Subject - Economic and Social Development Chapter - Economic Planning in India What is Planned Economy

Planned economy is one in which the state owns (partly or wholly) and directs the economy.While such a role is assumed by the State in almost every economy, in planned economies, it is pronounced: for example in communist and socialist countries- former USSR and China till the 1970s. In such a case a planned economy is referred to as command economy or centrally planned economy or command and control economy

What are the main goals of Indian planning

Planning has the following long term goals 1. Growth 2. Modernization 3. self-reliance and 4. social justice

Economic growth is the increase in value of the goods and services produced by an economy. Economic development refers to growth that includes redistributive aspects and social justice. Modernization is improvement in technology. It is driven by innovation and investment in R & D. Education is the foundation of modernization. Self-reliance means relying on the resources of the country and not depending on other countries and the MNCs for investment and growth. The term self-reliance should not be confused with self-sufficiency the former means depending on resources of the country and avoid dependence on external flows; the latter means that the country has all the resources it needs.

Social justice means inclusive and equitable growth where inequalities are not steep and benefits of growth reach all- rural-urban, man-woman; caste divide and inter-regional divides are reduced.

History of Planning First Plan (1951-56)

The First Plan stressed more on agriculture, in view of large scale import of food grains and inflationary pressures on the economy. Other areas of emphasis were power and transport.

Second Plan (1956-61)

With agricultural targets of previous plan achieved, major stress was on the establishment of heavy industries.

Third Plan (1961-66)

It tried to balance industry and agriculture. The aim of Third Plan was to establish a self sustaining economy. For the first lime, India resorted to borrowing from IMF, Rupee was also devalued for the first time in 1966.

Annual Plans
As the Third Plan experienced difficulties on the external front (war with China in 1962 and Pakistan in 1965); and the economic troubles mounted on the domestic front- inflation, floods, forex crisis- the Fourth Plan could not be started from 1966. There were three annual plans till 1969.

Fourth Plan (1969-74)

The main objective of this Plan was growth with stability. The Plan laid special emphasis on improving the condition of the under-privileged and weaker sections through provision of education and employment.

Fifth Plan (1974-79)

The main objective of the Plan was Growth for Social Justice.

Sixth Plan (1980-1985)

Removal of poverty was the foremost objective of Sixth Plan.

Seventh Plan (1985-90)

This Plan stressed on rapid growth in food-grains production and increase in employment opportunities.

Eighth Plan (1992-1997)

This Plan was formulated keeping in view the process of economic reforms and restructuring of the economy.

Ninth Five Year Plan (1997-2002)

The salient features of the Ninth Five Year Plan are a target annual average growth rate of 6.5 per cent for the economy as a whole, and a growth rate of 3.9 per cent for agriculture sector, among others.

Tenth Five Year Plan (2002-2007)

The economy was expected to grow at the rate of 8 %

11th Five Year Plan (2007-2012)

Government set an average annual growth target of 9 per cent for the 11th Plan beginning with 8.5 per cent in the first year and closing with 10 per cent in 2011-12

The main objective of 12th Five Year Plan

The twelfth plan has the following objectives

Basic objective: Faster, More inclusive, and Sustainable growth Is 10% growth feasible? Realistically, even 9% will need strong policy action. Could aim at 9.0 to 9.5 percent

Energy, Water and Environment present major sectoral challenges. Can we address them without sacrificing growth?

Can we find resources to create a world class infrastructure?

For growth to be more inclusive we need

Better performance in agri-culture Faster creation of jobs, especially in manufacturing Stronger efforts at health, education and skill development Improve effectiveness of programs directly aimed at the poor Special programs for socially vulnerable groups Special plans for disadvantaged/backward regions

Define Recession
The standard definition of a recession is a decline in the Gross Domestic Product (GDP) for two or more consecutive quarters.

Difference between Depression and Recession

A depression is any economic downturn where real GDP declines by more than 10 percent. A recession is an economic downturn that is less severe.

Chapter - Fiscal System What is Fiscal Policy

Fiscal policy involves use of taxation and government spending to influence economy. In other words, fiscal policy relates to raising and spending money in quantitative and qualitative terms.

Revenue Account Expenditure

Revenue account expenditure is essentially the non-plan expenditure that does not create assets, that is - interest payments, subsidies and public administration. It is synonymous with maintenance and consumption expenditure as also welfare expenditure.

Capital Account Receipts

Capital account receipts are recoveries of loans and advances made by the Union Government to States, UTs and PSUs; fresh borrowings from inside the country and from abroad; disinvestment proceeds etc. As is clear from above, some of them are debt and some are non-debt.

What is Revenue Deficits

Revenue deficit is the difference between the revenue receipts on tax and non-tax sides and the revenue expenditure.

Revenue Expenditure

Revenue expenditure is synonymous with consumption and non development, in general. But in the case of India, the social sector expenditure flag ship schemes like NREGA is in the revenue expenditure, though as a part of the Plan expenditure.

Fiscal Deficit
Fiscal deficit is the difference between what the government earns and its total expenditure. That is, the difference between what is received by the government on revenue account and all the non-debt creating capital receipts like recovered loans and disinvestment proceeds; and the total expenditure. It amounts to all borrowings of the government in a given period.

What is Budget Deficit

Budget deficit considers only the difference between the total budgeted receipts and the expenditure. It was abolished in 1997.

Monetised Deficit
Monetised deficit is the borrowings made from the RBI through printing fresh currency. It is resorted to when the government can not borrow from the market (banks and financial institutions like LIC etc) any longer due to pressure on interest rates.

Primary Deficit
Primary deficit is the difference between the fiscal deficit and the interest payments. The concept helps in assessing the progress of the government in its fiscal control efforts.

FRBM Act 2003

Fiscal Responsibility and Budget Management (FRBM) Act 2003 was notified in 2004 with the following salient features

annual targets of reduction in deficits, government borrowing and debt Government to annually reduce the revenue deficit by 0.5 per cent and the fiscal deficit by 0.3 per cent beginning fiscal 2004-05. elimination of revenue deficit and reduction of fiscal deficit to 3% of GDP by March 31, 2009. a cap on the level of guarantees and total liabilities of the Government. prohibits Government to borrow from the RBI (primary borrowing) after April 1, 2006. RBI can not print money to lend to the government. on a quarterly basis, that Government shall place before both the Houses of Parliament an assessment of trends in receipts and expenditure. annually present the macro-economic framework statement, medium term fiscal policy statement and fiscal policy strategy statement. The three statements would provide the macro-economic background and assessment relating to the achievement of FRBM goals. Under exceptional circumstances, Government may be compelled to breach targets. In case of deviations, the Government would not only be required to take corrective measures, but the Finance Minister shall also make a statement in both the Houses of Parliament.

Fiscal Consolidation
Fiscal consolidation means strengthening government finances. Fiscal consolidation is critical as it provides macro economic stability; cuts wasteful expenditure; can enable government to spend more

on infrastructure and social sectors. Tax reforms, disinvestment, better targeting of subsidies and so on are the hallmarks of fiscal consolidation.

Rangarajan Panel on Public Expenditure

18-member high-level expert committee has been set up under the Chairmanship of Dr C. Rangarajan to suggest measures for efficient management of public expenditure. This committee will see whether the classification of expenditure into Plan and Non-Plan is rational and can be continued

Public Debt
Public debt includes internal debt comprising borrowings inside the country like market loans; borrowing from the RBI on the basis of treasury bills; and external debt comprising loans from foreign countries, international financial institutions, NRI deposits etc

External Debt & its main component

External debt includes both the government and private debt. External debt consists of:

Long-term external debt which is the bulk part NRJ deposits and multilateral loans Commercial borrowings Bilateral loans and Trade credit

Internal Debt
Internal debt includes loans raised by the government in the open market through treasury bills and government securities, special securities issued to the RBI and most importantly, various bonds like the oil bonds, fertilizer bonds etc.

Fringe Benefit Tax

The benefits that are usually enjoyed collectively by the employees and cannot be attributed to individual employees. They are the fringe benefits. They are taxed in the hands of the employer. Examples are transport services for workers and staff, gym, club, etc.

What is Fiscal Drag

A situation where inflation pushes income into higher tax brackets- bracket creep. The result is increase in income taxes but no increase in real purchasing power. This is a problem during periods of high inflation.

What is Merit & Demerit Goods

Merit goods are goods like education, health care etc that are important for the society as a whole- that is, they have positive externalities Demerit Goods are those whose consumption should be discouraged. They have negative externalities. Examples of Demerit Goods include: tobacco, alcohol etc. Thirteenth Finance Commission calls them sin goods and wants them to be harshly taxed.

Giffen Goods
They include goods whose demand goes up when the price increases. They are the status markers and exclusivist in nature.

What is Twin Deficits

Budget deficit (fiscal deficit) and current account deficit-the two fuelling each other - are known as twin deficits

Chapter - Monetary & Credit Policy Monetary Policy and its objectives
The use by the Central Bank of interest rate and other instruments to influence money supply to achieve certain macro economic goals is known as monetary policy. Credit policy is a part of monetary policy as it deals with how much and at what rate credit is advanced by the banks. Objectives of monetary policy are:

accelerating growth of economy price stability exchange rate stabilization balancing savings and investment Generating employment and

What is Bank Rate

Bank Rate is the rate at which RBI lends long term to commercial banks. It is a tool which RBI uses for managing money supply and credit

What do you mean by SLR

It is the portion of time (fixed deposits) and demand liabilities (savings bank and current accounts) of banks that they should keep. in the form of designated liquid assets like government securities and other RBI-approved securities like, public sector bonds current account balances with other banks and gold SLR is aims at ensuring that the need for government funds is partly but surely met by the banks.

What is CRR
CRR is a monetary tool to regulate money supply. It is the portion of the bank deposits that a bank should keep with the RBI in cash form. CRR deposits earn no interest.

Open Market Operations of RBI

OMOs of the RBI can be described as purchase and sale of government securities in the Open market (open market essentially means banks and financial institutions) by the RBI in order to influence the volume of money and credit in the economy.

A purchase of government securities injects money into the market and thus expands credit; sales have the opposite effect- absorb excess liquidity and shrink credit.

Ready Forward Contracts (Repos)

It is a transaction in which two parties agree to sell and repurchase the same security. Under such an agreement the seller sells specified securities with an agreement to repurchase the same at a mutually decided future date and a price. Similarly, the buyer purchases the securities with an agreement to resell the same to the seller on an agreed date in future at a predetermined price.

In India, RBI lends on a short term basis to banks on the security of the government paper (repo). Banks undertake to repurchase the security at a later date- over night or few days. RBI charges a repo rate for the money it lends

Reverse repo is when RBI borrows from the market (absorbs excess liquidity) with the sale of securities and repurchases them the next day or after a few days. The rate at which it borrows is called reverse repo rate as it is the reverse of the repo operation.

What is Selective Credit Controls

Certain businesses can be given more and certain others may get less credit from banks on the orders of the RBI. Thus, selective credit controls can be imposed for meeting various goals like discouraging hoarding and black-marketing of certain essential commodities by traders etc by giving them less credit

Moral Suasion
A persuasion measure used by Central bank to influence and pressure, but not force, banks into adhering to policy.

What do you mean by LAF (Liquidity Adjustment Facility)

Liquidity Adjustment Facility (LAF) was introduced by RBI in 2000.Under Laf, banks borrow from RBI and lend to RBI and repo and reverse repo rates based on government securities which are held above the 24% limit of SLR. Funds under LAF are used by the banks for their day-to-day mismatches in liquidity. It is different from OMOs as OMOs involve outright purchase/sale of security while Laf is for lending/borrowing.

What do you understand by MSF

Reserve Bank of Indias (RBI) introduced marginal standing facility (MSF) in May 2011. Under the MSF, banks can borrow overnight up to 1% of net demand and time liabilities (NDTL). The MSF is set 100 basis points above the repo rate the rate at which banks borrow from RBI.

What do you mean by Base Rate

The Reserve Bank introduced base rate on Deepak Mohanty committee recommendations in 2010. It is the rate below which banks can not lend.

Reserve Bank of India

The central bank of the country is the Reserve Bank of India (RBI). It was established in 1935 with a share capital of Rs. 5 crores on the basis of the recommendations of the Hilton Young Commission.

Reserve Bank of India was nationalised in the year 1949. The general superintendence and direction of the Bank is entrusted to Central Board of Directors of 20 members, the Governor

and four Deputy Governors, one Government official from the Ministry of Finance, ten nominated Directors by the Government to give representation to important elements in the economic life of the country, and four nominated Directors by the Central Government to represent the four local Boards with the headquarters at Mumbai, Kolkata, Chennai and New Delhi.

Functions of RBI Bank Officers

Under Section 22 of the Reserve Bank of India Act, the Bank has the sole right to issue bank notes of all denominations. The distribution of one rupee notes and coins and small coins all over the country is undertaken by the Reserve Bank as agent of the Government.

RBI should maintain gold & foreign exchange reserves of Rs. 200 Cr, of which Rs. 115 Cr. should be in gold.

Banker to Government
The second important function of the Reserve Bank of India is to act as Government banker, agent and adviser. The Reserve Bank is agent of Central Government and of all State Governments in India. The Reserve Bank has the obligation to transact Government business, to receive and to make payments on behalf of the Government and to carry out their other banking operations.

Controller of Credit
The Reserve Bank of India is the controller of credit i.e. it has the power to influence the volume of credit created by banks in India.

Custodian of Foreign Reserves

The Reserve Bank of India has the responsibility to act as the custodian of Indias reserve of international currencies. It takes up operations in the forex market to stabilize the- exchange rate of rupee and ensure that there is no speculation and there is order.

Supervisory Functions
In addition to its traditional central banking functions, the Reserve bank has certain non- monetary functions of the nature of supervision of banks and promotion of sound banking in India. The Reserve Bank Act, 1934, and the Banking Regulation Act, 1949 have given the RBI wide powers of supervision and control over commercial and co-operative banks, relating to licensing and establishments, branch expansion, setting reserve ratios etc.

Promotional Functions
Since Independence, the range of the Reserve-Banks functions has steadily widened. The Bank now performs a variety of developmental and promotional functions. The Reserve Bank was asked to promote banking habit, extend banking facilities to rural and semi- urban areas, and establish and promote new specialised financing agencies.

