Category: Economics

WTO panel rules against India

Why in News?

  • World Trade Organization (WTO) panel has ruled that India has violated global trading rules by imposing import duties on IT products, such as mobile phones and components, and integrated circuits.

What was the case?

  • The case involved a dispute over India’s introduction of import duties ranging from 7.5% to 20% on a wide range of IT products, including mobile phones, components, and integrated circuits.
  • The EU, Japan, and Taiwan challenged these import duties in 2019, arguing that they exceeded the maximum rate allowed under global trading rules.
  • The recent ruling by the WTO panel found that India had violated these rules and recommended that India bring its measures into conformity with its obligations.

WTO Panel’s Ruling:

  • The WTO panel has ruled that India violated global trading rules by imposing these import duties.
  • The panel recommended that India bring these measures into conformity with its obligations.
  • While the panel broadly backed the complaints against India, it rejected one of Japan’s claims that India’s customs notification lacked “predictability”.

Implications of the ruling:

  • The EU is India’s third-largest trading partner, accounting for 10.8% of total Indian trade in 2021, according to the European Commission.
  • The ruling could have implications for trade relations between India and the EU, as well as Japan and Taiwan.
  • India may be required to lower or eliminate the challenged import duties.
  • It remains to be seen whether India will appeal against the ruling.
  • If it does, the case will sit in legal purgatory since the WTO’s top appeals bench is no longer functioning due to US opposition to judge appointments.

About the World Trade Organization:

  • The WTO started functioning on 1 January 1995, but its trading system is half a century older. Since 1948, the General Agreement on Tariffs and Trade (GATT) had given the rules for the system. (The second WTO ministerial meeting, held in Geneva in May 1998, included a celebration of the 50th anniversary of the system.)
  • It did not take long for the General Agreement to give birth to an unofficial, extant international organization, also known informally as GATT.
  • Over the years, GATT evolved through several rounds of negotiations.
  • The General Agreement on Tariffs and Trade (GATT) had its last round in 1986 and it lasted till 1994.
  • This was known as the Uruguay Round and it led to the formulation of the World Trade Organization (WTO).
  • While GATT mostly dealt with trade in goods, the WTO and its agreements could not only cover goods but also trade in services and other intellectual properties like trade creations, designs, and inventions.
  • The WTO has 164 members and 23 observer governments. Afghanistan became the 164th member in July 2016. In addition to states, the European Union, and each EU country in its own right is a member.India is the original member of the World Trade Organization.

Purpose of WTO:

  • To establish rule of law in international trade.
  • To ensure free and fair trade.
  • To maintain transparency and predictability in international trade.
  • To contribute to the development of developing countries.

WTO and developing countries:

  • The WTO classifies nations into developed, developing, and least developed countries (LDCs).
  • The terms “developed” and “developing” countries are not defined by the WTO.
  • The members declare themselves whether their countries are “developed” or “developing.”
  • However, other members have the right to challenge the member’s choice to use a provision that is available to developing nations.
  • Like IMF and World Bank where a system of weighted voting exists, in WTO also each country has an equal vote. WTO agreements require consensus.
  • The Developing Country status comes with certain rights. The status ensures special and differentiating treatment (S&DT).

GI Tag for Cumbum Grapes

Why in News?

  • Tamil Nadu’s famous Cumbum Panneer Thratchai, also known as Cumbum grapes recently earned the Geographical Indication (GI) tag.

About the Cumbum grapes:

  • The Cumbum Valley located at the Western Ghats in Tamil Nadu is known as the ‘Grapes City of South India’ and cultivates the Panneer Thratchai.
  • This variety, also known as Muscat Hamburg, is popular for its quick growth and early maturity, ensuring that the crop is available in the market almost throughout the year.
  • The Panneer grapes were first introduced in Tamil Nadu by a French priest in 1832 and are rich in vitamins, tartaric acid and antioxidants and reduce the risk of some chronic diseases.
  • They are also known for a superior taste apart from the purplish brown-colour.

What is GI Tag?

  • A GI or Geographical Indication is a name or a sign given to certain products that relate to a specific geographical location or origins like a region, town or country.
  • Using Geographical Indications may be regarded as a certification that the particular product is produced as per traditional methods, has certain specific qualities, or has a particular reputation because of its geographical origin.
  • Geographical indications are typically used for wine and spirit drinks, foodstuffs, agricultural products, handicrafts, and industrial products.
  • GI Tag ensures that none other than those registered as authorized users are allowed to use the popular product name.
  • In order to function as a GI, a sign must identify a product as originating in a given place.

