Chakra 24 Eco

Current affairs Holistic Approach towards
Knowledge Refreshment and Augmentation
CHAKRA - 24
ECONOMICS (07-02-2023)
1. Investing in Human Capital
Sometime in April 2023, it is estimated that India’s 1.43 billion people will exceed China’s
population. This milestone is bittersweet.
Why is this milestone bittersweet?
• Sweet because we have more than doubled the horrible 31-year life expectancy the
British left us with in 1947, without brutal freedom-destroying state interventions
like China’s one-child policy.
• Bitter because mass prosperity for massive populations is hard.
For what strong case is made?
• India’s large remittances from a small population overseas reinforce that our mass
prosperity strategy should be human capital and formal jobs.
• A strong case for human capital-driven productivity is our software employment -
0.8% of workers generate 8% of GDP.
• This case is reinforced by remittances from our overseas population of less than 2%
of our resident population crossing $100 billion last year.
• Remittance level - A World Bank report suggests that there is a significant
qualitative shift during the previous 5 years,
1. from low-skilled, informal employment in Gulf countries (share of Saudi
Arabia, the UAE, Kuwait, Oman, and Qatar dropped from 54% to 28%)
2. to high-skilled formal jobs in high-income countries (share of the US, UK, and
Singapore increased from 26% to 36%).
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• In 2022, the US replaced the UAE as the single biggest source country with 23% of
remittances.
• India’s rich forex remittance harvest, which is 25% higher than FDI and 25% less
than software exports, is the fruit from the tree of human capital and formal jobs.
What could the government do?
Global experience suggests where governments spend money (pensions, interest,

salaries, education, healthcare, etc) and how this spending is financed (taxes or debt)
matters more than how much is spent.
• The Union budget in February 2023 will renew the reform agenda.
• The Finance Bill must target productivity and continuity by legislating human
capital and formal job reforms previously proposed.
• It should reduce the implementation path for the National Education Policy 2020
from 15 years to 5 years.
• It should abolish separate licensing requirements for online degrees and freely allow
all accredited universities to launch online learning.
• It should accelerate growing our 0.5 million apprentices to 10 million by allowing all
universities to launch degree apprentice courses under tripartite contracts with
employers under the Apprentices Act.
• It should notify the four labour codes for all central-list industries while appointing
a tripartite committee to converge them into one labour code by the next budget.
• It should continue Ease of Doing Business (EODB) reforms by designating every
enterprise’s PAN number as its Universal Enterprise Number.
• It should explode manufacturing employment by abolishing the Factories Act and
require all employers to comply under each state’s Shops and Establishment Act
(like Infosys, TCS, and IBM India do).
• It should create a non-profit corporation (like NPCI in payments) that will operate
an API-driven National Employer Compliance Grid.
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• This non-profit must enable central ministries and state governments to rationalise,
digitise and decriminalise their employer compliances.
• The government should reduce the gap between the money numbers in employment
letters and money received in hand by
1. making employees’ PF contributions optional and
2. raising employer PF contributions from the current 12% to 13%.
• It should notify a previous budget announcement to create employee choice in their
contributions to health insurance (ESIC or insurance companies) and pensions
(EPFO or NPS).
• It should link all employer subsidies and tax incentives to high-wage employment
creation (difficult-to-fudge & easy-to-measure effectiveness metric for this public
spending is employer provident fund payment).
What is the comparison?
• India and China’s per capita GDP was equal in 1991. But now, China’s is 5 times
higher.
• Unlike when China started serious reform in 1978, India today faces a more
unfavourable global context of growth, manufacturing, and exports.
• Also, China’s reforms were faster and crisper without the fixed costs of democracy.
But this deficit led to their unchallenged policies of Cultural Revolution, one-child
norm, and zero-Covid.
• India’s cantankerous democracy is a strength.
• Experience and evidence now firmly suggest the odds of mass prosperity in India
rise from possible to probable by anchoring our strategy in human capital and
formal jobs rather than fiscal or monetary policy.
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2. Role of G20 in Promoting Blue Economy
India’s G20 presidency would play an important role in promoting individual and collective
actions to facilitate the transition towards a sustainable blue economy
What is blue economy?
• According to the World Bank, the blue economy is the "sustainable use of ocean
resources for economic growth, improved livelihoods, and jobs while preserving the
health of ocean ecosystem
• The term ‘blue economy’ includes not only ocean-dependent economic development
but also inclusive social development and environmental and ecological security.
What is G20?
• The Group of Twenty (G20) is the premier forum for international economic
cooperation.
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• G20 plays an important role in shaping and strengthening global architecture and
governance on all major international economic issues.
• India holds the Presidency of the G20 from 1 December 2022 to 30 November 2023.
The G20 countries together account for around 45% of the world’s coastlines and over 21%
of the exclusive economic zones (EEZs)
Why the blue economy needs to be protected?
• Intensifying extreme weather events

• Ocean acidification and sea level rise
• Growing marine pollution
• Over-extraction of resources and unplanned urbanization.
• Marine pollution may have ripple effects across the globe.
What initiatives were taken to promote blue economy?
• Sagarmala initiative - Promotes port-led development

• The Shipbuilding Financial Assistance Policy –Encourages domestic ship-
building
• Pradhan Mantri Matsya Sampada Yojana – Promotes ‘blue revolution’ through
sustainable and responsible development of the fisheries sector
• The Deep Ocean Mission - Explores deep-sea resources in the exclusive economic
zones (EEZ) and continental shelf as well as development of technology for
harnessing them
• Coastal Regulation Zone notification -To classify and better manage coastal
regions and conserve ecologically sensitive coastal and marine areas including
ecosystems
• Plastic Waste Management Rules (2022) – Banned select single-use plastic items
and introduced policies for extended producer responsibility in waste management
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What is the role of India’s G20 Presidency in promoting blue economy?
• The aim is to promote adoption of high-level principles that guide sustainable and
equitable economic development through the ocean and its resources
o This approach is consistent with Mr. Modi’s call for the global adoption of
‘Lifestyle for the Environment’ that promotes mindful utilization over mindless
consumption patterns.
• India’s G20 presidency would play an important role in promoting individual and
collective actions to facilitate the transition towards a sustainable blue economy
• The blue economy is articulated as a key priority area under the Environment and
Climate Sustainability Working Group
What initiatives were taken by G20 towards blue economy?
• Osaka Blue Ocean Vision -Aims to reduce the additional pollution by marine plastic
litter to zero by 2050 through a comprehensive life-cycle approach
• Coral Research and Development Accelerator Platform(CORDAP) - CORDAP was
launched in 2020
• It will bring together the best minds worldwide to accelerate the development of new
technologies that support international coral conservation efforts
• Ocean 20(O20) -The O20 will provide a platform for G20 countries political leaders,
local and indigenous communities, civil society and private sector, to advance action
for ocean solutions
• The O20 is led by Indonesia through their 2022 presidency of G20 with the
support of the World Economic Forum
What is the significance of the marine environment?
80% of world trade happens using the seas, 40% of the world’s population live near coastal
areas, and more than three billion people access the oceans for their livelihood.
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• While maritime transport plays a big role in the globalised market in the form of
containerships, tankers, and ports, coastal tourism is the largest employer within
ocean-related activities.
• The value of the marine environment is estimated to be over $25 trillion.
• The annual value of produced goods and services estimated to be $2.5 trillion per
year, equivalent to the world’s seventh largest economy in gross domestic product
(GDP) terms.
What is worrisome?
• The ocean is the next big economic frontier, with the rapidly growing numerous
ocean-based industries.
• Yet the worry is that the oceans are under severe threat by human activities,
especially when the economic gains come at the cost of maintaining environmental
sanity.
• Marine activities have brought in pollution, ocean warming, eutrophication,
acidification and fishery collapse as consequences on the marine ecosystems.
What are some goals to protect the oceans?
• The SDG 14 (Life Below Water) concerns conservation and sustainable use of the
oceans, seas and marine resources for sustainable development.
• The SDG 14 demands international cooperation for the oceans to get back in
balance.
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What is needed to achieve the SDG14 goal?
• Achieving this goal would need tremendous human effort, and would call
for global cooperation through various legal and institutional frameworks.
• This also includes the need to develop newer sectors such as renewable ocean
energy, blue carbon sequestration, marine biotechnology and ex-tractive activities,
with due attention paid to the environmental impacts.
• The ocean is uncharted territory, and rarely understood by financial institutions.
• Hence preparedness of the financial institutions in making available affordable
long-term financing at scale is nearly zero.
What are the things that countries lack?

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• In this journey of achieving blue economy goals, it is developing nations that pay a
heavy economic price.
• Many of the developing nations
o have high levels of external debt,

o lack of capacity and technology needed for transition between agri economy
and marine economy.

• The blue economy is based on multiple fields within ocean science, and so it needs
inter-sectoral experts and stakeholders.

• It is imperative to involve the civil society, fishing communities, indigenous people
and communities for an inclusive discussion.
What could India do?
• The UN stresses that equity must not be forgotten when supporting a blue economy.
• Land and resources often belong to communities, and the interests of communities
dependent on the ocean are often marginalised, since sectors such as coastal
tourism are encouraged to boost the economy.
• Hence the SDG-14 journey cannot undermine the other SDGs.

• It is an opportunity for India to use its G20 Presidency to ensure environmental
sustainability, while providing for social equity.

• India’s engagement in the blue economy has been rising, with its active involvement
in international and regional dialogues, and maritime/ marine cooperation.
What is needed further?
• Developing the blue economy should be based on national and global expertise.
• It is important that any blue economy transformation should include using
integrated marine spatial planning.

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• This would provide collaborative participation of all stakeholders of the oceans, and
would make room for debate, discussion and conflict resolution between the
stakeholders.
Quick Facts
SDG14 & India
• In India, the nodal ministry to help in achievement of the SDG14 goals is managed
by the Ministry of Earth Sciences.
• The schemes and initiatives related to SDG-14 are,
1. Centrally Sponsored Scheme on ‘Conservation of Natural Resources and Eco-
Systems’,
2. National Plan for Conservation of Aquatic Eco-System,
3. Sagarmala Project (Blue Revolution).

