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*This book refrains from passing judgements on events and personalities of any period.
Operation twist.................................................... 37
Microcredit .......................................................... 38
Contents
Fiscal policy .................................................................. 3 Ombudsman scheme for digital transactions...... 39
Government debt. ................................................. 3 White label ATM .................................................. 39
Insider trading ........................................................ 4 Swap facility ......................................................... 40
Credit Rating agencies ........................................... 4 A SWIFT response could have saved banks : RBI. 41
GDP estimation in India ......................................... 5 Small finance banks ............................................. 42
Independent fiscal council ..................................... 7 Leverage ratio ...................................................... 43
Middle income trap ............................................... 8 Circular trading .................................................... 43
Base erosion and profit shifting ...........................10 Industry ...................................................................... 43
New angel tax rules..............................................10 National mineral policy 2019............................... 43
2 years of GST ......................................................11 National policy on electronics ............................. 44
Municipal bonds ..................................................13 Solar manufacturing ............................................ 45
Capital gains tax ...................................................14 Micro, small and medium enterprises................. 46
Restructuring of Indian statistical system............14 National investment and manufacturing zones .. 47
Overseas bonds....................................................15 Technical textiles ................................................. 48
Corporate bond market .......................................16 Financial inclusion...................................................... 48
Disinvestment ......................................................18 Universal basic income ....................................... 48
Strategic sale of PSU ............................................19 Circular economy ................................................. 49
State finances.......................................................20 Multidimensional poverty index ......................... 50
Slowdown in Indian economy ..............................21 Digital financial inclusion ..................................... 51
Stagflation in India ...............................................23 Agriculture and allied sectors .................................... 52
Corporate social responsibility ............................24 Policy bias against rainfed agriculture ................. 52
Direct tax code .....................................................25 Minimum support price for minor forest produce
............................................................................. 53
Banking and monetary policy.....................................26
National higher education project ...................... 54
Insolvency and bankruptcy code .........................26
Government E-marketplace ................................ 55
Payment and Settlement Systems in India: Vision
2019 – 2021 .........................................................28 Contract farming.................................................. 56
RBI removes charges on NEFT and RTGS .............28 Sugar industry ...................................................... 57
Decline in NPA......................................................28 Agricultural credit in India ................................... 59
50 years of bank nationalization ..........................30 Land pooling ........................................................ 61
Regulation of NBFC’s............................................31 Edible oils deficiency ........................................... 62
Setting up of india post bank as payment bank...32 Food grain management in India......................... 63
Urban cooperative banks .....................................33 Marine fisheries sector ........................................ 65
Bimal Jalan committee report .............................35 Service sector............................................................. 66
Bank merger.........................................................35 National policy on software products ................. 66
©AKS IAS www.aksias.com 8448449709 1

Consumer protection act, 2019 ...........................66
Tourism industry ..................................................67
Distress in telecom sector....................................69
Parliamentary Standing Committee on Chemical
and Fertilizers.......................................................70
Employment and skill development ..........................71
National minimum wage......................................71
Periodic labour force survey ................................72
Printing press declared as public utility ...............73
Transport sector .........................................................73
River information system.....................................73
Second phase of FAME to electrify public
transport ..............................................................74
Multimodal terminal ............................................75
Energy sector .............................................................75
Visakhapatnam Strategic Petroleum Reserve (SPR)
facility was operationalized. ................................75
Hydro power sector .............................................76
DISCOM debt to return to pre-UDAY levels.........77
Coal India .............................................................78
External sector ...........................................................79
Offshore rupee markets.......................................79
Developing country status in WTO ......................80
Capital account liberalization ..............................81
Infrastructure .............................................................82
National infrastructure investment fund .............82
Global value chains ..............................................83
Miscellaneous ............................................................84
Noble prize in economics.....................................84
Prakash portal ......................................................85

Fiscal policy ▪ In 2017-18, Rs 80,000 crore of
recapitalization bonds were used to
Government debt. fund state-run banks.
The Central Government released the Eighth Edition
• UDAY bonds: The liabilities of states have
of the Status Paper on the Government Debt.
increased during 2015-16 and 2016-17,
Central government’s total debt as a percentage of following the issuance of Ujwal Discom
GDP fell to 46.5% in 2017-18 from 47.5% as of March Assurance Yojna (UDAY) bonds. UDAY was
2014. But the debt of state government rose to 24% in launched in November 2015 to help loss-
2017-18 and is estimated to be 24.3% in 2018-19. making state power distribution utilities.
Prelims perspective Why the government debt needs to be controlled?
Government Debt • In the absence of fiscal consolidation, there is

an increased risk of default & hence,
▪ Government liabilities are classified as debt
downgrading of sovereign credit ratings. Loss
contracted against the Consolidated Fund of
of investor confidence will not only reduce
India (defined as Public Debt) and liabilities
FDI/FII in India but will also make future
in the Public Account, called Other Liabilities.
borrowing expensive.
▪ Public debt is further classified into internal • As more money is lent to government rather
and external debt. than invested in market, corporate sector is
crowded out.
▪ Internal debt consists of marketable debt and • When the government borrows more, it
non-marketable debt. Government dated forces Public Sector Banks to purchase more
securities and treasury bills, issued through of Government Securities (GSecs). This
auctions, together comprise marketable debt. reduces the capital availability to private
sector and affects profitability of the PSBs.
▪ Treasury Bills issued to state governments
• Too much of government debt can lead to
and select central banks, special securities
inflation and reduction in real interest rates.
issued to National Small Savings Fund (NSSF),
• The reduced demand of domestic securities
securities issued to international financial
relative to foreign securities (due to poor
institutions, etc. are part of the non-
credit rating) might push the exchange rate
marketable internal debt.
down and weaken the domestic currency with
▪ External Debt refers to money borrowed from respect to dollar.
a source outside the country. External debt
Recommendations by N.K.Singh committee to
has to be paid back in the currency in which it
control government debt:
is borrowed.
▪ The Committee suggested using debt as the
Mains perspective
primary target for fiscal policy.
Reasons for the debt
▪ Debt to GDP ratio of 60% should be targeted
• Bank Recapitalisation: Infusing capital in with a 40% limit for the center and 20% limit
state-run banks using recapitalization bonds for the states. The targeted debt to GDP ratio
in 2017-18 increased the total central should be achieved by 2023.
government debt in both absolute terms and
▪ It said that the 60% consolidated Central and
as a percentage of GDP that fiscal.
State debt limit was consistent with
international best practices, and was an

essential parameter to attract a better rating security. E.g:A government employee acts
from the credit rating agencies. upon his knowledge about a new regulation
to be passed which will benefit a sugar-
▪ To achieve the targeted debt to GDP ratio, it exporting firm and buys its shares before the
proposed yearly targets to progressively regulation becomes public knowledge.
reduce the fiscal and revenue deficits till
2023. SEBI’s Mechanism to counter Insider Trading:
▪ The Committee suggested that grounds on • Responsibility of Promoters: It has decided to hold
which the government can deviate from the company promoters, irrespective of their
targets should be clearly specified, and the shareholding status, responsible for violation of
government should not be allowed to notify insider trading norms if they possess unpublished
other circumstances. price-sensitive information (UPSI) regarding the
company without any ‘legitimate’ purpose.
Strategy of central government for debt
sustainability • Defining an Insider: It comprises three elements -
The person should be a natural person or legal entity;
Dedicated Body: Bring both, India's external The person should be connected or deemed to be
(managed by Ministry of Finance) & domestic debt connected to the company; Acquisition of UPSI by
(managed by RBI) under a statutory Public Debt virtue of such connection.
Management Agency (PDMA).
• Legitimate Purpose: It has specified that the term
Public Debt Management Cell (PDMC) established
“legitimate purpose” will include sharing of the UPSI
within Budget Division, Ministry of Finance in 2016. in the ordinary course of business by an insider,
Medium-Term Debt Management Strategy (MTDS): provided that such sharing has not been carried out to
evade or circumvent the prohibitions of these
• Low cost of borrowing: Issuing longer tenor regulations.
bonds, better investor relations and advance
notifications of borrowing calendar. Credit Rating agencies
• Risk mitigation: Minimizing currency risk by Securities and Exchange Board of India (SEBI) has
choosing appropriate mix of domestic & released a new framework for financial disclosure by
foreign currency debt portfolio, reducing roll- credit rating agencies (CRAs).
over risk by elongating debt maturity period.
Prelims perspective
Insider trading What are credit rating agencies?
The Securities and Exchange Board of India (SEBI) has
prescribed internal controls on sharing of information. • Credit Rating Agencies (CRAs) are companies
that evaluate the financial condition of issuers
Prelims perspective of debt instruments.
▪ Insider trading refers to the practice of • CRAs assign a rating that reflects its
purchasing or selling a publicly-traded assessment of the issuer's ability to make the
company’s securities while in possession debt payments.
of material information that is not yet public
information. • Rating is denoted by a simple alphanumeric
symbol. E.g. AA+, A-, etc.
▪ Material information refers to any and all
information that may result in a substantial • In India, CRAs are regulated by SEBI (Credit
impact on the decision of an Rating Agencies) Regulations, 1999 of the
investor regarding whether to buy or sell the

Securities and Exchange Board of India Act, • This is primarily because of the conflict of
1992. interest arising from issuer-pays model.
• The entities that are rated by credit rating • Under this, the ratings agency is paid by the
agencies comprise companies, state issuer of the instrument that it rates.
governments, non-profit organisations,
• So agencies are found to be more loyal to
countries, securities, special purpose entities,
and local governmental bodies. companies whose instruments they rate rather
than to investors who provide precious capital.
• Some of the key CRAs in India include -
• In effect, agencies fail to downgrade troubled
• Credit Rating Information Services of firms until they are on the verge of bankruptcy.
India Limited (CRISIL).
• The defaults at Infrastructure Leasing and
• ICRA Limited. Financial Services (IL & FS) in 2018 that led to a
liquidity crisis among non-bank lenders in India
• Credit Analysis and Research limited has brought the focus back to CRAs.
(CARE).
• CRAs as SEBI-registered intermediary are
Mains perspective supposed to be an alert system of an instrument
before the actual default.
What are the new norms?
• But after failing to detect early signs of the crisis,
• Rating agencies have to clearly state
credibility of CRAs as an institution and their
the “probability of default” of the
utility under the regulatory system were
instruments they rate for the benefit of
questioned.
investors.
• Given the impact of this over the larger
• The agencies will also have to
economy, SEBI aimed at tightening the disclosure
publish information on their performance in
guideline.
the rating of debt instruments, in comparison
with a benchmark created in consultation • This is believed to enhance the quality of
with SEBI. information made available to investors by the
rating agencies.
• SEBI also introduced disclosure of factors to
which the rating is sensitive. • Overall, SEBI’s attempt seems to be to align
ratings methodologies with global best practices.
• Besides, SEBI expects rating agencies to make
meaningful disclosures on client’s liquidity • But it is not clear how the new framework will
position using simple terms. effectively resolve the conflict of interest issue
that for long deteriorates the rating industry.
• SEBI will prepare and share standardised and
uniform probability of default benchmarks.
GDP estimation in India
• This will be fixed for each rating category for What is the issue?
one-year, two-year and three-year cumulative
• In January 2015, India’s Central Statistics
default rates - both for the short run and long
Office (CSO) introduced a new series of
run.
National Account Statistics.
What is the rationale?
• The resultant changes in the calculation of
• The credibility of rating agencies has been GDP have led to a series of controversies.
eroding since the global financial crisis in 2008. Here is a look at them.

prelims perspective • GDP price deflator = (nominal GDP ÷
real GDP) x 100
What were the changes made?
Changes in consumption patterns or introduction of
• The new series made several changes; in goods and services are automatically reflected in the
particular, it revised the base year from 2004- GDP deflator.
05 to 2011-12.
This allows the GDP deflator to absorb changes to an
• It also employed a new methodology to economy’s consumption or investment patterns.
estimate India’s gross domestic product (GDP)
and used new data sets to arrive at the GDP. mains perspective
Gross Domestic Product (GDP) vs Gross Value Added What was the resultant contention?
(GVA)
• The CSO’s changes were in line with
• • Gross Domestic Product (GDP) is the international norms of national income
monetary value all final economic goods and accounting.
services produced in a country during a specific
• However, doubts were raised about the new
period of time.
GDP estimates.
Domestic territory means political
frontiers of the country including its territorial • Revising base years, improving methodologies
waters, commercial vessels operated by and opting for better databases are part of
country’s residents etc. & also includes normal practice in national income
country’s embassies & consulates located accounting.
abroad.
• But the debate intensified when, in 2018, the
• GVA is measure of value added in goods and statistical establishment released two back-
services produced in economy i.e. GVA = economic series GDP data that contradicted each other.
output – input.
• Back series GDP data recalibrated the GDP
• GVA is sector specific while GDP is calculated by 'data for past years' based on the 'new
summation of GVA of all sectors of economy with methodology'.
taxes added and subsidies are deducted.
How different were the two back series GDP data?
• Central Statistics Office (CSO) in the Ministry of
Statistics and Programme Implementation (MoSPI) is • The first back-series was presented by the
responsible for the compilation of National Account National Statistical Commission (NSC) in July
Statistics including GDP. 2018.
GDP deflator: • It found that the average economic growth

between 2005-06 and 2011-12 was 8.6%
• The GDP deflator, also called implicit price instead of the 8.3% according to the old
deflator, is a measure of inflation. series.
• The deflator is more comprehensive measure • The second back-series was calculated by CSO
of inflation because it covers the entire range and published in November 2018.
of goods and services produced in the
economy. • It found the average economic growth
between 2005-06 and 2011-12 to be just 7%.
• The formula to find the GDP price deflator:

• The statistical debate quickly acquired a retail inflation (as measured by Consumer
political colour because of the years Price Index) in the 2011-16 period.
concerned.
• [GDP Deflator is used to subtract from
What was Arvind Subramanian's observation? nominal GDP growth in order to arrive
at the “real” GDP growth rate.]
• Arvind Subramanian was India’s Chief
Economic Adviser between 2014 and 2018. • This essentially resulted in an overestimation
of “real” GDP growth rate.
• Earlier in 2019, he argued that the new series
overestimated GDP growth by as much as 2.5 What are the counter claims to this?
percentage points.
• Arvind Subramanian has shown that the
• In other words, if last year’s GDP growth was nominal GDP growth rate, which is the only
7%, then according to Subramanian, the observable variable, has not changed under
actual GDP growth would be only about 4.5%. the old and new series.
• It was argued that India’s GDP growth rate • Secondly, there was no consolidated
between 2011 and 2016 appears out of sync Consumer Price Index (CPI) before 2011.
with the trend of key macroeconomic
• So, arguing that the gap between CPI and GDP
indicators including investment, exports and
credit, etc. deflator was low between 2002 and 2011, and
wide between 2011 and 2016, is unfounded.
• This is starkly in contrast to how things were
for a decade before the new series with 2011- Independent fiscal council
12 as the base year. Stressing on the need to have uniform rules for fiscal
consolidation of States and Centre 15th Finance
• The disconnect between the indicators post- Commission’s Chairman NK Singh called for
2011 becomes even clearer when India’s data institutional mechanism like a ‘Fiscal Council’ to
are compared to the average of six emerging enforce fiscal rules and keep a check on Centre’s fiscal
economies. consolidation.
• India’s GDP declined far less than the 6- Only mains perspective
country average despite its macro-indicators
being worse hit. A check over borrowings
• Subramanian argued that higher GDP growth • For state government liabilities, Article 293 (3)
between 2011 and 2016 was not backed by - provides a constitutional check over
borrowings.
• movement in key macro-indicators
• But there is no such restriction on the Centre.
• a surge in productivity (otherwise
corporate profits would not have • It is time we have an alternative institutional
declined in this period) mechanism like Fiscal Council to enforce fiscal
rules and keep a check on Centre’s fiscal
• a surge in consumption (otherwise consolidation.
consumer confidence and industrial
capacity utilisation would not have • Singh had earlier proposed creation of an
dipped sharply) autonomous Fiscal Council with
representatives from both states and Centre,
• He finally argued that the GDP Deflator (level but the recommendation was not
of inflation) was considerably less than the implemented.

Why need Fiscal Council? • The countries caught in the Middle Income
Trap are unable to compete with low-income,
• Various cesses and surcharges are becoming low-wage economies in manufactured exports
disproportionate proportion of overall and unable to compete with advanced
divisible revenue. economies in high-skill innovations.
• There should be some mechanism to ensure • Fuelled by the global slowdown, many
that the basic spirit of the devolution process countries, particularly in South East Asia (e.g.
should not be undercut by clever financial Thailand, Vietnam, and Malaysia etc.), Africa
engineering or taking recourse to traditions.
(e.g. South Africa) and Latin America (e.g.
• There is a need for coordination between the Brazil) currently face the predicament of MIT,
finance commission as well as the GST which has impeded their transition from
Council, which he termed as the only federal middle income to high income.
institution in the country. Mains perspective
• There’s need for coordination between Why Do Countries Fall into the Middle Income Trap?
Finance Commission and GST council.
• Inability to shift growth strategies: If a
• GST Council has no clue of what the Finance country cannot make a timely transition from
Commission is doing and Finance Commission resource-driven growth, with low-cost labor
has even lesser clue of what the GST Council is and capital, to productivity-driven growth, it
doing.
might find itself trapped in the middle income
The municipal example zone.
• It is very clear that successful economic • Traditional exports cannot be as easily

growth, successful good quality employment expanded as before because wages
depends on agglomerations that work. are higher and cost competitiveness
declines.
• That in turn is going to depend on whether
municipalities have enough revenue. • Moreover, export growth depends on
introducing new processes and
• What the municipalities get today in terms of finding new markets. To do this,
revenue is one per cent of GDP whereas on exporters must understand the
comparative basis, looking at other emerging quality, price, and consumer
market countries, it really ought to be 5 per preference points of the global
cent of GDP. economy, which is a demanding task.
Middle income trap • Skewed income distribution & stagnation in

Prelims perspective middle class population: Wealth inequality
and the hierarchical distribution of income in
What is middle income trap? developing countries is a downward drag on
domestic demand, which results in
• According to the idea, a country in the middle
stagnation. It slows down the upward mobility
income trap has lost its competitive edge in
of families that are at lower levels, into
the export of manufactured goods because of
middle class that is prepared to pay more for
rising wages. However, it is unable to keep up
quality and differentiated products.
with more developed economies in the high-
value-added market. • Recurring boom-bust cycles & procyclical
lending: Many middle-income countries in
Latin America have been through cycles of
growth based on credit extended during capital moves from agriculture to modern
commodity booms, followed by crisis, and sectors. With climate change, ambient
then recovery. This stop–go cycle has temperature has increased and weather
prevented them from becoming advanced extremities have become a recurrent
economies despite enjoying many periods of phenomenon. This is, in particular, a threat to
fast growth. This is in sharp contrast with India where agriculture is heavily dependent
successful countries in East Asia—Japan, Hong on precipitation.
Kong, Taiwan, Singapore, and South Korea
• Fall in private consumption, muted rise in
that have been able to sustain high growth
over some 50 years. fixed investment and sluggish exports have
led to slowdown in the economy and increase
Why India might get caught into middle income trap? India’s vulnerability to the middle income
trap.
• Backlash against
globalization: Hyperglobalization (that Avoiding the Middle Income Trap
benefited the early convergers like China,
South Korea & Japan) led to a backlash in the In 1960, India was a low-income country with per
capita income around 6% of the US. However, India
advanced countries, as seen through
increasing protectionism & lowering World attained the status of lower middle income in 2008
Trade-GDP ratios since 2011. This means that with per capita income of about 12% of the US.
But, the growth has occurred with limited transfer of
similar trading opportunities may no longer
be available for the new convergers. labour resources to high productivity and dynamic
sectors, despite relatively modest agricultural growth.
• Thwarted Structural Transformation: Thus, the risk of getting trapped in middle income
Successful development requires two kinds of zone remains.
structural transformations: 1) a shift of
To avoid becoming trapped without a viable high-
resources from low productivity to high
productivity sectors; and 2) a larger share of growth strategy, India needs to:
resources devoted to sectors that have the • Transitioning from diversification to
potential for rapid productivity growth. specialization in production: Specialization
However, in late convergers like India, allowed the middle-income Asian countries to
‘premature deindustrialization’ (tendency for reap economies of scale and offset the cost of
manufacturing to peak at lower levels of disadvantages associated with higher wages
activity and earlier in the development (E.g. Electronics industry in South Korea).
process) is a major cause of concern.
• High levels of investment in new
• Human Capital Regression: Human capital technologies and innovation-
frontier for the new structural transformation conducive policies are 2
has shifted further away making the overarching requirements to
transformation costlier. This is because the ensure specialized production.
new advances in technology not only require
• Developing good social-safety
skilled human capital, but also demands them
nets and skill-retraining programs
to learn continually. As opposed to these
can ease the restructuring process
requirements, there is a wider educational
that accompanies specialization.
attainment gap between lower income
countries and advanced economies. • Shifting to productivity-led growth: Total
factor-productivity growth in middle-income
• Climate change-induced Agricultural
countries requires major changes in
Stress: Agricultural productivity is crucial both
education, from primary & secondary
for feeding people and for ensuring human
schooling to tertiary education so that information with each other to enhance
workers are adept in new skills as per the transparency and make such profit shifting
demands of the markets. Creating such that much harder.
knowledge economy requires long term
• Here, profits are shifted from jurisdictions
planning and investment.
that have high taxes (such as the United
• Opportunities for professional talent: To States and many Western European
attract and retain a critical mass of countries) to jurisdictions that have low (or
professional talent that is becoming more no) taxes (so-called tax havens).
internationally mobile, middle income
• The BEPS Action Plan adopted by the OECD
countries like India must develop safe &
livable cities that provide attractive lifestyles and G20 countries in 2013 recognised that
to professionals. the way forward to mitigate risk from base
erosion and profit shifting was to enhance
• Addressing barriers to effective transparency.
competition: There is a need to address
rigidities that can arise from bankruptcy laws, New angel tax rules
stringent tax regulations, limited enforcement After the uproar among start-up investors in the last
of IP regulations, imperfect information, few weeks, the Centre decided to ease the conditions
discrimination etc. under which investments in start-ups will be taxed by
the government.
• Decentralized economic
management: Greater powers should be Prelims pespective
vested in local governments to ensure
Angel Tax
speedier decision making
It is an income tax levied at 30.9 % tax on investments
• Sustaining macroeconomic stability through
made by external investors in unlisted startups or
flexible fiscal framework that limited deficits
companies.
and debt, and a flexible exchange rate
mechanism backed up by a credible inflation- It is applicable when companies have raised capital
targeting monetary policy could help sustain through sale of shares at a value above their ‘fair
long periods of growth. market value’.
• Changing orientation of social programmes The tax was introduced in the Finance Budget of 2012
that targets middle class besides poorer with an aim to curb money-laundering through the
sections of the society which would propel sale of shares of private unlisted companies at
the demand driven growth. bloated prices.
Base erosion and profit shifting Mains perspective

Prelims perspective
New Rules
What is BEPS?
• Investments up to ₹25 crore in
• Base Erosion and Profit Shifting (BEPS) is a tax companies that are less than 10 years old and
avoidance strategy used by multinational with a total turnover of less than ₹100
companies by exploiting gaps and mismatches crore will be exempted from the new angel
in tax rules to artificially shift profits to low or tax.
no-tax locations.
• Investments made by listed companies with a
• In order to combat this, many countries net worth of at least ₹100 crore or a total
entered into agreements to share tax turnover of at least ₹250 crore will be fully
exempt from the tax; so will investments • The taxes to be paid are still supposed to be
made by non-resident Indians. calculated by the authorities based on how
much the sale price of a company’s unlisted
Problems with old rules share exceeds its fair market value.
• In 2012, the angel tax was justified as an • It is impossible to know the market value, let
emergency measure to prevent the alone the fair market value, of shares that are
laundering of illegal wealth by means of not openly traded in the marketplace.
investments in the shares of unlisted private
companies at extraordinary valuations. • So tax authorities with ulterior motives
will still possess enough leeway to harass
• But the adverse effect that it has had on start-ups with unreasonable tax demands.
investor confidence has forced the
government to ease the stringent rules. Way Forward
Positive effects of New Rules The government should address the arbitrary nature
of the angel tax, Otherwise, the damage to investor
• The easing of the outdated angel tax rules will confidence may remain.
definitely make life easier for start-ups, which
are in desperate need for capital to fund 2 years of GST
their growth and other business Prelims perspective
requirements.
The milestone goods and services tax (GST), which
• Further, since the new rules are set to was launched on 1st July, 2017, has completed 2
be applied retrospectively, many young years. The one-nation, one-tax revolution has seen a
companies that have received notices from few hiccups, but it’s settling down and benefits should
the Income Tax Department in the last few start to flow sooner rather than later.
years will be relieved by the latest tweak in
the rules. Prelims perspective
Negative Effects What is GST?
• Companies wishing to make use of the latest • GST Law in India is a multi-stage,
exemption, for instance, will first need to comprehensive, destination-based tax that is
be registered with the government as start- levied on every value addition.
ups.
• In layman’s language, the Goods and Service
• To be classified as one, a company needs Tax is an indirect tax levied on the supply of
to attest to conditions such as that it has not goods and services. This law has replaced
invested in any land unrelated to the many indirect tax laws that existed earlier in
business, vehicles worth over ₹10 lakh, or the country.
jewellery.
• GST is one indirect tax for the whole of India.
• These requirements, while probably aimed to
Current Status of GST
prevent money- laundering, can lead to
considerable bureaucratic delays and rent- • GST is currently levied on every product
seeking. except petroleum, alcohol, tobacco and stamp
duty on real estate in four slabs of 5, 12, 18
• . Also, the new rules for the angel tax can
and 28 per cent. Most of the articles that are
cause the same old problem of arbitrary tax
used daily have zero GST as per the latest
demands for companies that do not fall under
revision of the tax rates last year.
the defined category of start-ups.
• 97.5 per cent articles covered by 18 per cent collections breaching Rs 1 lakh crore on a
or lower GST slab. Under the previous, value regular basis.
added tax (VAT) regime, standard taxation
• Compliances: After a slow start, the number
rate was much higher. Only luxury and sin
goods are now taxed at highest 28 per cent of registered taxpayers who started
GST rate. complying with GST timelines, grew. For the
first month (July 2017), only 38 lakh out of 68
lakh registered taxpayers had filed GSTR 3B
returns by August 25. This amount has now
almost become double to 72.5 lakh by April
2019. E-way bill, an anti-evasion mechanism,
came into existence from April 1, 2018. The
number of e-way bills doubled from 2.8 crore
in April 2018 to 5.49 crore in March 2019.
• Rate rationalisation: In the beginning over

200 goods were kept in the 28 per cent rate
bracket. The number of goods under 28 per
cent slab has been cut down to eight. There
are other goods and services whose tax rates
have been reduced.
• Number of returns: When the GST was rolled

out, there was a provision for three monthly
returns – for sales, for purchases and a
composite return – and one annual return.
When businesses complained about huge
compliance burden due to the requirement of
37 returns being filed in a year, the GST
Council did away with the purchase return.
Mains perspective
Now businesses have to file two returns –
Achievements in the last 2 years GSTR1 for sales and GSTR 3B, a composite
return.
• Number of registered taxpayers: The number
of registered taxpayers at the time when the • Centre-State Relations: It has proved to be a
GST was rolled out was Rs 65 lakh, which successful template for Centre-State Relations
today stands at Rs 1.2 crore, a jump of 84 per as most decisions in the GST council have
cent over the last two years. This shows a been unanimous.
significant widening of the tax base and
• Refund: The process of refund has been fairly
formalisation of the economy under the GST.
streamlined. Exporters of goods have been
• Monthly collection: Monthly GST collections receiving refund directly from the customs
for July 2017, the first month for GST, was Rs and exporters of service are getting 90 % of
92,200 crore. Subsequently, it dropped to Rs the refund immediately.
83,700 crore in November that year.
Concerns and Expectations
Collections started rising from the 2nd year
onwards with July 2018 collections at Rs The initial period was very stressful but over a period
96,500 crore. In 2018-19, the average of time, it has stabilised to a large extent though
monthly collection was Rs 97,100 crore with many issues still remain unresolved.