Who accords and regulates Geographical Indications?

  • Geographical Indications are covered as a component of intellectual property rights (IPRs) under the Paris Convention for the Protection of Industrial Property.
  • At the International level, GI is governed by the World Trade Organisation’s (WTO’s) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).
  • In India, Geographical Indications registration is administered by the Geographical Indications of Goods (Registration and Protection) Act, 1999 which came into force with effect from September 2003.
  • The first product in India to be accorded with GI tag was Darjeeling tea in the year 2004-05.

What are the Benefits of GI Tags?

  • The Geographical Indication registration confers the following benefits:
  • Legal protection to the products
  • Prevents unauthorised use of GI tag products by others
  • It helps consumers to get quality products of desired traits and is assured of authenticity.
  • Promotes the economic prosperity of producers of GI tag goods by enhancing their demand in national and international markets.

What are the Significances of GI Tags?

  • A geographical indication right facilitates those who have the right to use the indication to prohibit its usage by a third party whose product does not conform to the applicable standards.
  • For example, in the purview in which the Darjeeling geographical indication is protected, producers of Darjeeling tea can omit the term “Darjeeling” for tea not grown in their tea gardens or not produced according to the norms set out in the code of practice for the geographical indication.
  • However, a protected GI does not permit the holder to forbid someone from making a product using the same approaches as those set out in the standards for that indication.
  • Protection for a GI tag is usually procured by acquiring a right over the sign that constitutes the indication.

Challenges in GI Tags:

  • The special treatment to wines and spirits in TRIPS Agreement appears to be developed country centric.
  • Developing countries, including India, seek the same higher level of protection for all GIs as was given under TRIPS for wines and spirits.
  • The battle for GI tag between states.
  • False use of geographical indications by unauthorized parties is detrimental to consumers and legitimate producers.
  • Cheap Power loom saris are sold as reputed Banarsi handloom saris, harming both the producers and consumers.
  • Such unfair business practices result in loss of revenue for the genuine right-holders of the GI and also misleads consumers.
  • Protection of GI has, over the years, emerged as one of the most contentious IPR issues.

Way Forward:

  • The benefits of GI tag are realised only when these products are effectively marketed and protected against illegal copying.
  • Effective marketing and protection require quality assurance, brand creation, post-sale consumer feedback and support, prosecuting unauthorised copiers, etc.
  • For internationally recognised products like Darjeeling tea, international protection is of crucial importance.
  • Legal protection to GIs also extends to protection of traditional knowledge and traditional cultural expression contained in the products.
  • Hence Intellectual Property is a power tool for economic development and wealth creation particularly in the developing world.
  • GIs have the potential to be our growth engine. Policy-makers must pay a heed to this and give Indian GI products their true reward.

Competition (Amendment) Bill, 2022

Why in News?

  • President Droupadi Murmu has given assent to the bill to amend the competition law and the changes seek to ensure regulatory certainty and foster a trust-based business environment.

What is the Competition Act, 2002?

  • The Competition Act, 2002, regulates competition in the Indian market and prohibits anti-competitive practices such as cartels, abuse of dominant market position, and mergers and acquisitions that may have an adverse effect on competition. The Act has been amended by the Competition (Amendment) Act, 2007.
  • The Competition Commission of India (CCI) is responsible for implementing and enforcing the Act.
  • The Competition Appellate Tribunal is a statutory body created in accordance with the Competition Act, 2002 to hear and regulate on appeals against any rules made, decisions made, or orders made by the Competition Commission of India.
  • The government replaced the Competition Appellate Tribunal with the National Company Law Appellate Tribunal (NCLAT) in 2017.

What are the Amendments to the Competition Act Proposed?

Penalties for Competition Law Violations:

  • The Bill amends the definition of “turnover” to include global turnover derived from all products and services by a person or an enterprise.
  • The amendment allows for the imposition of penalties for competition law violations based on a company’s global turnover, rather than just its turnover in India.

Timelines for Approving Combinations:

  • The Bill reduces the time limit for the CCI to form a prima facie opinion on a combination from 30 working days to 30 days.
  • The change aims to speed up the process of approving mergers and acquisitions in India.

Review of Regulations:

  • The Bill seeks to amend the Competition Act, 2002, to regulate mergers and acquisitions based on the value of transactions. Deals with transaction value of more than Rs 2,000 crore will require CCI’s approval.
  • The Bill proposes to reduce the timeline for the CCI to pass an order on such transactions from 210 days to 150 days.
  • The Bill decriminalizes certain offences under the Act by changing the nature of punishment from imposition of fine to civil penalties.
  • These offences include failure to comply with orders of the CCI and directions of the Director General related to anti-competitive agreements and abuse of dominant position.

