India contracted considerably by 36 per cent, which reflect that Indian
investors have started investing more at home than overseas.
FDI inflows to India expanded by 10 per cent on average during 2010-2015. Maximum inflow was
in 2015 and recorded expansion at 27.8 per cent, which was significantly higher than the Asia-
Pacific region’s average 5.6 per cent.
The services, construction development, computer software and hardware, and telecommunications
sectors attracted the highest investments.
Asia-Pacific trade flows were wavering amid sluggish global economic and trade growth, downward
movement of world commodity prices and an uncertain policy environment. India was the largest
partner with several economies in South Asia, such as Bhutan, Nepal and Sri Lanka.
Since India is the fastest-growing emerging economy, it is somewhat expected to start filling the
void in demand for intraregional exports that will emerge with the rebalancing of China’s trade
patterns.
ABOUT ESCAP:

The United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) is the
regional development arm of the United Nations for the Asia- Pacific region.
 Made up of 53 Member States and 9 Associate Members, with a geographical scope that stretches
from Turkey in the west to the Pacific island nation of Kiribati in the east, and from the Russian
Federation in the north to New Zealand in the south, the region is home to two thirds of the world’s
population.

(Member states)

This makes ESCAP the most comprehensive of the United Nations five regional commissions and
the largest United Nations body serving the Asia-Pacific region.
It was established in 1947 and headquarters in Bangkok, Thailand.
ESCAP works to overcome some of the region’s greatest challenges by providing results oriented
projects, technical assistance and capacity building to member States in the following areas:

1. Macroeconomic Policy, Poverty Reduction and Financing for Development

2. Trade and Investment
3. Transport
4. Environment and Development
5. Information and Communications Technology and Disaster Risk Reduction
6. Social Development
7. Statistics
8. Sub-regional activities for development
9. Energy
Vision

ESCAP is committed to a resilient Asia and the Pacific founded on shared prosperity, social equity and
sustainability.
It is most comprehensive multilateral platform for promoting cooperation among member States
to achieve inclusive and sustainable economic and social development in Asia and the Pacific.
 NOVEMBER, 2016

Nov. 29, 2016

Tax defaulters get another chance

Details : THE
NEWS:
Concerns have been raised that some of the existing provisions of the Income- tax Act, 1961 (the
Act) can possibly be used for concealing black money.
The Taxation Laws (Second Amendment) Bill, 2016 (‘the Bill’) has been introduced in the
Parliament to amend the provisions of the Act to ensure that defaulting assesses are subjected to
tax at a higher rate and stringent penalty provision.
Further, in the wake of declaring specified bank notes “as not legal tender”, there have been
suggestions from experts that instead of allowing people to find illegal ways of converting their
black money into black again, the Government should give them an opportunity to pay taxes with
heavy penalty and allow them to come clean.
So, it will also give tax defaulters an opportunity to come clean by paying tax and penalties.
The key feature of the proposed amendment to the Income-Tax Act is a proposal to impose 50 per
cent tax on undeclared income that is voluntarily disclosed till December 30.
The tax changes are intended to supplement the demonetisation move targeted at curbing black
money.

Importance:

Evasion of taxes deprives the nation of critical resources which could enable the Government to
undertake anti-poverty and development programmes.
It also puts a disproportionate burden on the honest taxpayers who have to bear the brunt of
higher taxes to make up for the revenue leakage.
HIGHLIGHTS: Taxation Laws (Second Amendment) Bill, 2016:

Attempts to plug loopholes in existing I-T Act being misused to conceal black money.
Penalty provisions made more stringent. Provides for a two-
tier tax penalty regime.
Black money holders get a chance till December 30 to deposit unaccounted money in banks.
Need to pay higher tax, penalty and a surcharge of 50 per cent.
Will also have to deposit 25% of unaccounted money in the PMGKY scheme. Zero-interest, lock-
in for four years in PMGKY scheme.

These measures will be implemented after amending the relevant sections of the Income Tax Act 1961.

Objective of the amendment is:

The Government would get additional revenue for undertaking activities for the welfare of the poor.
The remaining part of the declared income legitimately will come into the formal economy. For
this, a tax and penalty will be imposed on undisclosed income (50% on those who discloses and
85% for those who don’t disclose and caught).

Pradhan Mantri Garib Kalyan Yojana,2016:

The Taxation Laws (Second Amendment) Bill, 2016 also proposes to introduce a scheme named the
'Pradhan Mantri Garib Kalyan Yojana, 2016'.
 As the name suggests, its aim is to use black-money collected post- demonetisation in welfare
schemes for the poor.
The new scheme - Taxation and Investment Regime for Pradhan Mantri Garib Kalyan Yojana,
2016- is part of the Taxation Laws (Second Amendment) Bill, 2016.
The proceeds from tax will be made a part of the Pradhan Mantri Garib Kalyan Yojana and will be
used to fund schemes for providing irrigation, housing, toilets, infrastructure, primary education,
primary health and livelihood.

Nov. 27, 2016

RBI takes measures to absorb excess liquidity

Details :

Why in news?
The Reserve Bank of India (RBI) has taken steps to absorb excess liquidity (cash) in the banking system
following demonetisation.

Summary:

The prevailing Rs.500 and Rs.1,000 notes were withdrawn on November 8 and banks started
accepting deposits and exchanging those notes from November 10.
The return of these notes to the banking system has caused surplus liquidity (cash).
RBI has taken steps to absorb this excess liquidity (cash) in the banking system by levying
additional cash reserve ratio (CRR) for banks.
The banks have to maintain an incremental CRR of 100 per cent for the deposits they have
received between September 16, 2016 and November 11, 2016.
This effectively means that all deposits received during that period would be parked with the RBI as
CRR.
CRR is the proportion of deposits that banks have to keep as cash with the central bank. Banks do
not earn any interest on CRR balances kept with the RBI.
The incremental CRR will absorb only the excess liquidity while leaving sufficient funds with the
banks to lend to productive sectors of the economy. The incremental CRR requirement is intended
to be a temporary measure.
But the overall CRR requirement would stay at 4 per cent.

Additional Explanation:

With Income Declaration Scheme followed by the Demonetisation, the result was that banking
system deposits nearly doubled.
As deposit growth in the short span far exceeded the demand for credit, banks had limited
avenues to lend out this money.
So, they parked it with the RBI through reverse repo operations and also stepped up investments
in government securities (so as to earn interest). Both situations have created complications
from the central bank (as it has to
 pay interest and manage government securities).
It is trying to manage this through sucking out the excess liquidity.
By imposing the incremental CRR for a period, the RBI has taken a temporary measure to hold the
excess cash in the banks without having to pay out interest and also reduce the sudden rise in
demand for government securities. The banks will lose out on interest. That's why this is just a
temporary measure. But RBI has to do this as it is the responsibility of the RBI to central monetary
authority to ensure monetary stability in the economy.

Nov. 26, 2016

Centre forms committee to push cashless transactions

Details :

Why in news?
The Centre announced a new committee, headed by Niti Aayog CEO Amitabh Kant, to form a strategy to
speed up the process of transforming India into a cashless economy.

Summary:

The Centre announced a new committee, headed by Niti Aayog CEO Amitabh Kant, to form a
strategy to speed up the process of transforming India into a cashless economy.
The aim is to reduce the use of cash for most of the transactions.
Heavy use of cash increases the chances of corruption, evasion of taxes and generation of black
money, fake currency etc.
Electronic/Digital transactions can be tracked and vastly reduces the problems involving cash.
The committee is tasked to ensure that nearly 80 per cent of the transactions in India moves to the
digital-only platform (cards, net banking, UPI, mobile wallets, NEFT etc.).
This is the next step after the demonetisation move.
The committee will identify and operationalise user-friendly digital payment options in all sectors
of the economy.
The panel will engage regularly with Central ministries, regulators, state governments, district
administration, local bodies, trade and industry associations to promote adoption of digital
payment systems.
To promote the adoption of digital payment systems, the committee will also come up with
measures to make transactions between the government and citizens cheaper than cash
transactions.
The Centre is working towards moving all government transactions to the cashless mode, through
a new single window e-payment system that individuals or businesses can use to make payments
to any central or state department (one website/app to pay electricity, water, land registration
etc.). The committee would also implement an action plan on advocacy, awareness and hand-
holding efforts among public-, micro-enterprises and other stakeholders.
Nov. 24, 2016

SEBI eases rules for angel funds

Details : The
NEWS:
The board has decided to amend the SEBI (Alternative Investment Funds) Regulations, 2012.
The amendments are based on the recommendations of 'Alternative Investment Policy Advisory
Committee' that was constituted under the chairmanship of N.
R. Narayana Murthy.
The Securities and Exchange Board of India (SEBI) has relaxed norms for angel funds to invest in early-
stage entities.
The move is aimed at helping boost investment in the early stages for start-ups in the country
It has also enhanced the scope of investment of foreign investors in unlisted debt securities.
Angel Funds will also be allowed to invest in start-ups incorporated within five years (instead of the
earlier norm of three years).
The minimum investment amount by an angel fund in any venture capital undertaking has also been
reduced to Rs.25 lakh (Earlier it was Rs.50 lakh.)

New Norms for FPIs:

SEBI has also permitted foreign portfolio investors (FPIs) to invest in unlisted non-convertible
debentures and securitised debt instruments of a public or private company based on the
guidelines issued by the Ministry of Corporate Affairs (MCA).
Earlier, FIIs were allowed to invest in such securities only if it was issued by a company from the
infrastructure sector.

Angel Investors and Venture Capital:

Business Angel Investors are individuals, often successful business people who are investing their
own personal funds into a potentially rewarding business opportunity.
Whereas Venture Capital is invested by firms or companies that use other people's money. They
raise that money by offering investors a chance to take part in a fund that is then used to buy
shares in a private company.
Business angels use their own money and venture capitalists use other people's money affects their
capacity for risk and of course an individual angel investor doesn't have as much to invest as a venture
capital firm.

Angel Investors Vs Venture Capitalists:

Angel investors invest mostly as individuals, while venture capitalists are business enterprises/
companies comprising of several individual investors. Angel investors usually fund start-ups and
new businesses where as Venture
 capital are seldom interested in early-stage, unless there are compelling reasons.
Angel investors invest their own money into businesses, but venture capitalists invest money
contributed by several investors.
Because they are individuals, angel investors are usually unable or unwilling to fund businesses
that require huge funds. Venture capitalists, on the other hand can fund businesses that require
large funding, since they are holding funds from several individuals.
In addition to the invested funds, angel investors usually contribute personal experience and
relevant contacts to the growth of businesses they invest in. Some venture capitalists don’t go
this far.
Angel investors may be willing to “hands-off” your business if they have nothing relevant,
aside the capital to contribute. But venture capitalists will always require board seats and
complex deal terms including the ability to control subsequent financings.
Angel investors usually require very high Return On Investment (ROI) because they take very high
risks by investing in new businesses that may tank.
Venture capitalists usually contribute to already-growing businesses with reduced risk of failure,
so they don’t require very high ROI.
Angel investors tend to believe in the entrepreneur and invest in them as a person. Venture
capitalists being less emotional and more process involved mainly evaluate deals and make
offers.
Angel investors allow for flexibility in deal structuring and financial decisions. venture capitalists are
rigid.
An angel investor fund businesses for motives beyond financial gains (such as social responsibility
and community involvement). A venture capitalist is obligated to maximize investors’ returns and
outperform other venture capitalists, in order to attract even more investors.
Angels tend to avoid follow-up investments out of fear of losing more money, in case the business
fails. Venture capitalists usually invest additional funds at later stages to assist with growth.
Angel investors are found in virtually all industries and have diversified portfolios.
Venture capitalists are involved in limited industries (mostly technology) and they have
limited portfolios.

NOTE: Students are advised to read this article with their class notes/ book on capital market and
foreign investment.

Related Questions:

What does venture capital mean? (UPSC PRELIMS, 2014)

A. A short-term capital provided to industries

B. A long term start-up capital to new entrepreneurs

C. Funds provided to industries at times of incurring losses

D. Funds provided for replacement and renovation of industries

Answer: B

Nov. 23, 2016

Centre plans crop insurance scheme for small tea growers

Details : Introduction:
The small tea growers are an emerging force in the Indian tea industry (accounting for more than

35 per cent of the production).

Small tea plantation is cost effective, environment friendly, sustainable and adds fresh impetus
to the industry as there is gradual decline in quality and production of tea in estate sector.
The Small tea grower (STG) is a new model of tea cultivation that fosters the growth of
entrepreneurship and provides both direct and indirect employment. It may tender structural
change in the rural industrialization process by setting small tea processing unit, marketing
channel, and multi-cropping system.
The small tea growers have been confronting with multiple problems fundamentally due to
infrastructure deficiency and non implementation of certain regulatory measures.
There is a better future in small tea plantation to strengthen the rural economy. STGs have also
suffered crop damage due to hail storms, excess rainfall and pest attacks.
There has been a massive crop loss ranging between 30 and 50 per cent due to these factors.

The News:

The Centre is planning to roll out a crop insurance scheme for small tea growers.
Initially a pilot scheme will be introduced in three regions- Golaghat (Assam), Jalpaiguri (West
Bengal) and Coonoor (Tamil Nadu), for one crop-cycle, spread over two years commencing 2016-
17.

About Scheme:

The Tea Board would be the nodal agency for the scheme.
The cost will be shared between the Centre, the state governments and the growers in the ratio of
75:15:10.
In case the state government declines to contribute its share, the growers will have to contribute
the government’s share.
There are 57,355 small growers in the targeted districts. Large growers can also join the scheme, but
will have to pay the entire premium.
Aim: To protect growers from anticipated losses in revenue caused by drop in international/domestic
prices, yield loss due to adverse weather or pest attacks or any other reason beyond human control.

Nov. 22, 2016

‘Give tax breaks for digital payments’

Details :

What is the News?

At a recent meeting with Prime Minister Narendra Modi, Niti Aayog Chief Executive Officer
Amitabh Kant pitched for encouraging e-payments for driving online commerce as well as bringing
in greater transparency and higher tax collection for the government.
At the same time, Niti Aayog has suggested discouraging use of cash by levying a surcharge on cash
transactions beyond a certain threshold.

Suggestions given by NITI Aayog:

It has proposed giving tax breaks to consumers and merchants for debit or credit card payments.
For example in South Korea, the government promoted electronic payments by providing tax breaks
for both shoppers and merchants on card transactions.
The government think-tank has also suggested levying a surcharge for cash transactions beyond a set
limit to encourage electronic transactions.
It has also been recommended that mobile wallets be allowed to participate in one of the
government’s key reforms – Direct Benefit Transfer Scheme – for subsidies, minimum wage
payments for various government schemes and other payments, using JanDhan, Aadhaar and
Mobile (JAM).
It has also pitched for stronger policy for protection of interests of online shoppers.
The existing legislation does not recognise e-commerce consumers.
The Aayog recommended early enactment of Consumer Protection Bill 2005 introduced in Lok
Sabha in October 2015 and updating National Consumer Helpline regularly for e-commerce
complaints.
For example, in China, on one hand, online shoppers can return goods within seven days without
assigning any reason and on the other, it is mandatory for sellers to be registered and compensate
users in case of fraud, among other things.

Important Facts:
While there was a sharp uptick (50 per cent rise) in e-payments in the past few years, 78 per cent of
transactions were still cash-based.
The number of transactions in digital channels increased from 1.1 billion in 2012-13 to 1.7
billion in 2013-14 and 2.3 billion in 2014-15.
e-commerce contributed about only one per cent to the total retail market as compared to 14 per
cent in China.
e-commerce market in China in 2015 was pegged at $650 billion.
 This was driven by factors such as liberal payment guidelines, strong customer protection laws and
steep rise in Internet penetration.

Nov. 17, 2016

Moody’s assessment of India

Details :

Why in news?

In the latest assessment, Moody’s Investors Service has retained its positive outlook on India and also
commented on demonetisation.

On demonetisation:

Banks stand to gain the most from the demonetisation efforts as it encourages people to enter the
formal banking system.
Moody’s points out that studies have shown that first-time users of banking systems tend to keep
using them once they start.
This could benefit banks through an increase in low-cost deposit (where interest rate paid by the
banks is low).
The demonetisation scheme could result in bank deposits increasing by about 1-2 per cent once
the volatility subsides in around 3 months (i.e., when things stabilize as deposits are completed
and ATMs are Banks are working freely).

Outlook on India:

Moody’s Investors Service has retained its positive outlook on India.

It reflects the expectation that continued policy reform implementation in India (GST, lower fiscal
deficit, lower current account deficit, inflation management etc) will allow balanced growth to
support a reduction in the government debt. There are several factors bolstering India’s up-
gradation to a higher rating, including its size, growth potential, and increase in income levels.
But there are also several constraints that could keep its credit rating from improving, such as income
and consumption levels remaining vulnerable to external shocks like a poor monsoon.
So an upgrade in rating would depend on sustained macroeconomic stability (sustained growth,
low inflation, low deficits etc), higher levels of investment etc.
Moody’s Investors Service:

It is a credit rating agency.

A credit rating agency (CRA, also called a ratings service) is a company that assigns credit ratings,
which rate a debtor's ability to pay back debt by making timely interest payments and the likelihood of
default.
The biggest credit rating agencies are Moody's Investors Service, Standard & Poor's (S&P) and
Fitch Ratings.
The debt instruments rated by CRAs include government bonds, corporate
 bonds, CDs, municipal bonds etc
Investors and creditors use credit ratings by agencies like Moody's to decide on the
investment/credit risks.
A better credit rating for India (sovereign credit rating) means that the government can borrow at
lower interest rates.
That is why India takes steps to improve its credit rating.

Note: Inputs from article can be quoted in mains answers and essays.

Nov. 16, 2016

Centre increases MSP for rabi crops

Details :

The decision to increase the MSP for rabi crops was taken at by Cabinet Committee on Economic
Affairs, chaired by Prime Minister.
To boost the production of pulses, minimum support price (MSP) was increased for pulses,
oilseeds and wheat for the rabi 2016-17 season.
The move is expected to incentivise cultivation of pulses and oilseeds. So, the government has
announced a bonus on these crops, payable over and above the approved MSP.

MINIMUM SUPPORT PRICE:

Minimum Support Price (MSP) is a form of market intervention by the Government to insure
agricultural producers against any sharp fall in farm prices.
The minimum support prices are announced by the Government of India at the beginning of the
sowing season for certain crops on the basis of the recommendations of the Commission for
Agricultural Costs and Prices (CACP) MSP is price fixed by Government of India to protect the
producer i.e. farmers against excessive fall in price during bumper production years as minimum
support prices are a guarantee price for their produce from the Government.

OBJECTIVE: To support the farmers from distress sales and to procure food grains for public distribution.
In case the market price for the commodity falls below the announced minimum price due to bumper
production and glut in the market, government agencies purchase the entire quantity offered by the
farmers at the announced minimum price.
Historical perspective of MSP

Till the mid 1970s, Government announced two types of administered prices :
 1. Minimum Support Prices (MSP): The MSPs served as the floor prices and were fixed by the
Government in the nature of a long-term guarantee for investment decisions of producers, with the
assurance that prices of their commodities would not be allowed to fall below the level fixed by the
Government, even in the case of a bumper crop.
2. Procurement Prices: Procurement prices were the prices of kharif and rabi cereals at which the
grain was to be domestically procured by public agencies (like the FCI) for release through PDS. It
was announced soon after harvest began.

Since there were too many demands for stepping up the MSP, in 1975-76, the present system was
evolved in which only one set of prices was announced for paddy (and other kharif crops) and wheat
being procured for buffer stock operations.

Procurement of Cereals:

Food Corporation of India is the nodal central agency of Government of India, along with other
State Agencies undertakes procurement of wheat and paddy under price support scheme.
Coarse grains are procured by State Government Agencies for Central Pool as per the direction
issued by Government of India on time to time.
Before the harvest during each Rabi / Kharif Crop season, the Government of India announces the
minimum support prices (MSP) for procurement on the basis of the recommendation of the
Commission of Agricultural Costs and Prices (CACP) which along with other factors, takes into
consideration the cost of various agricultural inputs and the reasonable margin for the farmers for
their produce.

Price Support Scheme (PSS) for Oil seeds and Pulses:

The Department of Agriculture and Cooperation implements the Price Support Scheme for Oil Seeds
and Pulses through the National Agricultural Cooperative Marketing Federation of India Ltd. (NAFED).
NAFED is the nodal procurement agency for Oilseeds and pulses, apart from the Cotton Corporation
of India. So, when the prices of oilseeds, pulses and cotton fall below MSP, NAFED purchases them
from the farmers.

The need to raise MSP for Pulses and oilseeds:

There is an increasing gap between the demand and domestic supply of pulses and oilseeds and
reliance on import is increasing.
Government has therefore announced this bonus on pulses and oilseeds to give a strong price
signal to farmers to increase acreage and invest for increase in productivity of these crops.
The increase in cultivation of leguminous pulses and oilseeds will also have additional environmental
benefits as these crops are less water consuming and
 help in nitrogen fixation in the soil.

Trade deficit widens, goods exports post 9.6% growth

Details :

The country’s trade deficit widened to $10.16 billion in October as gold imports more than doubled.
Owing to poor global demand, goods exports had fallen for 20 of the 23 months since December
2014.
Recently, exports of goods have increased which is a good sign for Indian industry. But the trade
deficit widened owing to surge in gold imports following increase in demand.
The increase in export could not counter the gold imports and so the trade deficit gap increased.
Exports of goods grew 9.59 per cent due to an increase in exports of gems & jewellery,
engineering goods and readymade garments and imports expanded by 8.11 per cent.

TRADE DEFICIT:

Definition: A trade deficit is when the value of a country's imports exceeds the value of its exports. That
makes its balance of trade negative.

To import a good, we need to spend foreign currency which means our forex reserves will deplete and
this also affects Balance of Payment.
To counter this we need to balance it by exporting goods, which will bring in foreign currency.

What Causes a Trade Deficit?

A trade deficit is caused when a country cannot produce all it needs.

A country cannot have a trade deficit unless other countries are willing to loan it the funds
needed to finance the purchases of imports.
Therefore, a country with a trade deficit will most likely have a current account deficit.
A trade deficit can also result if a domestic company manufactures a lot of its products in other
countries. If the raw materials are shipped overseas to its plant, that's counted as an export.
When the finished good is shipped back home, that's counted as an import, even though it's made
by a domestic company.
It's subtracted from the country's Gross Domestic Product, even though the earnings will benefit the
company's stock price and the taxes will benefit the country's revenue stream.
Effects of Trade Deficit
- Initially, a trade deficit is not a bad thing. It raises the standard of living of a country's residents,
since they now have access to a wider variety of goods and services for a more competitive price.

It can reduce the threat of inflation, since the products are priced lower. A trade deficit
can also indicate that the country's residents are feeling confident and wealthy enough to
buy more than the country produces.

- Over time, a trade deficit can cause jobs outsourcing.

That's because, as a country imports certain goods rather than buying domestically and the local
companies start to go out of business.
The domestic business itself will lose the expertise needed to produce that good competitively. As
a result, fewer jobs in that industry are created in the home country.
Instead, the foreign companies hire new workers to keep up with the demand for their exports.
For this reason, many leaders propose reducing the trade deficit to increase jobs.
They often blame trade agreements for causing deficits. A great example is the world's largest
agreement, the North American Free Trade Agreement, or NAFTA.
A response to trade deficits is often to raise import tariffs, or other forms of trade
protectionism. However, these rarely work because the industry is usually already moribund,
and the skills lost, by the time these policies are suggested.

Note: For more details on BoP and Trade deficits, kindly refer the class notes or Economics NCERT, Class XII.

Nov. 15, 2016

Economists see ‘short-term pain, long-term gain’

Details :
Why in news?
Economists are debating the impact of the demonetisation of currency notes of Rs. 500 and Rs. 1,000

Impact of demonetisation: Negatives:

Demonetisation drive will likely negatively impact the economy in the short
term.
Due to the cash crunch and reduction in everyday transactions, one can expect
 a quarter or two of slower growth.
At sectoral level, this move will hurt growth in cash-heavy sectors like real estate, gold and
jewellery.
The unorganised retail sector and the self-employed – who depend most on cash transactions –
could be badly affected.
The transport and logistics sector, which brings essentials to cities, is largely impacted by the cash
crunch and may cause increase in retail prices of some goods for a while.

Concept: Understanding the formal economy:

The formal sector consists of the businesses, enterprises and economic activities that are
monitored, regulated, protected and taxed by the government.
The informal sector is comprised of the workers and enterprises that are not under government
regulation.
The informal economy in India includes the unregistered business, self- employed, unorganized
labour etc.
Many registered businesses also indirectly become part of informal economy as they deal mostly in
cash that never gets reported to the government and so is not taxed.

Positives:

Over the longer term, this move could propel economic growth into double-digit levels as more of the
informal economy becomes formal.
With demonetisation, small businessmen and self-employed professionals would make
attempts to become a part of the formal economy over time. (You can see many traders,
restaurants, doctors, lawyers etc deal in cash and report little of the income to the government
and thus create black money. Now they will be also increasingly deal less in cash, report full
income and pay their share of taxes. People with low income don't get taxed or pay little taxes so
they need not worry.)
The exponential increase in all the cashless mechanisms like cashless wallets and online banking
may also help in reducing the transaction costs and increase formal economy.
The online transactions ensure that all money is account for and can be tracked.
Due to the shrinkage of money supply, the overall impact should be deflationary i.e., reduction in
prices due to the fall in demand. Real estate prices are expected to fall about 20-25 per cent
before stabilising.
Another benefit from the drastic currency step could be a reduction of banks’ non-performing
assets (NPAs). Banks will benefit from the increase in deposits, which will enable them to write off
bad loans more quickly. This will enable banks to lend more and thus drive economic growth.
India has a fairly high savings rate, but the financial part of that is low (as savings are usually as
cash, gold, real estate etc.). The financial savings (bank deposits, FDs, mutual funds etc) is likely to
go up which will help financing the economic growth.
Nov. 11, 2016

Exclusive e-platform soon for payments to government

Details :
Why in news?
The central government's demonetisation effort is being backed up by an effort to move all government
transactions to the cashless mode.

Reducing/Ending cash in dealing with government:

Last year, PMO set a target to shift at least 90 per cent of all government transactions that involve
payments or receipts from citizens and businesses to electronic or paperless mode by the end of
2016.
It is aimed to replace the use of cash, demand drafts, cheques and challans in government offices.

Single platform for everyone:

The central government's demonetisation effort is being backed up by an effort to move all
government transactions to the cashless mode.
The Centre is working on a new single window e-payment system that individuals or businesses
can use to make payments to any central or State department.
While some government departments have introduced electronic payments system, a lot of PSUs,
schools and courts have said they lack mechanisms to introduce such a system.
For all such entities, this will be a single platform.
The Ministry of Electronics and Information Technology is overseeing the set up of a common e-
governance platform.
The idea is to eliminate use of cash in dealing with government bodies.
The implications of such a platform in reducing corruption will be huge, as cash isn’t involved
anywhere.

Nov. 10, 2016

Improve ports, logistics to boost exports: World Bank Report

Details :
The World Bank released a report titled ‘South Asia’s Turn: Policies to Boost Competitiveness and Create the
Next Export Powerhouse’ and suggested a set of policy actions in four sectors — agribusiness, apparel,
electronics and automotive.

Highlights of the Report:

India must frame policies to reduce farm subsidies, cut import tariffs on cars
 and take steps to improve ports & logistics, to emerge as an export powerhouse.
With the right set of productivity-enhancing policies South Asia led by India can have good share in
global markets of electronics and motor vehicles and can double its already significant market share in
wearing apparel by 2030.
In the farm sector passive and non-targeted subsidies (e.g. water, fertilisers and minimum support
price) have encouraged farmers to continue to produce low value crops using low productivity
and unsustainable techniques.
In order to enhance the business environment in the sector, the government needs to bring out
reforms including reducing subsidies and promoting competition.
The government needs to better target subsidies so that only the poor farmers are benefited as
passive and non-targeted subsidies are not encouraging farmers to adopt new technologies and
seed varieties.
The electronics sector faced constraints such as underdeveloped clusters and poor trade logistics.
India needs to facilitate the development of clusters by reducing transaction costs and facilitating
access to skilled labour and services. India should also improve its trade logistics to enable the
smooth import and export of hundreds of components.
The apparel sector is facing difficulties to import man-made fibre which is preventing upgrading and
diversification of the sector.

Government initiatives to boost Import & Export:

The government has taken a number of measures to restore the positive growth rate in exports and
manage imports in order to manage the Trade deficit. The main steps taken are:

Government performs import appraisal to evaluate the quantum of imports on a periodic basis. In
order to control imports of gold and silver the Government gradually increased customs duty on
gold.
Government has released the Foreign Trade Policy (FTP) 2015-20 which has introduced two new
schemes:

1. Merchandise Exports from India Scheme(MEIS): It is for incentivising export of specified goods to
specified markets.
2. Service Exports from India Scheme(SEIS): It is for increasing exports of notified services from India
for diversification of India’s export markets and products and give a boost to India’s exports

The Foreign Trade Policy 2015-20 has also introduced several measures for facilitating trade and
improving `Ease of doing business’ by reducing the number of mandatory documents required for
export and import to three each. In order to facilitate faster processing and enable working in
24*7 mode, government has facilitated submission of various applications and documents in
online mode and online payment of application fee. These measures will facilitate trade by
reducing transaction cost and time.
In order to provide Indian exporters better access to various markets, the government is engaged in
regional, bilateral and multilateral trade negotiations with various countries and trade blocks.
 In order to promote exports, the State governments have been requested to develop their export
strategy, appoint export commissioners, address infrastructure constraints restricting movement
of goods, facilitate refund of VAT/Octroi/State level cess and address other issues relating to
various clearances etc. and build capacity of new exporters.
The government continuously monitors the export performance of different sectors to different
countries and takes need based measures from time to time, keeping in view the emerging global
financial situation and overall economic implications.
The Commerce Ministry is working on a proposal to enhance the logistics competitiveness of
exporters and is discussing it with the railways as well as port authorities.

Nov. 9, 2016

Support small enterprises to boost India’s exports: President

Details :

Why in news?
President Pranab Mukherjee said that Centre needs to ensure that India’s exporters, particularly those in
the Small and Medium Enterprises (SME) segment, are adequately supported through appropriate
policy interventions to help them tide over the present downturn.

Summary:

India’s exports had contracted in 20 of the 21 months till August this year. The only exception
was the month of June 2016, when it expanded 1.27 per cent.
Exports are important to maintain good Balance of Payments (BoP) and balanced foreign
exchange reserves (Forex).
A weak global demand has adversely impacted India’s exports.
Reviving exports in a scenario of sluggish demand worldwide will remain a serious challenge for
India.
To promote exports, Center usually runs schemes like credit-guarantee schemes for the
exporters/traders so that they can easily access credit. The Parliamentary Standing
Committee on Commerce had recently recommended ECGC to play a greater role in export
promotion.
To put the country back on a high export growth path, the President also advised the Centre to
follow the recommendations and strengthen India’s institutional credit guarantee framework
(including ECGC) in the trade sector. State-owned ECGC (Export Credit Guarantee Corporation of
India Limited) promotes exports by improving the competitiveness of the Indian exporters through
credit risk insurance covers (usually, insurance for bank loans in case exporter is not able to repay
the banks) and related services.
The ECGC has been insuring banks whose share is almost 70 per cent of the export credit disbursed
in the country. The cover offered by the ECGC at various stages of lending bring a certain degree of
comfort for banks in today’s
 uncertain times.
Exporters usually face many uncertainties, like in global economy (fall in demand), geopolitical
uncertainties (like Brexit, disturbances in West Asia and North Africa), currency fluctuations etc.
So export credit insurance and guarantees in the spectrum of trade financing are of critical
importance.
India also needs to support its SME exporters as they have the potential for accelerated growth.
But at the same time, it is considered a high-risk venture by commercial lenders. So, government
back agencies like ECGC are even more important for the SME sector exports.
President said we must overcome by this improving the competitiveness of the domestic industry
through better infrastructure, credit facilities and regulation. He suggested examples of several
developed countries have consciously introduced special concessions and stimulus packages to
manage the present downturn.

Note to students: This article contains some useful points for any mains questions on how government can
support exporters (including SMEs) in this difficult time.

Nov. 6, 2016

Waterways project nod by December sought

Details : The
News:
Union Shipping Ministry will now seek Cabinet approval for the Jal Marg Vikas project, under which
National Waterways-1 is being implemented.
The Ministry is also planning a first issue of infrastructure bonds to fund this World Bank-aided
project.

About Jal Marg Vikas Project:

The ‘Jal Marg Vikas’ (National Waterway-1) project envisages to develop a fairway with 3 meters
depth between Allahabad to Haldia covering a distance of 1620 kms at an estimated cost of Rs.
4200 crore to be completed in six years.
National Waterway-1 (NW-1) is a waterway passing through Uttar Pradesh, Bihar, Jharkhand and
West Bengal, potentially serving the major cities of Haldia, Howrah, Kolkata, Bhagalpur, Patna,
Ghazipur, Varanasi, Allahabad and their industrial hinterlands including several industries located
along the Ganga basin.
For implementation of the Jal Marg Vikas Project, technical assistance and investment support is being
provided by the World Bank.
The central government has designated the Inland Waterway Authority of India as the
implementing agency.
The project would enable commercial navigation of at least 1500 ton vessels. The development of
NW-1 would result in a viable supplementary mode of
 transport and huge quantities of cargo can be transported.

For basics on waterways, refer the following link.

https://lms.vajiramandravi.com/current-affairs/ports-to-promote-waterways-as- centre-plans-
policy-rejig/57bc097ab680d30801701e79/

Steel industry asks Govt not to levy anti dumping duty on Met Coke

Details :
Why in news?
The Indian Steel Association has asked the government not to impose any anti dumping duty on
Metallurgical Coke (Met Coke) fearing cost escalation of their products.

Summary:

Metallurgical Coke (Met Coke) is one of the most important and critical raw material for the steel
industry.
The steel industry has specific requirements from the coal it uses, with regard to ash content,
phosphorus, sulphur and moisture.
Indian Met Coke producers are unable to supply the raw material in the specification required by the
steel industry.
This is because the quality of coal India has is unsuitable for steel industry (but good enough for
thermal power plants etc.).
That's the reason, Indian steel industry imports the Met Coke despite large reserves of coal in India.
Last year, Indian Met Coke producers complained that some foreign countries are "dumping" Met
Coke in India.
So, the Ministry of Commerce had last year initiated "anti-dumping" investigation on import of
low ash Met Coke from Australia and China.
This has resulted in the sharp increase in the price (nearly tripled) of this key raw material.
Recently, the Ministry of Commerce had recently recommended a $25 per tonne levy on such
imports and sent to Finance ministry for approval.
A levy of anti dumping duty on coke will thus increase the costs for the steel sector.
The imposition of any anti dumping duty may result in increase the cost of finished steel by Rs 700
to Rs 1500 per tonne.
The Indian steel industry is currently passing through challenging times.
Large imports from countries like Japan, South Korea, Russia and China at very competitive prices are
causing damage to the domestic steel industry.
Steel industry says that measures like anti-dumping duties on inputs for steel industry will further
 damage this sector.

Students may refer to dumping and anti-dumping concepts already explained in

this earlier post on the portal:

https://lms.vajiramandravi.com/current-affairs/industries-must-present-their-cases-
soon/57f9ecdfb680d3192108b2d6/

Nov. 5, 2016

CSO to provide GDP advance estimates by January

Details :

Why in news?

The Central Statistical Organisation (CSO) has agreed to provide its advance estimates of GDP growth by
the first week of January to facilitate early presentation of the Union Budget.

Summary:

Usually GDP advance estimates are provided in the first week of February.
This year, the CSO has agreed to give us this figure in the first week of January. Government uses
these estimates in making of the budget.
On the back of improved farm sector output, the economy is expected to show higher growth this
year than the 7.6 per cent GDP growth in 2015-16.

New GDP Methodology:

New methodology was adopted to bring our GDP estimates in line with the international best
practices.
Under the old method, GDP was calculated at factor cost. Presently, there will be gross value
added (GVA) at basic prices.
The difference between the two is that indirect production taxes and subsidies are included in
GVA at basic prices.
GDP at factor cost represents what a producer gets from the activity. Taxes on production or subsidies
provided for production were not included.
For arriving at the new gross value added (GVA) at basic prices, production taxes, such as property
tax, are added and subsidies by government are subtracted from GDP at factor cost.
The new GDP is then calculated by summing the Gross Value Added (GVA) per institutional sector
(Agricultural sector, Irrigation, Livestock products, Manufacturing, etc).
In the new way of calculating, GDP is calculated at market prices, while sectoral numbers - agriculture,
 industry and services - are given in basic prices.
The new GDP is calculated at Market prices. So, product taxes (Sales tax etc) are added and
subsidies are subtracted.

Note:
Please read this with the discussions done in the economy class and class notes for greater understanding.

Nov. 4, 2016

Council fixes 4-level GST rate structure

Details : The
News:
GST Council has finalised a multiple-slab rate structure including the cess for the new indirect
tax. The quantum of cess will depend on the current rate of tax.
The Goods and Services Tax (GST) will be levied at multiple rates ranging from 0 per cent to 28 per
cent.

The rate structure would be:

There will be a zero tax rate in which several items which approximately constitute 50 per cent of
the CPI basket, including food grains would be included. It would be zero-rated so that its impact
in terms of inflationary pressure on common people is the least.
The lowest slab of 5 per cent will be for items of common consumption which are used by most of
the people.
There would be two standard rates of 12 per cent and 18 per cent for the bulk of the goods and
services. This includes fast-moving consumer goods.
The highest slab of 28 per cent will include white goods and all those items on which the current rate
of incidence varies from 30-31 per cent.
Inference:

The principle for determining the rate on each item will be to levy and collect the GST at the rate
slab closest to the current tax incidence on it.
Most services are expected to become costlier as the ones being taxed currently at the rate of 15
per cent are likely to be put in the 18-per cent slab. Ultra luxuries, demerit and sin goods will attract
a cess for a period of five years on top of the 28 per cent GST.

Cess:

A cess is a tax that is levied by the government to raise funds for a specific purpose.
A cess is also different from the usual taxes such as personal income tax, excise duty and customs
duty as all the taxes collected by the government usually go into the Consolidated Fund of India
(CFI). But the collections from a cess are required to be kept outside of the CFI to be spent only
on the specific purpose for which it was levied.
The GST will subsume the multitude of cesses currently in place, including the Swachh Bharat
Cess, the Krishi Kalyan Cess and the Education Cess. Only the Clean Environment Cess is being
retained.
On the expiry of the five-year period the cess will not be collected.
The Council will review annually the tax revenue raised from the cess that will fund
compensations from the Centre to States for losses arising out of the transition to the GST.
The Centre has given guarantee to States for making up for the losses for a period of five years.

GST on Gold:

The Council did not take a call on the GST rate on gold. GST rate on gold will be finalised after the fitting
to the approved rates structure of all items is completed and there is some idea of revenue
projections.

Industry voices concern over GST rate complexity, cess uncertainity The Concerns:
The main issues of concern seem to be the complexity by the multiple rates of 5 per cent, 12 per
cent, 18 per cent, and 28 per cent and the uncertainty about the additional cess that will be levied
on luxury goods and tobacco products.
While the goods will have a multiple rate structure there is no clarity is provided on rates
applicable to services.
The uncertainty on rates for gold is not warranted as gold is a key determinant of the rate
structure.
The cess needs to be levied only at the final product and total tax including cess on demerit
goods should be kept within the present overall indirect tax
 incidence. According to some experts, the levy of cess could have been avoided as it is a clear
distortion to the GST scheme.
There might be some functional problems regarding the time companies will take to comply with
the new tax rules.
The government must move quickly to classify which goods fall under which rate.

For Basics on GST Council:

https://lms.vajiramandravi.com/current-affairs/centre-moots-4-gst- slabs/5806f8eab680d35eb687ae6f/

Nov. 3, 2016

Faster security clearances on anvil for foreign investors, to help FDI flow

Details :

Why in news?

The Industry and Home Affairs Ministries are working to expedite the grant of security clearances for
foreign investors.

Summary:

Security clearances for foreign investors often delay or even impede inflows of foreign direct
investment as well as mergers and acquisitions.
Even in July, MHA has asked the intelligence agencies to give security clearance for FDI projects in
one month. In the event of any delay, the reasons for the same would have to be recorded in
writing by the agency.
DIPP's view is that if security clearance doesn’t come within a particular time, it should be
presumed that there is nothing wrong and clearance should be deemed to have been given.
All clearances, including those of Home Ministry, should be time-bound and fast tracked.
This will boost investor's confidence by creating certainty, efficiency and aids ease of doing
business in India.
Apart from faster security clearances, DIPP also wants to make tax refunds by the States faster
and more efficient.
Foreign Investment Clearances:

Department of Industrial Policy & Promotion (DIPP) in Ministry of Commerce & Industry plays the key
role in formulation of FDI policy, FDI promotion and facilitation. DIPP is driving the Make in India
initiative.
DIPP's policies and guidelines form the bases of the FIPB decisions.
 Foreign Investment Promotion Board (FIPB), in the Ministry of Finance, is an inter-ministerial
body, responsible for processing of FDI proposals and making recommendations for Government
approval.
The Minister of Finance who is in-charge of FIPB would consider the recommendations of FIPB on
proposals with total foreign equity inflow up to Rs. 3000 crore.
The recommendations of FIPB on proposals with total foreign equity inflow of more than Rs. 3000
crore would be placed for consideration of Cabinet Committee on Economic Affairs (CCEA).
The security vetting (examination) of FDI proposals in strategic sectors like aviation, telecom etc is
done by the home ministry through background checks on the foreign investor.

Nov. 1, 2016

., Telangana top in ease of doing business

Details :

What is the news?

Andhra Pradesh and Telengana have jointly topped the 2016 all-India State/Union Territory-wise
Ease of Doing Business rankings.
The rankings are based on a 340-point business reform action plan and their implementation by the
States.
The 340 reform areas are broadly under categories including construction permit, environmental
and labour registration, obtaining electricity connection, online tax-return filing, inspection
reform, access to information and transparency, single window, land availability and commercial
dispute resolution.
The World Bank and Department of Industrial Policy & Promotion (DIPP), Ministry of Commerce
was involved in the process of reviewing the evidence submitted by states/UTs regarding
implementation of reforms for the rankings. While last year only seven States had implemented
over 50 per cent of the total reform points and no State had an implementation percentage of
over 75 per cent, this year 17 States crossed the 50 per cent implementation mark and 16 states
had an implementation percentage of over 75 per cent.
The national implementation average stands at 48.93 per cent. This demonstrates the great
progress made by States this year.
Four of the seven states with the lowest income levels in India have found a place in the top ten
ranks. These states include Chhattisgarh (fourth rank), Madhya Pradesh (fifth), Jharkhand
(seventh) and Rajasthan (eighth).
 The top ten ranks in 2016 included Andhra Pradesh & Telengana (98.78 per cent each
implementation rate), followed by Gujarat (98.21 per cent), Chhattisgarh (97.32 per cent),
Madhya Pradesh (97.01 per cent), Haryana (96.95 per cent), Jharkhand (96.57 per cent), Rajasthan
(96.43 per cent), Uttarakhand (96.13 per cent) and Maharashtra (92.86 per cent).
The categorisation of states according to implementation percentage:

1. The Leaders Category: These states have an implementation percentage of 90-

 100 percent, include the top ten ranked states and Odisha and Punjab (91.07 percent).
2. The Aspiring Leaders: They have an implementation rate of 70-90 percent and include Karnataka,
Uttar Pradesh, West Bengal and Bihar.
3. The “acceleration required” category: This category includes Himachal Pradesh, Tamil Nadu and
Delhi with an implementation rate between 40 to 70%.
4. The ‘jump start needed” category: This is the category with an implementation percentage of 0-40
percent and include Kerala, Goa, Tripura, Daman and Diu, Assam, Dadra and Nagar Haveli,
Puducherry, Nagaland, Manipur, Mizoram, Sikkim, Arunachal Pradesh, Jammu and Kashmir,
Chandigarh, Meghalaya , Andaman and Nicobar Islands, and Lakshadweep.

About State ease of doing business index:

In 2014, the Prime Minister of India requested the World Bank Group to support India’s efforts to
enhance India’s competitiveness and increase manufactured exports.
Taking cue from World Bank’s “Ease of doing business index”, DIPP then decided to start a similar
initiative to promote competitiveness among states. The DIPP hosted website for states to update
their performance on 340 pre- identified parameters on a real-time basis and prepared a report
card on the same.
The parameters are assessed by both World Bank and DIPP.
Stakeholders, including companies or individuals also gave feedback on the portal about the
improvements made by states on each of those parameters. Digitised land records at local
municipality offices, land banks' availability for industrial use, time taken in giving power
connections to manufacturing units, hours of power supply, and the provision for e-filing for
commercial disputes at district courts were a few parameters among the 340 identified.
The DIPP hopes the entire effort will help India's investment climate and improve its ranking in the
World Bank's report.
There is a healthy competition among States on ease of doing business. This exercise is an important
aspect in the government's agenda to transform India.
Core sector growth at 5% in September

Details : The
News:

India’s core sectors grew by 5 per cent overall in September.

The growth in the Index of Eight Core Industries in September was much stronger than the 3.2 per
cent growth seen in August.
The growth is driven mainly by strong growth in the steel and petroleum products sectors.
The steel and cement sectors are the two major ones linked with infrastructure. So, the growth seen
in these two sectors can be linked to the government push in roads and railways.
The overall energy component of the Index of Eight Core Industries represented by the coal, crude
oil, and natural gas sectors has contracted in September.

About Index of Eight Core Industries:

The Eight Core Industries are Electricity, steel, refinery products, crude oil, coal, cement, natural gas
and fertilisers.
The compilation of monthly Index of Eight Core Industries (base: 2004-05) is done and released by
Office of Economic Advisor, DIPP, Ministry of Commerce and Industry.
The Eight Core Industries comprise nearly 38% of the weight of items included in the Index of
Industrial Production (IIP) which is released by Central Statistical Office.
The combined Index of Eight Core Industries stands at 176.1 in September, 2016, which was 5.0 %
higher compared to the index of September, 2015. Its cumulative growth during April to
September, 2016-17 was 4.6 %.

