Shubhra Ranjan IAS Study - TeacherTimeline

Vivek Singh

Economics

Delhi

Timeline

Vivek Singh

16-Nov-2020 08:15 AM

Regional Comprehensive Economic Partnership (RCEP)

The Association of Southeast Asian Nations (ASEAN) has already free trade agreements with six partners namely China (ACFTA), Republic of Korea (AKFTA), Japan (AJCEP), India (AIFTA) as well as Australia and New Zealand (AANZFTA).

In order to broaden and deepen the engagement among parties and to enhance parties’ participation in economic development of the region, the leaders of 16 participating countries established the Regional Comprehensive Economic Partnership (RCEP). The RCEP was built upon the existing ASEAN + 1 FTAs with the spirit to strengthen economic linkages and to enhance trade and investment related activities as well as to contribute to minimising development gap among the parties.

In August 2012, the 16 Economic Ministers endorsed the Guiding Principles and Objectives for Negotiating the Regional Comprehensive Economic Partnership. The RCEP negotiations were launched by Leaders from 10 ASEAN Member States (Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Viet Nam) and six ASEAN FTA partners (Australia, China, India, Japan, Republic of Korea, and New Zealand) during the 21st ASEAN Summit and Related Summits in Phnom Penh, Cambodia in November 2012.

The objective of launching RCEP negotiations is to achieve a modern, comprehensive, high-quality, and mutually beneficial economic partnership agreement among the 16 members. The RCEP negotiation includes: trade in goods, trade in services, investment, economic and technical cooperation, intellectual property, competition, dispute settlement, e-commerce, small and medium enterprises (SMEs) and other issues.

RCEP has the potential to deliver significant opportunities for businesses in the East Asia region, given the fact that the 16 RCEP participating countries account for almost half of the world’s population; contribute about 30 per cent of global GDP and over a quarter of world exports. RCEP plans to progressively lower tariff barriers and secure improved market access for goods and services for businesses in the region.

But India, in Nov 2019, pulled itself out of the RCEP deal because of the following main concerns:

1) India already has FTAs with most of the countries in RCEP (China an exception) and India has trade deficit with all the countries. Opening the market further through RCEP deal would have resulted in dumping of products in India.

2) The RCEP deal did not have proper provisions for “Rules of Origin” which could have allowed China to dump their products in India by routing through other countries

3) Our dairy industry is dominated by small and marginal farmers. Signing of RCEP deal would have resulted in flooding of processed milk products in India from Australia and New Zealand which are highly cost competitive in these products, resulting in adverse impacts on the livelihoods of 12.5 crore small & marginal farmers.

4) The RCEP member countries were not giving enough access to Indian labour and services into their markets.

5) As per the investment chapter in the RCEP deal, India cannot mandate for technology transfer/ know how to its foreign partners investing in India. And if Indian partner is using some technology/intellectual property of the foreign company/partner and it needs to pay royalty on that then Govt. of India cannot put a cap on it.

6) India does not have any FTA with China and still there is huge imports from China. Signing RCEP will give China more access and cheaper products from China will flood the Indian market. India was seeking an auto-trigger mechanism through which it could raise tariffs on products in instances where imports crossed a certain threshold, but member countries did not agree.

Comments

keyur shah on 24-Nov-2020 01:26 PM
can one country put some restrictions on other country's goods by way of increasing tariff or by non tariff barriers under WTO rules? Because without signing FTA (with China) indian market is flooded with Chinese goods so if , RCEP will allow to put restrictions after import cross certain limit India's signing make some sense isn't it?

Vivek Singh

07-Nov-2020 09:07 AM

Co-Lending Model by Banks and NBFCs for Priority Sector

RBI on 5^th Nov 2020 issued guidelines regarding Co-Lending (or Co-origination) by Banks and NBFCs for lending to priority sector. Earlier (in 2018) RBI had released guidelines for co-origination of loans which now stands replaced by the Co-lending guidelines.

1. The Co-lending of loans provides a unique opportunity for formal lenders to come together and share their synergies to create a winning proposition for all the stakeholders. It enables banks and Non-Banking Finance Companies (NBFCs) to enter into an arrangement where the risks and rewards are shared by all parties to the co-lending agreement throughout the lifecycle of the loan, as per a pre-decided ratio.

2. NBFCs often face challenges in getting cheaper access to funds for lending purposes, which in turn results into higher interest rates for their borrowers and hence less demand for their loans; whereas large commercial banks find it difficult and expensive to extend their reach to certain locations, where the NBFCs have a stronger presence. Co-lending helps in bridging these gaps.

3. The co-lending model empowers multiple stakeholders of the lending ecosystem. While NBFCs can leverage their strong presence in local markets, commercial banks have the cheap availability of funds for credit disbursal. (This becomes even more relevant in the current scenario where many NBFCs are battling against the liquidity crunch). Another advantage of this partnership is that NBFCs have mastered the art of assessing the creditworthiness of certain niche customer segments, which the banks have been ignoring, primarily due to differences in their core target segment and credit risk management approach. The NBFCs use a number of innovative mechanisms for credit risk assessment including usage of non-traditional sources of data, observing an individual’s modus operandi and cash-flow at work, building customized scorecards, etc. for both small-ticket retail & MSME segment. This is a big pie for banks to look forward to.

4. But while the present RBI guidelines highlight co-lending as an initiative to propel priority sector lending, the model has a much broader potential to go beyond just lending to the priority sectors.