What are the Benefits of the Competition (Amendment) Bill?

  • Promoting Ease of Doing Business: The amendments to the Competition Act aim to reduce regulatory hurdles and promote ease of doing business in India. The amendments are expected to provide greater clarity to businesses operating in India and reduce the compliance burden for companies.
  • Enhancing Transparency: The inclusion of global turnover in the definition of “turnover” aims to enhance transparency and accountability in the Indian market. The amendment ensures that companies cannot escape penalties for competition law violations by shifting their revenue to other countries.

RBI’s Pause On Repo Rate Hike: Concerns Over Inflation And Global Pressures Remain

Why in News?

  • The RBI has decided to not increase the repo rate amid continuing hikes by important central banks such as the US Federal Reserve (Fed) and European Central Bank (ECB), and domestic inflation concerns. However, if incoming data point to rising inflation risks, this decision could prove to be only a pause in the rate hiking cycle.

The RBI’s decision to pause on rate hikes

  • The RBI feels that money market rates have effectively risen more than the 250-basis-point yank in the repo rate since May 2022, and hence it decided to pause and assess the impact of rate hikes.
  • The key reason behind the MPC decision is the expectation of a decline in inflation to 5.2% in the current fiscal, driven by a healthy rabi crop, normal monsoon, moderating international commodity prices, and the impact of rate hikes.The RBI acknowledges the upside risks and stated its readiness to fight any unexpected rise in inflation.

Impact on GDP growth:

  • The RBI expects GDP growth to slow to 6% from 7% this fiscal as slowing global growth, domestic interest rates, and messy geopolitics bite.
  • Slowing global growth will be net negative for India’s exports, and the growing dependence on commodity exports makes India more vulnerable to global growth volatility.
  • Fiscal 2024 will, therefore, test the resilience of India’s domestic demand amid rising interest rates.

Reasons for the expected cooling of consumer inflation:

  • Fuel inflation expected to reduce: Fuel inflation is expected to reduce to 3% from a high of over 10% in the current fiscal because some easing of crude oil prices is likely as global growth slows down.
  • Decline in core inflation: Slowing domestic growth will ease core inflation from very sticky levels of over 6% last fiscal to 5.5% in the current one. However, the decline in core inflation will be limited as input cost pressures have not dissipated. To protect their margins, firms will continue to pass on input costs to end-consumer. Services inflation will also continue to exert pressure as the rotation of consumption demand from goods to services continues.
  • Moderate food inflation: Food inflation, which has a high weightage in the Consumer Price Index and has driven headline inflation in the past, is projected to moderate to slightly below 5%, assuming a normal monsoon. However, food inflation has always been volatile and carries upside risks largely because of climate-related factors affecting agriculture output and prices.

How slowing global growth will have a negative impact on India’s exports?

  • The impact of the growth slowdown in the US and Europe is deeper than the recovery in China: The US and Europe have a combined GDP that is twice that of China. Therefore, the impact of the growth slowdown in the US and Europe will be deeper than the recovery in China. This will have a negative impact on India’s exports to the US and Europe.
  • India’s exports to the US and Europe are more than to China by a factor of six: India exports more to the US and Europe than to China by a factor of six. Therefore, the negative impact of the growth slowdown in the US and Europe will be felt more by India than by China.
  • India’s growing dependence on commodity exports makes it more vulnerable to global growth volatility: India’s exports of petroleum products and steel are growing, and this makes India more vulnerable to global growth volatility. As global growth slows down, demand for commodities is likely to decline, which will have a negative impact on India’s exports.

External vulnerabilities

  • India’s external vulnerability is expected to decline with a narrower current account deficit (CAD) and modest short-term external debt.
  • The CAD is expected to narrow to 2% of GDP this fiscal from an estimated 2.5% last fiscal.

Conclusion:

  • The RBI’s decision to pause on rate hikes is driven by expectations of a decline in inflation. However, inflation risks remain, and the impact of rate hikes on GDP growth is expected to be significant. India’s external vulnerabilities are expected to decline, but the banking turmoil playing out amid interest rate hikes by important central banks and elevated debt levels remains a risk. The RBI’s decision to pause on rate hikes will be closely watched, and further rate hikes may be necessary if inflation risks persist.

The NPCI’s new circular on levy charges

Why in News?