• The targets set regarding SDG-14 are,
1. By 2025, prevent and significantly reduce marine pollution of all kinds, in
particular from land-based activities, including marine debris and nutrient
pollution
2. By 2030, increase the economic benefits to small island developing States and
least developed countries from the sustainable use of marine resources (viz.,
sustainable management of fisheries, aquaculture and tourism)
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3. Coordination of Ministries in boosting Tourism
Government of India ministry other than the Tourism Ministry is taking initiatives to
showcase India’s rich heritage using a ‘whole of government’ approach.
How about the picture of tourism in India?
• For centuries many great foreign travellers have visited India and shared their
experiences, as Megasthenes, Hiuen-Tsang, Marco Polo, and Fa-Hien have shown.
• As the birthplace to four major world religions, i.e., Hinduism, Buddhism, Sikhism
and Jainism, India can truly claim to be the world’s spiritual beacon.
• Tourism happens to be one of the biggest foreign exchange earners for India.
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• India ranks 54th in the global Travel and Tourism Development Index (TTDI) in
2021.
What about the inter-ministerial cooperation made so far?
• The Ministry of Tourism coordinates its work effectively with over 20 central
government Ministries in the promotion of tourism in India.
Ministry Initiative Objective
Ministry of Tourism + To work with the police and sensitise

National Conference
Ministry of Home them on addressing the needs of
on Tourist Police
Affairs foreign and domestic tourists
To nurture young ambassadors of

Ministry of Tourism +
Yuva Tourism Indian tourism
Ministry of Education
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Promotion of cruise To make India an attractive cruise
Ministry of Ports,
tourism tourism destination using state-of-the-
Shipping and
art infrastructure
Waterways
Tourism officers have been placed in

Appointment of tourism 20 Indian missions in countries that
Ministry of External
officers contribute to the highest foreign tourist
Affairs
arrivals in India
To ensure that highways and fuel
Ministry of Roadways Boosting the
stations have clean sanitation
+ Ministry of infrastructure
infrastructure
Petroleum
Enabling the viability of To fund several commercial flight
Ministry of Civil
air routes routes and make them viable
Aviation
To provide opportunity for the devotees

Ministry of Tourism + Jagannath Yatra train
to relish centuries-old rich culture of
Ministry of Railways package
Hindu religion in one go
What is the new draft National Tourism Policy 2022 about?
• Vision - The vision of the policy is to transform our tourist destinations to provide
world class visitor experience making India one of the topmost destinations for
sustainable and responsible tourism.
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• Aim - The draft policy aims at improving framework conditions for tourism
development, supporting tourism industries, strengthening tourism support
functions and developing tourism sub-sectors.
• The policy has been formulated taking into account future projections for the
tourism sector with a vision for India@100.
• It is architected around 6 key guiding principles, 5 national tourism missions and
8 strategic pillars.
• Key Guiding Principles
1. To promote sustainable, responsible and inclusive tourism
2. To promote digitalization, innovation and technology in tourism sector
3. To follow a whole of Government approach
4. Private sector led growth
5. To promote Ek Bharat Shreshtha Bharat
6. To follow a destination centric and tourist centric approach
• National Tourism Missions

1. National Green Tourism Mission
2. National Digital Tourism Mission
3. Sectoral Mission on Skill Development
4. National Mission on Destination Management
5. National Mission on Tourism MSMEs
The Ministry of Tourism declaration of “Visit India Year 2023” aims to promote various
tourism products and destinations to increase India’s share in the global tourism market.
4. The Adani-Hindenburg Saga
Stocks of Adani Group tumbled recently after Hindenburg Research has highlighted financial
irregularities in the company.
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What is Hindenburg Research?
Along with developing more than 3,100 miles of the country’s road network, Adani Group is
the largest private operator of India’s sea and airports, controlling 33% of Indian air cargo
traffic and 24% of its shipping capacity.
• Hindenburg Research is an investment research firm that focuses on analysing

accounting irregularities, undisclosed transactions, illegal business or financial
reporting practices among others.
• It alleged that Gautam Adani, founder and chairman of the Adani group, has added
over $100 billion to his net worth over the last three years, largely through stock
manipulation and fraud.
• The research firm has raised concerns about its substantial debt.
• Hindenburg alleged that Adani used offshore shells for money laundering and
siphoned from listed companies.
• Hindenburg revealed about short positions in Adani companies through bonds and
non-Indian-traded derivative instruments.
• As per India’s tax and SEBI laws, short selling of domestic stocks outside the
country’s jurisdiction is illegal unless they are listed on any exchange.
• While Adani bonds are listed on the US exchange, Hindenburg’s reference to the
‘non-Indian-traded derivatives’ raised the alarm for Indian regulators.
Short selling or shorting is a trading strategy based on the expectation that the price of the
security will fall.
In short selling, the trader usually does not own the securities he sells, but merely borrows
them.
What happened aftermath the Hindenburg report?
• The group’s stocks and Mr. Adani’s personal wealth have taken a plunge after the
report.
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• The Adani Group has been facing a crisis of confidence as the stocks of most of its
companies have been on the fall.
• Once ranked No. 2 among the world’s wealthiest, he has tumbled to No. 21 on
the Bloomberg Billionaires Index.
• Adani Enterprises decided to call off its Rs 20,000 crore follow-on public offer and
return the money that it had collected from investors.
An FPO is a process wherein a company that is already publicly listed in the stock market
issues additional shares to investors.
It is made by the company after an Initial Public Offering (IPO).
• Morgan Stanley Capital International (MSCI), a global index provider for financial
markets, announced that it will reduce the free float designations for four Adani
Group companies in multiple indices.
Free float refers to the proportion of the total outstanding shares of a publicly listed company
that is readily available for trading in the market.
Generally speaking, shares held by promoters and large institutional investors are normally
not freely traded in the market.
What are the impacts this episode on the economy?
• Capital flow - MSCI’s decision will adversely affect the amount of capital flowing
into the Adani stocks as many passive investors invest in the indices that are
constructed by bodies such as the MSCI.
• India’s index drop - Goldman Sachs believes that India’s weight in the MSCI’s
emerging markets index itself could drop by 20-30 basis points following the
resultant reduction in weight of Adani stocks.
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• Hit on banks - The turmoil has not only hammered Adani Group shares but is
also hitting banks that have given loans to the companies including the State
Bank of India.
• Investor confidence - The Adani-related headlines are generating a high level of
negative attention, which could dampen investor appetite for Indian stocks.
• Raising capital - All this can adversely affect the group’s efforts to raise capital
from investors, whether it is in the form of equity or debt offerings.
• Scarcity of shares - The Indian-listed entities faces scarcity of shares for short
sellers to borrow, and they are therefore more expensive.
• India’s growth - If the slide in asset prices continues and further shakes investor
confidence in Adani’s empire, that would be a setback for India’s growth story at a
pivotal time.
5. Green Debt Swaps
With many developing nations facing a triple whammy of rising debt loads, climate change
and nature loss, conservationists say the answer could lie with the debt-for-environment
swaps.
What are green debt swaps?
The first debt-for-nature swaps were agreed in the mid-1980s, mostly in Latin America, with
rich nations the main creditors.
• Debt for Climate (DFC) swaps - Debt swap in which the debtor nation, instead of
continuing to make external debt payments in a foreign currency, makes
payments in local currency to finance climate projects domestically on agreed
upon terms.
• Need - Developing nations are pushing for these swaps as they are struggling to
pay back creditors and are at the risk of defaulting.
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• According to the World Bank, the world’s poorest countries owe $62 billion in
annual debt service, a year-on-year increase of 35%.
• Even as debt burdens grow, there is now an urgent need for countries to invest
more in climate and biodiversity protection to meet their international and
national commitments.
What are the advantages?
• For creditors - Debt swaps can reduce their risk through additional guarantees
and ensure that at least part of a loan is eventually repaid.
• For debtors - DFC swaps can
o Reduce external sovereign debt
o Free up fiscal resources to be spent on green investments
o Boost economy recovery
Deals - A 2015 deal with the Seychelles saw the government commit to protect 30% of its
waters in exchange for $22 million of debt restructuring.
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Egypt presented a swap with Germany as a model for others seeking to raise money for
clean energy projects when it hosted the U.N. climate summit 2022.
How can green debt swaps be encouraged?
• Arranging debt-for-environment swaps (DFES) is not an easy task as it requires

the concerted efforts of the whole government and very thorough preparations,
including
o Robust pre-feasibility studies
o Strong fiscal capacity
o Commitment to transparency
o International credibility of the domestic spending
• A global framework or standard that sets the rules for green debt swaps would
enable more creditors to join such initiatives and help increase the size of deals.
• A public campaign could also encourage green debt swaps.
6. India’s Balance of Payments (BOP)
Data released by the government shows that India’s exports and imports declined by 6.59%
and 3.63% respectively in January 2023.
What is balance of payments (BoP)?
Balance of Payments (BOP)
• The BoP record the transactions in goods, services and assets between residents
of a country with the rest of the world for a specified time period typically a year.
• BoP follows the Double Entry System to record transactions with the rest of the
world and has two sides – Credit side and Debit side
BoP Surplus Balanced BoP BoP Deficit
Credit Side > Debit Side Credit Side = Debit Side Credit Side < Debit Side
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• Accounts in the BoP includes

1. Current account
2. Capital account
Current Account
• It is the record of trade in goods and services and transfer payments.

• It records all the transactions that relate to the actual receipts and payments of
the visible items, invisible items, and unilateral transfers during a specific period
of time.
• Components of Current Account includes
1. Trade in goods (Visible Trade or Merchandise Transactions) – It includes
exports and imports of goods.
2. Trade in services (Invisible Trade) – It includes factor income and non-
factor income transactions.
▪ Factor income - Includes net international earnings on factors of
production (like labour, land and capital).
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▪ Non-factor income - It is net sale of service products like shipping,

banking, tourism, software services, etc.
3. Transfer payments – They are the receipts which the residents get for free
without having to provide any goods or services in return. They consist of
gifts, remittances and grants.
4. Income receipts and payments to and from abroad - It involves
investment income in the form of rent, profits, and interest.
Current Account Surplus Balanced Current Account Current Account Deficit
Receipts > Payments Receipts = Payments Receipts < Payments
A surplus current account - The nation is a lender to other countries

A deficit current account - The nation is a borrower from other countries
• Components of Current Account includes

1. Balance of Trade
2. Balance on Invisibles
• Balance of Trade (BOT) – It is the difference between the value of exports and
value of imports of goods of a country in a given period of time.
• It is also known as Trade Balance.
Trade Surplus Balanced BOT Trade Deficit
Exports > Imports Exports = Imports Exports < Imports
• Net Invisibles – It is the difference between the value of exports and value of imports
of invisibles of a country in a given period of time.
• Invisibles include services, transfers and flows of income that take place between
different countries.
• Services trade includes both factor and non-factor income.
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Capital Account
• It includes those transactions, which cause a change in the assets or liabilities of a

country’s residents or its government.
• Components of Capital Account includes
1. Borrowings and Lendings to and from abroad – Includes all the
transactions related to borrowings from abroad by the government, private
sector, etc.
2. Investments to and from abroad – Includes all the investments by the rest
of the world in shares of Indian companies, real estate, etc. The investments
to and from abroad are:
▪ Foreign Direct Investment - FDI consists of the purchase of an asset,
which gives direct control to the buyer over the asset. For example,
purchase of land, building, etc.
▪ Portfolio Investment – It is the cross-border transactions and
positions involving equity or debt securities, other than direct
investment or reserve assets. Ex - FII (Foreign Institutional Investment).
3. Change in Foreign Exchange Reserves - The financial assets of the
government held in the central bank are Foreign Exchange Reserves.
Capital Account Surplus Capital Current Account Capital Account Deficit
Capital inflows = Capital Capital inflows < Capital

Capital inflows > Capital
outflows outflows outflows
A country could use its forex reserves to balance its balance of payments deficit.
The reserve bank sells foreign exchange when there is a deficit. This is called official reserve
sale.
The decrease (increase) in official reserves is called the overall balance of payments deficit
(surplus).
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What is the case with India?
• According to the RBI, the Current Account Deficit (CAD for the first half of 2022-23
stood at 3.3% of GDP.
• It is expected to moderate in the second half of 2022-23 and remain eminently
manageable within the parameters of viability.
• In January 2023, trade deficit narrowed to $17.7 billion, led by a sharp fall in non-
oil imports. Also,
o FPI outflows have come down
o Workers’ remittances went up
o Gold imports have declined
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How will moderating CAD impact the market?
• The reduction in CAD due to services exports, is a positive sign.