1. Coal: Coal production (weight: 4.38 %) declined by 5.8 % in September, 2016 over September,
2015. The contracted coal production partially reflects the oversupply in the markets and is likely
to remain lackluster in the coming months.
2. Crude Oil: Crude Oil production (weight: 5.22 %) declined by 4.1 % in September, 2016 over
September, 2015. The price of crude oil is internationally low, and if the cost of production is
higher than this, then it makes sense for domestic producers to not produce crude at this
time.
3. Natural Gas: The Natural Gas production (weight: 1.71 %) declined by 5.5 % in September, 2016
over September, 2015.
4. Refinery Products: Petroleum Refinery production (weight: 5.94%) increased by 9.3 % in
September, 2016 over September, 2015.
5. Fertilizers: Fertilizer production (weight: 1.25%) increased by 2.0 % in September, 2016
 over September, 2015.
6. Steel (Alloy + Non-Alloy): Steel production (weight: 6.68%) increased by
 16.3 % in September, 2016 over September, 2015. With steel, earlier there was dumping by China that
was affecting the sector. But the minimum import price (MIP) has helped to achieve double digits
growth.
7. Cement: Cement production (weight: 2.41%) increased by 5.5 % in September, 2016
over September, 2015.
8. Electricity: Electricity generation (weight: 10.32%) increased by 2.2 % in September, 2016
over September, 2015.

Related Questions:

Question: In India, in the overall Index of Industrial Production, the Indices of Eight Core Industries have
a combined weight of 37-90%. Which of the following are among those Eight Core Industries? (UPSC,
Prelims 2012)

1. Cement

2. Fertilizers

3. Natural gas

4. Refinery products

5. Textiles

Select the correct answer using the codes given below :

(a) 1 and 5 only

(b) 2, 3 and 4 only

(c) 1, 2, 3 and 4 only (d)

1, 2, 3, 4 and 5 Solution:
(c)

Question: In the Index of Eight Core Industries, which one of the following is given the highest weight?
(UPSC Prelims, 2015)

(a) Coal Production

(b) Electricity generation

(c) Fertilizer Production

(d) Steel Production

Solution: (b)
 OCTOBER, 2016

Oct. 29, 2016

India must ready itself to implement TFA

Details :

What is the news?

The views were expressed by the chairman of the National Committee on Trade Facilitation (NCTF),
during its first meeting. The NCTF is a mandatory requirement under the WTO Agreement on
Trade Facilitation.
There is a need for the trade ecosystem to increasingly become growth- oriented.
India must prepare itself to implement the commitments under the Trade Facilitation Agreement
(TFA).
The significant areas of the TFA are: simplification of procedures, reduction in time and cost,
augmentation of infrastructure and greater use of technology.

Trade facilitation

Traders from both developing and developed countries have long pointed to the vast amount of “red
tape” that still exists in moving goods across borders, and which poses a particular burden on small
and medium-sized enterprises.
In December 2013, WTO members concluded negotiations on a Trade Facilitation Agreement at
the Bali Ministerial Conference, as part of a wider “Bali Package”.
The Trade Facilitation Agreement will enter into force once two-thirds of members have
completed their domestic ratification process.
The TFA was the first Agreement concluded at the WTO by all of its Members.

Provisions:

The Trade Facilitation Agreement contains provisions for expediting the movement, release and
clearance of goods, including goods in transit.
It also sets out measures for effective cooperation between customs and other appropriate
authorities on trade facilitation and customs compliance issues.
It further contains provisions for technical assistance and capacity building in this area.
The Agreement will help improve transparency, increase possibilities to participate in global value
 chains, and reduce the scope for corruption.

Trade Facilitation Agreement Facility:

The WTO Trade Facilitation Agreement Facility (TFAF or the Facility) was created at the request of
developing and least-developed country (LDC) Members to help ensure that they receive the assistance
they need to reap the full benefits of the Trade Facilitation Agreement and to support the ultimate goal of
full implementation
of this new Agreement by all Members.

India and TFA:

India has ratified Trade Facilitation Agreement of WTO and instrument of Acceptance for Trade
Facilitation Agreement was handed over to WTO in April, 2016.
India is 76th WTO member to accept TFA.
The objectives under TFA are in consonance with India’s “Ease of doing business” initiative.
India is looking forward to reap benefits from international trade.

Oct. 28, 2016

Hyderabad keeps business-friendly tag

Details :

What is the News?

Hyderabad has maintained its record in the ease of doing business by securing
 first place in two parameters — enforcing contracts and resolving insolvency — in the latest
report released by the World Bank.
The World Bank report measuring business regulations, has surveyed 17 cities across the country in
terms of starting a business, dealing with construction permits, registering property, paying taxes,
trading across borders, enforcing contracts and resolving insolvency.
The City of Pearls was ranked number two, next to Ludhiana, in terms of overall ease of doing
business.

India’s ranking in the World Bank’s annual Doing Business survey:

India moved up only one position in the IFC ease of doing business rankings. The Doing Business
2017 report showed that India was placed 130th among 190 countries
Out of 10 parameters, India’s ranking this year improved in two, remained unchanged in three and
worsened in five.
The government was expecting at least a 10-spot jump on the back of several ease of doing
business measures taken in the past two years.

Our Report Card:

This is the first time India’s absolute score, that measures the gap between India and the global
best practice, has improved for two consecutive years—to
55.27 in 2017 from 53.93 last year. Additionally, India’s distance to frontier score improved on 6
out of 10 indicators, showing India is increasingly progressing towards best practice.
India made the sharpest jump in “getting electricity”, with its rank jumping 44 spots to 26.
India made getting electricity faster and cheaper by streamlining the process of getting a new
commercial electricity connection.
India’s rank also improved in the “enforcing contracts” parameter by 6 spots to 172.
India made enforcing contracts easier by creating dedicated divisions to resolve commercial cases.
Though India’s ranking in “paying taxes” deteriorated by 15 spots to 172, the World Bank said India
made paying taxes easier by introducing an electronic system for paying employee state insurance
contributions.
India’s ranking in “trading across borders” also fell by 10 spots to 143 though the World Bank
recognized India’s reforms in making imports and exports easier through the launch of the
ICEGATE portal and simplifying border and documentary procedures.
India moved up nine spots in the criteria of starting a business to 155 in 2016 from 164 last year
and its ranking for dealing with construction permits also moved up one spot to 183.

In segments such as protecting minority investors, registering property, trading across borders,
enforcing contracts and resolving insolvency, India’s rankings remained the same as last year.
However, in the area of protecting minority interests of shareholders, India is ranked at eight, its best
ranking across all parameters.
The government has announced its plans to resolve insolvency issues and enforcing contracts
through legislations such as the bankruptcy law and public contracts dispute resolution bill—
areas where it is languishing in the overall Ease of Doing Business rankings.
What Next?

The World Bank has not recognized as many as 12 reform measures carried out by the
government.
Government of India says it will continue its engagement with the World Bank and address their
concerns to include these reforms in next year’s doing business report.
Also once the government implements the Insolvency and Bankruptcy Code by the year end and
the goods and services tax (GST) comes into force by April next year, India’s ranking will
significantly improve.
World Bank has said taht the experience of implementing reforms based on doing business data
has demonstrated to the government the significance of establishing clear stakeholder feedback
mechanisms to close the gaps between policy formulation and implementation
It, however, recognized reforms by India in four areas: getting electricity, enforcing contracts,
paying taxes and trading across borders.
The World Bank, does not take into account government notifications of reforms, basing the
rankings instead on field surveys and interviews with corporate lawyers and company executives.
Therefore the government will soon appoint an external agency and launch a portal for round-the-
clock feedback from users on the policy steps launched by the government.

Oct. 27, 2016

Govt notifies revised DTAA with South Korea

Details :

Why in news?

The government notified a new Double Taxation Avoidance Agreement (DTAA) between India and South
Korea, which was signed by Prime Minister Narendra Modi during his visit to Seoul in May 2015.

What is DTAA?

A DTAA is a tax treaty signed between two or more countries.

Its key objective is that tax-payers in these countries can avoid being taxed twice for the same
income. For example, your relative working in US doesn't have to pay taxes both in US and India.
DTAAs are intended to make a country an attractive investment destination by providing relief on dual
taxation.
DTAAs also provide for concessional rates of tax in some cases.
A DTAA applies in cases where a tax-payer resides in one country and earns income in another.
If he is taxed in the country where he earns, it is called source based taxation. If he is taxed in the
country where he resides, it is residence based taxation.
DTAAs can either be comprehensive to cover all sources of income or be limited to certain areas
such as taxing of income from shipping, air transport,
 inheritance, etc.
India has DTAAs with more than eighty countries, of which comprehensive agreements include
those with Australia, Canada, Germany, Mauritius, Singapore, UAE, the UK and US.

Capital Gains:

A capital gain is a profit that results from a sale of a capital asset, such as stock, bond or real
estate, where the sale price exceeds the purchase price. The gain is the difference between a
higher selling price and a lower purchase price.
The gains are subject to taxation.

Pros and Cons of DTAA on capital gains :

Pro: Favourable tax treatment for capital gains under certain DTAAs (such as the one with Mauritius)
have encouraged a lot of foreign investment into India. Mauritius accounted for $94billion or one-third
of the total FDI flows into India between April 2000 and December 2015. It has also remained a favoured
route for foreign investors.

Con: DTAAs can become an incentive for even legitimate investors to route investments through low-tax
countries to sidestep taxation. This leads to loss of tax revenue for the countries like India with higher tax
rates.

Explanation: For example, even Indian companies set up a subsidiary in Mauritius or other countries
which have low tax rates. They then make new investments in India through Mauritius based subsidiary.
This way, using DTAA, they avoid paying taxes in India (as tax rates here are high) and pay in Mauritius
(where taxes are very low). Similarly, many companies/indivuduals are getting away without paying taxes
in India though they are making huge profits from businesses in India. India is now reworking DTAAs with
all countries to make sure that such unethical practices are put to an end.

News Summary:

India has revised the DTAA agreement with South Korea.

The revised DTAA provides for source based taxation of capital gains on shares (on selling of shares
of value more than 5 per cent of value of all shares). The existing DTAA provided for residence
based taxation of capital gains on shares. This means, if a korean based individual or firm makes
capital gains through shares in Indian companies, they will be taxed in India.
The revised DTAA also provides for exclusive residence based taxation of shipping income from
international traffic.
The revised DTAA allows both countries to apply for Mutual Agreement Procedure (MAP) in
transfer pricing disputes as well as apply for bilateral Advance Pricing Agreements (APA).
MAP is a mechanism laid down in tax treaties to ensure that taxation is in accordance with the tax
treaty.
 In bilateral APAs, the governments of both sides are involved along with companies concerned.

Conclusion:

The revised DTAA provides tax certainty to the residents of India and Korea. The revised DTAA
aims to avoid the burden of double taxation for taxpayers of two countries in order to promote
and stimulate flow of investment, technology and services between India and Korea.

Oct. 26, 2016

India up one position in WB ease of business ranking

Details :

What is the news?

India has been ranked 130 in the 2016 report and was placed at 131 according to the revised
rankings for last year. Thus reflecting a marginal improvement. India could not improve its ranking
better despite reform measures that have been lauded in the report because other countries
around it in the ranking list also did well last year.
Official at the WB praised the government for the reforms it undertook last year and noted that India
had made a noticeable improvement in the distance to frontier (DTF) score - an absolute measure of
progress towards best practices.
Ranking is relative but DTF score is an absolute figure and India has improved from 53.93 to 55.27
this year, while the perfect score is 100. New Zealand that is ranked first has a DTF score of 87.01.
Four reform measures undertaken by India during the year helped the country improve its DTF score.
These are:

1. Getting electricity: India made getting electricity faster and cheaper by streamlining the process
of getting a new commercial electricity connection. This reform impacts Delhi.
2. Paying taxes: It became easier after the introduction of an electronic system for paying employee
state insurance contributions.
3. Exporting and importing: It is easier because of the introduction of ICEGATE portal and
simplification of border and documentary procedures.
4. Enforcing contracts: India made enforcing contracts easier by creating dedicated
divisions to resolve commercial cases.
Reform growth

According to report the Government has embarked on a fast-paced reform path.

It scored well on protecting minority investors.
 India is one of only six economies in the world that earn the highest possible score on the extent
of shareholder rights index, which measures shareholders’ rights in corporate governance.
The overhaul of the Companies Act has brought Indian “companies in line with global standards,
particularly regarding accountability and corporate governance practices.

About Ease of Doing Business Index:

Word Bank releases Doing Business reports and it review business regulations and their
enforcement across countries.
It was introduced in 2004.
A high ease of doing business ranking means the regulatory environment is more conducive to the
starting and operation of a local firm.
The rankings are determined by sorting the aggregate distance to frontier scores on 10 topics,
each consisting of several indicators, giving equal weight to each topic. These are:

1. Starting a business – Procedures, time, cost and minimum capital to open a new business
2. Dealing with construction permits – Procedures, time and cost to build a warehouse
3. Getting electricity – procedures, time and cost required for a business to obtain a permanent
electricity connection for a newly constructed warehouse
4. Registering property – Procedures, time and cost to register commercial real estate
5. Getting credit – Strength of legal rights index, depth of credit information index
6. Protecting investors – Indices on the extent of disclosure, extent of director liability and ease
of shareholder suits
7. Paying taxes – Number of taxes paid, hours per year spent preparing tax returns and total
tax payable as share of gross profit
8. Trading across borders – Number of documents, cost and time necessary to export and import
9. Enforcing contracts – Procedures, time and cost to enforce a debt contract
10. Resolving insolvency – The time, cost and recovery rate (%) under bankruptcy proceeding

Distance to Frontier:

It measures the distance of each economy to the “frontier,” which represents the best
performance observed on each of the indicators across all economies in the Doing Business
sample since 2005
One can both see the gap between a particular economy’s performance and the best performance at
any point in time and assess the absolute change in the economy’s regulatory environment over time
as measured by Doing Business.
An economy’s distance to frontier is reflected on a scale from 0 to 100, where 0 represents the
lowest performance and 100 represents the frontier. For example, a score of 75 in 2016 means an
economy was 25 percentage points away from the frontier constructed from the best
performances across all economies and across time.
Related Question:

UPSC Prelims, 2016:

Question: India’s ranking in the ‘Ease of Doing Business Index’ is sometimes seen in the news. Which of
the following has declared that ranking?

(a) Organization for Economic Cooperation and Development (OECD)

(b) World Economic Forum

(c) World Bank

(d) World Trade Organization (WTO)

Answer: C

Workplace gender gaps persist: WEF

Details :

Why in news?

According to World Economic Forum (WEF), the gender gap in India has narrowed down over the
past year.
India has climbed 21 spots to rank 87th and was ranked 108th in 2015.
The improvement in ranking is driven largely by major improvements in education where it has
managed to close its gap entirely in primary and secondary education.
With this jump in ranking, India has now overtaken China which is ranked 99th out of 144 countries.
Iceland tops the latest rankings followed by Finland, Norway and Sweden. Within South Asia,
Bangladesh is the top performer (ranked 72nd), recording progress on the political empowerment
gender gap.
Indian scenario:
India’s women rank highly on political empowerment (9th in the world).
India is closing the gap on wage equality and across all indicators of the educational attainment sub-
index- fully closing its primary and secondary education enrolment gender gaps.
India remains one of the worst countries in the world for women in terms of labour force
participation, income levels as well as health and survival.
India continues to rank third-lowest in the world on Health and Survival, remaining the world’s
least-improved country on this sub-index over the past decade.
About Global Gender Report:

The Global Gender Gap Index is an index designed to measure gender equality.
 The Global Gender Gap Report was first published in 2006 by the World Economic Forum.
The 2014 report covers 144 major and emerging economies.
The report examines four overall areas of inequality between men and women:

1. Economic participation and opportunity – outcomes on salaries, participation levels and access to
high-skilled employment
2. Educational attainment – outcomes on access to basic and higher level education
3. Political empowerment – outcomes on representation in decision-making
structures
4. Health and survival – outcomes on life expectancy and sex ratio.

Bankruptcy Code may take effect by December

Details :

Why in news?

The Centre is expecting the Insolvency and Bankruptcy Code 2016 to become operational by the end
of December.
It is the responsibility of both government and industry bodies and every category of professionals
to develop information utilities, to develop insolvency professionals and take the implementation
of this law forward.
The bankruptcy law brings more clarity, providing a comprehensive and dynamic legal framework
for the resolution of insolvencies, which in turn will make it easier to do business.
The bankruptcy code will facilitate smoother, time-bound settlement of insolvency, enable faster
turnaround of businesses and create a database of serial defaulters.
The law on bankruptcy envisages creating an ecosystem, including insolvency professionals,
information utilities and a bankruptcy regulator.
The insolvency and bankruptcy law is overarching in nature, covering individuals, companies,
limited liability partnerships and partnership firms, and will also deal with corporate insolvency.
The Insolvency and Bankruptcy Code:

The Insolvency and Bankruptcy Code was passed by Lok Sabha in May 2016. The Code creates a
framework for resolving insolvency in India. Insolvency is a situation where an individual or a
company is unable to repay their outstanding debt.
The Code repeals the Presidency Towns Insolvency Act, 1909 and Provincial Insolvency Act, 1920.

Highlights:

The Code will apply to companies, partnerships, limited liability partnerships, individuals and any
other body specified by the central government.
The Code creates time-bound processes for insolvency resolution of companies and individuals.
These processes will be completed within 180 days. If insolvency cannot be resolved, the assets of
the borrowers may be sold to repay creditors.
The resolution processes will be conducted by licensed insolvency professionals (IPs). These IPs will
be members of insolvency professional agencies (IPAs).
The National Company Law Tribunal (NCLT) will adjudicate insolvency resolution for companies.
 The Debt Recovery Tribunal (DRT) will adjudicate insolvency resolution for individuals.

Information utilities (IUs) will be established to collect, collate and disseminate financial information
to facilitate insolvency resolution.<o:p></o:p>

The Insolvency and Bankruptcy Board of India will be set up to regulate functioning of IPs, IPAs
and IUs.

Key Issues and Analysis

Time-bound insolvency resolution will require establishment of several new entities. Also, given
the pendency and disposal rate of DRTs, their current capacity may be inadequate to take up the
additional role.
The Code provides an order of priority to distribute assets during liquidation. It is unclear why:

1. Secured creditors will receive their entire outstanding amount, rather than up to their collateral
value
2. Unsecured creditors have priority over trade creditors
3. Government dues will be repaid after unsecured creditors.

The Code provides for the creation of multiple IUs. However, it does not specify that full
information about a company will be accessible through a single query from any IU. This may lead
to financial information being scattered across these IUs.
The Code creates an Insolvency and Bankruptcy Fund. However, it does not specify the manner in
which the Fund will be used.
Oct. 24, 2016

World Bank must aid countries to manage shift away from coal

Details :

(These are the views of Mr. Benjamin Sporton, World Coal Association Chief Executive.)

The World Bank and other development lenders like the Asian Development Bank must help
countries such as India to finance the shift of their coal production to more efficient technologies
so they can meet their COP21 commitments.
India’s push towards renewable energy, while lowering the share of coal in the overall energy mix,
does not mean that coal is going to be done away with.
Between now and 2040, electricity supply will triple, coal will almost double and non-hyrdo
renewables will see a 10-times increase.
By not financing coal projects, the World Bank is actually pushing countries to use inefficient
technologies leading to higher emissions.
In some countries where, because the World Bank does not invest in coal and so does not invest
in super critical and ultra super critical plants, these countries invested in sub-critical plants which
have much higher CO2 and particulate matter emissions.
Super critical and ultra super critical (USC) plants (USC) substantially reduce carbon dioxide
emissions and virtually eliminate particulate matter emissions and India must invest in them
despite their higher cost.

About World Bank:

World Bank was established in 1944 following international ratification of the Bretton Woods
agreements, which emerged from the United Nations Monetary and Financial Conference.
The World Bank Group is headquartered in Washington, D.C. Membership: 189
countries.
The World Bank is a vital source of financial and technical assistance to developing countries
around the world.
It is not a bank in the ordinary sense but a unique partnership to reduce poverty and support
development.
The World Bank Group has set two goals for the world to achieve by 2030:

• End extreme poverty by decreasing the percentage of people living on less than
$1.90 a day to no more than 3%

• Promote shared prosperity by fostering the income growth of the bottom 40% for every country.

The World Bank and World Bank Group :

Together, IBRD and IDA make up the World Bank and the 5 institutions together are known as World Bank
Group.
• The International Bank for Reconstruction and Development

- The International Bank for Reconstruction and Development (IBRD) lends to governments of
middle-income and credit worthy low-income countries.

• The International Development Association

- The International Development Association (IDA) provides interest-free loans called “credits and grants”
to governments of the poorest countries.

• The International Finance Corporation

- The International Finance Corporation (IFC) is the largest global development institution focused
exclusively on the private sector.

- It helps developing countries achieve sustainable growth by financing investment, mobilizing capital in
international financial markets, and providing advisory services to businesses and governments.

- The Rupee dominated Masala Bonds were floated by IFC.

The Multilateral Investment Guarantee Agency

- The Multilateral Investment Guarantee Agency (MIGA) was created in 1988 to promote foreign direct
investment into developing countries to support economic growth, reduce poverty, and improve
people’s lives.

-MIGA fulfills this mandate by offering political risk insurance (guarantees) to investors and lenders.

• The International Centre for Settlement of Investment Disputes

- The International Centre for Settlement of Investment Disputes (ICSID) provides international
facilities for conciliation and arbitration of investment disputes.

- India is not a member of this group.

Related questions: UPSC

prelims, 2015:
Question: Which one of the following issues the ‘Global Economic Prospects’ report periodically?
(a) The Asian Development Bank
(b) The European Bank for Reconstruction and Development

(c) The US Federal Reserve Bank

(d) The World Bank

Answer: (d) The World Bank

UPSC Prelims, 2016:

Question: India’s ranking in the ‘Ease of Doing Business Index’ is sometimes seen in the news. Which of
the following has declared that ranking?

(a) Organization for Economic Cooperation and Development (OECD)

(b) World Economic Forum

(c) World Bank

(d) World Trade Organization (WTO)

Answer: C

Question: 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 and are a source of debt financing for the public and private
sector.

Select the correct answer using the code given below.

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

Answer: C
Oct. 23, 2016

Full convertibility on capital account unlikely for few years

Details :

What is the News?

India is not looking at full Capital Account Convertibility for the next few years, a senior finance
ministry official said.
Capital controls are used by the state to protect the economy from potential shocks caused by
unpredictable capital flows.
Capital account convertibility means the freedom to convert a currency for capital
transactions and the rupee is not fully convertible on that front yet, though capital flows have
been liberalised in recent years.

What is Capital Account Convertibility ?

Capital Account Convertibility means that the currency of a country can be converted into foreign
exchange without any controls or restrictions.
In other words, Indians can convert their Rupees into Dollars or Euros and Vice Versa without any
restrictions placed on them.
The reason why it is called capital account convertibility is that the conversion of domestic
currencies into foreign currencies is allowed in the capital account and not only the current
account.
Capital account refers to expenditures and investments in hard assets, physical premises, and
factories as well as investments in land and other capital- intensive items.
Current account on the other hand, refers to investments that are short term in duration and hence,
they fall under the current account head.

What are Partially and Fully Convertible Currencies?

Partially convertible currencies are those where the currency can be converted in the current
account.
This means that investors can invest in stock markets and bond markets of the target countries with
an option to repatriate their holdings.
Further, ordinary citizens can convert their domestic currencies to dollars for expenses like going
abroad for work, tourism, and education.
On the other hand, capital account convertibility or fully convertible currencies are those where
just about anybody can convert the local currency for foreign currency without any questions or
restrictions placed on such conversions.
The key aspect here is that many countries do not allow their currencies to be fully convertible if
they do not hold significant foreign exchange reserves.
This is also the reason why capital controls are imposed in times of economic crises to prevent a
 capital flight from these countries.
Many Asian countries have learnt from the bitter experience of the Asian financial crisis of 1997
and the Russian Default of 1998 where full convertibility lead to a stampede of foreign investors
fleeing the countries in the aftermath of the economic crisis.

Jute industry seeks continued protection

Details :

Why in news?

In a meeting with Union Textile Minister Smriti Irani , the jute industry stressed on the importance
of continuation of the protection extended through the mandatory jute packaging requirements
(as per JPM Act).
Jute industry’s over dependence on one product (jute sackings like gunny bags) and a single-customer
(government) was also discussed.

What is JPM Act?

Under the Jute Packaging Materials (Compulsory use in Packing Commodities) Act, 1987 (JPM Act),
the government is required to consider and provide for the compulsory use of jute packaging
material in the supply and distribution of certain commodities in the interest of production of raw
jute and jute packaging material and of persons engaged in the production.
Originally 100% of sugar and food grains along with large portion of cement and fertilizers were to be
in jute packaging as per rules issued under this act.
Jute Packaging Materials Act , 1987 was only meant as a support to the industry while the industry
develops to be independent of government.
However, due to the protections provided by the government under this act, the jute industry
has stagnated and hasn't tried to develop and diversify their production line to high-value
products to cater to the needs of new customers and markets.

Some facts:

Raw jute is produced mainly in the state of West Bengal, Bihar, Assam, Orissa, Andhra Pradesh,
Tripura and Meghalaya.
India is the major producer of jute products in the world (about 70% of estimated world
production) primarily due to its large domestic market (due to JPMA).
Average domestic consumption out of total production has been close to 90%. One product - Jute
sackings - alone makes up 74% of production by the jute industry.

Modifications to norms under the act:

Over the years, the Act has undergone substantial dilution.

The fertiliser and cement sectors, that were originally mandated to use jute packaging, have been
totally exempted.
There has been relaxation in case of sugar and foodgrains as well. As against 100 per cent norm
previously, presently only 20 per cent of the sugar output and 90 per cent of foodgrains are
required to be packed in B-Twill sacking (Jute gunny bags).
Commission for Agricultural Costs & Prices (CACP):

The commission, which advices the government on Minimum Support Price (MSP) and on issues
related to agricultural produce, has recommended complete exemption to sugar for packaging in
jute bags.
The Commission has also recommended reduction in compulsory packaging of food grains from 90
per cent presently to 75 per cent.

What do sugar mills say?

They have been demanding exemption of sugar from JPMA. They say that jute bag packaging pushes up
the sugar price roughly by 54 paise per kg, the packaging causes deterioration of quality.

What does the jute industry say?

The jute industry says that any dilution in packaging requirements would be detrimental for the
industry as a whole and jute farmers will also be affected. Jute industry employs 3.7 lakh workers
in jute mills and ancillary units and also supports the livelihood of around 40 lakh farm families. In
addition, there are many people engaged in the trade of jute.

Conclusion:

It is necessary to produce and market different Jute Diversified Products (JDPs) such as Jute shopping
bags, Jute floor coverings, Jute based home furnishings & wall coverings, Jute based handicrafts etc.
The promotion of diversification will help in making the jute industry less dependent on state
support.
It will also ensure that the industry becomes competitive and self-sustaining so that the
opportunities in the global and domestic markets are tapped successfully.

Oct. 21, 2016

Discom losses may fall to 28 paise per unit by fiscal 2019

Details :

The aggregate loss of distribution companies (discoms) of the 15 states that have joined the Ujwal
Discom Assurance Yojna (UDAY) so far will more than
 halve to 28 paise per unit by fiscal 2019 compared with 64 paise in fiscal 2016, according to a report
by Crisil.
Under the UDAY scheme, state governments are to take over 75 per cent of their respective
discoms’ debt, and would issue bonds to pay the debt back.
The remaining 25 per cent would be financed by bonds issued by the discoms themselves,
guaranteed by the state government.

UDAY (Ujwal DISCOM Assurance Yojana)

UDAY provides for the financial turnaround and revival of Power Distribution companies (DISCOMs)
and importantly also ensures a sustainable permanent solution to the problem.
UDAY is a path breaking reform for affordable and accessible 24x7 Power for All.
UDAY is a shining example of the utilization of the best principles of cooperative and competitive
federalism.
Adopting UDAY is optional for States, but provides the fastest, most efficient and financially most
feasible way for providing 24X7 Power for All.
It will be operationalized through a tri-partite agreement amongst the Ministry of Power, State
Government and the DISCOM.
The states that have agreed to join the scheme are Andhra Pradesh, Rajasthan, Jharkhand, Madhya
Pradesh, Uttarakhand, Himachal Pradesh, Punjab, Jammu & Kashmir, Haryana, Gujarat, Chhattisgarh,
Uttar Pradesh, Bihar, Odisha, and Maharashtra.

Importance:

Financially stressed DISCOMs are not able to supply adequate power at affordable rates, which
hampers quality of life and overall economic growth and development.
Efforts towards 100% village electrification, 24X7 power supply and clean energy cannot be
achieved without performing DISCOMs.
Power outages also adversely affect national priorities like “Make in India” and “Digital India”.
In addition, default on bank loans by financially stressed DISCOMs has the potential to seriously
impact the banking sector and the economy at large.
UDAY assures the rise of vibrant and efficient DISCOMs through a permanent resolution of past as
well as potential future issues of the sector.
This is through four initiatives:

(i) Improving operational efficiencies of DISCOMs

(ii) Reduction of cost of power

(iii) Reduction in interest cost of DISCOMs

(iv) Enforcing financial discipline on DISCOMs through alignment with the State finances.
Salient Features of UDAY

States shall take over 75% of DISCOM debt as on 30 September 2015 over two years - 50% of
DISCOM debt shall be taken over in 2015-16 and 25% in 2016- 17.
Government of India will not include the debt taken over by the States as per the above scheme in
the calculation of fiscal deficit of respective States in the financial years 2015-16 and 2016-17.
States will issue non-SLR including SDL bonds in the market or directly to the respective banks /
Financial Institutions (FIs) holding the DISCOM debt to the appropriate extent.
DISCOM debt not taken over by the State shall be converted by the Banks / FIs into loans or bonds
with interest rate not more than the bank’s base rate plus 0.1%. Alternately, this debt may be fully or
partly issued by the DISCOM as State guaranteed DISCOM bonds at the prevailing market rates
which shall be equal to or less than bank base rate plus 0.1%.
States shall take over the future losses of DISCOMs in a graded manner and shall fund them as
follows:

2015- 2016- 2017- 2018- 2019-

Year 2020-21
16 17 18 19 20

Previous
Year’s 0% of 0% of 5% of 10% of 25% of
DISCOM the the the the the
l o s s to loss of loss of loss of loss of loss of 50% of
be taken 2014- 2015- 2016- 2017- 2018- the
over by 15 16 17 18 19 previous
State year loss

Oct. 20, 2016

China Q3 GDP grows 6.7 percent as expected as construction booms, debt rises

Details :
What is the News?

China recorded a steady GDP growth rate of 6.7 per cent in the third quarter of this year, thanks
to the real estate market and government-backed spending and lending that propped up the
world’s second-largest economy which witnessed continuous slowdown.
 The growth figure of 6.7 per cent remained within the government’s targeted range of GDP
growth between 6.5 and 7 per cent for 2016.
China’s GDP expanded 6.7 per cent year on year in the first three quarters of 2016 to reach 52.997
trillion yuan (USD 7.87 trillion).

Key implications on global growth:

First, and most obvious, continued deceleration of Chinese growth would have a much greater impact
on an otherwise weak global economy than would be the case if the world were growing at something
closer to its longer-term trend of
3.6 percent.
Excluding China, world GDP growth would be about 1.9 percent in 2016 - below the 2.5 percent
threshold commonly associated with global recessions.
Every decline in Chinese GDP growth of one percentage point knocks close to
0.2 percentage points directly off world GDP; including the spillover effects of foreign trade, the
total global growth impact would be around 0.3 percentage points.
Defining a Chinese hard landing as a halving of the current 6.7 percent growth rate, the combined
direct and indirect effects of such an outcome would consequently knock about one percentage point
off overall global growth.
In such a scenario, there is no way the world could avoid another full-blown recession.
China is the world’s second-largest economy and the second-biggest importer of both goods and
commercial services.
It also plays an key role as a buyer of oil and other commodities.
Its slowdown in growth has been a factor in the decline in prices of those goods.

Other Information:

Consider the most recent GDP numbers from China and India, China says its economy grew by a
respectable 6.7% in the first three months of 2016, while India reported a remarkable 7.9%
expansion in the same period.
Together, the countries account for 16% of world GDP, or about $13 trillion.

Oct. 19, 2016

Centre moots 4 GST slabs

Details :

What is the news?

The Centre has proposed a four-slab rate structure for the Goods & Services Tax, ranging from
zero to 26 per cent.
The structure proposes the GST at 0 per cent on a host of goods and services, including food, health
and education services, and at 26 per cent on luxury items, such as fast-moving consumer goods and
consumer durables.
On consumption of ultra-luxury items and demerit goods, such as big cars and tobacco products, it
proposes imposition of cess over and above a 26 per cent GST rate.
The GST is proposed to be levied at 6 per cent, 12 per cent or 18 per cent on the remaining
goods and services.
 This proposal singles out gold, for which it proposes a GST rate of 4 per cent. There will be no tax
on agricultural products so as not to impose additional burden on the common man.

The proposal retains only the Clean Environment Cess from the multitude currently in place, with the
GST subsuming all the others, including the Swachh Bharat Cess, the Krishi Kalayan Cess and the
Education Cess.
The Centre proposes to pay compensations to states at loss out of a fund to be created from the Cess
on top of the GST on ultra-luxury items and demerit goods it included in the structure.
The principle for determining the rate on each item being proposed is to levy and collect the GST at
the rate slab closest to the current tax incidence on it.
The Council will finalise the GST rates structure keeping in the mind the need to prevent inflation in
consumer prices and protecting the revenues of both the Centre and the States.
The base year for calculating the revenue of a State would be 2015-16.

GST Council:

As per Article 279A of the amended Constitution, the GST Council will be a joint forum of the Centre and
the States. This Council consist of the following members namely:

a) Union Finance Minister as Chairperson

b) The Union Minister of State, in-charge of Revenue of finance as Member

c) The Minister In-charge of finance or taxation or any other Minister nominated by each State
Government as Members.
The Council will make recommendations to the Union and the States on important issues related to GST
like:

The goods and services that may be subjected or exempted from GST. Model GST Laws
Principles that govern Place of Supply. Threshold
limits.
GST rates including the floor rates with bands.
Special rates for raising additional resources during natural
calamities/disasters.

PSUs, private firms on par in bankruptcy bill

Details :

What is the news?

A draft Financial Resolution and Deposit Insurance Bill 2016 has been proposed to address
insolvency issues in financial services companies.
As per some feedback, the draft bill would put public sector financial companies on par with
their private counterparts
Insolvency occurs when an individual or a firm is unable to meet their financial obligations, like paying
their bills or debts.
It is important to ensure that the failure of a financial firm is orderly, so that consumers are protected
and systemic stability and resilience are preserved. Resolution should be easier - It means clear
procedures on how those who gave credit to the company, which is now insolvent, can recover their
dues.
Present Status: It takes a very long procedure for the company to be declared bankrupt and for the
creditors (like banks) to recover their dues.

Under new law: Procedures will be clear and faster, covered under one law.

Present status: Resolution of bankrupt financial firms in India is based on various provisions which are
actually minor parts of laws made for other purposes. Thus, the resolution process has been ad-hoc.

Under new law: This is a proper legally codified framework specifically for bankruptcy resolution.

Present status: Under existing laws, resolution of public sector banks can only happen by order of the
government and in the manner it directs.

Under new law: They would be brought on an equal footing with other financial firms in terms of
resolution.

Note: This has just been proposed by government and in the early stages of news cycle. Students will get
more clarity with time.

Oct. 17, 2016

BRICS agrees to set up credit rating agency

Details :

What is the News?

Five-nation group BRICS has agreed to set up an independent rating agency based on market-
oriented principles
The BRICS countries have already set up New Development Bank, which became operational last
year.

Why BRICS need an Independent Rating Agency?

The BRICS countries have set up New Development Bank, which became operational last year, to meet
funding requirements of the members.
The concern of the BRICS group is because of the working of the rating market, currently controlled by
the Big Three – S&P, Fitch and Moody’s – all based in the US.
Despite having deep capital buffers of NDB these rating agencies are giving the negative rating
to NDB and also to the BRICS countries.
This has led the five-member grouping to pursue the idea of creating its own independent rating
agency, which was discussed during the two-day annual
 summit.
Earlier, the Exim Bank of India too had made a strong pitch for independent rating agency for the
BRICS nations, saying the way the present big three are going about their job reeks of conflict of
interest.
So BRICS leaders agreed to set up an independent rating agency based on market-oriented
principles, saying it would further strengthen global governance architecture.

About the New Development Bank (NDB):

NDB formerly referred to as the BRICS Development Bank, is a multilateral development bank
established by the BRICS states (Brazil, Russia, India, China and South Africa).
The idea for creation of the New Development Bank was first mooted in the Fourth BRICS Summit at
New Delhi on March 29, 2012 to meet the development funding requirements of the five founding
countries namely Brazil, Russia, India, China & South Africa (BRICS) and other emerging economies
and developing countries as well.
On July 15, 2014 at the sixth summit in Fortaleza, Brazil the member countries signed the Articles for
the New Development Bank with an Authorized Capital of USD 100 billion.
The founders established the Bank with a purpose of mobilizing resources for infrastructure and
sustainable development projects in BRICS and other emerging economies and developing
countries, complementing the existing efforts of multilateral and regional financial institutions for
global growth and development.
To fulfill its purpose, the Bank was envisaged to support public or private projects through loans,
guarantees, equity participation and other financial instruments.
It shall also cooperate with international organizations and other financial entities, and provide
technical assistance for projects to be supported by the Bank.
The first Board of Governors meeting of the Bank was held in Moscow, Russia on July 7, 2015
where the Bank formally came into existence as a legal entity. Mr. K.V. Kamath was elected the
first President of the Bank and the Vice- Presidents were appointed by the Governors.
The bank is headquartered in Shanghai, China.
The first regional office of the NDB will be opened in Johannesburg, South Africa.

Oct. 16, 2016

Centre to widen social security law dialogue

Details :

What is the News?

The Centre plans to widen consultations over a proposed social security code for workers, after a
series of labour law reform proposals ran into opposition from trade unions.
The labour ministry plans to hold several meetings with State governments to
 discuss the proposed law on social security for organised and unorganised workers beginning early
next month.
The labour ministry now plans a single law on social security for workers that may combine and
alter various laws such as the Employees’ Provident Fund & Miscellaneous Provision Act, 1952, the
Employees’ State Insurance Act, 1948, the Employees’ Compensation Act, 1921, the Payment of
Gratuity Act, 1972 and the Maternity Benefit Act, 1961.

Why Do We Need Social Security?

Social Security protects not just the subscriber but also his/her entire family by giving benefit packages
in financial security and health care.
Social Security schemes are designed to guarantee at least long-term sustenance to families when
the earning member retires, dies or suffers a disability.
Thus the main strength of the Social Security system is that it acts as a facilitator - it helps people
to plan their own future through insurance and assistance.
The success of Social Security schemes however requires the active support and involvement of
employees and employers.
A worker/employee, are a source of Social Security protection for himself and his family.

Workforce In India:

The estimated workforce of the country is 47.41 crore of which 82.7 per cent is in the unorganised
sector, as per the National Sample Survey Office (NSSO) survey result for 2011-12.
As per the NSSO survey for 2004-05, the total employment in both organised and unorganised
sector in the country was of the order of 45.9 crore out of which around 43.30 crore (94.34 per
cent) was in the unorganised sector.

Oct. 15, 2016

WPI inflation slows to 3.6 per cent

Details :

Wholesale price inflation eased marginally in September to 3.6 per cent from 3.7 per cent in August due to a
cooling off of food prices, data released by the Ministry of Commerce and Industry showed.

From examination point of view, You only need to know the basic Concept of WPI.

What is Wholesale Price Index (WPI)?

WPI measures the change in price level at wholesale market.

WPI – consists of 676 commodities (services are not included in WPI in India).
It is measured on year-on-year basis i.e., rate of change in price level in a given month vis a vis
corresponding month of last year.
This is also known as point to point inflation.
 This index is the most widely used inflation indicator in India.
This is published by the Office of Economic Adviser, Ministry of Commerce and Industry.
WPI captures price movements in a most comprehensive way.
The current series of Wholesale Price Index has 2004-05 as the base year. In India, there are
three main components in WPI – Primary Articles (weight:
20.12%), Fuel & Power (weight: 14.91%) and Manufactured Products (weight: 64.97).
Within WPI, Food commodities (from which Food Inflation) have a combined weight of 24.31%.
This includes “Food Articles” in the Primary Articles (14.34%) and “Food Products” in the
Manufactured Products category (9.97%).
Food Inflation is also calculated on year-on-year basis.

NITI Aayog reviewing CONCOR’s stake sale

Details :

What is the News?

Container Corporation of India Ltd. (CONCOR),is a Navratna Public sector undertaking under the Indian
Ministry of Railways.
CONCOR operates three businesses: cargo carrier, terminal operator and warehouse operator.
The logistics company, offering scheduled and on-demand rapid rail and road services between the
hinterland and ports and between terminals across the country, is the only listed company of Indian
Railways with a cash surplus of Rs.2,400 crore and zero debt on its balance sheet.
The Finance Ministry has returned a proposal of NITI Aayog for strategic disinvestment of the Centre’s
stake in Container Corporation of India Ltd (CONCOR).
According to ministry, the move could lead to a public sector monopoly becoming a private sector
monopoly.

What is Disinvestment?

Disinvestment can be defined as the action of an organisation (or government) selling or liquidating an
asset or subsidiary. It is also called as ‘divestment’ or ‘divestiture.’
It typically refers to sale from the government, partly or fully, of a government- owned enterprise.
A company or a government organisation will typically disinvest an asset either as a strategic move
for the company or for raising resources to meet general/specific needs.
Disinvestment also assumes significance due to the prevalence of an increasingly competitive
environment, which makes it difficult for many PSUs (Public Sector Undertakings) to operate
profitably.
The new economic policy initiated in July 1991 indicated that PSUs had shown a very negative rate
of return. Inefficient PSUs had become more of liabilities to the Government than being assets.
The Government adopted the 'Disinvestment Policy' which was identified as an
 active tool to reduce the burden of financing the PSUs.

Objectives of Disinvestment:

To reduce the financial burden on the Government To improve

public finances
To introduce, competition and market discipline To
encourage wider share of ownership
To depoliticize non-essential service

Difference between Disinvestment and privatization:

Privatization involves transforming the ownership of a public sector business to the private sector
known as a 'strategic buyer'. In privatization, full ownership is transferred to the strategic
partner.
In disinvestment, the same transformation process happens while retaining 26% or in some cases
51% percent of share right (i.e. the voting power) with the public sector organization.
In disinvestment 26% or 51% of share is retained with the government company and the
rest is transferred to the strategic partner. Here, the ownership is not transferred to
strategic buyer.

Oct. 14, 2016

Centre backs low GST rate, EU FTA to spur textiles jobs

Details :

India's Textile sector:

To boost job creation, the government will make the textile sector more competitive by pursuing a
lower Goods and Services Tax rate.
China is moving out of global markets due to increase in labour costs and higher domestic
demand.
It’s the right time for India to occupy the space, especially in countries where China was
exporting.
India is even willing to allow automobile and wine imports from the European Union in return for
market access for Indian textile.
One crore rupees investment in most sectors creates ten to twelve jobs, but in textiles it creates 100
 jobs.
There is a need to incentivise the sector for its job-generation potential, especially for women who
form 70-80 per cent of its workforce.
Textile sector also needs to focus on innovation, modernisation and technological advancement.

Other contenders:

Bangladesh, Vietnam, Kenya and Ethiopia is poised to overtake India on garment exports as they
have competitive advantage that arises due to these
 countries getting duty-free access to the EU and U.S. Indian products attract a
9.5 per cent duty in the EU.
The European Union lay huge importance to environmental compliances.
In this regard India stands to gain over Bangladesh and is expecting to make a better deal.

Free Trade Agreement:

It is treaty between two or more countries to establish free trade area where commerce in goods
and services can be conducted across their common borders without tariffs or hindrances.
The World Trade Organization (WTO) is the international body that helps negotiate and regulates
free trade agreements.

Advantages of Free Trade Agreements:

Free trade agreements are designed to increase trade between two countries, which has its advantages:

1.Increased economic growth. 2.More

dynamic business climate. 3.Lower
government spending.
4.Foreign direct investment. 5.Expertise.
6.Technology transfer.

Disadvantages of Free Trade Agreements:

1.Increased jobs outsourcing 2.Theft of

intellectual property. 3.Crowd out
domestic industries.

Oct. 13, 2016

Four PSBs may struggle to pay bond coupons

Details :

What is the News?

Four public sector banks that had reported heavy losses due to a surge in bad loans may struggle to
make coupon payments on their additional tier 1 (AT1) bonds.
Decline in profitability and increasing losses could wipe out the revenue reserves of some public
sector banks (PSBs) and affect their ability to pay coupon on Additional Tier 1 (AT1) bonds issued
under Basel III capital regulations.
 (Coupon is the annual interest paid on the face value of a bond. It is expressed as a percentage.)
Though government has committed capital support to PSBs, the coupon on AT1 bonds can only be
serviced through current year’s profit or from revenue reserves and hence any capital infusion by
government alone cannot help the banks to service coupon on these bonds.

Additional Tier 1 Bonds:

These are the hybrid bonds that combine debt and equity elements.
Its defining characteristic is that it may be converted into shares when certain conditions are met.
They are also called as contingent convertible capital instruments (CoCos). For example, when a
company runs into trouble, the owners lose their stake and the debt becomes equity, lenders
turns into owners. But in case of banks such negotiations are not possible. The coco bonds are
designed to anticipate that process and transform automatically from debt to equity.
These bonds have their roots in financial crisis when governments were forced to bail out banks.
Coupon payments can be cancelled on the request by issuer. AT1 or Cocos are
the riskiest debt issued by banks.
They do not have any set maturity date.

Oct. 12, 2016

Who will regulate pension products?

Details :

What is the News?

Pension Fund Regulatory and Development Authority (PFRDA) Chairman has recently said that the
government has set up a committee to look into a proposal to have all pension products under the
PFRDA.
Last year, PFRDA had said it would seek the government to regulate all pension, including those
issued by insurance companies as well as mutual fund houses.
At present pension products floated by fund houses and insurance companies are regulated by the
Securities and Exchange Board of India (Sebi) and the Insurance Regulatory and Development
Authority of India (Irdai), respectively.

Creating confusion:

While the Pension Fund Regulatory and Development Authority (PFRDA) was set up with the
intent of regulating all pension products, insurers and mutual funds continue to sell pension
products outside its watch, creating confusion among consumers.
The move to set up a panel was made after the issue was flagged at recent meetings of the Financial
Stability and Development Council chaired by Finance Minister.
Pension products floated by insurance companies come under the purview of the Insurance
Regulatory and Development Authority (IRDA) while those sold
 by mutual funds are overseen by the SEBI.
The committee to be formed by the Department of Financial Services, would have representatives
from all financial sector regulators — SEBI, IRDA, RBI and PFRDA.