  • The National Payments Corporation of India (NPCI), which governs the Unified Payment Interface (UPI), directed the banks that they can now levy charges on merchant transactions made via Prepaid Instrument wallets using UPI.
  • As these directions by NPCI got leaked to the media, the NPCI clarified that the usual bank-to-bank UPI transactions would not be charged and that customers will not have to pay for transactions made via Prepaid Payment Instruments (PPI) on UPI.
  • NPCI clarified that the new interchange charges are only applicable for PPI merchant transactions.

Prepaid Payment Instruments (PPIs)

  • Prepaid Payment Instruments (PPIs) are a type of payment method that is used to purchase various goods and services as well as send or receive money by using the stored value in the wallet.
  • Under the PPI mode of transaction, the users must pre-load the digital wallet with a desired amount by using cash, or debit to a bank account, by credit/debit cards, or UPI.
  • PPIs can be in the form of mobile wallets, vouchers, secure tokens, physical smart cards, or any other form that allows access to prepaid funds.
  • The most prevalent form of PPI used in India at present is the mobile wallet.
  • It is to be noted that PPIs can only be used in Indian rupees.

PPI interoperability

  • Earlier, in order to use PPI at any merchant, it was mandatory for the respective merchant to be engaged directly by the specific PPI issuer (specific network).
  • The PPIs with which the merchant did not have a direct tie-up used to get rejected.
  • This provision restricted the customers of one specific mobile wallet to use the money in the wallet only at those merchant locations which had a direct tie-up with the same PPI wallet provider.
  • e. if a customer had a Paytm wallet, he/she could only use the money in the wallet for making payments to those merchants who accepted Paytm QR codes.
  • The RBI has now mandated interoperability among different PPI wallet providers to address the issues associated with this limitation of PPIs.
  • The PPI issuers have now tied up with NPCI for issuing interoperable RuPay PPI cards and for developing interoperable wallets on UPI rails.
  • PPIs in the form of mobile wallets can now be linked to UPI which creates interoperable wallets on UPI rails.

The working of PPI interoperability through UPI

  • Linking one’s PPI wallet to UPI would enable individuals to transact using the Scan and Pay option on all UPI interoperable QR codes and facilitate the use of PPI wallets at all merchant locations.
  • With the help of PPI interoperability, individuals can also send or receive money to any other wallet user.
  • Likewise, a merchant with any UPI QR code would be able to accept payments from any PPI issuer or mobile wallet.
  • PPI on UPI is expected to increase the incidence of merchant transactions in rural areas and enhance digital financial inclusion by catering to services such as healthcare, education, utility bills, transit, etc.

Charges associated with wallet transactions on UPI

  • The PPI-enabled merchants were already paying charges to the PPI issuer for the acceptance of mobile wallets or prepaid cards.
  • With the latest changes, the charges are now aligned at a network level with some standardisation.
  • From April 1, 2023, an interchange fee of up to 1.1% would be levied on transactions made using PPIs such as gift cards, wallets, etc. for transactions on UPI.
  • However, the charges are applicable if the transaction is more than ₹2,000.
  • Further, it is clarified no charges are applicable if the merchant is accepting UPI payments from a customer’s bank account as the charges are only applicable if the merchant accepts transactions made using PPI wallet.
  • Officially there are no charges to be paid by the customers. However, merchants could pass on the burden to customers in the form of price increases or other such means.

Foreign Trade Policy 2023: India Needs To Adopt 21st-century Trade Policy Instruments

Why in News?

  • The Foreign Trade Policy 2023 (FTP 2023) has been recently introduced, but it falls short of addressing the challenges that Indian exporters are likely to face in the global market. India needs to adopt 21st-century trade policy instruments such as product and process standards to improve the quality and efficiency of products.

Foreign Trade Policy, 2023:

  • The policy is dynamic and open-ended to accommodate the emerging needs of the time.
  • It aims to promote India’s overall exports, which has already crossed US$ 750 Billion.
  • The key approach to the policy is based on these 4 pillars:
  • Incentive to Remission,
  • Export promotion through collaboration – Exporters, States, Districts, Indian Missions,
  • Ease of doing business, reduction in transaction cost and e-initiatives and
  • Emerging Areas – E-Commerce Developing Districts as Export Hubs and streamlining SCOMET (Special Chemicals, Organisms, Materials, Equipment, and Technologies) Policy

FTP 2023’s inadequate focus on 21st-century trade policy instruments

  • 20th-century mindset: The FTP 2023’s primary focus is on regulating, prohibiting, and restricting trade, which is a 20th-century mindset. In contrast, most countries today rely on improving product quality and production efficiencies by rapidly infusing technology to expand their presence in global markets.
  • Focus on upgrading the current standards: India needs to focus on upgrading institutions, production facilities, and promoting the development and facilitation of trade to meet the current standards.

