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Vivek Singh

Economics

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20-Sep-2020 23:41:43 PM

External Debt of India

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16-Sep-2020 13:41:09 PM

US - China Trade dispute verdict

The WTO has five most important principles of trade:

1. Trade without discrimination

   (a) Most Favoured Nation (MFN)   (A member country should have same import duties on a particular product coming from all other member countries); [this rule has an exception called "Security Clause" which says that a member country can take any action (against another country) if it considers necessary for the protection of its (national) security interests]

   (b) National Treatment (A member country (say A) should not discriminate against the products of other member countries, once the product of other member countries have entered into the territory of the member country A)

2. Free Trade (Every country should try to reduce import duties progressively with time. WTO does not force any particular duty. Different member countries can keep different duties as per their own level of development/competitiveness)

3. Binding and Enforceable commitments (Once a member country has committed in the WTO that its import duty on any good is this much (say 40%)... then it cannot increase beyond that 

4. Transparency (If there is any trade rules change, then the country should inform WTO and WTO can review laws of member countries)

5. Single Undertaking (If a country becomes member of WTO, then it needs to obey all the agreements and cannot selectively choose)

News analysis:
In 2018, US increased import duties on products like Steel and Aluminium coming from China (mainly/only) which violated two principles of WTO. The first is "MFN" and the second is "Binding and enforceable commitments". This was because  US increased duties against China only and these duties were above the committed level. And at that time US cited the reason as its "National Security" is at stake and also "China was forcing US companies to transfer technology and intellectual properties to Chinese companies"

But, as per todays news US has lost the case. But US can appeal against to the "WTO's Appellate Body". But WTO appellate body has less members right now and is not meeting the Quorum (minimum requirement of members) and new members/judges appointment has been blocked by US. And in such a situation (When WTO's appellate body is not able to function) US don't need to obey the rulings of the WTO Dispute Settlement Body which has been reported in the news today.
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13-Sep-2020 21:29:01 PM

Gold ETFs (Gold - Exchange Traded Funds)

While owning gold in physical forms like jewellery, gold coins or bars comes at a huge cost, but owning it in paper form like gold ETFs come at a price closer to the actual price of gold. The price difference between the two, i.e., physical and paper gold (gold ETF), is due to the making charges, storing costs, jeweller margin etc, which is not there in gold ETF.

Therefore, if your objective is to bank/trust on the value/price of gold increasing in future, then investing via the ETF route is the answer. Similar to mutual funds where the value of one's investment is a reflection of the value of shares/bonds in which the mutual fund is investing, in gold ETF, your investment value will fluctuate/depend on the physical price of gold in the market. And there is an advantage in case of gold ETF is that you can buy/sell your investments easily as it is being traded on the stock exchange.

The gold ETF being an exchange-traded fund can be bought and sold only on stock exchanges and thus saving you the trouble of keeping physical gold. While jewellery, coins and bars come with high initial buying and selling charges, the gold ETF costs much lower (brokerage margin is very low). The transparency in pricing is another advantage. The price at which it is bought is probably the closest to the actual price of gold in the market.

How gold ETFs work: Physical gold supports Gold ETFs as security at the back-end. For instance, when you buy a Gold ETF, the person or entity at the back-end is purchasing gold. They give guarantee to the investors about the purity of gold too. The stock exchange allows an ‘Authorised Participant or Member’, generally large companies/firms to handle the purchase and sale of gold to generate ETFs. Constant trading and control by the ‘Authorised Members’ ensure that the cost of gold and ETFs remains the same.  

Taxation: Gold ETFs are treated as non-equity investments and taxed accordingly. Short-term capital gains on units held for less than 36 months is added to investor's income and taxed as per the applicable slab rate. Long term capital gains on units held for more than 36 months is taxed at 20%.
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11-Sep-2020 10:09:32 AM

Deficit Monetization

"Monetising the Deficit" OR "Monetizing the Debt" OR "Deficit Monetization": 
It means that if Govt has deficit, then it will ask RBI to print notes and give it to Govt. and in return Govt. will give its Bonds to RBI. (So it will be basically debt on Govt. but how Govt will show/manipulate its accounts that will be clear only when this is done)................(Actually the word 'monetize' has relation with currency/notes/cash)

"Deficit Financing":
It generally means that Govt. is having deficit (as expenses are more than receipts) and it will arrange for its financing of the deficit. And this deficit can be financed from market borrowing or borrowing from abroad OR there can also be the case that Govt may ask RBI to finance its deficit by printing more money. (So, in deficit financing there can be various options to finance and one of the options could be from RBI by printing money)

Analysis:
1) Earlier Govt used to 'Monetize the deficit' but this practise was stopped in 1997 by signing an agreement between RBI and Govt. of India. And this was also included in the FRBM Act 2003 where in "Govt will not monetize the deficit BUT in exceptional circumstances it can"

2) Right now Govt. is not preferring deficit monetization even if Govt. knows that this year they will have to borrow much more than planned. But Govt. can consider deficit monetization as the last resort.

3) Deficit monetization leads to extra money reaching into the economy which leads to inflation and it also may lead to 'Sovereign Ratings' downgrade which then hurts investments in the country.

4) RBI can pump liquidity in economy through open market operation. This will lead to decrease in interest rate (more money supply less interest rate, simple concept of demand and supply), which will basically help govt in raising money from the market ('deficit financing' rather that 'monetisation of deficit') at lesser interest rate.

5) As such there is no problem that in exceptional circumstances govt does 'monetisation of deficit' JUST FOR ONCE. But the problem with India is that, once its done, then it lures future governments of an easy route of financing their deficit. And foreign investors also understand this, so once done, they think that, govt may resort in future also and they get concerned about inflation and it also results in currency depreciation leading to loss to investors (during conversion) once they return to their home countries. And this govt is trying everything to bring in new investments and luring manufacturing firms from China. That is why Govt. is saying monetisation of deficit will be last option. 

And OPPOSITION is also pressurising a lot that the govt. should spend more money/cash into the economy basically giving money to the poor people. 
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09-Sep-2020 09:58:51 AM

FDI in India in 2018-19

1) FDI inflows into India has increased 10% in 2019-20 to $42.6 Billion. And majority of this is in services (communication, retail & wholesale trade, financial services etc.)

2) India has received maximum FDI from Singapore in the last two years.

3) FDI from Cayman Islands have increased by 305% to $3.5 Billion in 2019-20. (try getting some geographical information related to Cayman Islands)
The reason for this increase has been cited as it is a "Tax Haven" (meaning less tax rates and various tax relaxations). Let me give you an example how it works.

Suppose an entity registered in Cayman Islands did FDI investments (i.e. purchased shares) in a company registered in India. As the company registered in Cayman Islands has purchased ownership/shares in a company registered in India, so it may receive the following:

(a) Dividend/profit from the Indian company
(b) When the entity registered in Cayman Islands will try to sell its investments (shares) in India and return then there can be Capital Gain for the Cayman Islands entity (for example if it purchased one share in Rs. 100 and then selling it in Rs. 120 then there is a capital gain of Rs. 20).

Now on both the above earnings .... Profit/Dividend and Capital Gain..........India imposes tax and generally there can also be tax implications on this income once this income (dividend & capital gain) reaches in the territory of Cayman Islands. Cayman Islands is a "Tax Heaven" that means there may not be tax imposed on this income in Cayman Islands. Hence, FDI investments from any other country are routed through Cayman Islands into India to save on these taxes. There can be various other tax exemptions possible. 

Now you may ask what is the benefit for Cayman Islands. The benefit is not much significant but yes when a lot of investments are routed through Cayman Islands then there can be some economic activity related to registration of firms in Cayman Islands, some business offices and people travelling to Cayman Islands. Remember that there may not be any real activity on ground (like manufacturing or services provision) but rather these entities registered in Cayman Islands will act as "Shell" firms just to route money into India. 