5. Example/Explanation:

· Total Loan given to a customer (the customer will not know separate amounts) = Rs. 50 lakhs

· NBFC gave Rs. 10 lakhs @ 10% (which will on NBFC account books)

· Bank gave Rs. 40 lakh @ 8% (which will be on Bank’s account books)

· So, the customer will see that he has got loan of Rs. 50 lakhs @ 8.4% (10% of Rs. 10 lakhs = Rs. 1 lakh. And 8% of Rs. 40 lakhs = Rs. 3.2 lakh. So, total interest = Rs. 4.2 lakh/year on Rs. 50 lakh loan. So, effective interest rate will be (Rs. 4.2 lakh/ Rs. 50 lakhs) * 100% = 8.4%)

6. In Co-Lending, banks are permitted to co-lend with all registered NBFCs based on a prior agreement. Co-lending enables both the partners to price their portions of the loan as they want. The co-lending banks will take their share of the individual loans (on a back-to-back basis) in their account books. However, NBFCs shall be required to retain a minimum of 20 per cent share of the individual loans on their books.

7. Each lender shall adhere to the provisioning requirement and other guidelines, as per the respective regulatory guidelines applicable to each of them including reporting to Credit Information Companies, under the applicable regulations for its share of the loan account.

8. While the co-lending model is a winning proposition for all stakeholders, it demands extensive use of robust technology to simplify the operational challenges. While NBFCs will be the front end for customer servicing, all decisions, transactions and funds require multi-directional information flow at various points between the banks and NBFCs, highlighting the urgency for mature technology solutions. Since co-lending involves multiple lenders, the compliance check requires a seamless sharing of customer data between them. The assessment of creditworthiness is another critical aspect. Co-lending requires configuration of one’s credit assessment module to also consider the additional decision parameters from the partner’s credit risk team.

9. At a time when we are witnessing the biggest disruption of our lives in the form of a pandemic and businesses across the globe have been badly hit, co-lending can provide the much-needed impetus with greater access to credit. It is a win-win situation for all as NBFCs get easy and cheaper access to funds, banks extend their business reach to new markets/segments and consumers get easier and better access to much-needed credit at lower costs.

Comments

Deepika Panwar on 11-Nov-2020 10:41 PM
please give pdf of direct and indirect taxes and current terms pdf..

Pruthvish Patel on 11-Nov-2020 10:48 AM
Hello sir, your Economy modular course will be included in GS weekends batch OR thats a completely separate course w.r.t coverage/content ?

Vivek Singh

29-Oct-2020 10:20 AM

FDI Policy Circular 2020

Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce and Industry has released its "Consolidated FDI Policy 2020" yesterday. Generally, DPIIT keeps on uploading only the sector specific changes happening in FDI rules from time to time on its website BUT after some time gap (1/2 years) it releases the consolidated FDI policy document incorporating all previous changes. AND this document is not for reading but just for reference in case you want to check/verify ho

PDF Icon View

Comments

Vivek Singh

25-Oct-2020 01:24 PM

Onion price rise and control measures

Government yesterday put stocking limits on onion traders (wholesalers/retailers) till 31st Dec. 2020 in light of the rising onion prices. This has been done as per the recent amendments done in "Essential Commodities Act 1955". The amendment says:

1) "Stocking limit restrictions can be imposed only in case of extraordinary price rise i.e. 100% increase in case of perishables and 50% increase in case of non-perishable food stuffs over the price prevailing immediately preceding 12 months, or average retail price of last five years, whichever is lower.

The all-India average retail price variation of onions as on 21.10.2020 when compared to last year is 22.12% , and when compared to last 5 years average is 114.96%

In the past few days, Govt. has taken several other steps to prevent the onion prices rise, viz:

2) On 14th Sept. 2020, Govt. of India banned export of onions as per "The Foreign Trade (Development & Regulation.) Act 1992"

3) On 21st Oct. 2020, Govt. of India relaxed the conditions for fumigation and additional declaration on Phytosanitary Certificate under the Plant Quarantine Order, 2003 (issued under the Destructive Insects and Pests Act, 1914) for import up to December 15, 2020.

As per WTO Agreement on "Sanitary and Phytosanitary Measures", which sets out the basic rules for food safety and animal and plant health standards, member countries can set their own standards on plant and animal health standards. But it also says regulations must be based on science.

4) Under, Price Stabilization Fund (PSF), Agencies like National Agricultural Cooperative Marketing Federation of India Ltd. (NAFED) and Small Farmers Agri-business Consortium (SFAC) procure mostly perishable agri commodities (like onioin, potatos etc.) [through interest free loan given from this PSF Fund] during the harvest season and then if prices go high, then these agencies release the stock in calibrated manner to major mandis, to retail supplier such as Safal, Kendriya Bhandar & NCCF and also to State Governments to cool down the prices

Comments

Vivek Singh

23-Oct-2020 01:37 PM

CPI-Industrial Workers Base year changed to 2016

1) There are SIX major Retail Inflation Indices published by the Government:

CPI-Rural, CPI- Urban, CPI Combined published monthly for all India as well as States/UTs by NSO under Ministry of Statistics & Programme Implementation.

CPI-Industrial Workers (IW), CPI Agricultural Labourers (AL) and CPI Rural Labourers published monthly for all India as well as States/UTs by Labour Bureau under Ministry of Labour and Employment.

Out of these 6 indices, CPI-Combined and CPI-IW are quite important

2) RBI for its monetary policy purpose uses/targets CPI combined inflation index

MGNREGA workers wages are revised annually linked with CPI-AL. A committee set up by Govt has recommended linking it with CPI-Rural, but till now no information on it.