Rejigging of export promotion schemes:

  • Export promotion schemes: Export promotion schemes were modified after a WTO dispute settlement panel ruled against India in 2019, which found that these schemes provide export subsidies that are not allowed under WTO rules.
  • Remission of Duties: The Remission of Duties or Taxes on Export Products (RoDTEP) Scheme was launched in 2021 to neutralize the effect of taxes and duties included in exported goods. The Rajya Sabha’s Standing Committee on Commerce found several weaknesses in the scheme, and FTP 2023 should have responded to the recommendations.

Developing districts as export hubs

  • FTP 2023 introduces the novel idea of developing districts as export hubs, which could help achieve the objective of balanced regional development.
  • However, the policy only speaks of setting up export promotion committees at the district and state/UT levels, with no mention of supporting efficient infrastructure.

E-commerce and India’s readiness to engage in the WTO:

  • E-commerce is a focus area of FTP 2023, but India has opposed discussions on extending the rules of the WTO in this area.
  • Moreover, advanced countries have been seeking data portability, which India has refused to accept.
  • It remains unclear whether the mention of e-commerce in FTP 2023 implies that India is ready to engage in the WTO on this matter.

Conclusion:

  • FTP 2023 falls short of addressing the challenges that Indian exporters are likely to face in the global market.
  • It needs to focus on upgrading institutions, production facilities, and promoting the development and facilitation of trade, which requires the Directorate General of Foreign Trade (DGFT) to coordinate with all the standard-setting agencies of the government and relevant institutions in the private sector.
  • Developing districts as export hubs could help achieve the objective of balanced regional development, but supporting efficient infrastructure is critical for the programme’s success.

In controlled digital lending, the issue of public interest

Why in News?

  • There was a legal tussle in the United States regarding the development of a globally accessible digital library.

Highlights:

  • The four major publishers in the USA and Internet Archive (IA), a non-profit organization that is building a globally accessible digital library are engaged in a legal tussle.
  • The incident has once again brought to the fore the issue of copyright law and technological advancements.
  • It raises the question of “Whether copyright law should protect the public interests or the commercial interests of the copyright holders?”

Internet Archive:

  • It is an American digital library to access information, especially for persons with disabilities.
  • It is also a non-profit organization that advocates free and open Internet.
  • It has archived approximately 735 billion web pages, 41 million books and texts, 14.7 million audio recordings, 8.4 million videos, 4.4 million images, and around 890000 software programs.

Legal Dispute:

  • It has been alleged by the publishers that nearly 3.6 million books made available by the IA for borrowing are copyrighted.
  • It is argued by the publishers that IA violated the rights provided under copyright law for 127 titles published by them.
  • The publishers are especially concerned about the ‘National Emergency Library’, which was established at the peak of the Covid-19 pandemic.
  • However, IA rebutted by highlighting that books under copyright protection are lent to the users in a regulated manner through ‘Controlled Digital Lending’ (CDL).
  • IA also highlighted that through the CDL route, the sales of print and electronic copies from the publisher’s preferred platforms were not hampered.
  • The district court for the Southern District of New York ruled that the activities of IA have violated several rights of publishers under copyright law.
  • Furthermore, they do not constitute ‘fair use’ under the same law.
  • The court concluded that the benefits provided by IA “cannot outweigh the market harm to the publishers.”
  • It is argued that the court ignored the judgment of the U.S. Supreme Court in the Google LLC vs Oracle America, Inc. case (2021).
  • It was directed that it is important to consider the public benefits of copying while analyzing potential financial losses for copyright holders.

Controlled Digital Lending:

  • Under Controlled Digital Lending (CDL), IA avails one digital copy of each non-circulating print book it has stored. It then lends it like the physical library (i.e. lending one owned copy to one person at a time).
  • Moreover, it counts one copy per library (from libraries participating in the digitization process), irrespective of the number of physical copies.
  • It is found that lending books from libraries physically is on the decline. This was further hampered by the pandemic.
  • However, it should be noted that the number of readers has not gone down, instead, they prefer reading on tablets and mobile phones.