• Return filing: Initially there were issues and Prelims perspective
problems in filing monthly GST Returns but it has
now stabilised. Municipal Bonds
• Municipal bonds are bonds issued by urban

• E-invoicing: Introduction of e-invoicing is a
welcome move. However, its introduction at this local bodies- municipal bodies and municipal
stage seems to be a difficult plan. corporates (entities owned by municipal
bodies) to raise money for financing specific
• Introduction of cess: Introduction of Kerala projects specifically infrastructure projects.
Calamity Cess has been a cause of concern for all.
• These Bonds has tax-free status if they
Other states may also do the same and introduce
a cess for some of their welfare schemes. conform to certain rules and their interest
rates are market-linked.
• Notices for reconciliation: Periodic notices even
• Bangalore Municipal Corporation was the first
before the year is complete for differences in
Input Tax credit claimed by the traders and as ULB to issue Municipal Bond in India in 1997.
appearing in the GSTN network are putting a • In 2015, SEBI made fresh guidelines for the
strain on trade and industry. Business and issue of municipal bonds for enabling the
professionals are further confused as figures ULBs to mobilize money.
appearing in their GST Return, GSTR 2A
appearing on GSTN network and figures stated in • These bonds are known as revenue bonds
the notice sent by the department is different. when raised for one project.
The authorities also don’t have any break-up on
• ‘Muni bond’ could help corporations directly
the basis of which notice has been sent.
raise funds without looking to State grants or
• Requirement for centralised agencies such as World Bank and help in
assessment: Business with multiple locations are financing projects such as Smart Cities.
finding it difficult to appear for assessment or
Mains perspective
inquiries before authorities in various states. The
entire tax and accounting is generally centralised Need of municipal bonds
in big organisations. Hence, a longstanding
demand of the industry with locations in various • The government’s move to develop civic
states for assessment/audit in the main state infrastructure across the country through
would be a welcome move. the Atal Mission for Rejuvenation and Urban
Transformation (AMRUT) and the Smart
• Frequent changes: The trade and professionals Cities Mission requires significant capital
are grappling with the frequent changes and spending by ULBs
notifications issued in the past two years.
Though changes and amendments are required • These will have to be funded by market
for clarity, but major amendments impact the borrowings in addition to government grants
decision-making capacity of the trade.
• ULBs will have to borrow around Rs15,000
• Input tax credit: Eligibility of input tax credit has crore to fund projects under AMRUT and the
been a bone of contention between trade and Smart Cities Mission through fiscal 2023
authorities from pre-GST era.
Challenges for Municipal Bond Market in India
Municipal bonds
• Issues with municipal bond: They are relatively less
The Reserve Bank of India (RBI) has allowed foreign
liquid instruments due to absence of secondary
portfolio investors (FPIs) to invest in municipal bonds.
market for them, which results in investors having to
hold municipal bonds until maturity.
• Credit worthiness: Earlier 94 cities which are part of However, if the asset is sold by the person who
Smart City Mission and Atal Mission for Rejuvenation inherits it, capital gains tax will be applicable.
and Urban Transformation (AMRUT), were rated by
agencies such as CRISIL. Out of 94, 55 cities got • Short-term capital asset: An asset which is held for
investment grade rating (BBB- and above), while other a period of 36 months or less. Assets like equity or
39 were rated below BBB-. Reasons affecting credit preference shares in a company listed on a recognised
worthiness include: stock exchange in India, securities (debentures,
bonds, government securities), equity oriented
• Thirteenth finance Commission data reflected mutual funds, zero coupon bonds are considered
that the municipal tax to GDP ratio is a short term if held for less than 12 months.
meagre 0.5 per cent as compared to central
• Long-term capital asset: An asset that is held for
tax to GDP ratio at 12 per cent.
more than 36 months (24 months for immovable
• Dependence of Municipal bodies for funds
property like land, building). The Long-term capital
and unpredictability of transfers from State
gain is taxable at 20%.
governments to ULBs impact the outlook of
financial position of ULBs. What is DTAA?
• Except in a few big ULBs the budgeting and • The DTAA treaty is signed in order to avoid double
accounting systems of ULBs still lack transparency taxation on the same declared asset in two different
which leaves scope for misappropriation of assets and countries.
misleading picture of income and expenditure of
ULBs. • These DTAAs are made to make a country attractive
for investment purpose by providing relief on dual
• There may be increased cases of default when the taxation. The relief is provided by exempting income
debts on Municipalities increase too much as is earned overseas from tax in the resident country or
happening in China currently. by providing credit to the extent wherein taxes have
already been paid abroad.
Capital gains tax
Capital gains on investments made in India through • India has Double Taxation Avoidance Agreement
companies in Mauritius and Singapore became fully (DTAA) with 88 countries, but presently 85 have been
taxable from April 1 after the concession period of 2 in force.
years ceased to exist.
Restructuring of Indian statistical
Only Prelims perspective system
Capital Gains Tax Recently, there have been controversies and debates
over the credibility of data and statistics published by
• Any Income derived from a Capital asset movable or different agencies including government bodies,
immovable is taxable under the head Capital Gains independent think tanks and private players.
under Income Tax Act 1961.
Prelims perspective
• Any profit or gain that arises from the sale of a
‘capital asset’ is a capital gain. This gain or profit is Central Statistics Office (CSO)
considered as income and hence charged to tax in the Reports given: GDP, Index of Industrial Production,
year in which the transfer of the capital asset takes Energy Statistics, Infrastructure Statistics, National
place. This is called capital gains tax, which can be Income Accounting, Conduct of Annual Survey of
short-term or long-term. Industries, Consumer Price Indices for Urban Non-
• Capital gains are not applicable when an asset is Manual Employees, Human Development Statistics,
inherited because there is no sale, only a transfer. Gender Statistics, Imparting training in Official
Statistics.
National Sample Survey Office (NSSO) one’s own performance, which does not
corroborate with other crucial statistics. E.g.
Reports given: Primarily data are collected through Divergence between high growth and low jobs
nation-wide household surveys on various socio- in India.
economic subjects, Annual Survey of Industries (ASI).
Also collects data on rural and urban prices, crop Implications
statistics.
• Widening Trust Deficit on country’s official
Mains perspective data- particularly on the GDP growth and
employment/unemployment.
General Issues with Indian Statistics
• Investors and Industries- get impacted due to
• Data sources are not available readily- e.g. lack of predictability towards the country’s
Agricultural prices are based on mandis or economy.
retail touch-points, where such data may not • Ineffective Policy Response- e.g. Reserve
be final and there are changes after the data Bank of India’s monetary policy decisions
is released. often go astray because of erroneous data
• Non-availability of critical fiscal data such as provided by the government, as remarked by
the data on pay and allowances. a former RBI Governor. This also impacts
• Capacity Building- the human and developmental efforts of the government.
organisational resources of the statistical • Absence of public accountability- as there is
agencies have not improved since the 1980s. lack of access to data for interested
The internal architecture needs a revamp to stakeholders. It also impedes policy
adapt to the changing data needs and data implementation.
handling procedures.
Restructuring of Statistical System
• Divergence in definitions and criteria- of
different indicators, which are used by various Recently, the government has decided to merge the
agencies. Central Statistical Organisation (CSO) and the
• Large unorganised Sector- makes it National Sample Survey Office (NSSO) to form a
problematic to get accurate data and a large National Statistical Office (NSO), under the Ministry of
number of proxies are used to arrive at Statistics and Program Implementation (MoSPI).
output numbers.
• Lack of transparency and reliability of fiscal Overseas bonds
data due to cash-based accounting. The government has announced its plans to raise a
• Lack of continuous long-term series of fiscal portion of its gross borrowing from overseas markets.
data- e.g. Trade data is based on how the The government and the Reserve Bank of India (RBI)
reporting is done, and while the RBI-BOP data will reportedly finalise the plans for the overseas
is straightforward as it looks at entry and exit issue of sovereign bonds by September. While
of forex from the system in a particular time several commentators have argued that this is a risky
period, the data from the Directorate General move, the government itself is convinced that it will
of Commercial Intelligence and Statistics is help boost private investment in the country.
subject to changes and, at times, the What is an overseas bond issue?
conclusions drawn could be different.
• Time lag issues- e.g. Both CMIE and NSSO are A government bond or sovereign bond is a form of
compiled over months, and this means they debt that the government undertakes wherein it
do not capture data at a particular point of issues bonds with the promise to pay periodic
time. interest payments and also repay the entire face
• Politicisation of Data-which has led to value of the bond on the maturity date. So far, the
inflation and deflation of statistics to suit
government has only issued bonds in the domestic more disastrous as it would make it far more
market. expensive for India to repay its external debt.
What are the benefits of an overseas bond issue? • Another problem with an overseas bond issue is
that the government would not be able to
The government has been arguing that the quantum
inflate itself out of trouble. That is, in the
of its borrowing within India is ‘crowding out’ the
domestic market, if the government does ever
private sector. In other words, it is saying that
reach the stage where it is finding it difficult to
government borrowing is at such a level that there
repay its debt, it can simply print more money,
are not enough funds available for the private sector
let inflation rise quickly and repay its debt. This
to adequately meet its credit and investment needs.
is not an option in an overseas bond issue. The
If the private sector cannot borrow adequately, then Indian government cannot print foreign
it cannot invest as it wants to, and that cripples one currency to repay its debt.
major engine of economic growth.
Corporate bond market
Therefore, borrowing overseas allows the In Budget 2019, the Finance Minister has announced
government to raise funds in such a way that there is fresh measures to boost the development of India’s
enough domestic credit available for the private corporate bond market.
sector. prelims perspective
What are the risks? What are corporate bonds?
• With this, India might follow the path of some • Corporate bonds are debt securities issued by
Central and South American countries such as private and public corporations.
Mexico and Brazil. In the 1970s, several of
• Companies issue corporate bonds to raise
these countries borrowed heavily overseas
money for a variety of purposes.
when the global market was flush with liquidity.
But then, when their currencies depreciated • A buyer buys a corporate bond, and lends
sharply a decade later, these countries were in money to the "issuer," the company that
big trouble as they could not repay their debt. issued the bond.
• India is not likely to be viewed as a risky • In exchange, the company promises to return
proposition by the international market and so the money ("principal") on a specified
is likely to fetch an attractive rate for the maturity date, and meanwhile, pays the
bonds. Cheap and plentiful funds, however, stated rate of interest.
should not encourage the government to
borrow too heavily from abroad. • Notably, a corporate bond does not involve an
ownership interest in the
• This would also lead to a quicker increase to its company, unlike when one purchases the
foreign exchange reserves, which would lead to company's equity stock.
a stronger rupee at a time when it is already
appreciating against the dollar. A stronger Mains perspective
rupee would encourage imports at a time How has the corporate bond market been?
when the government is trying to curb them,
and discourage exports at a time when they • The development of the corporate bond
are being encouraged. market has been only stunted in the last few
decades.
• On the other hand, a rupee depreciation for
whatever external reason would prove even • This remains the case in spite of the efforts by
policymakers over the last three decades.
• Successive budgets and at least half a dozen • This enables companies to raise funds across
committees mandated by the government, different maturities including for infrastructure
the RBI and the SEBI in this regard have projects with long gestation periods.
largely failed.
• However, in India, there is an absence of a well
What is the reason? functioning corporate bond market.
• For years, the investor base in the corporate • So, the burden of financing infrastructure
bond market has been narrow. projects such as roads, ports, and airports is
more on banks and the general government.
• It is only marked by banks, insurance
companies, pension retirement funds and now • This, in turn, puts lenders such as the banks
mutual funds. under pressure as reflected in the rise of bad
loans.
• The FPIs are now prominent buyers of top-rated
bonds given the attractive returns especially in • E.g. in banks, such investments create an asset-
the backdrop of a strong rupee. liability mismatch
• But notably, most of these investors do not • In other words, they are buying into long-term
trade but hold these investments until maturity. assets, such as a highway, with short-term
liabilities i.e. deposits of 3-5 years maturities.
• So, with few buyers in the market or market
makers who offer buy or sell quotes constantly, • Eventually, this results in inefficient resource
there is little liquidity in this sector. allocation. Besides, it also weakens the bank
balance sheets.
• There is little or no incentive for market making.
• Liquidity - In the Indian equities market, the
• Also, a majority of the bonds issued by daily volumes of traded stocks are high,
companies are privately placed with a select set signifying liquidity or enough opportunity for
of investors in India rather than through a both buyers and sellers.
public issue.
• Unlike this, the debt market is dominated
• This is done to both save time as well as avoid more by trading in government bonds or
greater disclosures. securities.
• [Foreign investors can now invest up to Rs • Most of the demand for these securities is
3,03,100 crore in these bonds. But so far, only a from investors such as banks that have to
little over 67% of this limit has been utilised.] mandatorily hold these bonds as part of
• Another limiting factor has been the varied regulatory norms.
stamp duty in states on debt transactions. This • Over time, more Indian companies (both
will soon be sorted out with a uniform rate. listed and unlisted ones) have started issuing
What are the implications? bonds that offer semi-annual interest
payments to investors.
• Banks - In most international markets including
the US, trading volumes in the debt market are • But these bonds are not traded much, due to
much higher than those in stocks. a limited investor base and low liquidity.
• Liquidity, too, is quite high with enough buyers • This, in turn, leads to lower volumes of their
and sellers willing to buy bonds. trades compared to the other segment of the
capital market.

• The aim of the government and regulators Prelims perspective
now is to boost the liquidity and volumes and
make the debt market more vibrant. About Disinvestment
What are the recent proposals? • Disinvestment refers to the government selling or
liquidating its assets or stakes in PSE (public sector
• An action plan would be put in place to deepen enterprise).
the market for long-term bonds including for
deepening markets for corporate bond repos, • The Department for investment and public asset
credit default swaps, etc. management (DIPAM) under Ministry of finance is
the nodal agency for disinvestment.
• This will be taken up with a specific focus on the
infrastructure sector. Methods of Disinvestment
• The Foreign Portfolio Investors (FPIs) will also • Stock market: Initial Public Offering (IPO), Further
be allowed to invest in debt securities issued by Public Offering (FPO), and Offer for sale (OFS) offer
Infrastructure Debt Funds. are such methods through the stock markets.
• Also, a Credit Guarantee Enhancement • Institutional Placement Program (IPP): only

Corporation, for which regulations have been Institutions can participate in the offering.
notified by the RBI, will be set up in 2019-20. • Exchange Traded Fund (ETF)- it allows simultaneous
What are the other measures at boosting bond sale of government stake in various CPSEs across
market? diverse sectors through single offering. It provides a
mechanism to monetize its shareholding in those
• Since 2016, the RBI has been emphasising on CPSEs, which form part of the ETF basket. Currently, it
the importance of corporate bond market. consists of (i) CPSE-ETF and (ii) Bharat-22 ETF
• It had asked bigger companies to raise part of • Strategic Disinvestment: It is the sale of substantial
their long-term borrowings from the portion of the Government shareholding of a central
corporate bonds market rather than from public sector enterprise (CPSE) of up to 50%, or such
banks. higher percentage along with transfer of management
control.
• New norms since then make it mandatory for
companies with large exposures to raise 25% Mains perspective
of their incremental or fresh borrowings from
the bond market. Disinvestment Policy:
• Regulatory rules also make it necessary for • The government of India has decided to
any company that plans to raise debt funds of privatise the Public sector enterprises in a
over Rs 200 crore to execute it on an gradual and phased manner through
electronic platform. disinvestment.
• This is expected to improve transparency as • It will be done by bringing down government’s

well equity shares in all non-strategic Public sector
enterprises to 26% or lower.
Disinvestment
• The Government has decided to permit up to
The finance minister in the budget 2019-2020,
49% disinvestment of equity so that the
highlighted that the government would not only
government would continue to hold 51%.
reinitiate the process of strategic disinvestment of Air
India, but would offer more CPSEs for strategic Benefits of disinvestment policy:
participation by the private sector.
• Benefit of government: • The valuation of shares is affected by the
decision not to reduce government holdings to
• It will reduce government’s debt. less than 51 per cent.
• It will save resources by spending less
• With the continuing majority ownership of the
on PSUs which can be used by
government the disinvested public enterprises
government for welfare purposes.
would continue to operate within the
• It will help in reducing fiscal deficit. constraints of the public sector.
• It enable government to raise funds • Loss making units don’t attract investment so
that can be used to strengthen easily.
physical and social infrastructure.
• It may lead to emergence of private
Benefit of society: monopolies.
• It will increase government’s focus on • Mere change of ownership from public to

society welfare. private does not ensure higher efficiency and
productivity.
• It will ensure resources in the hands
of public. • It may lead to loss of jobs of many workers.
Private sector governed by profit motive has a
• Consumers will get better services. tendency to use capital intensive techniques
which will worsen unemployment problem in
• Companies will expand that will lead
India.
to more jobs.
Divestment should not be seen as a short-term fiscal
Benefit of market:
measure; instead, it should be part of a long term plan
• It would bring more competition into to improve the production of goods and services in
various sectors thus improving the India. The government should strengthened the
quality of services. regulatory framework that ensures efficient market
conditions.
• It will increase market profitability
and hence companies’ profits. Strategic sale of PSU
The cabinet committee on economic affairs (CCEA)
Benefit of PSUs:
has approved strategic disinvestment in BPCL and four
• It will ensure modernisation of PSUs other PSUs.
with changing times.
Only mains perspective
• It distribute loss and failure risks of
What is the decision?
PSUs to the private sector.
• The government has agreed to sell its stakes
Issues in disinvestment policy:
in five state-run companies:
• There are controversies about the prices at
1. Bharat Petroleum Corporation Ltd.
which some of the initial shares were sold, even
(BPCL) - Centre’s entire 53.29%
though all the disinvestment has been done
ownership
through an auction process.
2. Shipping Corporation of India Ltd.
• It has been just a resource raising exercise by
(SCI) - Centre’s entire 63.75% holding
the government than reforming PSU.

3. Container Corporation of India Ltd. metric tonnes per annum Numaligarh refinery is
(CONCOR) - 30.8% of Centre’s stake disputable.
4. Tehri Hydro Development • [In the case of BPCL, the strategic disinvestment
Corporation India Limited (THDCIL) will be for BPCL minus Numaligarh Refinery,
which will be retained by the government.]
5. North Eastern Electric Power
Corporation Limited (NEEPCO) • This would surely affect the price the
government could get from a prospective buyer.
• Strategic disinvestment of CPSEs will be
undertaken through already established • Also, the lack of an explanation for the logic
procedure and mechanism. behind the move hints at politics taking
precedence over any economic interest.
What is the government’s rationale?
What are the challenges ahead?
• The government faces a massive shortfall in
revenue and capital receipts. • There is just a little over four months left in the
financial year (2019-20).
• As of September 30, 2019, net tax revenue
had only reached 36.8% of the budget • Given this, how the government intends to
estimate of Rs. 16.5 lakh crore for the full actually complete the transaction is uncertain.
year.
• The process includes appointment of advisers,
• The non-debt capital receipts were at 17.2% deciding on the pricing mechanism and initiating
of the fiscal’s target of about Rs. 1.2 lakh a transparent bidding process before finalising a
crore. buyer.
• Given this, the share sale is aimed at helping • Of the Rs. 1.05 lakh crore disinvestment target,
the government narrow the widening fiscal just Rs. 17,364 crore has been realised so far.
gap.
• So, the Centre has little choice but to expedite
What are the concerns with the decision? these strategic sale proposals in double-quick
time.
• It is understandable if the government’s aim was
to exit unprofitable, non-strategic businesses. State finances
The Reserve Bank of India (RBI) has released a report
• However, BPCL is a profitable refiner and oil
titled "State Finances: A Study of Budgets of 2019-
marketing company that has consistently paid a
20".
healthy dividend.
Prelims perspective
• BPCL has also made investments in upstream
energy resources and holds interests in overseas The Fiscal Responsibility and Budget Management
hydrocarbon blocks. (FRBM) Act
• To that extent, a full sale now deprives the • The Act was enacted in 2003 which set
government of all upside potential. targets for the government to reduce fiscal
deficits. The targets were put off several
• The BPCL stake could fetch the exchequer about
times.
Rs. 59,000 crore.
• Hence, in May 2016, the government set up
• But, the decision to carve out and exclude the
a committee under NK Singh to review the
company’s 62% holding in Assam’s 3-million
FRBM Act.

• The committee recommended that the • Sharp reduction in capital expenditure by
government should target a fiscal deficit states has potentially
of 3% of the GDP in the years up to adverse implications for the pace and
March 31, 2020, cut it to 2.8% in 2020-21 quality of economic development. This is
and to 2.5% by 2023. because states employ about five times
more people and spend around one and a
Fiscal Deficit half times more than the Centre.
• Fiscal Deficit is the difference between the • Moreover, public expenditure by
total income of the government (total taxes
states influences the quality of physical
and non-debt capital receipts) and its total and social capital infrastructure of the
expenditure. economy.
• It is an indication of the total borrowings • Challenges:
needed by the government.
• States’ revenue prospects are confronted
• It is to be noted that while calculating the with low tax buoyancies, shrinking revenue
total revenue, borrowings are not autonomy under the Goods and Services
included. Tax (GST) framework and unpredictability
• Gross Fiscal Deficit: It is the excess of total associated with transfers of the Integrated
expenditure over revenue receipts (including GST (IGST) and grants.
external grants) and non-debt capital receipts.
• Unrealistic revenue forecasts in budget
• Net Fiscal Deficit: It is the gross fiscal deficit estimates thereby leave no option for
less net lending of the Central government. states than expenditure compression in
even the most productive and
Mains perspective employment-generating heads.
Key Findings • States may have to take over higher losses

of power distribution companies if they do
• Fiscal Deficit:
not show a turnaround in their
• States’ Gross Fiscal Deficit (GFD) has performance.
remained within the Fiscal Responsibility
• Suggestions:
and Budget Management Act
(FRBM) threshold of 3% of Gross Domestic • States need to gradually harness the GST
Product (GDP) during 2017-18 and 2018-19. database to expand the tax base.
• For 2019-20, States have budgeted a • They also need to review their tariff
consolidated GFD of 2.6% of GDP. policies relating to power and irrigation,
keeping in mind the break-even user
• Concerns:
charges.
• Outstanding debt of States have risen over
• States need to combine efforts towards
the last five years to 25% of GDP, making
mobilising higher revenues with strategies
sustainability of debt the main fiscal
to maximise efficiency gains rather than
challenge.
mere increase in tax rates.
• States’ GFD was within the threshold of
Slowdown in Indian economy
FRBM Act due to sharp reduction in capital
Prelims perspective
expenditure by states.

What is cyclic slowdown? produces, and low public investments in
this sector.
• A cyclical slowdown is a period of lean economic
activity that occurs at regular intervals. Such • Apart from it, there is income stagnation
slowdowns last over the short-to-medium term, and in urban areas.
are based on the changes in the business cycle.
• The slowdown in consumption is the
• Generally, interim fiscal and monetary measures, major worry for India’s economic
temporary recapitalisation of credit markets, and slump(consumption has been the main
needbased regulatory changes are required to revive driver of India’s growth).
the economy.
• Externally, the US-China trade war is the
What is structural slowdown? leading dampener in India's growth story.
• A structural slowdown, on the other hand, is a more • In addition to this, the timing of some of
deeprooted phenomenon. It is driven by disruptive the policy changes, the goods and
technologies, changing demographics, and/or change services tax, demonetisation, measures
in consumer behaviour. to curb corruption, and the move to
flexible inflation targeting led to a
• Fixing such problems would require the government combination of lower inflation, higher
to undertake some structural policies. The best real rates, and lower nominal growth.
example in this regard would be the reforms that
were carried out to address the crisis in 1991. Way Forward
Mains perspective • Government need to follow a Keynesian

approach (increasing public expenditure to
Reasons for the Slowdown in the Economic Growth spur demand).
The slowdown in the Indian economy is partly cyclical • Increase public expenditure in investing
and partly structural. in agriculture — in infrastructure, inputs,
• Two cyclical factors are Shadow banking extension, marketing and storage and
stress (NBFC crisis) and weaker global training — and in providing profitable
demand. prices to farmers.
• Structural factors may include: • It should also raise funds for the
Mahatma Gandhi National Rural
• The rates of savings and investment in Employment Guarantee Act to push up
the Indian economy have declined, as demand.
also exports and total credit.
• Investment in SHE (Skill, Education and
• This has led to a slowdown among the Health): Increasing additional jobs for
major industries, like the automobiles, ensuring basic health and good quality
diamond, textiles industry, and education up to the secondary level to all so
several Micro, Small and Medium that any meaningful skill formation is possible
Enterprises (MSME) are experiencing a should be another aim.
continuous decline, which has led to the
retrenchment of 3.5 lakh workers so far. • It should raise public employment by
filling all vacant sanctioned posts in the
• Agriculture is in crisis today on account Central and State Governments, which
of rising costs of inputs and low prices of would be around 2.5 million jobs.