Money Supply

This refers to the total volume of money circulating in the economy. Money supply can be estimated as narrow or broad money. M1 equals the sum of currency with the public and demand deposits with the banks. It is the narrow money.

M3 or the broad money concept, as it is also known includes time deposits (fixed deposits), savings deposits with post office saving banks and all the components of M1

Credit Crunch/Liquidity Crunch/ Liquidity Crisis

Credit/Liquidity crunch refers to a state in which there is a short supply of money to lend to businesses and consumers and interest rates are high. It may happen when the government borrows heavily and there is crowding out of the corporate sector

Chapter - Money Market & Capital Market In India Money Market

Money market refers to lending and borrowing short term funds- funds with a maturity of less than one year. Banks and financial institutions (IDBI, LIC etc) are the main lenders and borrowers while individuals, companies, Government and others are the main borrowers.

Call Money / Notice Money

Call/Notice money is money borrowed or lent for a very short period. If the period is more than one day and upto 14 days it is called Notice money otherwise the amount is known as Call money.

Treasury Bills

Treasury bills are short-term money market instruments, which are issued by the RBI on behalf of the GOI. The GOI uses these funds to meet its short-term financial requirements of the government. T-Bills are sovereign zero risk instruments.

There are T-Bills of 14 days, 91 days, 182 days and 364 days maturity. Minimum investment required in case of T-Bills is Rs 25,000

Inter Bank Term Money

Inter bank market for deposits of maturity beyond 14 days and upto three months is referred to as the term money market.

Certificates Of Deposit
After treasury bills, the next lowest risk category investment option is the certificate of deposit (CD) issued by scheduled commercial banks and FIs, Regional rural banks and Local area banks can not issue CDs.

Commercial Paper
It represents short term unsecured promissory notes issued by top rated corporates, primary dealers (PDS), Satellite dealers(SDS) and the all-India financial institutions (FIs).

Commercial Bills

Bills of exchange are negotiable instruments drawn by the seller (drawer) of the goods on the buyer (drawee) of the goods for the value of the goods delivered. These bills are called trade bills. These trade bills are called commercial bills when they are accepted by commercial banks. If the bill is payable at a future date and the seller needs money immediately, he may approach his bank for discounting the bill.

Capital Market
It refers to market for funds with a maturity of 1 year and above, referred to as term funds that includes medium and long term funds. The demand for these funds comes from both the government for its investment purposes and also the private sector. Banks, public financial institutions like LIC and CIIC; development financial institutions like ICICI, 1DBI etc; mutual funds like UTI are the main participants in the market.

Gilt edged securities

Government securities, or G-Secs as they are popularly known, are securities issued by the RBI on behalf of the Government of India to meet the latters borrowing programme for financing fiscal deficit. The G- Sec instrument is in the nature of a bond.

GOI Dated Security can be held by any person, firm, company, corporate body or institution, State Governments, Provident Funds and Trusts. Non-Resident Indians (NRIs, viz., Indian citizens and Individuals of Indian origin), Overseas corporate bodies predominantly owned by NRIs and Foreign Institutional, Investors registered with SEBI and approved by Reserve Bank of India are also eligible to invest in the Government Stock.

G-Secs have a maturity period ranging from one to 30 years and they carry a coupon rate (interest rate) which is paid semi-annually. They are issued both in demat and physical form. The minimum investment in G-Secs is Rs 10,000. G-Secs could be of the following types (i)Dated Securities: They have fixed maturity and fixed coupon rates payable half yearly and are identified by their year of maturity. (ii)Floating Rate Bonds: They are bonds with variable interest rates with a fixed percentage over a benchmark rate. There may also be a cap and a floor rate attached, thereby fixing a maximum and minimum interest rate payable on it. (iii)Capital Indexed Bonds: They are bonds where the interest rate is a fixed percentage over the wholesale price index. Redemption is linked to the wholesale price index.

Merchant Banks/Investment Banks

MBs are those who manage and underwrite (Underwriting an issue means to guarantee to purchase any shares in a new issue of rights issue not fully subscribed by the public) new public issues floated by companies to raise funds from public. They advise corporate clients on fund raising. They are also called investment banks (I banks). They deal only with corporates and not general public, essentially.

Mutual Funds
Mutual funds raise money from public and invest them in stock market securities, bonds etc. Mutual funds were virtually synonymous with the Unit Trust of India (UTI) till two decades ago when India

witnessed financial sector liberalization and many more public sector and private mutual funds came up, SEBI regulates mutual funds.

Venture Capital
Venture capital is money provided by financial institutions who invest alongside management in young, rapidly growing companies that have the potential to develop into significant economic contributors. Venture capital is an important source of equity for start-up companies.

Qualified Institutional Placement

The QIP Scheme is open to investments made by Qualified Institutional Placement which includes public financial institutions, mutual funds, foreign institutional investors, venture capital funds and foreign venture capital funds registered with the SEBI) in any issue of equity shares / fully convertible debentures / partly convertible debentures or any securities which are convertible into or exchangeable with equity shares at a later date (Securities).

NBFC

A company is treated as an NBFC if its financial assets are more than 50% of total assets and income from financial assets is more than 50% of the gross income. NBFC means Non-banking financial company. A non-banking financial company (NBFC) is a company registered under the Companies Act, 1956 and is engaged in the business of loans and advances, acquisition of shares/stock/bonds/debentures/ securities issued by government or local authority or other securities of like marketable nature, leasing, hire-purchase, insurance business, chit business, but does not include any institution whose principal business is that of agriculture activity, industrial activity, sale/purchase/construction of immovable property. NBFCs are similar to banks; however they do not accept demand deposits.

ECB (External Commercial Borrowings)

ECB (External Commercial Borrowings) is an instrument used to facilitate the access to foreign money by Indian corporations and PSUs (Public Sector undertakings). ECBs include commercial bank loans, buyer& credit, credit from official export credit agencies and commercial borrowings from the private sector window of Multilateral Financial institutions such as International Finance Corporation (Washington), ADB and Investment by Foreign Institutional Investors (FIIs) in dedicated debt funds. ECBs cannot be used for investment in stock market or speculation in real estate.

Credit Default Swap

It is a form of insurance against debt default. When an investor buys corporate (or government) bonds he/she faces the risks of default on part of the issuing agent. The investor can insure its investment in such bonds against default through a third party. The investor pays a premium to the party providing insurance. In the event of default by the bond issuer, the insurer would step in and pay the investor. A CDS is just that insurance, which is bought by those who fear default.

Chapter - Stock Markets In India Stock Markets

A stock exchange is an organization which provides a platform for trading shares- either physical or virtual. The origin of the stock, market dates back to the year 1494, when the Amsterdam Stock Exchange was first set up. In a stock exchange, investors through stock brokers buy and sell shares in a wide range of listed companies. A given company may list in one or more exchanges by meeting and maintaining the listing requirements of the stock exchange

Importance of Stock Exchanges

For efficient working of the economy and for the smooth functioning of the corporate form of organization, the stock exchange is an essential institution. an efficient medium for raising long term resources for business Help raise savings from the general public by the way of issue of equity debt capital attract foreign currency exercise discipline on companies and make them profitable investment in backward regions for job generation another vehicle for investors savings

Stock Exchanges in India

The first company that issued shares was the VOC or Dutch East India Company in. the early 17th century (1602). Since then we have come a long way. With over 25m shareholders today, India has the third largest investor base in the world after the USA and Japan. Over 9,000 companies are listed on the stock exchanges, which are serviced by approximately 7,500 stockbrokers. The Indian capital market is significant in terms of the degree of development, volume of trading and its tremendous growth potential.

Stock exchanges provide an organized market for transactions in securities and other securities. There are 24 stock exchanges in the country, 21 of them being regional ones with allocated areas

BSE
The Bombay Stock Exchange, or BSE) is the oldest stock exehange in Asia located at Dalal Street in Mumbai, India. Established in the year 1875, it is the largest securities exchange in India with more than 6,000 listed Indian companies. BSE is also the fifth largest exchange in the world with market capitalization of US $1.6 trillion (2011). About 5000 companies are listed on the BSE.

Sensex
Sensex or Sensitive Index is a value-weighted index composed of 30 companies with the base 19781979 = 100. It consists of the 30 largest and most actively traded blue chip stocks, representative of various sectors, on the Bombay Stock Exchange.

Demutualization
Demutualization is when management and ownership are separated. Ownership is divested from the brokers and the company becomes a public company. All stock exchanges are to be demutualised according to the Government law made in 2004. Demutualization, thus means that ownership, management and trading rights are separated in a stock exchange.

SEBI

The capital markets in India are regulated by the Securities and Exchange Board of India. (SEBI) It was established in 1988 and given a statutory basis in 1992 on the basis of the Parliamentary ActSEBI Act 1992 to regulate and develop capital market. SEBI regulates the working of stock exchanges and intermediaries such as stock brokers and merchant bankers, accords approval for mutual funds, and registers Foreign Institutional Investors who wish to trade in Indian scrips.

Capital Market

It refers to market for funds with a maturity of 1 year and above, referred to as term funds that includes medium and long term funds. The demand for these funds comes from both the government for its investment purposes and also the private sector. Banks, public financial institutions like LIC and CIIC; development financial institutions like ICICI, 1DBI etc; mutual funds like UTI are the main participants in the market.

SEBI promotes investors education and training of intermediaries of securities markets. It prohibits fraudulent and unfair trade practices relating to securities markets, and inter trading in securities, with the imposition of monetary penalties, on erring market intermediaries. It also regulates substantial acquisition of shares and takeover of companies and calling for information from, carrying out inspection, conducting inquiries and audits of the stock exchanges and intermediaries and self regulatory organizations in the securities market

Capital Market Reforms

Since 1991 when the Government launched economic reforms, the following measures were taken.

SEBI given statutory status- that is Act of Parliament Electronic trade Rolling settlement to reduce speculation FIIs are permitted since 1992 setting up of clearing houses settlement guarantee funds at all stock exchanges compulsory dematerialization of share certificates so as to remove problems associated with paper trading; and speed up the transfer clause 49 of the listing agreement for corporate governance restrictions on PNs

Primary Market
The primary market is that part of the capital markets that deals with the issuance of new securities directly by the company to the investors. Companies, governments or public sector institutions can obtain funding through the sale of a new stock or bond issue.

IPO
In the case of a new stock issue, this sale is called an initial public offering (IPO).

Secondary Market

The secondary market is the financial market for trading of securities that have already been issued in an initial public offering. Once a newly issued stock is listed on a stock exchange, investors and speculators can trade on the exchange as there are buyers and sellers

Derivatives
Derivative is a financial instrument. It derives from an underlying asset- securities, debt instruments, commodities etc. The price of the derivative is directly dependent upon the value of the underlying asset in the present and the projected future trends. Futures and options are the two classes of derivates

Buyback of Shares
Buy back of shares is the process of a corporations repurchase of stock it has issued. In the case of stocks, this reduces the number of shares outstanding, giving each remaining shareholder a larger percentage ownership of the company. This is usually considered a sign that the companys management is optimistic about the future and believes that the current share price is undervalued.

Rolling Settlement
Rolling Settlements is a mechanism of settling trades. In Rolling Settlements, trades done on a single day are settled separately from the trades of another day on the basis of Trade day + 2 days (T+2). Such petting of trades is done only for the day. As such, in Rolling Settlement, settlement is carried out on a daily basis. Since trades done on a given day can not be bunched with those of another day. Thus, speculation is drastically reduced

Commodity Exchanges
Commodity exchanges are institutions which provide a platform for trading in commodity futures just as how stock markets provide space-for trading in equities and their derivatives. They thus play a critical role in price discovery where several buyers and sellers interact and determine the most efficient price for the product There are two types of commodity exchanges in the country: national level and regional. There are five national exchanges

National Commodity & Derivatives Exchange Limited (NCDEX) Multi Commodity Exchange of India Limited (MCX) National Multi-Commodity Exchange of India Limited (NMCEIL) ACE Derivatives and Commodity Exchange Indian Commodity Exchange (ICEX)

FMC (Forward Market Commission)

Forward Markets Commission (FMC) headquartered at Mumbai is a regulatory authority, which is overseen by the Ministry of Consumer Affairs and Public Distribution, Govt. of India. It is a statutory body set up in 1953 under the Forward Contracts (Regulation) Act, 1952. The Commission consists of 2-4 members.

It monitors and disciplines the working of the exchanges. It recognizes an exchange or can withdraw such recognition. It collects and whenever the Commission thinks it necessary publishes information regarding the trading conditions in respect of goods.

FIIs

Foreign institutional investors are organizations which invest huge sums of money in financial assets - debt and shares- of companies and in other countries- a country different from the one where they are incorporated. They include banks, insurance companies retirement or pension funds hedge funds and mutual funds.

Foreign individuals are not allowed to participate on their own but go through FIIs

Global Depository Receipts (GDR)

Indian companies are allowed to raise equity capital in the international market through the issue of Global Depository Receipt (GDRs) GDRs are designated in dollars euro.

ADRs

American depository receipts are like shares. They are issued to US retail and institutional investors. They are entitled like the shares to bonus, stock split and dividend. They are listed either on Nasdaq or NYSE.

Participatory Notes
Participatory notes are instruments used for making investments in the stock markets. In India, foreign institutional investors (FIIs) use these instruments for facilitating the participation of overseas funds like hedge funds and others who are not registered with the SEBI and thus are not directly eligible for investing in Indian stocks.

Hedge Fund
A hedge fund is an investment fund open to only a limited range of investors. They are mostly unregulated. The term- hedge funds, is used to distinguish them from regulated investment funds such as mutual funds and pension funds, and insurance companies. Hedge funds are not allowed into India as they do not disclose data required by the SEBI.

Clearing House
An organisation which registers, monitors, matches and guarantees the trades of its members and carries out the final settlement of all futures transactions. The National Securities Clearing Corporation is the clearing house for the NSE.

Equity
Common stock and preferred stock that is, shares issued by the company. Also, funds provided to a business by the sale of stock.

Share

Share is a certificate representing ownership of the company that issued it. Shares can yield dividends and entitle the holder to vote at general meetings. The company may be listed on a stock exchange. Shares are also known as stock or equity.

Bond
A debt instrument issued for a period of more than one year with the purpose of raising capital by borrowing.