CDL has various advantages:

  • It bridges the gap between privileged and unprivileged readers and urban and rural readers.
  • It increases the accessibility of books, even to the remotest locations.
  • They also provide books that have gone out of print.
  • It invokes benefits for education, research, and cultural participation.

India’s Scenario:

  • Currently, India has no major CDL initiative. However, it is speculated that there can be CDL in the future as digitization projects in India have also begun (for example, the NLSIU initiative).

Conclusion:

  • The case can have serious implications in other countries also.
  • It is said that even the current lending process can be threatened if economic interests are prioritized over the public interest.
  • It should be realized that the copyright system should not only protect the rights of copyright holders but also the interests of the users of copyrighted works.

NCLAT upholds penalty on Google

Why in News?

  • The National Company Law Appellate Tribunal (NCLAT) has recently upheld the ₹1,337 crore fine imposed on Google by the Competition Commission of India (CCI).
  • While holding that the CCI investigation did not violate principles of natural justice, the tribunal set aside certain directions issued by the CCI.

About the News:

  • The court quashed the directions relating to the non-monetary directives that would have forced the tech giant to allow uninstalling of Google’s pre-installed apps on Android devices.
  • The Tribunal also set aside directives that would have forced the company to allow developers of app stores to distribute their app store through Google Play Store.
  • Additionally, the Tribunal also set aside orders directing Google to allow app developers to distribute apps through side-loading, and not deny access to its play services Application Programming Interface (APIs) to disadvantage Original Equipment Manufacturers, app developers, and its existing or potential competitors.

What’s the issue?

  • CCI found that Google was dominant in the relevant market for licensable smart TV device operating systems in India.
  • It also said that prima facie mandatory pre-installation of all the Google applications under Television App Distribution Agreement (TADA) amounts to imposition of unfair conditions on the smart TV device manufacturers.
  • This is in contravention of Section 4(2)(a) of the Competition Act.
  • So, CCI imposed a penalty on Google for “abusing its dominant position” in markets related to the Android mobile device ecosystem. Google filed an appeal with the NCLAT against the CCI order which was declined by NCLAT.
  • Section 4 of the Act pertains to abuse of dominant position.

About Competition Commission Of India:

  • The Competition Commission of India (CCI) was established under the Competition Act, 2002 for the administration, implementation and enforcement of the Act, and was duly constituted in March 2009. Chairman and members are appointed by the central government.

Functions of the commission:

  • It is the duty of the Commission to eliminate practices having adverse effect on competition, promote and sustain competition, protect the interests of consumers and ensure freedom of trade in the markets of India.
  • The Commission is also required to give opinion on competition issues on a reference received from a statutory authority established under any law and to undertake competition advocacy, create public awareness and impart training on competition issues.

About the Competition Act:

  • The Monopolies and Restrictive Trade Practices Act, 1969 (MRTP Act) was repealed and replaced by the Competition Act, 2002, on the recommendations of Raghavan committee.
  • The Competition Act, 2002, as amended by the Competition (Amendment) Act, 2007, prohibits anti-competitive agreements, abuse of dominant position by enterprises and regulates combinations (acquisition, acquiring of control and M&A), which causes or likely to cause an appreciable adverse effect on competition within India.

 

Why did India reject J&J’s patent on TB drug?

Why in News?

  • An application by Johnson & Johnson (J&J) to extend its patent on the drug Bedaquiline beyond July 2023 was rejected by the Indian Patent office.
  • Bedaquiline is used to treat drug-resistant TB.
  • This would allow drug manufacturers to produce generic versions of Bedaquiline and make it more affordable.
  • It would help in achieving India’s goal of eliminating TB by 2025.

Drug-resistant TB and its treatment:

  • India accounts for almost one-fourth of the world’s burden of multi-drug-resistant (MDR) TB and extensively-drug-resistant (XDR) TB (as per 2017 findings).
  • MDR TB resists treatment by at least two frontline drugs namely isoniazid and rifampicin.
  • XDR TB resists treatment by isoniazid, rifampicin, fluoroquinolones, and any second-line injectable drug. There were approximately 2650 cases of XDR TB in 2017.
  • It was found that in 2021, there were about 124000 cases of MDR TB in India.
  • Despite the reduction of TB incidence in India, MDR and XDR TB endanger the efforts to locally eradicate the disease.
  • Moreover, the COVID-19 pandemic has severely affected the treatment of the disease for two years due to supply chain disruption, inaccessibility of drugs, and shortage of healthcare workers.
  • TB can be treated by strictly adhering to the drug doses. Deviation from the drug schedule might result in making the bacteria drug-resistant.
  • A drug-resistant TB is harder to treat. The World Health Organization, in 2018, replaced two injectable drugs for MDR TB with an oral regimen comprising Bedaquiline.