About the Pension Fund Regulatory and Development Authority (PFRDA):

It is a pension regulatory authority which was established by Government of India on August 23,
2003.
PFRDA is authorized by Ministry of Finance, Department of Financial Services. PFRDA promotes
old age income security by establishing, developing and regulating pension funds and protects
the interests of subscribers to schemes of pension funds and related matters.

About the Financial Stability and Development Council:

It is an apex-level body constituted by the government of India.

The idea to create such a super regulatory body was first mooted by the Raghuram Rajan
Committee in 2008.
Finally in 2010, the then Finance Minister of India, Pranab Mukherjee, decided to set up such an
autonomous body dealing with macro prudential and financial regularities in the entire financial sector
of India.
The new body envisages to strengthen and institutionalise the mechanism of maintaining
financial stability, financial sector development, inter-regulatory coordination along with
monitoring macro-prudential regulation of economy. The Union Finance Minister of India is the
Chairperson of the Financial Stability and Development Council.

Question asked in UPSC Pre-2016.

Q. With reference to ‘Financial Stability and Development Council’, consider the following
statements:

1. It is an organ of NITI Aayog.

2. It is headed by the Union Finance Minister.

3. It monitors macro-prudential supervision of the economy.

Which of the statements given above is/are correct?

(a) 1 and 2 only

(b) 3 only

(c) 2 and 3 only

(d) 1, 2 and 3
Ans: (c)

Oct. 10, 2016

Treaty hurdle no bar for U.S. investments

Details :

U.S. companies are finding novel ways to address investment protection and dispute-related issues with
their Indian counterparts as talks remain in a limbo over a proposed Bilateral Investment Treaty (BIT). At
the board-level of a company, the first question that gets asked is about the dispute settlement
mechanism for protection of the company’s rights when it proposes investments worth billions of
dollars in India, and the BIT includes the way to solve the disputes. However, till date India and USA have not
signed the BIT.

What is Bilateral Investment Treaty (BIT)?

It provides appropriate protection to foreign investors in India and Indian investors in the foreign
country, in the light of relevant international precedents and practices, while maintaining a balance
between the investor's rights and the Government obligations.
A BIT increases the comfort level and boosts the confidence of investors by assuring a level playing
field and non-discrimination in all matters while providing for an independent forum for dispute
settlement by arbitration.
In turn, BITs help project India as a preferred foreign direct investment (FDI) destination as well as
protect outbound Indian FDI.

India's Bilateral Investment Treaty (BIT):

The first BIT was signed by India on March 14, 1994.

Since then, till date, the Government of India has signed BITs with 83 countries.
These BITs were largely negotiated on the basis of the Indian Model BIT of 1993.
Considerable socio-economic changes have taken place since 1993 when the Model text of BIT was
first approved.
The nature of government regulation concerning foreign investment has evolved.
A wide variety of laws now regulate investments both at the central and the state levels.
During the last few years, significant changes have occurred globally regarding BITs, in general,
and investor-state dispute resolution mechanism in particular. Therefore the Union government
on December 2015 has given its approval for the revised Model Text for the Indian Bilateral
Investment Treaty.
The essential features of Indian new BIT include an "enterprise" based definition of
investment
Non-discriminatory treatment through due process.
Also a refined Investor State Dispute Settlement (ISDS) provision requiring investors to exhaust
local remedies before commencing international arbitration.
And limiting the power of the tribunal to awarding monetary compensation alone.
India’s model BIT text requiring “that disputes be exhausted in local jurisdictions before
alternative investor-state dispute mechanisms can be initiated.” This is the main concern for USA.
Citing ‘judicial delays’ in India, investors from the developed world have been demanding flexibility in
India’s BITs that will allow them to take disputes to
 international arbitration tribunals without waiting to exhaust remedies available in India.

How the companies of India & USA address investment protection and dispute-related issues?

Though U.S. and India had held the first round of BIT negotiations in August 2009, talks have not
progressed much.
Companies are finding innovative ways to deal with dispute resolution, for instance, the Gujarat
International Finance Tec-City (GIFT City) – India’s first International Financial Services Centre
(IFSC) – has offered American investors the option of using the Singapore arbitration model to
solve disputes.
U.S. investors are also signing up with Indian firms to use London and Brussels as seats of
arbitration.
So, the absence of an India-US BIT is not an issue from an investor’s perspective.
Foreign direct investment from India in the U.S. in 2015 was $9.25 billion, while
U.S. investments in India were around $28.34 billion.

Oct. 9, 2016

Industries must present their cases soon

Details :

Why in news:

Commerce Minister Nirmala Sitharaman has asked the Industries hit by inverted duty structure or
dumping to present their concerns to the Ministries concerned.

Summary:

Duties on Imports: India, like all countries, imposes some duties (similar to taxes) on all imports like
customs and additional customs duties.
However, there are also many types of discounts on duties and exemptions on many different
imports.
Inverted Duty Structure: Because of such different types of duties, discounts and exemptions,
sometimes the duties on imports of final products are less than duties on imports of raw
materials to make those products.
For example, duties on import of processors, memory cards, hard disks is greater than import duty
on laptops and desktops. So, it becomes cheaper to import laptops than make them here. This
hurts competitiveness of Indian computer manufacturing and consequently growth and jobs.
FICCI, a forum of leading Indian industries, marked some sectors affected by Inverted duty structure
 like Electronics, cement, chemicals, paper, steel etc.

What is Dumping?

It refers to the dumping of manufactured goods by foreign countries at prices lower than what it
costs to make the products or lower than the price in its own market.
In such cases, the importing countries can impose anti-dumping duty on such
 imports.
For example, if making a TV in China costs 20000 and they sell the TV in China for 22000, but they
export and sell it in India for 21000, then it's called dumping. In such cases, India can impose anti-
dumping duty, like say 2000 rupees per import of each TV.
China has created great industrial production capacity over the last few decades, especially for
exports.
But world economy overall has slowed over last few years so the countries are importing less. So,
China now has over-capacity in production. To keep their factories running, China dumps its goods
on Indian market for very low prices, even taking small losses.
This is problem for India as cheap 'dumped' Chinese products will hurt manufactured items of India.
Recently, we have seen India imposing anti-dumping duty on import of steel from China.
So, industries affected by inverted duty structure and dumping should raise concerns with
ministries so that government can during the next budget change the import duty structure.
At a time, when India is looking to greatly grow its manufacturing sector, to create growth and
jobs, it is important to protect Indian manufacturing not only from dangerous policies of other
countries (like dumping), but also review our own flawed policies and duty structures. Government
and the industry must work together to achieve it.

Fighting OPEC only for the ‘brave’

Details :

The Organisation of Petroleum Exproting Countries is back in the business of influencing oil prices. OPEC
will nail down the details of Algiers deal where it was decided to cut down on output of petroleum as its
members have grown weary of a protracted supply battle with diminishing returns and dwindling
financial
reserves. There is uncertainty about OPEC’s pledge as it has always increased production wherever possible.

About OPEC:

It is intergovernmental organization of 14 countries, account for 73% of World’s proven oil resources.
Establishment: In 1960, at Baghdad.
Headquarters: Vienna
Member countries:

- Founding members- Iran, Iraq, Kuwait, Saudi Arabia, Venezuela.

- Other members- Algeria, Angola, Ecuador, Gabon, Indonesia, Libya, Nigeria, Qatar, United Arab
Emirates.

Mission: To coordinate and unify the petroleum policies of its member countries.
To ensure the stabilization of oil markets, in order to secure an efficient, economic and regular
supply of petroleum to consumers, a steady income to producers and a fair return on capital for
those investing in the petroleum
 industry.
The formation of OPEC marked a turning point toward national sovereignty over natural resources.
OPEC decisions have come to play a prominent role in the global oil market and international
relations.

2014-2016 Oil Glut:

During 2014-16,OPEC, members consistently breached the production ceiling. At the same time,
US (a non-OPEC Petroleum country) oil production nearly doubled owing to improvement in shale
fracking technology. This led to decline in US oil imports and it went on path towards energy
independence, resulting in collapse of oil prices.
In 2015, Iraqi production surged after years of disorder.
-Iranian output was poised to rebound with the lifting of international sanctions
-World leaders at the Paris Agreement committed to limit the use of fossil fuel. In light of all
these changes, OPEC decided to set aside its production ceiling.
In September,2016, OPEC countries met at Algeria and decided about cutting down the
production due to diminished returns.
If things go in line with, Algiers Deal will be finalized in November, 2016.

Oct. 8, 2016

Most Jan Dhan accounts have balance now: Jaitley

Details :

What is the news?

According to Finance Minister, Eighty percent of the new bank accounts created under the Jan Dhan
Yojana now have balance in them.
World Bank President lauded India’s the progress made by India in financial inclusion and said that is a
model that is inspiring for the rest of the world.

About Pradhan Mantri Jan Dhan Yojna:

Pradhan Mantri Jan-Dhan Yojana (PMJDY) envisages universal access to banking facilities with at least
one basic banking account for every household, financial literacy, access to credit, insurance and
pension.
PMJDY is different from the earlier financial inclusion programme (Swabhimaan) as it seeks to
 provide universal access to banking services across the country and focuses on coverage of all
households (both rural and urban) while the earlier Financial Inclusion Programme was limited to
provide access point to villages with population greater than 2000.

Special Benefits under PMJDY Scheme:

Interest on deposit.
Accidental insurance cover of Rs. 1lac. No
minimum balance required.
The scheme provides life cover of Rs. 30,000/- payable on death of the beneficiary.
 Easy Transfer of money across India
Beneficiaries of Government Schemes will get Direct Benefit Transfer in these accounts.
After satisfactory operation of the account for 6 months, an overdraft facility will be permitted
Access to Pension and insurance products.

Financial Inclusion in India:

Financial inclusion is the delivery of financial services at to vast sections of disadvantaged and low
income groups

Importance:

Inculcating the habit to save money – The habit can help lower income to come out of financial stress
by developing the habit to save money.
Easy availability of credit: Availability of adequate and transparent credit from banks will help the
poor to free themselves from clutches of moneylenders.
Plug leakages in subsidies: Government is pushing for DBT to ensure that the beneficiary gets its
due share. The physical supply of subsidies that meanders into black market will also get reduced
as there will be targeted approach and money will be transferred directly into the accounts.

Related Question, asked in UPSC prelims 2015

Q. Pradhan Mantri Jan Dhan Yojana has been 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 marginalised communities

Answer: C

Oct. 7, 2016

RBI panel moots easing bank branch norms

Details :
What is the news?

A panel set up by the Reserve Bank of India (RBI) has proposed to relax the requirements that a bank
branch has to follow, like a building, number of employees etc.
This is aimed at promoting financial inclusion.

Information:
 Financial Inclusion means including more and more people in the financial system, like access to
banks through bank accounts and loans so that they can also save and borrow from banks.
Government and RBI are always looking to promote financial inclusion.
One of the ways is to open up bank branches in areas where there are no traditional bank
branches (Un-banked rural centres), that is, typically far off rural and backward areas.
Problem is that such branches are usually loss-making operations and banks are reluctant.
The RBI had set up a panel to decide on what exactly qualifies as a bank branch.
The move is aimed to provide more flexibility to banks as new technology enables them to
provide most banking services even without a traditional branch.
For this, the RBI is focusing on the bank branch as a fixed outlet with regular timings, rather than all
the traditional infrastructure that needs to exist at a branch.

Panel recommendations:

Bank branches (including those manned by business correspondents) that provide minimum 4
hours of service for 5 days a week, should be allowed to be treated as a full-service branch.
Any other fixed point unit of the bank which can not work for 4 hours for 5 days a week would be
considered a ‘part-time banking outlet’
A part-time banking outlet opened in any centre will be counted in for computing requirement of
having 25 per cent branches in rural areas.
The move will significantly reduce costs for a bank while for opening branches in un-banked rural
centres.

Conclusion:

This will help financial inclusion by taking a more forward looking idea of bank as an outlet that
delivers services than an outlet with some fixed infrastructure.
Banks, even without traditional branches, can use the technology to offer services in areas that so
far had no access.

Payment Banks need RBI’s prior product approval

Details :

What is the news?

The Reserve Bank of India (RBI) said the entities that had been granted a payments bank (PB)
licence would need to take specific approval for the products they would be offering to
customers.
Banks do not need to take prior RBI approval to launch products.
The RBI may place suitable restrictions on the design, functioning, or other features of the product
or even discontinue if it feels that the product is not suitable for customers.
RBI move is in right direction as it is better to take prior approval rather than rolling it back after
offering to customers.
 RBI has also mandated that employee of Payment Bank should be available for sufficient duration at a
fixed location to attend customers and at least 25% of these access points should be in un-banked
rural areas.

Differentiated Banks:

This system of banks is different from universal banks as they are mandated to serve niche interests
and can offer limited products.
Payment banks and small banks are part of differentiated banking. The purpose of
these banks is to promote financial inclusion.
Nachiket Mor committee in 2014 recommended the establishment of such institutions.

Payments Banks:

Objective of payments banks is to increase financial inclusion by providing small savings accounts,
payment/remittance services to migrant labour, low income households, small businesses, other
unorganised sector entities and other users.
Those who can promote payments banks can be a commercial bank, non-bank PPIs (Prepaid
payment issuer), Non Banking Financial Companies, mobile telephone companies, super market
chains, real sector cooperatives companies and public sector entities.
Payments Banks can accept demand deposits (only current account and savings accounts).
No credit lending is allowed for Payments Banks.

Small Banks:

The purpose of the small banks will be to provide a whole suite of basic banking products such as
deposits and supply of credit, but in a limited area of operation.
The objective is to increase financial inclusion by provision of savings vehicles to under-served
and unserved sections, supply of credit to small farmers, micro and small industries and other
unorganised sector entities.
Resident individuals with 10 years of experience in banking and finance, companies and Societies
will be eligible as promoters to set up small banks. The banks would be subjected to all prudential
norms and RBI regulations including maintenance of CRR and SLR.
The area of operations would normally be restricted to contiguous districts so that the Small Bank
has a ‘local feel’ and culture.
The bank can accept deposits and lend to its customers.
Loans and advances of up to Rs 25 lakhs, primarily to micro enterprises, should constitute at least 50
per cent of the loan portfolio.
For the first three years, 25 per cent of branches should be in unbanked rural areas.

Question Asked in UPSC Pre-2016

Q. The establishment of ‘Payment Banks’ is being allowed in India to promote financial

inclusion. Which of the following statements is/are correct in this context?
1. Mobile telephone companies and supermarket chains that are owned and controlled by
residents are eligible to be promoters of Payment Banks.
2. Payment Banks can issue both credit cards and debit cards.

3. Payment Banks cannot undertake lending activities.

Select the correct answer using the code given below:

(a) 1 and 2 only

(b) 1 and 3 only

(c) 2 only

(d) 1, 2 and 3

Ans: (b)

India seeks greater pharma market access in Japan

Details :

What is the News?

Seeking greater market access for the Indian pharmaceuticals sector in the Japanese market,
Commerce Minister said that the share of India in the Japanese drug market continued to be
below par and limited mostly to active pharmaceutical ingredients (or APIs - raw materials for
drugs).
She said the demand for generic medicines in Japan and India’s capability to meet this demand
can prove a win-win for both countries.
Because India’s strength in pharma sector is well established.
This, coupled with the decision of Government of Japan towards attaining an 80 per cent share of
generic medicines by 2018, should provide an opportunity for the generic drug industry of India.
The Minister said Indian companies should use the India-Japan Comprehensive Economic Partnership
Agreement (CEPA) much more to boost exports to Japan.

Highlights of Comprehensive Economic Partnership Agreement (CEPA) between India and Japan:

CEPA would provide a framework for enhanced cooperation between the two countries and is aimed
to facilitate trade in goods and services and increase investment opportunities, besides protecting
intellectual property rights.
The Agreement has been implemented from 1 April 2011.
The CEPA aims to reduce or eliminate tariffs over next 10 years on over 90 per cent of goods
traded between the two countries
The Agreement inter alia provides ‘schedule for India’, a list detailing product wise plan for
reduction/ elimination of duties for imports into India and a similar ‘schedule for Japan’.
The quantum of duty reduction under CEPA will vary from product to product. Therefore, some
products see a complete elimination of duties on 1 April 2011 itself while others see a gradual
reduction over years.
Sensitive sectors for India and Japan are fully protected and will not see any tariff change.
Apart from concessional duties on products, the CEPA envisages measures for promoting services such
as financial services and telecommunication services
 between the two countries.
Further, to provide an encouragement to movement of people between the two countries, the
Agreement provides for facilitating easier temporary entry for various categories of persons.
However, recently the Commerce Minister of India voiced concern over India's trade deficit with
Japan which is increasing from $3.1 billion before the CEPA was inked in 2011 to $5.2 billion
thereafter. She said there was a need to address implementation issues of CEPA.

Bilateral Trade:

In the Financial Year(FY)2014-15, Japan-India trade reached $15.52 billion, showing decrease of
4.73% over FY2013-14, when the total bilateral trade was
$16.29 billion.
India's exports to Japan decrease by 20.96% as against the growth of 6.86% in its imports from
Japan in FY013-14.

Important Facts on Indian pharmaceuticals sector:

India is expected to rank amongst the top three pharmaceutical markets in terms of incremental
growth by 2020.
India’s generic drugs account for 20% of global exports in terms of volume, making the country the
largest provider of generic medicines globally.
India’s cost of production is significantly lower than that of the USA and almost half of that of
Europe.
USD 45 Billion in revenue by 2020, and can grow to USD 70 billion in a aggressive case scenario.
Total exports of Drugs, Pharmaceuticals for 2013-14 at USD 15,095 million, recording a growth rate
2.5% over the corresponding period of previous years.

Oct. 6, 2016

India needs to remove bottlenecks: Singapore PM

Details :

Recently the Singapore Prime Minister Lee Hsein Loong said that India is not as open for business as
investors hope, citing land acquisition, over-regulation and legal hassles among the biggest
bottlenecks. The Singapore Prime Minister’s words are significant as the city state is the biggest source
of foreign direct investment (FDI) into India. In the last financial year, it overtook Mauritius on FDI
inflows, accounting for US$13.7 Bn, which was more than one third of all FDI coming into India.

India-Singapore Trade:
 While India and Singapore have stepped up contacts as a part of the government’s “Look east, Act
east” policy, bilateral trade between India and Singapore has declined year on year, down 11.2%
in 2015-2016 to US $15 billion compared to 2014-2015, with Indian exports dropping 21.2% in a
year.

Why this decline?

 In May 2016, India renegotiated its double taxation avoidance agreement (DTAA) with Mauritius
to end “round-tripping” of black money from India, leading to speculation that the 2006 tax treaty
with Singapore would also be amended so investors would no longer be able to avoid capital gains
tax.
The possible move has faced opposition from investors in Singapore, therfore there is a trade
decline.
Mr. Lee said that given the nature of investments, Singapore should be given special treatment.

What is ‘round-tripping’ ?

The term ‘round-tripping’ is self-explanatory.

It denotes a trip where a person or thing returns to the place from where the journey began.
In the context of black money, it leaves the country through various channels such as inflated
invoices, payments to shell companies overseas, the hawala route and so on. After cooling its heels
overseas for a while, this money returns in a freshly laundered form; thus completing a round-trip.
This route is far from simple or straightforward.
Those indulging in this game are past masters who make the money flow through multiple layers
consisting of many entities and companies.

How does the money return to India?

It could be invested in offshore funds that in turn invest in Indian assets. The Global
Depository Receipts (GDR) and Participatory Notes (P-Notes) are some of the other routes
that have been used in the past.

What is Double Taxation Avoidance Agreement (DTAA)?

A DTAA is a tax treaty signed between two or more countries.

Its key objective is that tax-payers in these countries can avoid being taxed twice for the same
income.
A DTAA applies in cases where a tax-payer resides in one country and earns income in another.
DTAAs can either be comprehensive to cover all sources of income or be limited to certain areas
such as taxing of income from shipping, air transport, inheritance, etc.
India has DTAAs with more than eighty countries, of which comprehensive agreements include
those with Australia, Canada, Germany, Mauritius, Singapore, UAE, the UK and US.

Why is it important?

DTAAs are intended to make a country an attractive investment destination by providing relief on dual
taxation.
Such relief is provided by exempting income earned abroad from tax in the resident country or
providing credit to the extent taxes have already been paid abroad.
DTAAs also provide for concessional rates of tax in some cases.
For instance, interest on NRI bank deposits attract 30 per cent TDS (tax deduction at source) here.
But under the DTAAs that India has signed with several countries, tax is deducted at only 10 to 15
per cent. Many of India’s DTAAs also have lower tax rates for royalty, fee for technical services,
etc.
 Favourable tax treatment for capital gains under certain DTAAs such the one with Mauritius have
encouraged a lot of foreign investment into India.
Mauritius accounted for $93.65 billion or one-third of the total FDI flows into India between April
2000 and December 2015.
It has also remained a favoured route for foreign portfolio investors. But the problem is DTAAs can
become an incentive for even legitimate investors to route investments through low-tax regimes
to sidestep taxation.
This leads to loss of tax revenue for the country.

Oct. 5, 2016

RBI cuts repo rate

Details :

What is the news?

The Reserve Bank of India has reduced repo rate by 25bps & the rate now stands at 6.25 percent.
The policy cut rate is the first decision made by the Monetary Policy Committee (MPC) of the bank and
the decision was unanimous.
Inflation targeting i.e. to keep the inflation with the targeted limits is the primary objective of
monetary policy.
RBI uses Consumer Price Inflation as its nominal anchor.

Implications:

Businessmen are expecting the banks to pass on the benefit to borrowers, a move that will ease
the stressed balance sheets of India.
The banks shall lower the interest rate which will increase liquidity in the market.
The trio of good monsoon, 7th pay commission and the rate cut will give kickstart to the economic
growth.
Cut in rate will also push the real estate sector as the buyers will now have to pay lesser interest.

About Repo and Reverse repo rate:

Repo rate is the rate at which the Reserve Bank of India lends money to commercial banks in the
event of any shortfall of funds - Expansionary measure.
Banks can sell their securities to RBI with an obligation of buying back. Reverse repo is when
RBI sells the securities to commercial banks& absorbs excess liquidity – Contractionary
measure.
 Repo and reverse repo rates form a part of the liquidity adjustment facility.

Repo rate as a tool to control inflation:

In the event of inflation, central banks increase repo rate and this acts as a disincentive for banks to
borrow from the central bank.
This will reduce the money supply and thus helps in controlling inflation.
The central bank takes the contrary position in the event of a fall in inflationary
 pressures.

About the Monetary Policy Committee:

MPC is headed by RBI governor, is a six-member panel, of which three members are from RBI and
three are independent members selected by government. The independent members are experts
in the field of economics, banking or finance.
MPC is expected to bring “value and transparency” to rate-setting decisions. The MPC will meet
four times a year to decide on monetary policy by a majority vote.
The committee was formed on the recommendation of Urjit Patel Committee, 2014.
MPC was constituted onmany-heads-are-better-than-one approachand is expected to ensure that
the decisionsare not influenced by bias or lobbying.

Global growth to stay weak: IMF

Details :

The International Monetary Fund maintained its forecast for weak global growth. In the latest update of
its World Economic Outlook, the IMF said that a drop in U.S. growth for 2016 due to a weak first-half
performance would be offset by strengthening in Japan, Germany, Russia, India and some other
emerging markets.

The IMF kept its overall global growth forecasts unchanged at 3.1 per cent for 2016 and 3.4 per
cent for 2017 after cutting its outlook for five straight quarters.
It said India's growth will improve slightly to 7.6 per cent in both years.

About the International Monetary Fund (IMF):

The International Monetary Fund (IMF), also known as the Fund, was conceived at a UN
conference in Bretton Woods, New Hampshire, United States, in July 1944.
The 44 countries at that conference sought to build a framework for economic cooperation to avoid a
repetition of the competitive devaluations that had contributed to the Great Depression of the 1930s.
IMF came into formal existence in 1945 and the goal was to reconstructing the international payment
system.
Now IMF is an organization of 189 countries, working to foster global monetary cooperation,
secure financial stability, facilitate international trade, promote high employment and sustainable
economic growth, and reduce poverty around the world.
The IMF’s responsibilities: The IMF's primary purpose is to ensure the stability of the international
monetary system—the system of exchange rates and international payments that enables countries
(and their citizens) to transact with each other.
Headquarters: Washington, D.C.
World Economic Outlook:

The World Economic Outlook (WEO) is a survey conducted and published by the International
Monetary Fund.
 It is published biannually and partly updated two times a year.
It portrays the world economy in the near and medium context, with projections for up to four
years into the future.

Question Asked in UPSC pre-214

Q. Which of the following organizations brings out the publication known as ‘World Economic
Outlook’?

(a) The International Monetary Fund

(b) The United Nations Development Programme

(c) The World Economic Forum

(d) The World Bank

Ans: (a)

Question Asked in UPSC pre-216

Q. ‘Global Financial Stability Report’ is prepared by the

(a) European Central Bank

(b) International Monetary Fund

(c) International Bank for Reconstruction and Development

(d) Organisation for Economic Cooperation and Development

Ans: (b)

Oct. 4, 2016

Anti-dumping probes to be made ISO compliant

Details :

What is the news?

 Commerce secretary has asked users of anti-dumping measures to share the best practices with
each other.
This will help India’s anti-dumping investigation to be ISO-compliant. This means that anti-
dumping measures will follow international standard.
India needs to take adherent steps to protect its market from dumping.
The negotiations at WTO also provide opportunity to strengthen anti-dumping rules.

What is Dumping?

World Trade Organisation defines dumping as practice of exporting product at a price lower than the
price it would normally charge in its home market.
Dumping affects domestic market of the country where dumping is done.
 Domestic goods are priced at higher cost than the exported goods and therefore distorts level
playing.
The WTO Agreement does not regulate the actions of companies engaged in "dumping".
Its focus is on how governments can or cannot react to dumping i.e. it disciplines anti-dumping
actions and it is often called the “Anti-dumping Agreement”.

What is the meaning of ISO-compliant?

If a business is following the rules and regulations promulgated by the International Organization
for Standardization, it is said to be ISO compliant. Certification with ISO confirms that the business
is following the guidelines set by ISO.
Businesses are not obligated to comply with these standards.

About the International Organization for Standardization:

It is an organization based in Switzerland.

ISO has issued over 19,000 international standards in a range of fields, including food safety,
technologically advanced vehicles, healthcare and manufacturing processes.
The most common standard used by most businesses is ISO 9000, which is the umbrella for the quality
management standards.

Oct. 3, 2016

CIL to pay Rs.2,500 cr. more as levies

Details :

What is the news?

Coal India Limited is likely to fork out an additional Rs.2,000 crore to Rs.2,500 crore as mining
levies, with the Centre making the District Mineral Foundation (DMF) levy applicable on coal
mining from the same date as it is for other minerals.
The development assumes significance as the Centre is defending the retrospective applicability of this
levy on miners from January 2015, though its rules were only notified in September 2015, in the
Supreme Court.
The levy for other minerals was notified in September 2015 and was applicable retrospectively from
January 2015.
The Coal Ministry had made the levy applicable on coal and lignite mining in October 2015, but with
prospective effect from the date of notification.
Now, the centre government has made the District Mineral Foundation (DMF) levy applicable on
 coal mining from the same date as it is for other minerals i.e. from January 2015.
Since coal is also a mineral, there cannot be two different set of rules for mining.

District Mineral Foundation:

 DMF is established in any district affected by mining related operations. DMF office is located
in the office of the District Panchayat of the District.
The objective of the DMF is: To work for the interest and benefit of persons, and areas, affected by
mining related operations.

The DMF levy is charged at:

30 per cent of royalty for mines allotted administratively in the past. 10 per cent for
those acquired through transparent auctions.

The proceeds of DMF levy are to be used for:

The overall development of the area affected by mining related `operations in the District.
Creation of local infrastructure for socio-economic purposes
Providing, maintaining or upgrading of community assets and services for local population in the area
affected by mining related operations.
Organising or conducting training programmes for skill development, creating employment and self-
employment capabilities.

Pradhan Mantri Khanij Kshetra Kalyan Yojana (PMKKKY):

The Pradhan Mantri Khanij Kshetra Kalyan Yojana will be implemented by the DMFs of the
respective districts using the funds accruing to the DMF.

Objective of PMKKKY scheme is :

To implement various developmental and welfare projects/programs in mining affected areas.

To minimize/mitigate the adverse impacts, during and after mining, on the environment, health and
socio-economics of people in mining districts.
To ensure long-term sustainable livelihoods for the affected people in mining areas.

Question asked in UPSC Pre-2016

Q. What is/are the purpose/purposes of ‘District Mineral Foundations’ in India?

1. Promoting mineral exploration activities in mineral-rich districts

2. Protecting the interests of the persons affected by mining operations

3. Authorising State Governments to issue licences for mineral exploration

Select the correct answer using the code given below:

(a) 1 and 2 only

(b) 2 only

(c) 1 and 3 only

(d) 1, 2 and 3

Ans: (b)
‘Private consumption to rise on better monsoon’

Details :

What is the news?

Monsoon rains are expected to drive private consumption to 8.3 percent (estimated figure).
After three years of deficient monsoon, rains this year have been sufficient, not to impact the
agriculture sector.
Few areas have witnessed rain deficiency this year. But most of these areas are either well irrigated or
not important agriculturally.
So, they are less likely to be affected by the deficiency.
With good monsoon there is replenishment of the reservoirs augurs well for the rabi season.

Impact of Monsoon on private consumption:

India is predominantly a agriculture based economy and is closely linked to monsoon rains because of
its water resources.
The agriculture sector contributes to 14% of India's GDP and any variation in distribution of monsoon
have direct impact on agriculture output which in turns leads to inflation eventually affecting
consumer expenditure.

Other factors leading to rise in consumption are:

The revenue and fiscal deficits are contained within the targets, attracting the investors towards
Indian economy.
Consumption momentum has been generated by increase in higher pay for public sector
employees.
Implementation of 7th pay commission. Passage
of Goods and Services tax.
Increased investment on infrastructure.
Hike in defence pension under One Rank One Pension scheme.

Oct. 2, 2016

Centre rethinks plan to widen EPF coverage

Details :
What is the News?

The labour ministry has proposed to cover the firms with at least 10 employees under Employees’
Provident Fund (EPF).
Currently, the EPF Act is applicable to factories with 20 employees.
The move is supported by trade unions as more and more workers will be under the EPF cover thereby
providing them social security.
The proposal will impact the small factories financially as they will have to contribute in Employees’
Provident Fund.
The proposal is in contradiction with finance minister’s announcement in
 budget’16 where the employees were given an option to move out of EPF and opt for National
Pension System.

What is Employees’ Provident Fund (EPF)?

It a retirement benefit scheme that is available to all salaried employees.

It helps employees save a part of their salary every month that can be used in the when they
unable to work, or upon retirement.
Both the employee and employer have to contribute certain percentage of salary to the fund.
EPF is managed by Employees’ Provident Fund Organisation, Ministry of Labour and Employment.

What is National Pension System?

National Pension System (NPS) is a voluntary, defined contribution retirement systemic savings
scheme.
NPS was introduced in 2003 for government employees and was later on extended to non-
government employees, self professionals and unorganised sector based on voluntary
contributions.
Provident Fund Regulatory and Development Authority is statutory body under Ministry of Finance
which managed NPS.

Rs. 65,250 cr. mopped up via new black money window

Details :

What is the News?

The Central Board of Direct Taxes (CBDT) has received total disclosures of Rs. 65,250 crore under the
Income Disclosure Scheme, 2016.

The scheme has provided a one-time opportunity to those who had not paid full taxes in the past.

The sheme was effective from 1st June, 2016 and declarations were to be made till 30 September,2016.

Income Declaration Scheme:

All ‘persons’, such as individuals, companies, firms, association of persons (AOP) etc., were eligible
to make declaration under the Scheme.
Declaration were made in respect of: Any
undisclosed income.
Any investment in asset representing undisclosed income, Upto financial year 2015-2016.
Total 45% of undisclosed income was to be payed as tax.
Benefits of Declaration:

No wealth tax on asset declared.

No enquiry under Income Tax Act or Wealth Tax Act for the undisclosed income. Immunity from the
Benami Transaction (Prohibition) Act, 1988.
The scheme did not reward the dishonest but gave an opportunity to the
 defaulter to come clean by paying more than normal tax.

Oct. 1, 2016

Crowdfunding body closes Dalit campaign

Details :

The crowd-funding platform Bitgiving has closed the campaign account of Rashtriya Dalit Adhikar Manch
(RDAM), the organisation at the forefront of the recent wave of Dalit protests in Gujarat, shortly after
the police lodged an FIR against Jignesh Mewani and 250 others. Mr. Mewani, as one of the leaders of
the RDAM, said, “Even Amnesty has an FIR against it in India. They and other NGOs can raise lakhs of
rupees on the Bitgiving platform. But there is no space for a Dalit movement even here. It is shameful
how deeply casteism is entrenched even in so-called social enterprises in India.”

What is Crowdfunding?

Crowdfunding is asking a crowd of people to donate a defined amount of money for a specific cause
or project in exchange for various rewards.
It is the practice of pooling in of resources by numerous people, thus the term ‘crowd’, to fund
prospective projects.
It is an alternative finance system where funds are raised through mediums like internet-mediated
registries, mail-order subscriptions, benefit events, and the like.
Crowdfunding is usually done via online platforms.
The fundraisers set up their public campaign highlighting the main features of their proposed
project and accepting donations for the same.
These funding applications can be of any nature. They can range from charitable to
educational projects to personal ventures or creative ones. There are three general categories
crowdfunding can fall under: Equity, Donation, and Debt.
Equity-based crowdfunding is asking a crowd to donate to your business or project in exchange for
equity.
Donation-based crowdfunding is asking a crowd to donate to your project in exchange for
tangible, non-monetary rewards such as an ecard, t-shirt, pre- released CD, or the finished
product.
Debt-based crowdfunding is asking a crowd to donate to your business or business project in
exchange for financial return and/or interest at a future date.

Crowdfunding in India:

Crowdfunding is nothing new to India.

Since centuries we have been donating ‘chanda’ for some or the other socio- cultural cause, such as
building of religious infrastructure.
The online scene is a bit of a different matter though.
So the crowdfunding scene in India is rather new with not much awareness amongst people.
Crowdfunding, presently in a pubescent stage, has to face a lot of problems in India.
 Firstly, there is no proper legal regulation setting up rules regarding and specifying the same.
But late last year, the Securities and Exchange Board of India (SEBI) released a paper acknowledging
the need for the regulation.
It defined crowdfunding as “solicitation of funds (small amount) from multiple investors through a
web-based platform or social networking site for a specific project, business venture or social cause.”
Secondly, people in India are still adjusting to a digital lifestyle where most transactions take place
online.
Moreover, the industry is still unable to connect to people, though, efforts have been made in this
direction.

Commodities trading may open to foreigners

Details :

The Securities and Exchange Board of India (SEBI) has initiated talks with the Reserve Bank of India (RBI)
to allow foreign portfolio investors into the commodity derivatives market. The regulator is also keen to
allow other participants such as banks, mutual funds and insurance companies in the commodities
market but will do so in a phased manner after talking to other regulatory bodies. SEBI took over as the
regulator of commodity derivatives market on 28th September 2015 and since then has initiated various
measures like allowing option contracts, new commodities apart from releasing guidelines for
warehouse service providers and online registration of brokers, among others.

What is a commodity?

Commodities are products that can be bought, sold or traded in different kinds of markets.
Commodities are the raw materials that are used to create products which are consumed in
everyday life around the world, from food products in India to building new homes in Europe or to
running cars in the US.
There are two main types of commodities:
Soft commodities – agricultural products such as corn, wheat, coffee, cocoa, sugar and soybean; and
livestock.
Hard commodities – natural resources that need to be mined or processed such as crude oil, gold,
silver and rubber.

What are the main differences between commodity spot and derivatives markets?

There are two types of commodity markets: spot (physical) and derivatives (such as futures,
options and swaps).
In a spot market, a physical commodity is sold or bought at a price negotiated between the buyer and
the seller.
The spot market involves buying and selling of commodities in cash with immediate delivery.
There are spot markets for individual consumers (retail market) and the business-to-
business (wholesale market) category.
Spot markets also include traditional markets such as Delhi’s Azadpur Mandi that deal in fruits and
vegetables.
On the other hand, a commodity can be sold or bought via derivatives contract
 as well.
A futures contract is a pre-determined and standardized contract to buy or sell commodities for a
particular price and for a certain date in the future.
For instance, if one wants to buy 10 tonne of rice today, one can buy it in the spot market.
But if one wants to buy or sell 10 tonne of rice at a future date, (say, after two months), one can buy
or sell rice futures contracts at a commodity futures exchange.
The futures contracts provide for the delivery or receipt of a physical commodity of a specified
amount at some future date.
Under the physically settled contract, the full purchase price is paid by the buyer and the actual
commodity is delivered by the seller.
But in a futures contract, actual delivery takes place later.
In practice, most futures contracts do not involve delivery of physical commodity as contracts are
settled in cash through an exchange.
The financial investors prefer cash settlement because of no interest in buying or selling the
underlying commodity, and lower transaction costs.
Nowadays, the entire process of futures trading in commodities is carried out electronically
throughout the world.
For instance, a farmer enters into a futures contract to sell 10 tonne of rice at
$100 per tonne to a miller on a future date. On that date, the miller will pay the full purchase price
($1,000) to the farmer and in exchange will receive the 10 tonne of rice.
However, under the cash-settled futures contract, the farmer and the miller would simply
exchange the difference between the spot price of rice on the settlement date and the agreed upon
price as mentioned in the futures contract and there would be no actual delivery of rice.
Following the above example, if on the settlement date the price of rice was
$80 per tonne, while the agreed upon price of futures contract was $100 a tonne, the miller will
pay $200 to the farmer in cash and there will be no delivery of rice to the miller.
If, on the settlement date, the price of rice was $120 a tonne, the farmer will pay $200 to the
miller in cash and no delivery of rice will take place.

Commodity Market in India:

The first milestone in the 125 years rich history of organized trading in commodities in
India was the constitution of the Bombay Cotton Trade Association in the year 1875.
India had a vibrant futures market in commodities till it was discontinued in the mid 1960's, due to
war, natural calamities and the consequent shortages.
In 2002, the Government of India allowed the re-introduction of commodity futures in India.
Together with this, three screen based,nation-wide multi-commodity exchanges were also permitted
to be set up with the approval of the Forward Markets Commission. These are:
National Commodity & Derivative Exchange:
This exchange was originally promoted by ICICI Bank, National Stock Exchange (NSE), National
Bank for Agriculture and Rural Development (NABARD) and Life Insurance Corporation of India
(LIC). Subsequently other institutional shareholders have been added on.
NCDEX is popular for trading in agricultural commodities.
Multi Commodity Exchange:
This exchange was originally promoted by Financial Technologies Limited, a
 software company in the capital markets space.
Subsequently other institutional shareholders have been added on. MCX is popular for
trading in metals and energy contracts.
National Multi Commodity Exchange of India:
This exchange was originally promoted by Kailash Gupta, an Ahmedabad based trader, and Central
Warehousing Corporation (CWC).
Subsequently other institutional shareholders have been added on.
NMCE is popular for trading in spices and plantation crops, especially from Kerala, a southern
state of India.

Steel lifts infrastructure output 3.2%

Details :

The country’s infrastructure output grew 3.2 per cent in August, up from 3 per cent in July, driven by the
steel and fertiliser sectors, data released by the Ministry of Commerce showed.

The steel sector output grew 17 per cent in August compared with a contraction of 0.5 per cent in
July.
Steel also has the second-highest weightage in the Index of Core Industries after the electricity
sector.
The fertiliser sector was one of the only other two sectors that saw an improvement in their
performance, growing at 5.7 per cent in August compared with a contraction of 4.3 per cent in July.
The cement sector was the third to see an improvement in August.

What is Index of Industrial Production (IIP)?

IIP measures the quantum of changes in the industrial production in an economy and captures
the general level of industrial activity in the country. It is a composite indicator expressed in
terms of an index number which measures the short-term changes in the volume of
production of a basket of industrial products during a given period with respect to the base
period.
IIP is a short term indicator of industrial growth till the results from Annual Survey of Industries
and National Accounts Statistics are available.
The IIP index is computed and published by the Central Statistical Organisation (CSO) on a monthly
basis.
IIP is a composite indicator that measures the growth rate of industry groups classified namely as
Mining, Manufacturing and Electricity.
Currently IIP figures are calculated considering 2004-05 as base year.

The Eight Core Industries comprise nearly 38 % of the weight of items included in the Index of Industrial
Production (IIP).
They are:

Coal (weight: 4.38 %) Crude

Oil(weight: 5.22 %)
The Natural Gas(weight: 1.71 %) Petroleum
Refinery (weight: 5.94%) Fertilizer (weight:
1.25%)
Steel (weight: 6.68%)
 Cement (weight: 2.41%)
Electricity generation (weight: 10.32%)

Question asked in UPSC pre-2015

Q. In the Index of Eight Core Industries, which one of the following is given the highest weight?

(a) Coal Production

(b) Electricity generation

(c) Fertilizer Production

(d) Steel Production

Solution: (b)

SEPTEMBER, 2016

Sept. 30, 2016

OPEC agrees on modest oil production curbs

Details :

What is the News?

Organisation of Petroleum Exporting Countries (OPEC) on 29th September has reached an

agreement to cut oil production for the first time since 2008 after an informal meeting in Algiers.
OPEC would reduce output to a range of 32.5-33.0 million barrels per day. OPEC estimates its
current output at 33.24 million bpd.
However, how much each country will produce is to be decided at the next formal OPEC meeting in
November, when an invitation to join cuts could also be extended to non-OPEC countries such as
Russia.

Impact on India:

India, being the fourth largest importer of crude oil, imports 85 per cent of total oil and 95 per cent
of gas from OPEC nations.
 The decision taken by the OPEC country is likely to be taken as a wake-up call for the country like
India as Indian economy immensely benefited from the cheaper oil prices.
So a spike in oil prices can have major implications for the country's current account deficit and
economy in general.
Lower oil prices kept the economy on the shining path and managed to keep inflation under control.

What are the options for India?

The way ahead is by quickening the reforms in the energy sector.

India can make the most of this continuing low price environment through phasing out the
remaining subsidies, bringing in fuel pricing reforms, and targeted subsidy measures.
 It can also take advantage by accelerating its strategic oil storage programme.

What is India's strategic petroleum reserves?

To ensure energy security, the Government of India had decided to set up 5 million metric tons
(MMT) of strategic crude oil storages at three locations namely, Visakhapatnam, Mangalore and
Padur (near Udupi).
These strategic storages would be in addition to the existing storages of crude oil and petroleum
products with the oil companies and would serve as a cushion in response to external supply
disruptions.
India's ultimate goal is to have an SPR that provides 90 days of net import coverage.

About the Organization of the Petroleum Exporting Countries (OPEC):

It is an intergovernmental organization of 14 nations, founded in 1960 in Baghdad by the first five

members, and headquartered since 1965 in Vienna. As of 2015, the 14 countries accounted for an
estimated 43 percent of global oil production and 73 percent of the world's "proven" oil reserves,
giving OPEC a major influence on global oil prices.
As of July 2016, OPEC's members are Algeria, Angola, Ecuador, Gabon, Indonesia, Iran, Iraq,
Kuwait, Libya, Nigeria, Qatar, Saudi Arabia (the de facto leader), United Arab Emirates, and
Venezuela. Two-thirds of OPEC's oil production and reserves are in its six Middle Eastern
countries that surround the oil-rich Persian Gulf.

Sept. 29, 2016

Centre to wind up Hindustan Cables

Details :

The Cabinet has given its nod for a strategic sale of sick public sector firm Bharat Pumps and Compressors,
and for the closure of Hindustan Cables that has stopped output since 2003. It has also approved an
outlay of more than Rs.4,800 crore to pay statutory dues to these firms’ employees and creditors.

What is Strategic Sale?

In the strategic sale of a company, the transaction has two elements: Transfer of a block of
shares to a Strategic Partner and
Transfer of management control to the Strategic Partner
The transfer of shares by Government may not necessarily be such that more than 51% of the
total equity goes to the Strategic Partner for the transfer of management to take place.
In the case of Public Sector Enterprises (PSU), in order that the company no longer has the
character of a Government company, the transfer of shares involves bringing down Governments
shareholding below 51%.
In fact, it must be remembered that Companies Act, 1956 only defines a ‘Government Company’,
which in common parlance, is a company in which Government holds more that 51%.
PSU is not defined in the Act.
 Once the Governments shareholding goes below 51%, it ceases to be a Government company and
hence, it requires changes in the Articles of Association of the company especially in relation to
the Presidential directives etc.
The Strategic Partner, after the transaction, may hold less percentage of shares than the Government
but the control of management would be with him.
For instance, if in a PSU the shareholding of Government is 51% and the balance is dispersed in
public holdings, then Government may go in for a 25% strategic sale and pass on management
control, though the Government would post-transfer have a larger share holding (26%) than the
Strategic Partner (25%).
It may be noted here that the number 26% has a special significance in Company Law as to get a
special resolution passed, one requires at least ¾ majority in a general meeting.
Therefore, the 26% block acts as a check.

Sept. 28, 2016

WEF ranks India as 39th most competitive economy

Details :

India has climbed 16 places to the 39th rank on the Global Competitiveness Index prepared by the World
Economic Forum as improved business sophistication and goods market efficiency pushed its ranking
higher. For the eighth straight time, the list is topped by Switzerland as the most competitive economy.
Singapore and the US are at the second and third positions, respectively. At the fourth spot is
Netherlands, followed by Germany (5), Sweden (6) and the UK (7), Japan (8), Hong Kong SAR (9) and
Finland (10).

India's performance:

India has climbed 16 places to the 39th rank on the Global Competitiveness Index prepared by the
World Economic Forum.
The jump of 16 places for India from last year's 55th place is the highest for any economy this year.
India is also the second-most competitive among BRICS nations behind neighbouring China, which is
ranked at the 28th position.
On the index, India has a score of 4.52 while that of Switzerland is 5.81. India's "competitiveness
has improved across the board, in particular in goods market efficiency, business sophistication,
and innovation".
Thanks to improved monetary and fiscal policies as well as lower oil prices, the Indian economy
has stabilised and now boasts of the highest growth among G20 countries, according to WEF's
Global Competitiveness Report 2016-17.
Areas of concern:

While recent reforms efforts have concentrated on improving public institutions, opening the
economy to foreign investors and international trade and increasing transparency in the financial
system, WEF said, "still, a lot needs to be done".
Further, the report noted that India is "still long way" from having in place all
 the competitiveness elements to realise its potential as a major global economy.
The labour market is still bound by rigid regulations and centralised wage determination while
infrastructure also remains a bottleneck, it added.
Still, a lot needs to be done, huge challenges lie ahead on India’s path to prosperity, the report added,
stressing that despite significant improvements in infrastructure and social indicators such as health
and education over the past decade, it lags other nations on such parameters.
According to executives polled for the report, India’s tax regulations, corruption, tax rates and
poor public health are the most problematic factors for doing business.