Blue Chip Share

Blue chip shares are the shares of the companies that are the most valuable. Companies that are profit making; usually dividend paying and are liquid in the market- that is there is almost always in demand on the market.

Midcap Company
Generally, companies with a market capitalization that is very high are called large caps and the next one below is mid cap and the bottom one is small cap companies. Limits are not statutorily laid down and vary from institution to institution.

Short Selling

The sale of a security made by an investor who does not own the security; The short sale is made in expectation of a decline in the price of a security, which would allow the investor to then purchase the shares at a lower price in order to deliver the securities earlier sold short

In short sale, shares are borrowed at a -fees/price and returned when the sell-buy operation is completed. Naked short selling, or naked shorting, is the practice of short-selling a financial instrument without first borrowing the security or ensuring that the security can be borrowed, as is conventionally done in a short sale. It is banned.

Insider Trading
Insider trading occurs when any one with information related to strategic and price-influencing information purchases or sells stocks so as to make speculative profits.

Chapter - Taxation System In India: Concepts & Policies Tax

Tax is a payment compulsorily collected from individuals or firms by government. A direct tax is levied on the income or profits of an individual or a company. The word direct is used to denote the fact that the burden of tax falls on the individual or the company paying the tax and can not be passed on to anybody else. For example, income tax, corporate tax, wealth tax etc. An indirect tax is levied on manufacturing and sale of goods or services. It is called indirect because the real burden of such a tax is not borne by the individual or firm paying it but is passed on to the consumer. Excise duty, customs duty, sales tax etc.

Funds provided by taxation are used by governments to carry out the functions such as:

military defense

enforcement of law and order redistribution of wealth economic infrastructure roads, ports etc social welfare social infrastructure like education, health etc social security measures like pensions for the elderly, unemployment benefits

Taxation System in India

India has a well developed tax structure. Being a federal country, the authority to levy taxes is divided between the central government and the state governments. The central government levies direct taxes such as personal income tax and corporate tax, and indirect taxes like customs duties, excise duties and central sales tax (CST). CST is assigned to the States in which it is collected. (Art.269). The states have the constitutional power to levy sales tax apart from various other local taxes like entry tax, octroi, etc.

Service Tax
Service tax was first imposed in 1994. Today the rate is 12% and a 3% education cess is additionally imposed. More than 100 services are being taxed. The service sector has emerged as an important area of economic activity. Reasons for taxing services

Its share in the countrys Gross Domestic Product (GDP) has increased from about 28% in 1951, to 55% (2011). Taxing services is important to raise resources and increasing the tax-GDP ratio service providers should share the tax burden with others-industry

Service Tax and Indian Constitution

The 88th amendment to the Constitution (2004) amended Article 270 (made it divisible) and inserted in the Union List (List I) entry No. 92C taxes on services. The amendment to the Constitution places services tax formally under the Union List, This will pave the way for the Centre to levy and collect the tax. The amendment becomes redundant with the introduction of GST in 2011 where the services will be jointly taxed by Centre and States.

GST

Goods and Services Tax is a multi-point sales tax with set off for tax paid on purchases of inputs. There is no cascading (tax on tax) effect as there is deduction or credit mechanism for taxes paid for the inputs. The tax is levied on the value added and on consumption only. Total burden of the tax is exclusively borne by the domestic consumer. Exports are not subject to GST.

The goods and service tax (GST) is proposed to be a comprehensive indirect tax levy on manufacture and sale of goods as well as services at a national level. Integration of goods and services taxation would give India a world class tax system and improve tax collections. It would end the long standing distortions of differential treatments of manufacturing and service-sector. The introduction of goods and services tax will lead to the abolition of taxes

such as octroi, Central sales tax, State level sales tax, entry tax, etc and eliminate the cascading effects tax on tax.

Constitutional Amendment for GST

Constitution (One Hundred and Fifteenth Amendment), Bill, 2011 (OST Bill) was introduced in the Parliament in the budget session in March 2011, deals with GST. The Bill seeks to introduce Goods and Services Tax (GST) and the GST Council. As per the existing structure of indirect taxation, the Parliament has the power to make laws on the manufacture of goods and the provision of services (Union List) while the State Legislatures have the power to make laws on the sale and purchase of goods within their respective states (State List). The Parliament has retained the exclusivity to make laws pertaining to sale of goods in the course of inter-state trade or commerce.

Chapter - Inflation - Concepts, Facts & Policy Inflation:

Inflation means a persistent rise in the price of goods and services. Inflation reduces the purchasing power of money. It hurts the poor more as a greater proportion of their incomes are needed to pay for their consumption. Inflation reduces savings; pushes up interest rates; dampens investment; leads to depreciation of currency thus making imports costlier.

Depending upon the rate of growth of prices, inflation can be of the following types:
Creeping inflation Creeping inflation is a rate of general price increase of I to 5 percent a year. Creeping inflation
of 3 to 5 percent erodes the purchasing power of money when continued over many years, but it is manageable. Furthermore, a low creeping inflation could be good for the economy as producers and traders make reasonable profits encouraging them to invest.

Trotting inflation Trotting inflation is usually defined as a 5 to 10 percent annual rate of increase in the general
level of prices that, if not controlled, might accelerate into a galloping inflation of 10 to 20 percent a year.

Hyperinflation Hyperinflation is inflation that is out of control, a condition in which prices increase rapidly as
a currency loses its value.

Measures of Inflation:
GDP deflator GDP stands for gross domestic product, the total value of all final goods and services produced
within that economy during a specified period.

GDP deflator is a measure of the change in prices of all new, domestically produced, final goods and services in an economy.

The GDP deflator is not based on a fixed market basket of goods and services but applies to all goods and services domestically produced.

Cost of living index The cost of living is the cost of maintaining a certain standard of living. It is defined with
reference to a basket of goods and services. When their cost goes up, CoL is said to be dearer and the index will go up. It has a value of 100 in the base year. An index value of 105 indicates that the cost of living is five percent higher than in the base year.

PPI
Producer price index (PPIs) measures the change in the prices received by a producer. The difference with the WPI is accounted for by logistics, profits and taxes, mainly, Producer price inflation measures the price pressure due to increase in the costs of raw materials. It may be absorbed by them or made up by increases in productivity or passed on to the consumers. It depends on the market conditions.

WPI

Wholesale price indices, which measure the change in price of a selection of goods at wholesale, prior to retail sales thus excluding sales taxes. These are very similar to the Producer Price Indexes.

CPI
Consumer price index measures the changes in prices paid by the consumer at the retail level. It can be for the whole community or group-specific for example, CPI for industrial workers etc as in India.

Types of Inflation

Demand- pull inflation: inflation caused by increases in demand due to increased private and government spending, etc. It involves inflation rising as real gross domestic product rises and unemployment falls. This is commonly described as too much money chasing too few goods.

Cost- push inflation: It is also referred to as supply shock inflation, caused by reduced supplies due to increased prices of inputs, for example, crude prices globally have gone up causing supply constraints which means higher costs of production and so higher prices.

Structural inflation: A type of persistent inflation caused by deficiencies in certain conditions in the economy such as a backward agricultural sector that is unable to respond to peoples increased demand for food, inefficient distribution and storage facilities leading to artificial shortages of goods, and production of some goods controlled by some people.

To Control Inflation

There are fiscal, monetary, supply-side and administrative measures to control inflation to ideal/optimal rates though zero rate of inflation is never preferred for the reasons cited elsewhere in the lesson.

Fiscal measures include reduction in indirect taxes Dual pricing like in sugar. Monetary measures include rate and reserve requirements changes. Open market operations can stabilize prices under normal conditions Also, sterilization through Government bond transactions as in the case of MSBs.

Supply side factors include making goods available- import of wheat in India. Administrative measures include implementation of dehoarding and anti-black-marketing measures. Wage and price controls can also be used

Inflation Targeting:

Inflation targeting focuses mainly on achieving price stability as the ultimate objective of monetary policy. This approach entails the announcement of an inflation target- either a number or a range, that the central bank promises to achieve over a given time period. The targeted inflation rate will be set jointly by the RBI and the government, although the responsibility of achieving the target would rest primarily on the RBI. This would reflect an active government participation in achieving the goal of price stability with fiscal discipline by way of a rational borrowing programme (not borrowing in excess).

Deflation

Deflation is a prolonged and widespread decline in prices that causes consumers and businesses to curb spending as they wait for prices to fall further. It is the opposite of inflation, when prices rise, and should not be confused with disinflation, which merely describes a slowdown in the rate of inflation.

Deflation occurs when an economys annual headline inflation indicator -- typically the consumer price index -- enters negative territory:

Deflation is hard to deal with because it is self-reinforcing. Put simply, unless it is stopped early, deflation can breed deflation, leading to what is known as a deflationary spiral.

Remedy Tax cuts to boost demand from consumers and businesses Lowering central bank interest rates to encourage economic activity
Printing more currency to boost money supply Capital injections into the banking system Increase government spending on projects that boost the return on private investment

Governments Steps to Control Inflation

The Government has taken a number of short term and medium term measures to improve domestic availability of essential commodities and moderate inflation. It has procured record food grains. Even after keeping the minimum buffer stock, there are enough food grains to intervene in the market to keep the prices at reasonable level.

A Strategic Reserve of 5 million tonnes of wheat and rice has also been created to offload n the open market when prices are high. This is in addition to the buffer stock held, by FCI every year.

Issue price of grains supplied through PDS outlets are frozen. The price situation is reviewed periodically at high-level meetings such as the Cabinet Committee on Prices (CCP).

New Price Index for Urban, Rural Consumers

The Central Statistics Office (CSO), Ministry of Statistics and Programme Implementation has introduced a new series of Consumer Price Indices (CPI) on base 2010=100 for all-India and States/UTs separately for rural, urban and combined with effect from January, 2011.

Chapter - Public Sector Public Sector Enterprise

In a public sector enterprise, the majority of equity shares is owned by the government directly or indirectly through governmental institutions and the government has decision making control. Public sector enterprise normally has the following forms of organisational structure

departmental undertakings statutory corporations companies registered under the Companies Act 1956 Boards cooperatives

The Objectives of the PSUs are:

To build a self reliant economy To prevent/reduce concentration of private economic power Establish sound economic infra-structure

Advantages & Disadvantages of Public Sector

In the last about 55 years of planned economic development, the public sector lived upto the expectations as can be seen below:

There are about 244 Central PSUs today (excluding insurance, finance and other companies) providing, the country with infrastructure in steel, cement, transport, communication , power and so on.

The record of the PSUs in supplying many goods and services like coal, transport, power, irrigation and so on is commendable The PSUs are a model employer providing various facilities like education, housing and so on. Establishing industries in MP, Rajasthan, Bihar and so on, the efforts of the PSUs to reduce regional economic imbalances are not insignificant Non-inflationary growth process is facilitated because of the PSEs as prices of their goods and services can be administered:

Public Sector and Economic Reforms

The New Industrial Policy 1991 made significant changes like dereserving many areas with only 3 areas being reserved today ; equity disinvestment; managerial revamp with greater autonomy; referring a sick PSU to the Board of Industrial and Financial Reconstruction (BIFR) and so on. List of industries reserved for the public sector-

Atomic Energy Minerals specified in the Schedule to the Atomic Energy (Control of Production and Use) Order, 1953 Railway transport. Service Tax and Indian Constitution

Disinvestment
Disinvestment is the sale of shares of the Government to the retail public or employees or mutual funds or the FIIs. In other words, in disinvestment (divestment), there is no change in the management from public to private hands because either the government holds majority equity (51%) or even if the government holds less than 5l% of equity, rest of it is sold to various individuals and institutions none of whom holds enough to take over management. It is essentially money-raising exercise with some accompanying benefits.

Advantages of Disinvestment / Privatization

it raises finances for the government that can be spent on restructuring the PSEs makes additional finances available for the social sector priorities exposes the enterprises to market discipline, thereby forcing them to become more efficient and survive on their own financial and economic strength when units become more professionalized and profitable, budgetary support for them can be minimized freeing resources for social and infrastructural needs results in wider distribution of wealth through offering of shares to small investors and employees. beneficial effect on the capital market; the increase in floating stock would give the market more depth and liquidity and facilitate raising of funds by the PSEs for their projects or expansion, in future.

Government Policy on Disinvestment/ Privatization

As a part of reforming the PSEs, Governments policy on disinvestment and privatization is evolving since the beginning of the reforms in 1991.Its main elements are

Divest to raise money and other advantages Profit-making PSUs will not be privatized

List the unlisted companies Making shares available to a wider section of the public Restructure and revive potentially viable PSUs; Close down PSUs which cannot be revived; Fully protect the interests of workers.

Navaratna
The government has a quantitative system to confer the status of Navaratna on PSE. According to the system, every PSE is rated on the following 6 parameters

Net Profit to Net Worth Total Manpower Cost as a Percentage of Total cost of Production Profit before Depreciation, Interest and Taxes (PBDIT) on Capital Employed PBDIT on turnover Earning per Share & Inter-sectoral performance To gain Navaratna status, a PSE must score atleast 60 out of 100 based on these 6 parameters. Additionally, a company must first be a miniratna and must have four independent directors on its board before it can be made a Navaratna.

Miniratna
There are two types of miniratna companies: Type I and II. Miniratnas can also enter into joint ventures, set subsidiary companies and overseas offices but with certain conditions:

Category I Miniratna
They are that have made profits continuously for the last three years and earned a net profit of Rs 30 crores or more in one of the three years. These miniratnas are granted certain autonomy like incurring capital expenditure without government approval up to Rs. 500 crores or equal to their net worth, whichever is lower.

Category II Miniratna
This category include those which have made profits for the last three years continuously and should have a positive net worth. Category II miniratnas have autonomy to incurring the capital expenditure without government approval up to Rs 300 crores or up to 50% of their net worth whichever is lower.

Maharatna Companies

The five state-owned units which were accorded the status were ONGC, NTPC and BHEL, IOC and SAIL. To be eligible for the grant of the Maharatna status, the company should have an average turnover of over Rs 25,000 crore, average annual net worth of more than Rs 15,000 crore and average annual net profit of over Rs 5,000 crore during the last three years.