• The rising CAD raises concerns among investors as it hurts the currency and
thereby the inflow of funds into the markets.
• The value of an economy depends a lot on the value of its currency and thereby, it
also supports the equity markets by keeping the fund flow intact.
Quick facts
Reserve assets are financial assets denominated in foreign currencies and held by central
banks that are primarily used to balance payments.
7. Boosting the Tax Base
Growing work force should also result in increase in income tax revenue but that is not
happening and the income tax base remains narrow.
What is the status of India’s workforce?
• According to the UN Population Report, India accounts for about 17.5% of the
world’s population with a population of 1.4 billion.
• India’s young population (15-64 years) accounts for 67% of the whole.
• At 253 million, India is also home to the world’s largest adolescent
population (10-19 years).
• India has the prospects to reap the demographic dividend as the median age of an
Indian this year was 28.7 years against a global value of 30.3 years.
• According to UNFPA, India will have one of the youngest populations in the world till
2030 and the demographic window of opportunity will last till 2025.
• Share of elderly population is among the lowest and fertility rates are high.
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Why is the income tax base so narrow?
A tax base is a total amount of assets or income that can be taxed by a taxing authority,
usually by the government.
• Income less than Rs 5 lakh - The Finance Ministry had revealed that the number
of people who filed income tax returns stood at 6.8 crore in 2020-21.
• This means that only 4.8% of the total population filed IT returns in 2021.
• Since 65% of the taxpayers earned less than Rs 5 lakh, only 1.2% of the population
pays income tax as of now.
• Unorganised sector - A large portion of workforce employed in the unorganised or
informal sector is one of the reasons why fewer people are filing tax returns.
• Working age vs employed - According to World Bank, only 95 crore people were in
the working age group of 18 to 64 years in 2021 because not all those in the working
age are employed.
• The worker population ratio in India is 44.5%, which means that only 42 crore
people could be employed in some way or the other in India.
• Tax exemptions - A dominant portion of India’s workforce in employed in
agriculture and agri income is exempt under income tax.
As per Indian Union Budget estimates for financial year 2023, direct taxes accounted for
51.5% and indirect taxes accounted for 48.5% of total central tax collection in India.
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How to harness the increasing working age population?
• Formalisation of the economy - Of the total workforce in 2017-18, 90.7% was

employed by the informal sector.
• Bringing such services in to the formal sector could help direct tax collections.
• This can be done with some help from the GST system.
• Tax at source - Collecting tax at source for purchase of certain goods and services
is another way to identify those who earn a tidy sum every year but are not paying
any taxes.
• As of now, TCS is collected for high value goods such as expensive motor vehicles,
gold jewellery or overseas remittances.
• The ambit of TCS can be expanded to consumer durables, domestic luxury travel,
stays in expensive hotels etc.
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8. Stock Market Regulation in India
The Supreme Court asked the Securities and Exchange Board of India (SEBI) and the
government to produce the existing regulatory framework in place to protect investors from
share market volatility.
What are the laws governing the market?
• The securities market in India is regulated by four key laws

1. The Companies Act, 2013
2. The Securities and Exchange Board of India Act, 1992 (SEBI Act)
3. The Securities Contracts (Regulation) Act, 1956 (SCRA)
4. The Depositories Act, 1996
Securities and Exchange Board of India (SEBI)
• SEBI was established in 1992 in accordance with the provisions of the Securities
and Exchange Board of India Act, 1992 (SEBI Act).
• The SEBI headquarters is located in Mumbai.
• SEBI is run by a board of directors, including
o A chair who is elected by the parliament
o Two officers from the Ministry of Finance
o One member from the Reserve Bank of India
o Five members who are also elected by the parliament
The SEBI Act
• Powers of SEBI - It empowers SEBI

o To protect the interests of investors
o To promote the development of the capital/securities market
o To register intermediaries like stock brokers, merchant bankers, portfolio
managers
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o To regulate their functioning by prescribing eligibility criteria, conditions to

carry on activities and periodic inspections
o To impose penalties such as monetary penalties, including suspending or
cancelling the registration
o To regulate trading, clearing and settlement on stock exchanges
The Securities Contracts (Regulation) Act (SCRA)
• Powers of SEBI
o To recognise (and derecognise) stock exchanges, prescribe rules and bye laws
for their functioning
o To recognise and regulate stock exchanges and commodity exchanges
• The Act also seeks to protect the interests of investors by creating an Investor
Protection Fund for each stock exchange.
The Depositories Act
• This Act introduced and legitimised the concept of dematerialised securities being
held in an electronic form.
The Companies Act
• It has delegated the SEBI to enforce the regulation of raising capital, corporate
governance norms such as periodic disclosures, board composition and resolution
of investor grievances.
Subject Regulation
Issue of Capital and Disclosure

Fund-raising activities
Requirement Regulations
Listing Obligations and Disclosure

Corporate governance norms
Requirements Regulations
Collective investment scheme Collective Investment Regulations
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How to curb market volatility?
• Exchanges have upper and lower circuit filters to prevent excessive volatility.
• SEBI does not interfere to prevent market volatility but it has powers to regulate
trading and settlement on stock exchanges.
• Using these powers, SEBI can direct stock exchanges to stop trading, totally or
selectively.
• It can also prohibit entities or persons from buying, selling or dealing in securities,
from raising funds from the market and being associated with intermediaries or
listed companies.
What are the safeguards against fraud?
• The key forms of fraud includes

1. Market manipulation
2. Insider trading
• SEBI notified the Prohibition of Fraudulent and Unfair Trade Practices
Regulations in 1995 and the Prohibition of Insider Trading Regulations in 1992
to prevent the fraud.
• The violation of these regulations are predicate offences that can lead to a deemed
violation of the Prevention of Money Laundering Act.
• SEBI has been given the powers of a civil court to summon persons, seize documents
and records, attach bank accounts and property, and to carry out investigations.
• Appeals against orders of SEBI and the stock exchanges can be made to
the Securities Appellate Tribunal (SAT) comprising three members.
• Appeals from the SAT can be made to the Supreme Court.
9. The Need of Trade Unions in Emerging Sectors
With a greater number of layoffs happening across the major economies, there comes a
debate on the need for labor unions in emerging sectors.
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What are trade unions?
• A trade union is an association of workers formed for the purpose of protecting the
rights of the workers and improving their economic conditions.
• It is a voluntary organization of workers formed to promote and protect their
interests by collective action.
The Madras Labour Union was the first organised trade union in India that was created in
1918.
Need for Trade Unions
• Better wages – To improve the economic level of workers by securing them better
wages.
• Stability – To ensure stable employment for workers and resist the scheme of
management which reduce employment opportunities.
• Protection – To protect the jobs of labour against retrenchment and layoffs, etc.,
• Legal assistance – To provide legal assistance to workers in connection with
disputes regarding work and payments.
• Benefits – To ensure that workers get as per rules Provident Fund, Pension and
other benefits.
• Self-improvement – To inculcate discipline, self-respect and dignity among
workers.
• Improving productivity – To generate a committed industrial work force for
improving organizational efficiency and high productivity of the system.
What are the benefits of trade union?
• Opportunity - Union provides a worker an opportunity to achieve the objectives

with the support of fellow colleagues.
• Negotiation – Union organize negotiation between workers and management and
for settlement of disputes
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• Participation in Management - Workers get an opportunity to take part in the

management to place their opinions and oppose any decision which adversely affects
them.
• Beneficial to Employer – Union organizes the workers under one banner and
encourages them to follow peaceful means for getting their demands accepted.
• Collective action - To overcome the weak bargaining power of an individual worker.
What are the current issues?
• Problems for Startups – Startups hardly have trade unions in their facilities and
so retrenchments in these companies go uncontested.
• Struggle for Emerging Sector - Compared to conventional industries and financial
sectors, forming unions in modern and emerging sectors is more difficult.
• Union for IT sector – As unions are associated with manual labour, IT employees
are associated with elitism and professionalism and believed that they don’t need
unions.
• The existing unions in IT sector have to deal with both Indian and Western
managements which is a huge ask.
• Rights over duties - One of the major defects of India’s trade unions is that their
members are more concerned with their rights than their duties.
Laws Governing Trade Unions In India
• Article 19(1) (c) of the Constitution guarantees citizens the right to create
associations or unions, including trade unions.
• The Trade Unions Act of 1926 governs the establishment and registration of trade
unions, as well as the law governing registered trade unions.
• The Industrial Disputes Act, 1947 oversees the rights of employers and employees
in the investigation and settlement of industrial disputes, which includes trade
unions.
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10. Special Rupee Vostro Accounts
Recently, government officials informed that 20 Russian banks Rosbank, Tinkoff Bank,
Centro Credit Bank and Credit Bank of Moscow have opened Special Rupee Vostro Accounts
(SRVA) with partner banks in India.
What is the SRVA arrangement?
• Vostro account - A Vostro account (Vostro means ‘yours’ in Latin) is an account
that a domestic bank holds for a foreign bank in the domestic bank’s currency.
• In this case between India and Russia, Indian banks hold an account for Russian
banks in rupee (INR).
• Special Vostro Accounts - Normal Vostro accounts acts only as transit accounts
whereas in Special Vostro Accounts INR (Indian Rupee) balances can be held.
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How does it function?
Components of the framework
• The framework entails three important components - invoicing, exchange rate and
settlement.
1. Invoicing entails that all exports and imports must be denominated and
invoiced in INR.
2. The exchange rate between the currencies of the trading partner countries
would be market-determined.
3. The final settlement also takes place in Indian National Rupee (INR).
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Eligibility criteria of banks
• Banks from partner countries are required to approach an authorised domestic