About the Global Competitiveness Report (GCR):

It is a yearly report published by the World Economic Forum.

Since 2004, the Global Competitiveness Report ranks countries based on the Global
Competitiveness Index.
The rankings are based on the Global Competitiveness Index (GCI), which is based on country-level
data covering 12 categories.
These include institutions, infrastructure, macroeconomic environment, health and primary
education, financial market development, technological readiness, market size, business
sophistication and innovation.
This year, 138 economies have been assessed for their competitiveness while there were 140
economies in the 2015-16 rankings.

About the World Economic Forum (WEF):

It is a Swiss nonprofit foundation, based in Cologny, Geneva.

The forum was founded in 1971 by Klaus Schwab, a German-born business professor at the University
of Geneva.
Recognized by the Swiss authorities as the international institution for public- private cooperation,
its mission is cited as "committed to improving the state of the world by engaging business,
political, academic, and other leaders of society to shape global, regional, and industry
agendas".
The Forum is best known for its annual winter meeting for five days in Davos, a mountain resort in
Graubünden, in the eastern Alps region of Switzerland.
The meeting brings together some 2,500 top business leaders, international political leaders,
selected intellectuals, and journalists for up to five days (winter) to discuss the most pressing
issues facing the world.

Question asked in UPSC Pre-2016

Q. ‘Global Financial Stability Report’ is prepared by the

(a) European Central Bank

(b) International Monetary Fund

(c) International Bank for Reconstruction and Development

(d) Organisation for Economic Cooperation and Development

Ans: (b)
Joblessness rises to 5-year high

Details :

Jobless economic growth continues to haunt India's youth, with the country’s unemployment rate rising
to a five-year high of five per cent in 2015-16, according to the latest annual household survey on
employment conducted by Labour Bureau. India’s economy grew 7.1 per cent in the first quarter of
2015-16, slowing from 7.9 per cent a year earlier. The country’s unemployment rate, as measured by
the Bureau, stood at 4.9 per cent in 2013-14, 4.7 per cent in 2012-13 and 3.8 per cent in 2011-12.

Also recently, the World Trade Organization has cut 2016 world trade growth forecast to 1.7%

These Facts are important for Paper-III 'Development and Employment' section of your Main Syllabus.

Survey findings:

Female job seekers were the worst hit as the pace of unemployment rose sharply to 8.7 per cent
in 2015-16 compared to 7.7 per cent in 2013-14, data from the Fifth Annual Employment-
Unemployment Survey showed.
While unemployment rate in rural areas rose to 5.1 per cent in 2015-16 from
4.7 per cent in 2013-14, it declined to 4.9 per cent from 5.5 per cent in urban areas during the
same period.
The annual survey also showed that 47.8 per cent of the surveyed population was reported to be
employed in 2015-16 compared with 49.9 per cent (also known as worker population ratio) two
years earlier when the previous survey was conducted by the Labour Bureau, under the Ministry
of Labour and Employment.
The survey showed a decline in the proportion of self-employed and salaried workers and a rise in
contractual employment.
The fact that both self-employment and government programme jobs are dipping is disturbing,
showing unemployment rate is high.
Graduates and post-graduates have cited non-availability of jobs that matched their education or skill
and experience, as the main reason for unemployment.

WTO cuts 2016 world trade growth forecast to 1.7%

Global trade volumes are set to grow by just 1.7 per cent this year, the first time in 15 years that
international commerce has grown more slowly than the world economy, the World Trade
Organization (WTO) said on 27th September. The forecast, much lower than the WTO's previous
estimate of 2.8 per cent in April, reflects a slowdown in China and Brazil and also decelerating
imports in the United States.
The WTO also expects slower 2017 trade growth than its previous forecast, with a rise of 1.8-3.1
per cent rather than the 3.6 per cent it had estimated in April.
Sept. 27, 2016

Cabinet’s formal nod to be sought for Budget on Feb. 1

Details :

The Finance Ministry has settled on February 1 as the new date for the presentation of the Union Budget,
with the decision expected to be placed before the Cabinet for formal approval. The Cabinet had last
week approved the merger of the railway budget with the general budget and had given an in-principle
nod for presenting the Budget earlier than February 28.

Important Points:

The idea behind bringing forward the Budget date, according to the government, is so that
ministries and state governments can begin disbursing funds from the beginning of the financial
year.
At the moment, with the Budget being presented at the end of February, several processes,
including the vote on account, result in states being able to disburse funds only by late May.
Advancing the Budget date will allow them to release funds by April.
The decision to change the Budget date, and correspondingly the dates of the Budget session of
Parliament, does not require Parliamentary approval.
The Cabinet advises the President and the President summons Parliament. The Parliament has
no say on when it meets, the government decides that. This is very clear in the Constitution.

Union Budget of India:

According to Article 112 of the Indian Constitution, the Union Budget of a year, also referred to as
the annual financial statement, is a statement of the estimated receipts and expenditure of the
government for that particular year. Union Budget keeps the account of the government's
finances for the fiscal year that runs from 1st April to 31st March.
The statement embodies the estimated receipts and expenditure of the Government of India for the
financial year.
Union Budget is classified into Revenue Budget and Capital Budget.

Revenue budget:

It includes the government's revenue receipts and expenditure. There are two kinds
of revenue receipts - tax and non-tax revenue.
Revenue expenditure is the expenditure incurred on day to day functioning of the government
and on various services offered to citizens.
If revenue expenditure exceeds revenue receipts, the government incurs a revenue deficit.

Capital Budget:

It includes capital receipts and payments of the government.

Loans from public, foreign governments and RBI form a major part of the government's capital
receipts.
Capital expenditure is the expenditure on development of machinery, equipment, building, health
 facilities, education etc.
Fiscal deficit is incurred when the government's total expenditure exceeds its total revenue.

Demands for Grants:

 The estimates of expenditure included in the Budget and required to be voted by Lok Sabha are in
the form of Demands for Grants.
These Demands are arranged Ministry-wise and a separate Demand for each of the major services
is presented.
Each Demand contains first a statement of the total grant and then a statement of the detailed
estimate divided into items.

Vote on Account:

The discussion on the Budget begins a few days after its presentation.
In a democratic set-up, Government is anxious to give Parliament full opportunity to discuss the
budgetary provisions and the various proposals for taxation.
Since Parliament is not able to vote the entire budget before the commencement of the new
financial year, the necessity to keep enough finance at the disposal of Government in order to
allow it to run the administration of the country remains.
A special provision is, therefore, made for "Vote on Account" by which Government obtains the
Vote of Parliament for a sum sufficient to incur expenditure on various items for a part of the
year.
Normally, the Vote on Account is taken for two months only.
But during election year or when it is anticipated that the main Demands and Appropriation Bill
will take longer time than two months, the Vote on Account may be for a period exceeding two
months.

Appropriation Bill:

After the General Discussion on the Budget proposals and Voting on Demands for Grants have
been completed, Government introduces the Appropriation Bill.
The Appropriation Bill is intended to give authority to Government to incur expenditure from and out
of the Consolidated Fund of India.
The procedure for passing this Bill is the same as in the case of other money Bills.

The Finance Bill:

It is presented in fulfilment of the requirement of Article 110(1)(a) of the Constitution, detailing

the imposition, abolition, remission, alteration or regulation of taxes proposed in the Budget.
It is accompanied by a Memorandum explaining the provisions included in it.

Sept. 26, 2016

Tourism meet sees pacts worth Rs.15,000 cr.

Details :

Five states — Gujarat, Rajasthan, Karnataka, Uttarakhand and Chattisgarh — signed 86 MoUs with
several investors worth close to Rs.15,000 crore during the recently concluded Incredible India Tourism
Investors' Summit (IITIS) 2016
What is Incredible India Tourism Investors' Summit ( IITIS)?

Incredible India Tourism Investors' Summit (IITIS) 2016 is a platform for the investors across the
globe to explore investment opportunities available within the ambit of India's Tourism sector as
well as core infrastructure.
India being one of the fastest growing economies, the landscape of the Tourism sector is sought to
escalate India's rich culture and heritage.
The Tourism sector of India has brought about a new paradigm of growth and development in creating
employment, generating income and fostering entrepreneurship.
The summit was organised by the Ministry of Tourism in partnership with industry body CII and
the Tourism Finance Corporation of India.
The three-day summit was aimed at inviting investments from foreign and domestic players to
fund 700 tourism-related projects from 29 states requiring over Rs.50,000 crore.
Also the Invest India, which is a not-for-profit joint venture between the Department of Industrial
Policy and Promotion (DIPP), Ministry of Commerce and Industry, state governments and industry
body the Federation of Indian Chambers of Commerce and Industry (FICCI) , has shown interest in
setting up the investment desk, which will be a unit under Ministry of Tourism.

Important Facts:

Gujarat leads the tally with signed pacts worth nearly Rs.9,000 crore, followed by Karnataka
(Rs.2,600 crore), Rajasthan (Rs.1,000 crore), Uttarakhand (Rs.500 crore) and Chhattisgarh (Rs.12
crore).
Foreign tourist arrivals in June 2016, grew 7.3 per cent to 5.50 lakh as compared with 5.12 lakh
during the month of June, 2015.
For the January-June period of 2016, 41.86 lakh visited India registering a growth of 8.9 per cent
compared with the same period the previous year.

Sept. 25, 2016

PMO puts the brakes on rail tariff regulator plan

Details :

The Prime Minister’s Office has asked the Railways to apply the brakes on its ambitious fast-track plan to
set up an independent regulator for freight and passenger tariffs. The PMO has asked the Ministry to
follow the legislative route to create the regulator rather than push it through an executive order. The
Ministry had proposed Rail Development Authority by issuing a notification through an executive order
and subsequently strengthen its powers through the legislative process, in a bid to bypass possible
hurdles in Parliament.
About the Rail Development Authority of India (RDA):

The Rail Development Authority of India (RDA), will be an independent and quasi-judicial
body.
The Authority will undertake four key functions: Fixing tariff.
Ensuring fair play and level playing field for private investment in railways.
 Determination of efficiency and performance standards. Dissemination of
information.
The independent regulator will enable the sector to move towards market- determined tariffs
and full recovery of costs as well as reduce the prevalent cross-subsidies.
The RDA, besides other functions, will recommend tariffs both on passenger and freight front, but
its role will be advisory in nature with the final call to be taken by the railway board.
While RDA’s role in fixing tariffs are advisory in nature, its ordres with respect to performance
standards and penalties will be mandatory in nature.
It may be recalled that the National Transport Development Policy Committee report of 2014 and
the more recent Bibek Debroy Committee report had suggested the creation of rail tariff
authority.
Many of the countries like U.K, Russia, US, Australia, Germany have regulatory structure in some form
or the other.
The Rail Development Authority would be an independent body, housed outside the Ministry of
Railways but funded through the budget sanctioned by the Parliament.

Pakistan’s MFN tag may stay for now

Details :

In the wake of the deadly attack on Indian soldiers in Uri, an incident for which India is holding Pakistan
responsible, there have been calls in India for tough action against its neighbour, including the
revocation of the ‘Most Favoured Nation’ (MFN) status. However the Centre is not considering any
proposal to withdraw the ‘Most Favoured Nation’ (MFN) status accorded to Pakistan.

What is Most Favoured Nation’ (MFN) status?

The WTO as the trade-promoting body has certain key principles or philosophical themes for its
working.
One such principle is non-discrimination which is well scripted in Most Favored Nation (MFN)
treatment.
The MFN is a status or treatment given by one country to another in trade matters.
It means that the recipient country of MFN will nominally get equal trade advantage as the ‘most
favoured nation’ by the country granting the treatment. Though the MFN status says the receiving
country is the most favoured by the issuing country; the meaning is slightly different.
The real meaning is that the receiving country will not be treated disadvantageously by the issuing
country in trade matters vis a vis other countries.
Under WTO, countries cannot normally discriminate between their trading partners.
If a special favour is granted to a particular country, it should be extended to all other WTO
members.
In this respect, the MFN is so important that it is the first article of the GATT, which governs trade
in goods.
The MFN status was accorded to Pakistan by India in 1996 as per India’s commitments as a member of
the World Trade Organisation (WTO).
Pakistan, a founding member of the WTO like India, is yet to grant the MFN tag
 to India (and Israel).

Exceptions for MFN:

MFN at the same time allows some exemptions as well.

One such exemption is the right to engage in Free Trade Agreements.
This means members can participate in regional trade agreements or free trade agreements where
there is discrimination between member countries and non member countries.
Another exemption is that members can give developing countries special and differential treatment
like greater market access.
This special concession are in different forms like reduced tariff rates from developing country
imports, concessions that allows developing countries to give subsidies to their production sectors
etc.
All these exceptions are subjected to strict conditions.
In general, MFN means that every time a country lowers a trade barrier or opens up a market, it
has to do so for the same goods or services from all its trading partners — whether rich or poor,
weak or strong.
Each member treats all the other members equally as “most-favoured” trading partners.

What would be the impact if India revokes the MFN status?

Bilateral trade between the two South Asian neighbours was just $2.6 billion in 2015-16 (of which
$2.2 billion constituted India’s exports to Pakistan) — which represented a minuscule 0.4 per cent
of India’s overall goods trade worth
$643.3 billion in the same year.
Therefore, even if India revokes the MFN status it would only have a “symbolic” impact.
On the other hand it would hit India’s exports to Pakistan if there are retaliatory actions and it
could also result in India losing goodwill in the South Asian region (where it enjoys a trade surplus
and is a party to a free trade pact called SAFTA, which also includes Pakistan).
The move may also not go down well at the WTO-level.
After the attack in Uri, international trade experts said India could consider making use of a
‘security exception’ clause in the GATT to deny the MFN status to Pakistan or bring in certain trade
restrictions.
This is because Article 21(b)(iii) of GATT states that “Nothing in this Agreement shall be construed
to prevent any contracting party (including India in this case) from taking any action which it
considers necessary for the protection of its essential security interests taken in time of war or
other emergency in international relations.”

Why Pakistan is not extending MFN status to India?

India and Pakistan have great trade potentials.

But trade among the two is not much because of political mistrust. India has given
MFN status to Pakistan in 1996, one year after the establishment of WTO.
But Pakistan is slow to take a positive decision on conferring the status to India. An important
factor that makes its difficult for Pakistan to confer MFN status to India is the political impact of
the tone of MFN status.
It may feel that India is the most favored nation for Pakistan in literary sense though MFN means non-
discrimination.
 To overcome that, Pakistan has devised a new term called Non Discriminatory Market Access (NDMA)
which is equivalent to MFN.
Such alteration of the MFN is happening elsewhere as well.
For example in the US, the MFN is named as Permanent Normal Trade Relations (PNTR) clause.
Pakistan has promised that it will confer India the NDMA status.

Sept. 24, 2016

GST council sets exemption threshold for tax at Rs.20 lakh

Details :

The Goods & Services Tax (GST) Council has decided that businesses in the north- eastern and hill states
with annual turnover below Rs.10 lakh would be out of the GST net, while the threshold for the
exemption in the rest of India would be an annual turnover of Rs.20 lakh.

Outcome of the GST council's first meeting:

For GST, the exemption threshold is fixed at Rs.20 lakh, the Council’s Chairman and Union Finance
Minister said after the panel’s first meeting.
So those with a turnover of below Rs.20 lakh annually will be exempted from GST.
With the north-east States, the exemption threshold is Rs.10 lakh.
The Constitutional Amendment paving the way for the GST has a provision to accord special status to
the north-eastern and hill states.
The Council had also reached consensus on another contentious issue, that of administrative control
over indirect tax assessees.
States would have sole jurisdiction over assessees (currently in the Value Added Tax (VAT) net at
present) having a turnover of Rs.1.5 crore or less, while the administrative control of businesses
with a turnover exceeding that limit would be jointly with the central and state governments.
The Council also decided that the existing 11 lakh service tax assessees will continue to be under the
jurisdiction of the Centre.
Since the GST will allow the States to also tax services, over time the revenue officials in the States
will be trained after which they will begin assessing assessees in the services sector.
The compensation that the Centre would pay to the States for losses of revenue because of the
transition to the new regime would be routinely, quarterly or bi- monthly.
The Council agreed to settle for 2015-16 as the base year for calculating the compensation.

EU may re-engage with India on free trade talks

Details :

European Union (EU) hopes to soon re-engage with India on negotiations regarding the proposed Free
Trade Agreement (FTA), Tomasz Kozlowski, Ambassador of the EU to India, said. India and the EU first
started negotiations in 2007 on an FTA to cover
trade in goods, services, intellectual property and foreign investment. However, 13 rounds of negotiations
have not yielded a treaty to regulate trade and investment between the two sides.

Here are the Issues which Stand in the Way of India-EU FTA Trade in Goods
First, in terms of trade in goods, any FTA tries to bring down the tariff rates from the most
favoured nation (MFN) rates.
In fact, one of the major demands of the EU is that India should lower its tariff rates on European
automobiles and wines and spirits.
A lowering of tariffs may well result in greater trade with the EU, but for India this may mean
more imports than exports.
There will be a greater opening in the Indian market for European goods than in the European market
for Indian goods.
EU tariff rates are already quite low and thus, apart from sectors like textiles and fisheries,
India’s exports to the region might not increase significantly if tariffs are cut.
In goods trade, the real issue for India is non-tariff barriers such as sanitary and phytosanitary
measures, and technical barriers to trade.
The EU has been imposing stringent labeling requirements and trademark norms, for instance,
which have dented India’s exports.
About two years ago, India’s export of Alphonso mangoes to the EU suffered due to stringent
non-tariff barriers.

Trade in Services:

Second, in terms of trade in services, for India to benefit from an FTA with the EU, it needs strong
binding promises by the EU on liberalising trade in services especially for the supply of services in
what are known as modes 1 and 4.
Mode 1, as defined in the General Agreement on Trade in Services under the WTO, covers a range
of outsourcing activities such as business, knowledge and legal process outsourcing.
According to one estimate, Europe is a $45 billion potential outsourcing opportunity for Indian IT
vendors.
Thus, a legal commitment by the EU to outsource would immensely help India by creating many
jobs.
Mode 4 covers temporary movement of natural persons.
Liberalisation under mode 4 would mean the EU allowing more Indian professionals preferential
access to the European labour market, which could boost remittances from the EU to India.
However, given the high unemployment rates in the EU due to economic slowdown, one is not
sure to what extent the EU is willing to make commitments to liberalise trade in services.

The area of intellectual property (IP):

Third, in the area of intellectual property (IP), the major disagreement is regarding IP protection
standards.
The EU is keen that India should adopt stringent IP protection standards even if that means going
beyond the WTO specified standards that all countries, including India and the EU, have
multilaterally agreed.
India will not and should not agree to additional protection measures as this
 could compromise public health and raise other compelling concerns.
This is a deeply disturbing trend seen in many FTA negotiations, where developed countries shift
negotiations on IP standards from the WTO and World Intellectual Property Organisation to FTAs.

The problem of India’s model BIT:

India’s new model bilateral investment treaty (BIT) is another major contentious issue, especially for
foreign investment.
Stung by foreign investors suing India under different Indian BITs, India adopted a defensive model
BIT in 2015, and would hope to use it as the basis to negotiate the investment chapter in the FTA.
The model BIT does not contain an MFN provision, excludes taxation measures, and makes it
mandatory for foreign investors to exhaust domestic judicial and administrative remedies for at
least a period of five years before pursing a claim under international law.
Given the experiences of major European companies such as Vodafone and Cairn, who are battling
the imposition of retrospective taxes by India, the EU is deeply concerned about the protection of
its investments in India.
It is quite unlikely the EU will accept any proposal that might be detrimental to the interests of
their foreign investors.
In fact, these provisions in the Indian model BIT also go against Indian companies who are
investors in the EU.
Therefore India and the EU must adopt a flexible approach, and iron out differences on crucial issues,
to ensure that the India-EU FTA becomes a reality.

Sept. 23, 2016

Centre names economists to monetary policy committee

Details :

The Centre named three academics trained in economics as the external appointees on the monetary
policy committee (MPC) that will work with the Reserve Bank of India’s three members to decide interest
rates. The RBI is represented on the MPC by Governor Urjit Patel, Deputy Governor in-charge of
monetary policy R. Gandhi, and M.D. Patra, the executive director who was nominated by the RBI board.
The three external members — Pami Dua, Chetan Ghate and Ravindra Dholakia — will have a fixed four-
year term, which is non-renewable. The RBI will set interest rates according to the majority view of the six-
member MPC, with the Governor having the casting vote in case of a tie. The MPC will be responsible for
ensuring inflation based on the Consumer Price Index is contained within a range of 2 per cent to 6 per
cent, a target announced as part of the new monetary policy framework agreed to by the Centre and the
RBI.
What is the Monetary Policy Committee (MPC)?

The new MPC is to be a six-member panel that is expected to bring “value and transparency” to
interest rate-setting decisions.
It will feature three members from the RBI — the Governor, a Deputy Governor and another
official — and three independent members to be selected by the Government.
 A search committee will recommend three external members, experts in the field of economics,
banking or finance, for the Government appointees.
The MPC will meet four times a year to decide on monetary policy by a majority vote.
And if there’s a tie between the ‘Ayes’ and the ‘Nays’, the RBI governor gets the deciding vote.

Why is it important?

Until recently, India’s central bank used to take its monetary policy decisions based on the
multiple indicator approach.
Its rate decisions were expected to take into account inflation, growth, employment,
banking stability and the need for a stable exchange rate. As you can see, this is a tall
order.
Thus, RBI (with the Governor as the focal point) would be subject to hectic lobbying ahead of each
policy review and trenchant criticism after it.
The Government would clamour for lower rates while consumers bemoaned high inflation.
Bank chiefs would want rate cuts, but pensioners would want high rates.
RBI ended up juggling all these objectives and focussing on different indicators at different points
in time.
To resolve this, RBI set up an Expert Committee under Urijit Patel to revise the monetary policy
framework, and it came up with its report in January 2014.
It suggested that RBI abandon the ‘multiple indicator’ approach and make inflation targeting the
primary objective of its monetary policy.
It also mooted having an MPC so that these decisions could be made through majority vote.
Having both Government and RBI members on the MPC was suggested for accountability.
The Government would have to keep its deficit under check and RBI would owe an explanation for
runaway inflation.

Centre unveils sops to boost goods exports

Details :

In the backdrop of the continued challenging global environment being faced by Indian exporters,
Department of Commerce has extended support to certain new products and enhanced the rate of
incentives for certain other specified products under the Merchandise Exports from India Scheme
(MEIS).

About the Merchandise Exports from India Scheme (MEIS):

Objective of Merchandise Exports from India Scheme (MEIS) as per Indian Foreign Trade Policy
2015-20 (FTP 2015-20) is to offset infrastructural inefficiencies and associated costs involved in
export of goods/products, which are produced/manufactured in India, especially those having
high export intensity, employment potential and thereby enhancing India’s export
competitiveness.
Exports of notified goods/products shall be rewarded under MEIS.
The basis of calculation of reward would be on realized FOB value of exports in free foreign
exchange, or on FOB value of exports as given in the Shipping Bills in free foreign exchange,
whichever is less, unless otherwise specified.
 Earlier there were 5 different schemes (Focus Product Scheme, Market Linked Focus Product
Scheme, Focus Market Scheme, Agri. Infrastructure Incentive Scrip, VKGUY) for rewarding
merchandise exports with different kinds of duty scrips with varying conditions (sector specific or
actual user only) attached to their use.
Now all these schemes have been merged into a single scheme, namely Merchandise Export from
India Scheme (MEIS) and there would be no conditionality attached to the scrips issued under the
scheme.
Under the MEIS, the government usually provides exporters duty credit scrip at 2% and 3% of their
export turnover, depending upon the product and the export destination, as envisaged in the
foreign trade policy 2015-20.
The scrip can be transferred or used for payment of a number of duties, including the basic
customs duty.
The total potential revenue losses for the government under the MEIS is now expected to go up to
Rs 23,500 crore a year from the earlier Rs 22,000 crore, according to a commerce ministry estimate.

Fed keeps key rate unchanged but hints of coming hike

Details :

The US Federal Reserve left interest rates unchanged on 21st September but strongly signalled it could
still tighten monetary policy by the end of this year as the labour market improves further.

Fed Chair Janet Yellen, speaking after the central bank's latest policy statement, said US growth was
looking stronger and rate increases would be needed to keep the economy from overheating and fuelling
high inflation. Yellen said she expected one rate increase this year if the job market continued to improve
and major new risks did not arise.

The Federal Reserve is America’s central bank. Why is the rest of the world interested?

The US dollar sits at the centre of the global financial system and any decision by the Federal
Reserve can cause ripples throughout the global economy.
While a slowing down of the Chinese economy has already rattled markets worldwide, a rate hike in
the US could come as another setback for emerging economies such as India.
A strong dollar has always meant bad news for these economies since global capital may start
flowing back into US treasury bonds.

Why are emerging economies worried?

The rate hike, if it happens in early November and mid-December, is expected to be small but will
set the tone for more hikes.
That’s something emerging countries are worried about.
These economies are now worried that a Fed rate increase will only precipitate the outflow of funds
from their economies into the US, thereby putting more pressure on their currencies and stock
markets indices.
The Fed raised rates last December 2015 for the first time since 2006
The Fed has policy meetings scheduled in early November and mid-December. However, Economists
believe policymakers would avoid a rate hike in
 November in part because the meeting falls just days before the US presidential election.

Sept. 22, 2016

Centre decides to do away with separate rail budget

Details :

With the ambition of putting an end to the populism that had come to be associated with it in the last
few decades, the Union Cabinet has decided to bring the curtains down on the 92-year-old tradition of
presenting a separate Rail Budget. It has been decided to merge the Rail Budget and the General Budget.
Consequently, Railway Minister Suresh Prabhu will not present it for the year 2017-18. Instead, Finance
Minister Arun Jaitley will present a “unified” budget.

Background:

Following the recommendation of the 10-member William M Ackworth Committee, 1920-21, that
“the railways should have a separate budget of their own and assume responsibilities for earning
and expending their own income,” railway finances were separated from the general government
finances in 1924.
The revenue receipts of the Indian government in 1920-21 aggregated Rs 180 crore, excluding those of
the railways amounting to Rs 82 crore.
A dominant activity then — indeed the only one of its type and magnitude in the state sector —
railways now have several challengers, and command less than one per cent of the government's
revenue receipts and disbursements. Today, roads enjoy a prominent share of country’s traffic,
accounting for almost 70 per cent of freight and over 85 per cent of passenger traffic output. (As late
as in 1950-51, Indian Railways carried 89 per cent of India’s freight and around 75 per cent of
passengers.)

Aim of reform:

According to the government, the move will come as a relief to the Railways, which, until now,
has been reeling under an additional burden of Rs 40,000 crore from higher salaries, following
implementation of the 7th Pay Commission.
It also has to bear close to Rs 35,000 crore of subsidy burden.
The Railways will get rid of the annual dividend of Rs 10,000 crore it has to pay for gross budgetary
support from the government.
The government used to hand over Rs 2.27 lakh crore to the Railways every year, which now
ceases to be a liability.
Earlier, Niti Ayog in a 20-page note sent to the Prime Minister’s Office (PMO) had also argued that
the exercise had failed to be of use to the sector and had become a “mechanism to announce
popular measures”.
Doing away with the presentation of a separate rail budget, and bringing it into the fold of the
“annual financial statement” that the Union finance minister presents, is a good idea — albeit for
a different reason.
Indian Railways cannot afford to wait for annual changes, made with pomp and ceremony.
 It needs to react more swiftly, and with greater flexibility, to the rapid changes afoot in the wider
economy — be it in terms of raising or lowering fares, adapting to new technologies or improving
safety standards.
Even though Indian Railways is a state monopoly it faces increasingly tough competition from roads
and civil aviation.
In fact, for the most part, the railways has been losing traffic share, especially to the roads.
Basically, the government needs to be more fleetfooted in the way it runs the railways, instead of
focusing excessively on the spectacle of a separate budget. Officials said the reform was intended
to “deglamorise” the Railways portfolio and discourage the leveraging of the Rail Budget for
handing out largesse to vote banks.
Decisions like that are commercially crucial but politically challenging, especially fare hikes would
now become routine ones taken any time during the course of a year without as much public glare,
said an official.

Three caveats:

One, the scrapping of the practice of presenting a separate Railway Budget should not mean that
the ritual of annual reviews of fares and freight rates is performed instead by the finance
minister.
The task of fare and freight changes should be entrusted with the proposed rail tariff authority.
Two, the scrapping of the separate railway Budget practice should also mean a major and much-
needed accounting policy change of freeing the Indian Railways of the burden of paying dividends
on the budgetary support it gets from the Centre.
And finally, the change should be accompanied with a greater thrust on expediting projects for the
dedicated freight corridors, modernisation of railway stations and the locomotive factories,
without which reforms of the Indian Railways would remain incomplete.

Plan to complete budget exercise before April 1

Details :

The unified budget, the Union Cabinet decided that, it would be presented a few weeks earlier than the
convention of the last day of February. The decision to advance the budget is being taken to allow for
the annual budget exercise to be completed every year before April 1, the start of the new financial year.
This is expected to lead to streamlined spending of allocations by States and ministries and ensure rollout
of the legislative changes in the tax regime from the beginning of the financial year. It will also preclude
the need for seeking appropriation from Parliament through ‘Vote on Account.’

Background:

President shall, in respect of every financial year, cause to be laid before Parliament, Annual Financial
Statement (article 112).
In India, the Budget is presented to Parliament on such date as is fixed by the President.
The Budget speech of the Finance Minister is usually in two parts. Part A deals with general
economic survey of the country while Part B relates to taxation
 proposals.
The Union budget has always been presented on the February 28, or 29, but this session will be
seeing a change to complete the budget exercise, before the beginning of a new fiscal year.
Though the Indian constitution doesn’t have any mandate on the budget presentation, it is normally
presented on the last working day of February.
The two-stage approval process of the Indian Parliamentary system takes it the middle of May.
The Financial year begins on April 1 and in March, the government takes the approval of the
parliament for Vote on Account of a sum of money, sufficient enough to meet the expenditure
for 2-3 months.

How will it impact government expenditure and revenue?

Advancing the Budget timetable will have two implications.

First, there is clarity at the beginning of the financial year and it will help in better planning.
On April 1, departments will know how much funds they have been allocated. Earlier, there was an
element of suspense as allocations could be formally conveyed till it was approved by Parliament.
The Vote on Account enabled them to carry out day-to-day expenditure, but they couldn’t spend
on new schemes.
Further, for many schemes, it could well be that by the time the funds were approved, it would be
monsoon and then a couple of months were lost.
So virtually four to five months were gone by the time they could use the funds.
Now, the intention is that by March 31, the Budgetary allocation will be clear. Second, the tax
proposals will also take effect immediately.
That also brings in more clarity and will help in immediately implementing the proposals.

Cabinet approved the Removal of distinction between Plan and Non-Plan expenditure

Details :

The Cabinet approved the removal of distinction between Plan and Non-Plan expenditure as the present
classification resulted in excessive focus on former with almost equivalent neglect to items such as
maintenance which are classified as non- Plan. The Cabinet felt it is the total expenditure, irrespective of
Plan or Non-Plan, that generates value for the public.

Plan expenditure was for the first time presented separately in the budget for 1959- 60.

Why?

The government now plans to switch to capital and revenue spending classifications.
This will help create a clear and effective link between the government’s earnings, spending and
outcome.
Revenue expenditure includes interest payments, subsidies, wages to government employees,
pensions, social services and so on.
 Any expenditure that does not lead to formation of any asset or liability for the government will fall
under this category.
Capital expenditure, on the other hand, are the ones that create some liability/asset for the
government.
These include loans to public enterprises, loans to States, Union Territories and foreign governments
and acquisition of valuables.
In the earlier system, more emphasis was on planned expenditure, but now focus will be on all
expenditures of the government, giving a more overall picture.
Since there is no Planning Commission, there is no need to have separate plan expenditure in the
Budget.
This is not the first time that suggestion to separate committee has come forth for the separation
of expenditure.
In 2011, a committee headed by C Rangarajan had proposed to remove distinction between the
plan and non-plan expenditures for both the Centre and states.

What is Plan Expenditure?

This is essentially the budget support to the Central Plan and the Central assistance to State and Union
Territory plans.
Like all budget heads, this is also split into revenue and capital components. Plan Expenditure is
aimed at bolstering the productive capacity of the economy.
It includes expenditure on electricity generation, infrastructure, education, and other productive areas
of our economy.

What is Non-plan Expenditure?

This is largely the revenue expenditure of the government, although it also includes capital
expenditure.
It covers all expenditure not included in the Plan Expenditure.
A major part of the Non-Plan Expenditure is obligatory in nature, like interest payments, pensions,
statutory transfers to States and Union Territories governments.
Non-Plan Expenditure constitutes the biggest proportion of the of the government's total
expenditure.
The biggest items of Non-Plan Expenditure are interest payments and debt servicing, defence
expenditure and subsidies.
For defence services, both revenue and capital expenditure are incurred.

‘High public debt cuts room for policy sops’

Details :

India’s economic growth rate is projected to remain strong at 7.5 per cent in 2016, but high public debt
and current rates of inflation may limit room for supportive fiscal policies, according to an United
Nations Conference on Trade and Development (UNCTAD) report.

What the Report Said?

To ensure growth in the longer term, policy makers will have to address the
 stalled manufacturing share in India’s GDP, UNCTAD said in its ‘Trade and Development Report,
2016’.
The report notes that the stagnation in the sector is reflected in its limited capacity to create jobs
with higher wages.
At a time when the Indian Government is pushing the ‘Make In India’ (MII) initiative to boost
manufacturing, the report said India was an example of ‘stalled industrialisation’ – where shares
of manufacturing value added and employment stagnate at modest levels.
In India, the share of manufacturing in total employment increased by only about two percentage
points over four decades, from 9.4 per cent in 1970 to
11.6 per cent in 2011, while share in manufacturing value added stagnated at 17-21 per cent over
the same period, UNCTAD said in the report.
The report also pointed out that private investment in India has weakened in the past few years,
along with emerging debt-servicing difficulties.
Besides, it said public investment is yet to take off in the context of serious infrastructure gaps that
could constrain future growth.

About the UNCTAD:

The United Nations Conference on Trade and Development (UNCTAD) was established in 1964 as a
permanent intergovernmental body.
UNCTAD is the principal organ of the United Nations General Assembly dealing with trade,
investment, and development issues.
The organization's goals are to: "maximize the trade, investment and development opportunities
of developing countries and assist them in their efforts to integrate into the world economy on an
equitable basis."
The primary objective of UNCTAD is to formulate policies relating to all aspects of development
including trade, aid, transport, finance and technology.
The conference ordinarily meets once in four years; the permanent secretariat is in
Geneva,Switzerland.

BSNL to get Rs.1,250-crore subsidy for rural landlines

Details :

The Union Cabinet has approved the long-pending compensation of Rs.1,250 crore for state-run Bharat
Sanchar Nigam Ltd. (BSNL) for the deficit incurred in operating rural landline connections installed before
April 1, 2002. The subsidy support to the state-owned telecommunications company will be paid from the
Universal Service Obligation Fund (USOF). The USOF, since inception in 2002, has provided subsidy to
BSNL for the rural wireline connections installed prior to April 2002. A total of Rs.8,692 crore has been
extended as USOF subsidy support till date.
About the Universal Service Obligation Fund (USOF):

The scheme was started in 2002-03.

The USOF, which is maintained by the government under the Department of Telecommunications,
Ministry of Communications was formed to help fund projects to boost connectivity in rural
areas.
The money for this fund comes through a ‘Universal Access Levy,’ charged from the telecom
operators as a percentage of various licenses fees being paid by them.
 The vision of USOF is to enabling rural Indians to achieve their fullest potential and participate
productively in the development of the nation by virtue of being effectively connected through a
reliable and ubiquitous telecommunications network, access to which is within their reach and
within their means.

Cabinet okays Rs.5,176 cr. for GAIL pipeline project

Details :

The Cabinet Committee on Economic Affairs (CCEA) has approved viability gap funding of Rs.5,176
crore, which works out to 40 per cent of the estimated capital cost of Rs.12,940 crore, to GAIL for the
development of the 2,539-km- long Jagdishpur-Haldia and Bokaro-Dhamra Gas Pipeline (JHBDPL)
project.

About the Project:

The pipeline will ensure the availability of clean and eco-friendly fuel i.e. natural gas to the
industrial, commercial, domestic and transport sectors in the states of Uttar Pradesh, Bihar,
Jharkhand, Odisha and West Bengal.
This capital grant will encourage the supply of eco-friendly fuel at affordable tariffs to industries
and will encourage industrial development in these states. The pipeline will also supply gas to the
defunct fertiliser units in Gorakhpur, Sindri and Barauni which the government is looking to
revive.
These units are to serve as the anchor customer for the pipeline.
These three fertiliser units are to be revived through a special purpose vehicle of National Thermal
Power Corporation, Coal India, Indian Oil Corporation and Fertilizer Corporation of India.

What is viability gap funding?

There are many projects with high economic returns, but the financial returns may not be
adequate for a profit-seeking investor.
For instance, a rural road connecting several villages to the nearby town.
This would yield huge economic benefits by integrating these villages with the market economy,
but because of low incomes it may not be possible to charge user fee.
In such a situation, the project is unlikely to get private investment.
In such cases, the government can pitch in and meet a portion of the cost, making the project
viable.
This method is known as viability gap funding.
Sept. 21, 2016

PMO nod for closure of sick govt. companies

Details :

Prime Minister’s Office (PMO). A second set of proposals from the Aayog for strategic sales aimed at
reducing government ownership to below 51 per cent in about 22 public sector companies has also got
the green signal from the PMO.
Background:

In the budget 2016, the Government has proposed strategic sale or strategic disinvestment of
PSEs for reviving them as well as to mobilize fund form the sale of shares of PSEs.
In the near future, the strategic sale route where a considerable proportion of the shares of a PSE
is transferred to a private sector investor will be adopted. This is another form of restructuring the
PSEs just like the disinvestment route. The government has made a target of Rs 20500 crore
revenue from strategic sale during 2016-17.
On the other hand, disinvestment target is Rs 56500.
Strategic sale was a method of privatization many years back, but was not adopted over the last
ten years.

What is Strategic Sale of Public Sector Enterprises (PSU)?

The disinvestment commission has defined strategic sale: "Strategic disinvestment would imply
the sale of substantial portion of the Government shareholding of a central public sector
enterprise (CPSE) of upto 50%, or such higher percentage as the competent authority may
determine, along with transfer of management control."
Strategic sale of a PSU is different from the ordinary disinvestment.
This is because in the case of strategic sale, the control and a significant proportion of a PSU’s share
goes to a private sector strategic partner.
According to the Department of Disinvestment, in the strategic sale of a company, the transaction
has two elements:
Transfer of a block of shares to a Strategic Partner and Transfer of
management control to the Strategic Partner

What is the amount of shares to be transferred to the strategic partner?

Understandably strategic sale aptly takes place when more than 51% of shares go to the private
sector strategic partner.
At the same time, it is not necessary that more than 51% of the total equity goes to the
Strategic Partner for the transfer of management to take place. Or in other words strategic sale
can take place even if the private sector partner gets less than 51% shares.
According to the strategic sale guidelines in India, the Strategic Partner, after the transaction, may
hold less percentage of shares than the Government but the control of management would be
with him.
For example, in a PSU, where the government holding 51%, and out of this, sale of 25% to the
strategic partner while the government holding 26% share also is a case of strategic sale.
Here, the remaining shares (49%) will be dispersed among the public.
But the necessary condition is that the control of the firms should be with the strategic partner.
The history of strategic sale in India shows that it was an important way for privatization.
In many cases, the private sector firms got more than 51% shares in the final stages.
For example in the case of BALCO, VSNL, Hindustan Zinc Limited the strategic investor holds more
than 51% shares.
What is NITI Ayogs’s role in strategic sale?
 After budget 2016, the Finance Ministry has empowered the NITI Ayog to advise the Government on
strategic disinvestment of CPSEs.
It will do the following functions with regard to strategic sale. It will identify
the CPSEs for strategic disinvestment.
It will advise the government on mode of sale and percentage of shares to be sold; and
It will suggest methods for valuation of the CPSE.
The above responsibility of the NITI Ayog means it has to initiate the process of strategic
disinvestment of CPSEs.
The budget has given power to the NITI Ayog to identify public sector companies for strategic
sale.
In June 16, 2016, the NITI Ayog has prepared a report on CPSEs and suggested 32 PSUs for
strategic sale including CPSEs.
It has also suggested the winding up of 26 CPSEs out of the total 74.

What is the role of DIPAM in strategic sale?

After the NITI Ayog’s suggestions, Department of Investment and Public Asset Management (DIPAM)
is finalizing a model for strategic sale of shares of PSEs. Earlier the government has approved the
proposal of DIPAM for laying down the procedure and mechanism for strategic disinvestment of
Central Public Sector Enterprises (CPSEs).
Hence, the procedure for strategic sale will be prepared by DIPAM.

‘Domestic consumption to lift GVA growth to 7.7%’

Details :

India’s gross value added (GVA) growth rate is set to improve to 7.7 per cent this year, from the 7.2 per
cent seen in FY16, due to higher domestic consumption demand, while consumer price inflation could
accelerate to an average of 5.1 per cent from 4.9 per cent a year earlier, according to Moody’s Investors
Service and ICRA. The ratings agencies also predict a significant reduction in government spending in the
coming months since the first four months of this financial year have already seen 74 per cent of the
whole year’s budget target being exhausted.

why global institutions expect India can achieve 7% plus growth rate? Domestic demand:
Moody's expects India's economy to grow at 7.7% this year, helped by interest rate cuts that will
buttress private sector spending.
India's economy is on a cyclical upswing and forward-looking indicators suggest domestic demand is
gathering momentum, Moody's Analytics has said.

Reforms:

Most global institutions have given thumbs up to Modi government's reforms drive.
"India's growth is expected to strengthen from 7.2 per cent last year to 7.5 per cent this year and
next.
Growth will benefit from recent policy reforms, a consequent pickup in investment, and lower oil
prices," IMF's World Economic Outlook said.
The strong growth in India has already made South Asia the fastest growing
 region in the world, World Bank noted.
India's expected growth acceleration, World Bank noted in its twice-yearly South Asia Economic
Focus report, is being "driven by business-oriented reforms and improved investor sentiment"
and that growth could reach 8 per cent in fiscal year 2017-18 on the back of significant
acceleration in investment growth.
Moody's feels that the government has taken encouraging steps to reduce regulations.
"The government wants more foreign businesses to invest in India, with a focus on public and
private partnerships, it said. "Foreign investment in India has been weak because of significant
red tape and taxes. The government is taking encouraging steps to reduce these burdensome
regulations to entice more foreign investment," said Moody's.

Lower crude oil prices:

IMF is of the opinion that in many economies softer oil will help reduce inflation and lower
external vulnerability and open room for structural reforms. IMF sees crude prices on average
nearly 40 per cent lower on a year ago in 2015, rising 12 per cent in 2016.
"Lower oil prices will raise real disposable incomes, particularly among poorer households, and help
drive down inflation," IMF said for India, as it called upon countries to press ahead with subsidy
reforms.
World Bank said South Asia was the greatest global beneficiary of cheap oil as all countries were
net importers.

Lower external vulnerabilities:

IMF has forecast a stable current account deficit.

World Bank, on its part, pegged the current account deficit at well below 2 per cent in the medium
term and noted that India "has a resilient external position" less than two years after the rupee
depreciation episode.
Meanwhile, Crisil is of the opinion that India is better prepared to handle any shock from a US
Federal Reserve hike.

Better among Emerging Markets:

In the report titled India's Economy Is On The Mend, But Corporations Remain Wary, Crisil said the
growth prospects "appear brighter", particularly among emerging markets.
The report noted that India is now the fastest growing economy among the BRICS nations (Brazil,
Russia, India, China, and South Africa) and is no longer seen as part of the "fragile five" (Turkey,
Indonesia, Brazil, and South Africa).

Coastal corridor: ADB approves $631 mn. loan

Details :
Multilateral funding agency Asian Development Bank has approved $631 million for building India’s first
coastal industrial corridor between Visakhapatnam and Chennai. The fund will help develop the first key
800-km section of the planned 2,500-km East Coast Economic Corridor expected to spur development on
India’s eastern coast and enable seamless trade links with other parts of South and
Southeast Asia. The total cost of the project is $846 million and work on it is expected to be over by
2031. The remaining $215 million would be funded by the Andhra Pradesh government.

About the Visakhapatnam-Chennai Industrial Corridor:

The Visakhapatnam-Chennai Industrial Corridor section of the East Coast Economic Corridor,
connecting four economic hubs and nine industrial clusters, will mark the first industrial corridor
developed along India’s coast.
The East Coast Economic Corridor will ultimately extend from Kolkata in West Bengal in the
northeast of India to Tuticorin in Tamil Nadu near the southern- most point of the country.
The Indian government is keen to encourage manufacturing, including through its “Make in India”
initiative, to maintain strong economic growth over the longer term and to create productive,
well-paying jobs for a labor force that is growing by around 12 million people per year.
Currently, manufacturing provides around 15% of India’s gross domestic product (GDP).
India’s National Manufacturing Policy is targeting manufacturing contributing at least 25% of GDP by
2022, much the same as in the People’s Republic of China, Malaysia, and Viet Nam now.
The new infrastructure will be built in the four main centers along the corridor - Visakhapatnam,
Kakinada, Amaravati, and Yerpedu-Srikalahasti - as well as in nearby industrial areas.
It will include 138 kilometers of state highways and roads, effluent and water treatment plants,
488 kilometers of drinking water pipes, 47 kilometers of storm drains, 10 power substations, and
281 kilometers of power transmission and distribution lines.
The program will also focus on increasing women’s participation in the industrial workforce.
Skills training for 25,000 male and female workers, entrepreneurs, and students along with an investor
promotion plan is expected to help develop businesses along the corridor.