Besides, it should be a Navratna firm, should be listed on the Indian Stock Exchange with minimum prescribed public shareholding under the SEBI regulations and have global presence

Once a company gets the Maharatna status, its board would not be required to take the governments permission for investments up to Rs 5,000 crore in a joint venture project or wholly-owned subsidiary. For the Navratna companies, the limit is Rs 1,000 crore.

The main objective of the Maharatna scheme is to empower mega-Central public sector enterprises to expand their operations and emerge as global giants. On the direct tax front, the reforms are the following

MOU (Memorandum of Understanding)

The beginning of the policy of Memorandum of Understanding can be traced to the report of the Arjun Sengupta Committee in mid eighties. One of the recommendations of this committee was for the introduction of the system of MOU for measurement of performance of public enterprises. The MOU system was introduced on an experimental basis in 1987-88.

The MOU system has been adopted as it was felt that PSEs are unable to perform at efficient levels because of multi-point accountability. Also, there was no clarity of objectives. Absence of functional autonomy also hampered their performance

MOU is a freely negotiated agreement between the public enterprise and the administrative ministry. Under the agreement, the enterprises undertake to achieve the targets set in the agreement at the beginning of the year. The MOU covers both financial performance as well as non-financial performance. Under this system performance of the company is categorized into five categories namely: excellent, very good, good, fair, and poor.

The objectives of the MOU system are to improve the performance of public enterprises by increasing autonomy and accountability of the management etc.

National Investment Fund

In 2005, it was decided that National Investment Fund would be set up. It was set up in 2007.

Objectives of NIF are:

The proceeds from disinvestment of CPSUs will be channelised into NIF, which is to be maintained outside the Consolidated Fund of India. NIF will be professionally managed to provide sustainable returns to the Government, without depleting the corpus. Selected Public Sector Mutual Funds will be entrusted with the management of the corpus of NIF.

Use of Disinvestment Proceeds

The income from the Fund is to be used for the following broad investment objectives

75% to finance selected social sector schemes which promote education, health and employment 25% to meet the capital investment requirements of profitable and revivable CPSEs that yield adequate returns, in order to enlarge their capital base to finance expansion /diversification

Chapter - Banking System In India Commercial Bank

A commercial bank is a type of financial intermediary. It is a financial intermediary because it mediates between the savers and borrowers. It does so by accepting deposits from the public and lending money to businesses and consumers. Its primary liabilities are deposits and primary assets are Ioan and bonds.

The commercial banking system in, India consists of public sector banks; private sector banks and cooperative banks.

Public Sector Banks

They are owned by the Government- either totally or as a majority stake holder.

State Bank of India and its five associate banks called the State Bank group 19 nationalised banks Regional Rural Banks mainly sponsored by Public Sector Banks

Development Banks
Development Banks are those financial institutions which provide long term capital for industries and agriculture: Industrial Finance Corporation of India (IFCI), Industrial Development Bank of India (IDBI), Industrial Credit and Investment Corporation of India (ICICI) that was merged with the ICICI Bank in 2000, Industrial Investment Bank of India (JIBI), Small Industries Development Bank of India (SIDBI), National Bank for Agriculture and Rural Development (NABARD),

Bank Nationalization
In 1969 and again in 1980, Government nationalized private commercial banking units for channelizing banking capital into rural sectors; checking misuse of banking capital for speculative purposes; to shift from class banking to mass banking (social banking); and to make banking into an integral part of the planning process of socio economic development in the country. Today, no other developing country can boast of a banking system comparable to Indias in terms of geographic coverage, operational capabilities, range of services and technological prowess.

Cooperative Banks

Co-operative Banks are organised and managed on the principle of co-operation, self-help, and mutual help. They function with the rule of one member, one vote and on no profit, no loss basis. Co-operative banks as a principle do not pursue the goal of profit maximisation.

Co-operative bank performs all the main banking functions of deposit mobilisation, supply of credit and provision of remittance facilities.

Narasimhan Committee
Banking sector reforms in India were conducted on the basis of Narasimhan Committee reports I and 11(1991 and 1998 respectively). The recommendations of Narsimham Committee 1991 are:

No more nationalization create a level playing field between the public sector, private sector and foreign sector banks. select few banks like SBI for global operations.

reduce Statutory Liquidity Ratio (SLR) as that will leave more resources with banks for lending.

reduce Cash Reserve Ratio (CRR) to increase lendable resources of banks. rationalize and better target priority sector lending as a sizeable portion of it is wasted and also much of it turning into nonperforming asset.

introduce prudential norms for better risk management and transparency in operations deregulate interest rates

NPAs (Non Performing Assets)

Non-performing assets are those accounts of borrowers who have defaulted in payment of interest or installment of the principal or both for more than 90 days. NPAs are largely a fallout of banks credit appraisal system, monitoring of end usage of funds and recovery procedures. It also depends on the overall economic environment, the business cycle and the legal environment for recovery of defaulted loans. Wilful default, priority sector problems among the poor etc are also responsible.

The following are the RBI guidelines for NPAs classification and provisioning:

Sub Standard Assets These are those accounts which have been classified as NPAs for a period less than or equal to 18 months. Doubtful Assets These are those accounts which have remained as NPAs for a period exceeding 18 months. Loss Assets In other words, such an asset is considered uncollectable and of such little value that its continuance as a bankable asset is not warranted although there may be some salvage or recovery value. But a loss asset has not been written off, wholly or partly.

SARFAESI Act 2002

To expedite recovery of loans and bring down the non-performing asset level of the Indian banking and financial sector, the government in 2002 made a new law that promises to make it much easier to recover bad loans from willful defaulters. Called the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 (SARFAESI), the law has given unprecedented powers to banks, financial institutions and asset reconstruction securitization companies to take over management control of a loan defaulter or even capture its assets.

Basel Norms

Banks lend to different types of borrowers and each carries its own risk. They lend the deposits of public as well as money raised from the market- equity and debt. The intermediation activity exposes the bank to a variety of risks. Cases of big banks collapsing due to their inability to sustain the risk exposures are readily available.

Therefore, banks have to-keep aside a certain percentage of capital as security against the risk of non-recovery.

Basel committee provided the norms called Basel norms to tackle the risk.

In 1988 Basel committee gave the first set of norms (Basel I) and presently the Basel II norms are being complied with by Indian banks as follows:

by 2008- foreign banks and Indian banks with overseas operation and by 2009 other Indian banks except local area banks and RRBs.

Shadow Banks
NBFCS are largely referred to as shadow banking system or the shadow financial system. They have become the major financial intermediaries. As seen in the note on NBFCS elsewhere, shadow institutions do not accept demand deposits and therefore are not subject to the same regulations.

Financial Inclusion

Many people, particularly those living on low incomes, cannot access mainstream financial products such as bank accounts and low cost loans. This financial exclusion forces them to borrow from the moneylenders at high cost. Therefore, financial inclusion has been the goal of governments policy since late sixties.

Banking Stability Index

It has been devised by the RBI in 2009. This index is simple average of five sub indices chosen for banking stability map that RBI has constructed. Banking Stability Map has used five key risk dimensions like operational efficiency, asset- quality, liquidity and profitability. These are based on capital adequacy ratio, cost-to-income ratio, nonperforming loans to total loans ratio, liquid assets to total assets ratio and net profit to total assets ratio.

How Indian Banks Survived the Global Crisis

Even though many banks failed and some survived on huge bailouts in the west due to the global financial crisis, Indian banking is almost unscathed for the following reasons.

Public sector banks- 27- dominate. FDI is 74% in private-banks but voting rights are only 10%. We adopted capital account convertibility in a measured manner. RET has been conservative and regulated the banks well. Banks were not allowed to invest in risky instruments like credit default swaps (CDS).

Basel norms, SER and CRR levels were well maintained. Prudential norms also saved the Indian banks from recklessness.

Recommendations of the Rangarajan Panel on Financial inclusion

The Committee on Financial Inclusion headed by Shri C. Rangarajan, submitted its report in 2008 and recommended that the semi-urban and rural branches of commercial banks and Regional Rural Banks may set for themselves a minimum target of covering 250 new cultivator and non-cultivator households per branch per annum with an emphasis on financing marginal farmers and poor noncultivator households for achieving financial inclusion.

Base Rate
It is the minimum rate of interest that a bank is allowed to charge from its customers. Unless mandated by the government, RBI rule stipulates that no bank can offer loans at a rate lower than BR to any of its customers.

ULIP
United Linked Invest Plans (ULIPs) are the insurance products in which payment is made partly for premium (insurance) and rest of it invested in the capital market like a Mutual Fund investment it led to jurisdictional disputes between SEBI and IRDA. SEBI says that a huge amount of ULIP is invested in stock market. Government promulgated an ordinance to set up a mechanism to regulate such jurisdictional disputes.

Swabhimaan 2011

The government has launched Swabhimaan-a programme to ensure banking facilities in habitation with a population in excess of 2,000, by March 2012. The programme will use various models and technologies, including branchless banking through business correspondents. The government has decided to pay banks Rs 140 for every no frills account they open as part of the financial inclusion plan.

The initiative would enable small and marginal farmers obtain credit at lower rates from banks and other financial institutions. This would insulate them from exploitation of the money lenders.

FSDC (Financial Stability & Development Council)

Financial Stability and Development Council is apex-level body constituted by government of India on an Act of Parliament in 2010. The idea to create such a super regulatory body was first mooted by Raghuram Rajan Committee and Deepak Parekh Committee. The recent global economic meltdown has put pressure on governments and institutions across globe to regulate the economic assets. This council is seen as an Indias initiative to be better prepared to prevent such incidents in future. The new body envisages to strengthen and institutionalise the mechanism of maintaining financial stability, financial sector development

Chapter - Poverty & Inequality Concepts Poverty

Poverty is deprivation of basic needs that determine the quality of life-food clothing, shelter, safe drinking water etc. It also includes the deprivation of opportunities to health, education, skills, employment etc. Many different factors have been cited to explain why poverty occurs. No single explanation has gained universal acceptance. The factors responsible for poverty include:

Historical factors, for example imperialism and colonialism. Overpopulation. Growth is not fast enough to eradicate poverty.

Models of growth may be unsuitable for poverty alleviation. For example, capital-intense growth in a labour surplus country.

Poverty itself, preventing investment and development etc.

Governments Initiative to Eradicate Poverty

The strategy of the Government includes the following elements:

The main plank to anti-poverty strategy is reducing poverty through the promotion of economic growth In India, after reforms began in 1991 when growth rates increased Poverty levels fell quite steeply (NSSO 2005).

Socioeconomic Planning Food security through the nation wide PDS- largest in the world. Progressive taxation to gamer fiscal Resources for Spending on poor. Social safety net like the, National Social Assistance Programme (NSAP). Open Society in Which Poverty is recognize as a nation1 challenge and earnest efforts are made to tackle it (Amartya Sen).

Anti-poverty programmes - NREGA 2005. Massive social sector expenditure for skill building Decentralization through PRJ5 and Nagarapalikas for better delivery models.

Poverty Line

It is the level of income below which one cannot afford to purchase all the resources one requires to live. People who have an income below the Poverty line have no disposable income.

When comparing Poverty across Countries the Purchasing power parity exchange rates are used. These are used because poverty levels otherwise would change with the normal exchange rates. Thus, living for under $1 a day should be understood as having a daily total consumption of goods and services comparable to the amount of goods and services that can be bought in the U.S. for $1.

Headcount Ratio
The most common standard indicator is the incidence of poverty (also called Poverty rate or headcount rate). This describes the percentage of the population whose per capita incomes are below the poverty line, that is, the population that cannot afford to buy a basic basket of items. In many instances, a different poverty linea much more austere one that generally only includes food items is applied to derive the extreme poverty rate.

Poverty Gap

PG is a measure of the intensity of poverty among the poor: the difference between the mean income among the poor and the poverty line. This indicator measures the magnitude of poverty as well as its intensity number of poor and how poor they are..

Misery Index
The misery index was initiated by Chicago Economist Robert Barro in the 1970s. It is the unemployment rate added to the inflation rate. It is assumed that both a higher rate of unemployment and a Worsening of inflation cause and intensify the misery.

Planning Commission and Poverty

The Planning Commission as the Nodal agency in the Government of India for estimation of poverty has been estimating the number and Percentage of poor at - national and state levels. Estimates of poverty are made from the large sample survey data on household Consumer expenditure conducted by the National Sample (NSSO) of the Ministry of Statistics and Programme Implementation.

NSSO and Poverty Estimates

National Sample Survey Organisation (NSSO) collects household consumer expenditure data every five years. Household consumer expenditure surveys are also Conducted annually but the sample size is much smaller Every five years full surveys on 1,20,000 households are carried out. In the intervening period thin samples of around 20,000 households are surveyed. The thin samples do not indicate trends fully.

The poverty line in India is defined as the monthly expenditure incurred in getting a daily calorie intake of 2,400 calories in rural and 2,100 calories in urban areas. The 6lst round of the National Sample Survey (NSSO) used the criterion of monthly per capita consumption expenditure below Rs. 356.35 for rural areas and Rs. 538.60 for urban areas.

Recommendation of NC Saxena Committee

The rural development ministry in 2008 appointed a committee headed by M Shankar to ascertain the number of the poor people in order to effectively identify beneficiaries for the Centres programmes aimed at Poverty alleviation. NC Saxena headed the committee after Mr. Shankar resigned.

The committee chaired by NC Saxena recommended that 50% of Indias population be given cards. Thus, it suggests expansion of the social security net which means fiscal and administrative challenges.

While advocating exclusion of large number of families from the BPL lists, the committee has recommended that those families having double the land of the district average of the agricultural land or two wheeler or one running bore well or income tax payers would be deleted from the BPL lists.

Inequality

When discussing poverty, inequality often refers to the income gap between the rich and poor of society. The greater the gap, the greater the inequality. It essentially refers to disparities in the distribution of economic assets and income- among individuals and groups within a nation and among nations.

It may result from the operation of the economic system, access to assets, nature of laws, education and skills, social factors like caste and gender etc.

Lorenz Curve
The Lorenz curve was developed by Max O. Lorenz as a graphical representation of income inequality. It can also be used to measure inequality of income or assets or any other facility. The Lorenz curve is used to calculate the Gini coefficient which is the numerical indicator of inequality in a country. Gini coefficient is derived by taking the following two.

area between the line of perfect equality and the Lorenz curve (a) area between the line of perfect equality and the line of perfect inequality (b).