"Shell" company: There is no clear definition of what shell company is in the Companies Act, or any other Act. But typically, shell companies include multiple layers of companies (subsidiaries) that have been created for the purpose of diverting money or for money laundering. Most shell companies do not manufacture any product or deal in any product or render any service. They are mostly used to make financial transactions without any real economic activity. Generally, these companies hold assets only on paper and not in reality. These types of corporations are not all necessarily illegal, but they are sometimes used illegitimately, such as to disguise business ownership from law enforcement agencies or the public.
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08-Sep-2020 10:22:15 AM

K V Kamath Committee Report on loan restructuring

RBI has broadly accepted the K V Kamath Committee Report on restructuring of stressed assets. Stressed assets in 26 sectors will be restructured based on 5 parameters [Total outside liabilities, Total Debt/EBIDTA, Current Ratio (= current assets/ current liabilities), Debt  Service Coverage Ratio and Average Debt Service Coverage Ratio]. Based on the thresholds (which can either be a floor or ceiling) specified for these parameters for every sector, the stressed loans of that sector will be restructured. 

For example, those loans in the Auto sector where 'Debt Service Coverage Ratio' is below 0.8 (which is basically a floor rate) then those loans will be allowed for restructuring. 

Debt Service Coverage Ratio:  If my monthly earning falls to Rs. 1 lakh and my monthly EMI (principal + interest) payment obligation is Rs. 1.2 lakh  (on whatever debt/loan I have taken) then my Debt service coverage ratio = 1/1.2 = 0.83 which is basically less than one. So, if debt service coverage ratio is less than one that means i will not be able serve my Debt obligation and the loan for bank has become risky. 
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06-Sep-2020 17:17:36 PM

Prompt Corrective Action (PCA)

1) Prompt Corrective Action (PCA) for Commercial Banks implemented by RBI

2) Supervisory Action Framework (SAF) ...........(similar to PCA).........for Urban Cooperative Banks implemented by RBI  

3) Supervisory Action Framework (SAF)............(similar to PCA)..........for Regional Rural Banks (RRBs) implemented by NABARD  (this is because NABARD supervises RRBs and Rural Cooperative banks, but as such there is no such SAF for rural cooperatives but NABARD is planning to bring)

4) No such PCA/SAF  exist for non bank entities (like NBFCs). But RBI has a department for supervision of Non Bank entities

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03-Sep-2020 11:02:16 AM

Global Innovation Index (GII) 2020

India has been ranked 48th in the Global Innovation Index (GII) 2020 as per the GII 2020 Report jointly published by Cornell, INSEAD and World Intellectual Property Organization (WIPO). Switzerland has got the 1st rank and China 14th.

The India Innovation Index is released by NITI Aayog in which it ranks States and UTs. As per the 2019 report, Karnataka was ranked 1st.
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01-Sep-2020 11:20:37 AM

Recession and its causes

RECESSION/SLOWDOWN in the economy can be triggered by any of the two ways:

1) It may be possible that first Demand decreased (there can again be several reasons for decrease in demand) in the economy and then production was decreased to match the reduced demand resulting in recession/slowdown. [OR];

2) It may be possible that, first production was halted/stopped/decreased (due to LOCKDOWN) then people lost jobs and then the demand from the people/consumer decreased and then the production by the businesses decreased resulting in recession/slowdown.

And try to understand that when production by the businesses decreases then their demand for capital goods and raw materials/intermediate goods also decreases in the economy.

As you all know that the DEMAND of GDP in the economy comes from four sectors:
 
*Household (Consumption, C)
*Private Sector (Investment, I)
*Government (Consumption + Investment represented by G)
*Export - Import (X-M)

These sectors demand/purchase consumption & capital goods which are produced by people/businesses/government. 

In the PRESENT SCENARIO, recession has been triggered by the 2) factor. So, basically because of LOCKDOWN production was stopped then people lost jobs and their (consumer) demand decreased and then the businessmen reduced production and then their demand for capital goods/raw material/ intermediate goods decreased.


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01-Sep-2020 11:20:03 AM

GDP growth for April-June Quarter 2020-21 by NSO

1) As per National Statistical Office (NSO), April-June 2020-21 Quarter GDP growth at constant prices (i.e. Real GDP)  is -23.9% as measured from the same quarter previous year 2019-20. All the sectors have shown negative growth except agriculture where the growth was 3.4%.  

2) India will face negative growth in the present quarter (July to Sept) also measured from July-Sept 2019-20, for which data will be released on 30th Nov 2020.  And once a country faces two consecutive quarters of negative real growth (measured from same quarter previous year), then it is declared recession. India is also  expected to see a full year contraction in real GDP in the present year by around 5%.

3) No need at all to look into the various sectors growth data, it is not at all relevant for your exam. But it is important for you to know when in the past India has faced recession. 

4) India till now has faced recession four times in 1957-58 ( -1.2%)  (drought)  , 1965-66 (-3.66%) (drought), 1972-73 (-0.32%) (Oil crisis) and 1979-80 (-5.2%) (oil crisis/drought).
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30-Aug-2020 21:29:55 PM

Project "Chunauti"

Ministry of Electronics and Information Technology launched Project “Chunauti” (meaning challenge) - Next Generation Startup Challenge Contest to further boost startups and software products with special focus on Tier-II towns of India. The government has earmarked a budget of Rs. 95.03 Crore over a period of three years for this programme. It aims to identify around 300 startups working in identified areas and provide them seed fund (initial funding for startups) of upto Rs. 25 Lakh and other facilities.

 Under this challenge the Ministry of Electronics and IT will invite startups in the following areas of work:

* Edu-Tech, Agri-Tech & Fin-Tech Solutions for masses
* Supply Chain, Logistics & Transportation Management
* Infrastructure & Remote monitoring
* Medical Healthcare, Diagnostic, Preventive & Psychological Care
* Jobs & Skilling, Linguistic tools & technologies
 
The startups selected through Chunauti will be provided various support from the Government through Software Technology Parks of India (STPI) centers across India. They will get incubation facilities, mentorship, security testing facilities, access to venture capitalist funding, industry connect as well as advisories in legal, Human Resource (HR), IPR and Patent matters. 
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28-Aug-2020 09:59:20 AM

GST Compensation to States

1. As you all know that when GST was implemented on 1st July 2017, States were promised a (indirect) tax revenue growth of 14% annually for five year till 30th June 2022. It was done so because States were not agreeing to implement GST and they were worried that tax revenue can decrease. So, GST act promised States that if there is any shortfall (i.e. below 14% growth)  then they would be compensated by levying a CESS on Luxory and Sin goods

2. Now, it is expected that there will be a shortfall of around Rs. 3 lakh crore this year (2020-21). Centre is suggesting that out of this shortfall of Rs. 3 lakh crore.......   Rs. 65,000 crore can be compensated by imposing Cess (try to understand that Cess also can be increased only till certain limit otherwise the demand of those goods will reduce during this Covid crisis and imposing cess will not help). 

Out of the rest Rs. 2.35 lakh crore, Centre is saying that only Rs. 97000 crore is because of GST implementation and rest Rs. 1.38 lakh crore is because of Covid (which is an Act of God and centre is not responsible for it). And hence Centre will take care of how Rs. 97,000 crore is given to States.

Centre has proposed TWO OPTIONS:

Option 1: States can be provided this Rs. 97,000 crore (under a special  borrowing window facilitated by RBI) at a reasonable interest rate by consulting with RBI and this amount (interest + principal) can be repaid by imposing cess after 5 years.

Option 2:  States can be provided entire Rs. 2.35 lakh crore (under a special  borrowing window facilitated by RBI) at a reasonable interest rate by consulting with RBI and this amount (interest + principal) can be repaid by imposing cess after 5 years.