dealer bank for opening the SRVA.
• Role of Domestic banks - The domestic bank would then seek approval from the
apex banking regulator providing details of the arrangement.
• Domestic banks need to ensure that the correspondent bank is not from a country
mentioned in the updated Financial Action Task Force (FATF) Public Statement on
High Risk & Non-Co-operative jurisdictions.
• Domestic banks must also put forth for perusal, financial parameters pertaining to
the corresponding bank.
• Other Features - Authorised banks can open multiple SRV accounts for different
banks from the same country.
• All reporting of cross-border transactions are to be done in accordance with the
extant guidelines under the Foreign Exchange Management Act (FEMA), 1999.
Why is it so significant?
• International banking services - Domestic banks use it to provide international

banking services to their clients without having to be physically present abroad.
• Expansion of market base - It helps domestic banks gain wider access to foreign
financial markets.
• Payments in rupee - It also enables payments in rupee for the export and import
of goods in the case of trade with Russia.
• Balances in the account can be repatriated in freely convertible currency and/or
currency of the beneficiary partner country.
• Reduction in forex - The Economic Survey (2022-23) had argued that the
framework could largely reduce the net demand for foreign exchange.
• Protection from external shocks - It added that the framework would also reduce
the need for holding foreign exchange reserves and dependence on foreign
currencies, making the country less vulnerable to external shocks.
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• INR as an international currency - In the long-term, it promotes INR as an

international currency.
As per the Bureau for International (BIS) Settlements’ Triennial Central Bank Survey 2022,
the U.S. dollar was the most dominant vehicle currency accounting for 88% of all trades. The
INR accounted for 1.6%.
11. Social Stock Exchange (SSE)
The National Stock Exchange of India received the final approval from the markets
regulator Securities and Exchange Board of India (SEBI) to set up a Social Stock
Exchange (SSE).
What is a Social Stock Exchange?
• The SSE would function as a separate segment within the existing stock
exchange and help social enterprises raise funds from the public through its
mechanism.
• It would serve as a medium for enterprises to seek finance for their social
initiatives, acquire visibility and provide increased transparency about fund
mobilisation and utilisation.
• Retail investors can only invest in securities offered by for-profit social
enterprises (FPSEs) under the Main Board.
• In all other cases, only institutional investors and non-institutional investors
can invest in securities issued by SEs.
What about eligibility?
• Social Intent – Any non-profit organisation (NPO) or FPSEs that establishes

the primacy of social intent would be recognised as a social enterprise.
• Those recognised will make it eligible to be registered on the SSE.
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• Dependent on Corporates – NPOs that are dependent on corporates for more

than 50% of its funding are considered ineligible.
How do NPOs raise money?
• Zero Coupon Zero Principal (ZCZP) – NPOs can raise money either through
issuance of ZCZP instruments from private placement or public issue, or
donations from mutual funds.
• ZCZP bonds differ from conventional bonds in the sense that it entails zero
coupon and no principal payment at maturity.
• The minimum issue size is presently prescribed as Rs 1 crore and minimum
application size for subscription at Rs 2 lakhs for ZCZP issuance.
• The NPO may choose to register on the SSE and not raise funds through it
but via other means, however, they would have to make necessary disclosures
about the same.
What about on completion of projects?
• Development Impact Bonds – It is another structured finance product

available for NPOs.
• Upon the completion of a project and having delivered on pre-agreed social
metrics at pre-agreed costs/rates, a grant is made to the NPO.
• The donor who makes the grant upon achieving the social metrics would be
referred to as Outcome Funders.
• Since the payment above is on post facto basis, the NPOs would have to also
raise money to finance their operations.
• This is done by a Risk Funder who alongside enabling the financing of
operations on a pre-payment basis, also bears the associated risk with non-
delivery of social metrics.
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How do FPOs raise money?
• For-Profit Enterprises (FPEs) need not register with social stock exchanges
before it raises funds through SSE.
• However, it must comply with all provisions of the ICDR Regulations when
raising through the SSE.
• It can raise money through issue of equity shares to an Alternative
Investment Fund including Social Impact Fund or issue of debt instruments.
What disclosures need to be made?
• Annual impact report – SEBI’s regulations state that a social enterprise

should submit an annual impact report in a prescribed format.
• The report must be audited by a social audit firm and has to be submitted
within 90 days from the end of the financial year.
• Money raised – Listed NPOs, on a quarterly basis, are specifically required to
furnish details about the money they have raised category-wise.
12. Hindu Rate of Growth
India's gross domestic product (GDP) data for the third quarter received a word of caution
from the former Reserve Bank of India (RBI) governor Raghuram Rajan.
What is the issue?
• India’s GDP for Q3 slowed to 4.4%, and for Q1, it grew by 13.2%, this slowdown in
growth was termed as worrying by Raghuram Rajan.
• A report by the State Bank of India (SBI), dismissed arguments that India is
dangerously close to Hindu rate of growth.
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Gross domestic product (GDP) is the monetary value of all the finished goods and services
produced within a country's borders in a specific time period.
What is meant by Hindu rate of growth?
• It was coined by late economist Raj Krishna in 1978.

• It describes the slow growth in the country, which basically refers to the low pace of
economic growth rates during 1950s to 1980s.
• During this period, the Indian economy averaged 3.5%.
• Only if the rate of growth is persistently slow and accompanied by low per-capita
GDP, then it will be known as Hindu rate of growth but it has to factor in population
growth as well.
Before economic reforms of 1991, India’s economic growth remained stagnant and low,
while per capita income averaged around 1.3%.
When did India outgrow the Hindu rate of growth?
• The GDP growth rate data suggests that India started growing faster than the Hindu
rate of 3.5% long before the crisis and reforms of 1991.
• India’s average annual GDP growth rate between 1956 and 1975 was 3.4% almost
exactly the Hindu rate of growth.
• However, between 1981 and 1991 that is, a full decade before the crisis and reforms,
India’s growth averaged 5.8%.
How India’s GDP has been growing?
• GDP – It shrunk by unprecedented 23.8% in the first quarter of the financial year
2020-2021, due to the pandemic.
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• As lockdowns started to ease and business activities resumed, India’s GDP also
started rising.
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• Russia-Ukraine – FY22-23 brought fresh economic challenges in the form of war,

impacting almost all major economies of the world, slowing the pace of growth,
pushing inflation to record highs.
What SBI report said on savings and investment?
• Quarterly growth numbers are noisy and should be best avoided for any serious
interpretation.
• Gross capital formation (GCF) – The GCF of the government touched a high of
11.8% in 2021-22, up from 10.7% in 2020-21.
• Private sector investment – This also had domino effect on private sector
investment that jumped from 10% to 10.8% over the same period.
• Gross savings – In 2021-22, gross savings have risen to 30% from 29% in 2020-
2021.
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• Household savings – It increased sharply during the pandemic on account of sharp

accretion in financial savings such as deposits.
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• Incremental Capital Output Ratio (ICOR) – It measures additional units of capital

investment needed to produce additional units of output.
• Reducing ICOR in the current years reflects a relatively increasing efficiency of
capital and shows that the economy is on a sound footing.
• From that point of view, future GDP growth rates even at 7% could still mean a
decent number by any standards.
What is the conclusion?
• The country is making rapid progress in all fields and willing to compete with the
best in almost all spheres.
• In a world where each country is taking care of its own, India too has learnt to do
the same.
• As things stand today, India is still far from the 3.5% level that is associated with
the Hindu rate of growth.
• However, it is noteworthy that India had been decelerating in the 3 years leading up
to the pandemic and grew by just 3.9% in the year just before Covid.
13. Silicon Valley Bank and Signature Bank Crisis
Silicon Valley Bank collapsed with astounding speed, leaving investors on edge about
whether its demise could spark a broader banking meltdown, like the 2008 financial crisis.
What is Silicon Valley Bank (SVB) crisis about?
• Established in 1983, it is a California based bank that lends to early stage

technology and biotech start-ups, and manages funds of venture capitalists.
• Just before collapsing it was America’s 16th largest commercial bank.
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Banks fail as they lend long term, whereas, their deposits are short term. They cannot call
back their long-term loans easily, whereas their short-term deposits have to be paid on
demand.
SVB collapse
• Monetary Policy – The era of easy monetary policy has enabled tech companies of
all sizes to raise and deploy funds, and SVB benefited from this boom.
• Global Inflation – The recent Ukraine war fuelled global inflation levels and that led
central banks to tighten monetary policy aggressively.
• Government Bonds – SVB ploughed billions into US government bonds during the
era of near-zero interest rates.
• Interest rate hike – The Federal Reserve hiked interest rates aggressively to tame
inflation.
• Fall in bond price – When interest rates rise, bond prices fall, so the jump in rates
eroded the value of SVB’s bond portfolio.
• High borrowing costs – At the same time, the Fed’s hiking sent borrowing costs
higher, meaning tech start-ups had to channel more cash towards repaying debt.
• Withdrawal of deposits– The start-ups struggled to raise new venture capital
funding which forced companies to withdraw deposits held by SVB to fund their
operations and growth.
Impact of the crisis
• Dump bank stocks – Shock from Silicon Valley’s miseries echoed through parts of
the banking sector, and investors started to dump bank stocks.
• However, the nation’s largest banks appeared insulated from the fallout.
• Strong buffer – Most analysts point out that US and European banks have much
stronger financial buffers now than during the global financial crisis.
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• Unique existence – SVB was large but had a unique existence by servicing nearly
exclusively the technology world and VC-backed companies.
• Affects start-ups – At a time the start-ups needed financial backing, one of its
biggest supporters has collapsed.
• Balance sheets – If central banks become concerned that SVB’s problems are
indicative of a broader weakness in corporate balance sheets, they can raise the
rates.
• Survive recession – The stress tests of the largest banks and financial institutions
showed that all of them would survive a deep recession and a significant rise in
unemployment.
• Impact on US dollar rates – Both US economy and the US currency is expected to
face investors' anger in near term.
Silicon Valley Bank's downfall is the largest failure of a financial institution since
Washington Mutual collapsed at the height of the 2008 financial crisis more than a decade
ago.
Response from the US Government
• Prompt interventions – The SVB’s fallout was followed by regulatory interventions