Adverse Impact of Inequality

Growing inequalities can dampen growth due to potential instability; weaken social cohesion. Urban-dominated growth in India has caused Social friction as a result of the high levels of migration to cities and a shortage of foreign investment in more isolated areas.

In societies where wealth is concentrated in the hands of a few, there is danger of policy levers being captured by the rich for their own benefit and a weakening of the institutional foundations of the growth process.

Social Security in India

Certain social conditions need protection to prevent further distress- old age, poverty, unemployment, disability etc. Government provides social protection by way of wage employment, food grain either free or at affordable prices, old age pension etc. In some cases there is social insurance- disability etc. For many decades now, there have been laws in India that provided social security:

Workmens compensation Act 1923: A beginning was made in social security with the passing of the Workmens Compensation Act in 1923. The Act provides for payment of compensation to workmen and their dependents in case of injury and accident (including certain occupational disease) arising out of and in the course of employment and resulting in disablement or death.

Maternity benefit scheme: The Maternity Benefit Act, 1961 regulates employment of women in certain establishments for a certain period before and after childbirth and provides for maternity and other benefits.

Gratuity scheme :The Payment of Gratuity Act, 1972 provides for payment of gratuity at the rate of 15 days wages for each completed year of service subject to certain maximum.

Employees provident fund: Retirement benefits in the form of provident fund, family pension and deposit-linked insurance are available to employees.

Employees Pension scheme Aam Admi Bima Yojana Rashtriya Swasthya Bima Yojana Unorganised Workers Social Security Act 2008.

Pradhan Mantri Gram Sadak Yojana (PMGSY)

The PMGSY was launched in 2000 as a 100 per cent Centrally Sponsored Scheme with the primary objective of providing all weather connectivity to the eligible unconnected habitations in the rural areas.

The programme is funded mainly from the accruals of diesel cess in the Central Road Fund. In addition, support of the multilateral funding agencies and the domestic financial institutions is being obtained to meet the financial requirements of the programme.

Indira Awaas Yojana (IAY)

This scheme aims at providing dwelling units, free of cost, to the poor families of the Scheduled Castes, Scheduled Tribes, freed bonded labourers and also the non- SC/ST persons below the poverty line in rural areas. The scheme is funded on a cost sharing basis of 75:25 between the Centre and the States.

i-HDI
The 2011 UNDP Global Human Development Report The Real Wealth of Nations: Pathways to Human Development introduced a new index, the inequality-adjusted HD1 aimed at capturing the distributional dimensions of human development. Three dimensions of HDI i.e. income, education and health are adjusted for inequalities in attainments across people. Globally, India is ranked 134 out of 187 countries but loses 32 percent of its value when adjusted for inequalities.

i-HDI and India

Wide inequalities among states affect human development outcomes in India which is ranked 134 out of 187 countries India, ranked 134 on the human development index (HDI) loses 30 percent of its value when adjusted for inequality.

Indian states suffer a higher loss when adjusted for inequality in health compared to the global average of 21 percent.

Multidimensional Poverty Index

The MPI was created for the 20th Anniversary edition of the UNDP Human Development Report and uses different factors to determine poverty beyond income- based estimation. It uses a range of deprivations from which people suffer.

The measure assesses the nature and intensity of poverty at the individual level in education, health outcomes, and standard of living.

The MPI has three dimensions: health, education, and standard of living

Pranob Sen Committee on Slum Statistics/Census

A Committee under the Chairmanship of Dr. Pranob Sen was set up by Ministry of HUPA to study the slum definition and to estimate urban slum population for the whole country on the basis of available data. The summary of recommendations of the Committee is as follows:

The Committee estimated the slum population in all 5161 urban areas of the country including the 3799 statutory towns (Read ahead for a definition) to be 93.06 million by 2011. For the Slum Census 2011, the Committee has recommended that for policy formulation purposes it is absolutely essential to count the slum population even in cities having less than 20000 population. For the purpose of planning for Rajiv Awas Yojana and Slum-free India it would be necessary to count the population of slums in all statutory towns in the country in the 2011.

Rajiv Awas Yojana

With an aim of crating a slum-free India, government approved the launch of the phase-I of Rajiv Awas Yojana (RAY) to facilitate affordable housing for slum dwellers. The Centre would provide financial assistance to States willing to assign property rights to slum dwellers; for provision of shelter and basic civic and social services for slum redevelopment and; for creation of affordable housing stock under the RAY scheme.

The scheme is expected to cover about 250 cities, mostly with population of more than one lakh across the country by the end of 12th Plan (2017).

Mortgage Risk Guarantee Fund

Affordable housing is still a distant dream for the poor because of the banks reluctance to give credit to this section of society for various reasons. Centre set up a mortgage guarantee fund which would cover the risk of home loans given to the poor by banks and housing finance companies (HFCs).With a hedge fund to cover risk in title instruments, more financial institutions would come forward and foster the goal of inclusive growth of the downtrodden sections of the society.

Chapter - Unemployment Types of Unemployment

Demand-Deficient or Cyclical Unemployment Demand-deficient unemployment occurs when there is not enough demand to employ all those who want to work. It is also often known as cyclical unemployment because it will vary with the trade cycle.

Seasonal unemployment Seasonal unemployment is fairly self explanatory. In India agricultural employment is linked to monsoon and its behaviour. If there is a monsoon failure, unemployment results. The effects of seasonal unemployment are often highly regionalised.

Frictional or Search Unemployment When a person loses his job or chooses to leave it, he/she will have to look for another one. On average it will take everybody a reasonable period of time as they search for the right job. This creates unemployment while they search. The more efficiently the job market is matching people to jobs, the lower this form of unemployment will be. However, if there is imperfect information frictional unemployment will be higher.

Structural Unemployment Structural unemployment occurs when the structure of industry changes. Structural unemployment occurs when a labour market is unable to provide jobs for everyone who wants one because there is a mismatch between the skills of the unemployed workers and the skills needed for the available jobs.

National Sample Survey Organization (NSSO)

The NSSO collects data through sample surveys based on scientific technique of random sampling through household enquiry both in rural and urban areas. National Sample Survey Organisation Concept of work The NSSO has defined work or gainful activity as the activity pursued for-pay, profit or family gain or in other words, the activity which adds value to the national product. Normally, it is an activity, which results in production of goods and services for exchange. However, all activities in agricultural sector in which a part or whole of the agricultural production is used for own consumption and does not go for sale are also considered as gainful.

Okuns law
A description of what happens to unemployment when the rate of growth of GDP changes, based on empirical research by Arthur Okun (1928-80). It predicts that if GDP grows at around 3% a year, the jobless rate will be unchanged. If it grows faster, the unemployment rate will fall.

Labour Sector Reforms

Labour sector reforms are a part of the second generation reforms aimed at making Indian industry competitive in the age of globalization. The Indian labour scenario today is marked by rigid labour laws. 120 labour related laws made by Union and State Governments to protect labour which makes up 8% of the total labour force. Labour reforms are necessary for the industries for the following reasons:

competition from imports in the post-QR regime where the foreign countries have-flexible labour laws reduced import duties create greater competition for the domestic industry to cut costs and be productive to make the economy export-intensive.

Globlisation & Labour

In response to globalisation, the following developments on the labour market front are visible in Indian economy today

other input costs being not amenable to cutting, labour has borne the brunt of restructuring process in the search of the employers to cut costs and improve profitability wage cuts are being offered to workers to retain jobs permanent jobs are becoming scarce as companies are relying on contract labour for reasons of flexibility and wage gains VRSs some PSUs signed collective agreements for a 20% job cut.

Trade Union Law Changes

In response to the demands and challenges of the process of globalization, the Government found it necessary to rationalise the TU laws for better labour relations and productivity. The changes relate to

10% of the total strength of the employees or at least 100 members must form a trade union unlike earlier when 7 members sufficed curbs on the participation of outsiders in the leadership of the TUs restriction in the number of TUs promotion of accountability in their functioning- main proper financial accounts and conduct elections

NSSOs 66th Round Survey

The National Sample Survey Organisations (NSSO) latest survey data (66th round) for 2010 on employment and unemployment shows a significant slowdown in job creation between 2004-05 and 2009- 10- a period of jobless growth. Although the countrys real GDP growth averaged a robust 8.6 per cent per annum, the total employment growth was only 0.8 per cent per annum over this period compared to an annual 2.7 per cent in the previous five year period. The Labour Force Participation rate, which is a part of labour force that is ready for employment- seeking work (excludes students etc) witnessed a decline to 39.2 per cent in 2009-10 from 42 per cent in 2004-05 It is seen that the labour

participation rate for women dropped much more over this period from 29.4 per cent to 23.3 per. cent. This appears to be one of the reasons for the lower employment growth between 2004- 05 and 2009-10 than between 1999-2000 and 2004-05.

The sample size of this 66th round was 1,00,957 households - 59,129 from rural areas and 41,828 from urban areas.

Growing Inequalities

In spite of rising incomes, it is a matter of continuing concern that inequalities have also been widening which is a major, challenge relating to inclusive growth. The income disparities between the poorest and the richest in both rural and urban areas and between urban and rural population are on the rise. The current survey reveals that the spending of top 10 per cent of rural Indians was 5.76 times more than that of the bottom 10 per cent. This gap was slightly lower at 5.63 times during the previous survey period (2004-05).

In urban India, this inequality has widened much faster. In 2009-10, the top 10 per cent citydwellers spent 10.11 times more than what the bottom 10 per cent could. In 2004-05, this ratio was 9.14.

12th Plan: Some Employment-Related Ideas

Currently, India is passing through an unpre-cedented phase of demographic changes. The ongoing demographic changes are likely to contribute to an ever increasing size of labour force in the country.

The Census projection report shows that the proportion of population in the working age group (15-59 years) is likely to increase from approximately 58% in2001 to more than 64% by 2021. But the overall population is not the issue the proportion of population in the working age group of 15-59 years will increase-from 57.7% to 64.3%. To put it another way, those in the 15-59 age-group would have increased by about 308 million during the period. The- large numbers of the 15-59 year olds would also reflect in the workforce. It is estimated that by about 2025 India will have 25% of the worlds total workforce. But beyond 2025 the numbers of the aged will begin to increase even more dramatically, and consequently the window of opportunity is between now and 2025.

National Rural Livelihood Mission

National Rural Livelihoods Mission (NRLM), one of the major new initiatives under the Ministry of Rural Development to bring the poorest of the poor above the poverty line by ensuring viable livelihood opportunities to them was launched in Banswara, Rajasthan in mid-2011.

The Mission aims to ensure that at least one member from each identified rural poor household, preferably a woman, is brought under the Self Help Group (SHG) network in a time bound manner. NRLM would reach out, mobilize and support 7 Crore BPL households across 600 districts, 6000 blocks, 2.5 lakh Gram Panchayats, in 6 lakh villages across the country into their self-managed Self Help Groups (SHGs) and their federal institutions and livelihoods collectives. It would support them financially and institutionally.

Chapter - Agriculture Agriculture

With about 14.5% contribution (2011) to the gross domestic product (GDP), agriculture provides livelihood support to about two-thirds of countrys population. The sector provides employment to 57% of countrys work force and is the single largest private sector occupation. Agriculture accounts for about 10% of the total export earnings and provides raw material to a large number of Industries (textiles, silk, sugar, rice, flour mills, milk products). Besides, the rural areas are the biggest markets for low-priced and middle-priced consumer goods, including consumer durables.

Accounting for Success in Agriculture

The main factors for the all-round success of agriculture have been

increase in net sown area expansion of irrigation facilities land reforms, especially consolidation of holdings development and introduction of high yielding seeds Fertilizers improved implements and farm machines technology for pest management price policy based on MSP and procurement operations infrastructure for storage/cold storage

improvements in trade system increase in investments, etc.

Crisis and Challenge in Agriculture

Low farm incomes due to inadequate productivity growth, high prices of inputs and lack of credit at reasonable rates pushed many farmers into crippling debt. Uncertainties have increased- prices, quality of inputs, weather and pests which, coupled with unavailability of proper extension and risk insurance have led farmers to despair. This has also led to widespread distress migration, a rise in the number of female headed households in rural areas and a general increase in womens work burden and vulnerability.

Initiative taken by Government for Agricultural Growth

In recent years, several new initiatives have been taken which included:

Announcement of National Policy for Farmers (2007). Kisan Credit Card (1998-1999). Creation of a Watershed Development Fund Bharat Nirman National Horticulture Mission Technology Mission on Cotton (1999-2000). Implementation of the National Agriculture Insurance Scheme/Rashtriya Krishi Bima Yojana. programmes for elimination of post-harvest losses Lifting some of the restrictions and controls on the movement and storage and exports of foodgrains / agri produce.

De-reservation of the manufacture of some farm implements/machines from the small scale industries sector

Capital Formation in Indian Agriculture

Capital formation is one of the basic factors for increasing production. It means addition to the physical stock of dams, roads, power plants and other infrastructure. This is all the more important in agriculture where we are faced with the need of increasing production against vagaries of weather to keep pace with the increase in population. Government stepped up public investment significantly for rural roads and rural employment programme Major measures taken for agriculture development through enhanced capital formation include the following:

A roadmap for agriculture diversification has been prepared with focus on horticulture floriculture, animal husbandry and fisheries. Strengthening of agriculture marketing infrastructure National scheme for the repair, renovation and restoration of water bodies.

Focus on micro irrigation, micro finance micro insurance and rural credits. Setting up a Knowledge Centre in every village. Setting up a National Fund for strategic agricultural research etc.

Soil Health

Soil health is a critical factor for agriculture Productivity and human health. The following steps are being taken to improve it. Government will issue Soil Health Cards to all farmers in the Country detailing the deficiencies in the soil and the amount of fertilizers needed, Soil Health Cards would give farmers information about the quality of the soil and what is the normal quantity of fertilizer to be used for a particular crop.

Extension services

The National Commission on Farmers (NCF) has drawn attention to the knowledge deficit that exists at present and explains much of the difference between yields realised in experiments and what farmers actually get. One reason for this is the virtual collapse of extension services in most States.