But if States will opt for Option 1, then they can be allowed for further relaxation of 0.5% in their Fiscal Deficit limit in their FRBM Act. (Actually Centre has already allowed 2% relaxation in States fiscal deficit from 3% to 5% because of this Covid under Aatman Nirbhar Bharat) .................  (Its nowhere written that States require Centre approval to increase their Fiscal Deficit Limit, but as per Constitution if States have taken debt from Centre then they require Centre approval to take any extra debt from anywhere. And the fact is that almost all States have taken debt from Centre).
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25-Aug-2020 10:45:57 AM

Banks Board Bureau (BBB)


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 on 25-Aug-2020 19:16:06 PM
awesome sir

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22-Aug-2020 18:17:32 PM

Limits of monetary policy

Monthly inflation is hovering around 6% (just for July it was 6.9%). Since RBI reduced the repo rate (to push for economic growth), reverse repo rate got reduced and deposit and lending rate also  got reduced. Now the deposit rates in bank has come down below 6% (most of the banks are giving between 5% to 5.5%). This is creating a problem. If u deposit money in bank at 5.5% and inflation is 6%.............then basically you are loosing money (real interest rate becomes negative of -0.5%). This is leading to  people moving their deposits from banks to SHARE MARKETs which is rising like anything (not at all in sync with the economic reality, there is another news in HINDU). The fear in the minds of the people because of COVID is not leading to increased purchase of goods and services and demand is not picking up even from those people who have money.. When the demand is not picking up..............businessmen are not willing to invest even if the REAL cost of borrowing for them is almost negligible (borrowing rate 7%  and inflation 6.9%, SO real interest rate = 7% - 6.9% = 0.1%). 

All this is leading to unrealistic boom in the stock market and which may crash in future because it is not supported by actual real economic activity on ground. The Indian stock market is also booming because of more foreign money is coming in (sufficient foreign liquidity) and hence our FOREX is also increasing.

SO, RBI has said that NOW it has reached at the end of repo rate cut (cycle) and it cannot further reduce it beyond 4%. (REPO RATE CUT SHOULD BE IN SYNC WITH INFLATION. RBI SHOULD CUT THE REPO RATE ONLY WHEN THE INFLATION IS COMING DOWN OTHERWISE IT WILL LEAD TO A LOT OF PROBLEMS EXPLAINED ABOVE)

So, now the ball is in Govt's court and it should focus on its FISCAL POLICY (fiscal means related to govt expenditure and tax policy). When govt will spend more may be on construction of infrastructure then money will directly reach to the public and economic growth may be revived.
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 on 25-Aug-2020 06:56:23 AM
thanks sir

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19-Aug-2020 12:33:10 PM

Retail Payments Operator

BI as the regulator of payment and settlement systems in the country, sets the necessary regulatory framework to ensure that different types of payment systems operate in a safe, secure and efficient manner to meet the needs of varied segments of society. Reserve Bank authorizes Payment Systems in terms of powers vested with it by the Payment and Settlement Systems Act, 2007 (PSS Act).

For many years in India, banks have been the traditional gateway to extend payment systems (to make payment from one entity to other through cheques, RTGS, NEFT etc). Over a period of time, given the demand for varied payment services and in keeping with the fast pace of technological changes, non-bank entities have also been permitted access to the payment space. These non-banks are co-operating, as well as, competing with banks, either as technology service providers to banks or by directly providing retail electronic payment services. Reserve Bank has been issuing guidelines for various payment systems and grants authorisation to non-banks for setting up and operating payment systems. It may be noted that licensed banks also need to obtain specific permission from RBI for setting up and operating a payment system. This is because banking function is different and operating a "payment system" (which facilitates payment from one entity to other) is different. 

National Payments Corporation of India (NPCI), is such a non-bank payment system operator authorized by RBI to operate the following payment systems under the PSS Act 2007.
 
*Immediate Payment System (IMPS)
*Aadhar Enabled Payment System (AEPS)
*Rupay Cards
*National Automatic Clearing House (ACH)
*Linking of ATMs across India (some other operators are also involved)
*National Electronic Toll collection (It provides an electronic payment facility to customer to make the payments at national, state and city toll plazas by identifying the vehicle uniquely through a FASTag)
*National Financial Switch

NPCI is a ‘Not for Profit’ company where 51% stake is owned by public sector banks.

NOW (as per today's news), RBI wants to give permission/license to other private entities to operate 'Retail Payment System' in India like NPCI under the PSS Act 2007. The entity should be registered under the Company's Act 2013 either as "for profit" OR "Not for profit" company. By creating more retail payment operators, RBI want to create competition (to NPCI) so  that better systems and cost effective and innovative systems should evolve.

The new "Retail Payment Operator" (there can be more than one such entities) will:

* Set-up, manage and operate new payment systems in the retail space comprising of but not limited to ATMs, White Label PoS; Aadhaar based payments and remittance (just means transfer of money and nothing specific about abroad) services; newer payment methods, standards and technologies; monitor related issues in the country and internationally; take care of developmental objectives like enhancement of awareness about the payment systems.

* Operate clearing and settlement systems for participating banks and non-banks; identify and manage relevant risks such as settlement, credit, liquidity and operational and preserve the integrity of the system(s); monitor retail payment system developments and related issues in the country and internationally to avoid shocks, frauds and contagions that may adversely affect the system(s) and / or the economy in general.

* The entity is also expected to interact and be interoperable, to the extent possible, with the systems operated by NPCI.It is also expected to interact and be interoperable, to the extent possible, with the systems operated by NPCI.
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 on 20-Aug-2020 19:26:18 PM
upper half is in ur book , bottom half is updatation ,thank you sir

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18-Aug-2020 10:06:42 AM

Biofuels/Bioethanol

1) Biofuels are fuels/energy derived from biomass which is basically organic material that comes from plant and animals and it is a renewable source of energy. Biofuels can be produced from any carbon source that can be replenished rapidly such as plant (or may be animals). 

Examples of biomass and their uses for producing biofuels:
* Wood and wood processing wastes—burned to heat buildings, to produce process heat in industry, and to generate electricity
* Agricultural crops and waste materials—burned as a fuel or converted to liquid biofuels
* Food, yard, and wood waste in garbage—burned to generate electricity in power plants or converted to biogas in landfills
* Animal manure and human sewage—converted to biogas, which can be burned as a fuel

2) Bioethanol is the principle fuel used as a petrol substitute for road transport vehicles. Bioethanol fuel is mainly produced by the sugar fermentation process and the main sources of sugar required to produce bioethanol comes from fuel/energy crops like sugarcane, corn, maize, wheat etc.

3) 1G bio-ethanol plants utilize sugarcane juice and molasses (which is a byproduct in the production of sugarcane) as a raw material.
2G bio-ethanol plants utilize agricultural wastes/residues like rice & wheat straw to produce bio-ethanol.

4) The current blending target of bio-ethanol with petrol is 5%, which govt has planned to increase it to 10% by 2022 and 20% by 2030. The ethanol blending programme (with petrol) helps in curbing carbon emissions and reduce India's dependence on imported crude oil.

5) Why Indian plants are not able to meet the demand for bio-ethanol?

* Many sugar mills do not have the financial stability to invest in biofuel plants

* There are concerns among investors on the uncertainty of the price of bio-ethanol in the future. This is because in India, Govt regulates the price of bio-ethanol which is presently from Rs. 43.46 per litre to Rs. 59.48 per litre depending on from which biomass (raw material) it has been produced. Investors want that govt should give a mechanism on how the prices of bio-ethanol will be decided in future, so that it is predictable.