Dearness Allowance (DA) paid to Central/State Govt. employees and workers in the Industrial sector and revision of minimum wages in scheduled employments (State Government fixes minimum wages in different category of employments called scheduled employment as per the existing act, but it may change in new Act) is linked with CPI-IW

3) CPI-IW base year has been revised to 2016 from the previous 2001 and because of that weight of food items has decreased to 39.17% from earlier 46.2%. Weight of education and health has increased to 30.31 percent from 23.26 percent. No need to go into further details of the weights of different items.

4) Industrial Workers may be consuming a lot of items but every month its not possible for government to collect the price details of all these items from all the markets in India. So Govt. selects a basket of those items which are consumed more by these industrial workers for example in the 2016 series of CPI-IW there are 463 items and govt. will be collecting the price data from 317 retail markets in India. The basket of 463 items are assigned weight as per the expenditure/consumption pattern of these workers on these items. Higher the consumption of any item higher will be the weight.

5) It is recommended that base year should be revised frequently to reflect the changes that take place in the consumption pattern of consumers. Govt. plans to revise it after every five years. And the base year should be normal year because in any abnormal year, the consumption patterns will not properly get reflected and it may be skewed.

6) Why Govt. did not use 2017 or 2018 for revision of base year of CPI-IW. The answer may be there were disruptions because of GST. (GST got implemented on 1st July 2017)

Why not 2019. The answer is may be the exact data of just the previous year not available

But someone may say that Demonetisation was implemented in 2016, then why govt chose 2016 for the base year for CPI-IW. The answer could be (not sure)..............Demonetisation was implemented at the end of the year (8th Nov 2016) and if Govt. used the data only of 10/11 months to derive the weights then there is no issue or may be it did some extrapolation (projection) for the 50 days period post demonetisation. You don't need to go into all this. But yes, it should be a normal year.

Comments

Vivek Singh

22-Oct-2020 11:49 AM

Production Linked Incentive (PLI) Scheme

1) Government has already launched Production Linked Incentive (PLI) Scheme for manufacturing of mobiles, medical devices and pharmaceuticals and the response is quite good. So, govt. is planning to extend this scheme eight other sectors. This scheme is very important as it is helping manufacturing to revive. You are not supposed to know all the operational details of this scheme, but certain points you must look into:

(a) Explanation of the scheme: If a company's sales of goods manufactured in India increases from a particular year (considered as base year) then the Company will get cash incentive of 4% to 6% on incremental/additional sales. For example earlier a company was selling goods worth Rs. 1 lakh in a year and now its sales increased to Rs. 1.2 lakh. Then the company will get incentive of 4% of Rs. 20,000 = Rs. 800

(b) There is condition in the scheme that additional investment in plant and machinery should be done.

(c) This is an outcome and output oriented scheme (i.e. if the company manufacturing/sales increases then only incentive is given)

2) In the Aatma Nirbhar Bharat Reforms, Government has said that PSUs will be present only in the Strategic Sectors of the economy and in the rest of the sectors PSUs will be privatized/strategic disinvestment. So, Government will announce sectors which will be "Strategic Sectors" and in that too maximum four PSUs can be present and minimum one. So, this policy is going to be soon released.

Comments

Vivek Singh

21-Oct-2020 12:56 PM

Infrastructure Investment Trusts (InvITs)

1) A “Infrastructure Investment Trusts (InvITs)" is a trust (they are called Business Trusts) registered under the Indian Trusts Act, 1882 which manages a fund/ corpus where the funds are invested in infrastructure projects. InvITs are mutual fund like institutions that enable investment into the infrastructure sector by pooling small sums of money from multitude of individual/institutional investors. InvITs are regulated by Securities and Exchange Board of India (SEBI).

2) For example, If a company "XYZ" is owning and operating a Toll road project where there is a regular income from the toll collections. There is a good return from this project but individuals (like me) cannot purchase this infrastructure asset/project because I want to invest only Rs. 2 lakh and the asset value is suppose Rs. 500 crore. So, what happens an "InvIT" will pool in (attract) investments from various individual investors (like me) on the promise that it will put the money into infrastructure assets. Now earlier, individually I was not able to purchase the (entire) Toll road project but now I can invest (purchase) a very small portion of the toll project by investing through the InvIT. So, I (and various other individuals and may be some institutions also) will put money into InvIT and with this money InvIT will purchase/invest in the Toll road project. Now, whatever is the annual return from the Toll road project (basically toll collections), the InvIT will pass to the individual investors. (No need to go into its tax details)

3) This we analyzed from the individual investor side. Now think about the infrastructure company who has built the toll road project and invested Rs. 1000 crore one time and getting regular annual return of Rs. 100 crore. Now the infrastructure company's money is blocked say for 10 years. So, it wants to sell this toll project at some profit and would like to get its money back so that it is able to put into some other projects. So, InvITs provides a route for the infrastructure company to monetise its assets. InvITs provide platform for the infrastructure companies for future asset monetization of operational projects. Actually the InvITs will not get involved into building a project, rather they look to purchase already operational projects which are generating cash flows.

4) Pension and Insurance funds have long term capital (you put into pension/insurance funds to withdraw only after long time/retirement). This long term capital they can be put into InvITs which will ultimately be invested into infrastructure projects.

5) The state-run PowerGrid Corporation and National Highways Authority of India are planning to transfer some of their operational assets to InvIT platforms, the agency said, pointing out that roads, transmission, telecom, and renewable energy are the key sectors which carry huge potential for asset monetisation through the InvIT route

REITs are same as InvITs but they invest in commercial real estate projects.