• The government should also focus • Typically, inflation rises when the economy is
on promoting labour-intensive sectors growing fast. This is because as people earn
such as gems and jewellery, textiles and more, they become capable of paying higher
garments and leather goods. prices for the same quantity of goods.
• The human capital formation will give a • When the economy stalls, inflation tends to dip
big push to start-ups and MSMEs. as well. This is again due to the fact that there is
less money now chasing the same quantity of
• Cyclical fix: Cyclical slowdown can be dealt goods.
with counter-cyclical policy response.
• In contrast, stagflation is said to happen when
• Counter-cyclical policy means an economy faces stagnant growth as well as
encouraging spending during downturns persistently high inflation.
and tightening credit during inflationary
periods. • With stalled economic growth, unemployment
tends to rise. Also, existing incomes do not rise
• Liquidity crisis that was at the centre of IL&FS fast enough, but people have to contend with
crisis, must be dealt as soon as possible. rising inflation.
• India, unlike the Asian tigers, cannot rely on • So, people find themselves pressurized from
exports alone, given deglobalisation trends. both sides as their purchasing power is reduced.
Instead, a multi-pronged strategy is
necessary: What were the notable stagflation instances?
• Fast-tracking infrastructure investments • The term ‘stagflation’ was coined by Iain

Macleod, a Conservative Party MP in United
• Raising the export market share via Kingdom.
competitiveness
• This came in the context of the UK economy in
• Attracting global value chains that are November 1965.
shifting away from China
• But, the most famous case of stagflation
• Prioritising domestic production over happened in the early and mid-1970s.
imports
• The OPEC (Organisation of Petroleum Exporting
• Leveraging sectoral strengths Countries), which works like a cartel, decided to
The Indian economy has huge potential, the current cut oil supply. Resultantly, oil prices went up
slowdown must be dealt with a bottom-up strategy, across the world.
which may include boosting agriculture, food • The rise in oil prices constrained the productive
processing, tourism, MSME, automobiles and capacity of most western economies that heavily
pharmaceuticals. depended on oil. This, in turn, hampered
economic growth.
Stagflation in India
With fast decelerating economic growth and sharply • On the other hand, the oil price spike also led to
rising inflation, there is a growing talk about India inflation and commodities became more costly.
facing stagflation.
• The net result was lower growth, higher
What is Stagflation? unemployment, and higher price level; in all,
stagflation.
• Stagflation is a combination of stagnant growth
and rising inflation. What is the current economic scenario in India?

• Over the past 6 quarters, economic growth in • Moreover, retail inflation has been well within
India has decelerated with every quarter. In the the RBI’s target level of 4% for most of the year.
second quarter (July to September, 2019), the
• So, a sudden spike of a few months, which is
GDP grew by just 4.5%.
likely to flatten out in the next few months, is a
• In the October to December, 2019 quarter too, premature criterion for the stagflation claims or
GDP growth is likely to stay at roughly the same concerns.
level.
Corporate social responsibility
• For the full financial year, the GDP growth rate is Prelims perspective
expected to average around 5%, which is a six-
year low. Yet, in October and November, retail What is CSR?
inflation has went up.
• Corporate Social Responsibility (CSR)
• In fact, the October inflation was a 16-month is referred as a corporate initiative to assess
high, and the November inflation, at 5.54%, is at and take responsibility for the company's
a 3-year high. effects on the environment and impact on
social welfare and to promote positive social
• Inflation for the rest of the financial year is and environmental change.
expected to stay above the RBI’s comfort level
of 4%. • It efforts that go beyond what may be
required by regulators.
• So, with growth decelerating every quarter and
now inflation rising up every month, there are • The income is earned only from the society
growing concerns of stagflation in India. and therefore it should be given back.
Is India really facing stagflation? What is the legal mandate?
• Although it appears so at the first glance, India is • Under Companies Act, 2013 any company with
not yet facing stagflation. a
• Growth - India is not growing as fast as it had in • net worth of the company to be Rs 500
the past or as fast as it could. crore or more or
• However, it is still growing at 5%, and is • turnover of the company to be Rs 1000

expected to grow faster in the coming years. crore or more or
• It’s growth has not yet stalled and declined. In • net profit of the company to be Rs 5
other words, year on year, India’s GDP has crore or more.
grown in absolute number, not declined.
has to spend at least 2% of last 3 years average net
• Inflation - It is true that retail inflation has been profits on CSR activities as specified in Schedule VII
quite high in the past few months. But, the and as amended from time to time. The rules came
reason for this spike is only temporary. into effect from 1 April 2014.
• It has been caused by a spurt in agricultural • Further as per the CSR Rules, the provisions of
commodities after some unseasonal rains. So, CSR are not only applicable to Indian
with better food management, food inflation is companies, but also applicable to branch and
expected to come down. project offices of a foreign company in India.
• The core inflation (inflation without taking into

account food and fuel) is still in the safe zone.

• Further, the qualifying company will be the resources, timelines and strategies
required to constitute a CSR Committee needed to meet their legal obligations.
consisting of 3 or more directors.
But it also has its shortcomings.
• If the company did not spend CSR, it has to
• Non-compliance - A survey found that 52 of
disclose the reason for not spending. Non-
disclosure or absence of the details will be the country’s largest 100 companies failed to
penalised from Rs 50,000 to Rs 25 lakh or spend the required 2% last year.
even imprisonment of up to 3 years. • A smaller proportion has gone further to
Mains perspective allegedly cheating by giving donations to
charitable foundations that then return the
What activities can be carried on? fund minus a commission.
CSR is a commitment to support initiatives that • Roll back - Charitable spending was used as a
measurably improve the lives of underprivileged by big reputation builder for family-led
one or more of the following focus areas as conglomerates with a long tradition of
philanthropy. Now it’s just about legal
Eradicating hunger, poverty & malnutrition, compliance. Many companies that were giving
Promoting education, Improving maternal & child more than 2% have scaled back their
health, Ensuring environmental sustainability, spending.
Protection of national heritage, Measures for the
benefit of armed forces, Promoting sports, • Inequality - One of the challenges for the
Contribution to the Prime Minister‘s National Relief, corporate sector is finding credible charity
Slum area development etc. partners to support. So the bigger charities
that are more well-known are being flooded
How is it beneficial to companies? with money leaving out smaller charities.
• Consumers are socially conscious - Many • Compounding the problem is that smaller
consumers actively seek out companies that
charities often lack the capacity to cope with
support charitable causes. Therefore CSR companies’ bureaucratic and operational
attracts customers. demands.
• Competitive advantage - Businesses that • Geography - There is also a geographic bias
show how they are more socially responsible under the 2% law, with companies funding
than their competitors tend to stand out. projects closer to where they are based.
• Boosts employee morale - CSR practices have Therefore more industrialised states are
a significant impact on employee morale, as it winning over poorer, more remote regions
reinforces his confidence on Company’s where development aid is acutely needed.
empathy. • Politics - Some companies looking to gain
What is the effect of legislation? goodwill by backing government-led projects
rather than independent initiatives.
• More spending - The private sector’s
combined charitable spend increased from Direct tax code
33.67bn rupees in 2013 to around 250bn Prelims perspective
rupees after the law’s enactment.
▪ The Task Force, initially headed by former
• Mainstreaming Charity - It has brought CSR CBDT Member (Legislation) Arbind Modi and
from the fringes to the boardroom. later on by Akhilesh Ranjan, was constituted
Companies now have to think seriously about in November 2017 in order to review the

Income-tax Act and to draft a new Direct Tax Prelims perspective
Law.
Key aspects of the Insolvency and Bankruptcy Code
▪ The proposals in the draft code are aimed at
▪ IBC proposes a paradigm shift from the
bringing more certainty to taxation of
personal and corporate income and capital existing 'Debtor in possession' to a 'Creditor
gains, and at bringing the gist of numerous in control' regime.
judicial pronouncements made since 1961, ▪ IBC aims at consolidating all existing
when the current tax law came into force, in insolvency related laws as well as amending
one place for easy reference. multiple legislation including the Companies
Mains perspective Act.
▪ The code aims to resolve insolvencies in a

Key Provisions of the draft DTC
strict time-bound manner - the evaluation
• Rejig of tax brackets- to widen them and which can and viability determination must be
bring a significant relief for the middle and upper completed within 180 days.
middle class
▪ Moratorium period of 180 days (extendable
A common corporate rate of 25% will apply to both up to 270 days) for the Company. For startups
large local as well as foreign companies that are and small companies the resolution time
present in India without a subsidiary. period is 90 days which can be extended by 45
days.
• Removal of Surcharges and Cesses- which are
currently imposed above a certain income slab and for ▪ Introduce a qualified insolvency professional
specific purposes. (IP) as intermediaries to oversee the Process.
• Negotiated Settlements- a new concept of settling ▪ Establishment of Insolvency and Bankruptcy

disputes through mediation between the taxpayer board as an independent body for the
and a collegium of officers. Here, the assessee will administration and governance of Insolvency
only have to pay the tax and interest and no penalty & bankruptcy Law; and Information Utilities
in case of a negotiated settlement. as a depository of financial information.
• Assessment System- creation of an assessment unit

to replace an assessing officer and a separate
litigation unit. It has favoured jurisdiction-free,
anonymous assessment by domain experts with the
involvement of senior officials.
• Incentives for Start-Ups- by treating them

differently from that of a normal company. It is
proposed that the funds raised by the start-ups will
not require any kind of scrutiny.
▪ National company law tribunal is for
companies and debt recovery tribunal is for
Banking and monetary policy individuals.
Insolvency and bankruptcy code Recent supreme court judgment on IBC

The Supreme Court recently upheld the constitutional
▪ According to IBC, the dues of operational
validity of the Insolvency and Bankruptcy Code 2016
creditors rank below those of financial
(IBC).
creditors. It was seen as violative of the
Article 14. However, SC said that if an • Reduced loss in recovery: According to IBBI data,
intelligible differentiation can be established the recovery rates for financial creditors have
between two classes of creditors, then improved on an absolute basis.
legislation is not violative of Article 14.
▪ Further, SC upheld the validity of Section 12 ▪ World Bank's Ease of Doing Business Report
of the Act which stipulates the timelines of 2015 had observed that the debt recovery
insolvency resolution process. The threshold rate in India hovered around 27 cents to the
to allow withdrawal of insolvency case dollar, and OECD countries had a recovery
pertains to the domain of legislature. rate of 70 to the dollar.
Operational and Financial creditors • Impact of the law on credit markets: Operational
creditors find the Code an effective tool for realising
• Financial creditors are those whose relationship their claims.
with the entity is a pure financial contract, such as a
loan or debt security. Issues with IBC,2016
• Missing the deadline: IBC mandates that an

• Operational creditors (unsecured creditor) refer to
anyone who has provided goods or services and the insolvent asset must be resolved in 270 days.
payment for same is due from the corporate debtor. Out of the 12 big accounts initially referred to
IBC, five cases are pending for more than 600
• The IBC creates the distinction between a financial days due to continuous litigation by some
and operational creditor based on the nature of party or the other. It has been more than 600
transaction (i.e. purely financial transactions or days since the Rs 50,000-crore account
transactions related to day to day operations). entered the IBC.
Mains perspective • Lack of benches and judges: India has 14

NCLTs, and two are yet to start functioning.
Success of IBC
The government had a couple of years back
•1322 cases have been admitted by National announced to set up 24 bankruptcy courts.
Company Law Tribunal (NCLT). 4452 cases have been The NCLT judge roster shows 27 members
disposed at pre-admission stage. have been sharing the workload against the
target of appointing 60 judicial and technical
• Resolution at pre-admission stage: Once a petition members.
of the creditor is filed before the NCLT, many debtors
have started paying at the pre-admission stage so that • Haircuts: It is the extent of write off that
the declaration of insolvency does not take place. This banks undertake as part of a resolution plan
indicates that IBC has pushed successful resolution to get the company back on track. So far
outside the courts through negotiation, arbitration & financial creditors have got 43 per cent of
reconciliation, which will lessen the burden of their claims and 188 per cent of the
judiciary system. liquidation value. Steps should be taken so
that haircuts are reduced.
• Reduced time for resolution: According to
Insolvency and Bankruptcy Board of India (IBBI) data, • All these factors are raising concerns that IBC
the average time for resolution and liquidation will meet the same fate as DRT and SARFAESI
outcomes is within the 270-day outer timeline. This is and banks will eventually lose confidence in
a significant improvement over World Bank’s estimate IBC.
in 2015, which stated that average time period for • The recent Supreme Court order setting aside
resolution is 4.3 years. RBI’s decision to send all power companies to
the NCLT has also set a wrong precedent.

There is a need to urgently develop a policy RBI removes charges on NEFT and RTGS
framework for distressed asset investors to attract
foreign investors in this space. In absence of
competing bidders, valuation of assets will be Only prelims perspective
impacted, causing further losses to banks and other
creditors.
Payment and Settlement Systems in

India: Vision 2019 – 2021
Only prelims perspective
About:
Name of the vision document: Payment and

Settlement Systems in India: Vision 2019 – 2021.
Implementation Period: The bank will implement the

approach outlined in this Vision during the period
2019 - 2021.
Core theme of document: Empowering Exceptional E-

payment Experience. Decline in NPA
Key vision of document: It envisages to achieve "a According to the Economic Survey 2018-2019, the
highly digital and cash-lite society" through the goal functioning of the banking sector has improved due to
posts of competition, cost-effectiveness, convenience the decrease in the Non-performing assets (NPAs) and
and confidence (4Cs). an increase in credit growth. The gross NPAs of the
public sector banks have declined from 11.5% to
Background: The move comes as the RBI expects the 10.1%, between March 2018 and December 2018.
number of digital transactions to increase more than
four times to 8,707 crore in December 2021. Prelims perspective
Payment systems like UPI and IMPS are likely to When does an asset become a Non-performing
register average annualised growth of over 100%, and Asset?
NEFT at 40%, over the vision period. • The banks do not immediately classify their
Strategy to be adopted: assets as NPAs.
• The banks usually allow a certain grace period

• The document talks about creating customer
before terming the NPA.
awareness, setting up a 24X7 helpline and
self-regulatory organisation for system • Usually, for commercial loans, the grace
operators and service providers, among period is more than 90 days. For consumer
others. loans, it is more than 180 days and as for
• The 'no-compromise' approach towards agricultural loans, if the interest/principal
safety and security of payment systems remains at overdue for more than 2 harvest
remains a hallmark of the vision. seasons, it is termed as NPA.
• The approach of the RBI will continue to be of
minimal intervention in the pricing of charges Mains perspective
to customers for digital payments.
Why previous rise in the NPAs
• Interestingly, no specific target has been
considered for reducing cash in circulation.
According to the Economic Survey 2016-17, the cause • Inflation: The economy will face inflation
for rising NPAs are as follows: because of the increase in the cost of the
capital.
• Delaying of projects: There was difficulty in
acquiring lands, environmental clearances, Causes for NPA decline:
etc.
Insolvency and Bankruptcy Code: According to the
• Global Financial Crisis of 2008-09 has also Central Bank, under the National Company Law
significantly contributed to the increase of Tribunal, out of the 701 cases admitted, claims
NPAs. admitted on 21 accounts for an amount of Rs.99
Billion, the recovery has been 49 Billion. Despite the
• Economic slowdown after 2011-12 has caused little progress, it has played a crucial role in the
a negative impact on the economy. recovery of the bad assets.
• The depreciation in the rupee value has Strategic Debt Restructuring (SDR): A scheme
increased the rate of interest of the loans introduced by RBI, it aims at helping banks recover
borrowed from overseas. their loans by taking control of their stressed
companies.
Increase in the banks’ provisions: A provision is an
amount of money put aside by the banks to cover the Corporate Debt Restructuring: Financial institutions
future liabilities. The increase in the NPAs has made and banks come together under this non-statutory
them increase their provisions. This, in turn, created mechanism to restructure the debts faced by the
losses for the banks, especially for the Public Sector companies with financial difficulties caused either due
Banks. to external or internal factors and provide support for
these companies. In this scheme, the promoter who is
Asset Quality Review (AQR): The RBI, feeling that the
facing debt is delinked and the ownership is changed.
NPAs were understated by the banks, has introduced
Asset Quality Review to estimate and recognize the Asset Reconstruction Company: ARCs are a type of
NPAs. This has increased the number of NPAs. financial institutions that buys debtors of the banks
and take effort to mend the debts by itself. The ARCs
are registered under RBI and regulated under the
Impacts of NPAs SARFAESI Act.
• Lack of confidence in the banking sector: If Debt Recovery Tribunal: DRTs were established under
there is an increase in the NPAs the banks will Recovery of Debt due to Banks and Financial
be unwilling to invest in new assets and ideas. Institutions Act (RDBFI), 1993. It is aimed at
This, in turn, will reduce economic progress. recovering loans of the banks and other financial
institutions with their customers.
• A loss for the shareholders: The assets of the
shareholders will give little returns from the Mission Indradhanush: It is the plan by the
banks as the latter struggle to obtain returns government to resolve the problems related to the
from the assets. Public Sector Banks. This is a 7 pronged plan that
focuses on appointments, Bank Boards Bureau,
• Increase in the interest rate: The rate of capitalization, de-stressing, empowerment, the
interest will increase. This, in turn, will lead to framework for accountability and government
a decrease in the demand for the loans, a reforms.
decrease in the returns for the limited assets
and a decrease in economic growth and Joint Lenders’ forum: JLF is a forum that comprises of
development. banks to take decisions related to stressed assets
which are 100 crores or more. These groupings are
formed under the guidelines of RBI.
Prompt Corrective Actions (PCA) Framework: Under • Controlling private monopolies
the PCA framework, the RBI monitors key
• Expansion of banking to rural areas
performance indicators of the banks to prevent any
future financial crisis. It is an early warning exercise • Reducing regional imbalance to curb the
undertaken by the RBI by monitoring profitability, urban-rural divide
asset quality and the capital of the banks. If any banks
come under this framework, they face lending and • Priority Sector Lending
other restrictions.
• Mobilization of savings
Government’s 4Rs Strategy: According to the
Immediate causes
government, due to its 4Rs strategy (recognition,
resolution, recapitalisation and reform strategy), • There were two wars with China in 1962 and
there has been a significant decline of the NPAs. Pakistan in 1965 that put immense pressure
on public finances.
Project Sashakt: It is a 5-pronged strategy to deal with
NPAs. The larger stressed assets will be dealt with by • Banks were failing largely due to speculative
alternative investment fund (AIF) or asset financial activities when Indira Gandhi
management company (AMC). Bad loans up to Rs.50 became the prime minister in 1967.
crore will be managed within the bank with 90 days
deadline. Bad loans between 50 crores and 500 crores • Two successive years of drought had not only
will be referred by National Company Law Tribunal or led to food shortages but also compromised
enter into an inter-creditor agreement that allows the national security because of the dependence
lead bank to implement a resolution plan in 180 days. on American food shipments.
For stressed assets above 500 crores, an independent
• Subsequently, a three-year plan holiday
AMC with the support of AIF will deal with these
affected aggregate demand as public
cases.
investment was reduced.
50 years of bank nationalization • Agriculture needed a capital infusion, with the
July 19, 2019 marks 50 years of nationalisation of 14
initiation of the Green Revolution in India that
commercial banks in India by the Indira Gandhi
aimed to make the country self-sufficient in
government.
food security.
• The collapse of banks was causing distress
Why nationalization of banks? among people, who were losing their hard-
earned money in the absence of a strong
• After independence, the Government of India government support and legislative
(GOI) adopted planned economic protection to their money.
development for the country.
Post-nationalization challenges
• Nationalization was in accordance with the
national policy of adopting the socialistic • Having ownership and operational control of
pattern of society. the banks was a challenging task for
government.
• The actual course came at the end of a
troubled decade when India had suffered • The banks were constantly challenged on
many economic as well as political shocks. their profitability parameters—particularly
RRBs which had both geographical and
Other reasons portfolio concentration risks.
• Social welfare What benefits do we reap today?

• Banking under government ownership gave • However, that call should be taken to achieve
the public implicit faith and immense the residual task of inclusion.
confidence about the sustainability of the
• Making state-owned banks more autonomous
banks.
and accountable to the market may be the
• Banks were no longer confined to only first significant step that can be taken for
metropolitan or cosmopolitan in India. In fact, now.
the Indian banking system has reached even
to the remote corners of the country. Regulation of NBFC’s
In the Union Budget for FY 2019-20, the Finance
• The present government has reached out to Minister announced that RBI will get greater powers
people through banks. to regulate Non-Banking Finance Companies (NBFCs).
• Assistance for constructing toilets under Prelims perspective

Swachh Bharat programme, DBT, Crop
insurance schemes etc was given through The Non-Banking Financial Companies (NBFCs) are
banks. the financial institutions that offer the banking
services, but do not comply with the legal definition of
• The dispensing of Mudra loans to about 20 a bank, i.e. it does not hold a bank license. Both banks
crore individuals, benefits under PM Kisan and NBFCs are financial intermediaries. NBFCs can
scheme for providing cash assistance to close lend and make investments. Hence, their activities are
to 15 crore farmers annually are only possible akin to that of banks.
through this banks.
Difference between NBFC & Bank
• Thus banks became the government’s
dispenser of goodies due to the decision • NBFC cannot accept demand deposits;
which was taken 50 years ago.
• NBFCs do not form part of the payment and
What about Financial Inclusion? settlement system and cannot issue cheques drawn
on itself;
• The All India Debt and Investment Survey
reports indicate that the formal sector has • Deposit insurance facility of Deposit Insurance and
been losing ground to the informal sector in Credit Guarantee Corporation is not available to
the rural indebtedness pie since 2001 depositors of NBFCs, unlike in case of banks.
onwards.
• Unlike banks, CRR does not apply on any NBFCs
• This is worrying and indicates that the while a lower SLR of 15% applies only to Deposit
inclusion agenda is far from achieved. taking NBFC.
• Some examples in the public sector banking • NBFCs get license under Companies Act, 1956 and
system—particularly SBI—have shown that it Banks under Banking regulation Act.
is possible to achieve the double bottom line
Systemically important NBFCs
of being in the commercial market while
continuing to achieve significant targets in • NBFCs whose asset size is of ₹ 500 cr or more as per
inclusion, sectoral, spatial and geographical. last audited balance sheet are considered as
systemically important NBFCs.
Way Forward
• The rationale for such classification is that the
• From the larger perspective of efficiency and
activities of such NBFCs will have a bearing on the
better utilization of capital, it may be a good
financial stability of the overall economy
idea to move state-owned banks towards
more market-based framework. Mains perspective
Adverse Challenges faced by the NBFCs nonviable businesses of the NBFC to ensure
continuance of critical activities.
• Borrowing Cost: They face magnified borrowing
cost which is consequently passed on to their • The regulator may also establish "bridge
borrowers in the form of higher interest on institutions" that is a temporary arrangement to
loans. It leads to the problem of non-payment of enable continuity of NBFC's business.
loans.
• The government has proposed to transfer the
• The problem of non-payment of loans has led to regulatory authority over housing finance sector to
accumulation of NPAs. the Reserve Bank of India (RBI) from the National
Housing Bank (NHB) in a bid to strengthen the sector
• Higher borrowing cost= Higher cost of funds for which was hit by payment delays and liquidity crunch.
borrowers=low credit rating=low profit margins.
• For purchase of high-rated pooled assets of
• Capital Adequacy norms: There are serious issues financially sound NBFCs, amounting to a total of ₹1-
with raising capital by the NBFCs. It leads to lakh crore during the current financial year, the
reduction of profit margins. It has a consequent government will provide a one-time six months’
adverse impact on ability to attract private partial credit guarantee to public sector banks for the
equity investment. Hence, there are increasing first loss of up to 10 per cent.
challenges for meeting the stipulated capital
adequacy norms. • NBFCs which do public placement of debt have to
maintain a Debenture Redemption Reserve (DRR) and,
• There are challenges associated with regulation
in addition, a special reserve, as required by RBI, has
of the NBFC sector. also to be maintained.
• They also do not enjoy much popular trust like • NBFCs will also be allowed to raise finance the Trade
banks. Receivable Discounting System (TreDS) platform,
• Credit risk and collection problems also pose which shall open a new avenue of financing.
challenges for the NBFCs.
• RBI Board has decided to create a specialised
• There are concerns associated with the supervisory and regulatory cadre within the RBI.
commercial paper market which logically
Setting up of india post bank as payment
increases funding challenges for NBFCs.
bank
• The NBFCs are largely dependent on The Standing Committee on Information Technology
competitors, banks and capital markets for has submitted its report on ‘Setting up of Post Bank of
raising funds impacting their potential for India as a Payments Bank- Scope, Objectives, and
sustainable growth. Framework’.
• There is a lack of flexibility in classification of Only Prelims perspective