* In India, govt also regulates the price of Sugarcane through MSP and FRP. MSP/FRP always increased annually but when prices of bio-ethanol is not increased proportionately, then it becomes unviable to produce bio-ethanol. Further, when the petrol prices are down then the Oil companies do not want to procure bio-ethanol for blending purpose because blending makes sense only when the product used for blending has price advantage (less price)

* Sometimes, the price of agricultural waste required for the production of bio-ethanol at 2G plants is too high for it to be viable for private investors in the country as it is not properly managed (or is made available). The experts have said that state governments needed to set up depots where farmers could drop their agricultural waste and that the central government should fix a price for agricultural waste to make investments in 2G bioethanol production an attractive proposition. This will prevent the farmers from having to burn agricultural waste which can be a major source of air pollution, and it will provide a greater source of income for farmers.
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17-Aug-2020 10:20:43 AM

National Land Bank Portal

1) Govt. of India (DPIIT, Ministry of Commerce and Industry) is in the process of creating a "National Land Bank Portal" which will map around 5 lakh hectares of land, spread across various industrial belts and special economic zones.

2)Building land banks allows Govt. to offer land to private investors right away, rather than having to wait for the lengthy process of land acquisition each time an investor wants land. Investors also like to know that the land is acquired and available, and that they won’t run into political problems down the road.

3) 21 States already have GIS enabled land banks which will be integrated with the National Land bank. State govts have built land banks from private land, common land, forest land and if some land was acquired by a company but did not start the work, so govt takes the possession of the land and puts into land bank. (Land is a state subject and hence mostly states create land banks). DPIIT is just creating a national portal which will integrate all the land banks across the country with other useful information for the investors and hence if a foreign investor is coming, he will not have to look for land in every state, rather he can check the 'National Land Bank Portal'

3) Central Govt. is planning to give a major boost to manufacturing which has stagnated at around 15% to 17% of GDP in the last three decades post liberalization of economy in 1991.

4) Investors will be able to locate the land and have access to details of logistics, land and rail connectivity and even raw material supply which will make it easy for them to start a project

5) DPIIT is also in the process of creating an "Investment Clearance Cell" (a kind of single window clearance), which will be one digital platform for investors to obtain all requisite central and state clearances/approvals in a time bound and hassle-free manner.
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16-Aug-2020 09:36:36 AM

Economic Capital Freamework

1.  Economic capital is a measure of risk in terms of capital. More specifically, it's the amount of capital that a company (usually in financial services) needs to ensure that it stays solvent (opposite of bankrupt) given its risk profile. Economic capital is calculated internally by the company and is it the amount of capital that the firm should have to support any risks that it takes.

2. RBI has developed an Economic Capital Framework (ECF) for determining the allocation of funds to its capital reserves so that any risk contingency can be met and as well as to transfer the profit of the RBI to the government.

3. As per RBI Act 1934, Section 47, There are two clear objectives for the ECF. First, the RBI as a macroeconomic institution has the responsibility to fight any crisis in the financial system and to handle such a crisis, the RBI should have adequate funds attached under the capital reserve. And, second is transferring the remaining part of the net income to the government.

The process of adding funds to the capital reserve is a yearly one where the RBI allots money out of its net income to the capital reserve. How much funds shall be added to the capital reserve each year depends upon the risky situation in the financial system and the economy. After allotting money to the capital reserve, the remaining net income of the RBI is transferred to the government as profit (as Govt. is the 100% owner of RBI).

Here, the determination of the amount of money to be provisioned or allocated to the capital reserve is a difficult and technical task. And hence 'Bimal Jalan' Committee was appointed which gave its recommendations in Aug 2019. And as per the rcommendation, RBI should maintain 5.5 to 6.5% of the balance sheet as Contingency Risk Buffer. As at that time RBI had surplus funds in the "Contingency Fund", so, it gave Rs. 53,000 crore from the Contingency Fund and Rs. 1.23 lakh crore was regular income (2018-19). So, last year (2018-19) RBI gave as dividend Rs. 1.76 lakh crore (Rs. 1.23 lakh crore + Rs. 53000 crore).  

And as per yesterdays news, for the year 2019-20, RBI will give Rs. 57,128 crore funds as dividend to govt.

The committee also recommended that "there always needs to be harmony in the objectives of the Government and the RBI"

4. Even RBI's regular income in 2018-19 was Rs. 1.23 lakh crore which was quite high because RBI purchased a lot of govt bonds in the OMO to pump liquidity in that year as there was liquidity crisis because of IL&FS (NBFC) default. Otherwise, RBI's income is generally Rs. 60,000 crore to Rs. 70,000 crore.

5. RBI's sources of Income
(a) The Foreign Currency Assets (FCA) are around 90% of the Forex reserve of around $520 billion. This FCA RBI has invested in US govt bonds and it earns interest on that.
(b) It has deposited some FCA with other Central Banks also
(c) When RBI purchase Indian Govt. bonds from the OMO, then it earns interest on the holding of govt bonds/securities
(d) Lending at Repo rate to banks
(e) RBI acts as 'Debt Manager' of Central Govt and State Govt for which it gets commission/income.

6. Till now RBI's account year was from 1st July to 30th June. And now it has decided to align it with Govt's fiscal year i.e. 1st April to 31st March. So this year, RBI's accounting year is going to be only for 9 months from 1st July 2020 to 31st March 2021, and then from next year it will be from 1st April 2021 to 31 March 2022.
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14-Aug-2020 09:09:54 AM

TAXPAYERS' CHARTER

TAXPAYERS' CHARTER is a two-way document for the assessor (tax authority) and the assessee (taxpayer). Through this document, the government has committed the following to the taxpayers:

To provide fair, courteous, and reasonable treatment
Treat taxpayer as honest
To provide mechanism for appeal and review
To provide complete and accurate information
To provide timely decisions
To collect the correct amount of tax
To respect privacy of taxpayers
To maintain confidentiality
To hold its authorities accountable
To enable representative of choice
To provide mechanism to lodge complaint
To provide a fair and just system
To publish service standards and report periodically
To reduce cost of compliance

The Taxpayers' Charter also highlights the obligations of the taxpayer. These are as follows:

To be honest and compliant
To be informed
To keep accurate records
To know what your representative does on your behalf
To respond in time
To pay in time
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14-Aug-2020 09:08:59 AM

"Faceless Assessment", "Faceless Appeal" and "Taxpayers Charter"

FACELESS ASSESSMENT
There are around 7.5 crore direct taxpayers. They pay tax and file return (tax document). Taxpayers use various ways to avoid paying taxes and showing their income way below the actual income. So, government has set certain parameters to pick for assessment/review of these cases. For example, those tax payers whose income is quite high (say 30 lakhs) but tax payment is very less supposing only 2 lakhs OR suppose in any particular savings account more than Rs. 10 lakhs got deposited in a financial year etc.

Now suppose there are 5 lakh such cases. Now out of these 5 lakh cases government may pick randomly 50,000 cases for review/assessment (as all cannot be reviewed because of resource constraint). So, government will send notice and you will have to give clarifications. And govt may scrutinise such cases in quite detail and if some wrong doings were found, you may be penalized.

Earlier (before e-assessment scheme was launched), these cases were selected by tax officials and there used to be face to face meetings between tax officials and taxpayers and where taxpayers were used to be harassed. But now all such cases will be randomly picked by computer and no face to face grilling would happen but only through electronic mode of communication. So, this will improve transparency and efficiency, and governance and thus improves the quality of assessment and monitoring.

This scheme was already launched in SEPTEMBER 2019 (announced in Budget 2019-20) by amending the Income Tax Act 1961. Budget 2020-21 had proposed to amend the Income Tax Act so as to enable Faceless Appeal on the lines of Faceless assessment.

FACELESS APPEAL 
(in case a taxpayer files appeal against any assessment by the tax authority)

*Appeals to be randomly allotted to any officer in the country.
*The identification of the officers deciding appeal will remain unknown.
*The tax payer will not be required to visit the income tax office or the officer.
*The appellate decision will be team-based and reviewed.