Comments

Vivek Singh on 22-Oct-2020 11:51 AM
I have ordered for reprint. Will again be available in 3/4 days. For further queries you can reach me at viveksingheconomy@gmail.com

shrushti pachlore on 21-Oct-2020 09:20 PM
sir where we will get your Indian economy book sir.....it is not available on Amazon and flipkart

Vivek Singh

19-Oct-2020 01:42 PM

NPAs hinder Monetary Transmission

1) Monetary Policy Transmission is the pass-through of RBI's policy actions to the economy at large in terms of asset prices/ interest rates/ and general economic conditions.

2) When the banks NPA increases then it needs to keep some reserve money which they can't lend (also called provisioning). Provisioning combined with not getting the principal & interest on the NPAs, increases the cost (of funds) for banks. And because of these reasons, even if the RBI is reducing the repo rate, Banks do not want to reduce the lending rate because if banks will reduce the lending rate then their earnings will further decline. That is why it has been said that, presence of NPAs weakens or slows down the monetary policy transmission. (Buy yeah, if RBI will increase the repo rate banks may increase the lending rate immediately, so in case of an increase, there may not be any impact on monetary policy transmission even if there are NPAs. Transmission is both ways increase or decrease)

3) When Govt. injects money into the public sector banks then it helps in increasing the credit flow to the real sector (real sector means various businesses like oil & gas, infra, steel etc., other than financial sector)

4) The news also says (in this image its not reported) that RBI has deferred the implementation of the last tranche of "Capital Conservation Buffer" (which is requirement of Basel III) up to 1st April 2021. Actually "Capital Conservation Buffer" requirement is 2.5%, which is being implemented in stages which RBI said that banks will implement by 31st March 2019 and then it is just getting extended. This "Capital Conservation Buffer" is just normal share/equity capital and acts as a buffer to the existing capital. (For example, earlier the requirement of FCI wheat and rice stock was around 20 MT and then Govt. asked to keep a buffer stock of 5 MT)

Total capital requirement under Basel III norm is 11.5% out of which capital conservation buffer is 2.5%

5) A discussion is going on to implement "Countercyclical capital buffer" to help banks to protect their balance sheets from changes in economic conditions during the recessionary phase. (Counter means, during the recession (dip), this "Countercyclical capital buffer" will be used to counter the dip/recession)

Comments

Vivek Singh

17-Oct-2020 10:56 AM

India's Population story

Total Fertility Rate (TFR) is the average number of children born to women during their reproductive years.

Replacement Level Fertility (RLF) is the level of fertility at which a population (both the parents) exactly replaces itself from one generation to the next.

Replacement level fertility for developed countries is 2.1

You may expect RLF to be equal to 2 but it is not 2 and generally higher that 2 because all the female children do not survive till their child bearing age. And Sex Ratio at birth is also skewed in favour of boys, this also pushes RLF to greater than 2.

As in case of India, there is more female child death till they reach child bearing age and more skewed Sex Ratio, hence in case of India Replacement Level Fertility (RLF) is around 2.15

India's Total Fertility Rate (TFR) declined to 2.2 in 2018 from 2.4 in 2011. Even if our TFR becomes equal to (or falls below) RLF in the next few years, the population will still continue to increase (positive population growth) because of two reasons

First is 'Population Momentum (effect)' which means there are more people entering the reproductive age group of 15 to 49 due to the past high level of fertility. (If the number of people in all the age category is uniform then we will not see population momentum effect)

Second is continued rise in life expectancy.

....................................................................

Certain facts from other sources:

1)India's population will peak to 161 crore by 2061 (UN report)

2)The share of India’s young (i.e. 0-19 years) population has already started to decline and is projected to drop from as high as 41% in 2011 to 25% by 2041. (Eco survey 2018-19)

3)The share of elderly (60 years and above) population will continue to rise steadily, nearly doubling from 8.6% in 2011 to 16% by 2041. (Eco survey 2018-19)

4)India's demographic dividend will peak in the next one/two decades (Eco survey 2018-19)

Comments

Vivek Singh

16-Oct-2020 10:14 AM

Centre has agreed to borrow to compensate States' for their GST revenue shortfall

1) States were promised that if their revenue collection is less due to implementation of GST then "GST Compensation Cess" will be levied and the amount will be given to States. But this time due to "Covid-19" crisis, the revenue shortall is huge and can't be met by imposing more cess as it will further make economic recovery difficult.

2) Earlier Centre was asking states to borrow for the shortfall (which they can repay through GST cess collection even after June 2022) but States were asking Centre to borrow and give it to States. So now Centre has agreed to State's demand, and Centre said it will borrow Rs. 1.1 lakh crore and will pass on to states on "back-to-back basis/loan". This means that the States will have to repay for the interest and principal (may be from GST cess collection even after June 2022)

3) Actually the dispute was regarding "in whose name, the borrowing will reflect i.e. in whose books of accounts" because both Centre/State knew/agreed that principal and interest payment will be done by GST cess collection post June 2022.

4) This borrowing will not get reflected either in State's Fiscal Deficit (because State's have not borrowed) or in Centre's Fiscal Deficit (because Centre has not borrowed for its own purpose??). But this borrowing must get reflected in account books as Debt. So, its not very clear what jugglery will be done, but most likely it will get reflected in Centre's account books, may not be as proper debt but as "off-budget liabilities". (don't go into all this, UPSC will not ask, because all this is a kind of manipulation of accounts)

5) Generally Centre is able to borrow from the market at lesser interest rate as compared to States because the creditworthiness of Centre is better than States (Centre has the printing press of Rupee notes through RBI and it has more taxation powers). So, this step of Centre borrowing of Rs. 1.1 lakh crore will come as a lesser cost for States (in terms of interest payment).