involving coordination between the Treasury Secretary, the banking regulator and
the resolution authority.
• FDIC – The bank was closed by the California banking regulator and placed under
the receivership of Federal Deposit Insurance Corporation (FDIC).
• Bridge bank – The FDIC seized the assets of the bank, created a bridge bank called
the Deposit Insurance National Bank of Santa Clara and transferred all insured
deposits of SVB to the bridge bank.
Bridge bank is an entity to temporarily take over the liabilities and operations of a failed
bank till a buyer is found.
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• The bridge bank, in this case, will ensure continuity of all banking activities.
• BTFP – To prevent the run on banks and meet the demands of depositors, the US
Fed has set up an additional funding facility for banks called the Bank Term
Funding Program (BTFP).
• Under this facility, loans of up to 1 year will be provided to banks and other
depository institutions.
• Those taking advantage of the facility will be asked to pledge high-quality
collateral such as treasuries, agency debt, and mortgage-backed securities.
• Exchange stabilisation Fund – The Department of the Treasury will make available
up to $25 billion from the Exchange Stabilisation Fund as a backstop for the BTFP.
• All insured depositors have access to their insured deposits.
• The uninsured depositors will receive their pay-outs as the FDIC sells the assets of
the SVB.
What led to the collapse of Signature Bank?
• Signature Bank – It is a New York financial institution with a big real estate lending
business and had recently made a move towards cryptocurrency deposits.
• That ended up being a fateful decision because the bottom fell out of crypto assets
after the collapse of FTX.
• Another cryptocurrency-focused bank, Silvergate Bank, was forced to voluntarily
close, leading to the fallout of SVB.
• To some extent, Signature Bank is a victim of the panic around Silicon Valley Bank.
What is the impact of the Signature & SVB crisis on India?
• Most preferred by Indians – The collapse of the bank triggered a nerve wracking
crisis for Indian start-ups that preferred SVB to park their funds.
• Loss of employment – Not having access to money would mean firing a large
number of employees.
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• Recession in West – If the West slips into a recession, it will impact Indian financial
markets and growth rates.
• Regulated by RBI – This crisis won't have much impact on Indian treasuries, since
they are regulated by Reserve Bank of India.
• Forex market – Those who have position in dollar may have to face the beating,
since US dollar has retraced from 3-month highs.
• Mutual funds – Debt funds won't have much impact unlike for Indian mutual fund
investors who have exposure in international mutual funds and international hybrid
mutual funds.
• India better placed – Unlike the concentration of deposits of SVB, 60% of deposits
of Indian banks are held by households.
• Asset side – On the asset side, 60% are held in the form of loans and investments
constitute 25% of the assets.
What is the way forward?
• Need for counter-cyclical tools – The SVB saga underscores the need to have
adequate countercyclical macro prudential tools to provide a buffer against losses on
account of rising interest rates.
• Resolution Corporation - The legal framework should provide for oversight of the
bank by the RBI and a Resolution Corporation.
• It should have the authority to monitor risks, intervene early and resolve through
the globally-recognised resolution tools such as sale of business and bridge
institutions.
• Need for framework – Important lesson emerging from the SVB crisis is the need
to enact pending banking reforms & for a prompt resolution framework so depositors
don't face a moratorium on their deposits.
• FRDI Bill – The Financial Resolution and Deposit Insurance (FRDI) Bill that provides
for establishing a resolution authority, which would have powers to undertake
prompt resolution for banks need to be reintroduced.
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Quick Facts
2008 Financial Crisis
• The 2008 financial crisis began with cheap credit and lax lending standards that
fuelled a housing bubble.
• The 2008 financial crisis developed gradually, when home prices began to fall in
early 2006.
• In early 2007, subprime lenders began to file for bankruptcy.
• In June 2007, two big hedge funds failed, weighed down by investments in subprime
loans.
• In August 2007, losses from subprime loan investments caused a panic that froze
the global lending system.
• In September 2008 Lehman Brothers collapsed in the biggest U.S. bankruptcy ever.
• When the bubble burst, the banks were left holding trillions of dollars of worthless
investments in subprime mortgages.
• The Great Recession that followed cost many their jobs, their savings, and their
homes.
14. Regulation of Indian Clearing Corporations
Recently European Securities and Market Authority (ESMA) de-recognized six Indian
Clearing Corporations due to “no co-operation arrangements” between Indian regulators and
ESMA.
What are Clearing Corporations?
• Securities contract (regulation) (Stock exchange and clearing corporation)

regulations, 2018] - Section 2(d) of the regulation, 2018 defines clearing
corporation as
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o Entity that is established to undertake the activity of clearing and settlement

of trades in securities or other instruments or products that are dealt with or
traded on a recognized stock exchange and includes a clearinghouse.
• Market Infrastructure Institutions (MIIs) - Stock exchanges, depositories and
clearing corporations are collectively referred to as Market Infrastructure
Institutions (MIIs).
According to the Bimal Jalan Committee (2010), these institutions are systemically important
for the country’s financial development and serve as the infrastructure necessary for the
securities market.
• Role of Clearing Corporations

• Clearing - Clearing is a process when the organization acts as intermediary and it
also assumes the role of the buyer and seller in order to ease the transactions that
occur in the trade.
• It also includes all the activities that occur from the moment when the trade starts
to till the final stage when the trade is settled.
• Settlement - The moment clearing comes to an end, settlement begins.
• The settlement agency receives securities from the seller who wants to sell his
securities and receives cash from buyers who want to buy securities and settles
among them.
• Clearing corporations under SEBI
o Indian Clearing Corporation
o Metropolitan Clearing Corporation of Indian Limited
o Multi Commodity Exchange Clearing Corporation Limited
o National Commodity Clearing Corporation Limited
o National Securities Clearing Corporation Limited
• Clearing corporation under RBI
o The Clearing Corporation of India
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• Clearing corporation under International Financial Services Centres

Authority (IFSCA)
o India International Clearing Corporation
o NSE IFSC Clearing Corporation
What is ESMA?
• European Securities and Market Authority (ESMA) is the European Union’s financial
markets regulator and supervisor.
• ESMA protects the investor and promote stable, orderly financial markets.
• The members include National authorities responsible for securities markets in each
EU country.
What is the issue?
• Issue - The whole issue started in 2013 when ESMA de-recognized six Indian
clearing corporations (CCs) on the basis that these entities were not registered in
the EU.
• There is no co-operation between ESMA and the Indian regulators on the issue.
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• ESMA has stated that European banks will continue to conduct business with
Indian Clearing Corporations after April 2023 but there will be a penal capital charge
on these transactions.
• Government’s stand – ESMA’s threat is unreasonable since all clearing
corporations are well-regulated in India.
• SEBI is a member of IOSCO (International regulators body) and signatory to several
multilateral agreements.
• Indian markets have T+1 and net basis settlement for nearly two decades.
• Clearing corporations in India are separate legal entities with robust settlement
guarantee funds, comparatively better than some in the EU.
• Impacts - Registering with ESMA will give the right and power to deeply supervise
them.
• Giving ESMA to audit them will expose the country’s financial markets Data.
• The impact of penal charge could be that European banks reconsider acting as
custodians in India.
15. Credit Suisse Crisis
Recently UBS bank agreed to buy Credit Suisse bank that involved in fraud and forgery and
collapsed eventually.
What is Credit Suisse?
• Credit Suisse is a famous investment bank headquartered in Switzerland.

• It’s been around since 1856.
• Swiss central bank has designated it one of the country’s global systemically
important banks (G-Sib).
• Credit Suisse is the 12th largest foreign bank in India and it owns assets worth Rs
20,000 crore.
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Global systemically important banks (G-Sib) is a bank whose systemic risk profile is deemed
to be of such importance that the bank’s failure would trigger a wider financial crisis and
threaten the global economy.
What led to the Credit Suisse crisis?
Causes
• Fallen share price -Since the beginning of 2022, Credit Suisse’s share price has
fallen close to 60%
• Credit default swaps (CDS) -The spreads on credit default swaps (CDS) on Credit
Suisse debt have spiked to a 14-year high — the highest since the global financial
crisis of 2008.
• Risky bets -Credit Suisse has made several risky bets and ended up losing a lot of
investor money.
• Fading investor’s confidence –the falling share price eroded investor confidence,
and has made raising fresh capital costlier.
Credit Default Swaps (CDS) is an insurance instrument. If an investor who has lent money
to a firm (say Credit Suisse) is unsure about the firm’s ability to repay, the investor can buy
a CDS on Credit Suisse’s bond.
Issues
• The biggest loser in the crisis are AT1 bond holders.
What is Additional Tier 1 (AT1) bonds?
• AT1 bonds are also known as “contingent convertibles,” or “CoCos”.

• They are a type of unsecured, perpetual bonds that banks issue to improve their
core capital base.
• It was introduced in the aftermath of the 2008 global financial crisis.
• AT1 are a risky bet — if a lender gets into trouble, AT1 bonds can be
quickly converted into equity or written down completely.
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• They have higher risk and AT1s offer a higher yield than most other bonds.
• They are long-term and do not carry any maturity date.
• AT1 bonds are mandatory under Basel III norms.
What are the impacts on India?
• The crisis may have some impact on the Indian information Technology Industry,
markets and startups.
• The startups receiving funds from Silicon valley bank may face funding issues.
• India has implemented Basel-III norms for the banking system.
• Under this system, banks have to maintain liquidity coverage ratio, which was
actually missing from the SVB case and to some extends even in the case of Credit
Suisse
• AT1 may contribute to a higher cost of capital for banks, including Indian lenders
Credit Suisse is not being seen as a direct threat in India as it owns just 0.1% of assets in
the Indian banking system.
What are the differences between European and US crisis?
European crisis US crisis
• European crisis is credit Suisse