Exceptions to Faceless Appeal
The exceptions to the Faceless Appeal includes, serious frauds, major tax evasion, sensitive and search matters. The system also excludes international taxation and Black Money Act & Benami Property.   
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11-Aug-2020 14:11:18 PM

Terminology

Term Loans: These are basically long terms loans for specific projects/purposes. And if a term loan has been given for a specific project, legally it should not be used for other purposes

Cash credit and overdraft are two types of short-term financing which financial institutions provide to their customers. Both are used to prevent checks from bouncing or debit cards from being declined when there are insufficient funds in the account. Both are similar but there are few differences:

Cash credit is commonly offered to businesses rather than to individual consumers and generally involves some form of collateral.

Overdraft is generally offered to retail customers and is attached to a bank savings account. If a customer doesn't have enough funds in their account to complete a transaction, the overdraft covers the difference, allowing the account to go into a negative balance. Overdrafts may not require collateral. But it can be attached to current account for businesses also. 
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11-Aug-2020 14:10:14 PM

RBI ban on transfer of term loan money to another bank current account.

Earlier Corporates used to term loans from PSU banks and then they used to transfer this borrowed money into a current account maintained with private banks. Their were restrictions earlier also not to use this money other than for that project but still they used to siphon funds for other activities. 

## NOW, RBI has said that the companies borrowing funds (term loans) from a bank should maintain current account with that bank only and can't transfer that money to current account with other banks. So, the bank which will give loan will handle all payments related to purchase of goods and services for the company.

## It has also said that, if a customer has availed short term credit facilities (borrowed money) in the form of cash credit or overdraft from a bank then other bank cannot open/provide a current account to that customer. This means that short-term financing like cash credit and overdraft can also not be transferred in another bank current account and hence will prevent siphoning/diverting of funds.

This move of RBI is to prevent misuse of funds by promoters and corporates in the wake of proposed one-time restructuring scheme. In restructuring, additional loans are also given.
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10-Aug-2020 10:02:14 AM

Let us understand the term "Reinsurance" in the context of Air India's crash landing of its flight at Karipur Airport, Kozhikode. .

Air India had purchased insurance (for its aircrafts) from 'New India Assurance Company' (NIAC). Knowing that aircrafts are costly and prices varying from Rs. 500 crore to Rs. 800 crores, NIAC understands that if Air India files for any claim in case of aircraft damage (like the present case where it broke into two and cant be repaired), then it will be difficult for NIAC to pay for the damages and in making such huge payments, NIAC may go bankrupt (if few claims come at one go).   
So, NIAC has again purchased insurance from other company which is basically called reinsurance (or u can say insurance for insurance companies) and the company from which NIAC is purchasing the insurance will be called reinsurer. Reinsurance can be purchased in full or in parts also. In the Air India's case, NIAC took only 5% of the risk on its part and for the rest of 95% value ....... it had purchased reinsurance.  So, in case of Air India..........95% of the claim will have to be given by the reinsurance company.

Coinsurance is the percentage of covered medical expenses you pay. And, the rest is paid by the health insurance plan. For example, if you have an "80/20" coinsurance plan, then it means your plan covers 80% and you pay 20%.
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07-Aug-2020 23:26:10 PM

Balanced Budget Multiplier (BBM)

    Budget includes spending and taxes. A balanced budget has an equality between spending and taxes. Balanced-budget multiplier analyzes what happens when there is an equality between changes in government purchases/expenditure and taxes, that is, actions that keep the budget "balanced." 


In other words, the balanced-budget multiplier indicates the overall impact on aggregate production/output of a change in government expenditure that is matched (or paid for) by an equivalent change in taxes. So, BBM is basically the multiplier effect of a balanced budget.


BBM = change in output/change in govt. expenditure   (and this change in govt. expenditure has come from change in taxes)

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05-Aug-2020 09:49:34 AM

Purchasing Managers Index (PMI)

PMI is an indicator of business activity and the index is calculated separately for Manufacturing and Services. It is released every month by 'IHS Markit', which is a global information provider private firm.

The PMI is derived from a series of qualitative questions. Executives from hundreds of firms, are asked whether key indicators such as output, new orders, business expectations and employment were stronger than the month before and are asked to rate them.  50 is the base level of index and a figure above 50 denotes expansion in business activity and anything below 50 denotes contraction.

The PMI is usually released at the start of the month for the previous month, much before most of the official data on industrial output, manufacturing and GDP growth becomes available. It is, therefore, considered a good leading indicator of economic activity. Economists consider the manufacturing growth measured by the PMI as a good indicator of industrial output, for which official statistics are released later. Central banks of many countries also use the index to help make decisions on interest rates.
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03-Aug-2020 22:42:36 PM

Comparison of India and China reforms

China started its reforms in1978 in Agriculture sector and then moved up to the industrial sector (Bottom up approach). When agri reforms were introduced...........agriculture/rural income increased which increased the demand of manufactured products resulting in a manufacturing boom in China and of course it led to exports abroad also. 

In Contrast, India liberalized the industrial and services sector and it did not touch the agriculture sector in 1991 (Now agriculture sector is being freed up with ordinances). (Top down approach). When in India, industrial/manufacturing and services sector liberalized in 1991, most of the companies went into services and did not enter into manufacturing as major bottlenecks were present for the manufacturing sector like issues in land acquisition, costly transport, costly electricity, labour laws etc. As our rural economy remained week, the demand of manufactured products never came from this section and since the demand was less, our production was also less and whatever was required we started importing from China as this period also coincided with WTO's free trade policies.

Now, China's per capita income is 5 times that of India.
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29-Jul-2020 10:54:00 AM

100% FDI (by NRIs) allowed in Air India

1) Foreign Investment means companies registered abroad, making investments in a company registered in India. Foreign Investments are mainly classified into two ways as Foreign Direct Investment (FDI) (which happens only in shares/equity) and Foreign Portfolio Investment (FPI) (which can happen in shares/equity and bonds both)

2) Generally, companies registered abroad makes investments in India. BUT....... individuals (NRIs) can also invest in Indian companies...... under FDI and FPI route.

3) When the investment is less than 10% it is treated as FPI and when it is more than 10% it is treated as FDI.

4) As per the present FDI Policy, 100% FDI is permitted in "scheduled Air Transport Service/Domestic Scheduled Passenger Airline". 
BUT, for Air India Ltd., as per the present policy, foreign investment (FDI/FPI) in Air India Ltd.  shall not exceed 49%, subject to the condition that substantial ownership and effective control of M/s Air India Ltd. shall continue to be vested in Indian Nationals.

5) Now as per the above news, Govt. has said (notified) that, FDI policy specific to Air India Ltd. has been amended and NRIs (who are basically Non resident Indian living abroad but are Indian citizens/nationals)...... will be allowed to own 100% in Air India Ltd.  and that too under automatic route. .......So Foreign Airlines...(treated as Foreign Nationals)..... will still be allowed to own only 49% in Air India.

Cabinet has given the approval for this in March 2020  and now it has been notified.
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 on 29-Jul-2020 17:34:04 PM
what is investment under automatic route sir??

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27-Jul-2020 10:42:28 AM

Remittances are set to decline by 25% to $55 billion in 2020-21

Remittances:  Balance of Payment (BoP) records all transactions which happen between 'Indian Residents' AND 'Foreigners or Non-Resident Indians (NRI)'.  NRI means a person has gone abroad for more than 6 months and has plans to stay abroad. Now, when a person goes to Gulf region generally for more than 6 moths he becomes an NRI and then whatever he (NRI) sends money to his family here in India is counted in BoP. Now, try to understand that this transaction between the 'NRI' AND 'His family in India' will get recorded in BoP as this transaction is between 'Indian Resident (his family in India)' and 'NRI'. And this transaction between 'Indian Resident (his family in India)' and 'NRI' is for free which means the the 'Indian Resident (his family in India)' did not do anything for the 'NRI' but 'NRI' gave money to 'Indian Resident (his family in India)' for FREE. This is called Remittance under BoP in Current Account.