The Department of Agriculture and Cooperation, along with NABARD, has introduced a scheme for establishment of agri-clinics / agri-business centres / ventures by the agricultural graduates.

The ICAR is also associated in agriculture extension activities not only through KVKs but also Institute Village Linkage Programme (IVLP) and also its institutes / centres all over the country. The interaction of KVKs activities with the State / district extension machinery is being strengthened. It is planned to strengthen linkages between research and extension to improve quality and effectiveness of research and extension system.

Rainfed Agriculture

The ministry of agriculture classifies areas, which receive less than 750 mm rainfall annually, and have less than 30 per cent land under irrigation (both surface and ground water) as drylands.

Rainfed regions are those where crop production is exclusively dependent upon rainfall. In India rainfed regions Cover 177 districts and exists in all agro-climatic zones.

Rainfed agriculture plays an important role in Indias economy Rainfed crops account for 48 per cent of the total area under food crops and 68 per cent of the area under non-food crops in the country.

Nearly 50 per cent of the total rural workforce and 60 per cent of the livestock in the country are concentrated in the dry districts.

NABARD

The National Bank for Agricultural and Rural Development (Nabard) was set up in 1982, as the apex development bank for agriculture and rural development under an Act of Parliament. The bank began by taking over the agriculture credit functions of the Reserve Bank of India and the refinance functions of the then Agricultural Refinance and Development Corporation (ARDC).

Nabards mission is to promote sustainable and equitable prosperity in rural India through effective credit support, related services, institution development and other innovative initiatives. Its prime function continues to be that of refinancing, supplementing the resources of co-operative banks, regional rural banks (RRBs) and commercial banks against the amounts lent at the grassroots level for agriculture and rural development.

Regional Rural Banks

Regional rural banks were set up in 1975 under an Act of Parliament to exclusively cater to the credit needs of the rural Population, especially small and marginal farmers. The ownership structure of RBs is, the Central Government (50 per cent), the State (15 per cent) and the Sponsor commercial bank (35 per cent). The Sponsor bank manages the RRB concerned.

Local Area Banks

LABs were started in 1996 with a view to providing institutional mechanisms for promoting rural savings as well as for the provision of credit for viable economic activities in the local areas. They are in the private sector. This is expected to bridge the gaps in credit availability and enhance the institutional credit framework in the rural and semi urban area.

RIDF
RIDF was introduced by Government of India during the year 1995-96 for implementation and timely completion of various rural oriented schemes / projects in the States which were languishing for shortage of funds. The fund is placed with NABARD for providing loan assistance to the State.

M.V. Nair Committee August 2011

The Reserve Bank of India has set up a 10-member committee to re-examine priority sector lending classification norms under the chairmanship of Mr. M.V. Nair, CMD, Union Bank of India, and is expected to submit its report in four months time.

The committee will also look into the issue of whether bank lending via financial intermediaries such as MFIs, non-banking finance companies, housing finance companies etc., for eligible categories of borrowers and activities could be classified under the priority sector and if so, to lay down suitable conditions.

Microfinance

Microfinance is defined as provision of credit and other financial services like insurance of very small amount to the poor in rural, semi-urban and urban areas for enabling them to raise their income levels and improve living standards. Micro finance Institutions are those which provide these facilities.

Microfinance covers not only consumption and production loans for various farm and nonfarm activities of the poor but also include their other credit needs such as housing and shelter improvements.

A Self-Help Group (SHG) is a registered or unregistered group of micro entrepreneurs having homogenous social and economic background voluntarily coming together to save small amounts regularly, to mutually agree to contribute to a common fund and to meet their emergency needs on mutual help basis.

Types of micro credit providers in India

Domestic Commercial Banks: public Sector Banks; Private Sector Banks & Local Area Banks Regional Rural Banks Co-operative Banks Co-operative Societies Registered NBFCS Unregistered NBFCS Other providers like Societies, Trusts, etc.

In the area of microfinance, there are many areas of concern in India. They are:

unjustified high rates of interest lack of transparency in interest rates and other charges. multiple lending upfront collection of security deposits over-borrowing ghost borrowers coercive methods of recovery

Malegam Committees recommendation

The committee, headed by Reserve Banks Central Board Director Y. H. Malegam, also recommended creation of a separate category of non-banking financial companies (NBFC-MFI) for the micro finance sector.

The panel also said small loans of up to Rs. 25,000 could be given to families having an income up to Rs.50,000 per annum.

It further said at least 75 per cent of loans extended by MFIs Should be for income generation purposes It further recommended that a borrower cannot take loans from more than two MFIs.

These recommendations the committee said, Should be implemented from April 1, 2011.

Kisan Credit Cards

The scheme of Kisan Credit Card (KCC) was introduced in 1998-99 for timely, easy and flexible availability of production credit to farmers Commercial banks, cooperative banks and RRBs are implementing this scheme. Each farmer is provided with a Kisan Credit Card and a passbook for providing revolving cash credit facilities. The farmer is permitted any number of drawals and repayment within a stipulated date, which is fixed on the basis of land-holdings.

All categories of farmers including tenant farmers, share croppers, oral lessees are eligible for a Kisan Credit Card.

National Food Security Mission

The Department of Agriculture & Cooperation, Ministry of Agriculture, has launched a Centrally-sponsored scheme on National Food Security Mission (NFSM) in pursuance of the resolution of the National Development Council (NDC) to increase the production of rice, wheat and pulses by 10, 8 and 2 million tonnes, respectively, over the benchmark levels of production, by the end of the Eleventh Five Year Plan period.

The Mission aims at increasing foodgrains production of the above crops through area expansion and productivity enhancement; restoring soil fertility and productivity; creating employment opportunities; and enhancing farm level economy to restore confidence of farmers of targeted districts.

Rashtriya Krishi Vikas Yojana (RKVY)

The NDC in its 53rd meeting (2007) decided to launch a programme to incentivise the States to increase the share of investment in agriculture in their State plans. Accordingly, the Government approved the Rashtriya Krishi Vikas Yojana (RKVY) with an allocation of Rs. 25,000 crore for the Eleventh Five Year Plan.

The RKVY aims at achieving the 4 per cent annual growth in the agriculture sector during the Eleventh Five Year Plan period by ensuring a holistic development of agriculture and allied sectors. The RKVY will be a State Plan Scheme and the eligibility for assistance under the scheme would depend upon the amount provided in the -State budgets for agriculture and allied sectors, over and above the baseline percentage expenditure incurred on agri-culture and allied sectors. The funds under the RKVY would be provided to the States as 100 per cent grant by the Central Government.

Kisan Call Centres

Kisan Call Centres function form 6.00 AM to 10.00 PM on all days throughout the year. They receive calls through the toll-free number 1800-180-1551. Call Centre agents reply farmers queries instantaneously by using their own expertise as well as by referring to reference material available with them.

Nutrient Based Fertilizer Subsidy

Government has shifted to a nutrient-based fertilizer pricing system to help farmers get fertilizers such as di-ammonium phosphate (DAP), muriate of potash (MOP) and complexes at cheaper rates.

The new pricing would help farmers get complexes at cheaper rate as these fertilizers were not covered under the previous subsidy regime that covered fertilizers which mainly contained primary nutrients nitrogen, phosphorous and potassium.

Chapter - Important Indices Global Hunger Index

The Global Hunger Index (GHI) is a multidimensional statistical tool used to describe the state of countries hunger situation. The Index is developed by the International Food Policy Research Institute (IFPRI), Washington. Irish NGO Concern Worldwide joined the group as copublisher later. India has been ranked 67, below neighbouring countries like China and Pakistan.

The index rated 81 countries on the basis of three leading indicators- prevalence of child malnutrition, rate of child mortality, and the proportion of people who are calorie deficient.

Global Gender Gap Index 2011

According to the Global Gender Gap report issued by World Economic Forum, India is ranked 113 out of total 135 countries. Iceland topped the Global Gender Gap rankings showing greatest equality between men and women, followed by Norway, Finland, Sweden, and New Zealand respectively. Yemen was last in the list at 135.

The Global Gender Gap Report assesses 135 countries on how well they divide resources and opportunities amongst male and female populations. Gap is measured in the areas of economic participation and port unity, educational attainment, political empowerment, and health and survival.

Innovation Index

The Global Innovation Index is a barometer of the countries wealth, knowledge and competitiveness. Switzerland stood number one followed by Sweden and Singapore. The countries listed in the top 10 are the developed nations.

The methodology involves rating the countries on 5 inputs for getting 3 outputs. Based on the score of the outputs the ranking of the countries is decided.

In the 2011 Global Innovation Index report, India is ranked 62. India started to liberalise its economy only recently. New India or India 2.0 is only 19 years old if we start counting from 1991. Since then India grappled with expanding economy remarkably well.

Global Competitiveness Index 2011-12

India has slipped to 56th from the 51st spot in the World Economic Forums annual Global Competitiveness Report (GCR) 2011-2012 among 139 countries rated for institutions, policies, and factors that determine the level of productivity.

The top ten ranked countries have retained their spots since 2009. While Switzerland is first for the third consecutive year, Singapore is second and Sweden is at the third spot.

Chapter - Bretton Woods Institutions and Others Bretton Woods Conference

The United Nations Monetary and Financial Conference, commonly known as Bretton Woods conference, was held in Bretton Woods, New Hampshire, USA to regulate the international monetary and financial order after the conclusion of World War II. The conference resulted in the agreements to set up the International Bank for Reconstruction and Development (IBRD)- popularly known as World Bank and the International Monetary Fund (IMF).The IMF was set up to foster monetary stability at global level. The IBRD was created to speed up post-war reconstruction. The two institutions are known as the Bretton Woods twins.

IMF
The International Monetary Fund, a UN specialised agency, was established under the Bretton Woods Agreement in 1944 along with the World Bank. It has 187 members (2011). It is headquartered in Washington and its Managing Director is Christine Lagarde. It started functioning in 1947.

IMF objectives are:

To promote international monetary cooperation To facilitate balanced growth of international trade for the economic growth of all member countries

To promote exchange rate stability; maintain orderly exchange rate arrangements; and to avoid competitive exchange rate revaluation

To help members in times of balance of payments crisis.

SDRs

The SDR is an international reserve asset, created by the IMF in 1969 to supp1ement its member countries official reserves. Its value is based on a basket of four key international currencies- dollar, euro, yen and pound. SDRS can be exchanged for national currencies.

SDR is neither a currency, nor a claim on the IMF. Rather, it is a potential claim on the freely usable currencies of IMF members. Holders of SDRs can obtain these currencies in exchange for their SDRs.

World Bank Group and World Bank

The World Bank Group (WBG) is a family of five international organizations that gives loans, generally to poor countries. The Bank came into existence in 1945 following international ratification of the Bretton Woods agreements, which emerged from the United Nations Monetary and Financial Conference (1944). It is responsible for the preparation of the World Development Report. Commencing operations in 1946, it began operations for post-war reconstruction. Its current role is different as it focus is to lend to and develop the poor countries and help fight poverty in all its facets.

The Groups headquarters are in Washington. It is an international organization owned by member governments; although it makes profits, these profits are used to support continued efforts in poverty escalation.

Technically the World Bank is part of the United Nations system, but its governance structure is different: each institution in the World Bank Group is owned by its member governments, which subscribe to its basic share capital, with votes proportional to shareholding. Membership gives certain voting rights that are the same for all countries but there are also additional votes which depend on financial contributions to the organization. The President of the World Bank is conventionally an American and currently is Robert Zoellick. There are 187 countries in the WB today. Tuvalu is the 187th member of WB.

Its five agencies are:

International Bank for Reconstruction and Development (IBRD) International Development Association (IDA)\ International Finance Corporation (IFC) Multilateral Investment Guarantee Agency (MIGA) International Centre for Settlement of Investment Disputes (ICSID)

IBRD
The International Bank for Reconstruction and Development (IBRD) is one of five institutions that comprise the World Bank Group. The IBRD is an international organization whose original mission was to finance the reconstruction of nations devastated by World War II. Now, its mission has expanded to fight poverty by means of financing states.

IDA

The International Development Association (IDA), is the part of the World Bank that helps the worlds poorest countries. It complements the World Banks other lending arm the International Bank for Reconstruction and Development (IBRD) which serves middle-income countries with capital investment and advisory services.

IDA was created in 1960 and is responsible for providing long-term, interest-free loans to the worlds 80 poorest countries. IDA provides grants and credits with repayment periods of 35 to 40 years.

MIGA

The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank group. It was established to promote foreign direct investment into developing countries. MIGA was founded in 1988 and is headquartered in Washington.

MIGA promotes foreign direct investment into developing countries by insuring investors against political risk, advising governments on attracting investment etc.

ADB

ADB is an international development finance institution whose mission is to help its developing member countries reduce poverty and improve the quality of life of their people. Headquartered in Manila, and established in 1966, ADB is owned and financed by its 67 members, of which 48 are from the region and 19 are from other parts of the globe. ADBs main partners are government the private sector, non-government organizations development agencies, Community based organizations, and foundations.

G-20
The Group of Twenty (G-20) Finance Ministers and Central Bank Governors was established in 1999 to bring together systemically important industrialized and developing economies to discuss key issues in the global economy. The inaugural meeting of the G-20 took place in Berlin in 1999, hosted by German and Canadian finance ministers.

OECD

The Organisation for Economic Co-operation and Development (OECD) is an international economic organisation of 34 countries founded in 1961 to stimulate economic progress and world trade. It defines itself as a forum of countries committed to democracy and the market economy, providing a platform to compare policy experiences, seeking answers to common problems, identifying good practices, and co-ordinating domestic and international policies of its members.

The OECD originated in 1948. Later, its membership was extended to non-European states. The OECDs headquarters are in Paris.

Chapter - GATT and WTO GATT:

The General Agreement on Tariffs and Trade (GATT) is an agreement that was arrived at in 1947 by 23 countries to establish an free and fair international trading regime among member countries based on dismantling of trade barriers - tariffs or non-tariff restrictions like quotas. It came into existence in 1948. India was a founding member.

GATT progressed expanded its scope in terms of areas covered by a series of trade roundsnegotiations centered around a specific set of issues over a period of a few years leading to agreement among members are called a round. GATT was headquartered in Geneva, Switzerland.

WTO:

WTO was set up as a result of the Uruguay Round. WTO came into existence in 1995. Doha Round is the first round under the WTO (2001). It is yet to complete.