loans by the NBFCs.
About Payment Bank
Steps taken by the government
• A payments bank is a differentiated bank,
• The amendments are proposed to the RBI Act 1934, offering a limited range of products.
include powers relating to resolution of NBFCs. • It cannot lend to customers.
• It can accept demand deposits, issue
• The RBI will also have power to remove a director of
ATM/debit cards but not credit cards.
an NBFC, excluding those owned by the government
• It can accept deposits upto Rs. 1 Lakh per
• The RBI may frame schemes for amalgamation, account from individuals and small
reconstruction or splitting up of the viable and businesses.
• Apart from maintaining Cash Reserve Ratio • Banking Laws (Co-operative Societies)
with the RBI, it will be required to: Act, 1955.
• invest minimum 75% of its "demand deposit
balances" in Statutory Liquidity Ratio (SLR)
eligible Government securities/treasury bills
with maturity up to one year.
• hold maximum 25% in current and time/fixed
deposits with other scheduled commercial
banks for operational purposes and liquidity
management. 25% of its branches must be in
the unbanked rural area.
• The promoter’s minimum initial contribution
to equity capital will have to be at least 40%
for the first five years. Mains perspective
About India Post Payment Bank (IPPB) • Features of Cooperative Banks:
It is a financial service provider, launched with the • Customer Owned Entities: Co-operative
mandate of improving financial inclusion. bank members are both customer and
owner of the bank.
It has been incorporated under the Companies Act,
2013 as a public limited company with 100% • Democratic Member Control:Co-
Government of India equity under Department of operative banks are owned and controlled
Posts (DoP). by the members, who democratically
elect a board of directors. Members
Urban cooperative banks
usually have equal voting rights, according
Recently, the Reserve Bank of India (RBI) imposed
to the cooperative principle of “one
restrictions on withdrawals from Punjab and
person, one vote”.
Maharashtra Cooperative (PMC) Bank, which
triggered a panic among bank customers. It has • Profit Allocation: A significant part of the
brought to the fore the issue of riskiness of banks, yearly profit, benefits or surplus is usually
especially co-operative banks and the need to restore allocated to constitute reserves and a part
confidence among customers. of this profit can also be distributed to the
co-operative members, with legal and
Prelims perspective
statutory limitations.
Cooperative Banking
• Financial Inclusion: They have played a
• A Co-operative bank is a financial entity which significant role in the financial inclusion of
belongs to its members, who are at the same unbanked rural masses.
time the owners and the customers of their
• Advantage of Cooperative Banking
bank.
• Cooperative Banking provides effective
• Co-operative banks in India are registered
alternative to the traditional defective
under the States Cooperative Societies
credit system of the village money lender.
Act. The Co-operative banks are also
regulated by the Reserve Bank of India • It provides cheap credit to masses in rural
(RBI) and governed by the areas.
• Banking Regulations Act 1949 • Cooperative Banks have discouraged

unproductive borrowing personal
consumption and have established the • Large amounts of overdues restrict the
culture of productive borrowing. recycling of the funds and adversely affect
the lending and borrowing capacity of the
• Cooperative credit movement cooperative.
has encouraged saving and
investment, instead of hoarding money the • Most of the benefits from the cooperatives
rural people tend to deposit their savings in have been covered by the big land
the cooperative or other banking institutions. owners because of their strong socio-
economic position.
• Cooperative societies have also greatly
helped in the introduction of better • Cooperative Banks are losing their lustre due
agricultural methods. Cooperative credit is to expansion of Scheduled Commercial Bank
available for purchasing improved seeds, and adoption of technology. They are also
chemical fertilizers, modern implements, etc facing stiff competition from payment banks
and small-finance banks.
• Cooperatives Banks offers higher interest
rate on deposits. • Long-term credit extended by them is
declining.
• Problems with Cooperative Banking in India
• Regional Disparities: The cooperatives in
• Organisational and financial limitations of northeast states and in states like West
the primary credit societies considerably Bengal, Bihar, Odisha are not as well
reduce their ability to provide adequate
developed as the ones in Maharashtra and
credit to the rural population. Gujarat. There is a lot of friction due to
• Needs of tenants and small farmers are not competition between different states, this
fully met. friction affects the working of cooperatives.
• Primary credit societies are financially weak • Political Interference: Politicians use them to
and are unable to meet the production- increase their vote bank and usually get their
oriented credit needs representatives elected over the board of
director in order to gain undue advantages.
• Overdues are increasing alarmingly at all
levels. Dual Regulation of Urban Cooperative Bank
• Primary credit societies have not been able • Urban Co-operative Banks are regulated and
to provide adequate and timely credit to the supervised by State Registrars of Co-
borrowing farmers. operative Societies (RCS) in case of single-
State co-operative banks and Central
• The cooperatives have resource constraints Registrar of Co-operative Societies (CRCS) in
as their owned funds hardly make a sizeable case of multi-State co-operative banks and by
portfolio of the working capital. Raising the RBI.
working capital has been a major hurdle in
their effective functioning. • The RCS exercises powers under the
respective Co-operative Societies Act of
• A serious problem of the cooperative credit is the States with regard to incorporation,
the overdue loans of the cooperative registration, management, amalgamation,
banks which have been continuously reconstruction or liquidation and in case
increasing over the years. of UCBs that have multi-State presence,
are exercised by the CRCS.

• The banking related functions such as issue of • Surplus Distribution Policy: It has
license to start new banks/branches, matters recommended a surplus distribution policy
relating to interest rates, loan policies, which targets the level of realized equity to be
investments and prudential exposure norms maintained by the RBI. Under it, only if
are regulated and supervised by the Reserve realized equity is above its requirement, will
Bank under the provisions of the Banking the entire net income be transferable to the
Regulation Act, 1949. Government.
Bimal Jalan committee report • It has also suggested that the RBI’s economic
Only prelims perspective capital framework may be periodically
reviewed after every five years
About:
Bank merger
Reserve Bank of India (RBI) had constituted an “Expert The Centre announced a mega amalgamation plan,
Committee to Review the Extant Economic Capital the third in a row, that merged 10 public sector banks
Framework of the RBI” under the Chairmanship of Dr. into 4 larger entities.
Bimal Jalan. Major recommendations of the
Committee with regard to risk provisioning and Prelims perspective
surplus distribution are as follows:
What are the key decisions?
• RBI’s economic capital: A clearer distinction
• There are four new sets of mergers:
between the two components of economic
capital (realized equity and revaluation • Punjab National Bank, Oriental Bank of
balances) was recommended. Commerce and United Bank of India to
merge
• Realized equity could be used for
meeting all risks/ losses as they were • Canara Bank and Syndicate Bank to
primarily built up from retained earnings. amalgamate
• Revaluation balances could be reckoned • Union Bank of India to acquire Andhra
only as risk buffers against market risks Bank and Corporation Bank
as they represented unrealized valuation
gains and hence were not distributable. • Indian Bank to merge with Allahabad Bank
• Risk provisioning for market risk: It has • With these series of mergers, the number of
recommended the adoption of Expected state-owned banks is down to 12 from 27.
Shortfall (ES) methodology under stressed
• The merger announcement was followed by
conditions (in place of the extant Stressed-
an equity infusion move of Rs 55,250 crore in
Value at Risk) for measuring the RBI’s market
these banks.
risk. It has recommended the adoption of a
target of ES 99.5 % confidence level (CL). • The aim is to enable them to grow their loan
book.
• Size of Realized Equity: Contingent Risk Buffer
(CRB) – made primarily from retained • Banks board level governance reforms aimed
earnings – has been recommended to be at improving their financial health and
maintained within a range of 6.5 % to 5.5 % of enhancing their lending capacity to support
the RBI’s balance sheet, comprising 5.5 to 4.5 growth were also announced.
% for monetary and financial stability risks
and 1.0 % for credit and operational risks. Mains perspective
What will the mergers result into?

• The biggest merger out of the four was • According to the government, banks have
Oriental Bank of Commerce and United Bank been merged on the basis of likely operating
merging into Punjab National Bank. efficiencies, better usage of equity and their
technological platform.
• This will create the 2nd-largest state-owned
bank with Rs 17.95 lakh crore business and • But the move marks a departure from the
11,437 branches. plan to privatise some of the banks or
bringing in strategic investors to usher in
• These 3 banks are technologically compatible reform in the sector.
as they use Finacle Core Banking Solution
(CBS) platform. • The government has decided amalgamation
as the “best route” to achieve banking sector
• The merger of Syndicate Bank with Canara scale.
Bank will create the 4th-largest public sector
bank (PSB) with Rs 15.20 lakh crore business • This is also expected to support the target of
and 10,324 branches. achieving a $5 trillion economic size for India
in 5 years.
• Canara Bank will get capital infusion of Rs
6,500 crore. • However, mergers may not lead to any
immediate improvement in their credit
• Andhra Bank and Corporation Bank’s merger metrics.
with Union Bank of India will create India’s
5th-largest public sector bank with Rs 14.59 What are the challenges and priorities now?
lakh crore business and 9,609 branches.
• Mergers are driven by synergies - in products,
• The government announced capital infusion business, geographies or technology and the
of Rs 11,700 crore for the Union Bank of India. most important, cost synergies.
• The merger of Allahabad Bank with Indian • There may be some geographical synergies
Bank will create the 7th-largest public sector between the banks being merged now.
bank.
• But unless banks realise cost synergies
• It would form Rs 8.08 lakh crore business with through branch and staff rationalisation, the
strong branch networks in the south, north mergers may not mean much to them or to
and east of the country. the economy.
• Indian Bank will get equity infusion of Rs • This is where the government’s strategy
2,500 crore. becomes significant.
What is the rationale behind the mergers? • Evidently, public sector banks are overstaffed.
• It was the Narasimham Committee in the late • There is also bound to be overlap in branch
1990s that recommended consolidation networks such as in the Canara-Syndicate
through a process of merging strong banks. Bank merger, especially in Karnataka and a
couple of other southern States.
• There are too many banks in India with sizes
that are minuscule by global standards with • The success of these mergers, therefore, will
their growth constricted by their inability to depend on how well these banks handle the
expand. sensitive issue of staff rationalisation.
• Given this, the biggest plus of the mergers is • The All India Bank Employees Association has
that they will create banks of scale. already raised concerns in this regard.

• Reaping the benefits of the advantage of scale • The idea is that business investment and
by banks mergers requires adequate reforms housing demand were primarily determined
in governance and management of these by longer-term interest rates.
banks.
What the RBI plans on December 23, 2019?
• But the key reforms to be made are at the
• The central bank has decided to purchase Rs
board level, including in appointments,
especially of government nominees. 10,000 crore worth of one security - the
6.45% GS 2029. This is a long term 10-year
Operation twist bond.
The Reserve Bank of India decided to conduct its
• When the RBI purchases 6.45% bond on
version of ‘Operation Twist’ through simultaneous
December 23, demand is expected to rise,
purchase and sale of government securities under
leading to lower long-term yield.
Open Market Operations (OMOs) for Rs 10,000 crore
each. • On the sell side, it has proposed to sell four
short term securities which will mature in
What is Operation Twist?
2020for a total of Rs 10,000 crore - 6.65% GS
• Operation Twist is the name given to a US 2020, 7.80% GS 2020, 8.27% GS 2020 and
Federal Reserve monetary policy operation. 8.12% GS 2020.
• It involves the purchase and sale of government • The sale of short-term securities will push up
securities to boost the economy by bringing the short-term rate.
down long-term interest rates.
• However, bankers say ‘Operation Twist’ is
• It normally leads to lower longer-term yields, likely to put an end to the interest rate cut
which will help boost the economy by making expectations.
loans less expensive for those looking to buy
What are Open Market Operations?
homes, cars and finance projects.
• Open market Operations (OMOs) are the
• But saving becomes less desirable because it
market operations conducted by the RBI by
doesn’t pay as much interest.
way of sale and purchase of G-Secs to and
Why Operation Twist now? from the market.
• The RBI slashed repo rate by 135 points to • OMOs are done with an objective to adjust
5.15% this year but banks passed on only part the rupee liquidity conditions in the market
of it. on a durable basis.
• The one-year median Marginal Cost of funds • With this monetary tool the RBI manages and
based Lending Rate (MCLR) has declined only controls the liquidity, rupee strength and
49 basis points (bps). monetary management through purchase and
sale of government securities (G-Secs).
• The RBI says the decision follows a review of
the current liquidity and market situation and • When the RBI feels that there is excess
an assessment of the evolving financial liquidity in the market, it resorts to sale of
conditions. securities thereby sucking out the rupee
liquidity.
• It is keen that long-term rates are brought
down to kick start investment and revive the • Similarly, when the liquidity conditions are
economy. tight, the RBI may buy securities from the

market, thereby releasing liquidity into the Why should the borrowers demonstrate success?
market.
• Microcredit agreements may not even involve
• On Friday, the yield on 10-year benchmark a written agreement sometimes, as many
bonds fell by 13 bps to 6.60%, following the recipients of microcredit are often illiterate.
RBI announcement.
• When borrowers demonstrate success in
Microcredit paying their loans on time, they become
An article published in Ideas for India suggests that eligible for loans of even larger amounts,
the existing systems of microcredit have a limited allowing them to finance expansion.
impact on the long-term wellbeing of the recipients.
Why are microcredit institutions failing to deliver
Only mains perspective long-term benefits?
What does the article say? • Lack of evidence of transformative effects of

microfinance on the average borrower.
• Microcredit has gained much grip as a tool for
ensuring the welfare of the most impoverished • Stringent repayment schedule offered by
in society, and boosting development most microcredit institutions.
alongside.
• Most borrowers to whom microcredit is given
• However, the article claims that certain flaws have little to no credit history, so microcredit
in how microcredit transactions occur have led institutions cannot be sure what the risk of
to the outcomes having muted benefits in the borrowers defaulting will be.
improving the lives of its beneficiaries in a
What are the applications of microcredit?
meaningful way.
• Conventionally, microcredit has been used
• It also suggests a number of methods of
mainly for entrepreneurs to begin production
utilising microcredit outside the orthodox
and attain self-sufficiency.
ones.
• It can act as a poverty alleviation and
• These methods can bring potential benefits to
productivity-boosting measure.
a much larger section of the population that
are generally not served by the traditional • Small microcredit loans allow rural labourers
ones. and entrepreneurs to migrate to urban areas
to find work during the lean season on farms.
What is microcredit?
• Those who migrated temporarily during this
• Microcredit refers to the granting of very small
season experienced increased spending and
loans to low-income/impoverished borrowers.
increased their calories consumed.
• It aims to enable the borrowers to use that
• Microcredit can be used in situations where
capital to become self-employed and
seasonal factors cause drops in income to
strengthen their businesses.
overcome these seasonal credit crunches and
• Microcredit loans are often given to people avoid taking decisions which cause people
who may lack collateral, credit history, or a long-term negative impacts.
steady source of income.
• It can dampen the effects of shocks like floods
• The core idea of microcredit to provide credit by providing people with a form of insurance
access to people who are outside the that both increases production before the
mainstream institutions’ scope. shock and provides a safety net after.

What can be done further? Participants as defined in the Scheme for
deficiency in certain services covered under
• Microcredit has a vast range of applications the grounds of complaint.
for poverty alleviation and general
• The Scheme also provides for an Appellate
development, but existing systems require
mechanism under which the complainant /
reform in multiple areas to allow for
System Participant has the option to appeal
unfettered benefits that last.
against the decision of the Ombudsman
• Borrowers who received the grace period in before the Appellate Authority.
the monthly repayment schedule were more • Transactions undertaken through the
likely to start a new business. banking channels will still be managed by the
Banking Ombudsman.
• They also reported higher profits and higher • The new ombudsman will work from the 21
household incomes with decreased rate of existing offices of the Banking Ombudsman
defaulting. and work within the existing territorial
jurisdictions.
• Communities can be an accurate source of
• Customer compensation:
information about credit risk for microcredit
Rs 1 lakh is the compensation that can be
institutions, but it should be done by
awarded in lieu of loss of customer’s time,
eliminating the bias and incentivising accurate
expenses incurred and mental agony.
information.
Rs 20 lakh is the maximum compensation the
• Furthermore, in areas were the application of digital payments ombudsman can award.
microcredit is relatively new, microcredit
systems must be carefully evaluated before White label ATM
they are put into place, so as to enable the • The RBI has relaxed norms for white label
greatest benefit from such institutions. ATM (WLA) operators.
• All guidelines, safeguards, standards and

Ombudsman scheme for digital
control measures applicable to banks relating
transactions
to currency handling and cyber-security
Recently Reserve Bank of India (RBI) launched
framework for ATMs shall also be applicable
Ombudsman Scheme for Digital Transactions (OSDT).
to the WLA operators, the RBI said.
Prelims perspective
About the Scheme
Who are the White Label ATM Operators?
• It is launched under Section 18 of the
• Automated Teller Machines (ATMs) set up,
Payment and Settlement Systems Act, 2007
owned and operated by non-bank entities are
which will provide a cost-free and
called WLAs.
expeditious complaint redressal mechanism
relating to deficiency in customer services in • They provide the banking services to the
digital transactions conducted through non- customers of banks in India, based on the
bank entities (like mobile wallets or tech cards (debit/credit/prepaid) issued by banks.
enabled payment companies using UPI for
settlements) regulated by RBI. • Non-bank entities that set up, own and
• The Ombudsman for Digital Transactions is a operate ATMs are called “White Label ATM
senior official appointed by the Reserve Bank Operators” (WLAO).
of India (appointed for a period not • The WLAO’s role is confined to acquisition of
exceeding 3 years at a time) to redress transactions of all banks’ customers by
customer complaints against System
establishing technical connectivity with the • On the other hand, in swap transaction, only
existing authorized, shared ATM and Card authorised dealers, mainly banks, will be
Payment Network Operators. allowed to deposit US dollars in exchange for
rupees.
Mains perspective
• This comes with an agreement to reverse the
Relaxed norms by RBI transaction at a fixed exchange rate at the
• The RBI has been decided to allow WLAs to end of 3 years.
buy wholesale cash, above a threshold of 1 • The final exchange rate will be decided by an
lakh pieces (and in multiples thereof) of any auction where banks will bid on the forward
denomination, directly from the RBI. premium they are willing to pay.
• The RBI also permitted WLA operators to • Under the swap auction, minimum bid size
source cash from any bank, including would be $25 million and in multiples of $1
cooperatives and regional rural banks. million thereafter.
• They are also being allowed to source cash Mains perspective
from any scheduled bank, including
cooperative banks and regional rural banks What is the objective?
and to offer bill payment and Interoperable
• The objective is to meet the durable liquidity
Cash Deposit services, subject to technical
feasibility and certification by the National needs of the system.
Payments Corporation of India (NPCI). • This will inject rupee liquidity for longer
RBI has also allowed WLA operators to display duration through long-term foreign exchange
advertisements pertaining to non-financial products Buy/Sell swap.
or services anywhere within the WLA premises, • The forex swap essentially puts more money
including the ATM screen, except the main signboard in the hands of banks.
Swap facility • They will, in turn, have discretion to decide

The RBI is set to inject long-term liquidity worth $5 whether to step up credit to lower-rated
billion into the system through foreign exchange swap borrowers.
auction with banks for 3 years.
• The US Dollar amount mobilised through the
Prelims perspective auction would also reflect in RBI's foreign
exchange reserves and in its forward
What is a swap auction?
liabilities.
• Under the swap, a bank would sell US dollars
How will it benefit?
to the RBI.
• RBI has been regularly infusing cash into the
• It will simultaneously agree to buy the same
markets through Open Market Operations
amount of US dollars at the end of the swap
(OMOs) since the IL&FS default last year.
period.
• However, the liquidity situation is expected to
• The swap transaction is materially different
worsen in the coming period due to advance
from OMOs (open market operations).
tax and GST payments, as well as election
• OMOs refer to a central bank's buying and spending.
selling of government securities in the 'open
• So RBI's pre-emptive move may help partly
market'.
bridge this liquidity deficit.
• If successful, the auction is expected to • On receiving this message through SWIFT,
immediately release $5 billion worth of rupee banks abroad, mostly branches of domestic
liquidity into the banking system. banks abroad provide funds to the company.
• Also, banks which are currently short on SLR Mains perspective

(Statutory liquidity ratio) securities and
cannot participate in OMOs, will receive RBI fines banks for non-compliance
liquidity infusions too. • Even the PNB scam failed to wake up banks
• Nevertheless, RBI needs to come up with a was mainly due to people and process failure
structural solution to address the liquidity not so much a technology failure.
issue that is endemic to India’s corporate • Despite repeated warnings, the PNB fraud,
bond market. touted to be among the biggest in the
industry, happened. This prompted the
A SWIFT response could have saved
banking regulator to again remind banks
banks : RBI about the possible misuse of SWIFT.
Much before the scam came that to light at the PNB in
2018, the RBI had earlier cautioned the banks about • The RBI came down heavily on the banks,
the possible misuse of the SWIFT infrastructure and imposing monetary penalty on 36 banks,
directed them to implement safeguards. including the SBI, ICICI Bank and the Yes Bank
— to name a few.
Prelims perspective
• These banks failed to implement the
Society for Worldwide Interbank Financial
safeguard which was mainly integrating the
Telecommunication
SWIFT infrastructure with Core Banking
• The SWIFT infrastructure is the global Solution (CBS) within a time frame.
messaging software that enables financial
• The Banking Regulation Act allows the RBI to
entities to send and receive information
impose a maximum penalty of Rs. 1 crore for
about financial transactions in a secure,
a single breach.
standardised and reliable environment.
Now, what is Core Banking Solution?
• In order to use its messaging services,
customers need to connect to the SWIFT • Core Banking Solution (CBS) is networking of
environment. branches, which enables Customers to
operate their accounts, and avail banking
• Messages sent by SWIFT’s customers are
services from any branch of the Bank on CBS
authenticated using its specialised security
network.
and identification technology.
• It is regardless of where he maintains his
• Messages remain in the protected SWIFT
account.
environment, subject to all its confidentiality
and integrity commitments until they are • The customer is no more the customer of a
safely delivered to the receiver. Branch. He becomes the Bank’s Customer.
• It does not facilitate funds transfer, rather, it Why such move?

sends payment orders, that must be settled
• One of the main reason is for not maintaining
by correspondent accounts that institutions
have with each other. the timeline though many of them have
complied with the norms now.

• Another is, since the CBS was required to be • It cannot set up subsidiaries to undertake
integrated with SWIFT, the question is non-banking financial services activities.
whether CBS was equipped for this.
• Cannot be a business correspondent of any
• It means compliance was required from third- bank.
party vendors and their lack of readiness also
could have led to delays. The guidelines they need to follow:
• Promoter must contribute minimum 40%

• Third, even if the third-party software was
ready, the bank may not have used it equity capital and should be brought down to
effectively. 30% in 10 years.
• Minimum paid-up capital would be Rs 100 cr.

• And, finally, there could be some small banks
who may be not have started the process. • Capital adequacy ratio should be 15% of risk
weighted assets, Tier-I should be 7.5%.
Small finance banks
Prelims perspective • Foreign shareholding capped at 74% of paid
capital, FPIs cannot hold more than 24%.
What are small finance banks?
• Priority sector lending requirement of 75% of
The small finance bank will primarily undertake basic
total adjusted net bank credit.
banking activities of acceptance of deposits and
lending to unserved and underserved sections • 50% of loans must be up to Rs 25 lakh
including small business units, small and marginal
farmers, micro and small industries and unorganised Mains perspective
sector entities.
Need for Small Finance Banks
What they can do?
• Differentiated banking to cater large population:
• Take small deposits and disburse loans. India has second-largest unbanked population in the
world where more than 200 million people do not
• Distribute mutual funds, insurance products have a bank account and many rely on cash or
and other simple third-party financial informal financing. Therefore, SFBs provide access to
products. finance to a large unbanked population.
• Lend 75% of their total adjusted net bank • Priority sector lending: SFBs play a key role in the
credit to priority sector. priority sector lending space as their main focus is the
unserved and underserved segment.
• Maximum loan size would be 10% of capital
funds to single borrower, 15% to a group. • Financial inclusion of women: Most of the Small
Finance Banks were earlier microfinance companies -
• Minimum 50% of loans should be up to 25
to provide loans to women. Now that these have
lakhs.
become a bank, female customers can avail full
What they cannot do? banking solutions.
• Lend to big corporates and groups. • Social Impact: The SFBs are now looking beyond the
simple metric of “income improvement” to other
• Cannot open branches with prior RBI approval indicators of positive social impact, like customer
for first five years. employment characteristics, customer distribution
between urban and rural markets and women’s
• Other financial activities of the promoter
engagement. SFBs not only serve to provide banking
must not mingle with the bank.

solutions but empower the socio-economic progress Industry
of its consumers.
National mineral policy 2019
Leverage ratio • The Union Cabinet has approved National
Only prelims perspective Mineral Policy 2019.
The leverage ratio is the proportion of debts that a • National Mineral Policy 2019 replaces the
bank has compared to its equity/capital. There are extant National Mineral Policy 2008 (“NMP
different leverage ratios such as 2008”) which was announced in year 2008.
• Debt to Equity = Total debt / Shareholders Both for prelims and mains perspective
Equity
Need of the review of Policy
• Debt to Capital = Total debt / Capital
(debt+equity) • Low rate of growth of Indian Mining sector-
with just 1-2 per cent contribution to GDP
• Debt to Assets = Total debt / Assets over the last decade (as opposed to 5 to 6 per
cent in major mining economies).
Leverage ratios give an indication of the financial
health of a bank and how over-extended they may be. • Lack of focus on exploration- the production
vs import of minerals is in the ratio of 1:10 in
Circular trading India. High import is mainly because of non-
Prelims perspective availability of raw material for industries.
Hence, exploration must be treated as a
Circular trading refers to selling and buying of goods business and treating it as a startup giving tax
via shell corporations to artificially inflate turnover. holidays, tax benefits etc. to encourage
There is no actual change in ownership or movement investments for exploration.
of goods. • Lack of incentives with private sector to
invest- Companies fear investing in exploring
For example, a company “A” sold goods to another
minerals owing to various risks.
company “B”, which sold the same goods to another
company “C”. Now, the third company “C” sold the • Need to address illegality in mining-
goods to the first company “A”. All this while, the Apparently 102 mining leases in the state of
goods were kept at a godown of first company. Orissa did not have requisite environmental
clearances, approvals under the Forest Act,
1980.
• Need to address environmental concerns-
e.g. in Bellary due to mining operation. Also
there is need for reclamation and restoring
the mined land.
Need to address concerns of intergenerational rights.
Key features
• The 2019 Policy proposes to grant status of

industry to mining activity to boost financing
of mining for private sector and for
acquisitions of mineral assets in other
countries by private sector.