Another case: If I have gone to US for two months (that means I am still Indian Resident) and if I earn something there and then send to my family in India then the transaction between "Me (in US)" and "my family in India" will not be recorded in BoP because both the parties in the transaction "Me (in US)" and "my family in India" are INDIAN RESIDENTS. BUT whichever company (say X) paid me in US that transaction will be recorded in India's BoP. This is because the transaction is between "Me (in US) [an Indian Resident] and 'Company X' [ Foreigner]. And this transaction is not for free, as i worked and then the company X paid to me. So this is called 'Factor Income' under BoP (Current Account).

And hence in the previous example of 'Gulf Region', whatever the 'employer' pays to the 'NRI' person will not be counted in BoP because both are Foreigners/NRIs.
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25-Jul-2020 22:39:44 PM

Currency Swap between Indian and Sri Lanka

1) As u all know that India' forex reserve position is good and it has crossed $500 billion (It has mainly Dollars but also consists of Euro, Yen etc. currencies which are internationally acceptable)

2) Sri Lanka's currency called 'Sri Lanka Rupee' has depreciated in terms of dollars and has crossed, $1 = 185 Sri Lankan Rupee. And 'Sri Lankan Currency' is feeling pressure on the downward side (means the chances are it may depreciate further) because of the Covid-19 crisis.  And Sri Lanka's forex position is also week (its forex reserve is low).

Now in such a situation, if Sri Lanka buys dollars from the market (for its international trade/import purpose) then its rupee will further depreciate which may not be good for the country. So, Sri Lanka planned for OUT OF MARKET TRANSACTION.  Sri Lanka (through its Central Bank) asked for Dollars/Euros from India (through its Central Bank/RBI) worth $400 million (as India has enough forex reserves) and in return India will get 'Sri Lankan Rupee' at the present/spot rate of $1= 185 Sri Lankan Rupee. This will boos Sri Lanka's Forex reserve and since its an out of market transaction, it will not lead to depreciation of Sri Lankan Rupee. TRY TO UNDERSTAND that if Sri Lanka sells its rupee in the market and try to purchase dollars then demand of dollar will increase and Sri Lankan Rupee will further depreciate. 

3) India can use the 'Sri Lankan Rupee' for its import purpose for importing goods from Sri Lanka. (Try to understand that, in this swap facility, it will not be reversed i.e. India will not get back its dollars in future and India will not have to pay Sri Lank the Sri Lankan currency . THERE are certain other swaps which u may have heard at company's level or between RBI and banks where the Swaps are reversed after some time)

4) The Central Bank of Sri Lanka can make drawals of US Dollar or Euro in multiple tranches up to a maximum of $400 million or its equivalent till Nov 2022.

5) This swap arrangement/facility will further economic co-operation between the two countries. 

6) As China is already investing a lot in Sri Lanka for its strategic ambitions, India should not be behind in providing a helping had to its neighbours. This will boost strategic ties also between Sri Lanka and India.
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 on 29-Jul-2020 10:58:20 AM
Now govt has clarified that it will be reversed after two years. This means that after two years Sri Lanka will have to give back dollars to India and India will give back Sri Lankan rupee

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 on 29-Jul-2020 10:58:18 AM
Now govt has clarified that it will be reversed after two years. This means that after two years Sri Lanka will have to give back dollars to India and India will give back Sri Lankan rupee

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22-Jul-2020 22:22:16 PM

Direct Monetisation

Monetisation means Govt will borrow from RBI and will issue bonds to RBI directly (in the primary market) and RBI will print currency and give it to Govt. This practise was done till 1997 but then stopped. Stopped because in this mechanism govt can force RBI to give any amount of money at any interest rate leading to unaccountablility and higher debt/fiscal deficit and inflation. Now, govt borrows from the market at market interest rate and if govt will borrow more then interest rate may move up and govt will have to pay more. And also, it cannot borrow for indefinite time period. As per FRBM Act 2003, Govt can borrow directly from RBI (direct monetisation) only in case of exceptional circumstances

2) Indonesian Central bank has announced that it is going to do direct monetisation.... it it will print and give money to Indonesian govt.    Indian govt. is saying it is also open for such monetisation in India.

3) Direct monetisation will lead to increase in fiscal deficit and rating agencies may degrade India's Sovereign Rating but there is a counterview also that if govt's higher spending will boost growth then it can have a positive impact

4) Amidst rising debt level and falling revenue of govt, direct monetisation could be a way to support govt spending but it can have implications on inflation, exchange rate and rating
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22-Jul-2020 01:03:18 AM

Direct Monetisation from RBI

1) Direct monetisation means Govt. will take/borrow money (by issuing bonds to RBI) from RBI (so RBI may print extra money and give to govt) at any rate mutually decided by them.  The tenure can also be decided by them OR it can be perpetual which means, govt will have to pay interest forever and it will not repay the principal. Our FRBM Act allows that in case of exceptional circumstances.

2)This will increase fiscal deficit, Govt. Debt and Inflation BUT to what extent that depends on the amount of monetisation. Right now the demand in the economy is less, so we can say that, inflation may not increase much, but there will be some inflation. (The various newspapers quoting that inflation has crossed 6% is not because of high demand but because of supply disruptions).

3) As all the macroeconomic parameters (like fiscal deficit, Debt....) are expressed in terms of GDP, so if GDP decreases or GDP growth slowdown, even smaller (absolute Debt) will look high in terms of percentage of GDP. And actually percentage is the proper way to judge. Because Rs. 5 crore loan for me is not  sustainable but for Mr. Mukesh Ambani its nothing because his income is huge :) ). So, percentage matters and if our growth declines then our Debt/Fiscal Deficit can become unsustainable. That is why the article is saying "Growth rather than continued fiscal conservatism is the only mantra"

4) When govt. should go for direct monetisation???
Answer: When the banks dont have sufficient liquidity i.e. there is shortage of liquidity in the economy then if govt will try to borrow from banks then it will further deteriorate the liquidity situation and will result in increase in interest rate which will hamper the investments (for which govt is trying hard presently) in the economy and recovery may be slow. So, in this situation, govt can go for direct monetisation. BUT if banks are flush with liquidity, then first govt should try to borrow from banks.
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18-Jul-2020 10:53:59 AM

Aatma Nirbhar Bharat

The following PDF contains detail of all the schemes, measures taken by the Govt and RBI to stimulate the economy.


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14-Jul-2020 13:36:24 PM

Special Liquidity Scheme"

This news was there in Express.

Special Liquidity Scheme is to provide liquidity support to NBFCs/HFCs/MFIs which are finding it difficult to raise money in the debt market. This is a Rs. 30,000 crore scheme by Govt. of India. Under this scheme a Special Purpose Vehicle (SPVs are entities created to implement specific projects) will issue (special) securities which will be purchased by RBI and guaranteed by Govt. of India. The proceeds/money from issuance of such securities will be used by the SPV to purchase short-term debt papers of NBFCs/HFCs/MFIs.

Even if the scheme is funded by Govt. of India, there is no financial implication for the Government until the Guarantee involved is invoked. If NBFCs/HFCs/MFIs default on their debt papers i.e. they will not pay to the SPV (on maturity of the debt paper) then the SPV will not be able to pay to RBI and then RBI can invoke the guarantee whose maximum ceiling limit is Rs. 30,000 crores.

NBFCs: Non-Banking Financial Companies
HFCs: Housing Finance Companies
MFIs: Micro Financial Institutions
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11-Jul-2020 14:03:43 PM

Aatamanirbhar Skilled Employee Employer Mapping (ASEEM)

In an endeavour to improve the information flow and bridge the demand-supply gap in the skilled workforce market, the Ministry of Skill Development and Entrepreneurship (MSDE)  on 10th July 2020 launched ‘Aatamanirbhar Skilled Employee Employer Mapping (ASEEM)’ portal (https://smis.nsdcindia.org/) to help skilled people find sustainable livelihood opportunities. ASEEM is an AI-based digital platform to bridge demand-supply gap of skilled workforce across sectors. The portal will map details of workers based on regions and local industry demands.