• US crisis include Silicon Valley Bank
crisis
(SVB) and Signature Bank crisis
• Triggering factor -Credit Suisse
• Triggering factor -Over 90% of deposits
was partly a victim of bond
at Silicon Valley Bank (SVB) and
market losses, but multiple other
Signature Bank were uninsured, and
factors were at play in its downfall
thereby prone to bank runs.
• A poor governance record and
• These banks were also invested heavily
chequered investment decision-
in long-term government bonds — and
making, which saw the bank
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lurching from scandal to scandal when interest rates rose, the value of
over much of the last decade. their bond portfolios declined
What are the measures taken to resolve the crisis?
• The Swiss government and regulators in a bid to contain the global financial market
panic brokered the deal between UBS and credit Suisse.
16. Safety of Indian Banks
The failure of Silicon Valley Bank and Signature Bank in the US raises questions on the
safety of depositors' wealth in India.
What is the background of the issue?
• Safe haven – India remained a safe haven during the global financial crisis triggered
by the collapse of investment bank Lehman Brothers in 2008.
• Sound domestic banks – This is because of the domestic banks, backed by sound
regulatory practices, showing strength and resilience.
• Unaffected – Indian banks remained unaffected by the failure of Silicon Valley Bank
(SVB) and Signature Bank, despite the global interconnectedness in the financial
sector.
What is the basis for the confidence in the resilience of Indian banks?
• Balance sheet – A reason why an SVB-like failure is unlikely in India is that

domestic banks have a different balance sheet structure.
• No large withdrawals – In India we don’t have a system where deposits are
withdrawn in such bulk quantities.
• Household savings – It constitute a major part of bank deposits in India, this is
different from the US, where a large portion of bank deposits are from corporates.
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• Public sector banks – A large chunk of Indian deposits is with public sector banks,
and the rest is with very strong private sector lenders.
• Importance to depositor’s money – In India, the approach of the regulator has
generally been that depositors’ money should be protected at any cost.
• The best example is the rescue of Yes Bank where a lot of liquidity support was
provided.
Which banks are classified as D-SIBs?
• D-SIBs – RBI has classified SBI, ICICI Bank, and HDFC Bank as Domestic
Systemically Important Banks (D-SIBs).
• It means that these banks have to earmark additional capital and provisions to
safeguard their operations.
• CET1 – The additional Common Equity Tier 1 (CET1) requirement for D-SIBs was
phased-in from 2016, and became fully effective from 2019.
The Basel III accord introduced a regulation that requires commercial banks to maintain a
minimum capital ratio of 8%, 6% of which must be Common Equity Tier 1.
• Capital conservation buffer – The additional CET1 requirement was in addition to

the capital conservation buffer.
The Basel, Switzerland-based Financial Stability Board (FSB), an initiative of G20 nations,
has identified, in consultation with the Basel Committee on Banking Supervision (BCBS) and
Swiss national authorities, a list of global systemically important banks (G-SIBs).
• G-SIBs – There are 30 G-SIBs currently, including JP Morgan, Citibank, HSBC,

Bank of America, Bank of China, Barclays, BNP Paribas, Deutsche Bank, and
Goldman Sachs.
• No Indian bank is on the list.
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How does RBI select D-SIBs?
• The RBI follows a 2 step process to assess the systemic importance of banks.
Sample set
• Size of GDP – Banks are selected for computation of systemic importance based on
an analysis of their size as a percentage of GDP.
• Banks having a size beyond 2% of GDP will be selected in the sample.
• D-SIBs – Banks that have a systemic importance above a certain threshold are
designated as D-SIBs.
Segregation
• Buckets – D-SIBs are segregated into buckets based on their systemic importance
scores.
• Capital Charge – A D-SIB in the lower bucket will attract a lower capital charge,
and a D-SIB in the higher bucket will attract a higher capital charge.
A capital charge is levied on an agency and is designed to be a substitute for interest costs
and a return on capital. At a minimum, the charge should cover the government's cost of
borrowing.
Why was it felt important to create SIBs?
• SIFIs – FSB said all member countries should put in place a framework to reduce
risks attributable to Systemically Important Financial Institutions (SIFIs) in their
jurisdictions.
• TBTF – SIBs are perceived as banks that are ‘Too Big To Fail (TBTF)’, due to which
these banks enjoy certain advantages in the funding markets.
55
• Basel III norms – While the Basel-III Norms prescribe a capital adequacy ratio (CAR)
of 8%, the RBI has mandated a CAR of 9% for scheduled commercial banks and
12% for public sector banks.
Capital Adequacy Ratio is the bank’s ratio of capital to risk.
What is the need to take these precautions?
• Damage domestic activity – The failure of a bank will cause greater damage to the
domestic economy.
• Domino effect – Failure of one bank could potentially increase the probability of
failure of other banks.
• Funding & asset side – This chain effect operates on both sides of the balance
sheet, there may be interconnections on the funding side as well as the asset side.
• Impact on customer – The costs for customers of a failed bank for the same service
at another bank would be much higher.
17. International Monetary Fund (IMF) bailout
Recently Sri Lanka secured a $3 billion bailout from the International Monetary Fund (IMF)
amid the worst economic crisis.
What is IMF?
• Establishment - The IMF was established in 1944 in the aftermath of the Great
Depression of the 1930s.
• Aim - To bring about international economic coordination to prevent competing
currency devaluation by countries trying to promote their own exports.
• Membership -IMF has 190 countries as its members.
• Headquarters –Washington, D.C., United States.
• Role - IMF is the last resort lender for countries facing severe economic crises.
56
• The IMF fosters international financial stability by providing

o Policy advice
o Financial assistance
o Capacity development
• IMF provides financial support to countries hit by crises in order to restore economic
stability and growth.
• IMF does not lend for specific projects.
• Resources of IMF - IMF funds come from three sources
o Member quotas
o Multilateral borrowing agreements
o Bilateral borrowing agreements
What is the IMF bailout?
• Bailout - Means extending support to an entity facing a threat of bankruptcy.

• Lending - The IMF lends money countries the form of Special Drawing Rights (SDRs)
o Special Drawing Rights (SDRs) is a basket of five currencies, US dollar, Euro,
Chinese Yuan, Japanese Yen and British Pound
• The bailout can be executed in the form of loans, cash, bonds, or stock purchases.
• Reasons for bailout - Countries seek IMF bailouts for the following reasons
o To resolve macroeconomic risks
o To solve currency crises
o To meet external debt obligations
o To buy essential imports
o To push the exchange value of their currencies
• Conditions - The countries are expected to meet following conditions for the IMF
bailout
o Structural reforms such as fiscal transparency, tax reforms.
o Reforms in state-owned enterprises.
57
o Reforms in macroeconomic variables like monetary and credit aggregates.

o Reforms in international reserves.
o Reforms in fiscal balances and external borrowing.
What about the crisis in Sri Lanka and Pakistan?
• Sri Lankan economy crisis - Sri Lanka witnessed a sharp rise in domestic prices
and the exchange value of their currencies plunged.
• Currency crisis are usually the result of mismanagement of the currency by its
central bank.
• It is partly contributed to decline of foreign tourists during the Covid-19 pandemic.
• Pakistan economy crisis – It is a part of 2022-2023 political unrest in Pakistan.
• The crisis caused severe economic challenges for months due to which food, gas and
oil prices have risen.
• General factors that lead to economic crisis
o Inappropriate fiscal and monetary policies
o Large current account and fiscal deficits
o High public debt levels
o Exchange rate fixed at an inappropriate level
o Weak financial system
o Political instability and weak institutions
58
What are the pros and cons of IMF bailout?
Pros Cons
• Ensures the survival of a country amid

economic turmoil • Can result in reduced government
• Ensures that the functioning of spending and higher taxes, measures
essential industries and economic • Can also create a sense of dependency
systems on external funding
• Provide technical expertise to the • Affects the investing environment in
affected country on how to implement the country
reforms to strengthen the economy and

institutions
Quick facts
India and the IMF
• India is a founder member of the IMF.

• India has not taken any financial assistance from the IMF since 1993.
• Repayments of all the loans taken from International Monetary Fund have been
completed on May 2000.
• Finance Minister is the ex-officio Governor on the Board of Governors of the IMF.
• RBI Governor is the Alternate Governor at the IMF.
• India’s current quota in the IMF is SDR (Special Drawing Rights) 5,821.5 million
making it the 13th largest quota holding country at IMF and giving it shareholdings
of 2.44%.
• India has invested SDR 750 million through nine note purchase agreements with
the IMF.
59
Note purchase agreements is usually a temporary bilateral arrangement for an initial period
of one year which may be extended by a period of up to two years and the principal of the
notes is to be denominated in SDR
18. Expanding the Scope of Angel Tax
The Finance Bill, 2023, unveiled by Finance Minister Nirmala Sitharaman has proposed to
amend Section 56(2) VII B of the Income Tax Act.
What is angel tax?
An angel investor is usually a high-net-worth individual who funds start-ups at the early
stages, often with their own money.
• Angel taxes are taxes funds raised by startups if they exceed the fair market value
of the company.
• It is a 30% tax that is levied on the funding received by startups from an external
investor.
• Section 56(2) VII B of the Income Tax Act colloquially known as the angel tax was first
introduced in 2012.
• Aim - To discourage laundering of unaccounted money via unlisted firms disguised
as capital investments.
• The tax covers investment in any private business entity and startups.
• Exemptions - The only classes of investors whose investments are exempted from
angel tax are
o SEBI-registered CAT I and II AIFs (alternate investment fund)
o IFSCA-registered CAT I and II AIFs (under the IFSCA FME Regulations, 2022)
A startup is defined as an entity that is headquartered in India which was opened less than
10 years ago and has an annual turnover less than Rs 100 crore.
60
What are the changes to the provision of angel tax?
Earlier provisions Amended provisions
• The government has proposed to

• In 2019 the Government announced an
include foreign investors in the
exemption from the Angel Tax for startups
ambit of angel investors to startups.
on fulfillment of certain conditions.
• When a start-up raises funding from
• This levy is applicable only to domestic
a foreign investor that too will now
investments.
be counted as income and be taxable
What are the concerns with the amendment?

For start-ups
• Financing - The move could adversely impact financing available to the start-ups,
which have already been reeling under a funding winter since 2022.
o Funding winter means an extended period of reduced capital inflows to
startups.
• Additional tax liability - Startups faced by angel tax notices are required to pay
30% of the investment raised as the tax amount and twice that amount as penalty
for violating the exemption conditions.
• Reverse flipping - The proposed changes could compel more startups to flip
overseas.
Other concerns
• Illogical - Income tax, by definition, is levied on the profits made by an enterprise

from carrying on a business activity.
• Imposing it on capital raised is illogical.
• Unfair - It seems unfair to impose tax on nascent ventures which require higher
risk-taking by investors.
61
• Calculation of fair market value - To arrive at the tax liability, unlisted firms are
required to calculate the fair market value of their shares which is quite impractical
for early-stage ventures.
19. Quality Control Orders (QCO) On Fibres
Recently, Bureau of Indian Standards (BIS) has issued new Quality Control Orders for
cotton, polyester and viscose.
What is the status of India's textile industry?
• Share in global trade - India has a 4% share of the global trade in textiles and
apparel.
• GDP –The textile sector accounts for more than 2% of the total GDP.
• Employment - 2nd largest provider of employment in India, after agriculture.