6) When States borrow from the market (by issuing State Development Loans), then they are able to raise money at different interest rate. That means the market/investors are willing to give/lend money to different States at different interest rates and the main reason for this difference is, different States have different creditworthiness (credit profile) for example if some states have less tax resources and generally delays its repayment of debt, they will get loan at higher interest rate. If a State's fiscal deficit (or Debt) is higher then again it will get loan at higher rate. (higher the fiscal deficit or debt, more is the financial burden on that state and the chances of default increases).

Comments

Vivek Singh

13-Oct-2020 09:55 AM

GST compensation, LTC cash vouchers, IIP and CPI

1. GST Compensation: Still no solution to the issue regarding who should borrow to compensate for the shortfall in GST revenues of States. Centre is saying states should borrow and States are saying Centre should borrow and compensate to States. And NDA ruled states have agreed to borrow in their own name and Centre has given them a go ahead.

Actually Centre has 1/3 representation and States have 2/3 representation in the GST council. And more than half of the states (ruled by NDA/BJP) already agree to Centre's view, so if voting is conducted in GST Council then there may be decision in favour of Centres view which is basically "States borrowing to compensate for their revenue loss" (because 75% voting support can be garnered from Centre and NDA ruled States). BUT Centre does not want to conduct voting rather it wants to build consensus. Most of the decisions in GST Council in the past has happened through consensus. Conducting voting leads to animosity, so Centre wants to avoid that. And even if GST council takes a decision that States should borrow (with the help of Centre and NDA ruled States), there will always be a chance that the Non-NDA ruled states can ask GST Council to establish a mechanism to adjudicate dispute. For example, GST council can always take a decision if they get 75% majority, but those who voted against can always say that the decision taken by the GST Council is in violation of the the Constitutional Amendment Act 101 through which GST was introduced and they can ask GST council to establish dispute resolution mechanism or if it is not done, they can move to Supreme Court.

2. Central Govt is giving Cash Vouchers in return of Leave Travel Concession (LTC). Actually Central Govt. employees are given LTC, through which the employees can get reimbursement of the travel cost either to their home towns or for travelling to some holiday destinations. So, this amount now central govt. is giving in cash voucher form which they can spend on consumer goods. No need to go into all this.

3. Index of Industrial Production (IIP) contracted 8% in August 2020. IIP measures the growth in Industrial production and its Index (IIP) is released on monthly basis with a time lag/delay of 6 weeks (42 days) by National Statistical Office (NSO).

4. CPI is also released on monthly basis with time lag/delay of 12 days by NSO. The Sept. CPI has increased to 7.34% which is way beyond the RBI target of 6%.

If something is increasing/decreasing and nothing is said about from where it has increased/decreased then by default it always means from the previous year. This is also called "Year on Year" (Y-o-Y) change. But if you want to measure a change from August 2020 to September 2020 then it is called "Sequential" change. Both kind of data is captured, but we always express "Y-o-Y" change as it makes more sense.

Comments

Vivek Singh

12-Oct-2020 07:52 PM

MSP vs Markets

1) FCI procures rice/wheat and stores it and transports it across India for PDS system and in all this FCI incurs a cost and this is called Economic Cost

Economic Cost (of FCI) (approx) = MSP (Rs. 20/kg) + Storage (Rs. 9/kg) + Transportation/Distribution (Rs. 8/kg) = Rs. 37/kg

Now in the international market, the price of rice is less than Rs. 37/kg and hence FCI can't export it as it will incur loss. So until govt. provides subsidy for exports (means govt. is ready to incur loss on its account), FCI can't export rice. Hence the stock with FCI is always higher (generally double) of the Buffer stock as mandated by govt. (which is around 30 MT).

The FCI's Economic Cost is also very high because the FCI's labour is very costly. I personally know that FCI's labour are paid Rs. 60,000 to Rs. 70,000 per month whereas the same labour is paid Rs. 10,000 in the market. Hence, if govt. will introduce reforms, these labour will protest in the name of poor people and poor farmers. I know that FCI is one of the most corrupt organizations of the country.

2) Food subsidy bill has increase much more as compared to what Govt. has shown in the budget. Its not reflected in the budget as Govt. asks FCI to borrow in its own name ..............this is also called "Off-Budget Liabilities"

3) The "put option" which the newspaper talks about............no need to go into it,..............it just means that FCI should be given the option to sell the food grains stock in the market if the price of the food grains stock crosses (increases beyond) a certain price.

4) MSP is just an assurance that govt. will purchase the food grains but its not legally binding. There is no MSP for milk or poultry. MSP was deregulated in early 2000 and private companies/cooperatives have built efficient supply chain in it. The same we require for other agri commodities mainly fruits and vegetables. India is the largest producer of milk

Comments

Vivek Singh

10-Oct-2020 12:37 PM

RBI measures to support growth

Reserve Bank of India (RBI) took three measures yesterday to increase the liquidity in the economy and to support the higher borrowing of programme of Central & State Govt. These are:

First Measure:

Targeted Long Term Repo Operation (TLTRO):

Under normal repo operation RBI lends to banks for overnight (one day) at repo rate.

But under Long Term Repo Operation (LTRO), it lends for long term generally more than a year. And when this lending (LTRO) is for some specific sectors (this time it is for sectors having strong backward & forward linkage) then this LTRO is called Targeted LTRO (TLTRO). Now when RBI lends for LTRO/TLTRO then generally it lends at above repo rate (repo + spread), and this "spread" is decided through auction and it is called Variable rate LTRO/TLTRO. A bank offering higher spread over repo, gets the funds from RBI.

And sometimes (rarely) RBI also does LTRO/TLTRO at repo rate which is called fixed rate (fixed with repo) LTRO/TLTRO.