About the Asian Development Bank (ADB) :

The Asian Development Bank (ADB) is a regional development bank established on 19 December
1966.
which is headquartered in Ortigas Center located in Mandaluyong, Metro Manila, Philippines, and
maintains.
It promote social and economic development in Asia.
The bank admits the members of the United Nations Economic and Social Commission for Asia
and the Pacific (UNESCAP, formerly the Economic Commission for Asia and the Far East or ECAFE)
and non-regional developed countries.
From 31 members at its establishment, ADB now has 67 members, of which 48 are from within
Asia and the Pacific and 19 outside.
The ADB was modeled closely on the World Bank, and has a similar weighted voting system where
votes are distributed in proportion with members' capital subscriptions.
At the end of 2014, Japan holds the largest proportion of shares at 15.7%. The United States holds
15.6%, China holds 6.5%, India holds 6.4%, and Australia holds 5.8%.
High import duties, impasse over trade pact irk Germany

Details :

German industry's major concerns regarding doing business in India are non- availability of land, high
duties on goods, shortage of skilled workers, absence of an India-European Union (EU) investment
protection pact and the impasse in the proposed India-EU Free Trade Agreement (FTA) negotiations.
Germany is the seventh largest foreign investor in India with $8.64 billion worth foreign direct
investment (FDI), accounting for three per cent of the total FDI of $288.6 billion during April 2000-March
2016.

India-EU Free Trade Agreement (FTA):

Free Trade Agreement (FTA) negotiations have been ongoing between the EU and India for more
than nine years now.
The FTA aims to reduce tariffs on goods, facilitate trade in services, and boost investments between
the two sides.
The EU and India Free Trade Agreement negotiations were launched in 2007. After substantial
progress was made through a number of negotiation rounds, discussions are currently focused on
key outstanding issues that include improved market access for some goods and services,
government procurement, geographical indications, sound investment protection rules, and
sustainable development.
But after 12 formal rounds of talks, and several technical meetings and discussions, negotiations came
to a de facto standstill in Summer 2013 due to a mismatch of ambitions and expectations.
Negotiations focused on market access for goods and services, and included a meaningful chapter
on government procurement and sustainable development. Discussions resumed in January 2016,
to assess whether sufficient progress can be made on key outstanding issues before negotiations
are formally begun again.

India-EU Trade:

The EU is India's number one trading partner (13% of India's overall trade with the world in 2014-
15), well ahead of China (9.5%), USA (8.5%), UAE (7.8%) and Saudi Arabia (5.2%).
India is the EU's 9th trading partner in 2015 (2.2% of EU's overall trade with the world), after South
Korea (2.6%) and ahead of Brazil (1.9%).
The value of EU exports to India grew from €21.3 billion in 2005 to €38.1 billion in 2015, with
engineering goods, gems and jewelry, other manufactured goods and chemicals ranking at the top.
The value of EU imports from India also increased from €19.1 billion in 2005 to
€39.4 billion in 2015, with at the top textiles and clothing, chemicals and engineering goods.
Trade in services almost tripled in the past decade, increasing from €5.2billion in 2002 to €14
billion in 2015.
EU investment stocks in India amounted to €38.5 billion in 2014, increasing from €34.7 billion in
the previous year.
Sept. 20, 2016
Need more data to help small enterprises, says Ministry

Details :

The government’s intervention for promoting small enterprises ís plagued by a lack of contemporary
data and an overt focus on activity in the manufacturing sector, official from the Ministry of Micro, Small
and Medium Enterprises said. According to the sixth economic census of enterprises in India, there are
5.8 crore such enterprises in the country, of which about 1.7 crore are manufacturing units and the rest
are engaged in services or retail or trading businesses.

That data has just been released, but is of 2013 vintage, said K.K. Jalan, secretary in the Ministry of
Micro, Small and Medium Enterprises (MSME). It doesn’t create that kind of impact on policy-making in
late 2016. So, to overcome this, we have created an MSME data-bank and the industry must furnish data
on it, as it is now compulsory, he said.

What is the definition of MSME?

The Government of India has enacted the Micro, Small and Medium Enterprises Development
(MSMED) Act, 2006 in terms of which the definition of micro, small and medium enterprises is as
under:
Enterprises engaged in the manufacture or production, processing or preservation of goods as
specified below:
A micro enterprise is an enterprise where investment in plant and machinery does not exceed Rs.
25 lakh;
A small enterprise is an enterprise where the investment in plant and machinery is more than Rs.
25 lakh but does not exceed Rs. 5 crore;
A medium enterprise is an enterprise where the investment in plant and machinery is more than
Rs.5 crore but does not exceed Rs.10 crore.
Enterprises engaged in providing or rendering of services are specified below: A micro enterprise
is an enterprise where the investment in equipment does not exceed Rs. 10 lakh;
A small enterprise is an enterprise where the investment in equipment is more than Rs.10 lakh but
does not exceed Rs. 2 crore;
A medium enterprise is an enterprise where the investment in equipment is more than Rs. 2 crore
but does not exceed Rs. 5 crore.

Problems faced by MSME:

MSME entrepreneurs are facing several problems i.e. lack of

adequate capital,
Poor infrastructure
Access to modern technology Access to
markets
Getting statutory clearances related to power, environment, labour etc. etc. etc.

Government Initiatives:
To obviate these problems, the Ministry of Micro, Small and Medium Enterprises (MSME) is
implementing a number of Schemes & Programmes like
Credit Guarantee Scheme,
Credit Linked Capital Subsidy Scheme,
 Cluster Development Programme and
National Manufacturing Competitiveness Programme etc. Furthermore, the Ministry
has been interacting with various concerned
Ministries/Departments/State Governments/Banks and other stake-holders to streamline the
mechanism for grant of loans, simplify labour laws and other procedures to facilitate the growth of
MSME units.

Mumbai awaits nod for global financial centre

Details :

The Centre will this week consider Maharashtra Government’s request to ease land norms to facilitate
the establishment of an International Financial Services Centre (IFSC) in Mumbai.

If approved, the IFSC — proposed to be set up at the Bandra Kurla Complex (BKC) in the country’s
financial capital — will be the second such centre in India after the Gujarat International Finance Tec-City
(GIFT City) in Gandhinagar.

What is an International Financial Services Centre (IFSC)?

An IFSC caters to customers outside the jurisdiction of the domestic economy. Such centres deal
with flows of finance, financial products and services across borders.
London, New York and Singapore can be counted as global financial centres. Many emerging IFSCs
around the world, such as Shanghai and Dubai, are aspiring to play a global role in the years to
come.
An expert panel headed by former World Bank economist Percy Mistry submitted a report on
making Mumbai an international financial centre in 2007.
However, the global financial crisis that unfolded in 2008 made countries including India cautious
about rapidly opening up their financial sectors.

What are the services an IFSC can provide?

Fund-raising services for individuals, corporations and governments.

Asset management and global portfolio diversification undertaken by pension funds, insurance
companies and mutual funds.
Wealth management.
Global tax management and cross-border tax liability optimization, which provides a business
opportunity for financial intermediaries, accountants and law firms.
Global and regional corporate treasury management operations that involve fund-raising, liquidity
investment and management and asset-liability matching Risk management operations such as
insurance and reinsurance.
Merger and acquisition activities among trans-national corporations.
Nodal Agencies:

The commerce ministry has been roped in as it is the nodal body at the Centre for SEZ-related
matters.
While the guidelines concerning IFSC come under the purview of financial sector regulators such as
the RBI, IRDA and SEBI as well as the finance ministry, the SEZ Act is also applicable in this case as
IFSC is set up in an SEZ.
Arguments for and against giving approval for setting up more than one IFSC in the country:

Those against the proposal for a second IFSC in India (at BKC) have contended that examples from
across the world show that most countries have been able to produce only one major
international financial centre in their territory – for instance, London (U.K.), New York (U.S.),
Tokyo (Japan), Zurich (Switzerland), Shanghai (China), Frankfurt (Germany), Singapore, Hong Kong
and Dubai.
Therefore, it may not be feasible to have more than one IFSC in India especially since the GIFT in
Gujarat took off as an IFSC only in March 2015, they said.
Besides, if at all another IFSC has to be established, it should be in the south or another part of
India as the IFSC at Gandhinagar (Gujarat) is not only situated close to Mumbai but is also well
connected by air and rail.
It will also be connected by a bullet train soon,they said.
However, those favouring another IFSC have pointed out that the SEZ Act does not prohibit more
than one IFSC in the country.
According to the SEZ Act, the Centre can approve the establishment of an IFSC in an SEZ and
prescribe the requirements for its setting up and operation.
However, the rider is that the Centre can approve only one IFSC in an SEZ.

Sept. 19, 2016

Current account moves into surplus, raises export concerns

Details :

India's current account moved in to surplus because of Slow growth in imports, in the April-June quarter
of the current fiscal year, after a gap of 9 years. The current account was in surplus last in the January-
March quarter in the year 2007.A surplus is expected to bolster the rupee, which could render India's
already subdued exports less competitive.The RBI could be expected to intervene in the foreign exchange
markets to prevent the rupee from strengthening too much. A current account in deficit reflects that the
imports of goods, services and investment incomes into the economy outstripped the value of its exports.

How Appreciation and Depreciation of Rupee affect Export?

As the Rupee depreciates, it becomes lucrative for various companies to export things.
Why is it so?
The mere reason being the local value of the currency that is being used to do the trade, which in
our case is US dollars.
When companies in India export goods to other countries, the payment for these deals are usually
done in US Dollars.
Now since the value of the Rupee has depreciated, these companies will get more Indian rupees
for every dollar that they convert here.
For instance if we consider a company that was having export incomes of US
$500 would be making around Rs. 25,000 after the conversion considering $1 = Indian Rs. 50.
Now when the Rupee value has depreciated, the new value of $1 = Indian Rs. 60 (lets consider).
This means that the same company which was making Rs. 25,000 earlier in
 earnings will now be making Rs. 30,000 owing to the depreciation.
The amount of goods exported stays same and so does the amount of dollars earned.
Now lets say that the rupee has appreciated against the dollar and the value of
$1 = Indian Rs. 40/- In this case the above company which is still exporting the same amount of
goods and getting paid US $500 will get less money after converting the american dollars to Indian
currency, approx. Rs. 20,000 considering our scenario.
Thus we can see from the above case scenario as to how the Depreciating rupee is good for
exporters and how the appreciating rupee is a lot less lucrative for the exporters in India.

To know about Current Account, please read this Article: https://lms.vajiramandravi.com/current-

affairs/exports-shrink-03-on-weak-global- demand/57dba98eb680d332dcb5f4e8/

Simplify factory inspections for ‘ease of doing business’: CII

Details :

The factory inspection system needs a complete overhaul to bring India among the top 50 countries in
terms of ‘ease of doing business’ in the next two years, according to the Confederation of Indian
Industries (CII).

India is currently placed at 130 out of 189 countries in the ‘ease of doing business’ rankings.
Ease of doing business is an index published by the World Bank.
It is an aggregate figure that includes different parameters which define the ease of doing
business in a country.

What the CII white paper said:

The excessive number of inspections in India weighs down on the competitive advantage and the
‘ease of doing business’ of Indian businesses,”CII said in its white paper titled ‘Inspections and
Regulatory Enforcements for Micro Small and Medium Enterprises (MSMEs) in India.’
The white paper noted that a manufacturing company in India has to comply with around 70 laws
and regulations.
It further said that 40 inspectors and government officials visit factories on an average with the
ulterior motive to fleece the company promoters and owners. Most of the inspections conducted are
related to environment or labour law compliances.
Apart from multiple inspections, a company has to file around 100 returns every year, it said.
Inspections in India have been found to be excessive, duplicate and complicated, imposing
significant costs on businesses, especially MSMEs, the paper noted.
While most inspections are selected locally, “without any objective criteria, inspectors act over-
zealously and make “extortionist demands from factories,” according to the document.
Solutions:
 CII called for an integrated inspection system and highlighted the need for inculcating a risk-based
approach in the inspection system which will rationalise the number of inspections and weed out the
redundancy and duplicity.
It said a portal could be created for automatically updating invoices related to excise, sales tax,
customs and the like by SMEs and that this could be used by regulators and inspectors in lieu of
physically visiting the factory premises.
Audited accounts of SMEs could be used by inspectors while performing verification, it added.
It also urged the central government to encourage the states to pursue a process for simplification
of labour laws and compliance.

Rich Indians worry as ‘dollar’ visa set to end

Details :

The United States of America's EB-5 Programme, labelled in a lighter vein as the 'Green Card for
greenback' scheme, has been attracting oodles of eyeballs — including from India — of late.

However, many high net worth individuals the world over, including in India, are worried as the
controversial immigrant visa programme for the wealthy is set to expire this month-end.

About the Programme:

Simply put, the programme grants rich entrepreneurs — as well as their spouses and unmarried
children below the age of 21 — an opportunity to bag the coveted U.S. Green Card (or status of
permanent residence) and Citizenship.
All they have to do is invest in just over half a million dollars in the U.S. and ensure that the funds
help generate at least ten full-time jobs for qualified U.S. workers.
The visa, given in exchange for investments, grants the holder a conditional permanent residence
status.
After two years, the conditions may be removed, when it becomes permanent green card that can
lead to citizenship, provided it has resulted in the creation of 10 jobs.
The programme is named EB-5 as it is the fifth preference category under the Employment-Based
(EB) immigration visas.
The EB-5 programme was created in 1990 with the approval of the US Congress
— America’s highest law-making body.
It aims to boost the American economy by attracting investment from foreign nationals and
generating employment for locals.
In 1992, its scope was widened through an Immigrant Investor Programme, or the Regional Centre
Programme.
In 2015, the U.S. authorities issued 111 EB-5 visas to Indians — that is 15 more than the previous year,
and 74 more than the number of such immigrant visas issued in 2011.
The rapid rise in the number of EB-5 visas to Indians in the last few years had led to the filing of
over a thousand applications under that category from India this year.
Sept. 18, 2016

Balance populism with spending: FM

Details :

Governments need to balance their political impulse towards populism and the need for sound
expenditure management, Union Finance Minister Arun Jaitley
said. Highlighting the importance of the Fiscal Responsibility and Budget Management (FRBM) Act and
its related targets in ensuring this, Mr. Jaitely said: “One of the reasons why the FRBM targets in India
were statutorily brought in was really because, in public life and politics, there was always a conflict
between populism and financial discipline.” The government in May announced the constitution of a
panel under Former Revenue Secretary and Rajya Sabha MP N.K. Singh to review the FRBM Act of 2003,
as outlined by Mr. Jaitley in his Budget speech. The panel will also look into the possibility of replacing
absolute fiscal deficit targets with a target range.

About Fiscal Responsibility and Budget Management (FRBM) Act:

Fiscal Responsibility and Budget Management (FRBM) became an Act in 2003. The objective of the
Act is to ensure inter-generational equity in fiscal management, long run macroeconomic stability,
better coordination between fiscal and monetary policy, and transparency in fiscal operation of
the Government.
The Government notified FRBM rules in July 2004 to specify the annual reduction targets for fiscal
indicators.
The FRBM rule specifies reduction of fiscal deficit to 3% of the GDP by 2008-09 with annual
reduction target of 0.3% of GDP per year by the Central government.
Similarly, revenue deficit has to be reduced by 0.5% of the GDP per year with complete
elimination to be achieved by 2008-09.
It is the responsibility of the government to adhere to these targets.
The Finance Minister has to explain the reasons and suggest corrective actions to be taken, in case
of breach.

Amendments to the FRBM Act:

Amendments to the FRBM Act were introduced subsequent to the recommendations of 13th
Finance Commission.
Concept of “Effective Revenue Deficit” and “Medium Term Expenditure Framework” statement
are the two important features of amendment to FRBM Act in the direction of expenditure
reforms. Effective Revenue Deficit is the difference between revenue deficit and grants for
creation of capital assets.
This will help in reducing consumptive component of revenue deficit and create space for increased
capital spending.
Effective revenue deficit has now become a new fiscal parameter.
“Medium-term Expenditure Framework” statement will set forth a three-year rolling target for
expenditure indicators.
Vide the Finance Act 2015, the target dates for achieving the prescribed rates of effective deficit
and fiscal deficit were further extended.
The effective revenue deficit which had to be eliminated by March 2015 will now need to be
eliminated only after 3 years i.e., by March 2018.
 The 3% target of fiscal deficit to be achieved by 2016-17 has now been shifted by one more year
to the end of 2017-18.

Recent Committee to review the implementation of the FRBM Act:

In the Union Budget 2016-17 it was proposed to constitute a Committee to review the
implementation of the FRBM Act and give its recommendations on the way forward.
N.K.Sing committee has been constituted regarding this.
This was in view of the new school of thought which believes that instead of fixed numbers as
fiscal deficit targets, it may be better to have a fiscal deficit range as the target, which would give
necessary policy space to the Government to deal with dynamic situations.
There is also a suggestion that fiscal expansion or contraction should be aligned with credit
contraction or expansion respectively, in the economy. While remaining committed to fiscal
prudence and consolidation, Budget stated that a time has come to review the working of the FRBM
Act, especially in the context of the uncertainty and volatility which have become the new norms of
global economy.

Finance Ministry moves to fill SAARC Development Fund posts

Details :

Ahead of the SAARC Summit in Islamabad, the Union Finance Ministry has posted a call for applications
for economy, infrastructure and social development posts in the “umbrella financial mechanism” for the
region’s projects and programmes, the SAARC Development Fund. The openings include the jobs of the
Directors of the Fund’s three funding windows: Social, Economic and Infrastructure. They will be located
in the Fund’s Secretariat in Thimphu, Bhutan.

What is the SAARC Development Fund, and what does it do?

SAARC Development Fund (SDF) Secretariat, based in Thimphu, was inaugurated by the Heads of
State/Governments of SAARC Member States on the first day of the 16th SAARC Summit in
Thimphu on April 28, 2010.
The SDF Charter has been ratified by Parliaments of the eight SAARC Member States and the
Instrument of Ratification issued on April 15, 2010.
The primary objective of the SDF is
To promote the welfare of the people of SAARC Region, To improve
their quality of life, and
To accelerate economic growth, social progress and poverty alleviation in the SAARC Region.

Who owns the SAARC Development Fund?

The eight SAARC Member States i.e. Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan
and Sri Lanka created/established the fund.
Who runs the Fund?

The Governing Council is the apex management body of the SDF.

The Member States are represented in the Governing Council, by their respective Finance
Ministers.
 The GC is the apex policy-making body of the Fund. The GC
meets once a year for operational matters.

Sept. 17, 2016

Steel sector showing signs of turning around: Jaitley

Details :

The steel industry, one of the top contributors to the banks’ Non-Performing Assets (NPA), is slowly
turning around and companies are beginning to pay interest dues to banks, it is showing the positive sign
for the recovery of NPA Finance Minister has said. The major contributors to the NPA continue to be the
steel and infrastructure sectors.

Initiatives taken by the government:

In the steel sector, the government introduced a minimum import price to protect domestic firms
from a flood of cheap imports.
In other sectors, like infrastructure construction, the government has tried to ensure at least partial
payment to contractors even in the case of disputes.
In addition to this, the Reserve Bank of India has provided banks with a number of tools to convert
debt in stressed firms into equity, which can allow them to bring in new promoters.
The government had promised Rs.70,000 crore to recapitalise banks over a four-year period up
to March 2019.
Of this, Rs.25,000 was injected last year, and another Rs.22,900 crore has been committed this year.

What is Non Performing Assets?

As per RBI norms, a non performing asset (NPA) is a loan or advance for which the principal or
interest payment remained overdue for a period of 90 days.
These assets fail to bring the expected return on the loans or advances made by the banks.
Banks are required to classify NPAs further into Substandard, Doubtful and Loss assets.
Substandard assets: Assets which has remained NPA for a period less than or equal to 12 months.
Doubtful assets: An asset would be classified as doubtful if it has remained in the substandard
category for a period of 12 months.
Loss assets: According to RBI, Loss asset is considered uncollectible and of such little value that its
continuance as a bankable asset is not warranted, although there may be some salvage or recovery
value.
In case of Agriculture / Farm Loans; the NPA is defined as under: For short duration crop
agriculture loans such as paddy, Jowar, Bajra etc. if the loan (Principle/ interest) is not paid for two
 crop seasons, it would be termed as a NPA. For Long Duration Crops, it would be one crop
season.

Legislative Mechanisms for debt recovery:

There are various legislative mechanisms available with banks for debt
 recovery. These include:
Recovery of Debt Due to Banks and Financial Institutions Act, 1993 (DRT Act) and
Securitisation and Reconstruction of Financial Assets and Security Interest Act, 2002 (SARFAESI Act).
The Debt Recovery Tribunals established under DRT Act allow banks to recover outstanding loans.
The SARFAESI Act allows a secured creditor to enforce his security interest without the
intervention of courts or tribunals.
In addition to these, there are voluntary mechanisms such as Corporate Debt Restructuring and
Strategic Debt Restructuring, which
These mechanisms allow banks to collectively restructure debt of borrowers (which includes
changing repayment schedule of loans) and take over the management of a company.

Recommendations of the Committees on NPAs.

Action against defaulters: Wilful default refers to a situation where a borrower defaults on the
repayment of a loan, despite having adequate resources. As of December 2015, the public sector
banks had 7,686 wilful defaulters, which accounted for Rs 66,000 crore of outstanding loans.
The Standing Committee of Finance, in February 2016, observed that 21% of the total NPAs of
banks were from wilful defaulters.
It recommended that the names of top 30 wilful defaulters of every bank be made public.
It noted that making such information publicly available would act as a deterrent for others.
Asset Reconstruction Companies (ARCs): ARCs purchase stressed assets from banks, and try to
recover them.
The ARCs buy NPAs from banks at a discount and try to recover the money. The Standing
Committee observed that the prolonged slowdown in the economy had made it difficult for
ARCs to absorb NPAs.
Therefore, it recommended that the RBI should allow banks to absorb their written-off assets
in a staggered manner.
his would help them in gradually restoring their balance sheets to normal health.
Improved recovery: The process of recovering outstanding loans is time consuming.
This includes time taken to resolve insolvency, which is a situation where a borrower is unable to
repay his outstanding debt.
The inability to resolve insolvency is one of the factors that impacts NPAS, the credit market, and
affects the flow of money in the country.[
As of 2015, it took over four years to resolve insolvency in India.
This was higher than other countries such as the UK (1 year) and USA (1.5 years).
The Insolvency and Bankruptcy Code seeks to address this situation.

Hike MSP for chickpeas during rabi season: Panel

Details :

Giving paramountcy to increasing domestic pulses output, a committee headed by chief economic
adviser Arvind Subramanian on Friday recommended hikes in
minimum support prices (MSP) for key pulses besides suggesting creation of an institution through
public-private partnership for procurement of lentils from farmers.

Background:

The UN General Assembly declared 2016 the International Year of Pulses. For India, this
declaration comes at a salient time.
In the wake of two successive years of weak monsoons in 2014 and 2015 and the resulting
mismatch between demand and supply, prices of pulses rose sharply, leading to higher inflation
and straining the purchasing power of consumers all over India.
This is being followed in the current kharif season by the opposite development: a sharp increase
in domestic production combined with a surge in global production of pulses.
The resulting decline in prices threatens to affect farmers’ incomes and livelihoods.
To address the policy issues that would help address this volatility in acreage, production and
prices in pulses, the Government constituted a Committee headed by Dr. Arvind Subramanian,
Chief Economic Adviser, to review the Minimum Support Prices (MSPs) and related policies to
incentivize the cultivation of pulses.

Important suggestions:

It also suggested elimination of export ban on pulses and stock limits.

It recommended cultivation of locally developed GM pulses varieties and hinted at the desirability
of lifting the ban on futures trading in farm commodities.
Enhancing domestic productivity and production rapidly and sustainably is the only reliable way of
minimizing this volatility (in prices), and safeguarding the interests of farmers and also
consumers,” the committee in its report titled ‘Incentivising pulses production through MSP and
related policies’ stated.
It recommended raising MSPs of tur/arhar and urad by 19-20% to Rs 6,000/qtl for next kharif, and
chana MSP by 17% to Rs 4,000/qtl for 2016-17 rabi crop. In the report, the committee, set up in
the context of the recent spike in prices of pulses, urged the government agencies like Food
Corporation of India (FCI) and Small Farmers Agri-Business Consortium to procure kharif sown
pulses immediately from farmers.
The panel also sought weekly reporting of pulses procurement.
It’s vital to ensure that farm gate prices do not drop below MSP otherwise in the next season the
farmers might switch back away from growing pulses.
It also said that the Commission for Agricultural Costs and Prices (CACP) should comprehensively
review its MSP-setting framework by incorporating risk and social externalities.
It said farmers may be given production subsidies of about Rs 10-15 per kg directly for growing
pulses in irrigated areas.
Meanwhile, encouraged by the price spike, farmers have resorted to pulses sowing, taking the
area under this crop to close to 145 lakh hectares for this kharif season .
Area under tur has gone up by close to 40%, while urad and moong areas have risen 25% and 33%,
respectively.
MFIs see higher growth in urban India than rural: Report
Details :

Over the last year, microfinance institutions (MFIs) have seen their business grow faster in urban India
than in rural, according to an annual report by Sa-Dhan, the self-regulatory body for MFIs.

In addition, the report finds that these loans are being put to increasingly productive uses with a higher
proportion of them going towards income generation than before. The report also found that 94 per cent
of the loans disbursed in 2015-16 were used for income-generating purposes, up from 80 per cent in the
previous year.

What is Microfinance?

Microfinance is the provision of a broad range of financial services such as deposits, loans,
payment services, money transfers and insurance to the poor and low income households and
their micro-enterprises.
Microfinance is defined as “Financial Services (savings, insurance, fund, credit etc.) provided to
poor and low income clients so as to help them raise their income, thereby improving their
standard of living”.

Importance of Microfinance:

Micro financing has been successful in taking institutionalized credit to the doorstep of poor and have
made them economically and socially sound.
Poverty Alleviation:- Due to micro finance poor people get employment.
It also helps them to improve their entrepreneurial skills and encourage them to exploit business
opportunities.
Employment increases income level which in turn reduces poverty.
Women Empowerment :- Normally more than 50% of SHGs are formed by women.
Now they have greater access to financial and economical resources. It is a step
towards greater security for women.
Thus microfinance empowers poor women economically and socially. Economic Growth :-
Finance plays a key role in stimulating sustainable economic growth.
Due to microfinance, production of goods and services increases which increases GDP and
contributes to economic growth of the country.
Mobilisation Of Savings :- Microfinance develops saving habits among people.
Now poor people with meagre income can also save and are bankable.
The financial resources generated through savings and micro credit obtained from banks are
utilised to provide loans and advances to its members.
Thus microfinance helps in mobilisation of savings.
Development Of Skills: Micro financing has been a boon to potential rural entrepreneurs.
SHGs encourage its members to set up business units jointly or individually. They receive training
from supporting institutions and learn leadership qualities. Thus micro finance is indirectly
responsible for development of skills. Mutual Help And Co.operation: Microfinance promotes
mutual help and co.operation among members.
The collective efforts of group promotes economic interest and helps in achieving socio-economic
transition.
Social Welfare: With employment generation the level of income of people increases.
 They can now get better education, health, family welfare etc. Thus micro finance
leads to social welfare or betterment of society.

Task force to evolve steps to boost India’s innovation ecosystem

Details :

The Department of Industrial Policy & Promotion (DIPP) has decided to set up a Task Force on
Innovation, It will comprise members from the industry and the government and will assess India’s
position as an innovative country, suggest measures to enhance the innovation ecosystem and improve
the country’s ranking in the Global Innovation Index (GII). India’s ranking in GII-2016 rose 15 places to
66th position.

The Global Innovation Index 2016 Report:

India scored a major improvement in its Global Innovation Index ranking in 2016, moving up to the
66th place from 81 in 2015.
India's better performance in the latest index readings was due to its strengths in tertiary
education, software exports, corporate R&D and market sophistication.
Among middle-income countries, India (25) came second after China (17) in innovation quality,
overtaking Brazil (27).
China figured at the 25th position (29 in 2015), the only middle-income country in the top 25.
The report said India was starting to excel in ICT and creative goods exports, setting a good
example of how policy was improving the innovation environment.
Overall, Switzerland emerged as the global leader followed by Sweden, the UK, the US and
Finland. Switzerland had ranked first in the 2015 index as well.

About the Global Innovation Index:

The Global Innovation Index (GII) aims to capture the multi-dimensional facets of innovation and
provide the tools that can assist in tailoring policies to promote long-term output growth,
improved productivity, and job growth.
The GII helps to create an environment in which innovation factors are continually evaluated.
The Global Innovation Index 2016 (GII), in its 9th edition this year, is co- published by Cornell
University, INSEAD, and the World Intellectual Property Organization (WIPO, an agency of the
United Nations).
The index was started in 2007.
The core of the GII Report consists of a ranking of world economies’ innovation capabilities and
results.
Sept. 16, 2016

Exports shrink 0.3% on weak global demand

Details :
The country’s merchandise exports in August shrank 0.3 per cent year-on-year to
$21.5 billion due to weak global demand and a fall in exports of petroleum products. Exports of goods had
contracted for 18 consecutive months from December 2014 to May 2016, but moved slightly to the
positive territory in June with marginal 0.92 per cent growth because of a low base. However, it quickly
slipped back to the red in July when it shrank 6.86 per cent. Imports in August contracted by 14.09 per
cent to
$29.19 billion. (These facts are not relevant for Your exam) Important Economics
Concepts fro Preliminary Exam.
What is Balance Of Payment?

According to the RBI, balance of payment is a statistical statement that shows The transaction in
goods, services and income between an economy and the rest of the world,
Changes of ownership and other changes in that economy's monetary gold, special drawing rights
(SDRs), and financial claims on and liabilities to the rest of the world, and
Unrequited transfers.
The transactions in BOP are categorised in
Current account showing export and import of visibles (also called merchandise) and invisibles
(also called non-merchandise). Invisibles take into account services, transfers and income.
Capital account showing a capital expenditure and income for a country.
It gives a summary of the net flow of both private and public investment into an economy.
External commercial borrowing (ECB), foreign direct investment, foreign portfolio investment, etc
form a part of capital account.
Sometimes the balance of payment does not balance.
This imbalance is shown in the BOP as errors and omissions.
BOP is compiled using the double entry book keeping system consisting assets and liabilities.

What is Current Account?

Current account is one of the two component accounts of the balance of payments of a nation.
It records the trade of goods and services of an economy with other countries of the world.
Current account includes three components - net exchange i.e. exports minus imports of goods, net
exchange of services and net transfers to and from the country.
The balance in this account before accounting for the transfer component is generally referred to as
the balance of trade.
In India, current account is reported by the Reserve Bank of India.
The exchange of goods and services is recorded for the current period and hence is called current
account.
The current account figure reveals the pattern of foreign trade.
If the balance of trade is negative, then the country is importing more goods and services than its
exports of these.
The other component of the BOP is the capital account.

What is Capital Account?

 Capital account can be regarded as one of the primary components of the balance of payments of
a nation.
It gives a summary of the capital expenditure and income for a country.
The capital expenditure and income is tracked by way of funds in the form of investments and loans
flowing in and out of an economy.
This account comprises foreign direct investments, portfolio investments, etc.
It gives a summary of the net flow of both private and public investment into an economy.
A capital account deficit shows that more money is flowing out of the economy along with increase
in its ownership of foreign assets and vice-versa in case of a surplus.
The balance of payments contains the current account (which provides a summary of the trade of
goods and services) in addition to the capital account which records all capital transactions.

India salaries inch up, Chinese rise 11%

Details :

India has seen a salary growth of just 0.2 per cent since the great recession eight years back (in 2008),
while China recorded the largest real salary growth of 10.6 per cent during the period under review, says
a report. Also the Indian wage growth is the most unequal.

Reasons for unequal wage growth:

The report noted that Indian wage growth is the most unequal, because- People at the bottom
are 30 per cent worse off in real terms since the start of the recession; whilst people at the top
are 30 per cent better off.
Strong wage growth for senior jobs is mostly because of skill shortages for key professional and
managerial roles.
And also the increasing connection to a more globalised pay market at the senior levels — a
market where India still pays less than most countries, but is catching up fast.
Regarding the poorer wage growth at the bottom, the report noted that it was more because of an
oversupply of people.
India has made less progress than some other countries in bringing high value jobs to the country.
This has led to poor job growth, therefore an oversupply of unskilled or semi— skilled people, and
poor wage growth.

Job Growth in India:

Between 2005 and 2012, India’s GDP growth was 54% but its net job growth was only 3%.
There were only about 15 million net new jobs.
This giant disconnect will worsen in the coming decade. Assuming 7-8%
annual growth, 2025 will see GDP double. India will add over 80 million net
new job seekers.
But at current rates only 30 million net new jobs – mostly informal, and low- wage ones – will be
created.
India should therefore prioritise policies that link GDP growth with job growth. Recent initiatives like
‘Startup India’ and ‘Skill India’ are crucial, in this respect.
Sept. 15, 2016

Bayer to buy Monsanto for $66 billion

Details :

After months of courtship, German drug and farm chemical maker Bayer AG finally reached an
agreement to buy U.S. seed and weed-killer company Monsanto, in a deal that is valued at $66 billion
and which will keep the merged entity’s seed business in Monsanto’s home base of St. Louis. But the
proposed merger will likely face an intense and lengthy regulatory process in the United States, Canada,
Brazil, the European Union and elsewhere. Both Bayer and Monsanto have presence in India. The deal
marks a major consolidation in global seed business. Recently, Monsanto's rival Syngenta was acquired
by ChemChina.

The Deal:

The $128-a-share deal is up from Bayer’s previous offer of $127.50 a share. This is the biggest of
the year so far and the largest cash bid on record.
The transaction will create a company commanding more than a quarter of the combined world
market for seeds and pesticides.
The transaction includes a break-fee of $2 billion that Bayer will pay to Monsanto should it fail to
get regulatory clearance.

Importance of the deal:

If regulators approve the deal, the German pharmaceutical and chemical conglomerate would
inherit Monsanto’s market-leading position in seeds and crop genes.
That would tilt Bayer heavily toward agriculture in a long-range bet on high- tech crops to sustain
a growing global population.
Bayer plans to fuse its prowess in pesticides—it ranks among the world’s largest suppliers—with
Monsanto’s capabilities in seed genetics and biotechnology, which have allowed it to develop
corn, soybeans, cotton and other crops that can survive weed-killing sprays and make natural
toxins to repel bugs.
The merged company would be the largest supplier by sales of both seeds and pesticides.
The deal is expected to close by the end of 2017.

Presence in India:

Monsanto, which played a key role in increasing cotton output through genetically modified
technologies, has three entities in India - Monsanto India Ltd (MIL), Monsanto Holdings Pvt Ltd
(MHPL) and JV firm Mahyco Monsanto Biotech India Ltd (MMBL) with a staff strength of more
than 1,000.
Bayer CropScience, a listed Indian entity, posted a turnover of Rs 3,818.60 crore last fiscal.
Besides crop science, Bayer also has interest in pharmaceuticals, animal health and consumer health
in the country.
Sept. 14, 2016

Global food retail chains, brands eyeing India: Centre

Details :

Big retail chains and food brands from the U.K., Italy and Brazil are eyeing an entry in the Indian market
after the government opened up foreign investments up to 100 per cent in processing, marketing and
retailing of food made in India, Union Food Processing Minister Harsimrat Kaur Badal said.

Important Facts:

India’s food economy is growing at a faster rate than the economy and our food and grocery market is
the sixth largest in the world.
The average Indian spends about 40% of their wallet on food.
Our retail sector is largely in the unorganised sector, only 2 per cent in the organised sector.
The Food Processing ministry has decided to hold a World Food Summit in January 2017 on the
sidelines of the Vibrant Gujarat summit.
The food industry, which is currently valued at US$ 39.71 billion is expected to grow at a
Compounded Annual Growth Rate (CAGR) of 11 per cent to US$65.4 billion by 2018.
The Indian food and grocery market is the world’s sixth largest, with retail contributing 70 per cent of
the sales.
Food has also been one of the largest segments in India's retail sector, which was valued at US$
490 billion in 2013.
The Indian food retail market is expected to reach Rs 61 lakh crore (US$ 894.98 billion) by 2020.
The Indian food processing industry accounts for 32 per cent 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.
It contributes around 14 per cent of manufacturing Gross Domestic Product (GDP), 13 per cent of
India’s exports and six per cent of total industrial investment.
Indian food service industry is expected to reach US$ 78 billion by 2018. According to the data
provided by the Department of Industrial Policies and Promotion (DIPP), the food processing sector
in India has received around US$
6.70 billion worth of Foreign Direct Investment (FDI) during the period April 2000-December
2015.
The Confederation of Indian Industry (CII) estimates that the food processing sectors have the
potential to attract as much as US$ 33 billion of investment over the next 10 years and also
generate employment of nine million person- days.

Single budget will save Railways Rs. 10,000 cr.

Details :

Cash-strapped Railways will save about Rs 10,000 crore annually as it will no longer
have to pay dividend if the separate Rail Budget is scrapped, which is likely to happen from next fiscal.

A joint committee, set up to finalize the modalities for the merger of Rail Budget with the General
Budget, has submitted its report to the finance ministry recommending various changes, including
waiving off of payment of dividend by railways though the practice of getting gross budgetary support
(GBS) from the exchequer, will continue.

Background:

The Railways pays about Rs 10,000 crore as dividend a year after getting about Rs 40,000 crore.
The General Budget, to be presented by the finance minister, will also have a separate annexure
with details of plan and non-plan expenditures to be incurred by the national transporter,
according to the recommendations of the joint committee comprising senior officials from
railways and finance ministry. The recommendations will be placed before the Cabinet which has
to decide on the subject.
Since the railways has already given its consent for the merger, it is now for the Finance Ministry and
the Cabinet have to take a call on the issue.
Earlier this year, a committee headed by NITI Aayog member Bibek Debroy, in a report titled
“Dispensing with the Railway Budget”, had recommended that the two budgets should be
merged to end the 92-year-old practice.
The report is believed to have suggested ways for dealing with the railways’ huge financial
burden, once the Rail Budget is merged with Union Budget.
At present, the railways has to bear an additional burden of about Rs 40,000 crore on account of
implementation of the 7th Pay Commission awards, besides an annual outgo of Rs 33,000 crore on
subsidies for passenger service.
The delay in completion of projects resulted in cost overruns of Rs 1.07 lakh crore and huge
throw-forward of Rs 1.86 lakh crore in respect of 442 ongoing rail projects.
The report is also understood to have addressed the contentious issue of annual dividend payment
by the railways on account of receiving gross budgetary support (GBS).
The railways pays about Rs 10,000 crore a year to the Finance Ministry as dividend for getting the
GBS.

Why should the Railway pay dividend?

Railway Minister Suresh Prabhu asked why should the railways pay dividend when it is already
"over-burdened" with about Rs 60,000 crore worth of public service obligation and increased
wage bill due to the latest pay commission report.
This recommendation of the Standing Committee. I respect it.
But over a period of time we really need to look into why the Railways which is already suffering
due to several other problems also be over-burdened with the responsibility of paying a dividend
and also how the main Budget can actually subsidise or take care of the subsidies which are already
there," the Minister said, adding "I think, we need to look into this issue."
Countering the Minister, K H Muniyappa, senior Congress member and former Minister of State for
Railways, said the railway committee had "unanimously recommended regarding the issue of
dividend."
However, he joined Prabhu in saying that the Railways "are running in public
 interest and for the common people under certain obligations. So, they could
not pay the dividend.

Plan to boost exports to Islamic nations flounders

Details :

India’s move to boost its goods and services exports to over 50 Islamic nations mainly in Africa and Asia
through a $100 million commercial Line of Credit (LoC), has failed to take off even five months after a
pact to that effect. There have been no disbursements under the financing mechanism -- though Export-
Import Bank of India (Exim Bank) and the Islamic Corporation for the Development of the Private Sector
(ICD) had signed a Memorandum of Understanding (MoU) for it in April this year. A worried Exim Bank
has now urged ICD to raise awareness about the facility in the 52 Islamic nations that are ICD members.
ICD is the private sector arm of Islamic Development Bank (IDB) Group.

About the Islamic Corporation for the Development of the Private Sector (ICD):

The Islamic Corporation for the Development of the Private Sector (ICD) is a multilateral development
financial institution and is part of the Islamic Development Bank (IDB) Group.
ICD was established in November 1999 to support the economic development of its member
countries through the provision of finance for private sector projects, promoting competition and
entrepreneurship, providing advisory services to the governments and private companies and
encouraging cross- border investments.
Currently, the shareholders of ICD are the IDB, 52 Islamic countries and five public financial
institutions.
ICD fosters sustainable economic growth in its 52 member countries by financing private sector
investment, mobilizing capital in the international financial markets, and providing advisory
services to business and governments.
ICD financing projects are selected on the basis of their contribution to economic development
considering factors such as job creation, Islamic finance development, contribution to exports etc.
ICD operates to complement the activities of the IDB in member countries and also that of
national financial institutions.

About the Islamic Development Bank:

The Islamic Development Bank is an international financial institution established in pursuance of

the Declaration of Intent issued by the Conference of Finance Ministers of Muslim Countries held
in Jeddah in December 1973, and the Bank was formally opened on 20 October 1975.
The purpose of the Bank is to foster the economic development and social progress of member
countries and Muslim communities individually as well as jointly in accordance with the principles
of Shari'ah i.e., Islamic Law.
FunctionsThe functions of the Bank are to participate in equity capital and grant loans for
productive projects and enterprises besides providing financial assistance to member countries in
other forms for economic and social development.
 The present membership of the Bank consists of 56 countries.
The basic condition for membership is that the prospective member country should be a member
of the Organisation of Islamic Cooperation (OIC), pay its contribution to the capital of the Bank
and be willing to accept such terms and conditions as may be decided upon by the IDB Board of
Governors.
The Bank's principal office is in Jeddah in the Kingdom of Saudi Arabia.

Sept. 13, 2016

GST Council gets Cabinet nod, roll-out likely in April

Details :

The Union Cabinet under the Chairmanship of Prime Minister Shri Narendra Modi has approved setting up of
GST Council and setting up its Secretariat as per the following details:

Creation of the GST Council as per Article 279A of the amended Constitution;

Creation of the GST Council Secretariat, with its office at New Delhi; Appointment of the Secretary
(Revenue) as the Ex-officio Secretary to the GST Council;
Inclusion of the Chairperson, Central Board of Excise and Customs (CBEC), as a permanent invitee
(non-voting) to all proceedings of the GST Council;
Create one post of Additional Secretary to the GST Council in the GST Council Secretariat (at the
level of Additional Secretary to the Government of India), and four posts of Commissioner in the
GST Council Secretariat (at the level of Joint Secretary to the Government of India).

Background:

The Constitution (One Hundred and Twenty-second Amendment) Bill, 2016, for introduction of
Goods and Services tax in the country was accorded assent by the President on 8th September,
2016, and the same has been notified as the Constitution (One Hundred and First Amendment)
Act, 2016.
As per Article 279A (1) of the amended Constitution, the GST Council has to be constituted by the
President within 60 days of the commencement of Article 279A.
The notification for bringing into force Article 279A with effect from 12th September, 2016 was issued
on 10th September, 2016.

As per Article 279A of the amended Constitution, the GST Council which will be a joint forum of the
Centre and the States, shall consist of the following members: -

Union Finance Minister is the Chairperson.

The Union Minister of State, in-charge of Revenue of finance will be its member.

Other members include the Minister In-charge of finance or taxation or any other Minister
nominated by each State Government.
As per Article 279A (4), the Council will make recommendations to the Union
 and the States on important issues related to GST, like the goods and services that may be
subjected or exempted from GST, model GST Laws, principles that govern Place of Supply,
threshold limits, GST rates including the floor rates with bands, special rates for raising additional
resources during natural calamities/disasters, special provisions for certain States, etc.

Slower inflation, contraction in IIP spur rate cut hopes

Details :

India’s industrial output slowed drastically led by a decline in manufacturing and an almost 30 per cent
contraction in capital goods production, signalling a slump in investments. Retail inflation on the other
hand slowed significantly, spurring expectations that the Reserve Bank of India (RBI) would likely reduce
interest rates later this year to support economic growth. The Index of Industrial Production (IIP)
contracted 2.4 per cent in July, compared with a growth of two per cent in June, mainly on account of
weakness in manufacturing, which contracted 3.4 per cent.

What is Index of Industrial Production (IIP)?

IIP measures the quantum of changes in the industrial production in an economy and captures
the general level of industrial activity in the country. It is a composite indicator expressed in
terms of an index number which measures the short-term changes in the volume of
production of a basket of industrial products during a given period with respect to the base
period.
IIP is a short term indicator of industrial growth till the results from Annual Survey of Industries
and National Accounts Statistics are available.
The IIP index is computed and published by the Central Statistical Organisation (CSO) on a monthly
basis.
IIP is a composite indicator that measures the growth rate of industry groups classified namely as
Mining, Manufacturing and Electricity.
Currently IIP figures are calculated considering 2004-05 as base year.

The Eight Core Industries comprise nearly 38 % of the weight of items included in the Index of Industrial
Production (IIP).

They are:

Coal (weight: 4.38 %) Crude

Oil(weight: 5.22 %)
The Natural Gas(weight: 1.71 %) Petroleum
Refinery (weight: 5.94%) Fertilizer (weight:
 1.25%)
Steel (weight: 6.68%)
Cement (weight: 2.41%)
Electricity generation (weight: 10.32%)

Question asked in UPSC pre-2015

Q. In the Index of Eight Core Industries, which one of the following is given
the highest weight?

(a) Coal Production

(b) Electricity generation

(c) Fertilizer Production

(d) Steel Production

Solution: (b)

Sept. 12, 2016

Task force moots new panel on BPL

Details :

A task force headed by NITI Aayog Vice-Chairman Arvind Panagariya to prepare a road map for
elimination of poverty has submitted its report to the Prime Minister’s Office (PMO) and suggested
setting up of a committee to identify people below the poverty line (BPL) and this will include active
participation from States. Earlier the official measures on poverty are based on the Tendulkar poverty
line. But the line is not without its share of controversies, with many terming it being too low. This has
prompted the previous government to appoint the Rangarajan Committee, which has recommended
higher rural and urban poverty lines.

What the paper suggested?

The paper talks of considering four options for tracking the poor. First, continue with
the Tendulkar poverty line.
Second, switch to the Rangarajan or other higher rural and urban poverty lines. Third, track progress
over time of the bottom 30 per cent of the population and last, track progress along specific
components of poverty such as nutrition, housing, drinking water, sanitation, electricity and
connectivity.
Third and fourth options can complement measurement of poverty using a poverty line, the
paper suggested, adding that they could not be a substitute for it.

What is a poverty line?

The poverty line defines a threshold income.

 Households earning below this threshold are considered poor.
Different countries have different methods of defining the threshold income depending on local socio-
economic needs.