• It also mentions that Long term import export • It also proposes to constitute an inter-
policy for mineral will help private sector in ministerial body to institutionalize the
better planning and stability in business. mechanism for ensuring sustainable
development in mining.
• The Policy also mentions rationalize reserved
areas given to PSUs which have not been used National policy on electronics
and to put these areas to auction, which will • The Union Cabinet gave its approval to the
give more opportunity to private sector for National Policy on Electronics 2019 (NPE
participation. 2019), proposed by the Ministry of Electronics
and Information Technology .
• It also mentions to make efforts to harmonize
taxes, levies & royalty with world benchmarks Both prelims and mains perspective
to help private sector.
Status of ESDM industry
Other Features
• Indian electronics hardware production has
• NMP 2019 proposes a long term export been registering a Compound Annual Growth
import policy for the mineral sector to provide Rate (CAGR) of 26.7% (2017-18), as against a
stability and as an incentive for investing in growth rate of 5.5% in 2014-15.
large scale commercial mining activity. • India's share in the global hardware
electronics production is about 3%.
• Regarding the role of state in mineral
• The share of domestic electronics production
development online public portal with
in India’s GDP is 2.3%.
provision for generating triggers at higher
• Imports of electronics hardware account for
level in the event of delay of clearances has
been put in place. more than half of India’s domestic production
increasing rapidly from $37 billion in 2014-15
• NMP 2019 aims to attract private investment to $53 billion in 2017-18.
through incentives while the efforts would be
National Policy on Electronics 2019
made to maintain a database of mineral
resources and tenements under mining • The Policy envisions positioning India as a
tenement systems. global hub for Electronics System Design and
• The new policy focuses on use coastal Manufacturing – by encouraging and driving
waterways and inland shipping for evacuation capabilities in the country.
and transportation of minerals and
• It facilitates for developing core components,
encourages dedicated mineral corridors to
including chipsets, and creating an enabling
facilitate the transportation of minerals. environment for the industry to compete
• The utilization of the district mineral fund for globally.
equitable development of project affected
• The Policy replaces the National Policy of
persons and areas.
Electronics 2012 (NPE 2012).
Inter-Generational Equity
Mission and Objective the Policy
• The 2019 Policy also introduces the concept
The Policy envisions positioning India as a global hub
of Inter-Generational Equity that deals with
for Electronics System Design and Manufacturing -
the well-being not only of the present
(ESDM) by promoting domestic manufacturing, skill
generation but also of the generations to
development, start-up, export eco-system and
come.
improving ease of doing business for the ESDM
industry.
It aims to achieve a turnover of $400 billion and Solar manufacturing
generate 1 crore jobs in the ESDM sector by 2025 Only mains perspective
Salient Features • Despite making significant progress in solar

power generation, India still relies on China
• Provide incentives and support for
for equipment.
manufacturing of core electronic components.
• In this context, here is an overview of India's
• Provide special package of incentives for
solar manufacturing potentials and shortfalls.
mega projects which entail huge investments,
such as semiconductor facilities display How has the progress been in the last few years?
fabrication, etc.
• The Prime Minister’s emphasis since 2014 has
• Promote Industry-led R&D and innovation in given a new fillip to solar power installation in
all sub-sectors of electronics, including grass India.
root level innovations and early stage Start-
• India has made significant progress in creating
ups in emerging technology.
capacity for solar energy generation in the last
• Provide incentives and support for few years.
significantly enhancing availability of skilled
• The unit costs of solar power have fallen, and
manpower, including re-skilling.
solar energy has become increasingly
• Special thrust on Fabless Chip Design Industry, competitive with alternative sources of energy.
Medical Electronic Devices Industry,
• India expanded its solar generation capacity 8
Automotive Electronics Industry and Power
times from 2,650 MW in May, 2014 to over 20
Electronics for Mobility and Strategic
GW in January, 2018, and 28.18 GW in March,
Electronics Industry.
2019.
• Create Sovereign Patent Fund (SPF) to
• The government had an initial target of 20 GW of
promote the development and acquisition of
solar capacity by 2022, which was achieved 4
IPs in ESDM sector.
years ahead of schedule.
• Promote trusted electronics value chain
• In 2015, the target was raised to 100 GW of solar
initiatives to improve national cyber security
capacity by 2022.
profile.
How is India's solar manufacturing potential at
Major Impact
present?
• The NPE 2019 when implemented will lead to
• The supply chain of solar photovoltaic (PV) panel
formulation of several schemes, initiatives,
manufacturing is as follows:
projects, etc. for the development of ESDM
sector in the country. • Silicon production from silicates (sand).
• It will enable flow of investment and • Production of solar grade silicon ingots
technology, leading to higher value addition in (blocks).
the domestically manufactured electronic
products. • Solar wafer manufacturing.
• It will lead to increased electronics hardware • PV module assembly.

manufacturing in the country and their
export, while generating substantial
employment opportunities.
• The capital expenditure and technical know-how power generation projects on build-own-operate
needed for these processes decreases from the basis.
first item to the last.
• But the Chinese government is clearly adopting
• In other words, silicon production is more an aggressive stance, exploiting India's growing
capital-intensive than module assembly. demand for solar power.
• Most Indian companies are engaged in only • The safeguard duty on solar cells now puts locally
module assembly or wafer manufacturing and made panels on par with imported ones in terms
module assembly. of cost.
• No Indian company is involved in silicon • But the domestic sector needs to do a lot more
production, although a few are making strides to be effective.
towards it.
What should India's priorities be?
• Clearly, India may not see domestic players, in
• Remaining dependent on imports only leads to
the short term at least, replacing imported ones.
short-term benefits for India.
How import dependent is India yet?
• Substituting for imports requires human
• According to the Ministry of New and Renewable capabilities, technological capabilities and capital
Energy (2018), India has an annual solar cell in the form of finance.
manufacturing capacity of about 3 GW.
• Making input components locally instead of
• But markedly, the average annual demand is 20 importing them and putting the modules
GW. together here are essential for covering the
entire supply chain.
• The shortfall is met by imports of solar panels.
• Public procurement should be promoted with
• The government is a near monopsonistic buyer high priority.
(the market condition that exists when there is
one buyer) in solar sector. • The government is still free to call out bids for
solar power plants with the requirement that
• India is regarded by the global solar industry as these be made fully in India.
one of the most promising markets.
• This will not violate any World Trade
• But the low-cost Chinese imports have undercut Organization (WTO) commitment.
India's ambitions to develop its own solar
technology suppliers. • However, no bids will be received as
manufacturing facilities for these do not exist in
• Imports, mostly from China, accounted for 90% the country.
of 2017 sales, up from 86% in 2014.
• If the bids are large enough with supplies spread
What are India's efforts? over years, then bidders will emerge and local
• In the solar panel manufacturing sector, the manufacturing can begin.
Indian government allows 100% foreign • This is because it will give enough time for a
investment as equity. green field investment to be made for
• The sector also qualifies for automatic approval. manufacturing in India.
• The government is also encouraging foreign Micro, small and medium enterprises
investors to set up renewable energy-based Prelims perspective

Change in the MSME definition • RBI should increase the limit for non-
collateralised loans to ₹20 lakh.
• The Micro Small & Medium Enterprises (MSMEs)
are defined under the Micro, Small & Medium • It also suggested revision in loan limit
Enterprises Development (MSMED) Act, 2006 on sanctioned under MUDRA by the Finance
the basis of capital investment made in plant and Ministry to ₹20 lakh from ₹10 lakh.
machinery, excluding investments in land and
• Banks that wish to specialise in MSME
building.
lending, their sub-targets for farm loans under
• Manufacturing units having investment: the priority sector lender could be waived off,
and instead can be given a target for loans to
• below Rs 25 lakh are termed as Micro, the SME sector. The targets could be of 50%
• those between Rs 25 lakh and Rs 5 crore as of the net bank credit for universal banks and
Small 80% for small finance banks.
• and from Rs 5 crore to Rs 10 crore as

Medium. • In order to provide loan portability in a
seamless manner to MSMEs, RBI should come
• Service units, corresponding investment out with measures on portability of MSME
thresholds are: loans with a lock-in-period of one year.
• up to Rs 10 lakh are termed as Micro, National investment and manufacturing

• between Rs 10 lakh to Rs 2 crore as Small zones
Recently, the Union has granted the final approval to
• and between Rs 2 crore to Rs 5 crore as three National Investment and Manufacturing Zones
Medium (NIMZ), namely Prakasam (Andhra Pradesh),
Sangareddy (Telangana) and Kalinganagar (Odisha).
• However, the government is contemplating to
change the definition of MSMEs. Prelims perspective
• The proposed change under a new draft is National investment manufacturing zones:
that annual turnover, rather than
investment size, should be the criterion for • NIMZs have been conceived as large
such units. integrated industrial townships with state of-
the-art infrastructure; land use on the basis of
• Under the draft, there would be no zoning; clean and energy efficient technology;
difference between a manufacturing and necessary social infrastructure; skill
service unit. development facilities, etc., to provide a
conducive environment for manufacturing
• Micro can be up to Rs 5 crore of turnover,
industries.
small up to Rs 75 crore, and medium up to Rs
250 crore of turnover should be considered. • The NIMZ will be declared by the State
Government as an industrial township under
Key recommendations of U K SINHA committee:
Article 243Q(1)(c) of the Constitution.
• Form a ₹5,000 crore stressed asset fund for
• Central government provides external
MSMEs which will assist units in a cluster
physical infrastructure linkages to the NIMZs
becoming sick due to changes in external
including rail, road, ports, airports and
factors such as plastic ban, which had resulted
telecom, in a time-bound manner and also
in large number of such entities becoming
provides viability gap funding wherever
non-performing.
required.
• The State Government will constitute a Financial inclusion
Special Purpose Vehicle (SPV) to discharge the
functions specified in the policy. Universal basic income
Prelims perspective:
• The SPV will prepare a strategy for the
development of the zone and an action-plan What Is Universal Basic Income?
for self-regulation to serve the purpose of the
▪ A basic income is a regular, periodic cash
policy.
payment delivered unconditionally to all
• The Department for Promotion of Industry citizens on an individual basis, without the
and Internal Trade (former DIPP) is the nodal requirement of work or willingness to work.
agency for NIMZ.
▪ UBI has three components: universality (all
Technical textiles citizens included), unconditionality (no prior
The Ministry of Textiles has prepared two reports on condition), and agency (by providing support
technical textiles, to tap the potential and also how to in the form of cash transfers to respect, not
utilise it at ‘National Conclave on Technical Textiles’. dictate, recipients’ choices).
Only prelims perspective Existing cash transfers in india:
• Technical Textiles is a high technology sunrise ▪ Rythu Bandhu scheme. The investment
sector which is steadily gaining ground in. support programme provides financial
India. assistance of ₹4,000 per acre per season to all
land-owning farmers in Telangana.
• A technical textile is a textile product
manufactured for non-aesthetic purposes, ▪ DBT scheme: like PAHAL (modified DBTL for
where function is the primary criterion. LPG subsidy) is a form of income support to
the poor households, to enable them to
• Technical textiles include textiles for purchase goods from the market.
automotive applications, medical textiles
(e.g., implants), geotextiles (reinforcement of ▪ PM-KISAN yojana: Under the Scheme an
embankments), agrotextiles (textiles for crop income support of Rs.6000/- per year is
protection), and protective clothing (e.g., heat provided to all farmer families across the
and radiation protection for fire fighter country in three equal installments of
clothing, molten metal protection for welders, Rs.2000/- each every four months.
stab protection and bulletproof vests, and
Mains perspective:
spacesuits).
Advantages
• They are functional fabrics that have
applications across various industries • First, UBI would give individuals freedom to
including automobiles, civil engineering and spend the money in a way they choose. In
construction, agriculture, healthcare, other words, UBI strengthens economic
industrial safety, personal protection etc. liberty at an individual level.
• There are around 2100 units manufacturing • Universal Basic Income would be a sort of an
technical textiles in India, most are insurance against unemployment and hence
concentrated in Gujarat followed by helps in reducing poverty.
Maharashtra and Tamil Nadu.
• UBI will result in equitable distribution of
wealth. As explained above, only poor will
receive the full net benefits.
• Increased income will increase the bargaining • A ‘guaranteed minimum income’ might
power of individuals, as they will no longer be reduce the availability of workers in some
forced to accept any working conditions. sectors which are necessary but unattractive
and raise the wages of such works. For
• UBI is easy to implement. Because of its example, the wages of agriculture labour
universal character, there is no need to might increase due to non-availability of
identify the beneficiaries. Thus it excludes workers willing to work in others’ farm.
errors in identifying the intended beneficiaries
– which is a common problem in targeted Economic survey in UBI
welfare schemes.
First, survey targets bottom 75 percent of the
• As every individual receive basic income, it population and this is termed as ‘quasi-
promotes efficiency by reducing wastages in universality’’. The cost for this quasi-universality is
government transfers. This would also help in estimated to be around 4.9 percent of GDP.
reducing corruption.
Second alternative targets women, who generally
• Considerable gains could be achieved in terms face worse prospects in employment
of bureaucratic costs and time by replacing opportunities, education, health or financial
many of the social sector schemes with UBI. inclusion. A UBI for women can reduce the fiscal
cost of providing a UBI to about half. Giving
• As economic survey points out, transferring money to women also reduces the concerns of
basic income directly into bank accounts will money being used on ‘temptation goods’.
increase the demand for financial services.
This would help banks to invest in the Third, to start with a UBI for certain vulnerable
expansion of their service network, which is groups such as widows, pregnant mothers, the old
very important for financial inclusion. and the infirm.
Arguments against universal basic income: Circular economy

Prelims perspective
• A guaranteed minimum income might make
people lazy and it breeds dependency. They Concept of circular economy
may opt out of labour market.
• It is a model that is regenerative by design and
• There is no guarantee that the additional aimed at ensuring that products are maintained
income will be spent on education, health at their highest utility at all times
etc. there are chances that the money will be
spent on ‘temptation goods’ such as alcohol, • It describes a continuous cycle aimed at
tobacco, drugs etc. preserving capital and minimizing system risk by
efficiently tracking and managing finite stocks
• Given the large population size, the fiscal
burden on government would be high. Also, • The circular economy requires that value
as Economic Survey 2016-17 noted, once creation be decoupled from consumption of
implemented, it may become difficult for the finite resources.
government to wind up a UBI in the case of
Mains perspective
failure.
Challenges of the disposable economy
• If the UBI is funded by higher taxes, especially
by the indirect taxes, it will result in inflation. • Products today are designed to have a shelf life.
This, in turn, will reduce the purchasing power
of the people and lowers the value of the
amount transferred.
• It is a period of time during which they can be Application of circular economy principle in present
used and after which we are constrained to scenario
replace them.
• While the Smart Cities Mission will help bring
• This is either because a newer, more feature-rich feedback-driven efficiencies to our cities, we
model has presented itself or because the latest could do with more constructive action in the
apps and software run too slowly on these old areas of urban sanitation, water management
machines. and local community development.
How does circular economy work? • In the agricultural sector, we should look to
develop digital food supply chains that transmit
• It draws its inspiration from the biological world accurate market information to food producers,
where the nutrients that are metabolized by life connecting them more closely with customers.
processes are generated from other living
systems after their death and ensures that the • We could also look to borrow from nature,
earth remains a stable, self-contained developing self-sustaining cultivation habits like
ecosystem. rice-fish farming, which improves rice yields
without the use of fertilizers and pesticides.
• The circular economy attempts to mimic this
circle of life. • The other area of the economy that shows
considerable promise is urban mobility- India
• It tries to achieve the same results through could ensure that, unlike the West, vehicle
technical cycles that recover and restore
ownership never rises above its current 5%
products and components through strategies like levels.
reuse, repair, refurbishment, re-manufacture
and recycling. Multidimensional poverty index
• It depends on sustainable practices, but more
than that looks to encourage a change in the way Global Multidimensional Poverty Index - 2019 (MPI),
in which people think about their business. released by the United Nation Development
Programme (UNDP) has revealed that there are
• It asks them to focus on keeping products alive
vast inequalities across countries, and among
for as long as possible rather than requiring them
the poorer segments of societies.
to be constantly replaced.
▪ MPI-2019 edition is a revised version of MPI-
Indian society and circular economy
2018.
• Indian society has always had circular ideals
▪ The MPI captures both
• As a people, it is ingrained in us to reuse and the incidence and intensity of poverty and
recycle as much as possible. tracks 101 countries on deprivations across
ten indicators in health,
• On average we reuse up to 60% of our discarded education, and standard of living.
plastics—10 times as much as the US.
▪ Index is developed by the Oxford Poverty and
• For the most part, this recycling happens at the Human Development Initiative (OPHI) and
end of the value chain by the poorest sections of the United Nations Development
society. Programme (UNDP).
• This results in value loss and also health risks for ▪ As per report a single measure is not a
those who extract value from waste. sufficient guide to both inequality and
multidimensional poverty, and studies such as

the MPI, Human Development Index, and Mains perspective
the Gini coefficient (which measures
countries wealth- income distribution), can India- specific observations:
contribute important and distinctive • India is among top nations with most
information for policy action to effectively conducive environment for financial inclusion
reduce poverty. in terms of allowing non-banks to issue e-
money, proportionate customer due diligence
and effective consumer protection.
• The overall environment for financial

inclusion has improved globally with India,
Colombia, Peru, Uruguay and Mexico having
the most favourable conditions for inclusive
finance.
• Within the overall framework for promoting

digital financial inclusion, the report identified
four basic enablers – allowing non-banks to
issue e-money, presence of financial service
agents, proportionate customer due diligence
and effective financial consumer protection.
• India was among the top countries that

Digital financial inclusion
safeguard e-money via some sort of deposit
The Economist Intelligence Unit has released the
insurance or protection.
2019 edition of Global Microscope on Financial
Inclusion report. Efforts by India:
Prelims perspective • In India, the Reserve Bank has prepared a draft

National Strategy for Financial Inclusion to
It is Produced by Economist Intelligence Unit
deepen financial services’ coverage in the
(EIU), the research and analysis division of The
country.
Economist Group.
• The long-awaited strategy is expected to be
Created in 1946 and is the world leader in global
finalised in 2019 and will cover a five-year
business intelligence.
period.
The report is a benchmarking index that assesses
• The RBI has set up a high-level committee to
enabling environment for financial access in 55
review the existing status of digitisation and
countries across 5 categories.
devise a medium-term strategy for increasing
Five parameters across which countries are assessed: digital payments.
• Government and Policy Support. • In August 2019, the RBI released the Enabling
Framework for Regulatory Sandbox (RS), which
• Products and Outlets. creates the basis for a regulatory sandbox that
will allow fintech start-ups to live-test innovative
• Stability and Integrity.
products and services.
• Consumer Protection.
Benefits of financial inclusion
• Infrastructure.

• Access to formal financial services: Digital financial biodiversity and socio-economic conditions
inclusion can be defined as digital access to and use of prevailing in areas.
formal financial services by excluded and underserved
populations. • The Revitalizing Rainfed Agriculture Network
(RRAN) has published the atlas.
• It has the potential to provide affordable,
convenient and secure banking service to • It has laid out the stark differences in
poor individuals in developing countries. government policy and expenditure.
• It can also promote economic empowerment • It also attempts to document the policy biases
by enabling asset accumulation and, for that are making farming unviable for many in
women in particular, increasing their these areas.
economic participation.
Rainfed Agriculture in India
• Increase in GDP: Digital finance can provide
convenient access to diverse range of financial • Three out of five farmers in India grow their
products and services for individuals as well as crops using rainwater, instead of irrigation.
businesses. This can boost aggregate expenditure
thereby improving GDP levels. • Even though rainfed agriculture contributes to
60 per cent of the value of agriculture GDP of
• Reduced risks: Digital finance adoption can reduce India, there is a clear-cut bias towards
the circulation of fake currency and also reduces risks irrigated areas.
of loss, theft, and other financial crimes posed by
cash-based transactions. • However, per hectare government investment
into their lands may be 20 times lower.
• Reduced costs: It leads in reduction of costs
associated with transacting in cash and using informal • Government procurement of the crops is a
providers. McKinsey estimates that Indians lose more fraction of major irrigated land crops, and
than US$ 2 billion a year in forgone income simply many of the flagship schemes are not tailored
because of the time it takes travelling to and from a to benefit them.
bank.
Their importance
• Improve banking performance: Digital financial
• Rain-fed areas account for 89 per cent of
inclusion promises to help banks lower costs by
millets production, 88 per cent of pulses, 73
reducing queuing lines, reduce manual paperwork and
per cent of cotton, 69 per cent of oilseeds and
to maintain fewer bank branches.
40 per cent rice production in the country.
• Besides, they support 64 per cent of cattle, 74

Agriculture and allied sectors per cent of sheep and 78 per cent of goat
population in the country.
Policy bias against rainfed agriculture
A new rainfed agriculture atlas has been released this • About 61 per cent of India’s farmers rely on
week to map the agro biodiversity and socio- rain-fed agriculture and 55 per cent of the
economic conditions prevailing in areas. gross cropped area is under rain-fed farming.
Only mains perspective Due negligence on Rainfed Farmers
Rainfed Agriculture Atlas • There has been negligence toward rainfed
areas which is leading to lower incomes for
• A new rainfed agriculture atlas has been
farmers in these areas.
released this week to map the agro

• Farmers in rainfed areas are receiving 40% • In the long run, cash incentives and income
less of their income from agriculture in support like the PM-KISAN scheme
comparison to those in irrigated areas. announced in the budget earlier this month
were better than extensive procurement.
• Lands irrigated through big dams and canal
networks get a per hectare investment of ₹5 Minimum support price for minor forest
lakh. produce
Union Cabinet recently approved a centrally
• Watershed management spending in rainfed
sponsored scheme for providing Minimum Support
lands is only ₹18,000-25,000 and the
Price (MSP) to forest dwellers for minor forest
difference in yield is not proportionate to the
produce (MFP).
difference in investment.
Prelims perspective
Procurement bias
• The Centre has notified a varied hike in MSP
• When it comes to procurement, over the
ranging from 200% to 5.6% for 19 MFPs.
decade between 2001-02 and 2011-12, the
government spent ₹5.4 lakh crore on wheat • The government has also added 17 more
and rice. items (exiting 23) to the forest produce
covered under the market support scheme.
• Coarse cereals, which are grown in rainfed
areas, only had ₹3,200 crore worth of • [These include mahua flowers,
procurement in the same period. dried tejpatta, jamun dried seeds, dried amla
pulp (deseeded), soap nut (dried), Arjuna bark
Schemes are often unfit
and Giloe among others.]
• Flagship government schemes, such as seed
• A total of 52 items is proposed to be brought
and fertiliser subsidies and soil health cards,
under the MFP for MSP umbrella.
are designed for irrigated areas and simply
extended to rainfed farmers without taking • The notification puts out prices for 40 items
their needs into consideration. for now.
• For example, many hybrid seeds notified by • The Central government plans to spend
the government scheme need plenty of around Rs. 960 crore while states would
water, fertiliser and pesticides to give high contribute about Rs. 250 crore.
yields and are thus not useful to most rainfed
farmers. • The ministry of tribal affairs (MoTA) issued
the notification and it is now for the states to
• Commercial fertilizers will simply burn out the implement this.
soil without sufficient water.
• Tribal Cooperative Market Development
• The government has no system to channelize Federation of India Ltd. (TRIFED) has also
indigenous seeds or subsidize organic manure been given directions.
in the same way.
• They are to develop market linkage between
Way Forward state agencies (through State Nodal
Department), and bulk users and buyers to
• A more balanced approach is needed, to give enable implementation.
rainfed farmers the same research and
technology focus, and production support Mains perspective
that their counterparts in irrigation areas have
What is the objective?
received over the last few decades.
• The scheme for providing MSP for minor • E.g. tendu leaves, bamboo, tamarind
forest produce comes on the lines of support
• But, the state agencies nominated to lend
price for agricultural products.
price support often prefer to buy the stuff
• The decision is being taken in view of the from middlemen.
general cost escalation on all fronts.
• They fail to create the infrastructure for
• The objective is to ensure fair and procuring it directly from individual collectors.
remunerative price to MFP gatherers.
• Thus, for all practical purposes, the collectors
• According to the ministry, nearly 5 crore of the minor forest produce are at the mercy
tribals are expected to directly benefit from of middlemen.
this revamped scheme.
• MSP - States also do not pay the MSPs even
What are the concerns? though the Centre is supposed to bear 75% of
the losses incurred on such operations.
• Funds - MSP system for minor forest produce
had been introduced by the previous • Odisha is one of the few states which have
government as well. opted to implement the MSP scheme for
selected forest products.
• The centre has earmarked nearly Rs 1,100
crore for this programme in the past 5 years. • But it is reported to be considering to
discontinue the scheme because of the heavy
• But hardly 25% of this has been released to financial burden.
the states.
What is required?
• The bulk of even the disbursed funds has
remained unutilised. • The government has largely failed to realise
the futility of raising the MSPs of crops
• Moreover, none of the major forested states without their effective enforcement.
has submitted the audited report on funds
utilisation. • The need, therefore, is for well-advised
marketing reforms in this sector.
• Remuneration - The minor forest resources
have been made freely accessible to forest- • This should be aimed specifically at ending the
dwellers under the Forest Rights Act. middlemen’s role over the minor forest
produce trade.
• These include mahua, tejpatta, wild honey
and similar others that have several industrial, • Equally important is to encourage direct
therapeutic and cosmetic uses. linkages between forest produce gatherers
and end-users of these products.
• However, the tribals, who gather them from
the woods, do not get the fair remuneration • E.g. the pharmaceutical, cosmetic and food-
for these articles. processing industries.
• It's because they normally have to sell them • These are essential to meaningfully
at meagre rates at local haats dominated by complement the move to fix MSPs for the
cartelised traders and contractors. minor forest produce.
• Middlemen - Some state governments have National higher education project

acquired monopolistic marketing rights on the Prelims perspective
much sought-after forest products.