Yesterdays news say that RBI has introduced "on-tap" TLTRO worth Rs. 1 lakh crore. Here 'on-tap' means, RBI will not conduct this auction (to give money to banks) on any particular day, rather banks can come any day and can borrow money from RBI. And the Liquidity/money availed by banks under this LTRO has to be deployed in corporate bonds, commercial papers, and non-convertible debentures issued by entities in specific sectors. Basically banks will give this money to companies to specific sectors and purchase their debt papers.

Second Measure:

SLR Holdings in Held to Maturity (HTM) Category

See, if you purchase bonds, then you can sell that bond any time in the secondary market or can keep it with yourself till maturity and then you get the money/principal from the entity who had actually issued that bond. So, when you hold the bond till maturity it is classified as HTM.

Present SLR requirement is 18% of NDTL. This is a minimum requirement where Banks are required to hold/keep Central or State Govt bonds and these bonds under SLR requirement are called SLR securities.

Now, some banks may hold more SLR. But if they are holding more SLR that means they are investing (giving loan) in Govt rather than lending to market/companies and trying to be risk averse. So, there is maximum cap (which this time RBI increased) on how much max banks can keep SLR under HTM category. There are other categories also like 'Available for Sale', 'Held for Trading'. No need to go into all this.

Third Measure:

Open Market Operation (OMO) in State Development Loans (SDLs)

There are three types of central govt. bonds/securities called Treasury Bills, Dated Securities, Cash management Bills and one type of State Govt. Bonds called SDLs.

Till now RBI used to do OMO (sale and purchase of govt. bonds) only through Central Govt. bonds (Treasury Bills and Dated securities). But this time RBI is saying it will do OMO with SDLs also. What will be its impact or how it will help

* It will give liquidity (easy sale) to SDLs

* Since there will be more sale and purchase which will provide liquidity to SDLs, so it will also lead to efficient pricing of SDL bonds. This price does not mean 'bond price'. Here this pricing means 'interest rate'.

Let me elaborate this : If someone asks you that "At what price potato is available in the market" then you say Rs. 10/kg

But if some one asks "At what price money is available in market" then it talks about 'interest rate'. The price of money is the 'interest rate' at which money is available in the market.

So, when there is less trading in SDL then the interest rate can be a little bit higher, but if there is more trading (because of RBI OMO in SDL), then it leads to efficient pricing means lesser interest rate which will ultimately help State governments.

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Vivek Singh

09-Oct-2020 08:49 AM

Central and State Govt. outstanding securities

1) Central Government Debt = Internal Debt + External Debt + Public Account Liabilities + Off Budget Liabilities

Similar is the case for State Government Debt, the only exception is States do no borrow from abroad in their own name.

2) Internal Debt is basically what Govt. of India borrows by issuing Debt Securities (Treasury Bills and Dated Securities). It is also called Domestic Market Borrowings

3) External Debt is basically borrowing from other Governments (bilateral debt) and Multilateral Agencies like World Bank, ADB etc.

4) Public Account Liabilities is what you keep in National Small Savings Schemes like Public Provident Fund, Kisan Vikas Patra etc.

5) Off Budget Liabilities is when Centre asks PSUs to borrow but the Debt (principal + interest) is paid by the Centre

6) The Total Central Govt. Debt as on 31st March 2020 was around Rs. 102 lakh crore (50% of GDP (Rs. 200 lakh crores of 2019-20)). Out of this Rs. 102 lakh crore, the (Tradable) Debt Securities, outstanding as on 31st March was Rs. 64.9 lakh crore (the rest are external debt, Public A/c liabilities and Off budget liabilities). And these Tradable Debt Securities/Papers of Govt. (Treasury Bills & Dated Securities) worth Rs. 64.9 lakh crore have been purchased by (percentage wise):

Scheduled Commercial Banks = 40% (mostly for SLR)

Insurance Companies = 25%

Provident Funds = 5%

RBI = 15%

7) The Total State Govt. Debt as on 31st March 2020 was around Rs. 52 lakh crore (around 25% of GDP (Rs. 200 lakh crores of 2019-20))

8) And if you remember, the Centres 50% Debt and States 25% Debt............... N. K. SINGH Committee has recommended to reduce it to 40% (Centre) and 20% (States)....... So, that the General Govt. Debt (Centre + States combined) should become 40% + 20% = 60% by 2024-25 and this has been included in FRBM Act 2003 with Amendment.

Outstanding Debt means the debt which is still left to be repaid.

Comments

Vivek Singh

08-Oct-2020 09:48 AM

Emergency Credit Line Guarantee Scheme (ECLGC)

* 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.

*It will be extended in the form of additional working capital loan or term loan facility to MSMEs/Pradhan Mantri Mudra Yojana borrowers/Self employed/ Professions who have taken loans for business purposes.

* 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. 50 crore and their Turnover (annual sales) is less than 250 crores. The maximum the businessmen can borrow is up to 20% of the outstanding loan. (For ex, if some business had borrowed Rs. 60 crore and the amount that is yet to be repaid is Rs. 40 crores then they can borrow Rs. 8 crores (20% of Rs. 40 crore). The scheme will be applicable from May 23rd 2020 to 31st Oct 2020 or until Rs. 3 lakh crore has been sanctioned.

* 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.

* 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 loan). NCGTC will not charge anything from lending institutions to provide guarantee.

* 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.

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

* National Credit Guarantee Trustee Company (NCGTC) is a company registered under Company’s Act 2013 under which there are various Trusts which manages guarantee funds. NCGTC is a Govt company under Department of Financial Services, Ministry of Finance.

Few Terms:

Term Loan: A loan that is repaid in regular payments over a set period of time. Its basically a long term loan which can last between one year to 10 years or may be more than that.