How is it measured?

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.
What’s the Indian poverty line?

Earlier, India used to define the poverty line based on a method defined by a task force in 1979.
It was based on expenditure for buying food worth 2,400 calories in rural areas, and 2,100 calories in
urban areas.
In 2011, the Suresh Tendulkar Committee defined the poverty line on the basis of monthly
spending on food, education, health, electricity and transport.
According to this estimate, a person who spends Rs. 27.2 in rural areas and Rs.
33.3 in urban areas a day are defined as living below the poverty line.
For a family of five that spends less than Rs. 4,080 and Rs. 5,000 in rural and urban areas
respectively is considered below the poverty line.
This has been criticised for fixing the poverty line too low.
According to a committee headed by former Reserve Bank governor C Rangarajan, there were 363
million people, or 29.5% of India’s 1.2 billion people, who lived in poverty in 2011-12.
The Rangarajan panel considered people living on less than Rs. 32 a day in rural areas and Rs. 47 a
day in urban areas as poor.

Why has there been so much criticism about the poverty line in India?

According to critics, the government has deliberately kept poverty line low. A low poverty line
has enabled the government to show that millions have moved out of poverty.
This, critics say, is factually incorrect as the definition of poverty line is disputed.
They also say that the data lacks statistical rigour and has been released to gain political mileage.

How does the Indian poverty scenario compare with the African countries?

A comparison shows that India poverty line is abysmally low. For instance, South Africa had three
poverty lines — food, middle and upper — and all three were higher than that of India.
The food poverty line in Indian rupees was Rs. 1,841 per capita per month in 2010, middle
poverty line was at Rs. 2,445 and upper poverty line was at Rs. 3,484.
Per capita poverty line of a rural adult Rwandian in Indian terms comes out to be Rs. 892 per
month, slightly more than Rs. 816 for a person in rural India.
One should not forget that prices of food items in Rwanda are less than in India.

Finmin revises criteria for recapitalisation of PSU banks

Details :

State-owned banks looking forward to the next round of capital infusion will need to fulfil a new set of
criteria, including credit recovery, as the Finance Ministry has revised the recapitalisation norms.

Revised Recapitalisation Norms.

The second tranche of capital allocation for the current fiscal would be based on cost of
operations as well as recovery and quality of credit on the basis of risk weighted assets.
 Only those lenders that fulfil the criteria post third quarter (October-December) results of the current
fiscal will be eligible for the second round of funding.
The money was allocated last fiscal on the twin principles of ensuring 7.5 per cent Common Equity
Tier 1 (CET 1) at the end of the 2016 and growth capital to five major banks.
The government in July had announced the first round of capital infusion of Rs.22,915 crore for 13
banks.
The first tranche was announced with the objective to enhance their lending operations and enable
them to raise more money from the market.
Finance Minister Arun Jaitley in his Budget speech for 2016-17 had proposed to allocate Rs.25,000
crore towards recapitalisation of PSU banks.

Two Major Challenges before India's banking system: Asset quality:

The biggest risk to India's banks is the rise in bad loans. The slowdown in the economy in the last
few years led to a rise in bad loans or non-performing assets (NPAs).
These are loans which are not repaid back by the borrower. They are, thus, a
loss for the bank.
Net NPAs amount to only 2.36% of the total loans in the banking system. This may not seem
like an alarming figure. However, it does not take into restructured assets - when a borrower is
unable to pay back and the bank makes the loan more flexible to be paid back over a longer
period of time. Restructured assets too put pressure on a bank's profitability.
Together, such stressed assets account for 10.9% of the total loans in the system.
And these are just loans which are identified as stressed assets. 36.9% of the total
debt in India is at risk, according to an IMF report.
Yet, banks have capacity to absorb only 7.9% loss. So, if these debts turn bad too, banks will face
major losses.

Capital adequacy:

One way a bank tries to ensure it is protected from bad loans is by setting aside money as a
'provision'.
This money cannot be used for any other purposes including lending.
As a result, banks have lower capital available to use for its various operations. The Capital
Adequacy Ratio measures how much capital a bank has.
When this falls, the bank has to borrow money or use depositors' money to lend.
This money, however, is riskier and costlier than the bank's own capital. For example, a
depositor can withdraw his/her money any time they want. So, a fall in CAR (often called as
CRAR or Capital to Risk Assets Ratio) is worrisome.
In the last few years, CRAR has declined steadily for Indian banks, especially for public-sector banks.
Moreover, banks are not able to raise money easily, especially public-sector banks which have
higher number of bad loans.
If banks do not shore up their capital soon, some could fail to meet the minimum capital
requirement set by the RBI.
In such a case, they could face severe issues.
EPFO subscribers may get 8.6 per cent interest this fiscal

Details :

Over 4 crore EPFO subscribers may get a lower interest at a rate of 8.6 per cent on their PF deposits for
the current financial year as the Labour Ministry is expected to toe the Finance Ministry line to cut the
rate. The Employees Provident Fund Organisation had provided 8.8 per cent rate of interest on EPF
deposits for 2015-16 despite Finance Ministry’s ratification for 8.7 per cent.

What is Employee’s Provident Fund (EPF)?

Employee’s Provident Fund (EPF) is a retirement benefit scheme that’s available to all salaried
employees.
This fund is maintained and overseen by the Employees Provident Fund Organisation of India
(EPFO) and any company with over 20 employees is required by law to register with the EPFO.
It’s a savings platform that helps employees save a fraction of their salary every month that can
be used in the event that you are rendered unable to work, or upon retirement.
The Employees' Provident Fund Organisation (EPFO), is an Organization tasked to assist the Central
Board of Trustees, a statutory body formed by the Employees' Provident Fund and Miscellaneous
Provisions Act, 1952 and is under the administrative control of the Ministry of Labour and
Employment, Government of India.

Sept. 11, 2016

China’s BRICS trade pact idea finds no takers

Details :

India and three others in the BRICS bloc — Brazil, Russia and South Africa — have cold-shouldered China's
attempt to bring to the negotiating table a proposal for a Free Trade Agreement (FTA) between the five
major emerging economies. The development comes amid hectic preparations for the BRICS Trade
Ministers Meeting on October 13 and the first BRICS Trade Fair from October 12 to 14 (both in Delhi) as
well as the Eighth BRICS Summit (to be held in Goa) on October 15-16. India is hosting these events as it
currently holds the BRICS Chairmanship.

Apprehensions:

Their apprehensions about the plan include the fear that it could lead to a surge in imports of
Chinese goods into their territory — in turn, hurting local manufacturing.
While Russia and South Africa did not respond to the BRICS FTA proposal, Brazil pointed out that it
participates in FTA negotiations as part of the ‘Mercosur’ – a trading bloc and customs union of Latin
American nations.
Declining to take up the FTA proposal, Brazil also cited the recent political turmoil surrounding the
regime change in that country, they said.
India said it is already participating in negotiations on the Regional Comprehensive Economic
Partnership (or RCEP, a proposed mega-regional FTA
 between the 16 Asia-Pacific nations including India and China).
India’s goods trade deficit with China has escalated from $1.1 billion in 2003-04 to $52.7 billion in
2015-16, according to Indian government statistics.
So for Beijing’s proposal for a 'BRICS FTA' is aimed at boosting trade ties in the grouping through
binding commitments on eliminating tariffs, BRICS members barring China are not keen on such a
pact.

Sept. 10, 2016

Public goods cost may fall on anti-cartelisation drive

Details :

The government may be able to prune its massive public procurement expenditure soon, as a growing
number of departments and public sector firms are cracking down on vendors indulging in cartelisation
and collusive bidding for contracts to deliver public goods and services, Competition Commission of India
(CCI) chief D.K. Sikri said. Public procurement expenditure accounts for around 30 per cent of India’s
gross domestic product and the competition watchdog said that over half of the budget allocated to the
ministries of railways, defence and telecom are for the procurement of goods and services. If the
government agencies become alert and ensure better competition in the bidding process, even a 2 per
cent saving in costs could wipe out the fiscal deficit of the Budget.

Competition Commission Of India:

Competition is the best means of ensuring that the ‘Common Man’ or ‘Aam Aadmi’ has access
to the broadest range of goods and services at the most competitive prices.
With increased competition, producers will have maximum incentive to innovate and specialize.
This would result in reduced costs and wider choice to consumers.
So the Competition Commission of India (CCI) was established under the Competition Act, 2002 for
the administration, implementation and enforcement of the Act, and was duly constituted in
March 2009.

The following are the objectives of the Commission:

To prevent practices having adverse effect on competition. To promote and

sustain competition in markets.
To protect the interests of consumers and To ensure
freedom of trade
Consequent upon a challenge to certain provisions of the Act and the observations of the Hon'ble
Supreme Court, the Act was amended by the Competition (Amendment) Act, 2007.
 The Monopolies and Restrictive Trade Practices Act, 1969 [MRTP Act] repealed and is replaced by
the Competition Act, 2002, with effect from 01st September, 2009.

Sept. 9, 2016
‘Customers should be free to port policies’

Details :

The insurance regulator is keen to allow portability of policy or giving customers the freedom to shift
their in-force policy from one insurer to another as such a move will help improve service levels in the
industry. Various conditions ought to be in place prior to introduction of portability, starting with simple
and standardised policies.
Hence, the issue needs to be discussed openly, IRDAI Chairman said recently.

About the Insurance Regulatory and Development Authority of India (IRDAI):

It is an autonomous apex statutory body which regulates and develops the insurance industry in
India.
It was constituted by a Parliament of India act called Insurance Regulatory and Development
Authority Act, 1999 and duly passed by the Government of India. IRDA’s Mission is to protect the
interests of policyholders, to regulate, promote and ensure orderly growth of the insurance industry
and for matters connected therewith or incidental thereto.
The agency operates from its headquarters at Hyderabad, Telangana where it shifted from Delhi in
2001.

Centre to popularise municipal bonds

Details :

Municipal bonds are yet to take off in India even as the Centre and the Securities and Exchange Board of
India (SEBI) are working towards creating more awareness. According to government statistics, a
cumulative amount of Rs.1,750 crore has been raised through municipal bonds in India while South Africa
saw $1.8 billion being raised through such bonds in a single quarter alone. Incidentally, $304 billion was
raised in the U.S. through municipal bonds in just one single year. The last municipal bond issued was in
2010. Rating agency CARE estimates that large municipalities in India could raise Rs.1,000 to Rs.1,500 crore
every year through municipal bond issues.

What is it?

Say your city corporation wants to set up a new Metro rail network. It can issue
municipal bonds to fund the project.
Institutional investors as well as the public can buy these bonds.
Revenues from the Metro will then be used to repay the interest and principal on these bonds.
Municipal bonds where the funds raised are earmarked for one project are termed revenue
bonds.
These have now been permitted for public offering by SEBI. Municipal
 bonds have been in existence in India since 1997.
Cities such as Ahmedabad, Bengaluru, Nashik and Madurai have issued them.

Why is it important?

Solving urban infrastructure problems requires a lot of money.

 Municipal bonds or in short ‘Muni bond’ issues could help corporations directly raise funds
without looking to State grants or agencies such as World Bank.
Large institutional investors such as pension funds and insurance companies are always on the
lookout for look for less risky avenues to invest.
Municipal bonds could tap these sources of fund and help get many projects off the ground.
Rating agency CARE estimates that large municipalities in India could raise
₹1,000 to ₹1,500 crore every year through municipal bond issues.
These bonds have been used successfully by local governments in the US and China.
The money raised from municipal bonds can boost quality of life in cities. Job prospects in the locality
may also look up.
These bonds may also prove a good investment option for investors looking beyond fixed deposits
and small saving schemes.

Sept. 8, 2016

Global derivatives trade group opposes SEBI’s proposals on algorithmic trading

Details :

Futures Industry Association (FIA), a leading global trade organisation for derivatives, has opposed most
of the proposals in a Securities and Exchange Board of India (SEBI) discussion paper on regulating
algorithmic trading.

What is Algorithm trading?

Algorithm trading is a system of trading which facilitates transaction decision making in the financial
markets using advanced mathematical tools.
In this type of a system, the need for a human trader's intervention is minimized and thus the
decision making is very quick.
This enables the system to take advantage of any profit making opportunities arising in the market
much before a human trader can even spot them.
As the large institutional investors deal in a large amount of shares, they are the ones who make a
large use of algorithmic trading.
It is also popular by the terms of algo trading, black box trading, etc. and is highly technology-
driven.
It has become increasingly popular over the last few years.

Positive & Negative side of Algorithm trading:

Similar to most other fields, the use of technology is being optimized in trading in the stock
markets.
Stock trading is getting increasingly automated through use of sophisticated computer systems that
operate through algorithms, which minimize human involvement and decision-making.
Not only does this lead to the extensive use of technology by stock traders and investors, but it
may also create imbalances in the stock markets whereby certain players can use technology to
favour their own commercial interests at the cost of other similar players in the markets.
On the one hand, such algorithmic trading (or algo trading) is beneficial as it
 operates instantaneously based on information available in the markets, and hence makes the
markets more efficient. On the other hand, it has been criticized on the ground that it creates
distorted incentives in various market players that could lead to imbalances and consequently
significant risks to the stock markets as well as the economy as a whole.
Instances such as the flash crash that occurred in the US markets in 2010 due to erroneous order
entry into the computer systems only highlight the risks of automated trading.
The Discussion Paper of the Securities and Exchange Board of India (SEBI) makes a series of
proposals in order to combat the distortive effects of algo trading.

India inks open skies pact with Greece

Details :

India has signed a memorandum of understanding (MoU) with Greece to allow unlimited number of
flights into each other’s countries. Greece will become the first country with an open sky arrangement
under India's new civil aviation policy. Under the new civil aviation policy, India plans to enter into ‘open
sky’ air service agreements (ASA) with SAARC countries and with countries beyond 5,000 km radius from
Delhi.

About the Open Sky Policy:

Countries sign ASAs through bilateral negotiations to decide on the number of flights that airlines can
fly into each other’s countries.
Under the open sky pact, there is no restriction on flights or seats.
At present, India has an open sky agreement with the U.S. and a near open sky agreement with
the U.K. under which there are certain limitations on the number of flights that can be operated
at the Mumbai and Delhi Airports.
For ASEAN or SAARC countries, India has an open sky agreement with more than a dozen
countries.

Sept. 7, 2016

DIAL may issue masala bonds to refinance debt

Details :

Delhi International Airport Pvt Ltd (DIAL) is planning to raise funds by issuing masala bonds in the next
two-three months in a bid to refinance its debt, the company official said.
DIAL is a joint venture formed as a consortium between GMR Group (64 per cent), AAI (26 per cent) and
Fraport AG (10 per cent). GMR is the lead member of the consortium.

Facts for Mains:

According to the International Air Transport Association, air travel in India grew
 20 per cent last year in comparison with China’s 10 per cent and the U.S.’s 5 per cent.
Domestic air traffic in India grew faster at 23 per cent in the first four months of 2016, according to
the Civil Aviation Ministry.

What is Masala Bond?

A Masala bond is an Indian rupee denominated bond issued in overseas markets.

It is a financial instrument through which Indian entities can raise money from overseas markets in the
rupee rather than in foreign currency.
In recent past The International Finance Corporation (IFC), the investment arm of the World Bank,
had, issued a ₹1,000 crore bond to fund infrastructure projects in India.
These bonds were listed on the London Stock Exchange (LSE).
IFC then named them Masala bonds to give a local flavour by calling to mind Indian culture and
cuisine.
Before Masala bonds, corporates have had to dependent on avenues such as External Commercial
Borrowings (ECBs).

What are the Benefits?

By issuing bonds in rupees, an Indian entity is shielded against the risk of currency fluctuation,
typically associated with borrowing in foreign currency. Besides helping diversify funding sources,
the cost of borrowing could also turn out to be lower than domestic markets.
As Masala bonds are denominated in rupees, foreign investors will be taking the currency risk.
So the key for the success of these bonds will be a stable exchange rate.

Question asked in UPSC Pre-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 and are a source of debt financing for the public and private
sector.
Select the correct answer using the code given below:
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2
Ans: (c)

China may allow imports of Indian non-basmati rice

Details :

China may soon grant market access to India's non-basmati rice exports, acceding to a long-pending
request from New Delhi. The Centre had repeatedly taken up the issue of the country’s ballooning goods
trade deficit with China bilaterally. India had
demanded market access for products including non-basmati rice, pharmaceuticals and several fruits &
vegetables among others.

India -China Trade:

India’s goods trade deficit with China has surged from $1.1 billion in 2003-04 to
$52.7 billion in 2015-16.
Beijing has been “denying” market access to India's non-basmati rice claiming that the item had
failed to meet Chinese norms on quality, health and safety. Its concerns included the likelihood of a
pest called ‘Khapra beetle (or cabinet beetle)’ getting transported along with Indian non-basmati rice
consignments to China.
China was the world’s largest rice importer in 2015-16 followed by Saudi Arabia and Iraq.

Organisations involved:

After several requests from the Indian side, Chinese officials have finally agreed to visit India during
September 19-28 to inspect 19 rice mills registered with the National Plant Protection Organization
(NPPO).
To export to countries including China, it is mandatory for Indian rice exporters to be registered
with the NPPO — the Indian government body in charge for inspecting these mills and granting
certificates on plant health for export purposes.
The NPPO will assist its Chinese counterpart AQSIQ during the inspection from September 19-28
for pest risk analysis and plant quarantine purposes to ensure that the non-basmati consignments
from India will be pest-free, safe and of good quality.
Agricultural & Processed Food Products Export Development Authority (APEDA) under the Indian
commerce ministry is also involved in the process. India had earlier sent the information sought by
AQSIQ regarding the quality protocol and standard operating procedures, the sources said.

CSCs may assemble LED lamps to boost rural economy: Prasad

Details :

The Centre plans to use the common service centres (CSC) for assembly and manufacture of LED
lamps in a bid to boost rural economy, according to Ravi Shankar Prasad, Electronics and IT
Minister.

The Centre will also provide tele-consultation services for animal healthcare as well as legal issues
through these centres where kits for testing diseases such as malaria and dengue will also be available.
The minister also unveiled a scheme under which IIT courses will be taught to students in village using
CSCs. These centres had also tied up with TCS and Siemens for skill development courses.

About the Common Services Centers (CSCs):

CSCs are a strategic cornerstone of the Digital India programme.
They are the access points for delivery of various electronic services to villages in India, thereby
contributing to a digitally and financially inclusive society.
Digital India is a flagship programme of the Government of India with a vision to transform India into a
digitally empowered society and knowledge economy.
 CSCs enable the three vision areas of the Digital India programme: Digital infrastructure
as Utility to Every Citizen
Governance and services on demand Digital
empowerment of citizens
CSCs are more than service delivery points in rural India.
They are positioned as change agents, promoting rural entrepreneurship and building rural capacities
and livelihoods.
They are enablers of community participation and collective action for engendering social change
through a bottom-up approach with key focus on the rural citizen.
Offering government services should be an enabler for CSCs.
But gradually they will find their own business model, for example education and selling of
insurances.
India ramped up the number of CSCs to 2.29 lakh from 80,000 in 2014. India soon plan to
take it up to 2.50 lakh.
If one CSC employs 10 people, these centres can generate employment for 2.5 crore people.

Also Read: http://vikaspedia.in/e-governance/resources-for-vles/common-service- centres-programme

Sept. 5, 2016

Mobile access scheme for remote areas soon

Details :

The government will soon unveil a new scheme to provide mobile phone access to over 55,000 villages,
particularly those in border states and in the Himalayan region, to push forward its flagship Digital India
programme. The Centre is also in middle of executing the Bharat Net project which aims to connect all of
India’s households, particularly in rural areas, through broadband by 2017.

About the New Scheme:

Under the scheme, the villages have been divided into Himalayan regions such as Jammu and
Kashmir, Uttrakhand and Himachal Pradesh.
And the second set will be those states which share borders with other nations. Another scheme —
funded by the USOF — to connect Left wing extremism (LWE)-affected areas in ten identified states
in on the “verge of completion.” “Together, these will help take forward the Digital India drive.
The scheme will be funded by the Universal Service Obligation Fund (USOF).

About the Universal Service Obligation Fund (USOF):

The scheme was started in 2002-03.
The USOF, which is maintained by the government under the Department of Telecommunications,
Ministry of Communications was formed to help fund projects to boost connectivity in rural
areas.
The money for this fund comes through a ‘Universal Access Levy,’ charged from
 the telecom operators as a percentage of various licenses fees being paid by them.
The vision of USOF is to enabling rural Indians to achieve their fullest potential and participate
productively in the development of the nation by virtue of being effectively connected through a
reliable and ubiquitous telecommunications network, access to which is within their reach and
within their means.

About the Bharat Net project:

Bharat Net shall be a project of national importance to establish, by 2017, a highly scalable
network infrastructure accessible on a non-discriminatory basis, to provide on demand, affordable
broadband connectivity of 2 Mbps to 20 Mbps for all households and on demand capacity to all
institutions, to realise the vision of Digital India, in partnership with States and the private sector.
The entire project is being funded by Universal service Obligation Fund (USOF), which was set up
for improving telecom services in rural and remote areas of the country.
The objective is to facilitate the delivery of e-governance, e-health, e- education, e-banking,
Internet and other services to the rural India.
The project is a Centre-State collaborative project, with the States contributing free Rights of Way
for establishing the Optical Fibre Network.
The three-phase implementation of the BharatNet project is as follows
The first phase envisages providing one lakh gram panchayats with broadband connectivity by
laying underground optic fibre cable (OFC) lines by March 2017.
The second phase will provide connectivity to all 2,50,500 gram panchayats in the country using
an optimal mix of underground fiber, fiber over power lines, radio and satellite media. It is to be
completed by December 2018. For success in phase-2, which will also involve laying of OFC over
electricity poles, the participation of states will be important.
This is a new element of the BharatNet strategy as the mode of connectivity by aerial OFC has
several advantages, including lower cost, speedier implementation, easy maintenance and
utilization of existing power line infrastructure.
The last mile connectivity to citizens was proposed to be provided creating Wi- Fi hotspots in gram
panchayats.
In the third phase from 2018 to 2023, state-of-the-art, future-proof network, including fiber between
districts and blocks, with ring topology to provide redundancy would be created.

Important Facts:

5,41,939 villages out of total 5,97,608 villages in the country are already covered with
mobile services, leaving 55,669 villages, i.e., 9.31 per cent, without coverage.
Among states, Odisha has the highest number of villages (10,398) which do not have mobile
coverage, followed by Jharkhand (5,949) and Madhya Pradesh (5,926), Maharashtra (4,792) and
Chhattisgarh.
In states such as Kerala and Karnataka all villages have coverage.
RBI’s Patel seen taking charge on Tuesday
Details :

Urjit Patel has assumed charge as the 24th Governor of Reserve Bank, succeeding Raghuram Rajan whose
three-year tenure ended on 4th September 2016

Key achievements of Dr. Raghuram Rajan

In his farewell letter to RBI staffers, Raghuram Rajan lists three key objectives that he set when he first
assumed office: Bringing down Inflation through a new Monetary Framework, Bolstering Foreign
Exchange Reserves and the Transparent Licensing of new Universal and Niche banks.

Inflation (Wholesale to Consumer Targeting):

Shortly before Rajan was appointed, the US Federal Reserve had hinted at the prospect of a
tighter monetary policy, resulting in an outflow of money from emerging markets such as India.
Not only was the rupee falling, causing inflation to rise, but Indians were also importing more gold
as a result of rising inflation, putting even greater pressure on the exchange rate.
As Rajan puts it, India was deemed in the eyes of the global investor community as one of the
“Fragile Five”.
For the RBI governor, the way of achieving monetary stability was through “low and stable
expectations of inflation”.
The primary way he achieved this was by hiking interest rates, setting a medium inflation-
term target, and changing the metric by which inflation should be viewed by the central
bank.
A committee that he set up early in his tenure recommended that the RBI move away from using
the wholesale price index as an indicator of inflation (which was the norm) and instead adopt the
consumer price index (CPI) as a metric through which the central bank should tackle inflation.
Unlike the wholesale price index, the CPI measures in the changes in prices of goods and services used
by households; a more wholesome indicator.
Over the course of Rajan’s inflation-targeting tenure, the CPI dropped from 9.52% in August, 2013
to 5.24% in April, 2016 – helped in no small measure also by a welcome drop in global commodity
prices during the same period.

Foreign Exchange Reserves and Rupee:

In September 2013, when Rajan assumed charge, he had two related issues. One, the rupee had
weakened sharply against the dollar, hitting almost Rs. 69 to the dollar. Secondly, India’s currency
reserves had hit a three-year low.
What the central banker essentially did at the time was offer discounted currency swaps to banks
in order to spur inflows: specifically, a scheme was announced for Foreign Currency Non-Resident
(Bank) deposits raised by commercial banks that incentivised them to sell those deposits
aggressively. These banks ended up raising a total of $34 billion in the three month swap window
opened by the RBI in 2013, which helped shore up reserves as well helped protect the-then
vulnerable rupee.
 While the redemption of most of these deposits will happen in September, which has sparked
some amount of concern, Rajan believes that the RBI has enough firepower to manage the
deposit outflows.
In his three year tenure, foreign exchange reserves have risen from $249 billion in September 2013
to $366.78 billion as on August 26, 2016.

Bank licences:
 During Rajan’s tenure, two new banks (Bandhan Bank and IDFC Bank) became licensed. The more
important issue, as the RBI governor notes in his departing letter, is not that new licenses were
handed out (the process for which had actually started under his predecessor D. Subbaro’s tenure),
but that the groundwork for an “on-tap bank licensing” mechanism was laid and licensing of
“differentiated banking entities” was also allowed.
On-tap bank licensing, which excludes large conglomerates from applying, is important as India
has always had a more ad-hoc, “start-and-stop” means of licensing new banks; as evidenced by
the fact that while Rajan handed out 23 new licenses in his tenure, only 12 licenses had been
issued in the previous 20 years.
The concept of differentiated banks, while not new, is equally important. While Rajan has
referenced “wholesale” and “custodian” banks, the most popular form of differentiated bank
for which licenses were handed out were payment banks which potentially could increase
financial inclusion.
Eleven licenses have been handed out so far, and while a few entities have returned their licenses, at
least five of them will launch operations by mid-2017.

Sept. 4, 2016

Carriers risk overseas flights over idle rights

Details :

The Civil Aviation Ministry has revised the norms for grant of an international permit for domestic
airlines.

New Norms:

While domestic airlines will need to have at least 20 aircraft to secure international flying rights,
the ones that do not utilise the allocated bilateral air traffic rights will have to return it to the
Centre for fresh allocation to other airlines, according to the new rules.
Earlier, airlines with five years of domestic flying experience and 20 aircraft in its fleet were
eligible for securing international flying rights.
The new rules state that traffic rights to fly on overseas routes for a particular schedule (summer
or winter) will have to be utilised during the same schedule. Failure to do so shall result in the
unutilised rights reverting back to Ministry of Civil Aviation for fresh allocation to other airlines.
The defaulter airline will be ineligible to apply for such rights for the next two schedule periods.
‘Regulators have done well in ensuring e-transaction safety’

Details :

Indian regulators have done a very good job in ensuring safety and security in electronic transactions
compared to other developing countries, according to MasterCard India. It also said that at the moment,
only five per cent of consumption
expenditure is at point of sale devices, the rest is all cash. One of the major reasons merchants prefer to
deal in cash is so they can keep these transactions off their books, thus leading to black money. Most of
the electronic transactions today are ATM withdrawals.

Card Payments in India:

The use of electronic channels for accessing banking and payment services is on the rise and is
poised for significant growth in the country.
In the eco-system of electronic / alternate payment mechanisms, card payments are perhaps most
recognizable.
Further, the developments in e-commerce sector have also been significant in encouraging electronic
payments, including card payments (credit/debit), which are gradually gaining significance.
With the implementation of Prime Minister Jan Dhan Yojana (PMJDY), the card issuance under
RuPay network has seen a tremendous growth in a short span of time.
Given the high issuance of debit cards to accounts opened under the PMJDY, with benefits to
account holders linked to usage of their RuPay debit cards, the imperative to ensure greater usage
of cards as well as enhance growth of infrastructure is significant.
Recent announcements of the Government also support and reinforce the migration from cash
payments to promotion of card and other electronic payments.

Issues in Card Payments:

Though there is significant increase in electronic transactions, the growth is not uniform across all
segments of electronic payments nor is it visible at all locations across the country.
Particularly, in the context of cards, while the card base is increasing rapidly, activation or usage rates
are quite low, especially for purchase of goods and services.
Card usage at ATMs, on the other hand, is quite high.
Thus, with the substantial growth in the issuance of the cards, there is an urgent need to ensure
quick, equitable and sustainable growth in card acceptance infrastructure across the country.
Further, along with the measures to increase availability of card acceptance infrastructure it is also
essential to ensure that cards payments are accepted seamlessly for all types of payments
irrespective of amounts.
Steps are also need to be taken to educate people about the disadvantages of cash and the
benefits of using electronic transactions.

Sept. 3, 2016

India faces Catch-22 on steel capacity at G20’s China meet

Details :
Ahead of the September 4-5 Summit at Hangzhou (China) of the 20 major global economies, the U.S. has
already mounted pressure on China to drastically reduce its steel capacity, claiming that the ‘dumping’ of the
commodity in various countries
has been hurting steel producers across the world. India will, however, play a low- profile role in the
discussions on the topic as it is aware of the growing needs of its user industries — which currently
depend on a mix of imported and locally-made steel to meet their requirements. Some countries have
blamed nations including India, South Korea, Italy and Taiwan for supporting measures that have been
leading to excess capacity in steel. It was also decided that the G20 steelmaking economies will
participate in the OECD Steel Committee meeting slated for September 8-9, 2016 to tackle the issue.

Why it is a ‘Catch-22’ situation for India?

For India, it is a ‘Catch-22’ as it is not only the third largest steel producing nation, but was also
among the top 10 steel importers in 2015.
This means, the interests of local producers and user industries will have to be kept in mind while
taking a stance.
Besides, the Centre wants more foreign investment in India, including in the steel sector, as part of
the ‘Make In India’ initiative aimed at boosting local manufacturing and exports.
It will send a wrong message if India’s approach is seen as ‘protectionist.’

To counter a surge in cheap imports of steel, which was hurting local steel makers, India had taken
measures including:

Anti-dumping duty,
Safeguard duty and
Minimum Import Price
India had also brought out an order banning the manufacture and distribution of stainless steel
products that do not comply with the the ‘Bureau of Indian Standards’ mark.

About the Organisation for Economic Co-operation and Development (OECD):

It is an intergovernmental economic organisation with 35 member countries, founded in 1961 to

stimulate economic progress and world trade.
It is a forum of countries describing themselves as committed to democracy and the market
economy, providing a platform to compare policy experiences, seeking answers to common
problems, identify good practices and coordinate domestic and international policies of its
members.
The OECD's headquarters are in Paris, France.

Jobs elusive even as India clings to fastest-growing economy tag

Details :

Recent government data on Job Creation:

The recent government data has showed India’s economic growth slowed to 7.1 per cent in the
quarter to June, a 15-month low.
However, that is faster than other major economies, but not fast enough to create enough new
jobs to absorb all the one million people who join the workforce every month.
 A government survey found that job creation fell by more than two-thirds lin 2015.
Analysts estimate that for every percentage point the economy grows, employment now adds just
0.15 of a percentage point — down from 0.39 in 2000.

Why Job creation is important?

Nearly two-thirds of India’s 1.3 billion people are under 35 years old.
This rising demographic “bulge” will create the largest working-age population in the world.
At the same time China, which has long curbed family size, will age as a society.
Whether this so-called demographic dividend will translate into the kind of economic gains
seen in Japan and Korea, or lead to upheavals, depends on India's ability to generate jobs.
Yet, despite average annual growth of 6.5 per cent between 1991 and 2013, India added less than
half the jobs needed to absorb new job seekers.

Sept. 2, 2016

‘RIL must pay compensation to Centre for KG Basin gas, not ONGC’

Details :

The Justice A.P. Shah Committee report on the ONGC-RIL dispute regarding the KG- D6 basin, submitted
to the Ministry of Petroleum and Natural Gas, has found that both ONGC and RIL had prior knowledge
of the continuity of the gas fields and failed to bring this to the notice of the Directorate General of
Hydrocarbons.

What is the issue?

The state-run explorer ONGC had in 2013 claimed that RIL had deliberately drilled wells close to
the common boundary of the blocks and some gas it pumped out was from its adjoining block.
According to the Oil and Natural Gas Corporation of India, RIL's D6-A5, D6-A9 and D6-A13 wells
drilled close to the block boundary may be draining gas from the G-4 field, while the D6-B8 well
may be draining gas from DWN-D-1 field of KG-DWN-98/2 block.
Due to this about 11.1 billion cubic metres of ONGC gas had migrated from its Godavari-PML and
KG-DWN-98/2 blocks to the contiguous KG-D6 block of RIL between April 1, 2009 and March 31,
2015.
At prevailing prices, the gas was worth about Rs.11,000 crore.
So the government set up in December a one-member panel headed by Ajit Prakash Shah, a former
chief justice of Delhi high court, to determine whether ONGC should be compensated, and by how
much.

Recommendations of Justice A.P. Shah Committee:

Reliance Industries made "unjust" gains by pumping natural gas that flowed from ONG's adjoining
block but a proper inquiry is needed to ascertain if both
 companies knew about the connectivity of reservoirs and chose to conceal the information for years,
the panel has ruled.
The panel, said the compensation for this "unjust enrichment" of Reliance must go to the
government because the national exploration company did not own the resource and, curiously,
did little to extract it for a very long time — a lapse that merits proper scrutiny.
It said RIL "prima facie" knew about connectivity of the reservoirs of the two companies by 2003
while ONGC appeared to have had some idea about it in 2007 but did not do anything about it
for six years.
The committee believes that the allegations of prior knowledge on the part of both RIL and ONGC
must be enquired into further, with particular emphasis laid upon the failure of both parties to
present the information they had to the DGH (Directorate General of Hydrocarbons) at the time
they allegedly obtained the information.
The report said it was "particularly disconcerting" that RIL did not inform the regulator about its
appraisal report of 2003, which appears to show that reservoirs were connected.
It has recommended that the government should introduce proper disclosure norms and penalties for
concealing information.

India to clock 8-10% growth

Details :

Despite registering the slowest growth rate in the last six quarters in April-June period, India has the
potential to sustain 8 to 10 per cent growth rate during the next two to three years, said Arvind
Subramanian, Chief Economic Advisor.

He, however, projected the growth rate with a rider saying, “if we continue to do all the things the
government is doing and if world economy picks up a little bit as it did in 2000, then the growth rate
would even clock double-digit in next two to three years.”

Dr. Subramanian also said:

China has been growing at 10.5 per cent for last 25 years.
India, since mid-1970 or 1980, has been growing at 6 per cent, which is not bad.
Till 1980, we were growing at 3 per cent which is called Hindu rate of growth. After that we have
grown at significantly higher rate.
But, it is well below the growth rate of China.
Over the next few years, China has to slow down in terms of economic growth. For India, on the
other hand, the process of normalisation is going to involve much faster growth because we are
underperforming.
We have now the opportunity to become normal again and become a fast- growing economy.
In this scenario, India would grow at 8 to 10 per cent while China’s growth rate would come down to
around 6 per cent over next two three years.
Dr. Subramanian batted for one price for one product in the market and expanding the scope of
the direct benefit transfer model for achieving faster growth.
Sept. 1, 2016

GDP growth slows to 7.1% in first quarter

Details :

India’s Gross Domestic Product (GDP) growth slowed to 7.1 per cent in the first quarter of this financial
year, with private consumption still the mainstay of the expansion. GDP growth stood at 7.9 per cent in
the fourth quarter (January-March) of the previous financial year and at 7.5 per cent in Q1 of 2015-16.
The slowdown in the first quarter of this year was mainly driven by a slowdown in mining,
construction and agriculture sectors. Now, the GDP growth data is calculated under the new
methodology (GDP at market prices).

What is Gross Value Added (GVA)

In simple terms GVA is the grand total of all revenues, from final sales and (net) subsidies, which are
incomes into businesses.
Those incomes are then used to cover expenses (wages and salaries, dividends), savings (profits,
depreciation), and (indirect) taxes.
GVA is used to estimate or assess the Gross Domestic Product (GDP).
When using income or production approaches, contribution of each and every sector to the economy
is measured using GVA.
It is further divided into GVA at basic prices and GVA at Factor Costs . i. GVA at basic prices
includes production taxes and excludes production subsidies available on the commodity.
GVA at factor cost on the other hand includes no taxes and excludes no subsidies.

Cabinet nod for permanent residency to FDI investors

Details :

The Union Cabinet approved a scheme to grant permanent residency status (PRS) to all foreign investors,
except those from Pakistan, subject to the relevant conditions. Also, the cabinet has given approval to
the Project Development Fund (PDF).

About the permanent residency status (PRS):

The PRS will be granted for a period of 10 years with multiple entry.
In order to avail this scheme, the foreign investor will have to invest a minimum of Rs.10 crore to be
brought within 18 months or Rs.25 crore to be brought within 36 months.
Further, the foreign investment should result in generating employment to at least 20 resident
Indians every financial year.
The scheme is expected to encourage foreign investment in India and facilitate the Make in India
programme.
Permanent Residency Status will be granted for a period of 10 years initially with multiple entry
facility, which can be renewed for another 10 years.
PRS will serve as a multiple entry visa without any stay stipulation and PRS holders will be
exempted from the registration requirements.
 PRS holders will be allowed to purchase one residential property for dwelling purpose.
The spouse/ dependents of the PRS holder will be allowed to take up employment in
private sector (in relaxation to salary stipulations for Employment Visa) and undertake
studies in India.

About the Project Development Fund (PDF):

The Cabinet also gave its approval to create a Project Development Fund (PDF) with a corpus of Rs.500
Crore “for catalysing Indian economic presence in Cambodia, Laos, Myanmar and Vietnam”.
The PDF is to be housed in the Department of Commerce and operated through the EXIM Bank.
The PDF will be governed by an inter-ministerial committee under the chairpersonship of the
Commerce Secretary.
CLMV countries namely Cambodia, Laos, Myanmar And Vietnamhave a unique position in the
regional value chains and offer a gateway for market access to China/EU and other markets due to
various trade agreements.
The key advantage of positioning India on the regional value chains is securing on a long term
basis, a dedicated market for Indian raw materials and intermediate goods besides a dedicated
source for inputs and raw materials for Indian industry.
While opportunities are a plenty in CLMV region, Indian entrepreneurs' endeavors in these
countries have, thus far, been limited due to limited information, infrastructure and other
contingent risks.
The PDF shall benefit India's industrial community for business expansion, and to maintain cost
competitive supply chains, besides integrating with global production networks.

Meet on SEZs to address tax concerns under GST regime

Details :

The Commerce Ministry will convene a stakeholder workshop on Special Economic Zones (SEZ) on
September 5. The workshop comes in the backdrop of diminished investor interest in SEZs due to
concerns including those on the tax burden due to the FY’12 Union Budget imposing a 20.5 per cent
Minimum Alternate Tax (including cess) on SEZ developers and units as well as Dividend Distribution Tax
(DDT) on developers. The Commerce Ministry and the SEZ sector had sought exemption or at least
reduction of MAT and DDT on SEZs.

What is Minimum Alternate Tax (MAT)?

Minimum Alternate Tax (MAT) is a tax payable by companies and falls under the indirect tax
category.
The rule was put to practice so as to ensure that no taxpayer with substantial economic income gets
to avoid significant tax liability on account of various exclusions, deductions and credits.
MAT is a tax levied under Income Tax Act of India, 1961.
There are several “zero tax companies” that book high profit but pay almost nil taxes by rolling out
substantial dividends to their shareholders.
This nil tax comes as a result of various exemptions, deductions and incentives
 provided to them due to several conditions that they meet.
However, the aim of MAT is to ensure that no company which has the ability to pay taxes, gets to
avoid payment of income tax.

What is Dividend Distribution Tax (DDT)?

A dividend is actually a return that a company gives to its investors.

It is announced every year and are generally paid from the profits that a company may have made
in that year.
When a company announces dividends, it is liable to pay a tax on the amount that is paid as
dividend.
This tax is referred to as the dividend distribution tax and is payable by the company announcing the
dividends.
The dividend distribution tax is also applicable to mutual fund investments but since investments
in domestic equities (Indian companies) are exempt from this tax, it is applicable to investments
in the money/debt markets.

AUGUST, 2016

Aug. 31, 2016

to look into India’s concerns on visa fee hike

Details :

The U.S. agreed to “look into” India’s concerns about Obama administration’s move to increase fee for
H1B and L1 visas. Indian corporations raised the issue at the India-U.S. CEO Forum saying the move will
hurt Indian IT firms, which are the main users of these non-immigrant temporary work visas meant for
professionals. Also the External affairs minister Sushma Swaraj and Commerce Minister Nirmala
Sitharaman said India took up the matter with the U.S. during the bilateral Strategic & Commercial
Dialogue.

What is the issue?

In December 2015, the US had raised the fee for H-1B visa from $2,000 to
$4,000, while that for L-1 visa went up from $2,250 to $4,500.
Indian IT companies are heavily dependent on the H-1B and L-1 visas to carry out their business
functions in the US as this geography contributes around 60% of the sector’s revenue.
Also recently the H-1B and L-1 Visa Reform Act of 2016 has been introduced in US Congress to
 prohibit companies from hiring H-1B employees if they employ more than 50 people and if more
than 50% of their employees are H-1B and L-1 visa holders.
What are H1B and L1 visas: H1B Visa:
Allows U.S. employers to employ a foreign professional to work in a “specialty
occupation” for a period of up to six years.
L1A Visa:
Allows qualified employees of an international company to be transferred to a related company in the
U.S. in an executive or managerial capacity.
L1B Visa:
 Allows employees of an international company to be transferred to a related company in the U.S.
because he or she has “Specialized Knowledge”.

‘GST rate above 18% could stoke inflation’

Details :

Industry lobbies are demanding that the standard rate of Goods & Services Tax (GST) should not be
allowed to breach the 18 per cent mark as it would stoke inflation. The delegation said it preferred a
“reasonable” standard rate that would check inflation as well as evasion while ensuring compliance. For
industry, which seeks to be competitive in the global marketplace, a standard rate of 18 per cent will be
advantageous.

Standard rates in other Countries:

The average standard rate of value-added tax in high-income countries is 16.8 per cent.
While that in emerging market economies is 14.1 per cent although rates in countries like China and
Mexico are a little higher than this.

Does GST can cause inflation?

For the short-term GST implementation could push up prices.

This is because GST's objective is to curtail excise and sales tax evasion.
In other words, goods and services will come under tax net, which will push up the prices
consumers pay in the first year in which GST is implemented.
This effectively would mean a higher rate of inflation at least in the short term.

Aug. 30, 2016

Jaitley invites U.S. to invest in infra fund

Details :

Union Finance Minister Arun Jaitley urged U.S.-based insurance funds, pension funds, and endowment
funds to invest in India’s National Investment and Infrastructure Fund (NIIF) and said that trade
interactions between Indian States and U.S. investors could boost bilateral trade. The U.S. Secretary of
State John Kerry is in New Delhi for the August 30-31 India-U.S. Strategic & Commercial Dialogue (S&CD)
– the premier bilateral forum for discussions on trade, economic and defence-related issues.
About the National Investment and Infrastructure Fund (NIIF):

It is a fund created by the Government of India for enhancing infrastructure financing in the country.
NIIF was proposed to be set up as a Trust, to raise debt to invest in the equity of infrastructure
finance companies such as Indian Rail Finance Corporation (IRFC) and National Housing Bank
(NHB). The idea is that these infrastructure finance companies can then leverage this extra equity,
manifold.
Its creation was announced in the Union Budget 2015-16.
 NIIF got registered with SEBI as Category II Alternative Investment Fund (AIF) on December 28,
2015.

Functions of NIIF

The functions of NIIF are as follows:

Fund raising through suitable instruments including off-shore credit enhanced bonds, and
attracting anchor investors to participate as partners in NIIF; Servicing of the investors of NIIF.
Considering and approving candidate companies/institutions/ projects (including state entities)
for investments and periodic monitoring of investments.
Investing in the corpus created by Asset Management Companies (AMCs) for investing in private
equity.
Preparing a shelf of infrastructure projects and providing advisory services.

Operational Aspects

The government has set up this Rs. 40000 crore fund to provide long term capital for
infrastructure projects.
Government can provide upto 20000 crore per annum into these funds. Government's
contribution/share in the corpus will be 49% in each entity set up as an alternate Investment Fund
(AIF) and will neither be increased beyond, nor allowed to fall below, 49%.
The whole of 49% would be contributed by Government directly. Rest is open for
contribution from others.
The contribution of Government of India to NIIF would enable it to be seen virtually as a
sovereign fund and is expected to attract overseas sovereign/ quasi-
sovereign/multilateral/bilateral investors to co-invest in it.

Panel to evolve consensus on GST rollout with industry

Details :

Industry and trade representatives are set to impress upon the empowered committee of State Finance
Ministers about the need to keep the Goods and Services Tax rate at reasonable levels, if not 18 per cent.
Eight State assemblies have already cleared the GST Constitutional amendment Bill out of the minimum
15 States required before the Bill can be sent to the President for his approval.

The GST issue will be in the news for various reasons, but from your exam point of view, all these
developments are not required, you just need the concept and the details of the Act which will be
available to us, when it will be finally passed by the President.

Here are the Concepts related to GST: https://lms.vajiramandravi.com/current- affairs/green-light-

for-one-nation-one-tax/57a2d853b680d3411152aa84/
Aug. 29, 2016

Amid growing protectionism, global trade ministers to meet

Details :

Trade ministers from various World Trade Organisation (WTO) member nations are slated to gather at the
Norwegian capital, Oslo, in October to discuss the need for further liberalisation of global trade amid
growing protectionism.

Issues will be covered:

The ‘special’ meet will deliberate upon the WTO’s future role in the context of ‘new’ challenges
for the global trading system and some ‘troubling’ international political developments.
It is also being planned at a time when the progress in the WTO’s nearly 15- year-old Doha Round
negotiations — to further open up international trade — is seen to be “very slow” especially due to
the perceived ‘disengagement’ of the
U.S. that is going in for Presidential elections in November.
The Oslo meet is also likely to discuss the so-called ‘new issues’ considered important by the rich
nations in today’s global trade.
These include efforts to reach an agreement at the WTO-level to eliminate tariffs on
environmental & sustainable goods produced using clean & green energy.
Other new issues that can figure in the Oslo talks include e-commerce, global value chains &
promotion of supply chains and the impact of ‘Brexit’ (British decision to leave the European
Union) on global trade.