GATT and WTO:

GATT is different from WTO in two essential respects- GATT is a treaty while WTO is an organization. GAIT had no dispute settlement process while WTO has. The GATT was essentially concerned with traditional trade issues such as tariffs and quotas in international trade. It had only a relatively small secretariat with no institutional foundation to implement these rules.

Like its predecessor, it is headquarter in Geneva, Switzerland. It has 157 members. Russia, montenegroo & Samoa has given membership status in 8th ministerial centre in 2011. Pascal Lamy, former European Commissioner for Trade, is the current Director General of the World Trade Organization.

The WTO states that its aims are to increase international trade by slashing trade barriers and providing a platform for the negotiation of trade and related issues. Basically, it sets up a rule based multilateral trading System to liberalise the regime and boost world trade.

Dispute Settlement:

World Trade Organization (WTO) has a dispute settlement body (DSB) that settles trade disputes among members. Disputes can arise from trade policies of members that are violative of the WTO rules.

WTO procedures require sixty days of consultations among the disputants to resolve the dispute falling which a disputes panel is set up.

There is no separate DSB but the General Council which is the second highest body in the organization works as the DSB while giving verdict on the trade dispute. DSB conclusion can be challenged in an appellate body.

The process of taking the decision by the DSB: the process requires that the ruling of the Panel should be adopted unless there is a consensus of the members against adoption.

TRIPS:

Intellectual property (IP) is the work of intellect or mind to create products that have commercial uses- products like drugs, literature, paintings etc. It is protected like the physical property with trade marks, patents etc. Holders of the patents etc are entitled to the commercial proceeds for a specified time period, exclusively. Types of intellectual property rights:

A patent may be granted for a new, useful, and non-obvious invention, and gives the patent holder an exclusive right to commercially exploit the invention for a certain period of time (typically 20 years from the filing date of a patent application)

Copyright is given for creative and artistic works (e.g. books, movies, music, paintings, photographs, and software) and give a copyright holder the exclusive right to control reproduction or adaptation of such works for a certain period of time.

A trademark is a distinctive sign which is used to distinguish the products or services of different businesses.

An industrial design right protects the form of appearance, style or design of an industrial object (e.g. spare parts, furniture, or textiles).

The need for agreement on TRIPS arises from the fact that the commercial proceeds from international trade in intellectual property are growing in worth.

Agreement on TRIPS lays down legal standards for the member Countries to protect intellectual property by way of copyright rights; geographical indications industrial designs; integrated circuit layout design patents; monopolies for the developers of new plant varieties; trademarks TRIPS regulates dispute resolution procedures and enforcement procedures.

Patents:

A patent is an exclusionary right. It grants the right to exclude others from making use of the patented invention for the given period of 20 years from the filing date. In return for the patent, the inventor offers the knowledge with commercial use to be put in public domain after the expiry of the patent. Patent is an incentive to innovate and invent. It sustains research and development (R and D).

Geographical Indications:

In 1999, the Parliament passed the Geographical indications of Goods (Registration and Protection) Act, 1999 This Act seeks to provide for the registration and protection of geographic indications relating to goods in India the Act is administered by the Controller General of Patents, Designs and Trade Marks who is the Registrar of Geographic Indications The Geographical indications Registry is located at Chennai.

The Geographical Indications of Good (Registration and Protection) Act, 1999 came into force in 2003. This is a Sui generic legislation intended to give better protection to GIs of India. The registration is done by the Geographical Indications Registry at Chennai.

Patents (Amendment) Act 2005:

Indian Parliament passed the Patents (Amendment) Bill 2005. It introduced product patent regime for food, chemicals and pharmaceuticals. India was required to introduce product patent protection in these sectors from 1.1.2005 in accordance with the obligation under the TRIPS Agreement of the WTO. Highlights of the Act

Product patent protector to drugs, foods and chemicals availability of Pre-grant Challenge

discover of a flew form of a known Substance does not qualify for a patent; nor mere discover of any new property or flew use for a known substance

introduction of a provision for enabling grant of compulsory license and parallel imports to meet public health crises

Doha Round:

Doha Round of Trade talks under the WTO began in 2001 in Doha, the capital of Qatar. Doha was the fourth ministerial after the WTO came into force- Singapore, Geneva, Seattle and Doha. It is called Doha Round because the talks were started in Doha. It is called Doha Development Round as it promised to address the issues that were important to the developing countries like India.

The criticism is that since the developing countries believed that they received a raw deal under the Marrakesh Treaty in matters related to agriculture, patents and so on, they needed additional inducements to agree to the new round of talks.Thus naming the Round as a Development Round was to pacify the developing countries.

Most Favoured Nations (MFN):

The principle of the MFN treatment means that, the tariff policy that one country receives in an organization should be extended to all others. Some members may form a preferential trading block within the larger body but all others should atleast receive normal treatment. Contrary to the popular view, the MFN does not mean giving special treatment to imports from another country. It only means normal trading relation- neither positive nor negative discrimination. MFN treatment is not limited to tariffs. It extends on all matters like quotas and other rules related foreign trade.

The members of the World Trade Organization, which also include all developed nations, accord MFN status to each other.

What are the benefits:

It provides level playing field among countries which is the essence of multilateralism A country can import from the most efficient source. This may not be the case if tariffs differ by country.

Poorer countries will have normal trading relations with the rich countries which may not be the case otherwise

Amber box:

Amber box - trade and production-distorting policies. They are subject to reduction commitments (AMS).

Anti Dumping Duties:

Special import duties imposed when a firm, following an enquiry, is assessed as having sold a product in the importing market at a price below the one it charges in the home market or

below the cost of production or at less than fair value; and it damages the producers in the importing country

Blue Box:

Trade-distorting direct payments to farmers combined with production-limiting programmes, e.g. programmes requiring land to be set-aside from production. Blue box support is not subject to reduction commit-ments in the Uruguay Round.

Dumping:

exporting goods at a price lower than the price a company normally charges on the domestic market. Governments in the importing country may levy anti-dumping duties, designed to offset the actual or potential injurious effects of dumping practices.

LDC:

Least Developed Countries, group defined by the United Nations on the basis of certain economic indicators includes 49 countries.

Special Products and Special Safeguard Mechanisms:

Special Products (SP) and Special Safeguard Mechanisms (SSM) are key concerns of developing nations involved in WT0 negotiations. By using SP and SSM, these nations hope to ensure food security and protect small farmers and the rest of the poor from the vagaries and pressures of inter-national trade in agriculture commodities.

ACTA:

The Anti-Counterfeiting Trade Agreement (ACTA) is a proposed plurilateral agreement for the purpose of establishing international standards on intellectual property rights enforcement. ACTA would establish a new international legal framework that countries can join on a voluntary basis and would create its own governing body outside existing international institutions such as the World Trade Organization (WTO), the World Intellectual Property Organization (WIPO) or the United Nations. Negotiating countries have described it as a response to the increase in global trade of counterfeit goods and pirated copyright protected works. The scope of ACTA is broad, including counterfeit goods, generic medicines and copyright infringement on the Internet.

NAMA:

The Non-Agricultural Market Access (NAMA) negotiations cover all those products that are not covered by the Agreement on Agriculture or the negotiations on services. In practice, NAMA products include manufacturing products.

The NAMA negotiations have been considered important by the WTO because NAMA products account for almost 90% of the worlds merchandise exports. After the Doha Declaration was adopted in 2001, negotiations on NAMA formally began in 2002. In the beginning, negotiations on non-agricultural products were to be concluded by 1 January 2005.

WIPO:

The World Intellectual Property Organization (WIPO) is one of the 16 specialized agencies of the United Nations. WIPO was created in 1967 to encourage creative activity, to promote the protection of intellectual property throughout the world.

WIPO currently has 184 member states, administers 24 international treaties, and is headquartered in Geneva, Switzerland. The current Director-General of WIPO is Francis Gurry. WIPO administers the Berne Convention for the Protection of Literary and Artistic Works; Paris Convention for the Protection of Industrial Property; Patent Cooperation Treaty, the Madrid system for trade marks and the Hague system for industrial designs.

Unlike other branches of the United Nations, WIPO has significant financial resources independent of the contributions from its Member States. Revenues are generated from the collection of fees under the intellectual property application and registration systems under the above treaties and others.

Chapter - Foreign Trade Foreign Trade

The exports and imports that a country makes together make up its foreign trade. If exports are more than imports, it is called trade surplus and if imports are more, it is called trade deficit. India almost every year since Independence had a trade deficit.

Exports are foreign exchange earners. They stabilise and strengthen the exchange rate, if they grow. They may be necessary for some imports- for example, jems and jewellery industry imports stones and carves them into jewelry in India. Experts make the domestic economy efficient as international market requires high quality low price goods and services.

Imports are important for exports, domestic capital formation and consumption. They make domestic producers competitive.

Exports 2011-12

Export Composition: Great changes in the sectoral compostion of Indias export basket seen in the 2000s decade have accelerated in the beginning of this decade. While the share of petroleum crude and products increased by 11.8 percentage points during the 10-year period from 2000-1 to 2009-10, it further increased by 4.8 percentage points from 2009-10 to the first half of 2011-12. The share of the other two sectors, i.e. manufactures and primary products fell almost proportionately by 11.6 and 1.1 percentage points respectively during 2000-1 to 2009-10 and 1.4 and 2.2 percentage points from 2009-10 to the first half of 201112. The inter-sectoral composition changes within manufactures exports have also been great --with the bigest losers being labour-intensive manufactures like textiles, leather and leather manufactures, and handicrafts from 23.6, 4.4, and 2.8 per cent respectively in 2000-1 to 8.7, 1.6, and 0.3 per cent in the first half of 2011-12. The biggest gainer is the engineering goods sector with its share increasing from 15.7 per cent in 2000-1 to 22.2 per cent in the first half of 2011-12.

Indias Services Exports: For more than a decade, Indian growth story has been dominated by the services sector. This domination was also evident from the trend in export of services

(receipts) which grew at a CAGR of 23.4 per cent during 2000-1 to 2010-11 while merchandise exports grew at a CAGR of 18.6 per cent during the same period. While growth in exports of travel transportation, and insurance services services was higher in the first half of 2011-12 than in the first half of 2010-11, overall growth moderation in services exports in the first half of 2011-12 was due to low export growth (10.7 per cent) of miscellaneous services which accounted for nearly 72 per cent of total services exports.

Focus Market Scheme (FMS)

Under the FMS in the Foreign Trade Policy, fifty two (52) African countries, thirty one (31) Latin American countries, ten (10) Commonwealth of Independent States-Central African Republics, five (05) East European countries, eleven (11) Asia-Oceania block countries and one (01) Asian county have been notified for benefit on exports of all products.

Market Linked Focus Product Scheme (MLFPS)

Under the MLFPS in the Foreign Trade Policy, several non-traditional export markets in Africa, Middle East Asia, East Asia, Latin America, Central Asia such as Algeria, Egypt, Kenya, Nigeria, South Africa, Tanzania, Brazil, Mexico, Ukraine, Cambodia, Vietnam, Qatar, Singapore, Bahrain, Kuwait, Bangladesh, Philippines, Saudi Arabia, Iran, Korea PR, Japan and China have been notified for benefit on exports of select products. Export Promotion Councils There are at present eleven Export Promotion Councils under the administrative control of the Department of Commerce and nine export promotion councils related to textile sector under the administrative control of Ministry of Textiles These Council are registered as non -profit organisations under the Companies Act/Societies Registration Act. The Export Promotion Councils perform both advisory and executive functions. These Council are also the registering authorities under the Export Import Policy, 1997-2002 These Councils have been assigned the role and functions under the said Policy.

Indias trade reforms since 1991

One of the major dimensions of the economic reforms undertaken since 1991 was globalizing Indian economy of which liberalization of foreign trade is a central aspect. The following reforms were made

Devaluation of the currency in 1991 to boost exports Rupee convertibility on the trade account since 1992 to incentivize exporters Cutting down the peak customs duty that stood at above 300% in 1991 to 10% in 2009 to import goods and services primarily for facilitating exports

Simplification of procedures SEZs FTAs/Cepa/Ceca WTO-led schedule for global trade integration

Incentives exporters like DEPB, interest rate subsidy (subvention) etc. Sector specific packages diversification

The effect is that exports have registered remarkable growth; created employment; given the country adequate forex; made the economy competitive; brought in FDI etc.

Exports and Employment

In recent years, one of the important objectives of trade policy has been to integrate it with the process of economic development and creation of more employment opportunities. However, in recent years, the exports have not been doing well and their share in the countrys exports has been declining. Government identified 12 export sectors as employment intensive textiles and garments, leather goods, gems and jewellery, cereals, horticulture, flowers, fruits and vegetables, dairy products, processed foods, toys and sports goods, pharmaceuticals, automobiles and autocomponents consumer electronics and electronic hardware.

Special efforts are needed to promote exports from these labour-intensive sectors.

Market Access Initiative (MAI)

MAI scheme is intended to provide financial assistance for medium term export promotion efforts with sharp focus on a country / product. Financial assistance is available for Export Promotion Councils (EPCs), Industry and Trade Associations (ITAs), Agencies of State Governments, Indian Commercial Missions (ICMs) abroad and other eligible entities as may be notified. A whole range of activities can be funded under MAI scheme. These include, amongst others

Setting up of showroom / warehouse, Sales promotion campaigns, International departmental stores, Publicity campaigns etc.

Focus Market Scheme (FMS)

Objective is to offset high freight cost and other externalities to select international markets with a view to enhance our export competitiveness in these countries. Duty Credit scrip benefits are one available.

FOCUS (LAC), Focus (Africa), Focus (CIS) and Focus (ASEAN + 2) programmes are operating. Helps the country diversify the geographical base and withstand any economic crisis.

Focus Product Scheme (FPS)

Objective is to incentivise export of such products, which have high employment intensity in rural and semi urban areas, so as to offset infrastructure inefficiencies and other associated costs involved in marketing of these products. Some Special Focus Initiatives are for Agriculture, Handicrafts, handlooms, Gems & Jewellery and Leather & Footwear sectors.