BEDAQUILINE:

  • It should be noted that second-line treatment options are mostly injected and can have severe side effects such as hearing loss. Bedaquiline is available in tablet form and is less harmful.However, it was found that it might have an impact on the heart and liver and thus it is recommended as a treatment of last resort.
  • As per the guidelines prescribed by the Ministry of Health and Family Welfare, Bedaquiline should be used as part of the Programmatic Management of MDR TB under the National TB Elimination Programme.

Details about the rejection of patent treatment:

  • The patent application of J&J was for a fumarate salt of a compound to produce Bedaquiline tablets.
  • The application was opposed on the ground as the method used to produce a “solid pharmaceutical composition” of Bedaquiline is “obvious” and does not require an “inventive step”.
  • The Indian Patent Act 1970 Section 2(1)(ja) describes an ‘inventive step’ to be an invention that is “not obvious to a person skilled in the art”.
  • It was also argued that the current application was significantly based on the previous patent(WO 2004/011436). It is similar to the compound discussed in 2002.
  • The opposing groups also highlighted the act of ‘evergreening’, which is disallowed in India.Evergreening is a method in which patent-owner continuously extends their rights and/or apply multiple patents for the same product.
  • The Patent Office rejected the application on these grounds. It also referred to Sections 3d and 3e of the Act. Check inpatient alcohol rehab.

Consequences of the rejection of patent application:

  • J&J’s patent on Bedaquiline resulted in the cost of the drug being $400 per person.
  • The rejection of the application will reduce the cost of the drug by 80%.
  • After July 2023, other manufacturers of generic drugs can produce generic versions of Bedaquiline.

India’s Foreign Trade Policy set to be revised from April 1

Why in News?

  • The revision of India’s Foreign Trade Policy, which has been unchanged since 2015 and due for three years, may finally be announced by the end of this month.

 What is a Foreign Trade Policy?

  • India’s Foreign Trade Policy (FTP) is a set of guidelines for goods and services imported and exported.
  • These are developed by the Directorate General of Foreign Trade (DGFT), the Ministry of Commerce and Industry’s regulating body for the promotion and facilitation of exports and imports.
  • FTPs are enforceable under the Foreign Trade Development and Regulation Act 1992.

What is India’s Foreign Trade Policy?

  • In line with the ‘Make in India,’ ‘Digital India,’ ‘Skill India,’ ‘Startup India,’ and ‘Ease of Doing Business initiatives, the Foreign Trade Policy (2015-20) was launched on April 1, 2015.
  • It provides a framework for increasing exports of goods and services, creating jobs, and increasing value addition in the country.
  • The FTP statement outlines the market and product strategy as well as the steps needed to promote trade, expand infrastructure, and improve the entire trade ecosystem.
  • It aims to help India respond to external problems while staying on top of fast-changing international trading infrastructure and to make trade a major contributor to the country’s economic growth and development.

Issues with FTP (2015-2020)

  • Acting on Washington’s protest, a WTO dispute settlement panel ruled in 2019 that India’s export subsidy measures are in violation of WTO norms and must be repealed.
  • Tax incentives under the popular Merchandise Exports from India Scheme (MEIS) (now renamed as RODTEP Scheme)and Service Exports from India Scheme (SEIS) programmes were among them.
  • The panel found that because India’s per capita gross national product exceeds $1,000 per year, it may no longer grant subsidies based on export performance.

Why such a delay in Foreign Trade Policy?

  • Geopolitical uncertainty: The geo-political situation is not suitable for long-term foreign trade policy, said Union Commerce Minister.
  • Global recession: Currently, fears of a recession in major economies like the US and Europe have escalated a panic among investors.
  • Decline in USD inflows: Foreign investors have begun to pull back their money from equities.
  • Rupee depreciation: The US Dollar is at a 22-year high, while the Rupee hit a new all-time low of $81.6.
  • Huge trade deficit: The trade deficit widened by more than 2-folds to $125.22 billion (April – August 2022) compared to $53.78 billion in the same period last year.

Explained: Silicon Valley Bank (SVB) Crisis

Why in News?

  • The shutdown and takeover of Silicon Valley Bank (SVB) by US regulators has raised questions on how it impacts India’s startup industry. It was an important partner for the global startup economy.