India's concerns:

India is preparing to take the lead in WTO-level talks to open up global services trade, especially to
ensure easier movement of skilled professionals for short- term projects overseas
India — with a strong services sector and a huge pool of skilled professionals — had informally pitched
for a WTO-level ‘TFA in Services’ at the Organisation for Economic Co-operation and Development
ministerial council meeting in Paris in June.
The ‘TFA in Services’ proposal, similar to the WTO’s TFA for Goods (aimed at easing customs
norms & boosting global merchandise trade), was then welcomed by several trade ministers.
India’s efforts to garner support for the proposed ‘TFA for Services’ comes even as it has dragged
the U.S. to the WTO, following Washington’s move to hike visa fees for H-1B and L-1 categories that
are widely utilised by Indian information technology firms.
India had also objected to Britain tightening norms for foreign skilled workers.

About World Trade Organisation (WTO):

The WTO provides a forum for negotiating agreements aimed at reducing obstacles to
international trade and ensuring a level playing field for all, thus contributing to economic growth
and development.
The WTO also provides a legal and institutional framework for the implementation and monitoring
of these agreements, as well as for settling disputes arising from their interpretation and
application.
The current body of trade agreements comprising the WTO consists of 16 different multilateral
agreements (to which all WTO members are parties) and two different plurilateral agreements (to
which only some WTO members are parties).
 WTO, was established in 1995, and its predecessor organization the GATT have helped to create a
strong and prosperous international trading system, thereby contributing to unprecedented global
economic growth.
The WTO currently has 164 members.
Decisions in the WTO are generally taken by consensus of the entire membership.
The highest institutional body is the Ministerial Conference, which meets roughly every two
years.
A General Council conducts the organization's business in the intervals between Ministerial
Conferences.
Both of these bodies comprise all members.
The headquarters of WTO is in Geneva, Switzerland.

SFIO widens Mallya probe to add bankers

Details :

Widening its probe into the financial irregularities at erstwhile Kingfisher Airlines, the Serious Fraud
Investigation Office (SFIO) has started examining former chiefs of various banks, including public sector
lenders, for having extended fresh loans allegedly without full due-diligence amid ballooning losses at the
Vijay Mallya-owned carrier.

About the Serious Fraud Investigation Office (SFIO):

The SFIO is a multi-disciplinary organization under Ministry of Corporate Affairs, consisting of

experts in the field of accountancy, forensic auditing, law, information technology, investigation,
company law, capital market and taxation for detecting and prosecuting or recommending for
prosecution white- collar crimes/frauds.
The SFIO will normally take up for investigation only such cases, which are characterized by
complexity and having inter-departmental and multi-disciplinary ramifications ; substantial
involvement of public interest to be judged by size, either in terms of monetary misappropriation
or in terms of persons affected, and;
the possibility of investigation leading to or contributing towards a clear improvement in systems, laws
or procedures.
The SFIO shall investigate serious cases of fraud received from Department of company Affairs.

What is White Collar Crime?

Reportedly coined in 1939, the term white-collar crime is now synonymous with the full range of
frauds committed by business and government professionals. These crimes are characterized by
deceit, concealment, or violation of trust and are not dependent on the application or threat of
physical force or violence.
The motivation behind these crimes is financial—to obtain or avoid losing money, property, or
services or to secure a personal or business advantage. These are not victimless crimes.
A single scam can destroy a company, devastate families by wiping out their life savings, or cost
investors billions of dollars (or even all three).
Aug. 27, 2016

Important Concepts of Economics from Today's News Paper:

Details :

Important Concepts of Economics from Today's News Paper:

Repo (Repurchase) rate:

It is also known as the benchmark interest rate.

It is the rate at which the RBI lends money to the banks for a short term. When the repo rate
increases, borrowing from RBI becomes more expensive. If RBI wants to make it more
expensive for the banks to borrow money, it increases the repo rate similarly, if it wants to
make it cheaper for banks to borrow money it reduces the repo rate.

Reverse Repo rate:

It is the short term borrowing rate at which RBI borrows money from banks. The Reserve bank
uses this tool when it feels there is too much money floating in the banking system.
An increase in the reverse repo rate means that the banks will get a higher rate of interest from
RBI.
As a result, banks prefer to lend their money to RBI which is always safe instead of lending it
others (people, companies etc) which is always risky.

CRR - Cash Reserve Ratio:

Banks in India are required to hold a certain proportion of their deposits in the form of cash.
However Banks don't hold these as cash with themselves, they deposit such cash with Reserve
Bank of India , which is considered as equivalent to holding cash with themselves.
This minimum ratio (that is the part of the total deposits to be held as cash) is stipulated by the RBI
and is known as the CRR or Cash Reserve Ratio.

SLR - Statutory Liquidity Ratio:

Every bank is required to maintain at the close of business every day, a minimum proportion of
their Net Demand and Time Liabilities as liquid assets in the form of cash, gold and un-encumbered
approved securities.
The ratio of liquid assets to demand and time liabilities is known as Statutory Liquidity Ratio (SLR).
An increase in SLR also restricts the bank's leverage position to pump more money into the
economy.

Net Demand Liabilities - Bank accounts from which you can withdraw your money at any time like your
savings accounts and current account.
Time Liabilities - Bank accounts where you cannot immediately withdraw your money but have to wait
for certain period. e.g. Fixed deposit accounts.
MSF - Marginal Standing facility:

It is a special window for banks to borrow from RBI against approved government securities in an
emergency situation like an acute cash shortage. MSF rate is higher then Repo rate.

Bank Rate:

This is the long term rate(Repo rate is for short term) at which central bank (RBI) lends money to
other banks or financial institutions.

India has under-invested in social capital: Singapore Deputy PM

Details :

Recently the Deputy Prime Minister of Singapore has highlighted the major weaknesses of Indian
Economy, as an aspiring administrator, you must think over these points and its possible solutions,
this will help you in your Mains & Interview preparation.

He highlighted these points:

1. India’s restrictive employment and land acquisition laws, its school education system, which is
marred by a high dropout rate, and the lack of formal employment opportunities for the youth,
are responsible for holding back the nation from achieving its true potential.
2. India has over-intervened in its economy and under invested in social and human capital.
3. India has overreached itself in regulating its economy to achieve its full potential it will,
therefore, have to do less in some areas and do a lot more in other areas.
4. For a nation with 18 per cent of the world’s population, India accounts for just about two per cent
of global exports, this is a glaring area of a shortfall in the Indian economy.
5. Lack of formal job opportunities and the limited transition of the workforce from agriculture to the
manufacturing and services sectors.
6. Sharp gap between the small number of large firms in the country and a large number of small
companies, this hindered job creation.

Aug. 26, 2016

Banks to issue Masala bonds, RBI opens currency markets

Details :

The Reserve Bank of India (RBI) has announced a raft of measures to boost investor participation and market
liquidity in both the corporate bond and currency markets.
Steps Taken By RBI:

Accepting many of the recommendations of the Khan Committee to develop the corporate bond
market, RBI has been decided to enhance the aggregate limit of partial credit enhancement (PCE)
provided by banks, The main utility of a PCE is to enable corporate bonds get higher credit
ratings, which help attract investments from insurance and pension funds.
RBI has also given permit to brokers in corporate bond repos, authorise the platform for repo in
corporate bonds and encourage credit supply for large borrowers through market mechanism.
In order to ease access to the foreign exchange market for hedging in over the counter (OTC) and
exchange-traded currency derivatives, the RBI has allowed entities exposed to exchange rate risk, both
resident and non-resident, to undertake hedge transactions with simplified procedures, up to a limit
of $30 million at any given time.
To enhance participation in the corporate bond market, the RBI has decided that brokers
authorised as market makers will be allowed to participate in the corporate bond repo market.
This measure is expected to meet their funding and securities requirement arising out of market
making activities, according to the RBI. Currently, banks, primary dealers, mutual funds, insurance
companies are only allowed.
In addition, foreign portfolio investors have been allowed to transact in corporate bonds directly
without involving brokers.
Also the RBI will allow commercial banks to issue rupee bonds in overseas markets — known as
Masala bonds, both for their capital requirement and for financing infrastructure and affordable
housing.

Aug. 25, 2016

Nod for Rs.27,000 cr. projects

Details :

The Centre gave its green signal for investments worth more than Rs.27,000 crore in new highways and
railway lines across the country to boost economic growth.

Government's plan on Infrastructure:

The government has planned to increase its investments in the infrastructure sector.
About 8,300 kilometres of roads involving more than Rs.1 lakh crore investments were revived,
said Finance Minister Arun Jaitley in his Budget speech.
Total investments earmarked in the current fiscal for roads and railways sectors amounts to Rs.2.18
lakh crore.
The Centre is also augmenting port capacity by developing greenfield projects in both eastern and
western coasts.
In the aviation sector, the Centre plans to revive torpid airports ( unused airports).
The government also gave its approval to build third and fourth railway line
 projects on the North South and East West Corridors of the Golden Quadrilateral.

About Golden Quadrilateral (GQ) highway:

It is designated as one of the longest highways in the world.

It is basically a network of highways that connect the four major metropolitan cities of the country
in four directions – Delhi (North), Chennai (South), Kolkata (East) and Mumbai (West) – thereby
forming a quadrilateral, and hence the name Golden Quadrilateral.
Launched in 2001, this was the largest highway and a very ambitious project. The project, which
was undertaken by the National Highways Development Project (NHDP) and managed by National
Highways Authority of India (N.H.A.I), was launched by the then prime minister Atal Behari
Vaijpayee.
Though it was estimated to be completed by 2006, it actually became operational in January
2012.
The Golden Quadrilateral project included construction of new express highways, including
renovation and extension of the existing highways to four or six lanes.

Cabinet clears India-Cyprus DTAA

Details :

The Cabinet approved the revised Double Taxation Avoidance Agreement (DTAA) with Cyprus, a move that
gives India the right to tax capital gains on investments routed through Cyprus prospectively from April 1,
2017. The fresh DTAA with Cyprus, which is considered a haven for money laundering, round-tripping,
and profit-shifting, assumes significance coming soon after the signing of the revised pact with Mauritius.
India is also in the process of revising its treaty with Singapore. Cyprus used to have a DTAA with India but
was blacklisted on November 1, 2013, by the Indian government for non-cooperation.

What is the Double Taxation Avoidance Agreement (DTAA) ?

A DTAA is a tax treaty signed between two or more countries.

Its key objective is that tax-payers in these countries can avoid being taxed twice for the same
income.
A DTAA applies in cases where a tax-payer resides in one country and earns income in another.
DTAAs can either be comprehensive to cover all sources of income or be limited to certain areas
such as taxing of income from shipping, air transport, inheritance, etc.
Revised DTAA provides for source-based taxation of capital gains on transfer of shares, instead of
residence based taxation.

Why is it important?

DTAAs are intended to make a country an attractive investment destination by providing relief on dual
taxation.
Such relief is provided by exempting income earned abroad from tax in the resident country or
providing credit to the extent taxes have already been paid abroad.
 DTAAs also provide for concessional rates of tax in some cases.
For instance, interest on NRI bank deposits attract 30 per cent TDS (tax deduction at source) here.
But under the DTAAs that India has signed with several countries, tax is deducted at only 10 to 15
per cent. Many of India’s DTAAs also have lower tax rates for royalty, fee for technical services,
etc.

RCEP negotiations may miss December deadline

Details :

The negotiations for the proposed mega Free Trade Agreement (FTA) between 16 Asia Pacific nations
known as the Regional Comprehensive Economic Partnership (RCEP) are likely to miss the December
2016 deadline for their conclusion, Commerce and Industry Minister Nirmala Sitharaman said.

The Issue:

The trade ministers of the RCEP members, including from the 10-member ASEAN bloc, had met
earlier this month in Laos to resolve outstanding issues — including those related to liberalisation
of trade in services and goods.
The RCEP member nations are now considering a single-tier system of tariff relaxation from the earlier
three-tier system.
It is learnt that India, however, will agree to this single-tier system only if it results in flexibility for
it to bring down or eliminate tariffs in some select items over a very long period of time so that
such a move does not hurt India Inc.

About the Regional Comprehensive Economic Partnership (RCEP):

It is a proposed free trade agreement (FTA) between the ten member states of the Association of
Southeast Asian Nations (ASEAN) (Brunei, Myanmar, Cambodia, Indonesia, Laos, Malaysia, the
Philippines, Singapore, Thailand, Vietnam) and the six states with which ASEAN has existing FTAs
(Australia, China, India, Japan, South Korea and New Zealand).
RCEP negotiations were formally launched in November 2012 at the ASEAN Summit in Cambodia.
RCEP potentially includes more than 3 billion people or 45% of the world's population, and a
combined GDP of about $21.3 trillion, accounting for about 40 percent of world trade.

Question asked in UPSC pre-2016:

The term ‘Regional Comprehensive Economic Partnership’ often appears in the news in the context of the
affairs of a group of countries known as

(a) G20
(b) ASEAN

(c) SCO

(d) SAARC
Ans: (b)

Aug. 24, 2016

Centre joins issue with CAG over LPG

Details :

The Petroleum Ministry has issued a rebuttal claiming its calculations were correct on the savings on
account of direct benefit transfer in LPG cylinders tabled in Parliament. Few days ago a report by the
Comptroller and Auditor General had questioned the method arrived at on the savings.

What is the Issue?

The CAG report, tabled on August 12, pointed out that 92 per cent of the subsidy savings were due
to a fall in global oil prices and the Centre had overstated its savings estimate as it had assumed a
uniform usage of 12 subsidised cylinders yearly per LPG user where the actual usage was an
average of 6.27 cylinders.
The Centre defended its usage of 12 cylinders in its calculations saying fake, duplicate, or ghost
connections were mostly used for diversion and it is safe to assume that these accounts would have
used their full entitlement.
The government also maintained that the savings were mostly due to the elimination of fake LPG
accounts due to the implementation of PAHAL, the direct benefit transfer scheme for LPG
subsidies.

What is PAHAL (DBTL) Scheme?

The Direct Benefit transfer of LPG (DBTL) scheme PAHAL (Pratyaksh Hanstantrit Labh) has been re-
launched in 54 districts on 15.11.2014, it was earlier launched on 1st June 2013.
Consumers who wish to join the scheme will have to either link their Aadhaar number into their
bank account and their LPG consumer or if they do not possess Aadhaar number, they will have to
link their bank account directly with their 17 digit LPG Id.
Once a Consumer joins the scheme, he will get the cylinders at market price and will receive LPG
subsidy directly in his bank account.

NSE picks Citi, three others to manage IPO

Details :
The National Stock Exchange (NSE), which is the country’s largest bourse in terms of market share, has
appointed merchant bankers to manage its initial public offering of shares (IPO). Current regulations do
not allow self-listing of exchanges in India.

What is an Initial public offering (IPO)?

Initial public offering is the process by which a private company can go public by sale of its stocks
to general public.
 If a company wants to sell stock shares to the general public, it conducts an IPO.
By doing so, a company goes from the status of private (no general shareholders) to public (a firm
with general shareholders).
The company which offers its shares, known as an 'issuer'. After IPO, the
company's shares are traded in an open market.
Those shares can be further sold by investors through secondary market trading.

Why does a company go public?

It's simply a money-making move.

The idea is to raise funds and have more liquidity or cash on hand by selling shares publicly.
The money can be used in various ways, such as re-investing in the company's infrastructure or
expanding the business.

Next step:

The firm going public hires an investment bank, or banks, to handle the IPO. Because current
regulations do not allow self-listing of exchanges in India.

Aug. 23, 2016

Ports to promote waterways as Centre plans policy rejig

Details :

The Centre is framing a policy to enable all major ports to set up subsidiary companies to develop inland
waterways. This is part of its plan to cut logistics costs for exporters by moving more cargo on water
instead of over land. The establishment of separate units will facilitate easy foreign funding for inland
waterway projects by capitalizing on the financial credentials of the government- owned ports. India’s
biggest container port Jawaharlal Nehru Port Trust (JNPT), which posted a profit of Rs.1,000 crore last
year, has been asked to set up a subsidiary for this purpose.

Inland Waterways:

India has an extensive network of inland waterways in the form of rivers, canals, backwaters and
creeks.
The total navigable length is 14,500 km, out of which about 5,200 km of the river and 4,000 km of
canals can be used by mechanized crafts.
Inland Water Transport (IWT) is a fuel efficient, environment-friendly and cost effective mode of
transport having potential to supplement the over burdened rail and congested roads.
 The objective of inland waterway projects of the government is to reduce logistics costs to make
exports competitive and all ports will be asked to improve inland waterways in their periphery to
divert large part of the cargo on waterways which is cost effective.

About the Inland Waterways Authority of India (IWAI):

 The Inland Waterways Authority of India (IWAI) came into existence on 27th October 1986 for
development and regulation of inland waterways for shipping and navigation.
The Authority primarily undertakes projects for development and maintenance of IWT
infrastructure on national waterways through grant received from Ministry of Shipping.
The head office of the Authority is at Noida.

The following waterways are operational:

NW-1: Ganga-Bhagirathi-Hooghly river system (Allahabad-Haldia). NW-2: River

Brahmaputra.
NW-3: West Coast Canal (Kottapuram-Kollam) along with Udyogmandal and ChampakaraCanals.
NW -68: Mandovi.
NW-97: Sundarbans waterways. NW -111:
Zuari

Commencement of development of six more waterways is planned in this financial year.

These waterways are:

NW-4 (Kakinada Puducherry Canal alongwith Krishna & Godavari Rivers). NW- 5 (East Coast
Canal with Brahmani& Mahanadi Delta).
NW-16 (Barak). NW-
37 (Gandak).
NW-40 (GhagraRiver). NW-
58 (Kosi).

Aug. 22, 2016

MPC members to be named this month

Details :

After appointing Urjit Patel as the next Reserve Bank of India (RBI) Governor, the government is now
expected to finalise the names of three members to the interest rate setting panel of Monetary Policy
Committee (MPC) in the next few days. The government nominees to the MPC have been shortlisted by a
Search-cum-Selection Committee headed by the Cabinet Secretary with RBI Governor and Economic
Affairs Secretary and three experts in the field of economics or banking or finance or monetary policy as
its members.
What is the Monetary Policy Committee (MPC)?

The new MPC is to be a six-member panel that is expected to bring “value and transparency” to
interest rate-setting decisions.
It will feature three members from the RBI — the Governor, a Deputy Governor and another
official — and three independent members to be selected by the Government.
 A search committee (yes, another committee!) will recommend three external members, experts in
the field of economics, banking or finance, for the Government appointees.
The MPC will meet four times a year to decide on monetary policy by a majority vote.
And if there’s a tie between the ‘Ayes’ and the ‘Nays’, the RBI governor gets the deciding vote.

What is Inflation Targeting?

Inflation targeting is a monetary policy strategy used by Central Banks for maintaining price level at a
certain level or within a range.
It indicates the primacy of price stability as the key objective of monetary policy.
The argument for price stability stems from the fact that rising prices create uncertainties in decision
making, adversely affecting savings and encouraging speculative investments.
Inflation targeting brings in more predictability and transparency in deciding monetary policy.
If the central banks could ensure price stability, households and companies can plan ahead,
negotiating wages on the basis of expecting low and stable inflation.
Various advanced economies including United States, Canada and Australia have been using
inflation targeting as a strategy in their monetary policy framework.
The case for inflation targeting has been made in India as the country has been experiencing a high
level of inflation till recently.

What is the Monetary Policy Framework Agreement?

The Reserve Bank of India and Government of India signed a Monetary Policy Framework Agreement
on 20th February 2015.
As per terms of the agreement, the objective of monetary policy framework would be primarily to
maintain price stability, while keeping in mind the objective of growth.
The monetary policy framework would be operated by the RBI.
RBI would aim to contain consumer price inflation within 6 percent by January 2016 and within 4
percent with a band of (+/-) 2 percent for all subsequent years.
The central bank would be seen as failing to meet the targets, if retail inflation is more than 6 per
cent for three consecutive quarters from 2015-16 and less than 2 per cent for three consecutive
quarters from 2016-17.
If this happens, RBI will have to explain the reason for its failure to meet as well as give a
timeframe within which it will achieve it.
RBI will publish the operating targets as well as operating procedure for the monetary policy
though which the target for the monetary policy will be achieved.
The RBI will also be required to bring a document every six months to explain the sources of
inflation and forecast for inflation for next 6-18 months.
RBI has been using headline CPI (Combined) inflation as the nominal anchor for monetary policy
stance from April 2014 onwards.

EPFO investments in ETFs to rise

Details :

Union Labour Minister Bandaru Dattatreya has said that EPFO would raise proportion of its investments
in exchange traded funds (ETFs) from the present 5 per cent and a final decision on the quantum for
current fiscal would be taken very soon. SBI Mutual Fund and UTI Mutual Fund will manage the corpus
of the retirement fund in ETFs, he said.

What is Employee’s Provident Fund (EPF)?

Employee’s Provident Fund (EPF) is a retirement benefit scheme that’s available to all salaried
employees.
This fund is maintained and overseen by the Employees Provident Fund Organisation of India
(EPFO) and any company with over 20 employees is required by law to register with the EPFO.
It’s a savings platform that helps employees save a fraction of their salary every month that can
be used in the event that you are rendered unable to work, or upon retirement.
The Employees' Provident Fund Organisation (EPFO), is an Organization tasked to assist the Central
Board of Trustees, a statutory body formed by the Employees' Provident Fund and Miscellaneous
Provisions Act, 1952 and is under the administrative control of the Ministry of Labour and
Employment, Government of India.

About Exchange Traded Funds (ETF's):

ETFs are just what their name implies: baskets of securities that are traded, like individual stocks, on
an exchange.
Unlike regular open-end mutual funds, ETFs can be bought and sold throughout the trading day
like any stock.
Most ETFs charge lower annual expenses than index mutual funds.
However, as with stocks, one must pay a brokerage to buy and sell ETF units, which can be a
significant drawback for those who trade frequently or invest regular sums of money.

Aug. 21, 2016

Deputy Governor Urjit Patel named Rajan’s successor

Details :

The Appointments Committee of the Cabinet (ACC) on 20th August announced the appointment of Reserve
Bank of India Deputy Governor Urijit Patel as successor to Governor Raghuram Rajan. Dr. Patel will take up
the top job for a three-year term on September 4, the day Dr. Rajan’s three-year term expires.
About the Appointments Committee of the Cabinet (ACC):

The Appointments Committee of the Cabinet (ACC) decides appointments to several top posts under

the Government of India.

The Appointments Committee of the Cabinet, has been reconstituted in 2014,
 along with five other Cabinet panels by Prime Minister Narendra Modi.
The Appointments Committee of the Cabinet now includes only the Prime Minister and the
Home Minister —marking a departure from the previous government which also roped in the
'minister in-charge of the concerned ministry' into the panel while selecting officials for their
departments.
The Establishment Officer’s Division (EO Division) processes all proposals for senior appointments
in the Government of India that require approval of the Appointments Committee of the Cabinet
under the Government of India Transactions of Business Rules, 1961.
These include Board level appointments in Public Sector Undertakings and appointments to the posts
at the level of Joint Secretary.

About the Financial Sector Regulatory Appointments Search Committee (FSRASC):

The FSRASC was set up based on the recommendation of the Financial Sector Legislative Reforms
Commission as a “standing committee” to “recommend suitable persons for selection of Chairperson
and Whole Time and Part Time Members of the financial sector regulators.”
The FSRASC be used for the selection of Chairpersons, Chief Executive Officers and members of
other proposed institutions such as the Public Debt Management Authority, the Monetary Policy
Committee and the Financial Data Management Centre.
The composition of the FSRASC are the Cabinet Secretary, who would head it, it would include
Additional Principal Secretary to the Prime Minister; Secretary, Department of Economic Affairs or
Department of Financial Services (depending on the administrative role); Chairperson of the
regulatory authority concerned, and three outside experts.

SBI to sharpen marketing focus

Details :

Recently the board of SBI approved the share swap ratio for the three listed associate banks, State Bank
of Mysore, State Bank of Travancore and State Bank of Bikaner & Jaipur, and also for Bharatiya Mahila
Bank.

State Bank of Hyderabad and State Bank of Patiala are 100 per cent owned by SBI. The merger is
expected to be completed by March 2017.

The merger will result in reduction in operating costs, SBI said since there will be reduction in overheads,
administrative offices and centralisation of treasury.

What are Operating costs?

Operating costs are the expenses which are related to the operation of a business, or to the
operation of a device, component, piece of equipment or facility.
They are the cost of resources used by an organization just to maintain its existence.
Also Read the Previous Article of this News:
https://lms.vajiramandravi.com/current-affairs/sbi-sets-swap-ratio-for-merger-with-
associates/57b6be0ab680d30804e1803c/

Foreign tourist arrivals to India rise 17.1 per cent in July

Details :

Interesting Facts which can be useful in an Essay or In GS Mains Economics Answers.

The number of foreign tourist arrivals (FTAs) in India rose 17.1 per cent in July 2016 over the same
period a year ago.
Bangladesh accounted for the highest share of tourist arrivals followed by the
U.S. and the U.K., according to a government statement.
The government earned Rs.14, 319 crores as foreign exchange, stemming from tourist inflows.
The FTAs during July 2016 was 7.36 lakh as compared to 6.28 lakh during the month of July 2015 and
5.69 lakh in July, 2014.

Aug. 20, 2016

Panel to review India’s innovation landscape: Nirmala Sitharaman

Details :

The government will form a team of experts soon to study challenges before India in the innovation space
and recommend ways to further improve the country’s ranking in the global innovation index, commerce
and industry minister Nirmala Sitharaman said recently. Already, India has moved up 15 notches in the
index for 2016 and is now ranked 66th on the list of most innovative nations, compared with 81st in
2015.

The Global Innovation Index 2016 Report:

India scored a major improvement in its Global Innovation Index ranking in 2016, moving up to the
66th place from 81 in 2015.
India's better performance in the latest index readings was due to its strengths in tertiary
education, software exports, corporate R&D and market sophistication.
Among middle-income countries, India (25) came second after China (17) in innovation quality,
overtaking Brazil (27).
China figured at the 25th position (29 in 2015), the only middle-income country in the top 25.
The report said India was starting to excel in ICT and creative goods exports, setting a good
example of how policy was improving the innovation environment.
 Overall, Switzerland emerged as the global leader followed by Sweden, the UK, the US and
Finland. Switzerland had ranked first in the 2015 index as well.

About the Global Innovation Index:

 The Global Innovation Index (GII) aims to capture the multi-dimensional facets of innovation and
provide the tools that can assist in tailoring policies to promote long-term output growth,
improved productivity, and job growth.
The GII helps to create an environment in which innovation factors are continually evaluated.
The Global Innovation Index 2016 (GII), in its 9th edition this year, is co- published by Cornell
University, INSEAD, and the World Intellectual Property Organization (WIPO, an agency of the
United Nations).
The index was started in 2007.
The core of the GII Report consists of a ranking of world economies’ innovation capabilities and
results.

About the World Intellectual Property Organization (WIPO):

The World Intellectual Property Organization (WIPO) is one of the 17 specialized agencies of the
United Nations.
WIPO was created in 1967 to encourage creative activity, to promote the protection of intellectual
property throughout the world.
WIPO currently has 189 member states, administers 26 international treaties, and is
headquartered in Geneva, Switzerland.

Aug. 19, 2016

India Post Payments Bank set for 2017 start

Details :

India Post Payments Bank has received the certificate of incorporation from the Registrar of Companies,
paving the way for the postal department’s bank to begin operations in 2017 as announced.

This will be the first public sector undertaking under the Department of Posts. The incorporation of the
IPPB Ltd is a significant step forward as this also paves the way for the bank to begin hiring of banking
professionals to set up the bank and begin its operations in 2017.

About the India Post Payments Bank (IPPB):

The government has given its approval for setting up the India Post Payments Bank (IPPB) as a
Public Limited Company under the Department of Posts, with 100% Government of India (GOI)
equity.
The Department of Posts had obtained the "in-principle approval" of the RBI in September 2015 to set
up the India Post Payments Bank.
The India Post Payments Bank will leverage the Department’s network, reach, and resources to
make simple, low-cost, quality financial services easily accessible to customers all over the
country.
Setting-up of the IPPB to further financial inclusion was one of the budgetary announcements during
2015-16.
All citizens, especially 40% of the country's population that is outside the ambit of formal banking
in the country will benefit from this project.
The project will be rolled out in the entire country in a phased manner.
Benefits of the India Post Payments Bank (IPPB):

The proposal will further the cause of financial inclusion by providing basic banking, payments and
remittance services and facilitate financial services like insurance, mutual funds, pensions and access
to credit in tie-up with third party financial providers with special focus on rural areas and the
unbanked and under-banked segments.
It will generate new employment opportunities for skilled banking professionals and will generate
opportunities for propagating financial literacy across the country.
It will create the largest bank in the world in terms of accessibility and in time, will encourage the
move towards a less cash economy.
The IPPB will obtain banking licence from RBI by March 2017 and by September 2017, its services
will be available across the country through 650 payments bank branches, linked post offices and
alternative channels riding on modern technology including mobiles, ATMs, PoS/ m-PoS devices etc
and simple digital payments.

Panel suggests corporate bond index, easier norms for FPIs

Details :

With an aim to develop corporate bond market in India, an expert panel suggested easing of norms for
foreign investors, a corporate bond index on the lines of Sensex or Nifty, and making it mandatory for
large corporates to tap this market for funds beyond a threshold.

What is corporate bonds?

A bond is a debt obligation.

Investors who buy corporate bonds are lending money to the company issuing the bond.
In return, the company makes a legal commitment to pay interest on the principal and, in most
cases, to return the principal when the bond comes due, or matures.
Corporate bond issuance in India is dominated by private placements as bonds account for more than
95 per cent of the total issuance of corporate debt.

SBI sets swap ratio for merger with associates

Details :

The board of State Bank of India (SBI) approved a swap ratio for the merger of its three listed associate
banks and the Bhartiya Mahila Bank.

The three listed associate banks of State Bank of India (SBI) are State Bank of Bikaner and Jaipur, State
Bank of Mysore and State Bank of Travancore.

The other two associate banks, that is, State Bank of Hyderabad and State Bank of Patiala, are unlisted
entities, which are fully owned by the SBI.
The Bharatiya Mahila Bank, which is also an unlisted entity but owned by the government.

About the issue:

The government on June 15, 2016, has given approval for State Bank of India (SBI) to bring into its
fold five associate banks paves the way for major consolidation in the banking sector.
The five banks to merge with SBI are State Bank of Bikaner and Jaipur, State Bank of Travancore,
State Bank of Mysore, State Bank of Hyderabad and State Bank of Patiala.
SBI will also absorb Bharatiya Mahila Bank.
In the past, SBI has absorbed two other associates – State Bank of Saurashtra in 2008 and State Bank
of Indore in 2010.
SBI had said that the merger process will be completed by the end of the current financial year.
The merged entity will have a business of around Rs.40 lakh crore, and SBI will aspire to be in the top
50 global banks, going ahead.
SBI’s market share will increase from 17 per cent to 22.5-23 per cent, it staff strength will
increase by 35-40 per cent and branch network will grow by 6,000.
At present, SBI alone has more than 15,000 branches.

What is swap ratio?

Swap ratio is an exchange ratio used in case of mergers and acquisitions.

It is the ratio in which the acquiring company offers its own shares in exchange for the target
company's shares.
To calculate the swap ratio, companies analyze financial ratios such as book value, earnings per
share, profits after tax as well as other factors, such as size of company, long-term debts, strategic
reasons for the merger or acquisition and so on.
For example, if company A is acquiring company B and offers a swap ratio of 1:5, it will issue one
share of its own company (company A) for every 5 shares of the company B being acquired.

Aug. 18, 2016

More cold chains, food parks to boost farm incomes

Details :

The government plans to set up 100 new cold chain projects at a cost of Rs. 12,000 crore to Rs.13,000
crore and has kicked off the process to invite investors to set up six new mega food parks, in a bid to
boost farm sector incomes by establishing farm to fork linkages.
About the Mega Food Parks Scheme:

The Mega Food Parks Scheme has been launced by the Ministry of Food Processing Industries.
 It aims to provide a mechanism to bring together farmers, processors and retailers and link
agriculture production to the market so as to ensure maximization of value addition, minimization
of wastages and improving farmers’ income.
The primary objective of the Scheme is to provide modern infrastructure facilities for the food
processing along the value chain from the farm to the market with a cluster based approach based
on a hub and spokes model.
It includes creation of infrastructure for primary processing and storage near the farm in the form
of Primary Processing Centres (PPCs) and Collection Centres (CCs) and common facilities and
enabling infrastructure like roads, electricity, water, ETP facilities etc. at Central Processing Centre
(CPC).
These PPCs and CCs act as aggregation and storage points to feed raw material to the food
processing units located in the CPC.
The financial assistance under the scheme is provided in the form of grant-in- aid @ 50% of
eligible project cost in general areas and @ 75% of eligible project cost in NE Region and difficult
areas (Hilly States and Integrated Tribal Development areas) subject to maximum of Rs. 50 crore
per project.

Aug. 17, 2016

Food lifts WPI inflation to 23-month high

Details :

Wholesale price inflation accelerated to a 23-month high of 3.6 per cent in July, driven mainly by higher
food prices, according to official data.

What is Wholesale Price Index (WPI)?

WPI measures the change in price level at wholesale market.

WPI – consists of 676 commodities (services are not included in WPI in India).
It is measured on year-on-year basis i.e., rate of change in price level in a given month vis a vis
corresponding month of last year.
This is also known as point to point inflation.
This index is the most widely used inflation indicator in India.
This is published by the Office of Economic Adviser, Ministry of Commerce and Industry.
WPI captures price movements in a most comprehensive way.
The current series of Wholesale Price Index has 2004-05 as the base year. In India, there are
three main components in WPI – Primary Articles (weight:
20.12%), Fuel & Power (weight: 14.91%) and Manufactured Products (weight: 64.97).
Within WPI, Food commodities (from which Food Inflation) have a combined weight of 24.31%.
This includes “Food Articles” in the Primary Articles (14.34%) and “Food Products” in the
Manufactured Products category (9.97%).
Food Inflation is also calculated on year-on-year basis.
What is Consumer Price Index?

Consumer Price Index is a measure of change in retail prices of goods and services consumed by
defined population group in a given area with reference to a base year.
Presently the consumer price indices compiled in India are CPI for Industrial workers CPI(IW), CPI
for Agricultural Labourers CPI(AL) and; Rural Labourers CPI(RL) and (Urban) and CPI(Rural).
Consumer Price Index for Urban Non Manual Employees was earlier computed by Central Statistical
Organisation.
However this index has been discontinued since April 2008.
The CPI(IW) and CPI(AL& RL) compiled are occupation specific and centre specific and are
compiled by Labour Bureau.
This means that these index numbers measure changes in the retail price of the basket of goods
and services consumed by the specific occupational groups in the specific centres.
CPI(Urban) and CPI(Rural) are new indices in the group of Consumer price index and has a wider
coverage of population.
This index compiled by Central Statistical Organisation tries to encompass the entire population
and is likely to replace all the other indices presently compiled.
In addition to this, Consumer Food Price Indices (CFPI) for all India for rural, urban and combined
separately are also released w.e.f May, 2014.
Price data are collected from selected towns by the Field Operations Division of NSSO and from
selected villages by the Department of Posts.
Price data are received through web portals being maintained by the National Informatics Centre
(NIC).
The Reserve Bank of India (RBI) has started using CPI-combined as the sole inflation measure for the
purpose of monetary policy.
As per the agreement on Monetary Policy Framework between the Government and the RBI dated
February 20, 2015 the sole of objective of RBI is price stability and a target is set for inflation as
measured by the Consumer Price Index-Combined.

BBB should appoint top executives at state-owned banks, says Rajan

Details :

Governor of Reserve Bank of India (RBI) Raghuram Rajan has stressed the need to improve governance
at public sector banks and said the task of appointing top executives and non-official directors in these
entities should be left to the Bank Board Bureau (BBB). Mr. Rajan’s suggestion is in line with the
proposals of the P.J. Nayak committee set up by the RBI to look into the issue of governance in Indian
banks. At present, the Centre appoints the chief executive, executive directors and other board
members.

About Banks Board Bureau (BBB):

With a view to improve the Governance of Public Sector Banks (PSBs), the Government had
decided to set up an autonomous Banks Board Bureau in February 2016.
 The Bureau will recommend for selection of heads - Public Sector Banks and Financial Institutions
and help Banks in developing strategies and capital raising plans.
Until now, a government-appointed search panel, typically headed by the Reserve Bank of India
governor, would select chief executives of public sector banks.
The BBB, originally proposed by the PJ Nayak Committee, was proposed to review governance
issues in the banking sector.
It is headed by former Comptroller and Auditor General Vinod Rai.
A deputy governor of RBI, the secretary, financial services, and the secretary, public enterprises, are
ex-officio members.
It will be based in Mumbai.
At present, BBB is involved in the short-listing and selection process of public sector bank executives.
The final appointments are made by the government.

Share pledging on the rise as promoters search for cash

Details :

Growing concern over bad debt and reduced access to bank credit has forced promoters of many
companies to pledge their stake to meet the working capital requirements of their firms.

Data from BSE shows that between March and August, the number of companies with 100 per cent of
the promoters' share being pledged has almost doubled from 25 to 48.

What is Share pledging?

In India, promoters are the majority shareholder group that manages the day- to-day affairs of a
company.
When they need money, very often, promoters of listed companies pledge all or some of their shares
with lenders.
It means that these shares are offered as collateral to banks in exchange for loans.
This is one of the many sources of borrowing money, especially in a volatile market with tight
liquidity conditions.
Pledging of shares is common in companies where promoter holding is high. While pledging
shares, ownership is retained by promoters.
In a rising interest rate scenario, promoters often use shares owned by them as collateral for loans.
If the majority owner in your company has pledged a sizeable chunk of his or her equity, it could
trigger a volatile price movement in a falling market.
Shares of companies with high pledging of promoter holding tend to witness volatility.
Higher the pledging, greater could be the risk of volatility in the company’s share price.
This is because, as share prices fall, the overall value of the pledged collateral falls.
This would put pressure on the promoter to produce more assets as collateral. Sometimes, the
lender may also be forced to sell some of the shares to ensure that the loan does not turn into a
bad loan.
 If the promoter is unable to meet obligations of borrowing, the ownership of shares is transferred
to the lender, who may then sell it to recover loans.
The Reserve Bank of India, in its latest Financial Stability report, flagged a concern over pledged
shares.

Aug. 16, 2016

Drones better than satellites to gauge crop loss, says panel

Details :

A committee constituted by the National Institution for Transforming India (NITI Aayog) to studying how
unmanned aerial vehicles (UAVs) can be used in crop insurance schemes (Pradhan Mantri Fasal Bima
Yojana) has said drones trump satellite technology for the purpose. The committee also maintained that
sharing cadastral (land’s location, ownership, tenure) details, Aadhaar card and bank account details is
“mandatory” for effective crop insurance policies.

How Drones are better than satellite?

The ideal alternative is to gather data from low heights [i.e., below the cloud] and at very high
resolution where aerial photography or UAVs score over all available alternatives,
The current satellites which are even better than 10m spatial resolution would not be sufficient
due to their non-availability during cloud cover, limited revisit possibility during the crop season
and high price.

Highlight of the Pradhan Mantri Fasal Bima Yojana (PMFBY) scheme:

There will be a uniform premium of only 2% to be paid by farmers for all Kharif crops and 1.5% for
all Rabi crops. In case of annual commercial and horticultural crops, the premium to be paid will
be only 5%.
The premium rates to be paid by farmers are very low and balance premium will be paid by the
Government to provide full insured amount to the farmers against crop loss in any natural
calamities.
There is no upper limit on Government subsidy. Even if balance premium is 90%, it will be borne
by the Government.
Earlier, there was a provision of capping the premium rate which is low claims being paid to
farmers. Now this is removed and farmers will get claim against full sum insured without any
reduction.
The use of technology will be encouraged to a great extent. Smart phones, Remote sensing drone
and GPS technologies will be used to capture and upload data of crop cutting to reduce the delays
 in the claim payment.
Allocation of the scheme presented in budget 2016-2017 is Rs.5, 550 cores. The insurance plan
will be handled under a single insurance company, Agriculture Insurance Company of India (AIC).
PMFBY is a replacement scheme of National Agriculture Insurance Scheme (NAIS) and Modified
National Agriculture Insurance Scheme (MNAIS) and hence exempted from the service tax.

Coverage of the Risk

 Following stages of the crop and risks leading to crop loss are covered under the Scheme.
Prevented Sowing/ Planting Risk: Insured area is prevented from sowing planting due to deficit
rainfall or adverse seasonal Conditions.
Standing Crop (Sowing to Harvesting): Comprehensive risk insurance is provided to cover yield
losses due to non- preventable risks, viz. Drought, Dry spells, Flood, Inundation, Pests and
Diseases, Landslides, Natural Fire and Lightening, Storm, Hailstorm, Cyclone, Typhoon, Tempest,
Hurricane and Tornado.
Post-Harvest Losses: coverage is available only up to a maximum period of two weeks from
harvesting for those crops which are allowed to dry in cut and spread condition in the field after
harvesting against specific perils of cyclone and cyclonic rains and unseasonal rains.
Localized Calamities: Loss/ damage resulting from occurrence of identified localized risks of
hailstorm, landslide, and Inundation affecting isolated farms in the notified area.

Exclusion of the Risk

The insurance cover will not be applicable in the damage of crops due to any of the following
reasons.
War & kindred perils Nuclear
risks
Riots
Malicious damage Theft or
act of enmity
Grazed and/or destroyed by domestic and/or wild animals and other preventable risks shall be
excluded.

Steel Ministry wants review of policies affecting producers

Details :

Even as the Centre has extended curbs on steel imports, the Steel Ministry is pushing for a rethink on
domestic policies that are hurting producers. This includes the railways’ freight policy and the clean
energy cess that was doubled in this year’s Budget.

Why the price of Domestic Steel are so high?

Power costs in India are higher than China, Japan or Korea, because there is 2.5% import duty on
coking coal, and 90 % of India’s coking coal requirements are imported.
Also the levy of clean energy cess on coking coal has lead to the increase of power costs.
However the coking coal is not only cleaner than thermal coal with lower ash content, but also an
essential requirement for steel production with no alternatives.
Steel makers also suffer due to high railway freight.
With (rates in) sea freight becoming very low, major consumers of steel near the coast, prefer to
import steel as the cost of reaching finished steel by railways to those areas is higher by about
Rs.1,000 per tonne.
Plane leasing firms may get a boost

Details :

The Centre plans to ease norms for aircraft leasing firms to enable them to take back aircraft quickly from
defaulting airlines in a bid to make its Regional Connectivity Scheme more attractive for such lessors,
government is exploring ways to de-risk the leasing business.

Objective of Regional Connectivity Scheme (RCS):

The objective of Regional Connectivity Scheme is to make flying affordable for the masses, to
promote tourism, increase employment and promote balanced regional growth.
It also intends to put life into un-served and under -served airports.
To operationalise the Scheme Aircrafts and helicopter operators would be required to assess the
demand on various routes and submit their proposal for providing connectivity on such routes.
They would be required to earmark certain number of seats on every flight for the RCS.
The fare for such seats would be capped based on flight distance and time. Airport Authority of
India is the implementing Agency for the Scheme.

Salient features of the Regional Connectivity Scheme (RCS):

The regional connectivity scheme will be applicable on route length between 200 to 800 km with
no lower limit set for hilly, remote, island and security sensitive regions.
The Central government will provide concessions to the tune of 2 per cent excise on Value Added
Tax (VAT) and service tax at 1/10th the rate and liberal code sharing for regional connectivity
scheme airports.
State governments will become key partners and provide free security and fire servic utilities at
concessional rates and reduce VAT on ATF to 1 per cent.
No landing charges, parking charges and Terminal Navigation Landing Charges will be imposed for
regional connectivity scheme flights.
A Regional Connectivity Fund (RCF) will be created to fund the scheme via a levy on certain flights.
States are expected to contribute 20 per cent to the fund.
For balanced regional growth, allocations will be spread equitably across 5 regions - North,
West, South, East and North East with a cap of 25 percent. A minimum of 3 and a maximum 7
regional connectivity scheme flights per week per route with minimum 9 and maximum 40
seats per flight.
The regional connectivity scheme will be in operation for 10 years with individual route contracts
to be for a 3-year span. Limited period exclusive route rights will be allotted to selected
operators.
Interested operators can submit initial route proposals. The gap in costs and revenues, if any, will be
compensated through Viability Gap Funding(VGF).
Market-based reverse bidding mechanism to determine least VGF to select the airline operator
with the right to match to the initial proposer. The government said VGF will be reduced if
passenger load factor remains high and will be discontinued after 3 years when route becomes
 self sustainable.

Aug. 15, 2016

Centre owes Rs. 80,000 cr. to States, says CAG report

Details :

The Centre owes the States over Rs. 80,000 crore from its net proceeds of the period between 1996
and 2015, according to a Comptroller and Auditor General (CAG) report tabled in Parliament recently.

The report says that according to Article 279 of the Constitution, the CAG is “required to ascertain and
certify the ‘net proceeds’ (any tax or duty the proceeds thereof reduced by the cost of collection),
whose certification shall be final.”

“During the certification of ‘net proceeds’ by the CAG, based on the recommendations of the successive
Finance Commissions, it was noticed that from 1996-97 to 2014-15 an aggregated amount of Rs. 81,647.70
crore was short devolved to the States,” says the CAG report, on ‘Compliance of Fiscal Responsibility and
Budget Management Act, 2003.’

About Fiscal Responsibility and Budget Management (FRBM) Act:

Fiscal Responsibility and Budget Management (FRBM) became an Act in 2003. The objective of
the Act is to ensure inter-generational equity in fiscal management, long run macroeconomic
stability, better coordination between fiscal and monetary policy, and transparency in fiscal
operation of the Government.
The Government notified FRBM rules in July 2004 to specify the annual reduction targets for fiscal
indicators.
The FRBM rule specifies reduction of fiscal deficit to 3% of the GDP by 2008-09 with annual
reduction target of 0.3% of GDP per year by the Central government.
Similarly, revenue deficit has to be reduced by 0.5% of the GDP per year with complete elimination to
be achieved by 2008-09.
It is the responsibility of the government to adhere to these targets.
The Finance Minister has to explain the reasons and suggest corrective actions to be taken, in
case of breach.