Export-Import Bank
The Export-Import Bank of India (Exim Bank) is a public sector financial institution created by an Act of Parliament, the Export-import Bank of India Act, 1981. The business of Exim Bank is to finance Indian exports. Banks primary objective is to help export-related companies by offering them a comprehensive range of products and services.

Foreign Trade Policy Measures 2011-2012

The Duty Entitlement Pass Book (DEPB) scheme was discontinued with effect from 30.09.2011. Since a Duty Drawback Scheme was already in existence, the erstwhile DEPB products were incorporated in the Duty Drawback Schedule (DDS) 2011-12 with effect from 01-10-2011. Approximately 1100 additional entries were made in the DDS for those erstwhile DEIB products that were not already specifically mentioned in the DDS. Appropriate rates of duty drawback were provided across the DDS. These range from 1 per cent to 17 per cent of FOB value. Many of the export goods with duty drawback rates more than 3 per cent have been provided with drawback caps.

Special Bonus Benefit Scheme, within the Focus product Scheme, covering 49 products in Engineering, Pharmaceutical and Chemical sectors, was introduced to provide special assistance @1 per cent of FOB value of exports for 6 months from 1.10.2011 to 31.3.2012.

Global Standards

GSI (Global Standards) India is a not-for-profit standards body promoted by the Ministry of Commerce and Indian Industry to spread awareness and provide guidance on adoption of global standards in Supply Chain Management by Indian Industry for the benefit of consumers, Industry, Govt. etc.

GSI India is the only organisation in India authorised to issue company prefix numbers for use in barcodes, RFID tags etc. for unique, unambiguous and universal identification of products, cartons, containers etc. GSI standards find wide application in Supply Chains across sectors. GSI standards are the de-facto global standards in identification of consumer products in Retail. GSI India is an affiliate of GSI Global Office, twin headquartered at Brussel (Belgium) and New Jersey (U.S.A.).

Chapter - External Sector Balance of Payments

Balance of payments is an overall statement of a countrys economic transactions with the rest of the world over some period- usually one year. It includes all outflows and inflows (payments and receipts) Countries have either balance of payment surplus or a balance of payment deficit. Balance of payments is a way of listing receipts and payments in international transactions of a country. Balance of payments can be broken down into balance of trade (export & import of goods); balance of current account (includes the balance of trade, the balance of services and remittances; and capital account (investment and borrowing)

Convertibility of Rupee

Convertibility refers to the freedom of the holder of a currency to freely convert it into any other foreign currency. The larger the scope of convertibility that is permitted by a country, the stronger and the more resilient its economy is said to be. No country grants full convertibility but restricts it for certain purposes and excluding certain other purposes.

For example, the trade account convertibility is confined to exports and imports and certain associated aspects like remittances (what Indians living abroad send to their friends and relatives in India) etc. Convertibility for investment and borrowing abroad comes under capital account convertibility.

Convertibility has three dimensions:

Freedom to convert Convert at market rate and Removal of restrictions for conversion on current and capital account. That is, liberalization of flows. It means convertibility for more purposes (like FDI in retail); higher or no caps on existing convertibility regime (49% FDI in insurance etc) and Indians being allowed greater freedom to take their money abroad.

Current account convertibility:

It refers to freedom to convert domestic currency into foreign currency and vice versa for the following purposes:

exports and imports payments due as interest or loans etc . moderate remittances for living expenses etc.

Capital Account:
It covers investment and borrowings. For example, foreign investment in India; how much Indian companies can borrow. Similarly, Indians to open bank accounts in foreign countries; invest abroad; hold assets abroad etc.

Prerequisites for fuller convertibility:

Fiscal deficit should be minimal Forex reserves should be adequate NPAs of banks should be minimal Inflation and interest rates should be moderate

Unless these conditions are met, great steps towards fuller convertibility should be kept on hold.

Rupee Depreciation
Forex reserves and infrastructure

India is currently facing the problem of plenty on the foreign exchange reserves front. The country ranks sixth after Japan, China, Taiwan, South Korea, and Hong Kong for highest foreign reserves. With the increase in quasi-fiscal costs of holding large reserves, and the need

to increase the yield on current reserves, policymakers have advocated the use of the excess reserves to augment the countrys physical infrastructural capacity, Another idea floated is to start a sovereign wealth fund.

Monetary experts short down the idea of diversion of reserves for infrastructure as it may adversely impact on our credibility. These are reserves and not resources and need to be kept up for security reasons. Infrastructure can always be financed by other means. SWF can set up if there are opportunities

Chapter - Economy Updates Measures taken by the Indian Government to tackle Black Money
The Government has taken following step to deal with problem of Black Money under a five pronged strategy in 2009-11: 1. Creating an appropriate legislative framework.

Started renegotiation with 75 countries (initially we started with 65 existing DTAA countries in August, 2009 and this number has now increased to 75 as on date) to broaden the Scope of Article concerning Exchange of Information to allow for Exchange of Banking Information and negotiation of DTAA and Tax Information Exchange Agreement (TIEA) with new countries.

Proposed GAAR in DTC( General Anti-Avoidance Rules say that for the investors, a tax treaty would not have preferential status over the Indian domestic law when, the GAAR provisions are invoked. The GAAR provisions are discretionary, have far reaching implications and give the Indian Tax Authorities very broad powers).

2. Setting up institution to deal with illicit funds:

8 more Income Tax Overseas Units are being set up (In addition to existing two overseas units). Computerized Exchange of Information unit (EOI Unit) is set up. Directorate of criminal investigations is notified and is being set up.

3. Developing systems for implementation: New policy for deployment of manpower to Directorate of Transfer Pricing and International Taxation is implemented. 4. Imparting skills to the manpower for effective action: 51 officers were imparted specialized training abroad in field of International Taxation and Transfer Pricing in F.Y. 2010-11. 5. Joining the Global crusade against Black Money:

Issues of tax evasion and Exchange of Information have been incorporated in G 20 communiqu due to effort India in the recent ministerial meetings in Korea and France. India is playing a key role in Global Forum on Transfer Pricing and Exchange of Information for tax purpose as Vice Chairman of Peer Review Group.

Joined FATF, Task Force on financial integrity and Economic Development and Eurasian Group.

Supreme Court Special Investigation Team on Black Money

The Supreme Court of India on 5 July 2011 appointed SIT (Special Investigation Team), a committee of two of its retired judges to follow the trail of black money stashed in foreign banks. It also asked

the government to reveal the names of those who have accounts in foreign banks and against whom inquiries have been started. SIT Comprised Justice Jeevan Reddy and Justice MB Shah.

Tax Information Exchange Agreement (TIE)

The purpose of this Agreement is to promote international co-operation in tax matters through exchange of information. It was developed by the OECD Working Group. The lack of effective exchange of information is one of the key reasons for harmful tax practices. The TIE agreements are a legal instrument that could be used to establish effective exchange of information.

Under the terms of the agreement, both nations are now required to exchange information when requested to help fight tax crime.

Pilot projects for such direct such transfers will begin in seven places Tamil Nadu, Assam, Maharashtra, Haryana, Delhi, Rajasthan and Orissa from October, according to the schedule suggested by the Unique Identification Authority of India.

RBIs new Norms for licences of new banks in the Private sector
The Reserve Bank of India released draft guidelines for licensing of new banks in the private sector. The Reserve Bank has sought views by the end of October 2011 Key features of the draft guidelines are:

Eligible promoters: Entities in the domestic private sector having at least 10 years standing will be eligible. Those with significant (10 per cent or more) income or assets from real estate Construction and / or broking activities will not be eligible.

Corporate structure: New banks will be set up only through a wholly owned Non-Operative Holding Company (NOHC) - -to be registered with the Reserve Bank as a non-banking finance company (NBFC) which will hold the bank as well as all the other financial companies in the promoter group.

Minimum capital requirement: Minimum capital requirement will be Rs 500 crore. NOHC shall hold minimum 40 per cent of the paid-up capital of the bank for a period of five years from the date of licensing of the bank.

Foreign shareholding will be limited by 49 per cent cap for the first 5 years. Corporate governance: At least 50 per cent of the directors of the NOHC should be independent directors.

Holding company

A holding company is a company or firm that owns other companies outstanding stock. It usually refers to a company which does not produce goods or services itself. Its purpose is to own shares of other companies. Examples are Sail, Tata Sons etc.

A panel headed by RBI deputy governor Shyamala Gopinath suggested that the holding company norm should be pursued as a preferred model for the financial sector in India.

Shyamala Gopinath Committees recommendations

Committee on Small Savings headed by former RBI Deputy Governor Shyamala Gopinath on 7 June 2011 suggested raising interest rates on Post Office savings bank deposits to 4 per cent. The committee recommended linking returns on other small savings schemes with interest rates on government securities, It went on to suggest that Kisan Vikas Patra (KVP) be withdrawn and the annual investment limit for the popular Public Provident Fund (PPF) he raised to Rs. 1 lakh from Rs.70000 at present.

Chawla committee on Natural Resources

The Committee on Allocation of Natural Resources (CANR) under the chairmanship of Shri Ashok Chawla submitted its report in May, 2011. The committee was appointed in January following a decision by the group of ministers on corruption.

The committee looked at possible reforms in the allocation process for eight natural resources: coal, minerals, spectrum, petroleum, natural gas, land, water and forests.

The major recommendations of the Committee are: urgent need to have a comprehensive national legislation on water. This can be either done through bringing water under the Concurrent List and then framing the appropriate legislation; or, by obtaining consensus from a majority of the States that such a framework law is necessary and desirable as a Union enactment. The national legislation should clarify a common position on a number of issues : water as a common property resource; principles of allocations and pricing and so on etc.

India and EU : Interim Settlement on Generic Drugs

India and the European Union finalised an interim settlement to make sure that Made in India Consignments of generic medicines will not be detained while transiting through Europe. India had moved the WTO after consignments of generic medicines shipped to Latin America were seized by European customs authorities on charges of intellectual property rights violations. About 1 7 detentions took place between October-December 2008 at Amsterdam. As per the bilateral understanding between India and EU. EU would not only stop such detentions but also amend its regulation under which its member countries acted like this.

Land Acquisitions, Rehabilitation & Resettlement Bill, 2011

The Land Acquisition, Rehabilitation and Resettlement Bill, 2011 The Land Acquisition, Rehabilitation and Resettlement Bill, 2011 was introduced in Lok Sabha. Salient features are:

The Bill proposes a unified legislation for acquisition of land and adequate rehabilitation and replaces the Land Acquisition Act, 1894. Land Acquisition refers to the forcible acquisition of land from an unwilling seller and is distinct from a land purchase from a willing seller.

The provisions of this Bill shall not apply to 16 existing legislations that provide for land acquisition. These include The Atomic Energy Act, 1962, The National Highways Act, 1956, SEZ Act, 2005, Land Acquisition (Mines) Act, 1885, The Railways Act, 1989.

The Bill proposes that private companies shall provide for rehabilitation and resettlement if they acquire land equal to or more than 100 acres in rural areas and 50 acres in urban areas. Compensation is four times market value in rural area and 2 times in urban areas

Saakshar Bharat

It is a centrally sponsored scheme of Department of School Education and Literacy (DSEL), was launched by the Prime Minister on the International Literacy Day, September 8, 2009. Saakshar Bharat Programme (SBP) aims to further promote and strengthen Adult education. It aims at covering those who missed the Opportunity of formal education earlier and now feel a need for learning of any type, including basic literacy, basic education (equivalency to formal education), vocational education (skill development), physical and emotional development, practical arts, applied science, sports and recreation.

By 2012, the Saakshar Bharat Programme will cover 70 million non-literate adults (60 million of them, women) in - 15 plus age group in 365 low female literacy districts. This would redress the gender, social and regional disparities in literacy.

The Programmes main focus group would be Women and adolescents from Socioeconomically disadvantaged sections like the SCs, STs, Minorities and other disadvantaged sections in rural areas of low female districts.

Intellectual Property Rights

The term Intellectual Property (IP) means creations of mind or the intellect. It needs to be protected as it has commercial applications. For example, a drug discovered, a poem written or a computer language etc. It could be in the form of Patents, Trademarks, Geographical Indications; Industrial Designs, Layout- Designs (Topographies) of Integrated Circuits, Plant Variety Protection and Copyright. The major features that distinguish it from other forms are their intangibility and nonexhaustion by consumption. IP is the foundation of knowledge-based economy. It pervades all sectors of economy and is increasingly becoming important for ensuring competitiveness of the enterprises. It brings revenues to the company and also makes its market standing much more credible which means that it can raise money from the market when it wants.

Copyright
Copyright is a legal term describing the economic rights given to creators of literary and artistic works, including the right to reproduce the work, to make copies, and to perform or display the work publicly. Copyrights offer essentially the only protection for music, films, novels, poems, architecture, and other works of cultural value. As artists and creators have developed new forms of expression, these categories have expanded to include them. Computer programs and sound recordings are flow protected.

WTO and Importance of IP

Intellectual property rights were first included in the Uruguay Round negotiations of the General Agreement on Tariffs and Trade (GATT), 1986-1993, with the Agreement on Trade-

Related Aspects of Intellectual Property Rights (TRIPS). TRIPS require signatories to make it easier for their citizens and others to obtain and enforce IP rights, although it does not deal with domain names as such.

TRIPS member countries are aware that cost-effective means to secure, transfer, and enforce IP rights boost cultural development and standards of living, as well as promote public health and safety.

International Organisations & Treaties

A UN agency, namely, World Intellectual Property Organization (WIPO) based in Geneva administers treaties in the field of intellectual property. India is a member of WIPO. Department of Industrial Policy & Promotion is the nodal Department in the Government of India for all matters concerning WIPO. India is also member of 2 major treaties: Paris Convention for the Protection of Industrial Property (relating to patents, trademarks, designs, etc.) of 1883 and the Berne Convention for the Protection of Literary and Artistic Works (relating to copyright) of 1886.

Patent Cooperation Treaty (PCT)

The Patent Cooperation Treaty (PCT) is an international patent law treaty, concluded in 1970. It provides a unified procedure for filing patent applications to protect inventions in each of its Contracting States.

Copyright Amendment Bill 2011

The proposed amendment to the Copyright Act would mandate film producers sharing 50 per cent of music royalties with lyricists and composers. It would facilitate joint ownership of the copyright for both the producer and the director. Until now, the producers were the sole owners of the copyright.