Working Capital Loan: A loan that is taken to finance a company's day to day operations. These loans are not used to buy long-term assets or investments.

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Vivek Singh

04-Oct-2020 07:02 PM

CSE Prelims, 2020 Economy Discussion (Set B) By Vivek Singh

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Vivek Singh

04-Oct-2020 07:01 PM

(Pdf) CSE Prelims, 2020 Economy paper Discussion

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Vivek Singh

02-Oct-2020 07:37 AM

Economy moving towards normalcy

1) GST collections were Rs. 95,000 crore in Sept 2020, which is the highest in this FY (Generally average monthly collection last year was Rs. 1.00 lakh cr)

2) Auto sales picked up in Sept 2020

3) Manufacturing PMI highest in Sept. 2020 since Jan 2012

4) Exports increased by 5.27% in Sept 2020, first time in this FY

Comments

Vivek Singh

01-Oct-2020 10:16 AM

Time Use Survey (TUS)

National Statistical Office (NSO) conducted the first "Time Use Survey" (TUS) in India during January – December 2019.

The primary objective of Time Use Survey (TUS) is to measure participation of men and women in paid and unpaid activities. TUS is an important source of information on the time spent in unpaid caregiving activities, volunteer work, unpaid domestic service producing activities of the household members. It also provides information on time spent on learning, socializing, leisure activities, self-care activities, etc., by the household members. The TUS survey captures how much time is spent by each member (above 6 years) of the household on different activities in twenty four hours time slot. In this survey 1,38,799 households were covered.

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Vivek Singh

27-Sep-2020 01:03 PM

CAG flagged issues related to Govt. accounting

1. Centre collects "GST compensation Cess" in Consolidated Fund of India and then transfers to "Public Account of India" and then it goes to States Consolidated Fund. The amount is given to States only after proper reconciliation which Finance Ministry has said that it takes time and CAG is saying that Centre has diverted and not given to States. ———— No need to go into all these disputes

2. There is another news which CAG has pointed out that Cess collected by the centre is not utilized for the specific purpose for which it was collected. Cess is collected for a specific purpose like "Health and Education Cess", "Road and Infrastructure Cess" etc. and it should be utilized for that purpose only —— I have seen this issue with all governments ————again no need to go into it.

3. Centre sold one PSU to another PSU to meet its disinvestment target, because this type of transaction ultimately gives money to Govt. of India, which CAG has pointed out to be unfair because at the end of the day even after this kind of transaction, the sold PSU's assets are indirectly under Govt. control/ownership.

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Vivek Singh

26-Sep-2020 12:38 PM

Vodafone Tax Dispute

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Vivek Singh

25-Sep-2020 08:03 AM

Minimum Support Price

MSP does not have any legal backing till now and farmers can't demand it as a right. Its just government policy and an administrative decision to purchase food grains at MSP. And govt can even force private players to provide MSP. And even the new Farm Bills does not mention "MSP" or " government procurement".

CACP, which recommends MSP, is again not a statutory body and its just an office attached to Ministry of Agriculture. CACP just recommends MSP but the decision on fixing and even not fixing and its implementation lies with Govt.

See there are two things, ONE is declaration of MSP and the SECOND is procurement of food grains at MSP by Govt. Agencies. The declaration of MSP has no meaning (its worthless) if Govt. agencies are not procuring at MSP. Govt. declares MSP for 25 crops but procurement mainly happens only of Wheat and Rice from Punjab and Haryana. Its practically impossible to purchase the entire 25 crops from all over India at MSP. And there is whole lot of CORRUPTION in FCI MSP operations and govt. is loosing lakhs of crores of rupees every year in subsidy, not resulting in any benefit to poor but helping only few big farmers. THAT IS WHY GOVT. don't want MSP to make a LEGAL RIGHT.

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Vivek Singh

24-Sep-2020 10:04 AM

Essential Commodities Amendment Bill 2020

1) "Essential Commodities Act 1955" had a SCHEDULE of items [Drugs, fertilizers, foodstuffs including sugar, sugarcane, oil, oilseeds, hank yarn, petroleum and petroleum products, raw jute & textiles, seeds of foodcrops, fruits & vegetables, jute...] which are considered "essential commodities" and there was no definition for "essential commodities". And govt. can control/regulate the production, supply, distribution, stocking, price of any of the essential commodity in the schedule. And there was no objective criteria that in which conditions the govt. can regulate these things.

And if a particular item is in the SCHEDULE, that does not mean that its production/pricing/stocking etc is being regulated. Rather, the act says that from time to time Govt. may declare/notify a particular item (from the schedule), which it wants to regulate and for what time period and what things it wants to regulate like price or stock or production etc.

2) The amendment 2020, now says that the "supply" of foodstuffs including cereals, pulses, potato, onions, edible oilseeds and oils can be regulated only under extraordinary circumstances which may include war, famine, natural calamity of grave nature and extraordinary price rise (50% increase in retail price of non-perishable foodstuffs and 100% increase in retail price of horticulture).

But the word "supply" can mean anything production/distribution/stocking etc... So to provide clarity, the amendment has further said that "STOCKING" limit shall not apply to exporters and food processors or "value chain participants" (it involves any body in the supply chain ex. production/processing/packaging/storage/transport/distribution).

These have been exempted from the "stocking" limit because it has in brining private investment and foreign investment in agri infrastructure like cold storage, processing, packaging and storage.

Comments

Vivek Singh

23-Sep-2020 02:17 PM

Banking Regulation (Amendment) Act 2020

1. With prior approval of RBI, cooperative banks can issue (either through public or private placement)

•Shares/equity

•Bonds or unsecured debentures or any other security with maturity of not less than 10 years

2. RBI will be able to undertake a scheme of amalgamation/reconstruction of a bank without placing it under moratorium (means without putting restriction on deposits withdrawal and lending).