• The ICAR has recently launched Rs 1100 crore • Faculty: State Agricultural Universities (SAUs) are
ambitious National Agricultural Higher facing non-replacement of retired faculty and high
Education Project (NAHEP) to attract talent inbreeding of faculty (nearly 51% of faculty members
and strengthen higher agricultural education have their degrees from the same university in which
in the country. they are teaching), which hampers the quality of
academic and research programmes.
• This project will be funded by the World Bank
and the Indian Government on a 50:50 basis. • Lack of Networking and quality: It has been noticed
that most of the universities are lacking in association
• The objective of the NAHEP for India is to and integration with different national and
support participating agricultural universities international universities for academic activities.
and ICAR in providing more relevant and
higher quality education to Agricultural • Low quality: The quality provided in these
University students. universities is low which further affects their global
ranking.
• In addition, a four year degree in Agriculture,
Horticulture, Fisheries and Forestry has been • Not a first option: Negative attitude towards
declared a professional degree. agricultural education due to low returns and limited
career opportunities makes agricultural education not
Mains perspective a preferred choice amongst students.
Need of Agricultural Education Government E-marketplace

• Increases Agricultural Productivity: Effective Recently, the Steel Authority of India Limited (SAIL)
agricultural education (both for farmers as well as becomes the first Central Public Secter Enterprise to
researchers) leads to better economic and technical enter into MoU with the Government e-Marketplace
decision making in agricultural processes, which is (GeM).
further reflected in increase in agricultural Only mains perspective
productivity.
The Government e Marketplace (GeM), launched in
• Understanding Value Chain of Agriculture: The 2016, is an online market platform to facilitate
entire value chain of agriculture i.e. from farm input procurement of goods and services by various
to market linkages, suffers from various bottlenecks Ministries and agencies of the Government.
which can well be addressed by agricultural
education. • It owes its genesis to the recommendations of
two Groups of Secretaries made to the Prime
• Creates Employment: Agricultural education is
Minister in January 2016.
needed in order to absorb the emerging labour force,
• The portal was developed by the Directorate
especially with the emerging arenas of biotechnology,
General of Supplies and Disposals (DGS&D)
GM food, precision agriculture etc. which require
with technical support of NeGD (MeitY).
detailed knowledge.
• It has been envisaged by Government of India
Challenges face by Agricultural Education as the National Procurement Portal of India and
is directly monitored by the PMO office.
• Inadequate Finance: Agriculture is a state subject
and the statutory responsibility for it vests with the Advantages with GeM
state governments which lack in funds. Moreover, the
• Brought a transparent procurement regime- by
establishment cost of agricultural universities has
eliminating human interface in vendor registration,
risen substantially while the operational budget has
order placement and payment processing, to a great
reduced which constrains institution for innovation.
extent. Being an open platform, GeM offers no entry

barriers to bonafide suppliers who wish to do business • Lack of access in remote areas- Although the rates
with the Government. and timelines have come down and the system is
stabilising but in remote areas where order is small,
• Reduction in inefficiencies by eliminating multiple delivery is an issue.
levels of manual, sequential verification and
decision-making, leading to dramatic reductions in • Platform can be made more user-friendly- The
lead-time in government procurement. It has brought small businesses find it hard to use the platform due
down the delivery time from 30-60 days earlier to 10- to complex user interface of the portal.
15 days.
• Issues of counterfeits- as there are instances of fake
• Broadened the scope of procurement- as it has product delivery. Recently, the government has
brought a unique feature by offering both products brought some provisions where after three such
and services on GeM. Product categories have instances those vendors can be banned. But it needs
multiplied from under 400 in the early months to to be streamlined further.
3,500 now.
Contract farming
• Has brought machine-driven, competitive pricing Tamil Nadu has become the first State to enact a law
on contract farming based on the lines of Model
• Instead of procurement rates fixed for one or
Contract Farming Act, 2018 of the Central
two years, now it’s dynamic and market-linked.
Government.
• It has led to cheaper procurements. E.g. As a
category, automobile has been the biggest hit, Prelims perspective
with an instant 12 per cent discount.
• It has led to aggregating purchases. E.g. five It involves agricultural production (including livestock
states together bought 1 lakh smart phones, and poultry) being carried out on the basis of a pre-
which helped the government to negotiate for harvest agreement (or forward contracts) between
bigger discounts. the buyers (such as food processing units and
exporters) and producers (farmers or farmer
• Has promoted entrepreneurship and created jobs- organisations).
The vendor base has become more diverse and
inclusive, with an emphasis on supporting startups Mains perspective
and MSMEs. E.g. a small company selling patented Legislation related to Contract Farming in India
nasal filters to tackle air pollution got a bulk order
from traffic police in Delhi and Chandigarh, due to • In order to protect the interests of producers
GeM. and sponsors of Contract Farming, the Ministry
of Agriculture drafted Model APMC Act, 2003,
• Has brought new rating system and comparison which provided provisions for registration of
sponsors, recording of agreement, dispute
• Initially, prices on GeM were higher than other
settlement mechanism.
e-commerce sites like Flipkart. Now a tool has
• Consequently, some states had amended their
been introduced, where prices on GeM could be
APMC Acts to provide for it but Punjab had a
easily compared with those on other
separate law on contract farming.
ecommerce sites.
• Central government has put in place a Model
Challenges with GeM Contract Farming Act 2018, which encourages
state governments to enact clear contract
• Implemented in a short time span- the government farming laws in line with the model act.
had to come with various versions like GeM 1.0, GeM
2.0 and GeM 3.0. The resistance to change by various Benefits of Contract Farming
stakeholders was not addressed and the renewal of
rate contracts was stopped arbitrarily.
• Protects farmer’s interests: It reduces farmers’ risks • It increases dependency of farmers on corporate
by creating an assured market for their produce and for inputs, making them vulnerable.
protecting them from fluctuating market prices.
• Predetermined prices can deny farmers the benefits
• Private participation in Agriculture: As envisaged by of higher prices prevailing in market for the produce.
National Agricultural Policy, it encourages the private
sector investment in agriculture to promote new • Capital-intensive and less sustainable pattern of
farming technology, developing infrastructure, etc. cultivation: It promotes increasing use of fertilizers
and pesticides which have detrimental impact on
• Improving Farmers’ Productivity: It enhances natural resources, environment, humans and animals.
productivity and efficiency of farming sector, by
improving access to better inputs, scientific practices • Encourages Monoculture Farming: This will not only
and credit facilities, leading to increased farmer impact soil health but also possesses risk of food
incomes, new employment opportunities and food security and import of food grains.
security at large.
Sugar industry
• Better Price discovery: It breaks the monopoly of The Union cabinet recently approved the creation of a
APMCs and makes farming an organized activity buffer stock of 4mt of sugar. The buffer stock will be
thereby improving quality and quantity of production. created for one year from August 1, 2019, to July 31,
2020, for which the government would be
• Increasing Export: It encourages farmers to grow reimbursing the carrying cost of about ₹ 1,674 crore
crops required by the food-processing industry and to participating sugar mills.
link Indian farmers to global supply chains, particularly
in high-value horticulture produce and reduce food Prelims perspective
wastage significantly.
• Sugar industry is an important agro-based
• Consumers benefit: Increasing marketing efficiency industry that impacts rural livelihood of about
gains, elimination of intermediaries, reduction in 50 million sugarcane farmers and around 5
regulatory compliances etc. can significantly reduce lakh workers directly employed in sugar mills.
artificial shortages of produce and control food price
• India is the second largest producer of sugar
inflation.
in the world after Brazil and is also the largest
Challenges consumer.
• Lack of uniformity or homogeneity among states • Indian sugar industry’s annual output is worth
law regarding kinds of produce, conditions etc. which approximately Rs.80, 000 crores. There are
is needed for allowing contract farming. States have 735 installed sugar factories in the country as
been reluctant to carry forward reform for the fear of on 31.01.2018, with sufficient crushing
loss of revenue. capacity to produce around 340 lakh MT of
sugar.
• Promote Regional Inequality: Currently it is
practiced in agriculturally developed states (Punjab, North-South Divide in India’s sugar industry
TN etc.) while States with highest concentration of
• Three distinct belts of sugarcane cultivation
small and marginal farmers are not able to reap its
can be identified.
benefit.
• The Sutlej-Ganga plain from Punjab to
• Landholding Pattern: Buyers have no incentive for
Bihar containing 51 per cent of the total
contract farming with a large number of small and
area and 60 percent of the country’s total
marginal farmers due to high transactions and
production.
marketing costs, creating socio-economic distortions
and preference for large farmers.
• The black soil belt from Maharashtra to • Low yield per hectare: The average rate of
Tamil Nadu along the eastern slopes of the sugar recovery from the sugar cane is less
Western Ghats. than other sugar producing areas like Java,
Hawaii and Australia.
• Coastal Andhra and the Krishna Valley.
• Monoculture of sugarcane: lack of crop
rotation in some areas, leads to depletion of
North India South India nutrients in soil and adversely affect cane
productivity.
Extreme weather The climate in south is
• Water availability: Irregularity in availability
condition in summer and suitable for the crop and
of water for irrigation especially in north
winter affects the crop hence the yield per unit
India, adversely affecting the sucrose content
negatively and yield per area is high.
in the crop.
unit area is low.
• Perishable nature of crop: Post harvest
Sugarcane has low Sugarcane has high deterioration in cane quality on account of
sucrose content. sucrose content. staling and delayed crushing contributes to
low sugar recovery.
Crushing season is Crushing season is longer. Delays in payment to the cane farmers lead to lack of
smaller. financial resources for the next season.
• They have to borrow money from money

The cooperative sugar The cooperative sugar
lenders etc and are engulfed in debt
mills are not managed mills are better managed.
trap which leads to suicide in extreme cases.
properly.
• Problem of Byproducts
They lack modern They have modern
• The main by-products of the sugar industry
machinery. machinery.
are bagasse and molasses. The industry faces
problems in disposing these by-products,
especially under pollution control mechanism.
Problems in Sugar Industry
• Problems faced by the Co-operative Sector and
• India is again facing with the problem of Sugar mills
overflowing sugar stocks.
• Sugarcane has a short crushing season varying
• The industry’s production estimate for 2018- normally from 4 to 7 months in a year. The
19 is 35.5 MMT, up from 32.3 MMT in 2017- mills and its workers remain idle during the
18, against an annual consumption of about remaining period of the year, thus creating
26 MMT. financial problems for the industry as a whole.
• Another major problem is the rising arrears to • Cooperative sugar industry has been eroded
cane farmers. by corruption. The structure of the sector
lacks transparency and financial
• The arrears rose to Rs 21,675 crore on April accountability.
15, up from Rs 8,784 crore a year earlier.
• Faulty government policy
• Problem of Sugarcane Crop

• The sugar economy is a highly controlled one. • This is done in view of the inventory levels
Sugar mills were under compulsory licensing with the sugar industry and to facilitate
till 1998. achievement of financial liquidity.
• There is a Fair and Remunerative Price Other Initiatives:

(FRP) for sugarcane fixed by the Central
• Government brought out a comprehensive
Government and State advised prices
(SAP) fixed by each State over and above the package of about Rs.7000 crore. This includes
FRP. creation of buffer stock of 30 LMT at the cost
of Rs.1200 crore.
• Faulty Trade Policy
• Government has also decided a minimum
• The Government imposes export and import price for sale of sugar at Rs.29/kg which will
restrictions on sugar without a clear cut help clearance of sugarcane dues of the
policy. farmers.
• When the sugar stock increases the Ethanol Blending Program (EBP)
government imposes import restrictions by
• Government has also proposed the Ethanol
increasing import duty and when the sugar
Blending Program
stocks depletes the government imposes
export restriction by increasing export duty. • A major scheme worth more than Rs.4400
crore for increasing the ethanol capacity in
• The decision by the government leads to price
the country for diversion of sugarcane for
mismatch between demand and the supply
production of ethanol in surplus sugar season.
and creates confusion in the market.
• The Government will bear the interest
Government Initiative
subvention cost for this scheme.
• Fair and remunerative price (FRP):
Agricultural credit in India
• The FRP is the minimum price that sugar mills Only mains perspective
have to pay to sugarcane farmers for
procurement of sugarcane. Agricultural credit is considered as one of the most
basic inputs for conducting all agricultural
• It is determined on basis of recommendations development programmes. In India, there is an
of Commission for Agricultural Costs and immense need for proper agricultural credit as Indian
Prices (CACP) and after consultation with farmers are very poor. From the very beginning, the
State Governments and other stakeholders. prime source of agricultural credit in India was
moneylenders.
• State Advised Price: Although the Central
government decides the FRP the state Types of agricultural credit
governments can also set a State Advised price
which a sugar mill has to pay to the farmers. Considering the period and purpose of the credit
requirement of the farmers of the country,
Minimum Indicative Export Quota (MIEQ): agricultural credit in India can be classified into three
major types
• Government has implemented an allocation
of mill-wise Minimum Indicative Export • Short term credit: The Indian farmers require
Quota (MIEQ) of 20 LMT and financial credit to meet their short term needs for a
assistance @Rs.5.50/quintal of cane crushed period of less than 15 months.
amounting to about Rs.1500 crore.

• Medium-term credit: This type of credit credit to farmers at the subsidised interest rate. The
includes credit requirement of farmers for a policy came into force with effect from Kharif 2006-
medium period ranging between 15 months 07. The scheme is being implemented for the year
and 5 years. 2018-19 and 2019-20.
• Long term credit: Farmers also require The interest subvention will be given to Public Sector
finance for a long period of more than 5 Banks (PSBs), Private Sector Banks, Cooperative Banks
years. and Regional Rural Banks (RRBs) on use of own funds
and to NABARD for refinancing to RRBs and
Sources of agriculture credit
Cooperative Banks.
Apart from the moneylenders, cooperative credit The Interest Subvention Scheme is being
sources and the government, nowadays, the long implemented by NABARD and RBI.
term and short term credit needs of institutions are
also being met by National Bank for Agricultural and Problems regarding Agricultural credit in India
Rural Development (NABARD).
• Insufficiency: In spite of the expansion of rural
Commercial banks credit structure, the volume of rural credit in
the country is still insufficient as compared to
In the initial period, the commercial banks of our its growing requirement arising out of the
country have played a marginal role in advancing rural increase in prices of agricultural inputs.
credit. With the help of “village adoption scheme” and
service area approach the commercial banks started • Inadequate amount of sanction: The amount
to meet the credit and other requirements of the of loan sanctioned to the farmers by the
farmers. agencies is also very much inadequate for
meeting their different aspects of agricultural
Government: operations. Considering the amount of loan
Another important source of agricultural credit is the sanctioned as inadequate and insignificant, the
Government of our country. These loans are known as farmers often divert such loan for
taccavi loans and are lend by the Government during unproductive purposes and thereby dilute the
emergency or distress like famine, flood etc. The rate very purpose of such loan.
of interest charged against such loan is as low as 6 per • Lesser attention of poor farmers: Rural credit
cent. agencies and its schemes have failed to meet
Credit facility to farmers: the needs of the small and marginal farmers.
Thus, lesser attention has been given on the
Kissan credit card: The Kissan Credit Card (KCC) credit needs of the needy farmers whereas the
scheme was launched in 1998 with the aim of comparatively well-to-do farmers are getting
providing short-term formal credit to farmers. Owner more attention from the credit agencies for
cultivators, as well as tenant farmers, can avail loans their better creditworthiness.
to meet their agricultural needs under this scheme at
attractive rates of interest. • Inadequate institutional coverage: In India,
the institutional credit arrangement continues
Investment loan: Loan facility to the farmers is to be inadequate as compared to its growing
available for investment purposes in the areas viz. needs. The development of co-operative credit
Irrigation, Agricultural Mechanization, Land institutions like Primary agricultural credit
Development, Plantation, Horticulture and Post- societies, land development banks, commercial
Harvest Management. banks and regional rural banks, have failed to
cover the entire rural farmers of the country.
Interest subvention scheme: The interest subvention
scheme for farmers aims at providing short term
• Red tapism: Institutional agricultural-credit is • This is done to develop potential infrastructure to
subjected to red-tapism. Credit institutions are reduce the load on the existing congested and
still adopting cumbersome rules and saturated areas.
formalities for advancing loan to farmers
• This method already has been used in Gujarat,
which ultimately force the farmers to depend
more on costly non-institutional sources of Andhra Pradesh and Maharashtra.
credit. Land Pooling Policy of Delhi:
Solutions • Land Pooling is a new paradigm for the urban
• To monitor the taccavi loan offered by the development of Delhi, wherein the private
Government in a serious manner. sector will play an active role in assembling
land and developing physical and social
• Co-operative credit societies should be organised infrastructure.
to make it efficient and purposeful for delivering
• Under the Land Pooling Policy, 60% of pooled
the best in terms of rural credit. Moreover, these
societies may be transformed into a multi- land would be returned to landowners after
purpose society with sufficient funding capacity. infrastructure development, if the pooled
land is 20 hectares and above and 48% if the
• Middlemen existing between credit agencies and land pooled, is between 2 and 20 hectares.
borrowers should be eliminated.
• Of the 60% of returned land, 53% will be for
• Reserve Bank of India should arrange sufficient residential purpose, 5% for city-level
fund so that long term loans can be advanced to commercial use and 2% for Public and Semi-
the farmers. public use.
• Power and activities of the Mahajans and Who can participate in the Land Pooling Policy?
moneylenders should be checked so as to declare
• The Policy is open to all landowners who own
an end to the exploitation of farmers.
land in the areas notified by
Land pooling DDA/Government under the Policy.
Delhi Development Authority(DDA) seeks govt.’s help
• Landowners with any size of land may
for land verification registered under the Land pooling
participate as per the application process
policy.
specified in the Regulations.
What will be the benefit to the farmer Under Land
Land pooling: Pooling Policy?
• Under the land pooling mechanism, a group of • The value of land will increase soon after the
land-owners pool their land and hand it over to implementation of LPP.
government agency for the development of
• Return of developed land / built-up space
infrastructure projects.
with appreciated land value will make
• After the development of land, the agency landowners partners in the development
redistributes the land after deducting some process.
portion as compensation towards infrastructure
• The planned development will also increase
costs.
the value of their land through the provision
• Generally, people who part with their land parcels of infrastructure and public facilities.
get 60-70% of their holdings back after the
infrastructure is developed on it.
• The outcomes are expected to be world-class • This makes it the third largest import
‘smart’ and sustainable neighborhoods, item after crude oil and gold.
sectors and zones, planned and executed as
• Pricing policies and tariffs have turned
per the availability of water, power and other
infrastructure. oilseeds cultivation uneconomical vis-à-vis
imports.
Challenges with Land Pooling Policy
• They have also jeopardized the viability of the
• Compensation and resettlement issues: While land domestic oilseeds-processing industry.
pooling offers a much more participatory vision of
• A sizable part of the local vegetable oils-
development than direct land acquisition,
compensation and resettlement under land pooling is crushing capacity is lying idle or
still a source for concern for the people affected. underutilised.
• Oil-meal exports, too, have been adversely

• Issue of consent: Whether or not proper consent for
land pooling has been given by landowners is also hit.
debatable, with the speed needed for development Is it the first time this is happening?
often pressuring agencies to make land pooling
compulsory. This has been the case for the Navi • It is not for the first time that attention has
Mumbai Airport Influence Notified Area (NAINA) been drawn to the need to shed such critical
development, whereby land pooling was made dependence on shipments from abroad for a
mandatory instead of voluntary owing to delays. mass-consumed essential item like a cooking
medium.
• Concerns of landless: More must also be done to
ensure that compensation and resettlement • Union Finance Minister had called for
provisions extend to tenant farmers and agricultural attaining self-reliance in oilseeds in her
labourers, as compensatory packages are often Budget speech 2019.
insufficient for the landless. For example, the land
• She had cited the example of pulses, where
pooling scheme for Amaravati for tenant farmers and
such a feat has recently been achieved.
landless families only includes a monthly payout of Rs
2,500. • However, what is often not realised is that
pulses and oilseeds are wholly different
• Issue of land records: Furthermore, being able to
things, facing different challenges and
pool land is reliant on there being clearly documented
requiring different strategies for
land ownership records, which is often not the case.
breakthrough in production.
Edible oils deficiency
What is the difference?
• The Commerce Ministry has made a plea to
the Agriculture Ministry. • Both have been victims of imprudent policy
regimes and misguided market interventions.
• It pleaded to work out a plan for self-
sufficiency in edible oils is based on sound • But, their response to these irritants has been
economic reasoning and, therefore, merits dissimilar.
urgent action.
• This is chiefly because of external factors,
Why this plea was made? notably availability and price trends in the
international market.
• Purchase of cooking oil from abroad account
for 65-70% of the domestic requirements. • The domestic prices of pulses weren’t affected
much by the frequent changes in import duties
due to limited supplies in the global market.
• But the domestic prices of the oilseeds tended • An avatar of the Oilseed Technology Mission,
to get depressed due to the abundance in with the same kind of powers and a similar
availability. remunerative prices-based strategy is needed.
• The technology (read high-yielding crop • This is needed again to resurrect the yellow
varieties and improved agronomic techniques) revolution and achieve self-sufficiency in edible
to step up oilseeds output already exists. oils.
• The huge gap in yields recorded at the research Food grain management in India
farms and the farmers’ fields is clear evidence of ‘In 2019 India ranks 102 ranks in Global Hunger Index
that. out of the 117 countries. It is an alarming situation for
India that we have needed to make efficient policies
• However, oilseeds growers are wary of investing
and aware people about how to produce and how to
in this technology because of uncertainties
consume without wasting.
about the returns under the present pro-
consumer but anti-producer policy regime. Prelims perspective
• The key to self-sufficiency in cooking oils is The Food Corporation of India (FCI) is the nodal
the remunerative prices for the produce. agency under the Ministry of Consumer Affairs. Food
Corporation of India performs various responsibilities:
• This was appreciated when high prices had
transformed India from the world’s largest • Responsible for the Procurement of crop
vegetable oil importers into a net exporter in the production
late 1980s and the early 1990s.
• Adequate movement of the production in
Does the Oilseed Technology Mission have deficit regions
significance now?
• Public Distribution and maintenance of buffer
• The trigger for what was then hailed as the stocks
“yellow revolution” was the setting up of the
Oilseed Technology Mission in 1986. • Procuring food at Minimum Support Price
(MSP)Creating Buffer stocks
• It was set up with unbridled freedom to
formulate and implement policies concerning Procurement of the production is done by State
the import, export, and domestic pricing of Government Agencies (SGAs) and Private Rice Miller
oilseeds. on the behalf of the FCI.
• The Mission allowed edible oil prices to fluctuate Mains perspective

freely within a stipulated band that guarded the
Why Needs to Procure
interests of both producers and consumers.
• To Reduce the Effect of Inflation: In the
• Market interventions were carried out only
economy when inflation gets increased then
when the prices tended to breach the set limits.
this procured crops could be drop out in the
• Unfortunately, this Mission was allowed to market so that the government can reduce
gradually degenerate by curbing its autonomy the effect of inflation on the people.
and expanding its workload in the mid-1990s.
• Adequate price for the Farmers: With the help
• This squandered the gains and pushed the of this mechanism farmers get assure about
country back to the cooking oil-deficit era. their production at getting sufficient price
with the help of Minimum Support Price
What is needed now? (MSP).

What are the problems in Procurement? where the majority of the farmers are small and
marginal.
Lack of Storage: The mechanism that the Indian
government used to procure crops is not efficient. The Procurement Payment Systems
government needs adequate infrastructure for the
• Under this system popularize negotiate
procurement of the production like Cold storage and
Silos etc. Warehouse Receipts (NWRs) system should start
in which farmers can deposit their produce to
Poor Quality of Food grains and high Wastage: The the FCI authorized warehouse and can get
poor quality of seeds used in agriculture produce poor advance from banks against their produce valued
quality of food. But sometimes production also gets at Minimum Support Price (MSP).
decayed due to improper management of the crop
• This will bring back the private sector and reduce
and lack the accurate accessibility of market.
massively the costs of storage to the government
The marginalization of Private Trade: All activities in and be more compatible with a market economy.
the context of crop production procurement id done
by the government. It marginalized Private Storage Reforms
entrepreneurs. They can develop adequate • The government should introduce storage
infrastructure for the procurement so the government reforms in the country such as to outsource grain
should give them a chance to participate in this field. storage function to Centre Warehousing
Uncompetitive Exports: The higher price of MSP Corporation ( CWC), State Warehousing
Corporation (SWC) and Private Sector Players.
constraint the competitive export of the production.
• The government should introduce a Private
Economic Burden: It is an expensive activity for the
government to purchase crop at MSP, Procurement Entrepreneur Guarantee (PEG) scheme to
and after that distribute it under the Public construct godowns, cold storage and other
infrastructure based on Public-Private
Distribution Service (PDS). These activities increase
the economic burden of the government. Partnership (PPP). It increases efficiency and
infrastructure.
High Corruption: According to a report, 40-60% of the
• For the storage purpose government should
production is released in black market through
corruption which is an illegal activity. adopt ‘Silos’ rather than gunny bags. Because
they are more efficient are safe for storage.
Shanta Kumar Committee Recommendations
• Provide rail connectivity and end to end
The government had set up a six-member committee computerization and online tracking from
in 2014 to suggest some streamlines to the Food procurement to retail distribution.
Corporation of India (FCI) regarding storage,
procurement and distribution of the crop. The Reforms in Policies
committee is headed by Shanta Kumar. • The government should reform MSP policy and
Procurement better price support operations for pulses and
oilseeds.
• Grain procurement surplus state like Punjab,
• Proactive Liquidation Policy for excess buffer
Haryana should be delegated to state
government. stocks.
• Food Corporation of India (FCI) focus more on India can improve its quality of services with the
price support operations in Eastern states like implementation of good policies. The government
Uttar Pradesh, Bihar, West Bengal, Assam etc. must focus on mechanized policies that escalated the
growth and development of the economy.
Marine fisheries sector • Since fisheries is a state subject, fishing in the IW
A Marine Fisheries Regulation and Management and TS come within the purview of the states
(MFRM) Bill 2019 is in the public domain for concerned.
discussion.
• Other activities in the TS and activities, including
Background fishing beyond the TS up to the limit of the EEZ,
are in the Union list.
• Under the United Nations Convention on the
Law of the Sea (UNCLOS) and the World Trade WTO
Organisation (WTO) agreements, India has
• The Bill is also a response to discussions on
obligations to frame laws.
fisheries’ subsidies at the WTO since the Doha
• The annual fishery potential of the country’s Round of 2001.
EEZ is about 5 million tonnes.
• India has been defending the rights of
Prelims perspective developing nations for special and differential
treatment.
Marine Fisheries sector in India
• Developed countries contend that nations
• Marine Fisheries is that branch of fisheries which without laws to manage fisheries in their
deals primarily with marine fishes and other sea respective EEZs are not serious about
products. For E.g. Oil sardines, tunas, crabs, marine unregulated fishing.
algae etc.
• MFRM Bill is India’s response to such
• India is the second largest fish producer in the world
sentiments.
with a total production of 13.7 million metric tonnes
in 2018-19. Mains perspective
• The sector has been showing a steady growth in the Provisions – analysis
total gross value added and accounts for 5.23 % share
of agricultural GDP Positives
UNCLOS • The Bill prohibits fishing by foreign fishing