• India is the world’s largest producer of cotton.
• Export -The export of textiles and apparel during April-January 2021-22 is USD
34.459 billion.
• The US is the single largest market for India’s textile and apparel exports.
• Import - India imports annually 50,000 - 60,000 tonnes of viscose fibre and its
variants such as Modal and Tencel LF.
• In the case of polyester almost 90,000 tonnes of polyester fibre and 1.25 lakh tonnes
of POY (Polyester Partially Oriented Yarn) are imported annually.
62
What is Quality Control Order (QCO)?
• Aim - To control import of sub-quality and cheaper items and to ensure that
customers get quality products.
• Ministries - QCOs are issued by various Ministries (Regulators) under the Central
Government depending upon the products being regulated through the Order, after
having stakeholder consultations.
• Bureau of Indian Standards (BIS) -For implementation of the provisions of QCO,
Bureau of Indian Standards (BIS) acts as the certification authority.
• New mandate of QCOs - International fibres manufacturers who supply to India
are also mandated to get a certificate from the Bureau of Indian Standards.
Polyester Viscose
• Semi-synthetic fiber, which is a version of

• Synthetic fiber and a type of
rayon
polymeric material
• Made from wood pulp and is used as
• Made from petroleum
substitute for silk
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• Durable, moisture-resistant, and • Absorbent, lightweight, breathable, soft, and

it retains shape. It is generally maintains shape as well
non-biodegradable
What are the challenges?
• Getting the certificate from the BIS is expensive for importers.

• Indian textile units will lose orders from importer.
• Indian textile units will lose their international market customers.
• BIS officials have to visit the manufacturing unit abroad before issuing the
certificate and this process is complex.
• Disrupt the established supply chain over the years.
What is the way forward?
• Import of speciality fibres that are used as blends with other fibres should be allowed
without restriction.
• Any overseas applicant for the BIS certificate should get it without delay after
inspection.
• Several textile units using lower grade fibres should be covered under the QCO.
Quick facts
HS (Harmonised Commodity Description and Coding System) code
• HS Stands for Harmonized System and it is a 6 digit identification code.

• HS is developed by the World Customs Organization (WCO).
• It comprises more than 5,000 commodity groups.
• Custom officers use HS Code to clear every commodity that enters or crosses any
international border.
• Over 98 % of the merchandise in international trade is classified in terms of the HS.
64
• The Harmonized System is governed by "The International Convention on the

Harmonized Commodity Description and Coding System".
Bureau of Indian Standards (BIS)
• BIS is the National Standard Body of India established under the BIS Act 2016.
• BIS is working under the aegis of Ministry of Consumer Affairs, Food & Public
Distribution.
• BIS has its Headquarters at New Delhi and has 5 Regional Offices.
• Aim - Harmonious development of the activities of standardization, marking and
quality certification of goods.
• BIS provides for safe reliable quality goods through standardization, certification
and testing.
20. Foreign Trade Policy 2023
Recently, Union Minister for Commerce & Industry, Consumer Affairs, Food & Public
Distribution and Textiles has unveiled Foreign Trade Policy 2023.
What is the need for the policy?
• To increase the export of India

• To be in incompliance with WTO regulations
• To push MSMSE sector
• To include new sectors
• To address the grievances mechanisms
65
What is the status of India’s foreign trade?
What are the key features of Foreign Trade Policy (FTP) 2023?
• Aim -To almost triple India’s goods and services exports to $2 trillion by 2030.
• Ease of doing business -By digitizing applications, reducing timelines for
processing applications and lowering transaction costs for exporters.
• Merchanting trade -FTP 2023 has allowed Indian intermediaries to carry out
merchanting trade involving the shipment of goods from one foreign country to
another without touching Indian ports.
• Simplifying policies -To facilitate export of dual-use high-end goods and
technology such as UAVs [unmanned aerial vehicles], drones, cryogenic tanks and
certain chemicals.
• International trade settlement -In the Indian Rupee (INR) granting benefits to
those exports that are paid for via the rupee.
66
• Special advance authorization scheme -Launched for the clothing and apparel
sector so that they can react to market demands and fashion trends faster.
• Star ratings -To recognize exporters will be available to lower qualification
thresholds.
• PM MITRA (Pradhan Mantri Mega Integrated Textile Region and Apparel) -
All PM MITRA parks to get benefits as common services providers.
• Towns of Export Excellence (TEE) -Towns producing goods of Rs750 crore or more
can be recognized as TEE based on the potential for growth in exports.
• TEE also get the benefit of global recognition and brand credibility.
• There were already 39 such TEEs in the country and four new have been added to
the list in FTP 23.
Towns Products
Faridabad Apparel
Moradabad Handicrafts
Mirzapur Handmade carpets
Varanasi Handloom and handicrafts
• Online trade -Promoting cross border trade in digital economy including moves to
facilitate the establishment of dedicated e-commerce export hubs.
• E-commerce exports -All FTP benefits are to be extended to e-commerce exports.
• Creation of designated zones with warehousing facilities to help e-commerce.
• Input duty remissions -Are being continued.
• Status Holders -The policy has reduced the threshold of minimum exports required
for the recognition of exporters as Status Holders.
• Many smaller exporters can achieve higher status and avail benefits that will reduce
transaction costs.
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• MSME -Charges have been brought within ₹5,000 for MSME under the popular
Advance Authorizations and Export Promotion Capital Goods (EPCG) scheme.
• One-time amnesty - A one-time amnesty has been offered, giving exporters more
time to avail of both the AA and EPCG schemes.
Quick facts
Remission of Duties and Taxes on Exported Products (RoDTEP) Scheme
• RoDTEP is based on the globally accepted principle that taxes and duties should
not be exported and taxes and levies borne on the exported products should be
either exempted or remitted to exporters.
• Recently it is extended to Chemicals, Pharmaceuticals and Articles of Iron & Steel
industries.
Rebate of State Levies (RoSL) Scheme
• It is eligible for the textile sector to increase competitiveness in the global market
and to create employment opportunities in India.
• This scheme gives a rebate of State Levies (RoSL) from customs.
• It is directly credited to the Exporter bank account.
Advance Authorization (AA) Scheme
• AA Scheme allows duty free import of inputs, which are physically incorporated in
an export product.
• In addition to any inputs, packaging material, fuel, oil, catalyst which is consumed
or utilized in the process of production of export product is also allowed.
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Export Promotion Capital Goods (EPCG) scheme
• It is a trade promotion scheme implemented by the Indian government that allows

duty-free import of capital goods for the purpose of export production in India.
• It is administered by the Directorate General of Foreign Trade (DGFT) and is
governed by the Foreign Trade Policy of India.
21. Investment Facilitation Agreement (IFA)
India did not join the recently conducted Investment Facilitation Agreement (IFA)
negotiations because of the flaws in the investor-state dispute settlement claims.
What is an Investment Facilitation Agreement (IFA)?
• IFA is a trade agreement proposed by the World Trade Organization.

• Aim – To create legally binding provisions by facilitating investment flows.
• It requires states to augment regulatory transparency and predictability of
investment measures.
• Informal Dialogue - In 2017, a group of developing and least-developed
country Members launched an Informal Dialogue on Investment Facilitation for
Development in the WTO.
• IFA negotiations - It was formally launched in 2020 negotiations as 'Agreement on
Investment Facilitation for Development' (IFD Agreement).
• Eligibility - Participation in this joint initiative is open to all WTO Members.
• India - India did not join the IFA negotiations which is backed by more than 100
countries.
What are the concerns of India?
• Investor-state dispute settlement (ISDS) – India opposes to join the investment

facilitation agreement negotiations for fear of investor-state dispute settlement
claims.
69
• ISDS is a system through which individual companies can sue countries for alleged
discriminatory practices.
• ISDS is a neutral, international arbitration procedure.
• Future IFA - There are apprehensions that foreign investors could use IFA to bring
claims under the existing BITs.
• Most favored nation (MFN) - Foreign investors may use the MFN provision in BITs
to borrow or import stipulations from the IFA.
• Fair and equitable treatment (FET) - Foreign investors may use the provision of
fair and equitable treatment present in BITs to challenge non-compliance with IFA.
• Umbrella clause - Most new investment treaties avoid ‘umbrella clauses’ altogether
thus limiting the possibility of investors suing states for non-compliance of IFA
obligations.
• ISDS tribunal - It is doubtful that an ISDS tribunal will accept the argument that
mere non-compliance with IFA breaches an investor’s legitimate expectations.
What is the status of India’s bilateral investment treaties (BITs)?
• India’s tryst with BITs started in 1994 when it signed its first with the United
Kingdom.
• Bilateral Investment Treaties (BITs) are reciprocal agreements between two
countries to promote and protect foreign private investments in each other’s
territories.
• Indian Model BIT - BITs were negotiated based on the Indian Model BIT of 1993.
• Till 2015 India had signed BITs with 83 countries.
• The model BIT was finalized and released in public domain in 2016.
Provisions of Model BIT 2016
• Objectives – To provide appropriate protection to foreign investors in India and

Indian investors in the foreign country.
70
• To create a balance between the investor's rights and the Government obligations.
• Arbitration - The Model BIT stipulate that the aggrieved investor should use all
local remedies as well as negotiations and consultations initiating arbitrations
against the host State.
• Enterprise - Defines enterprise based on investment instead of assetbased
definition.
• MFN treatment – Excludes MFN treatment.
• Full Protection and Security (FPS) - FPS means obligations only relating to
physical security of investors and to investments.
• State government as stake holders – Includes the actions of the State
Governments.
• Fair and equitable treatment (FET) – It links Fair and Equitable Treatment to
international laws to counter a broad interpretation and risk misuse.
• Expropriation - Expropriation means nationalization of assets of foreign
companies.
• The Model BIT provides that the State cannot nationalise or expropriate an
investment except for reasons of public purpose and on payment of adequate
compensation.
• Non-Discriminatory treatment - The Model BIT includes a clause on non-
discriminatory treatment for compensation of losses.
• Corporate Social Responsibility – It mandates foreign investors to voluntarily
adopt internationally recognized standards of corporate social responsibility.
Quick facts
Most favored nation (MFN)
• A most-favored-nation (MFN) clause requires a country providing a trade concession to

one trading partner to extend the same treatment to all.
• It is the first clause in the General Agreement on Tariffs and Trade (GATT).
71
• Though the term looks like a favour given to one country, it only ensures non-
discriminatory trade.
• A member country is not allowed to discriminate between trade partners.
• If a special status is granted to one trade partner it must be extended to all members
of the WTO.
• The loss of MFN status exposes a country to discriminatory import tariffs on its
products.
Investor-state dispute settlement (ISDS)
• Investor-state dispute settlement (ISDS) is a mechanism in a free trade agreement