3. RBI can supersede the management of the Urban Cooperative Banks (UCB), State Cooperative Banks (StCB) and District Central Cooperative Banks (DCCB) if RBI feels that the affairs of the bank are conducted in a manner detrimental to the interest of the depositors. (Earlier this was applicable only for UCBs and now in the amendment 2020, StCB and DCCB have also been included)

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Vivek Singh

20-Sep-2020 11:41 PM

External Debt of India

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Vivek Singh

16-Sep-2020 01:41 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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Vivek Singh

13-Sep-2020 09:29 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%.

Comments

Vivek Singh

11-Sep-2020 10:09 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.

Comments

Vivek Singh

09-Sep-2020 09:58 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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Vivek Singh

08-Sep-2020 10:22 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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Vivek Singh

06-Sep-2020 05:17 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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Vivek Singh

03-Sep-2020 11:02 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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Vivek Singh

01-Sep-2020 11:20 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.

Comments

Vivek Singh

01-Sep-2020 11:20 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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Vivek Singh

30-Aug-2020 09:29 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.

Comments

Vivek Singh

28-Aug-2020 09:59 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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Vivek Singh

25-Aug-2020 10:45 AM

Banks Board Bureau (BBB)

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Ishwar Singh on 25-Aug-2020 07:16 PM
awesome sir

Vivek Singh

22-Aug-2020 06:17 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.

Comments

Deepanshu Kaushik on 25-Aug-2020 06:56 AM
thanks sir

Vivek Singh

19-Aug-2020 12:33 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.

Comments

Abhijithgowda Jp on 20-Aug-2020 07:26 PM
upper half is in ur book , bottom half is updatation ,thank you sir

Vivek Singh

18-Aug-2020 10:06 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.

Comments

Vivek Singh

17-Aug-2020 10:20 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.

Comments

Vivek Singh

16-Aug-2020 09:36 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

(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.

Comments

Vivek Singh

14-Aug-2020 09:09 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

Comments

Vivek Singh

14-Aug-2020 09:08 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.

Comments

Vivek Singh

11-Aug-2020 02:11 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.

Comments

Vivek Singh

11-Aug-2020 02:10 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.

Comments

Vivek Singh

10-Aug-2020 10:02 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%.

Comments

Vivek Singh

07-Aug-2020 11:26 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)

Comments

Vivek Singh

05-Aug-2020 09:49 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.

Comments

Vivek Singh

03-Aug-2020 10:42 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.

Comments

Vivek Singh

29-Jul-2020 10:54 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.

Comments

krishna nagandla on 29-Jul-2020 05:34 PM
what is investment under automatic route sir??

Vivek Singh

27-Jul-2020 10:42 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.

Comments

Vivek Singh

25-Jul-2020 10:39 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.

Comments

vivek singh on 29-Jul-2020 10:58 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

Vivek Singh

22-Jul-2020 10:22 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

Comments

Vivek Singh

22-Jul-2020 01:03 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.

Comments

Vivek Singh

18-Jul-2020 10:53 AM

Aatma Nirbhar Bharat

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

PDF Icon View

Comments

Vivek Singh

14-Jul-2020 01:36 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

Comments

Vivek Singh

11-Jul-2020 02:03 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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Vivek Singh

06-Jul-2020 10:18 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.

Comments

Vivek Singh

05-Jul-2020 09:48 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

Comments

Vivek Singh

04-Jul-2020 09:46 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

Comments

Vivek Singh

29-Jun-2020 08:44 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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Comments

Harshit Kedia on 04-Jul-2020 02:15 PM
Sir Please explain how to use this report?

Vivek Singh on 04-Jul-2020 09:47 AM
yes

Vivek Singh

28-Jun-2020 01:59 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)

Comments

Vivek Singh

19-Jun-2020 07:53 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

Comments

Vivek Singh

13-Jun-2020 10:50 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.

Comments

Vivek Singh

05-Jun-2020 10:40 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

Comments

Vivek Singh

03-Jun-2020 09:38 PM

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

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Vivek Singh

19-May-2020 09:21 PM

Aatmanirbhar Bharat Part 3 - 15.05.2020

Aatmanirbhar Bharat Part 3 - Agriculture and Allied sectors

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Vivek Singh

16-May-2020 12:35 PM

Aatmanirbhar Bharat Part II 14.05.2020

Economic Stimulus package for Poor, Migrants and farmers

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Vivek Singh

15-May-2020 01:19 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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Vivek Singh

06-May-2020 08:31 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.

Comments

Vivek Singh

30-Apr-2020 01:12 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

Comments

Vivek Singh

22-Apr-2020 02:16 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

Comments

Aishwarya Agarwal on 01-Sep-2020 10:47 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?

Vivek Singh

19-Apr-2020 12:13 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"

Comments

Vivek Singh

29-Mar-2020 05:56 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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Vivek Singh

15-Mar-2020 04:25 PM

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

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Vivek Singh

07-Feb-2020 03:43 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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Vivek Singh

03-Feb-2020 12:01 AM

Budget

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Vivek Singh

29-Jan-2020 09:19 AM

Under Recovery

useful link: https://www.thehindu.com/business/markets/oil-firms-set-to-gain-as-subsidised-lpg-prices-move-up-steadily/article30677429.ece

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Vivek Singh

28-Jan-2020 12:06 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/

Comments

Vivek Singh

24-Jan-2020 12:48 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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Vivek Singh

24-Jan-2020 12:47 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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