vessels, thus nationalising our EEZ.
• Under UNCLOS, the sea and resources in the
water and the seabed are classified into three • Bigger vessels registered and licensed under
zones — the internal waters (IW), the territorial state departments will need a permit to fish.
sea (TS) and the exclusive economic zone (EEZ). This is a welcome measure to manage the
fishing sector.
• The IW is on the landward side of the baseline
including gulfs and small bays. Coastal states • The Bill respects the jurisdiction of our coastal
treat IW like land. states over the TS.
• TS extends outwards to 12 nautical miles from • It proposes social security for fish workers and
the baseline — coastal nations enjoy sovereignty calls for the protection of life at sea during
over airspace, sea, seabed, and subsoil and all severe weather events.
living and non-living resources therein. Challenges
• EEZ extends outwards to 200 nautical miles from •An Indian fishing vessel that wants to fish in the
the baseline. Coastal nations have sovereign EEZ, outside the TS, must obtain a permit. This
rights for exploration, exploiting, conserving and requirement has been contested by small-scale
managing all the natural resources therein. operators.
• There is a faulty assumption that only large- products sector in the country as per the
scale vessels fish outside the TS. Thousands of roadmap envisaged therein.
small-scale fishing crafts regularly venture into
such areas. • To achieve the vision of NPSP-2019, the Policy
has the following Missions:
• It is not congruent with important regional
fishery agreements. It is incomplete compared • To promote the creation of a sustainable
to the regulations in other coastal nations. Indian software product industry, driven by
intellectual property (IP).
Way ahead
• To nurture 10,000 technology startups in
• Exemption clauses to safeguard the livelihoods software product industry and generating
of small scale fishermen should be direct and in-direct employment for 3.5
incorporated in the Bill. million people by 2025.
• State governments, fisher associations and the • To create a talent pool for software product
fishing industry representatives should argue industry.
for greater “cooperative federalism”.
• To build a cluster-based innovation driven
• Cooperative governance between them over ecosystem.
different territories (IW, TS, and EEZ) is key to
the sustainable management of marine • In order to evolve and monitor scheme &
fisheries. programmes for the implementation of this
policy, National Software Products Mission
• Fisheries should now ideally go into the will be set up with participation from
Concurrent List. Government, Academia and Industry.
• Small-scale fish workers should demand to Impact

make the entire IW and TS completely free of
trawling using the FAO/UN Small-Scale • The Indian IT Industry has predominantly
Fisheries. been a service Industry.
• Its software product ecosystem is

characterized by innovations, Intellectual
Service sector
Property (IP) creation and large value addition
National policy on software products increase in productivity.
• The Union Cabinet has approved the National
• It has the potential to significantly boost
Policy on Software Products – 2019 to
revenues and exports in the sector, create
develop India as a Software Product Nation.
substantive employment and entrepreneurial
• It aims to develop India as the global software opportunities in emerging technologies.
product hub, driven by innovation, improved
• With this policy, it can leverage opportunities
commercialization, sustainable Intellectual
available under the Digital India Programme,
Property (IP), promoting technology startups
thus, leading to a boost in inclusive and
and specialized skill sets.
sustainable growth.
Both prelims and mains perspective
Consumer protection act, 2019
• The Policy will lead to the formulation of The both the houses of parliament passed
several schemes, initiatives, projects and the Consumer Protection act, 2019 that provides for
measures for the development of Software the establishment of authorities for the timely and

effective administration and settlement of consumer • Celebrities can be fined up to ₹10 lakh. For repeat
disputes. offences, this may rise to ₹50 lakh, with a jail term
of up to five years.
The Consumer Protection Bill, 2019 seeks
• Product liability: Product liability means
to strengthen the consumer rights and provides
the liability of a product manufacturer, service
a mechanism for redressal of complaints regarding
provider or seller to compensate a consumer for
defects in goods and deficiency in service
any harm or injury caused by a defective good or
Important Features of The Consumer Protection act, deficient service.
2019: • To claim compensation, a consumer has to prove
any one of the conditions for defect or deficiency,
• Apart from setting up of authorities for timely as given in the Bill.
and effective administration and settlement of • It also provides for product liability action on
consumer disputes, the bill also seeks to bring account of harm caused to consumers due to
in e-commerce under their jurisdiction and hold defective products or deficient services.
celebrities accountable for false and misleading
advertisements of products that they endorse. Consumer Disputes Redressal Commission:
• Apart from the consumer courts at the district,
Consumer Disputes Redressal Commissions (CDRCs)
state and national level, the bill proposes
will be set up at the district, state, and national
a Central Consumer Protection Authority
levels.
(CCPA) to promote, protect and enforce
consumer rights as a class and protect them from A consumer can file a complaint with CDRCs in
unfair trade practices. relation to:
• CCPA, envisaged as a regulator, can file a class
action suit if required and would take immediate • Unfair or restrictive trade practices;
action on any consumer complaint. • Defective goods or services;
Rights of consumers: Six consumer rights have been • Overcharging or deceptive charging; and
defined in the Bill, including the right to:
• The offering of goods or services for sale
• be protected against marketing of goods and which may be hazardous to life and safety.
services which are hazardous to life and
property; Complaints against an unfair contract can be filed
with only the State and National Appeals from a
• be informed of the quality, quantity, potency, District CDRC will be heard by the State CDRC.
purity, standard and price of goods or
services; Appeals from the State CDRC will be heard by the
National CDRC. Final appeal will lie before the
• be assured of access to a variety of goods or Supreme Court.
services at competitive prices; and
Tourism industry
• seek redressal against unfair or restrictive
Recently, the Prime Minister urged people to visit at
trade practices.
least 15 tourist destinations within India by 2022.
• The bill proposes strict action against the
only mains perspective
advertiser in case of misleading
advertisements but not against the media Importance of ‘Tourism’ in India
through which the advertisement is being
publicised. • Generates Income and Employment: In 2017,
Tourism Industry accounted for 8% of the
total employment. An increase has been
witnessed in the sale of handlooms, terms of safety and security aspect in the WEF
handicrafts etc. Index 2017.
• Service Sector: It gives a push to service • Lack of skilled manpower is another challenge
sector. A large number of businesses engaged to Tourism Industry in India.
in service sector such as airlines, hotel,
• Absence of basic amenities like drinking water,
surface transportation, etc. grows with the
growth of tourism industry. well maintained toilets, first aid, cafeteria etc.
at tourist places.
• Foreign Travelers help India in getting Foreign
• Seasonality in Tourism, with the busy season
Exchange.
being limited to six months from October to
• Tourism helps in preservation of National March and heavy rush in November and
Heritage and Environment by bringing in December.
focus the importance of sites and need to
• Non-acceptance of International Cards at
preserve them.
small outlets.
• Renewal of Cultural Pride: Tourist spots being
appreciated globally instills a sense of pride Recent Steps
among Indian residents gets reinforced. • Swadesh Darshan Scheme: Under it, the
• Infrastructural Development: Now-a-days, it Ministry of Tourism provides Central Financial
is ensured that Travelers do not face any Assistance (CFA) to State Governments/Union
Territory Administrations for infrastructure
problem; multiple use infrastructures are
getting developed at several tourist development of 13 identified theme based
places. Uttarakhand’s plan to start mobile circuits.
caravans is a latest example. • 13 Circuits are: North-East India
• It helps in bringing India on global map of Circuit, Buddhist Circuit, Himalayan
Circuit, Coastal Circuit, Krishna Circuit,
tourism, earning appreciation, recognition
and initiates cultural exchange. Desert Circuit, Tribal Circuit, Eco
Circuit, Wildlife Circuit, Rural Circuit,
• Tourism as a form of soft power, helps in Spiritual Circuit, Ramayana Circuit and
promoting cultural diplomacy, people to Heritage Circuit.
people connect and thereby promotes
• Integrated development of identified
friendship and cooperation between India and
other countries. pilgrimage destinations (includes employment
generation) has been undertaken under
Challenges to the Growth of Tourism in India the ‘National Mission on Pilgrimage
Rejuvenation and Spiritual, Heritage
• Tourists in India still face many infrastructure Augmentation Drive’ (PRASHAD) Scheme.
related problems like inadequate roads, water,
sewer, hotels and telecommunications etc. • "Adopt a Heritage Project" plans to entrust
heritage sites/monuments and other tourist
• Safety and security of tourists, especially of sites to private sector companies, public
the foreign tourists, is a major hurdle to the sector companies and individuals for the
tourism development. Attacks on foreign development of various tourist amenities.
nationals raise questions about India’s ability
to welcome tourists from far away • Celebration of Paryatan Parv from 16th to
countries. Among the 130 countries surveyed, 27th September, 2018, to encourage Indians to
India was placed at the 114th position in visit tourist destination in India.

• Incredible India Website to promote to and • All credits to this fund require parliamentary
engage with travelers. approval and it has a statutory
support under Indian Telegraph (Amendment)
• Online Learning Management Act, 2003.
System for creating skilled manpower to
work as tourist facilitator. Mains perspective
Distress in telecom sector Underlying Issues

The Government of India recently constituted
• The industry’s debt currently stands at
a Committee of Secretaries (CoS), headed by
about ₹4 lakh crore.
the Cabinet Secretary Rajiv Gauba, to look for a relief
package for the distressed telecom sector. • Due to intense competition from free voice
and cheap data, the gross revenue of the
Prelims perspective
telecom industry had fallen between 2017-18
Adjusted Gross Revenue (AGR) and 2018-19.
• It is the usage and licensing fee that telecom • Currently, the price of data for the
operators are charged by the Department of customer at an average of ₹8 per GB is
Telecommunications (DoT). almost the lowest in the world.
• It is divided into spectrum usage charges and • Also, the average revenue per user per
licensing fees that are fixed between 3-5% and month has declined from ₹174 in 2014-
8% respectively. 15 to ₹l13 in 2018-19.
Spectrum Usage Charge • The other challenges include- lack of fixed-

line penetration, high right-of-way costs,
• It is the charge that is required to be paid by the current tariff system, deployment of 5G, etc.
licensees providing mobile access services, as a
percentage of their Adjusted Gross Revenue Demands By the Sector
(AGR).
• Reduction in spectrum usage charges and
• The spectrum slabs/rates for the same are the Universal Service Obligation Fund levy.
notified by the Government from time to time.
• Deferment of Spectrum Auction
Universal Service Obligation Fund (USOF) Payment that is due for the next two years,
i.e., 2020-21 and 2021-22, so as to ease the
• USOF ensures that there is universal non- cash flows in the industry.
discriminatory access to quality ICT services at
economically efficient prices to people in rural • Viable pricing for voice and data, which falls
and remote areas. in the realm of Telecom Regulatory Authority
of India (TRAI).
• Currently, it is charged at the rate of 5%,
while the TSPs demand it to be reduced to • Telecoms demand that TRAI
3%. must prescribe a minimum charge for
voice and data services in order to ensure
• It was created under the Department of the long-term viability and robust
Telecommunications in 2002. financial health of the sector.
• It is a non-lapsable fund, i.e., the unspent • The TSPs also claim that a large amount
amount under a targeted financial year does not of input tax credit is available to their credit
lapse and is accrued for next years’ spending. in government accounts. They request that it

must be adjusted against future government Prior to 2013, the DPCO followed a cost-based pricing
levies so that their distress could be eased for mechanism that was based on the costs involved in
now. manufacturing a medicine along with reasonable
profit margins. But, such a mechanism suffers from
Way Forward following flaws:
• To enhance the growth of the telecom sector,
• Difficult to put a reasonable limit on the
improve the quality of service, and generate
profit margin: In Pharma industry, the process
resources for the TSPs, a new infrastructural
of discovering a new drug involves a long
policy is the need of the hour.
process of attrition, where hundreds of
• The government needs to provide an enabling compounds might trickle down to one or two
environment for telecom operators. In order medicines. Thus, research & development of
to achieve that, a long-term vision plan must new drugs takes a lot of time and incur huge
be made accordingly. cost and must be appropriately incentivized.
• Different cost of inputs: The same drug can
• Enhanced accessibility of the broadband be manufactured by many companies of
services will enable the digital empowerment different scale and thus, will have different
of India, hence adequate steps must be taken cost of inputs. It is difficult to maintain
by the government to strengthen the overall uniformity in cost-based calculation of price.
telecom sector. • Problems in auditing cost: Many companies
don’t divulge the actual costs incurred in the
Parliamentary Standing Committee on manufacturing process for competitive
Chemical and Fertilizers reasons. The process of verification may lead
Recently, a Parliamentary Standing Committee on to intrusive inspector raj and increase red-
Chemical and Fertilizers submitted its report on the tapism.
subject “Pricing of Drugs with special reference to
Drugs (Prices Control) Order, 2013”. Prevailing issues in Drug Price Control regime in India
Only mains perspective • Reduced supply of essential drugs: Price

ceilings makes manufacturing of scheduled
Need for controlling the drug prices drugs unprofitable, so many pharmaceutical
According to NSSO’s 71st round survey (2014), companies are moving to manufacture non-
around 72% in rural areas & 68% in urban areas of the scheduled drugs especially smaller
total medical expenditure was incurred for purchasing companies. This has dried up the supply side
medicines. Hence, the affordability of medicines is a for many essential drugs.
crucial element in availing medical treatment by all • E.g. Supplies of Furoped (a life-saving drug for
sections of the people. children with heart ailments) had come down
by almost 40% after NPPA had imposed a
Insurance covers only hospitalization bills and not the price ceiling.
cost of drugs. More than 2/3rd of Out-of-Pocket • Similar arguments have been raised against
expenditure is incurred on drugs. capping of prices of cardiac stents and knee
implants.
There is a lack of awareness among the public about
• Lack of control over non-essential drugs:
the free supply of drugs by the Government as well as
NPPA doesn't have pricing control in case of
generic drugs. There exists a nexus between medical
non-essential drugs, which comprise around
practitioners, chemists & pharmaceutical companies.
90% of domestic Pharma sales. Many drugs
Why market-based pricing mechanism was needed against life threatening diseases such
introduced in DPCO, 2013? as breast cancer are not included.

• Nexus between Pharma companies and A uniform national minimum wage of Rs 9,750 per
Hospitals: Hospitals overcharge for treatment month or region-wise minimum wages ranging from
within their facilities, not allowing patients to Rs 8,892-Rs 11,622 per month for five regions (as of
source drugs independently from distributors. July 2018) has been recommended.
Pharma companies keep the retail price of
Prelims perspective
drug high but offer huge cut to hospitals for
prescribing their brands. Minimum Wage
Recommendations of the Committee It is one, which is paid by an employer/industry to its
workers irrespective of its ability to pay. It must
National Essential List of Medicines:
provide not only for the bare sustenance of life, but
• Every medicine is essential from the context for the preservation of the efficiency of the workers.
of treating the disease for which it is
Living Wage
formulated. The present nomenclature of
NLEM is not appropriate and may be reviewed It should enable the earner to provide for himself and
& suitably modified. his family not only the bare essentials of food,
• Moreover, the existing list of essential & life- clothing and shelter but a measure of frugal comfort
saving medicines must be enlarged. including education for his children, protection
• Also, permanent representation should be against ill-health, requirements of essential social
given to NPPA in the core committee on to needs and a measure of insurance against the more
review and revise the National List of essential important misfortunes including old age.
Medicines (NLEM).
Fair Wage
Market based pricing: An expert committee should be
constituted to study the impact of market based and It is linked with the capacity of the industry to pay.
cost based pricing systems on drug prices in the Factors such as labour productivity, prevailing wage
country. rates, the level of national income and its distribution
etc. are variables in determining fair wage. It is above
Many health experts suggest that cost based pricing the minimum wage but below the living wage
would actually make the drugs cheaper.
Mains perspective
Jan Aaushadhi Stores: More functional Jan Aaushadhi
stores should be opened in all districts and supply Recommendations of the committee
chain should be improved by appointing distributors
• Using the nutritional requirement norms as
and Carrying & Forwarding (C&F) agents. Awareness
recommended by the Indian Council of
among people about Pradhan Mantri Bharatiya
Medical Research (ICMR) for Indian
Janaushadhi Pariyojana (PMBJP) scheme should be
population, the report has recommended a
increased.
balanced diet approach which is culturally
Generic Drugs: Doctors should be advised to prescribe palatable for fixation of national minimum
generic name of the drug instead of the brand name. wage.
Employment and skill development • Accordingly, it has proposed that food items
amounting to the level of ± 10 per cent of
National minimum wage 2,400 calories, along with proteins ≥ 50 gm
The Expert Committee under the Chairmanship of Dr. and fats ≥ 30 gm per day per person to
Anoop Satpathy has brought out a timely technical constitute a national level balanced food
Report on “Determining the Methodology for the basket.
Fixation of the National Minimum Wage (NMW)”.
• Further, it proposes minimum wage should consultations and approval of the
include reasonable expenditure on ‘essential methodology.
non-food items’, such as clothing, fuel and
light, house rent, education, medical Periodic labour force survey
expenses, footwear and transport which must • The govt has finally released Annual Report of
be equal to the median class. the Periodic Labour Force Survey (PLFS) 2017-
18 and the Quarterly Bulletin PLFS.
• Expenditure on any ‘other non-food items’ be Only prelims perspective

equivalent to the sixth fractile (25-30 per
Periodic Labour Force Survey (PLFS)
cent) of the household expenditure
distribution as per the NSSO-CES 2011/12 • The PLFS was launched from 1st April 2017.
survey data.
• Primary aim of the PLFS is to generate
reasonably accurate indicators of labour
• On the basis of the aforesaid approach, the market at a short span for every quarter for
report has recommended to fix the need which speed of quality data collection and
based national minimum wage for India at processing are important.
INR 375 per day (or INR 9,750 per month) as
of July 2018, irrespective of sectors, skills, • PLFS was launched with the objective of
occupations and rural-urban locations for a measuring employment every three months
family comprising of 3.6 consumption unit. in urban areas and once a year in both rural
and urban areas.
• It has also recommended to introduce • The quarterly survey only captures data
an additional house rent allowance (city classed as current weekly status (CWS), while
compensatory allowance), averaging up to the annual survey measures both the usual
INR 55 per day i.e., INR 1,430 per month for status and CWS.
urban workers over and above the NMW.
• The NSSO was historically conducting
Employment and Unemployment Surveys as
• The report has also estimated and part of its National Sample Surveys.
recommended different national minimum
Who are the Unemployed?
wages for different geographical regions of
the country to suit the local realities. For this • Labour force means people working or
purpose, it has grouped the states into five looking for jobs in the age group of 15-29
regions. years.
• CWS Method: A person who is unable to get

• It has also recommended reviewing the work for even an hour in the last seven days
consumption basket every five despite seeking employment is considered
years and updating the basic minimum unemployed.
wage at least in line with the consumer price
• Usual Status Method: Under this, the
index (CPI) every six months, to reflect
changes in the cost of living. employment activity of a person is
determined on the basis of a reference period
of 365 days preceding the date of the survey.
• The report will be put before the Central
Advisory Board/tripartite bodies for necessary Trends

• Labour force participation has been declining All the public utility undertakings have an obligation
and touched 36.9% in 2017-18 as more to supply the essential goods and services to everyone
among them, especially females, enrolled for in the community without any discrimination at
higher studies. reasonable prices.
• The youth accounted for 28.2% of urban They are also been defined as:
males and 27.8% of urban females.
• Any railway services or any transport services
• During 2017-18, among people aged 15-29 for carriage of passengers or goods by air] or
years, the share of the educated was 65.8% any service in connection with the working of
among urban males. It was 65.4% among any major port or dock.
urban females. • Any section of an industrial establishment on
the working of which the safety of the
• A higher percentage of males compared to
establishment or the workman employed
females had received either formal or non-
therein depends.
formal vocational training.
• Any postal, telegraph or telephone services.
Reality of jobless growth • Any industry which supplies power, light or
water to the public.
• The rising unemployment rate despite falling • Any system of public conservancy or
labour force participation for the youth is sanitation.
more worrying. • Any industry specified in the [First Schedule]
• This is likely to raise questions about whether of the Industrial Disputes Act.
India is suffering from jobless growth. The “public utility service” also include services in
hospital or dispensary and insurance services.
• According to Census 2011, India has 333
million youth—a number that is likely to
touch 367 million in 2021 and 370 million by
Transport sector
2031.
River information system
• With this huge rise in youth unemployment, it
To boost cargo movement on Ganga, Union Transport
is hard to reconcile this information with the
Minister has inaugurated the second phase of river
EPFO data that people keep talking about,
information system (RIS) between Farakka and Patna.
because a majority of the new entrants to
EPFO would be the younger people. Both prelims and mains perspective
Printing press declared as public utility River Information System (RIS)

The Ministry of Labour and Employment issued a
notification refreshing the categorization of currency • RIS is a combination of tracking and
printing presses and mints as ‘public utility service’ meteorological equipment with specialized
under the Industrial Disputes Act, 1947. software designed to optimize traffic and
transport processes in inland navigation.
Prelims perspective
• The system enables swift electronic data
What is Public Utility Service? transfer between mobile vessels and shore
(base stations) through advance and real-time
Public Utility Services are those business undertakings
exchange of information so as to ensure
engaged in supplying essential goods and/or services
navigation safety in inland waterways.
of daily necessity for the general public.
• It also provides virtual navigational aids to
guide the vessel during navigation.
• It will help in crisis management and • The phase two of the scheme plans to support
enhanced inland navigation safety by ten lakhs electric two-wheelers, five lakhs
preventing ship-to-ship collisions, ship-bridge electric three-wheelers, 55 thousands four-
collisions, groundings etc. wheelers and 7,000 buses.
Implementation of Phase II • The main objective is to encourage faster

adoption of EVs by way of offering upfront
• The project is aimed at boosting the incentive on the purchase and also by way of
movement of cargo and fishery development establishing a necessary charging
in river Ganga. Infrastructure.
• Under phase II, five base stations – Manihari, • The largely increased allocation for the new
Bhagalpur, Munger, Barh and Hatidah and phase is a sign of the critical importance that
one control station have been made at Patna. India’s policy makers are currently placing on
shifting to an all-electric Indian mobility
• IWAI is implementing the project in three
sector.
phases on NW-1.
Focus areas
• The inauguration of 2nd phase of RIS will
enhance swift electronic data transfer • In this phase two, emphasis is on
between mobile vessels and base stations on electrification of the public transportation
shore through advance and real-time that includes shared transport.
exchange of information.
• The second phase will also not provide any
Other phases of RIS incentive for passenger cars used for personal
use.
• Earlier, in 2016, the first phase of RIS – 545
km on Haldia- Farakka stretch was • In the two-wheelers segment, however, the
commissioned. focus will be on the private vehicles.
• Work on third, 356 kms Patna-Varanasi • Demand Incentives on operational

stretch is currently in progress. expenditure mode for electric buses will be
delivered through State/city transport
Second phase of FAME to electrify public corporation (STUs).
transport
• The second phase of the Faster Adoption and • In 3W and 4W segment incentives will be
Manufacturing of (hybrid) Electric vehicles applicable mainly to vehicles used for public
(FAME) scheme will come into force from transport or registered for commercial
April 1, 2019 with the Union Cabinet nod. purposes.
• The scheme will be in effect for a period of • To encourage advanced technologies, the
three years at a proposed budget of Rs 10,000 benefits of incentives will be extended to only
crore. those vehicles which are fitted with advanced
batteries like a Lithium Ion.
Necessary charging infrastructure
FAME India II Scheme
• It also proposes for establishment of charging
• The scheme is the expanded version of the infrastructure, whereby about 2700 charging
present scheme titled ‘FAME India 1’ which stations will be established in metros, other
was launched in April 2015. million-plus cities, smart cities and cities of
hilly states across the country.
• It will ensure availability of at least one interchange onward carriage smoothly at
charging station in a grid of 3 km x 3 km. transhipment points. o The burden of issuing multiple
documentation and other formalities connected with
Impact each segment of the transport chain is reduced to a
• Inclusion of buses, taxi and e-rickshaws under minimum.
Fame 2 will play a critical role to promote EVs. • Provides faster transit of goods: The faster
• The transition to electric buses is expected to transportation of goods is made possible under
not only help reduce carbon footprint but also Multimodal transport. It also reduces the
save fuel. disadvantages of distance from markets.
• Increases competitiveness: The inherent