(FTA).
• It provides foreign investors with the right to access an international tribunal to
resolve investment disputes.
• An ISDS tribunal cannot overturn domestic laws and regulations.
• The tribunal is limited to determining breaches of certain investment obligations.
22. FEMA Vs FERA
Enforcement Directorate (ED) has recently registered a case against the British Broadcasting
Corporation (BBC) India under the Foreign Exchange Management Act (FEMA).
What is the case about?
• The ED registered a case against BBC, under FEMA, for the alleged violation is the
Foreign Direct Investment (FDI).
• Earlier, the Income-Tax Department had also carried out surveys in the offices of
BBC in New Delhi and Mumbai on non-compliance with transfer pricing rules and
vast diversion of profits.
72
Transfer pricing refers to the value attached to transfers of goods, services, and
technology between related entities, and between unrelated parties that are controlled
by a common entity.
What are Foreign Exchanges?
• Different countries have different currencies and a foreign exchange converts the
currency of one country into another.
• For example, if India is importing from the US, it needs to pay in dollars, similarly
when the US is importing from India it would need to pay in rupees.
• Foreign exchange is also important when a country is investing in another.
• If the US is investing in India, it has to invest in rupees similarly, India has to invest
in dollars while investing in US.
• Such transactions create a demand for foreign exchange.
What is the FEMA Act, 1999?
• Foreign Exchange Management Act (FEMA) came in 1999 as a successor to the

Foreign Exchange Regulation Act (FERA) of 1973.
• It was drafted while keeping in mind the changing economic conditions in a post-
liberalisation India.
• The aim of the act was to facilitate external growth, encourage foreign exchanges,
maintenance of foreign exchange market in India.
What are the similarities between the FERA and FEMA?
• The Reserve Bank of India and Central Government continued to be the regulatory
bodies.
• Presumption of extra territorial jurisdiction as conceived in FERA was retained.
• The Directorate of Enforcement continued to be the agency for enforcement of the
provisions of the law such as conducting search and seizure.
73
What are the differences between FERA and FEMA?
Provisions FERA FEMA
Origin 1973 1999
To facilitate external trade &

To regulate foreign exchange in payments and promoting
Aim order to conserve foreign orderly development and
exchange reserves. maintenance of foreign
exchange market.
Enacted at a time when the

Formulated at a time when the
Background foreign reserves were
foreign reserves were limited
satisfactory
Provisions Complex: consisted of 81 sections Simple: consist of 49 sections
It did not contain any provision on It expressly recognizes the right

Right of
the defaulter to seek any legal of appellant to take assistance
Assistance
assistance of legal practitioner
Category of
Criminal offence Civil offence
violation
Punishment Imprisonment Monetary penalty
The scope and power of search

It conferred wide powers to make and seizure has been curtailed
Search & Seizure
a search and confined to officers of
Enforcement
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Current account transactions

All foreign exchange dealings are free from permissions and
Transactions required permission from RBI or certain Capital Account
Central government transactions required special
permission from RBI
Quick facts
Enforcement Directorate
• It is a premier financial investigation agency of the Government of India.

• The Directorate of Enforcement is a multi-disciplinary organization mandated with
investigation of offence of money laundering and violations of foreign exchange laws
which includes
o The Prevention of Money Laundering Act, 2002 (PMLA)
o The Foreign Exchange Management Act, 1999 (FEMA)
o The Fugitive Economic Offenders Act, 2018 (FEOA)
o Conservation of Foreign Exchange and Prevention of Smuggling Activities
Act, 1974 (COFEPOSA).
23. Evaluation of PM MUDRA Yojana
Recently Pradhan Mantri MUDRA Yojana (PMMY) completed 8 years contributing immensely
to the inclusion of several communities that have traditionally been underrepresented as an
entrepreneur.
What is Pradhan Mantri MUDRA Yojana (PMMY)?
• PMMY provides collateral-free loans up to 10 lakh to the non-corporate, non-farm

small/micro enterprises initially.
• PMMY was launched in 2015 with the objective to encourage young person to
become 1st generation entrepreneurs.
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• These loans are extended by Banks, NBFCs, Micro finance Institutions (MFIs) and
other eligible financial intermediaries as notified by MUDRA Ltd.
• MUDRA has created three products namely 'Shishu', 'Kishore' and 'Tarun'.
What are the achievements of PMMY?
• New Entrepreneurs – The Mudra Scheme has created 8 crore new entrepreneurs.
• Bridging the gap - The scheme has potentially bridged the gap of India’s
microfinance and banking sectors providing loans to micro entrepreneurs.
• Sub-culture of poverty - The PMMY has reduced the sub culture of poverty in short
span of time.
• Banking in unbanked areas - PMMY provided loans to bottom half of India
providing loans to the unbanked areas.
• Innovation - It induced innovation, creative ecosystem and also the risk-taking
appetite of entrepreneurs which generated lot of employment opportunities.
• 1st time entrepreneurs - The share of Shishu loans is the highest (40%) suggesting
that the PMMY has largely supported first-time entrepreneurs.
• Inclusion - PMMY has benefitted all segments of Indian society such as general,
schedule caste/tribe (SC/ST) groups and other backward classes (OBCs).
• SC/ST and OBC categories account for a total of 51 per cent of all Mudra accounts.
• Women empowerment - The share of accounts held by women is 69%.
• In 2022 disbursements of loans to women entrepreneurs registered an average
growth of 28%.
• Equal distribution - Since it is a national scheme, it has shown balanced
penetration and economic growth across India.
• States such as Uttar Pradesh, Odisha and Bihar have recorded all-round gains from
the PMMY.
76
Overall, the PMMY has achieved its objectives of equitable and fair spatial distribution of
benefits during these 8 years.
What are the future aspirations?
• Timely utilization of benefits of 5G technology and e-commerce.

• More awareness about Mudra cards and further penetration in to remote areas.
• Scheme can be extended to personal sector other than farms and factories.
• They can start a loan funding of less than Rs 50,000 so that the gap of 0-50k can
be fulfilled.
24. State of Rural Entrepreneurs in India
Despite the growing numbers of rural entrepreneurs, the productivity of such entrepreneurs
is concerning.
What are the factors that promote rural entrepreneurship?

77
• Skilling - National rural livelihoods mission (NRLM) and Deen Dayal Upadhyaya
Grameen Kaushalya Yojana (DDU-GKY) is a placement linked skill development
programme.
Rural entrepreneurship harnesses innovation, invention, production and manufacturing of
goods, promoting exports, and providing rural employment.
• These schemes allows skilling in a PPP mode and assured placements.
• Training - Rural self-employment and training institutes (RSETI) enables the
trainees to take bank credit facility to start micro-enterprises.
• Promotion of entrepreneurship - Startup India initiative promotes
entrepreneurship among the youth of India.
• Sustainable livelihoods - Deen Dayal Antyodaya Yojana (DDAY), which focuses on
sustainable livelihoods for rural communities.
• Financial inclusion - NRLM, which now has the largest network of women’s SHGs
globally has helped in financial inclusion.
• Mudra Yojana also provide financial support.
• Production and marketing - One district one product (ODOP) identifies products
that are unique to a particular district and promote their production and marketing.
• ODOP also provide market linkages to the entrepreneurs.
• As of March 2023, there are 8.2 million SHGs in India with 89 million members.
78
What are the challenges to the rural entrepreneurship?
• Inadequate infrastructure in rural areas

• Limited access to finance
• Lack of formal vocational/technical training
• Low upgradation in the technology
• Most entrepreneurs produce products for their own consumption
79
What is the need of the hour?
• Productivity - Needs to be enhanced.

• Holistic approach - By integrating policy support, infrastructure development, and
capacity building for the rural youth entrepreneurs.
• Indigenous/ hereditary skills - Support for promoting the indigenous/ hereditary
skills is also required to scale up operations.
• Technical know-how - The entrepreneurs needs to be in cultivated with the recent
technologies.
80
Quick facts
• As per Periodic Labor Force Survey (PLFS) 2020-21

o The share of self-employed workers in rural areas is 61.3% as compared to
39.5% in urban areas.
o The share of self-employed workers in rural manufacturing rose from 47.02%
in 2018-19 to 52.6% in 2020-21.
o Only 12% of self-employed sell their entire produce/product.
• 69.73% of workers out of total rural manufacturing workers have not received any
training.
• 26.47% of workers have received informal training.
81

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Current affairs Holistic Approach towards

Knowledge Refreshment and Augmentation

Why is this milestone bittersweet?

For what strong case is made?

What could the government do?

Global experience suggests where governments spend money (pensions, interest,

What is the comparison?

2. Role of G20 in Promoting Blue Economy

What is blue economy?

Why the blue economy needs to be protected?

• Intensifying extreme weather events

What initiatives were taken to promote blue economy?

• Sagarmala initiative - Promotes port-led development

What is the role of India’s G20 Presidency in promoting blue economy?

What initiatives were taken by G20 towards blue economy?

What is the significance of the marine environment?

What are some goals to protect the oceans?

What is needed to achieve the SDG14 goal?

What are the things that countries lack?

• Many of the developing nations

o have high levels of external debt,

and marine economy.

inter-sectoral experts and stakeholders.

What could India do?

• Hence the SDG-14 journey cannot undermine the other SDGs.

sustainability, while providing for social equity.

What is needed further?

• It is important that any blue economy transformation should include using

integrated marine spatial planning.

SDG14 & India

1. Centrally Sponsored Scheme on ‘Conservation of Natural Resources and Eco-

3. Sagarmala Project (Blue Revolution).

3. Coordination of Ministries in boosting Tourism

How about the picture of tourism in India?

What about the inter-ministerial cooperation made so far?

Ministry Initiative Objective

Ministry of Tourism + To work with the police and sensitise

To nurture young ambassadors of

Tourism officers have been placed in

To provide opportunity for the devotees

What is the new draft National Tourism Policy 2022 about?

• National Tourism Missions

4. The Adani-Hindenburg Saga

What is Hindenburg Research?

• Hindenburg Research is an investment research firm that focuses on analysing

What happened aftermath the Hindenburg report?

It is made by the company after an Initial Public Offering (IPO).

What are the impacts this episode on the economy?

5. Green Debt Swaps

What are green debt swaps?

What are the advantages?

How can green debt swaps be encouraged?

• Arranging debt-for-environment swaps (DFES) is not an easy task as it requires

6. India’s Balance of Payments (BOP)

What is balance of payments (BoP)?

Balance of Payments (BOP)

BoP Surplus Balanced BoP BoP Deficit

• Accounts in the BoP includes

• It is the record of trade in goods and services and transfer payments.

▪ Non-factor income - It is net sale of service products like shipping,

Receipts > Payments Receipts = Payments Receipts < Payments

A surplus current account - The nation is a lender to other countries

• Components of Current Account includes