ASEEM will be used as a match-making engine to map skilled workers with the jobs available. The portal and App will have provision for registration and data upload for workers across job roles, sectors and geographies. The skilled workforce can register their profiles on the app and can search for employment opportunities in their neighbourhood. Through ASEEM, employers, agencies and job aggregators looking for skilled workforce in specific sectors will also have the required details at their fingertips. It will also enable policymakers take more objective view of various sectors.
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06-Jul-2020 22:18:55 PM

Compulsory Licenses

Generic Drugs: A generic drug is a medication that has exactly the same active ingredient as the brand name drug and yields the same therapeutic effect. It is the same in dosing, safety, strength, quality, the way it works, the way it is taken, and the way it should be used. Generic drugs do not need to contain the same inactive ingredients as the brand name product, say colour or taste can be different.

However, a generic drug is generally marketed after the brand name drug's patent has expired, which may take up to 20 years. So, during the protection period of 20 years, the patent owner tries to recover its cost which it has spent on research and development and the drug is quite costly during this time as it is produced only by the patent owner under its brand name and others can’t manufacture and sell. After the protection period is over, any company can sell the generic versions of the drug and there is fierce competitive which ultimately reduces the price of the drug.

But the (Indian Patent Act 1970) patent laws provide a remedy to the high price issue of branded drugs in the form of licenses to the generic manufacturers even during the protection period of 20 years. This remedy is available in the form of voluntary and compulsory licensing of the drug.

1. Voluntary License: Under this arrangement, a patent holder may give license (on its own) to the third party to manufacture, import and distribute generic versions of the pharmaceutical product and much more. The licensee of the patent will act as an agent of the company. The terms in a voluntary license may set price ranges, royalty from the distribution of the sales etc. [There is no legal provision given under Patent Act 1970 as this license access is done through mutual contractual agreement.]

2. Compulsory License: If the patent owner is exploiting its monopoly position and not manufacturing and supplying the branded drugs in the market or if the drug is not being made available at a reasonably affordable price in the market then government can give compulsory licenses in two ways:

(a) If a manufacturer himself approaches the government that he can produce the drug (generic versions) at a very cheap price, but only after the negotiation between patent owner and manufacturer has failed for voluntary license. [Section 84 of Patent Act 1970]

(b) In case of National emergency (pandemic like Covid-19) or extreme urgency, Govt can give notification that it will give compulsory licenses to any manufacturer who wants to manufacture generic versions of the drug with such terms and conditions. [Section 92 of Patent Act 1970]

But in both the cases of compulsory license mentioned above, the manufacturer (the compulsory license holder) will have to pay royalty to the patent owner as decided by the government.
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05-Jul-2020 21:48:18 PM

Emergency Credit Line Guarantee (ECLG) Scheme

Emergency Credit Line Guarantee (ECLG) scheme is a loan facility for which 100% guarantee would be provided by National Credit Guarantee Trustee Company (NCGTC) to Banks/NBFCs/Financial Institutions for lending to MSMEs. 

2.It will be extended in the form of additional working capital/term loan facility to MSMEs/Business Enterprises/Pradhan Mantri Mudra Yojana borrowers. (Govt. is planning to include those individual entrepreneurs who have borrowed in their individual capacity/name for the purpose of their business but not in the name of business as these types of businesses are large in number out of total MSMEs)

3.This facility will be available to those who have already borrowed (till 29th Feb 2020) but have not been able to repay and their outstanding (yet to be paid) loan is less than Rs. 25 crore and their Turnover (annual sales) is less than 100 crores. The maximum the businessmen can borrow is up to 20% of the outstanding loan. (For ex, if some business had borrowed Rs. 50 crore and the amount that is yet to be repaid is Rs. 20 crores then they can borrow Rs. 4 crores (20% of Rs. 20 crore). The scheme will be applicable from May 23rd 2020 to 31st Oct 2020.
4.The scheme is a specific response to the unprecedented crisis resulting from Covid-19, which has impacted the small business the most and thereby enabling MSMEs to meet their operational liabilities and restart their business. The main objective of the scheme is to provide an incentive to Banks/NBFCs/FIs to increase access to and enable availability of additional funding facility to MSME/business borrowers. 

5.The total loan that will be given through this scheme by Banks/NBFCs/FIs would be up to Rs. 3 lakh crore. Government will pay Rs. 41,600 crore to NCGTC to provide guarantee on loans worth maximum Rs. 3 lakh crore (as all the loans will not be default, so Rs. 41,600 crore may be sufficient to provide guarantee for Rs. 3 lakh crore). NCGTC will not charge anything from lending institutions to provide guarantee

6.It is a pre-approved loan (you will be asked to take loan and if u don’t want you can opt out) and hence no processing charges and no collateral will be required from the borrowers. It is a 100% credit guarantee scheme which means the total amount of loan given under the scheme will be guaranteed by NCGTC.

7.The interest rate charged by Banks/NBFCs/FIs will be capped under the scheme 

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04-Jul-2020 09:46:06 AM

GST Council Members and Voting Structure

GST Council (which is a constitutional body) which takes decisions regarding GST rates and others has the following members:

(a) Union Finance Minister (he/she is the Chairman also of the GST Council)
(b) Union Minister of State in charge of Revenue/Finance
(c) Minister in charge of Finance or Taxation or any other Minister nominated by each State Government (and UT with Assembly)

So, Central Govt. has 2 Members
All states and UTs (with assembly) have = 28 + 3 = 31 Members (including J&K)

Voting Structure (votes casted)
#Central Govt has 1/3 weight (33.33%)
#States (&UTs) will have 2/3 weight (66.66%)
#Decisions shall be taken by a majority of not less than 3/4 (75%) 

Example: Suppose a decision has to be taken regarding increasing the GST rates on some product

Now suppose, Central govt's two members voted in favour, so it will constitute 33.33%* (2/2) = 33.33% vote in favour

Out of the 31 members of states 25 voted in favour and 6 voted against it
So, their vote in favour = 66.66% * (25/31) = 53.75%

So, total weights in favour = 33.33% + 53.75% = 87%

Since in favour votes are more than 75%, So the decision is in favour of increasing the GST rate
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29-Jun-2020 20:44:34 PM

NITI Aayog Annual Report

This is the annual report of Niti Aayog for FY 2019-20. You can use this as a reference document for pre and mains both.


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 on 04-Jul-2020 14:15:05 PM
Sir Please explain how to use this report?

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 on 04-Jul-2020 09:47:52 AM
yes

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28-Jun-2020 13:59:20 PM

The following are the features of new Floating Rate Savings Bonds, 2020 (Taxable) Scheme.


1) The bonds will be issued by RBI on behalf of Govt. of India
2) The interest rate on the bonds will be taxable and the interest rate will be floating (earlier was fixed). Govt. will revise the interest rate after every 6 months as per market fluctuations. The market interest rate has come down after RBI reduced the repo rate after COVID-19, so it was costly for govt to pay higher interest rate of 7.75% on previous scheme, hence, govt may have scrapped the old scheme and launched new one of floating interest rate.
3) The maturity period is 7 years. The sale of bonds will start from 1st July and for the first 6 months period, the interest has been decided at 7.15%. The interest will not be paid cumulatively (which means it will not get added in the principal to calculate interest further rather every 6 months govt will pay out the interest)
4) The bonds can be purchased by persons resident in India
5) The bonds will not be tradable or transferable
6) You will have to hold the bond till maturity, exceptions is there for senior citizens, who can redeem it before maturity (redeem means they can surrender the bond to govt and govt will pay the money)
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19-Jun-2020 19:53:21 PM

Issues in India's manufacturing

1) India's imports from China is $65 billion and exports is $16 billion, making it a total trade between India and China worth $ 81 billion 2) Our imports is getting localized/concentrated mostly from China (and few other countries). And India imports wide variety of things from China, from capital goods, machinery, machinery, consumer goods etc. 3) China started industrializing in 1990s (reforms initiated in 1978)...........by moving its surplus labour from Agriculture to Industries (labour i

useful link: https://www.thehindu.com/opinion/op-ed/can-india-decouple-itself-from-chinese-manufacturing/article31864821.ece

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13-Jun-2020 10:50:49 AM

GST Council

When Central govt was planning to introduce GST, states were worried that after implementation of GST the tax revenue of States may fall and they will not have the freedom under GST regime to impose extra taxes. So, government of India........... calculated the tax revenue growth of State's indirect taxes from 2012-13 to 2013-14, 2013-14 to 2014-15 and 2014-15 to 2015-16......... i.e. for three years and there was on an average growth of 14% compounded annually. So, Govt. of India promised Sta

useful link: https://indianexpress.com/article/business/economy/gst-council-states-covid-19-indian-economy-6456308/#:~:text=In%202020%2D21%2C%20the%20combined,estimate%20and%20states'%20protected%20revenue.&text=Instead%20of%20funds%20for%20the,the%20GST%20Council%20could%20borrow.