Amendments to the FRBM Act:

Amendments to the FRBM Act were introduced subsequent to the recommendations of 13th Finance
Commission.
Concept of “Effective Revenue Deficit” and “Medium Term Expenditure Framework” statement
are the two important features of amendment to FRBM Act in the direction of expenditure
reforms. Effective Revenue Deficit is the difference between revenue deficit and grants for
creation of capital assets.
This will help in reducing consumptive component of revenue deficit and create space for increased
capital spending.
Effective revenue deficit has now become a new fiscal parameter.
“Medium-term Expenditure Framework” statement will set forth a three-year rolling target for
expenditure indicators.
Vide the Finance Act 2015, the target dates for achieving the prescribed rates of effective deficit
and fiscal deficit were further extended.
The effective revenue deficit which had to be eliminated by March 2015 will now need to be
eliminated only after 3 years i.e., by March 2018.
 The 3% target of fiscal deficit to be achieved by 2016-17 has now been shifted by one more year
to the end of 2017-18.

Recent Committee to review the implementation of the FRBM Act:

In the Union Budget 2016-17 it was proposed to constitute a Committee to review the
implementation of the FRBM Act and give its recommendations on the way forward.
N.K.Sing committee has been constituted regarding this.
This was in view of the new school of thought which believes that instead of fixed numbers as
fiscal deficit targets, it may be better to have a fiscal deficit range as the target, which would give
necessary policy space to the Government to deal with dynamic situations.
There is also a suggestion that fiscal expansion or contraction should be aligned with credit
contraction or expansion respectively, in the economy. While remaining committed to fiscal
prudence and consolidation, Budget stated that a time has come to review the working of the FRBM
Act, especially in the context of the uncertainty and volatility which have become the new norms of
global economy.

RBI may not meet inflation target: IMF

Details :

A recent IMF paper has raised question marks over the ability of the Reserve Bank of India (RBI) to
target inflation through monetary measures, saying the size of the formal financial sector is small in
India and may undermine the effectiveness of interest rate changes on aggregate demand.

The IMF working paper assumes significance as the RBI has recently implemented an inflation-targeting
regime that requires it to hit publicly announced targets for retail inflation, based on Consumer Price Index
(CPI). Under the new dispensation, RBI will be required to meet retail inflation target of 4 per cent, plus or
minus two per cent over the next five years.

To clear the basics of this news, please refer this previous Article.

Article Link: https://lms.vajiramandravi.com/current-affairs/centres-inflation-target- could-help-macro-

stability/57a80f05b680d37aa0b4b11c/
Aug. 14, 2016

Off-grid solar can meet India’s power demand

Details :
The slow pace of capacity addition in the solar sector has created room for a variety of off-grid solar
solutions to grow and provide electricity to those as yet not connected to the power grid.

What is off-grid solar power?

Being off-grid means you are not connected in any way to your grid’s power system or utility
company.
You are producing your own electricity via solar, wind, microhydro, generator, etc.
This means you are 100% self-sustaining your energy use.
These systems will generally have a battery bank in order to store the electricity for use when
needed.

Benefits of off-grid solar solutions :

Over 300 million people in India don’t have access to the electricity grid and are living in complete
darkness, they live off kerosene lanterns, which are extremely harmful to health and often result
in huge losses of life and property due to fires.
So Off-grid solar is increasingly being viewed as the way to bring sustainable and cheap lighting to
the vast segments of India that are yet to be connected to the electricity grid, especially in difficult
terrain.
There are several types of household solar products entering the market, ranging from simple
solar lanterns powered by in-built solar panels, to entire solar invertors that use rooftop solar
panels.
Solar tariffs have become competitive now, the efficiency of solar panels has improved
substantially, battery technology has improved, LED prices have gone down, and the price of
plastic has reduced due to the fall in oil prices, it was a combination of all these factors that has led
to a surge in the Solar industry over the last three years.
These off-grid solar solutions, apart from helping the government meet its renewable energy target,
also provide economical savings — both to the government and the consumer.

Aug. 13, 2016

IRDAI moots guidelines on listing of insurers

Details :

There could be a flood of insurance IPOs hitting the capital market soon with the Insurance Regulatory
and Development Authority of India (IRDA) proposing that all general insurance companies, including
standalone health insurers, that have been in existence for 8 years and life insurance companies in
operation for 10 years should initiate steps to get their shares listed.
The listing would be an important measure to strengthen corporate governance, bring market discipline
among the insurers and enhance transparency, according to the regulator.

About the Insurance Regulatory and Development Authority (IRDA):

 Following the recommendations of the Malhotra Committee report, in 1999, the Insurance Regulatory
and Development Authority (IRDA) was constituted as an autonomous body to regulate and develop
the insurance industry.
The IRDA was incorporated as a statutory body in April, 2000.
The key objectives of the IRDA include promotion of competition so as to enhance customer
satisfaction through increased consumer choice and lower premiums, while ensuring the financial
security of the insurance market.

Retail inflation accelerates to 6.07%

Details :

Industrial output for the first quarter of 2016-17 has grown by just 0.6 per cent. While the index of
industrial production (IIP) rose 2.1 per cent in June 2016, compared to June 2015, it reflected a marginal
uptick from the 1.1 per cent growth recorded this May. (These facts are not relevant, only you need to
know about, what is IIP?)

What is Index of Industrial Production (IIP)?

IIP measures the quantum of changes in the industrial production in an economy and captures
the general level of industrial activity in the country. It is a composite indicator expressed in
terms of an index number which measures the short-term changes in the volume of
production of a basket of industrial products during a given period with respect to the base
period.
IIP is a short term indicator of industrial growth till the results from Annual Survey of Industries
and National Accounts Statistics are available.
The IIP index is computed and published by the Central Statistical Organisation (CSO) on a monthly
basis.
IIP is a composite indicator that measures the growth rate of industry groups classified namely as
Mining, Manufacturing and Electricity.
Currently IIP figures are calculated considering 2004-05 as base year.

Aug. 11, 2016

Cabinet nod for changes to FDI regulations in NBFCs

Details :

Recently the Cabinet has approved a proposal to amend rules for foreign investment in non-banking
finance companies (NBFCs).

Cabinet has approved these following changes:

The amendment in the existing Foreign Exchange Management regulations on non- banking
finance companies (NBFCs) will enable inflow of foreign investment in ‘other financial services’ on
automatic route provided such services are regulated by any financial sector regulators (RBI, SEBI,
PFRDA etc.)/government agencies.
Foreign investment in ‘other financial services’ that are not regulated by any
 regulators or by a government agency can be made via the approval route. Further, minimum
capitalisation norms as mandated under FDI policy have been eliminated as most of the
regulators have already fixed minimum capitalisation norms.

What is a Non-Banking Financial Company (NBFC)?

A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956
engaged in the business of loans and advances, acquisition of
shares/stocks/bonds/debentures/securities issued by Government or local authority or other
marketable securities of a like nature, leasing, hire- purchase, insurance business, chit business but
does not include any institution whose principal business is that of agriculture activity, industrial
activity, purchase or sale of any goods (other than securities) or providing any services and
sale/purchase/construction of immovable property.
A non-banking institution which is a company and has principal business of receiving deposits
under any scheme or arrangement in one lump sum or in installments by way of contributions or
in any other manner, is also a non- banking financial company (Residuary non-banking company).

NBFCs are doing functions similar to banks. What is difference between banks & NBFCs?

NBFCs lend and make investments and hence their activities are akin to that of banks; however there
are a few differences as given below.
NBFC cannot accept demand deposits.
NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn
on itself.
Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available
to depositors of NBFCs, unlike in case of banks.

Aug. 10, 2016

RBI holds rates on inflation concerns

Details :

The Reserve Bank of India (RBI) Governor Raghuram Rajan left the benchmark interest rate unchanged
on 9th August citing “upside” risks to its target of 5 per cent inflation by March 2017. The RBI kept the
repo rate, the key rate at which the central bank lends money to commercial banks, at 6.5 per cent.

What is Base Rate?

The Base Rate is the minimum interest rate of a bank below which it cannot lend, except in some
cases allowed by the RBI.
It is the minimum interest rate of a bank below which it is not viable to lend. The base rate,
introduced with effect from 1st July 2011 by the Reserve Bank of India, is the new benchmark rate
for lending operations of banks.
Thus all categories of domestic rupee loans should be priced only with reference to the Base
Rate.
The reason for introducing Base Rate was to bring out the transparency in bank
 lending rates as well as to improve monetary policy transmission.
Since the Base Rate will be the minimum rate for all loans, banks are not permitted to resort to
any lending below the Base Rate.

What is Marginal Cost of funds based Lending rate (MCLR)

The marginal cost of funds based lending rate (MCLR) refers to the minimum interest rate of a
bank below which it cannot lend, except in some cases allowed by the RBI.
It is an internal benchmark or reference rate for the bank.
MCLR actually describes the method by which the minimum interest rate for loans is determined
by a bank - on the basis of marginal cost or the additional or incremental cost of arranging one
more rupee to the prospective borrower. The MCLR methodology for fixing interest rates for
advances was introduced by the Reserve Bank of India with effect from April 1, 2016.
This new methodology replaces the base rate system introduced in July 2011. In other words, all
rupee loans sanctioned and credit limits renewed w.e.f. April 1, 2016 would be priced with
reference to the Marginal Cost of Funds based Lending Rate (MCLR) which will be the internal
benchmark (means a reference rate determined internally by the bank) for such purposes.

Reasons for introducing MCLR

RBI decided to shift from base rate to MCLR because the rates based on marginal cost of funds
are more sensitive to changes in the policy rates.
This is very essential for the effective implementation of monetary policy. Prior to MCLR system,
different banks were following different methodology for calculation of base rate /minimum rate
– that is either on the basis of average cost of funds or marginal cost of funds or blended cost of
funds. Thus, MCLR aims
To improve the transmission of policy rates into the lending rates of banks. To bring
transparency in the methodology followed by banks for determining interest rates on
advances.
To ensure availability of bank credit at interest rates which are fair to borrowers as well as banks.
To enable banks to become more competitive and enhance their long run value and contribution to
economic growth.

One question has been asked from this topic in this year's prelims examination(2016).

Q. What is/are the purpose/ purposes of the ‘Marginal Cost of Funds based Lending Rate (MCLR)’
announced by RBI?

1. These guidelines help improve the transparency in the methodology followed by banks for
determining the interest rates on advances.

2. These guidelines help ensure availability of bank credit at interest rates which are fair to the
borrowers as well as the banks.
Select the correct answer using the code given below:

(a) 1 only
(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2 Ans:

(c)

Aug. 9, 2016

Ponzi schemes not under our purview: SEBI

Details :

The Supreme Court has recently asked the government and the Securities and Exchange Board of India
(SEBI) about, what they were doing to check the menace of ponzi schemes running across the country in
various forms which robbed the poor and small investors of their hard-earned money.

What the Securities and Exchange Board of India (SEBI) said?

Ponzi schemes do not fall under the regulatory purview of SEBI.

The same is banned under the Prize Chit and Money Circulation (Banning) Act, 1978 and the State
government concerned is the enforcement agency.
Though it is a Central Act, the respective State governments are the enforcement agency of this
law.

What is Ponzi scheme?

It is named after Charles Ponzi, who constructed the scheme at the beginning of the 20th
Century.
A Ponzi scheme is an investment fraud where clients are promised a large profit at little to no risk.
Companies that engage in a Ponzi scheme focus all of their energy into attracting new clients to
make investments.
This new income is used to pay original investors their returns, marked as a profit from a
legitimate transaction.
Ponzi schemes rely on a constant flow of new investments to continue to provide returns to older
investors.
When this flow runs out, the scheme falls apart.

ONGC overstated crude oil output, says CAG report

Details :

State-run Oil and Natural Gas Corporation (ONGC) ended up paying an additional Rs.18,626 crore in
subsidies over the period 2011-12 to 2014-15 by overstating its crude oil output, a CAG audit has found.

The report was quite categorical in stating that the measurement of crude oil production should not
include condensates and off-gas (a dissolved gas in crude oil separated during the stabilisation process of
crude oil).
What is Natural-gas condensate?

Natural-gas condensate is a low-density mixture of hydrocarbon liquids that are present as gaseous
components in the raw natural gas produced from many natural gas fields.
Some gas species within the raw natural gas will condense to a liquid state if the temperature is
reduced to below the hydrocarbon dew point temperature at a set pressure.
The natural gas condensate is also referred to as simply condensate, or gas condensate, or sometimes
natural gasoline because it contains hydrocarbons within the gasoline boiling range.

Raw natural gas may come from any one of three types of gas wells:

Crude oil wells—Raw natural gas that comes from crude oil wells is called associated gas.
This gas can exist separate from the crude oil in the underground formation, or dissolved in the
crude oil. Condensate produced from oil wells is often referred to as lease condensate.
Dry gas wells— These wells typically produce only raw natural gas that does not contain any
hydrocarbon liquids. Such gas is called non-associated gas.
Condensate from dry gas is extracted at gas processing plants and, hence, is often referred to as
plant condensate.
Condensate wells—These wells produce raw natural gas along with natural gas liquid. Such gas is
also called associated gas and often referred to as wet gas.

Aug. 8, 2016

‘Centre’s inflation target could help macro stability’

Details :

The Centre on 6th July has notified its inflation target of 4%, with an upper limit of 6% and lower bound
of 2%, up to 2021.

If the inflation remain out of these bounds for three consecutive quarters, then the RBI would have to
provide a written explanation on why that had happened, what it planned to do to rectify the situation,
and the timeline for the recovery effort.

What is Inflation Targeting?

Inflation targeting is a monetary policy strategy used by Central Banks for maintaining price level at a
certain level or within a range.
It indicates the primacy of price stability as the key objective of monetary policy.
The argument for price stability stems from the fact that rising prices create uncertainties in decision
making, adversely affecting savings and encouraging speculative investments.
 Inflation targeting brings in more predictability and transparency in deciding monetary policy.
If the central banks could ensure price stability, households and companies can
 plan ahead, negotiating wages on the basis of expecting low and stable inflation.
Various advanced economies including United States, Canada and Australia have been using
inflation targeting as a strategy in their monetary policy framework.
The case for inflation targeting has been made in India as the country has been experiencing a high
level of inflation till recently.

What is the Monetary Policy Framework Agreement?

The Reserve Bank of India and Government of India signed a Monetary Policy Framework Agreement
on 20th February 2015.
As per terms of the agreement, the objective of monetary policy framework would be primarily to
maintain price stability, while keeping in mind the objective of growth.
The monetary policy framework would be operated by the RBI.
RBI would aim to contain consumer price inflation within 6 percent by January 2016 and within 4
percent with a band of (+/-) 2 percent for all subsequent years.
The central bank would be seen as failing to meet the targets, if retail inflation is more than 6 per
cent for three consecutive quarters from 2015-16 and less than 2 per cent for three consecutive
quarters from 2016-17.
If this happens, RBI will have to explain the reason for its failure to meet as well as give a
timeframe within which it will achieve it.
RBI will publish the operating targets as well as operating procedure for the monetary policy
though which the target for the monetary policy will be achieved.
The RBI will also be required to bring a document every six months to explain the sources of
inflation and forecast for inflation for next 6-18 months.
RBI has been using headline CPI (Combined) inflation as the nominal anchor for monetary policy
stance from April 2014 onwards.

On tap banking licences will hit PSBs: ICRA

Details :

According to the ratings agency ICRA ,the Reserve Bank of India’s (RBI) move to make new bank licences
available on tap will encourage non-bank lenders to apply for access to cheaper public deposits, and the
increased competition may dent State-run lenders’ market share. It said medium to large-sized NBFCs
(non-banking financial companies) would be interested in converting themselves into universal banks
because managing large liabilities or resources is easier within the banking structure.

What is the issue:

The Reserve Bank of India (RBI) has recently released the final guidelines for on-tap licensing of
universal banks in the private sector, under which it ring- fenced the banking system from large
industrial houses, excluding them from floating banks in the future.
RBI’s agenda in doling out new banks is financial inclusion and the on-tap licence guidelines make
it amply clear.
“The business plan will have to address how the bank proposes to achieve
 financial inclusion,” RBI said in its guidelines.

RBI's new guidelines:

Resident individuals with 10 years of experience in banking and finance sector eligible to promote
banks.
Banks should be floated under a Non-Operative Financial Holding Company (NOFHC).
NOFHC not mandatory for individuals or standalone promoters who do not have other group entities.
Not less than 51% of the total paid-up equity capital of the NOFHC shall be owned by the
promoter/promoter group.
Existing specialised activities can be carried out under NOFHC, provided the bank does not do so.
Minimum capital requirement is Rs 500 crore. Foreign
shareholding capped at 74%.
Shares should be listed within six years of the commencement of business by the bank.
Business plan should spell out clearly how the bank aims to achieve financial inclusion.
The bank shall open at least 25% of its branches in un-banked, rural centres. The central bank said
that it would also prefer to give licence to any resident individuals and professionals having 10
years of experience in banking and finance at a “senior level.”

Aug. 7, 2016

Bad loans cut Union Bank’s first quarter net profit

Details :

Union Bank of India’s net profit decreased by 68 per cent to Rs.167 crore in the first quarter compared to the
year-earlier period due to higher provisions for bad loans. Gross non-performing asset ratio of the bank rose
to 10.16 per cent as for the three- month period ended June.

What is Non Performing Assets?

As per RBI norms, a non performing asset (NPA) is a loan or advance for which the principal or interest
payment remained overdue for a period of 90 days.These assets fail to bring the expected return on the
loans or advances made by the banks.

Banks are required to classify NPAs further into Substandard, Doubtful and Loss assets.

1. Substandard assets: Assets which has remained NPA for a period less than or equal to 12
months.
2. Doubtful assets: An asset would be classified as doubtful if it has remained in the substandard
category for a period of 12 months.

3. Loss assets: According to RBI, Loss asset is considered uncollectible and of such little value that its
continuance as a bankable asset is not warranted, although there may be some salvage or recovery value.

In case of Agriculture / Farm Loans; the NPA is defined as under: For short duration crop agriculture loans
such as paddy, Jowar, Bajra etc. if the loan (Principle/ interest) is not paid for two crop seasons, it would
be termed as a NPA. For Long Duration Crops, it would be one crop season.

Difference between Gross NPA and Net NPA:

Gross NPA is the amount which is outstanding in the bank’s account books, regardless of any interest
recorded and debited. While Net NPA is Gross NPA less interest debited to borrower’s account and not
recovered or recognized as income.

Implications of the NPAs on Banks: The most important implication of the NPA is that a bank can neither
credit the income nor debit to loss, unless either recovered or identified as loss. In case of a borrower
having multiple accounts, all accounts would be considered NPA if one account becomes non
performing.

What action banks can take?

The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest
(SARFAESI) Act allow the banks to take legal recourse to recover their dues.

When a borrower makes any default in repayment and his account is classified as NPA; the secured
creditor has to issue notice to the borrower giving him 60 days to pay his dues.

If the dues are not paid, the bank can take possession of the assets and give it on lease or sell it; as per
provisions of the SAFAESI Act.

Is there any provision of reselling on the part of banks?

If a bad loan remains NPA for at least two years, the bank can also resale the same to the Asset
Reconstruction Companies such as Asset Reconstruction Company (India) (ARCIL). Such resale can take
place only on Cash Basis and the purchasing bank/ company would have to keep the accounts for at
least 15 months before it sells to other bank.
They purchase such loans on low amounts and try to recover as much as possible from the defaulters.
Their revenue is difference between the purchased amount and recovered amount.

Aug. 6, 2016

“Masala bond supports Adani Transmission’s financial flexibility”

Details :

According to a report by the Moody investor Service Adani Transmission Ltd’s Rs 500 crore Masala
bonds issue recently support its financial flexibility, and the issuance is expected to deepen the market
for such bonds with more entities opting for this mode of raising the finances.

What is Masala Bond?

A Masala bond is an Indian rupee denominated bond issued in overseas markets.It is a financial
instrument through which Indian entities can raise money from overseas markets in the rupee rather
than in foreign currency. In recent past The International Finance Corporation (IFC), the investment
arm of the World Bank, had, issued a ₹1,000 crore bond to fund infrastructure projects in India. These
bonds were listed on the London Stock Exchange (LSE). IFC then named them Masala bonds to give a
local flavour by calling to mind Indian culture and cuisine. Before Masala bonds, corporates have had to
dependent on avenues such as External Commercial Borrowings (ECBs).

What are the Benefits?

• By issuing bonds in rupees, an Indian entity is shielded against the risk of currency fluctuation, typically
associated with borrowing in foreign currency. Besides helping diversify funding sources, the cost of
borrowing could also turn out to be lower than domestic markets.

• As Masala bonds are denominated in rupees, foreign investors will be taking the currency risk. So the
key for the success of these bonds will be a stable exchange rate.

What RBI has done?

RBI has issued guidelines permitting Indian companies, non-banking finance companies and infrastructure
investment trusts and real investment trusts to issue rupee-denominated bond overseas so as to raise the
finance quickly and in a hassle free manner.

Why are the benefits for the investors?

Recently Finance Ministry has done away with the withholding tax (a tax deducted at
source on residents outside the country) on interest income of such bonds to 5 per cent from 20 per
cent, making it attractive for investors.

Centre seeks industry inputs on ease of doing business

Details :

The Department of Industrial Policy and Promotion (DIPP) has asked the various stakeholders, including
industry bodies, to submit their inputs on further improving ease of doing business in India. The
government’s active pursuit of the new Bankruptcy Code reflects its emphasis on the ease of doing
business.

What is Ease of Doing Business?

Definition: Ease of doing business is an index published by the World Bank. It is an aggregate figure with
focus on different parameters used to define the ease of doing business in a country.

Description: It is computed by aggregating the distance to frontier scores of different economies. The
distance to frontier score uses the 'regulatory best practices' for doing business as the parameter and
benchmark economies according to that parameter. Indicators for which distance to frontier is
computed include construction permits, registration, getting credit, tax payment mechanism etc.
Countries are ranked as per the index.

India’s Rank as per recent World bank Data

According to the World Bank’s Doing Business Report 2016. India now ranks 130 out of 189 countries in
the ease of doing business, moving up four places from last year’s adjusted ranking of 134. India has
improved its position on three counts— starting a business, getting construction permits and accessing
electricity—in the latest edition of the Ease of Doing Business Index, but its performance was negative
with regard to two parameters—accessing credit and paying taxes.

What is New Bankruptcy Code?

It is a proposed code now going to be a law that aims to ensure time-bound settlement of insolvency,
enable faster turnaround of businesses and create a database of serial defaulters.
What are the Highlights or benefits?

The new code will replace existing bankruptcy laws and cover individuals,
 companies, limited liability partnerships and partnership firms. It will amend the Companies Act to
deal with corporate insolvency. It will also help creditors recover loans faster.
The move is also expected to help India move up from its current rank of 130 in the World Bank’s
ease of doing business index.
The bill proposes the creation of a new class of insolvency professionals that will specialize in
helping sick companies. It also provides for creation of information utilities that will collate all
information about debtors to prevent serial defaulters from misusing the system. The bill
proposes to set up the Insolvency and Bankruptcy Board of India to act as a regulator of these
utilities and professionals.
It also proposes to use the existing infrastructure of National Company Law tribunals and debt
recovery tribunals to address corporate insolvency and individual insolvency, respectively.
The bankruptcy code has provisions to address cross-border insolvency through bilateral
agreements with other countries. It also proposes shorter, aggressive time frames for every step in
the insolvency process—right from filing a bankruptcy application to the time available for filing
claims and appeals in the debt recovery tribunals, National Company Law Tribunals and courts.

Aug. 4, 2016

Green light for ‘one nation, one tax’

Details :

On 3rd August, India took a giant step towards a goods and services tax with the Rajya Sabha
approving the tax reform measure with the passage of the Constitution (122nd) Amendment Bill to
amend the Constitution, it has paved the way for what is popularly referred to as the concept of
“one nation, one tax.”

Following are the answers to the various questions asked relating to Goods and Services Tax (GST):

What is GST?

GST is one indirect tax for the whole nation, which will make India one unified common market.
It is a single tax on the supply of goods and services, right from the manufacturer to the consumer.
Credits of input taxes paid at each stage will be available in the subsequent stage of value addition,
which makes GST essentially a tax only on value addition at each stage. The final consumer will
thus bear only the GST charged by the last dealer in the supply chain, with set- off benefits at all
the previous stages.

What are the benefits of GST? For

business and industry
Easy compliance: A robust and comprehensive IT system would be the foundation of the GST regime
in India. Therefore, all tax payer services such as registrations, returns, payments, etc. would be
available to the taxpayers
 online, which would make compliance easy and transparent.
Uniformity of tax rates and structures: GST will ensure that indirect tax rates and structures are
common across the country, thereby increasing certainty and ease of doing business. In other
words, GST would make doing business in the country tax neutral, irrespective of the choice of
place of doing business.
Removal of cascading: A system of seamless tax-credits throughout the value-chain, and across
boundaries of States, would ensure that there is minimal cascading of taxes. This would reduce
hidden costs of doing business. Improved competitiveness: Reduction in transaction costs of doing
business would eventually lead to an improved competitiveness for the trade and industry.Gain to
manufacturers and exporters: The subsuming of major Central and State taxes in GST, complete and
comprehensive set-off of input goods and services and phasing out of Central Sales Tax (CST) would
reduce the cost of locally manufactured goods and services. This will increase the competitiveness of
Indian goods and services in the international market and give boost to Indian exports. The
uniformity in tax rates and procedures across the country will also go a long way in reducing the
compliance cost.

For Central and State Governments:

Simple and easy to administer: Multiple indirect taxes at the Central and State levels are being
replaced by GST. Backed with a robust end-to-end IT system, GST would be simpler and easier to
administer than all other indirect taxes of the Centre and State levied so far.
Better controls on leakage: GST will result in better tax compliance due to a robust IT
infrastructure. Due to the seamless transfer of input tax credit from one stage to another in the
chain of value addition, there is an in-built mechanism in the design of GST that would incentivize
tax compliance by traders.
Higher revenue efficiency: GST is expected to decrease the cost of collection of tax revenues of the
Government, and will therefore, lead to higher revenue efficiency.

For the consumer:

Single and transparent tax proportionate to the value of goods and services: the cost of most
goods and services in the country today are laden with many hidden taxes. Under GST, there
would be only one tax from the manufacturer to the consumer, leading to transparency of taxes
paid to the final consumer.
Relief in overall tax burden: Because of efficiency gains and prevention of leakages, the overall
tax burden on most commodities will come down, which will benefit consumers.

Which taxes at the Centre and State level are being subsumed into GST? At the Central level, the
following taxes are being subsumed:
Central Excise Duty, Additional
Excise Duty, Service Tax,
Additional Customs Duty commonly known as Countervailing Duty, and Special Additional
Duty of Customs.
At the State level, the following taxes are being subsumed:

Subsuming of State Value Added Tax/Sales Tax,

Entertainment Tax (other than the tax levied by the local bodies), Central Sales Tax (levied by the
Centre and collected by the States),
Octroi and Entry tax,
Purchase Tax, Luxury tax,
and
Taxes on lottery, betting and gambling.

How would GST be administered in India?

Keeping in mind the federal structure of India, there will be two components of GST – Central GST
(CGST) and State GST (SGST).
Both Centre and States will simultaneously levy GST across the value chain. Tax will be levied on
every supply of goods and services. Centre would levy and collect Central Goods and Services Tax
(CGST), and States would levy and collect the State Goods and Services Tax (SGST) on all
transactions within a State.
The input tax credit of CGST would be available for discharging the CGST liability on the output at
each stage. Similarly, the credit of SGST paid on inputs would be allowed for paying the SGST on
output. No cross utilization of credit would be permitted.

Centre’s flagship initiatives likely to get additional funds

Details :

National industrial corridors, ‘Make In India,’ ‘Start-up India’ and the national Intellectual Property Rights
(IPR) policy may get a major fillip later this year in terms of additional Budgetary allocation.

The Issue:

The Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce and Industry is
the nodal agency for and the above-mentioned flagship initiatives.
The department aims to complete the revamp of above-mentioned flagship initiatives before the
Winter Session of Parliament.
So that it can propose additional Budgetary support this fiscal for industrial corridors, ‘Make In India,
Start-up India and IPR policy implementation.
This proposal would be made in the ‘Supplementary Demands for Grants’ through which it gets an
opportunity to seek excess sums showing that the amount authorised in this fiscal is insufficient.
What is Supplementary Grants?

When grants, authorised by the Parliament, fall short of the required expenditure, an estimate is
presented before the Parliament for Supplementary or Additional grants.
These grants are presented and passed by the Parliament before the end of the financial year.
Aug. 3, 2016

Centre to meet diplomats for boosting food products’ trade

Details :

India is working very hard to attract foreign direct investment into trading of food products.

Important Facts:

On June 20, 2016, India has allowed 100 per cent FDI under government approval route (through
Foreign Investment Promotion Board) for trading, including through e-commerce, of food
products manufactured or produced in India to give a fillip to the food processing sector.
During April 2000-March 2016, the food processing industries attracted FDI worth $6.81 billion (or
2.36 per cent of the overall FDI inflows of $288.5 billion during the same period).
Food processing sector exports are worth around $38 billion (or 2.5 per cent of world exports in the
sector).

Major constraints for the growth of food processing industry:

The absence of adequate infrastructure, particularly rural road connectivity. Inadequacy of

information and marketing linkages.
Lack of electricity supply.
The absence of cold chain systems.
One of the biggest constraints is that this industry is capital intensive.

Aug. 2, 2016

Young Punjab farmers wilt in agrarian crisis

Details :

A recent study by the Indian Council for Social Science Research of the growing number of farmers’
suicides in Punjab has revealed that the agrarian crisis is hitting farmers and labourers below the age of
35 the hardest. Agrarian distress has led farmers to commit suicide in recent years.
The major causes of the agrarian crisis are:

Unfinished agenda in land reform. Quantity and

quality of water.
No new technology.
No access to institutional credit. Credit from
moneylenders.
Not getting enogh price for their goods.
Cost of production is higher than selling price.
 Adverse meteorological factors add to these problems.

What can be done:

Distribute ceiling-surplus and waste lands.

Prevent diversion of prime agricultural land and forest to corporate sector for non-agricultural
purposes.
Increase institutional credit.
Use self-help group and NGOs to distribute government benefits available for farmers.
Ensure grazing rights and seasonal access to forests to tribals and pastoralists, and access to
common property resources.
Establish a National Land Use Advisory Service, which would have the capacity to link land use
decisions with ecological meteorological and marketing factors on a location and season specific
basis.
Set up a mechanism to regulate the sale of agricultural land, based on quantum of land, nature of
proposed use and category of buyer.
Conducting a critical review of the research system in public institutions to make it more
effective.
Changing policies relating to pricing of yield and input to avoid waste.
Shifting public investment towards modernisation of surface irrigation works (to facilitate higher yield
per unit of water used) and for watershed development.

On-tap bank licence not for big corporates

Details :

Large industrial houses, whose income from non-banking sources is over 40% of total will not be eligible
to set up a universal bank in the country, the Reserve Bank of India (RBI) said on Monday. However, they
are allowed to pick up 10 per cent stake in banks.

What is Universal banking?

It is a combination of Commercial banking, Investment banking, Development banking, Insurance and

many other financial activities.
It is a place where all financial products are available under one roof.
So, a universal bank is a bank which offers commercial bank functions plus other functions
such as Merchant Banking, Mutual Funds, Factoring, Credit cards, Housing Finance, Auto loans,
Retail loans, Insurance, etc.

Who can get the Universal banking license in India?

The central bank has allowed individuals with 10 years of experience in banking and finance, as well as
business groups with 10 years’ track record to promote universal banks.
For business groups with more than Rs.5,000 crore in total assets to be eligible for a licence, their
income from non-financial businesses should not account for 40 per cent or more in terms of total
assets/in terms of gross income.
The existing non-banking financial companies (NBFCs) that are controlled by residents and have a
successful track record for at least 10 years will also be eligible.
Power, cement, coal drive core sectors up 5.2%

Details :

Eight core sectors of the economy registered a 5.2 per cent year-on-year growth in June due to higher
electricity, coal and cement output, according to latest data.

The Eight Core Industries comprise nearly 38 % of the weight of items included in the Index of Industrial
Production (IIP).

They are:

Coal (weight: 4.38 %) Crude

Oil(weight: 5.22 %)
The Natural Gas(weight: 1.71 %) Petroleum
Refinery (weight: 5.94%) Fertilizer (weight:
1.25%)
Steel (weight: 6.68%)
Cement (weight: 2.41%)
Electricity generation (weight: 10.32%)

Aug. 1, 2016

Lack of trains to blame for track deaths: CAG

Details :

The Comptroller and Auditor General (CAG) in its recent report has blamed the Indian Railways for
not providing adequate train services, that leads to overcrowding and death of passengers in
suburban trains.

To solve the problem faced by Indian Railways, the government had constituted a committee under
Bibek Debroy, last year (2015), the committee has given a report on the restructuring of Indian
Railways.

Important recommendations of the Committee are:

Setting up an independent regulator as Railway Regulatory Authority of India. Once the changes of
the first five years are implemented, including the resolution of the social costs issue, the Railway
Budget should be phased out. The report also says that the government should take the entire
burden of social cost borne by Railways by way of subsidy.
 The committee has set a five-year timeframe for implementing its recommendations.
In nutshell, the Committee's recommendations are based on three pillars: commercial accounting,
changes in HR and an independent regulator.

Also Read: http://www.thehindu.com/news/national/make-train-services-viable- debroy-panel-on-

railways/article7313317.ece

Fourth tranche of gold scheme nets Rs.919 cr.

Details :

Sovereign Gold Bonds (SGB) has received the record amount of Rs.919 cr equivalent to 2.95 tons gold
mobilised in 4th tranche, it shows that the Scheme is gaining popularity.

What is Sovereign Gold Bond (SGB)?

SGBs are government securities denominated in grams of gold. They are

substitutes for holding physical gold.
Investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity.
The Bond is issued by Reserve Bank on behalf of Government of India.

What are the benefits?

The quantity of gold for which the investor pays is protected, since he receives the ongoing
market price at the time of redemption/ premature redemption.
The SGB offers a superior alternative to holding gold in physical form. The risks and costs
of storage are eliminated.
Investors are assured of the market value of gold at the time of maturity and periodical interest.
SGB is free from issues like making charges and purity in the case of gold in jewellery form.
The bonds are held in the books of the RBI or in demat form eliminating risk of loss of scrip etc.

Are there any risks in investing in SGBs?

There may be a risk of capital loss if the market price of gold declines. However, the investor does
not lose in terms of the units of gold which he has paid for.

Who is eligible to invest in the SGBs?

Persons resident in India as defined under Foreign Exchange Management Act, 1999 are eligible to
invest in SGB.
Eligible investors include individuals, HUFs, trusts, universities, charitable institutions, etc.

What is the minimum and maximum limit for investment?

The Bonds are issued in denominations of one gram of gold and in multiples thereof.
Minimum investment in the Bond shall be one gram with a maximum buying limit of 500 grams
per person per fiscal year (April – March).
In case of joint holding, the limit applies to the first applicant.

JULY, 2016
July 31, 2016

India looks to counter U.S. move on trade sanctions

Details :
The Centre is weighing “all” options including retaliatory measures to counter a U.S. move to seek
imposition of more than $450 million in trade sanctions against India on the grounds that New Delhi
failed to comply with the World Trade Organisation (WTO) order in the poultry import ban case.

What the USA says?

According to the WTO, the U.S. had filed the case against India’s prohibition on importation of various
agricultural products (including poultry) from the U.S. purportedly because of concerns related to
Avian Influenza (bird flu).
The U.S. had claimed that the ban was against WTO norms and had hurt its poultry exports to
India.
It has violated the WTO's norms of National treatment.

What is WTO's norms of National treatment?

National treatment: Treating foreigners and locals equally.

Imported and locally-produced goods should be treated equally — at least after the foreign goods
have entered the market.
The same should apply to foreign and domestic services, and to foreign and local trademarks,
copyrights and patents.
National treatment only applies once a product, service or item of intellectual property has entered
the market.
Therefore, charging customs duty on an import is not a violation of national treatment even if locally-
produced products are not charged an equivalent tax.

So what are the options India has?

India said that the restriction norms were in line with the international (OIE) guidelines on Avian
Influenza.
The options now being considered by India include:

Raising its concerns -- over the “surprisingly aggressive” U.S. push for such trade sanctions -- at
high-level bilateral meetings in August (the Strategic & Commercial Dialogue) and October
(Trade Policy Forum).
Ensuring through discussions that the U.S. agrees to withdraw its efforts to seek an arbitration
panel for assessing the quantum of trade sanctions, and instead give consent to India’s demand for
a “sequencing agreement.”

What is sequencing agreement?

The ‘sequencing agreement’ is to ensure that the matter is instead referred to a WTO ‘compliance
panel,’ which will look into India’s claim that it has complied with the WTO appellate panel’s
recommendations.

Can we take any retaliatory measures against USA?

Retaliatory measures that India is planning include expediting internal preparations to file as many
as 14 cases at the WTO against the U.S. alleging that renewable energy policies of many State
governments in the U.S. have “very significant” domestic content requirements “violating”
America’s obligations under the WTO agreements on Trade-Related Investment Measures as well
as on Subsidies & Countervailing Measures.
July 29, 2016

Centre seeks States’ views on pay panel recommendations

Details :

The Union government has sought the views of the State governments on the recommendations of the
7th Central Pay Commission that have been implemented with effect from January 1, 2016.

What are the issues?

The issue is relating to the revision of pay scales of the All-India Service officers.
There was no consensus among the three-member Pay Commission on the financial and
career-related edge IAS officers have over those belonging to other services.
A confederation representing officers of 20 civil services, including the IPS, have been demanding
parity in pay and other benefits with IAS officers.

What is a Pay Commission?

The Pay Commission is an administrative system/mechanism that the government of India set up to
determine the salaries of government employees. The First Pay Commission was established in
1946, and since then, every decade has seen the birth of a commission that decides the wages of
government employees for a particular time-frame.

Important recommendations made by the 7th Central Pay Commission:

It was headed by Justice A K Mathur, which has submitted its report to Finance Minister.
23.55 per cent increase in pay and allowances recommended Recommendations to be
implemented from January 1, 2016
Minimum pay fixed at Rs 18,000 per month; maximum pay at Rs 2.25 lakh 24 per cent hike in
pensions
One Rank One Pension proposed for civilian government employees on line of OROP for armed forces
Ceiling of gratuity enhanced from Rs 10 lakh to Rs 20 lakh; ceiling on gratuity to be raised by 25
per cent whenever DA
rises by 50 per cent
Cabinet Secretary to get Rs 2.5 lakh as against Rs 90,000 per month pay band currently
Financial impact of implementing recommendations will be Rs 1.02 lakh crore – Rs 73,650 crore to
be borne by Central Budget and Rs 28,450 crore by Railway Budget.
Recommendations are going to impact 47 lakh serving govt employees, 52 lakh pensioners, including
defence personnel.

Fuel levies used for capital investment, says Jaitley

Details :
Union Finance Minister has countered the opposition’s claim that the government was not passing on
the benefits of low fuel prices to the consumer, and had, instead, hiked fuel prices at least nine times in
the last two years.

Government's response:

The benefits of low international fuel prices are being passed on to the consumer by these following ways:

One, by the low price of fuel.

Secondly by making sure that the losses sustained by oil marketing firms can be made up levies on
fuel.
Thirdly, by using the levies of fuel for capital investment.

What is Capital Investment?

Capital investment refers to funds invested in a firm or enterprise for the purposes of furthering
its business objectives.
Capital investment may also refer to a firm's acquisition of capital assets or fixed assets such as
manufacturing plants and machinery that is expected to be productive over many years.

Strategic oil reserves unlikely to stir market

Details :

India's initial plan to build-up its strategic petroleum reserves (SPR) is not shaping out to be the
dramatic event that some in the market had hoped could help reignite global oil demand.

What is India's strategic petroleum reserves?

To ensure energy security, the Government of India had decided to set up 5 million metric tons
(MMT) of strategic crude oil storages at three locations namely, Visakhapatnam, Mangalore and
Padur (near Udupi).
These strategic storages would be in addition to the existing storages of crude oil and petroleum
products with the oil companies and would serve as a cushion in response to external supply
disruptions.
India's ultimate goal is to have an SPR that provides 90 days of net import coverage.
July 28, 2016

Poor returns nip guar production

Details :

Little overseas demand and poor returns have forced guar-seed farmers in Rajasthan and Haryana to cut
down on production this kharif.
 Guar gum is extracted from the guar seed.
Rajasthan and Haryana account for 80 per cent of India’s guar-seed production.

Use of Guar gum:

Guar gum, extracted from the pods of the guar plant, is widely used as an emulsifier, thickener, and
stabilizer in food and cosmetics.
Guar gum is used in food as a thickening and binding agent.
It is also used in textile, paper, pharmaceutical, oil and many other industries. After refine process,
Guar Gum is used in various industries: in the food industry as a stabilizer, in ice creams instant
puddings and whipped cream substitutes, as a meat binder and a stabilizer for cheeses, in
industrial applications including cloth and paper manufacture, oil well drilling, explosives, ore
flotation and many other applications.

‘PF money diverted despite objections’

Details :

The Finance Ministry's decision to allow unclaimed Provident Fund money to be diverted for setting up a
Senior Citizens’ Welfare Fund was notified despite strong resistance from the Labour Ministry.

Important Points:

As per the EPF Scheme, the PF money cannot be expended for any purpose other than the
payment to individual members.
As per rules, EPF savings become inoperative when there is no fresh credit into the account for 36
months.
Such deposits remaining unclaimed for over seven years will be diverted to finance the Senior
Citizens’ Welfare Fund.
In the Union Budget of 2015-16, Finance Minister Arun Jaitley had first mooted the idea of setting
up a Senior Citizens’ Welfare Fund.

About the Senior Citizens Welfare Fund:

It will have funds from unclaimed deposits in small savings schemes including Post Office Savings
Accounts, Public Provident Fund and Employees’ Provident Fund within one year.
It will be utilised for schemes for the promotion of the welfare of senior citizens in line with the
National Policy on Older Persons and the National Policy on Senior Citizens.
The Fund will be administered by a Committee consisting of nine members. The committee will
be headed by secretary in the Ministry of Social Justice and Empowerment who shall be the ex-
officio chairperson along with officials from Department of Financial Services, Ministry of Health
and Family Welfare, Ministry of Rural Development and Ministry of Labour and Employment
among others.
 The nodal Ministry for the Fund shall be the Ministry of Social Justice.

July 26, 2016

U.S. asks India to remove duties, ‘barriers’ on ICT items

Details :

The U.S. has asked India to eliminate customs duties on Information and Communications Technology (ICT)
items.

what is Custom Duty?

Customs Duty is a type of indirect tax levied on goods imported into India as well as on goods
exported from India.
Import of goods means bringing into India of goods from a place outside India. India includes the
territorial waters of India which extend up to 12 nautical miles into the sea to the coast of India.
Export of goods means taking goods out of India to a place outside India.

What is the U.S.-India Strategic and Commercial Dialogue?

It is a forum to discuss bilateral issues with an aim to boost economic growth, generate jobs and
improve the investment climate in both countries.

Do not bureaucratise selection of RBI governor

Details :

What is 'Inflation Targeting'

Inflation targeting is a central banking policy that revolves around meeting preset, publicly
displayed targets for the annual rate of inflation.
Reserve Bank of India has targeted the inflation target at under 6% by January 2016, with the goal for
2016-17 onwards set at 4%.
Inflation has to stay within the 2-6% band from 2016-17 and any deviation for three consecutive
quarters will have to be explained by RBI
The Urjit Patel Committee suggested this framework.
we now have single CPI index today for the country, which acts as an anchor for the monetary policy.

How the RBI governor is appointed?

The Reserve Bank of India Governor is appointed by the Prime Minister’s Office (PMO) on the
recommendation of the Union Finance Minister, the Centre informed Parliament recently.
Section 8(1)(a) of the Reserve Bank of India Act, 1934, provides that there shall be one Governor
 and not more than four Deputy Governors to be appointed by the central government on the
central board of RBI.

July 25, 2016

Jaitley to chair GST meet on Tuesday

Details :

The Central Government has introduced Constitutional Amendment Bill 122 for Goods & Services Tax
(GST).

Contentious Issues

The issue on which the States have raised their concerns are about the revenue-neutral rates of
the GST (the rate at which there will be no profit or loss to the State).
There are two sets of proposals on these rates.
One by a committee headed by the Chief Economic Adviser (CEA) and the other by the
National Institute for Public Finance and Policy (NIPFP).
While the panel headed by the CEA has recommended a revenue-neutral rate of 15-15.5 per cent.
The NIPFP has proposed a rate of 27 per cent.
The Congress demand that the rate be capped at 18 per cent, and that too in the Constitution itself
to ensure that the interests of the poor are safeguarded.

Also Read: http://www.mapsofindia.com/my-india/government/gst-one-step- towards-

simplifying-the-muddled-up-tax-system

July 24, 2016

G20 nations pledge to bolster defences against Brexit headwinds

Details :

The challenge before G-20 nation is how to deal with the fallout of Britain’s Brexit vote and
counter dissatisfaction with globalisation.
These issues will be the main theme of the G-20 upcoming meeting which will be held in China’s
southwestern city of Chengdu.
Also Read: http://www.telegraph.co.uk/finance/g20-summit/5075115/G20-what- is-it-and-how-
does-it-work.html

July 23, 2016

Despite hype, only one firm qualified for Startup India

Details :

The official figures government tabled in Parliament earlier this week show that the Startup India
portal received a total of 728 applications till Monday (the notification defining startups was
published on Feb. 17, 2016).
Of these, it categorised 180 applicants as startups (whose applications were found to be
complete), but found that only 16 applicants had been incorporated after April 1, 2016, the cut off
date stipulated in the Finance Act 2016 for consideration for tax benefits.
BRICS can lead Global South: Chinese expert

Details :

The formation of the New Development Bank (NDB) is a mission half accomplished, and reforming
the international financial and trade architecture should be the next major undertaking of the
Brazil-Russia-India-China-South Africa (BRICS) grouping, says a top Chinese scholar.
The RCEP is a proposed giant free trade agreement (FTA) between the ten member states of the
Association of South East Asian Nations (AEAN) and Australia, China, India, Japan, South Korea and
New Zealand.

Ministry overruled panel to allow contract hiring at FCI

Details :

A workers’ union has moved the Delhi High Court against a Labour Ministry notification allowing the
Food Corporation of India (FCI) to hire contract workers.
As per the law, the government can grant an exemption from the Contract Labour Act of 1970 to an
establishment only in case of an emergency and only for a fixed period of time.

States to get sops based on Aadhaar’s DBT platform

Details :

The Centre is considering special incentives for States that take the lead in embracing the Aadhaar-
based direct benefit transfer.