Multimodal terminal
advantages of Multimodal transport system will help
Recently the second riverine multi modal terminal on
to reduce the cost of exports and improve their
River Ganga was inaugurated at Sahibganj, Jharkhand.
competitive position with pricing in the international
Prelims perspective market segment.
About Jal Marg Vikas Project • Establishes only one agency to deal with: The
consignor needs to deal with only the Multimodal
• The Government is implementing this project for transport operator in all matters relating to goods, or
the capacity augmentation of navigation on the delay in delivery of goods at destination. This has
Haldia-Varanasi stretch of National Waterway-1 direct implications for ease of doing business.
(Ganga) with the technical and financial assistance of
the World Bank.
Energy sector
• Under this project, construction of three
multimodal terminals, two intermodal terminals, one Visakhapatnam Strategic Petroleum
new navigational lock and works for fairway Reserve (SPR) facility was
development, River Information System (RIS), vessel
operationalized.
repair and maintenance facilities and RoRo terminals
In a boost to energy security of the country, PM
are envisaged to be completed.
recently dedicated to the nation, 1.33
About Multi-Modal Transport MMT Visakhapatnam Strategic Petroleum Reserve
(SPR) facility of Indian Strategic Petroleum Reserve
• Multimodal transport is the movement of good from Limited (ISPRL). The cost of the Project is Rs. 1125
point A to point B using different modes of transport crore. The Facility has the largest underground
by a single transport operator. It is an effective mode storage compartment in the country.
in a large and diverse country like India where an end
to end delivery is a humongous task. Prelims perspective
• The Multimodal Transport Act was passed by the About SPR programme:
Indian Parliament in 1993 to establish a standardized
To ensure energy security, the Government of India
regime for the multimodal transport operators
had decided to set up 5 million metric tons (MMT) of
(MTOs).
strategic crude oil storages at three locations namely,
Mains perspective Visakhapatnam, Mangalore and Padur (near Udupi).
These strategic storages would be in addition to the
Benefits of multimodal transport existing storages of crude oil and petroleum products
with the oil companies and would serve as a cushion
• Minimizes time loss at trans-shipment points:
during any external supply disruptions.
Multimodal transport operator maintains its
communication links and coordinates that
In the 2017-18 budget, it was announced that two Prelims perspective
more such caverns will be set up Chandikhole in
Jajpur district of Odisha and Bikaner in Rajasthan as Renewable Energy Sector
part of the second phase. ▪ India’s renewable energy sector had an
The construction of the Strategic Crude Oil Storage installed capacity of 75,055.92 MW as of
facilities is being managed by Indian Strategic February 2019, according to data with the
Petroleum Reserves Limited (ISPRL), a Special Central Electricity Authority.
Purpose Vehicle, which is a wholly owned subsidiary • This made up about 21.4% of the
of Oil Industry Development Board (OIDB) under the overall energy mix, with the rest
Ministry of Petroleum & Natural Gas. coming from thermal, nuclear and
Mains perspective large hydro sources.
• However, with the inclusion of large
Need for strategic oil reserves: hydro in renewable energy, the
energy mix will change drastically.
• In 1990, as the Gulf war engulfed West Asia, • Renewable energy capacity would
India was in the throes of a major energy now be 1,20,455.14 MW or 34.4% of
crisis. By all accounts India’s oil reserves at the the overall energy mix.
time were adequate for only three days.
While India managed to avert the crisis then, ▪ This policy will also drastically change
the threat of energy disruption continues to the renewable energy mix as well.
present a real danger even today.
• Before February 2019, the wind
• It is unlikely that India’s energy needs will energy contributed nearly 50% of all
dramatically move away from fossil fuels in renewable energy capacity, it will now
the near future. Over 80% of these fuels come make up only 29.3%.
from imports, a majority of which is sourced
• Similarly, solar energy’s share will fall
from West Asia. This is a major strategic risk
from 34.68% to 21.61%.
and poses a massive financial drain for an
embattled economy and its growing current • The hydro sector, however, will see its
account deficit. share grow from just over 6% to over
41%.
• To address energy insecurity, the Atal Bihari
Vajpayee government mooted the concept of Mains perspective
strategic petroleum reserves in 1998. Today,
with India consuming upwards of four million Impact
barrels of crude every day (January 2015
▪ Hydroelectric energy provides grid stability
figures), the case for creating such reserves
which a renewable source like wind and solar
grows stronger.
do not. The key reasoning seems to be
Hydro power sector providing grid stability and a better energy
The government, under new hydroelectricity policy mix.
has approved ‘renewable energy status’ for large ▪ There has been a huge imbalance in the
hydel projects. thermal-hydro mix for the last few years
Earlier, only smaller projects of less than 25 because of a sharp growth in thermal and
Megawatt (MW) in capacity were categorised as complete stagnation in hydro.
renewable energy. Large hydro projects were treated ▪ This reclassification will immediately help
as a separate source of energy. India achieve its target of 175 GW by 2022.
▪ Another benefit from the policy could be against the target of reducing them to 15 per
the positive impact on the stock prices of cent by the end of FY19.
State-run hydroelectric companies such as
• In the case of some states, especially in the
Sutlej Jal Vikas Nigam (SJVN)
northern and central parts of the country, the
▪ This will help large hydel projects avail losses are of a much higher magnitude,
cheaper credit and increase demand from suggesting that pilferage continues to be
distribution companies for cleaner energy. rampant.
• State distribution companies will be 2. ACS- ARR Gap

obliged to purchase a certain
percentage of hydropower—similar to While the ACS-ARR gap was supposed to be
renewable purchase obligations. This eliminated by FY19, it remains as high as Rs 0.25 per
will create a market for hydropower, unit. In many states, the gap is even higher. Part of
making the sector competitive. the problem can be traced to inadequate tariff hikes.
While it is true that some states have aggressively
▪ These projects will not only get the budgetary raised tariffs, the median hike remains muted. This is
support for infrastructure, but will also be where political compulsions overtake commercial
able to access “green finance”. decisions.
DISCOM debt to return to pre-UDAY 3. Power subsidy

levels Then there’s also the issue of whether the power
Ujwal DISCOM Assurance Yojana (UDAY) is the
subsidy released by state governments is adequate.
financial turnaround and revival package for the
As a result, discoms have reported financial losses to
electricity distribution companies of India (DISCOMS).
the tune of Rs 21,658 crore at the end of FY19,
It was launched with an aim to find a permanent
reversing the declining trend since the launch of
solution to the financial struggle of the power
UDAY, say reports.
distribution companies. However, even after 3 years
of its implementation, the discoms continue to Mains perspective
perform poorly.
What are the reasons for poor performance?
Prelims perspective
Lack of data
Background
There is no data for 11 of the 27 states and Union
• Broadly, the scheme had three critical territories committed for UDAY.
components.
Big targets
• Takeover of discom debt by state
• UDAY proposes a steep loss-reduction target
governments, reduction in aggregate
technical and commercial (AT&C) losses, for discoms to improve their financial health.
timely tariff revisions and elimination of the • However, it is near impossible because even
gap between the average per unit cost of 1% by states that opted for UDAY will result in
supply (ACS) and average revenue realised Rs. 24,000 crore of cash losses unless offset
(ARR) by FY19. by bigger tariff hikes and cost reduction
1. AT&C losses measures.
• First, at the aggregate level, the AT&C losses Revision of power tariffs
for major states stood at 19.05 per cent as • Though regulations require tariff revision,
many states haven’t done it.
• Even those who have revised, the revision • Private partnership – Discoms should seek
falls short of the estimates made under UDAY. active support of private players, particularly
The reasons are as follows in the high AT&C loss areas.
• Laxity of regulators.
• Central assistance – Discoms should take the
• Tariffs remain a politically sensitive issue.
help of central government entities for better
For instance, Rajasthan had to roll back
management and operational practices.
tariff increase for agricultural consumers
by almost 25 paise resulting in an • Automate tariff revision
additional burden of Rs 500 crore.
▪ Tariffs should be increased
Issues of power generating companies automatically for at least 3 years with
respect to inflation or the percentage
• State Electricity Boards (SEBs) are delaying
given in UDAY agreement, with no
payments to power suppliers
regulatory or political interference.
• There are also regulatory dues or increases in
▪ This tariff system could be subjected
tariffs due to new government levies like
to regulatory assessment after the
green cess or a port congestion surcharge.
end of the 3 year period.
• Cash strapped SEBs are not signing long-term
• Direct Benefit Transfer (DBT) – To plug
power purchase agreement (PPAs) with
leakages in the power subsidies, states could
generators who in turn are not in a position to
utilise DBT to transfer the electricity subsidies.
repay their bank loans since they have no
steady income stream. • Big penalties – need to be levied on SEBs for
non-supply of electricity. This will force them
Distribution losses
to sign PPAs. Also, when such big penalties
• Although UDAY succeeded in cutting down are imposed and the cash balances of state
distribution losses by around 21%, a major governments are on the line, they will
share of losses is still left due to the following themselves petition their electricity regulators
reasons asking for tariff hikes and also work towards
minimising theft rate which has large political
• Electricity theft has not been curbed patronage.
completely.
• Automatic deductions – Agreement need to
• The inadequacy in metering and billing be signed whereby the dues owed by SEBs are
process. automatically deducted by RBI from the
accounts of the state governments and paid
• Most of the old transformers haven’t been
to electricity suppliers.
replaced with new ones.
Sustainability of the scheme Coal India

The Government of India is considering to break Coal
• With several states missing the target over India into separate listed companies to improve its
the 3 years, there are doubts over whether working.
discoms could actually utilise this opportunity
provided by the central government. Only mains perspective
• Further, there is also a lack of strategy on The Department of Investment & Public Asset
dealing with failures to meet targets. Management (DIPAM) had sent a proposal to Coal
India and the Ministry of Coal to list four of Coal
What could be done?

India’s biggest production units, as well as its • Moreover, open cast mining is more preferred
exploration arm. because it is easier, cheaper and safer than
newer technology methods.
Around 70 per cent of power generation is coal based. • Hence the 40% reserves remain untouched
India is the third-largest producer of coal in the world, while steel companies are forced to import
but also third-biggest importer of coal, which the coal.
government wants to change by boosting local coal
production. • Lack of an accurate assessment and evaluation
system of coal reserves distribution in the country.
Concerns with Coal India
• Technology and systems available with CIL do
• Unable to meet growing demand despite abundant not show a precise account of coal reserves,
resources- Coal India produced a record 607 million due to which they mine imperfectly.
metric tons but falling short by 22% of a target
proposed in 2017. The goal has been revised a few Some of the recommendations of the Working Group
times since then, but output was still just below a on Coal-
revised target.
• Coal companies should take possession of the
• Decline in Capacity Utilization- due transportation entire area of land required for the life of the
bottlenecks, management vacancies, delays in project at one instance to avoid delays in land
procurement and strikes and bandhs acquisition.
• Special task force to grant necessary clearances
• Inefficient organisation- CIL’s output-per-man
such as mining lease, forest and environment
shift is estimated at one-eighth of Peabody
clearances, and land acquisition. The number of
Energy, the world's largest private coal
levels and stages in the processes should be
producer.
reduced.
• Delays in the projects- Till date, CIL’s 54 coal-mining • Opening up the sector for more private
projects are facing delays due to various reasons such participation, especially with regard to captive
as contractual issues and delays in securing green mining.
clearances, among other factors. • Setting up a regulatory authority, which would
have powers to comprehensively handle coal
• Under-utilization of funds- The Standing Committee resource development and regulation of its
on Coal had observed that CIL had utilised only 62% of extraction and use.
the funds allocated to it till 2016.
• Falling share in capital markets- CIL has a market External sector

cap of about $28 billion, which are heading for a fifth
straight year of decline. Offshore rupee markets
The Reserve Bank of India has constituted a task force
• Lack of availability of the latest technological
on offshore rupee markets, headed by Usha Thorat,
equipment for deep depths coal mining.
to look into issues related to the markets and
• The machinery available with CIL called open- recommend appropriate policy measures to ensure
cast mining allows drilling mostly up to 300 the stability of the external value of the rupee.
meters below earth’s surface, but about 40%
Prelims perspective
of total coal reserves are located at a deeper
depth which cannot be extracted using • "Offshore" refers to a location outside of
opencast mining. one's national boundaries, whether or not
that location is land- or water-based.

• Hence, Offshore Rupee market is a rupee • The Agreement Establishing the World Trade
denominated market in international market. Organization (also known as “the WTO
E.g. Masala bonds are bonds issued outside Agreement”) specifies that international
India but denominated in Indian Rupees, trade should benefit the economic
rather than the local currency. development of developing and least-
• The focus of RBI’s policy efforts has been to developed countries.
align incentives for non-residents to gradually
• General Agreement on Tariffs and Trade
move to the domestic market while at the
(GATT)— gives developing countries the right to
same time improving market liquidity to
restrict imports, if doing so would promote the
promote hedging activity on-shore while
establishment or maintenance of a particular
announcing setting up of the task force.
industry, or assist in cases of balance-of-
Developing country status in WTO payments difficulties.
• Part IV of the GATT includes provisions on the
• There are no WTO definitions of “developed” concept of non-reciprocal preferential
and “developing” countries. Members announce treatment for developing countries, i.e. when
for themselves whether they are “developed” or developed countries grant trade concessions to
“developing” countries. developing countries they should not expect the
developing countries to make matching offers in
• However, other members can challenge the return.
decision of a member to make use of provisions
available to developing countries. • However, developing countries claim that
Part IV has been without practical value as
• The WTO Agreements contain special provisions it does not contain any obligations for
which give developing countries special developed countries.
rights. These provisions are referred to
as “Special and Differential Treatment” (S&D) • Issues:
provisions.
• Recently, U.S. President had put pressure on the
• The special provisions include: WTO to change how it designates developing
countries, singling out China, with which the
• Longer time periods for implementing United States is engaged in a trade war, for
Agreements and commitments, unfairly getting preferential treatment.
• Measures to increase trading opportunities for • The United States also recently proposed, that
developing countries, in current and future negotiations, following
should not invoke the self-declaration option:
• Provisions requiring all WTO members
to safeguard the trade interests of developing
countries, • Members of the Organization for
Economic Cooperation and Development
• Support to help developing countries build the
(OECD)
capacity to carry out WTO work, handle
disputes, and implement technical standards, • Members of the Group of 20 (G-20),
and
• High income countries as per the World
• Provisions related to least-developed country Bank definition, or
(LDC) Members.
• Countries that account for 0.5% or more
• Benefits to Developing Countries in the WTO: of global merchandise trade.

• In a rebuttal to the US approach, China, India, • Current Account- Indian rupee can be
South Africa, and others submitted a proposal converted to any foreign currency at existing
of their own. While reiterating that self- market rates for trade purposes for any
declaration is appropriate in the WTO context, amount.
they make the point that per capita indicators • Capital Account- It means that ease with
must be given top priority when assessing which, the foreign investors will be able to
development levels. buy Indian assets such as bonds, equity and
Indian citizens will be able to buy foreign
• WTO members can consider the following
financial assets.
steps to help integrate developing countries in
global trade: Mains perspective
• Countries can decide to follow South The Benefits of Capital Account Convertibility:
Korea’s example and not claim
differentiated treatment, without the The Tarapore Committee mentioned the following
need to declare themselves “developed.” benefits of capital account convertibility to India:
• Negotiations should provide for • Availability of large funds to supplement

differentiated treatment taking into domestic resources and thereby promote
account the policy making challenges in economic growth.
developing countries without establishing • Improved access to international financial
permanent exemptions. These provisions markets and reduction in cost of capital.
should either be time-bound or have clear • Incentive for Indians to acquire and hold
threshold and phaseout criteria, as in the international securities and assets, and
WTO Agreement on Subsidies and • Improvement of the financial system in the
Countervailing Measures. context of global competition.
• Freedom to convert local financial assets into
Capital account liberalization foreign ones at market-determined exchange
Prelims perspective rates.
• Leads to free exchange of currency at lower
• Foreign exchange transactions are broadly
rates and an unrestricted mobility of capital.
classified into two types: Current account
transactions and Capital account transactions. Arguments against Capital Account Liberalisation
• The Current Account represents a country's
current transactions including exports, • Could lead to the export of domestic savings- which
imports, interest payments, private can further erode the capacity of state to finance the
remittances and transfers. national imperatives.
• The Capital Account records the net change • Could lead to greater tax avoidance- It would
of assets and liabilities which include external weaken the ability of the authorities to tax domestic
lending and borrowing, foreign currency financial activities, income and wealth.
deposits of banks, external bonds issued by
the Government of India, Foreign Direct • Could expose the economy to greater
Investment (FDI), Foreign Portfolio macroeconomic instability- arising from the volatility
Investments in India (FPI) etc. of short-term capital movements, the risk of large
capital outflows and associated negative externalities.
Currency convertibility refers the ease with which
a country's currency can be converted into gold or • Premature liberalisation- could initially stimulate
another currency in global exchanges. It indicates capital inflows that would cause real exchange rate to
the extent to which the regulations allow inflow appreciate and thereby destabilise an economy
and outflow of capital to and from the country. undergoing the fragile process of transition and
structural reform. Once stabilisation programme lacks • Monetization of assets- by converting non-revenue
credibility, currency substitution and capital flight generating assets into sources of revenue.
could trigger a Balance of Payment crisis, depreciation
and spiraling inflation. • Tapping Sovereign Funds- by channelizing money of
other countries into India.
• May lead to ineffective monetary policy- due to
speculative short-term movements in the interest E.g.- Partnering with Abu Dhabi Investment Authority
rates, leading to other spiraling effects. (ADIA) focused on ports, terminals, transportation and
logistics businesses in India.
• Due to higher capital inflows following capital
convertibility, the appreciating real exchange rate India and the UK announced joint UK-India Fund,
would divert resources from tradable to non-tradable namely a Green Growth Equity Fund that aims to
sectors (like construction, housing, hotels and tourism leverage private sector investment to invest in green
etc.) and this would happen in the face of rising infrastructure projects in India.
external liabilities ("Dutch disease effect"). • Directly Investing in Infrastructure- by using the
• Could lead to financial bubbles- especially through revenue generating through its various sources. Some
irrational exuberance of investment in real estate and examples are-
equity market financed by unbridled foreign • Partnered with HDFC in an investment
borrowing. platform for mid-income and affordable
housing in India.
• Acquired IDFC Infrastructure Finance Limited
Infrastructure
from IDFC.
National infrastructure investment fund
Mains perspective
Roadis, a private investor and operator of transport
infrastructure worldwide and the National Investment About NIIF
and Infrastructure Fund (NIIF) have jointly set up a
platform to invest in road projects in India • National Investment and Infrastructure Fund
(NIIF) is a fund created by the Government of
Prelims perspective India for enhancing infrastructure financing in
the country.
Different Approaches adopted by NIIF
• This is different from the National Investment
• Investment through different types of funds
Fund.
o Master Fund- for primarily investing in operating
• Objective: to maximize economic impact
assets in core infrastructure sectors such as roads,
mainly through infrastructure development in
ports, airports, power etc.
commercially viable projects, both greenfield
o Fund of Funds- for investing with experienced fund and brownfield, including stalled projects.
managers who have a strong track record and enable
• NIIF was proposed to be set up as a Trust, to
them to attract further institutional investors to invest
raise debt to invest in the equity of
in their funds.
infrastructure finance companies such as
o Strategic Fund- aimed at growth and development Indian Rail Finance Corporation (IRFC) and
stage investments in projects/companies in a broad National Housing Bank (NHB).
range of sectors that are of economic and commercial
importance and are likely to benefit from India’s • NIIF is envisaged as a fund of funds with the
growth trajectory over the medium to long-term ability to make direct investments as
required. As a fund of fund it may invest in
other SEBI registered funds.
The functions of NIIF are as follows: increased living standards. Countries that
embrace GVC grow faster, import skills and
• Fund raising through suitable instruments technology, and boost employment.
including off-shore credit enhanced bonds,
and attracting anchor investors to participate • Diversifying Country’s Export Sector: It provides
as partners in NIIF; opportunities for developing countries
to diversify their exports and intensify their
• Servicing of the investors of NIIF. integration into the global economy.
• Considering and approving candidate • Access to International Market: Participation in
companies/institutions/ projects (including GVCs provides important opportunities for firms
state entities) for investments and periodic to access international markets, absorb new
monitoring of investments. technology, and rapidly expand their economies
• Investing in the corpus created by Asset of scale.
Management Companies (AMCs) for investing • Magnifying Trade Scenario: Itallows resources
in private equity. to flow to their most productive use, not only
• Preparing a shelf of infrastructure projects across countries and sectors, but also within
and providing advisory service. sectors across stages of production. As a result,
GVCs magnify the growth, employment, and
Global value chains distributional impacts of standard trade.
Prelims perspective
• Boost to Development Process: With GVC-
What is a Global Value Chain? driven development, countries generate growth
by moving to higher-value-added tasks and by
• It is a chain of separate but inter-linked and embedding more technology and know-how in
coordinated activities, which can be undertaken all their agriculture, manufacturing, and
within a single firm or be divided among services GVCs provide countries the opportunity
multiple firms in different geographical to leap-frog their development process.
locations to bring out a product or a service to
complete production and delivery to final • Boon to Developing Countries: Global value
consumers. chains have been a boon to developing
countries because they make it easier for those
• According to the World Bank, “a GVC is countries to diversify away from primary
the series of stages in the production of a products to manufactures and services.
product or service for sale to consumers. Each
stage adds value, and at least two stages are in India and GVC
different countries.
• India’s integration with GVCs is among
• For example, a bike assembled in France with the lowest in G20 countries.
parts from Germany, Italy, and Malaysia and
• Compared with the ASEAN group of countries,
exported to the Arab Republic of Egypt is a GVC.
India’s GVC integration is far lower with a
• So according to this definition, a country, sector, decline in both its backward (that is, import
or firm participates in a GVC, if it engages in (at content of exports) and forward (domestic
least) one stage in a GVC. value added embodied in other country exports
as a share of gross exports) GVC linkages.
Importance of GVC
Reasons for Low GVC Integration
• Tool to Economic Growth: GVCs are a powerful
driver of productivity growth, job creation, and Poor Trade Infrastructure

• India still lags behind in trade and dynamics of GVCs across different regions
infrastructures which not only increases cost and industries.
and time of export operations but also it
• For many countries, especially developing and
almost prohibit a country from participating in
GVCs is not sufficiently known. low-income countries, the ability to effectively
insert themselves into GVCs is a vital condition
• China, Japan, South Korea, Thailand and for their development. This supposes an ability
Malaysia have become part of GVCs through to access GVCs, to compete successfully and to
the quality trade infrastructure route. India “capture the gains” in terms of
could not as it does not meet the national economic development, capability
benchmarks for efficient entry/exit at the building and generating more and better
most ports/customs. jobs to reduce unemployment and poverty.
Small size of Small Basket Products • To strengthen the benefits that countries obtain
from participating in GVCs, it will need
• Ironically, 70 percent of India’s export to support the upgrading process by
earnings come from the small basket strengthening the business
products (Agri- based products). The small
environment, supporting investment in
size of the global basket limits the potential knowledge assets such as R&D and design, and
for future growth. Also, most products face fostering the development of important
intense competition from low-cost countries
economic competencies, notably skills and
such as Bangladesh and Vietnam. management.
• A country that exports products that belong
to the large basket will have higher chances
Miscellaneous
to grow.
Weak Global Share

Noble prize in economics
The Sveriges Riksbank Prize in Economic Sciences for
• India has an insignificant presence in large 2019 was jointly awarded to Abhijit Banerjee, Esther
basket products (Electronics, telecom, and Duflo, and Michael Kremer, for ‘their experimental
high-end engineering products) that have approach to alleviating global poverty.
become important in world trade. It
contribute to 30 percent of India’s export
earnings. What are Randomised Control Trials?
• India has a weak global export share in • RCTs break larger questions about policy
commodities such as mobile phones (0.19 per interventions into smaller, easier to test studies.
cent), integrated circuits (0.01 per cent),
computers (0.04 per cent), solar-powered • For example, the big questions like ‘poverty’ are
diodes, transistors (0.14 per cent), LCDs (0.04 broken down into its various dimensions like--poor
per cent). health, inadequate education, etc.
Way Forward • Within poor health, they look at nutrition,

provisioning of medicines, and vaccination, etc.
• In current time, around 70 percent of the world Within vaccinations, they try to conduct various
trade is structured within GVCs of multinational experiments and, based on such “evidence”, decide
corporations. Harnessing the potential of GVCs what needs to be done.
for broad-based economic development
requires active and purposeful policies. It also • This is extremely relevant when it comes to framing
requires an understanding of the characteristics policy in low- and middle-income countries, where
state capacity is quite limited and it is particularly
necessary to be able to prioritise more effective
policies over less.
Prakash portal
Only prelims prespective
The government has launched a web portal,

PRAKASH (Power Rail Koyla Availability through
Supply Harmony), with a view to improving
coordination between the power, coal and railway
ministries to ensure coal supplies to power plants.
• It has been developed by NTPC and sources

data from different stakeholders such as
Central Electricity Authority (CEA), Centre for
Railway Information System (CRIS) and coal
companies.
• The portal is not accessible to the general

public.


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FOREWARD

We wish you the best for your Test preparation!

Government debt. ................................................. 3 White label ATM .................................................. 39

Insider trading ........................................................ 4 Swap facility ......................................................... 40

GDP estimation in India ......................................... 5 Small finance banks ............................................. 42

Independent fiscal council ..................................... 7 Leverage ratio ...................................................... 43

Middle income trap ............................................... 8 Circular trading .................................................... 43

Base erosion and profit shifting ...........................10 Industry ...................................................................... 43

New angel tax rules..............................................10 National mineral policy 2019............................... 43

2 years of GST ......................................................11 National policy on electronics ............................. 44

Municipal bonds ..................................................13 Solar manufacturing ............................................ 45

Capital gains tax ...................................................14 Micro, small and medium enterprises................. 46

Restructuring of Indian statistical system............14 National investment and manufacturing zones .. 47

Overseas bonds....................................................15 Technical textiles ................................................. 48

Corporate bond market .......................................16 Financial inclusion...................................................... 48

Disinvestment ......................................................18 Universal basic income ....................................... 48

Strategic sale of PSU ............................................19 Circular economy ................................................. 49

State finances.......................................................20 Multidimensional poverty index ......................... 50

Slowdown in Indian economy ..............................21 Digital financial inclusion ..................................... 51

Stagflation in India ...............................................23 Agriculture and allied sectors .................................... 52

Decline in NPA......................................................28 Agricultural credit in India ................................... 59

50 years of bank nationalization ..........................30 Land pooling ........................................................ 61

Regulation of NBFC’s............................................31 Edible oils deficiency ........................................... 62

Urban cooperative banks .....................................33 Marine fisheries sector ........................................ 65

Bimal Jalan committee report .............................35 Service sector............................................................. 66

Bank merger.........................................................35 National policy on software products ................. 66

©AKS IAS www.aksias.com 8448449709 1

©AKS IAS www.aksias.com 8448449709 2

Prelims perspective Why the government debt needs to be controlled?

Government Debt • In the absence of fiscal consolidation, there is

©AKS IAS www.aksias.com 8448449709 3

©AKS IAS www.aksias.com 8448449709 4

©AKS IAS www.aksias.com 8448449709 5

GDP deflator: • It found that the average economic growth

©AKS IAS www.aksias.com 8448449709 6

©AKS IAS www.aksias.com 8448449709 7

• It is very clear that successful economic • Traditional exports cannot be as easily

Middle income trap • Skewed income distribution & stagnation in

Base erosion and profit shifting Mains perspective

Negative Effects What is GST?

• Rate rationalisation: In the beginning over

• Number of returns: When the GST was rolled

©AKS IAS www.aksias.com 8448449709 12

• Municipal bonds are bonds issued by urban

What are the risks? What are corporate bonds?

©AKS IAS www.aksias.com 8448449709 17

• Also, a Credit Guarantee Enhancement • Institutional Placement Program (IPP): only

• This is expected to improve transparency as • It will be done by bringing down government’s

• It will increase government’s focus on • Mere change of ownership from public to

©AKS IAS www.aksias.com 8448449709 19

©AKS IAS www.aksias.com 8448449709 20

Key Findings • States may have to take over higher losses

©AKS IAS www.aksias.com 8448449709 21

Mains perspective • Government need to follow a Keynesian

©AKS IAS www.aksias.com 8448449709 22

• Fast-tracking infrastructure investments • The term ‘stagflation’ was coined by Iain

©AKS IAS www.aksias.com 8448449709 23

Is India really facing stagflation? What is the legal mandate?

• However, it is still growing at 5%, and is • turnover of the company to be Rs 1000