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05-Jun-2020 10:40:15 AM

PLSF SURVEY 2018-19

the above news relates to the PLFS survey done for the period July 2018 - June 2019 and its report released in June first week of 2020. And as per this survey for 2018-19: *Unemployment Rate = 5.8% *Labour Force Participation Rate = 37.5% *Women's Unemployment Rate = 5.2% *Male's Unemployment Rate = 6% *Urban Unemployment Rate = 7.7% *Rural Unemployment Rate = 5% It is to be noted that there is improvement in all the above

useful link: https://www.thehindu.com/news/national/indias-unemployment-rate-saw-a-small-dip-in-2018-19-says-survey/article31752146.ece

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03-Jun-2020 21:38:28 PM

1st June Cabinet Meet Decisions regarding MSMEs, Street Vendors and Farmers

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19-May-2020 21:21:01 PM

Aatmanirbhar Bharat Part 3 - 15.05.2020

Aatmanirbhar Bharat Part 3 - Agriculture and Allied sectors


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16-May-2020 12:35:08 PM

Aatmanirbhar Bharat Part II 14.05.2020

Economic Stimulus package for Poor, Migrants and farmers


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15-May-2020 13:19:38 PM

Aatmanirbhar Bharat Part I 13.05.2020

The Economic Stimulus Package in the name of "Aatmanirbhar Bharat" is worth Rs. 20 lakh crore (which is 10% of GDP of 2019-20 i.e. Rs. 200 lakh crore). The measures/package announced yesterday is just one part of the total package which means there will be further announcements in the days to come. Rather than reading this package from various newspapers, you can refer the above PDF directly (which is from govt. source i.e. PIB). Ofcourse its impact and analysis you can read from the different


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06-May-2020 20:31:14 PM

https://www.livemint.com/industry/energy/how-much-tax-you-pay-on-petrol-diesel-after-the-excise-duty-hike-11588733424363.html

Petroleum products (Petrol, Diesel, LPG etc.) are out of GST which means GST is not imposed on them rather these products are used to be taxed as per the previous regime.  So, on Petrol and Diesel Central Govt. imposes "Basic Excise Duty", "Special Additional Excise Duty" and "Road and Infrastructure Cess". And State Govt imposes its own VAT rate.

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30-Apr-2020 01:12:38 AM

https://indianexpress.com/article/opinion/columns/india-coronavirus-covid-19-lockdown-economy-urjit-patel-6381996/

The article talks about how RBI, in the last few months, has bypassed the MPC in setting the interest rate in the market by using other tools like OMO, FOREX SWAP, OPERATION TWIST and LTRO

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22-Apr-2020 14:16:52 PM

https://www.thehindu.com/business/regulator-sweetens-tltro-deal-for-banks-lending-to-nbfcs/article31399658.ece

The above is news from HINDU. Some relevant points.

1) The Rs. 50,000 crore LTRO funds which RBI will provide to Banks for lending to NBFCs will be excluded from the restriction of Priority Sector Lending (PSL) calculations. i.e. For example Banks had funds worth Rs. 1,00,000 crore which they lend and out of this (40%) Rs, 40,000 crore should be given to PSL. Now, if banks got Rs 50,000 crore from LTRO, then this fund they can lend to NBFCs and no PSL rule will be applicable.

2) And RBI has also asked banks to lend this LTRO funds within 30 days or RBI will charge 2% extra
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 on 01-Sep-2020 22:47:33 PM
Thank you sir. I have a question - if the aim of TLTRO is to increase liquidity, why are the banks required to invest in INVESTMENT GRADE corporate bonds? aren't these supposed to be low-risk?

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 on 01-Sep-2020 22:47:31 PM
Thank you sir. I have a question - if the aim of TLTRO is to increase liquidity, why are the banks required to invest in INVESTMENT GRADE corporate bonds? aren't these supposed to be low-risk?

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19-Apr-2020 12:13:38 PM

https://pib.gov.in/PressReleseDetailm.aspx?PRID=1615711

The above is a circular from Ministry of Commerce (taken from PIB) regarding regarding change in FDI policy to avoid opportunistic takeovers (or Hostile Takeover).

Earlier, all the FDI coming from Bangladesh or Pakistan was allowed only through "Government Approval Route". Now this has been extended to all the countries sharing land border with India. So, now all the FDI coming from Bangladesh, Pakistan, Afghanistan, China, Nepal, Bhutan, Myanmar will be only through "Government Approval Route"
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29-Mar-2020 17:56:35 PM

Force Majeure

In view of the COVID-19 pandemic, a word which is frequently being used is "Force Majeure". Let us understand this as it is now relevant for your exam.

Force Majeure is a French phrase that means a ‘superior force’. 

The law relating to Force Majeure is embodied under Sections 32 and 56 of the Indian Contract Act, 1872. It is a contractual provision agreed upon between parties. The occurrence of a force majeure event protects a party from liability for its failure to perform a contractual obligation. Typically, force majeure events include an Act of God or natural disasters, war or war-like situations, epidemics, pandemics, etc. The intention of a force majeure clause is to save the performing party from the consequences of something over which it has no control. Force Majeure is an exception to what would otherwise amount to a breach of contract. This term is generally  used in commercial contracts. 

A lot of companies have now already declared/accepted "COVID-19" as a "Force Majeure" event.
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15-Mar-2020 16:25:05 PM

Additional Tier 1 Bonds (Yes Bank Crisis) By - Vivek Singh

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07-Feb-2020 15:43:37 PM

RBI kept repo rate unchanged but used other measures for transmission

useful link: https://www.thehindu.com/business/Economy/rbi-opts-for-long-term-repos-crr-exemption-to-lower-rates/article30755075.ece

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03-Feb-2020 00:01:18 AM

Budget


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29-Jan-2020 09:19:22 AM

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28-Jan-2020 12:06:23 PM

Related Party Transactions

Related party transactions: The transactions which happen between group companies i.e. companies of the same owner. And these transactions should be at market rate which is also called arms length principle.

useful link: https://indianexpress.com/article/business/sebi-panel-proposes-overhaul-of-related-party-transaction-norms-6238541/

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24-Jan-2020 12:48:47 PM

Term of the day : Bail-in and bail-out:

Bail-in and bail-out : A bail-in is rescuing a financial institution on the brink of failure by making its creditors and depositors take a loss on their holdings. A bail-in is the opposite of a bail-out, which involves the rescue of a institution/ financial institution by external parties, typically government using taxpayers money.


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24-Jan-2020 12:47:01 PM

Term of the day : Fiscal Drag

It is a situation where income growth or inflation moves taxpayers into higher tax brackets. This in effect increases government tax revenue without actually increasing tax rates. The increase in taxes reduces aggregate demand and consumer spending because a larger share of the people’s income now goes into taxes, which leads to deflationary pressures or drag on the economy.


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