Silicon Valley Bank (SVB):

  • It is a financial institution that provides banking services to the technology industry and venture capital firms.
  • Founded in 1983, it has since become the go-to bank for startups and entrepreneurs in Silicon Valley and beyond.
  • It is unique in that it understands the specific needs and challenges of the tech industry, and provides a range of services that cater to startups, including loans, deposits, and investment management.
  • It has become a critical player in the startup ecosystem, providing funding and financial services to many of the world’s most successful startups, including Tesla, Uber, and LinkedIn.

What is SVB crisis?

  • SVB Financial Group runs one of the largest American commercial banks – Silicon Valley Bank.
  • Last week, it had announced a $1.75 billion share sale programme to further strengthen its balance sheet.
  • This programme triggered a massive sell-off in the group’s shares.
  • Thereafter, market went severely bearish and bear rampage wiped out over $80 billion of its market value.
  • Alongside, the bond prices of the group collapsed and created a panic in the market.

Reasons for SVB’s downfall

  • Downturn of tech stocks: The bank was hit hard by the downturn in technology stocks over the past year as well as the Federal Reserve’s aggressive plan to increase interest rates to combat inflation.
  • Lower bond yield due to lower interest rates: SVB bought billions of dollars’ worth of bonds over the past couple of years, using customers’ deposits as a typical bank would normally operate.
  • Mostly startups account holders: SVB’s customers were largely startups and other tech-centric companies that started becoming needier for cash over the past year.
  • Drying VC funding: Venture capital funding was drying up, companies were not able to get additional rounds of funding for unprofitable businesses.
  • Fear over deposit insurance: Since its customers were largely businesses and the wealthy, they likely were more fearful of a bank failure since their deposits were over $250,000, which is the government-imposed limit on deposit insurance.

Immediate effects of SVB’s failure:

  • Startups scramble: Many startups and other companies that relied on the bank’s services were suddenly left without access to their funds, which caused financial strain and uncertainty for these businesses.
  • Ripple effect: They now fear that they might have to pause projects or lay off or furlough employees until they could access their funds.

Major implications for SVB:

  • There are two large problems remaining with Silicon Valley Bank-
  • Huge uninsured deposits: The vast majority of these were uninsured due to it’s largely startup and wealthy customer base.
  • No scope for asset reconstruction: There is no potential buyer of Silicon Valley Bank.

Could this lead to a repeat of what happened in 2008?

  • No probability: At the moment, experts do not expect any issues to spread to the broader banking sector.
  • Diversified customer bases: Other banks are far more diversified across multiple industries, customer bases and geographies.

Impact on Indian startups:

  • Uncertainty over deposits: The failure of SVB is likely to have a ripple effect on Indian startups, many of which have significant amounts of funds deposited with the bank.
  • Hamper the funding: SVB has been a major player in the Indian startup ecosystem, providing banking services and funding to many of the country’s most successful startups, including Flipkart, Ola, and Zomato.
  • Ripple effect: This could lead to a cash crunch for many companies, which may be forced to cut costs, delay projects, or lay off employees.
  • Reduce global footprints: SVB has also been instrumental in helping Indian startups expand into the US market, by providing them with the necessary infrastructure and support to set up operations in Silicon Valley.

How can Indian startups mitigate the impact of SVB’s failure?

Diversify banking relations: Indian startups that have funds deposited with SVB may want to consider diversifying their banking relationships to reduce their exposure to any one bank.

  • Alternative financing: This may involve opening accounts with multiple banks, or exploring alternative banking services such as digital banks or fintech startups.

2008 Financial Crisis:

  • The bankruptcy of Lehman Brothers was a key event in the 2008 financial crisis.Lehman Brothers was one of the largest investment banks in the world, with assets of around $600 billion.  However, the firm had invested heavily in the US housing market, and when the housing market began to decline in 2007, Lehman’s investments began to lose value.
  • In addition, the firm had taken on a large amount of debt to finance its investments and operations.As the value of Lehman’s assets declined and its debt levels increased, the firm became insolvent and was unable to meet its obligations to creditors.In September 2008, Lehman Brothers filed for bankruptcy, triggering a financial panic and market turmoil.

Its impact:

  • The Lehman crisis had far-reaching consequences, including the collapse of other financial institutions, a global recession, and widespread economic and social hardship.The crisis highlighted the risks of excessive leverage and the interconnectedness of financial institutions, and led to significant reforms in financial regulation and risk management practices.

Failure of Silicon Valley Bank

Why in News?

  • On March 10,2023, Silicon Valley Bank became the largest bank to fail since the 2008 financial crisis.
  • The California Department of Financial Protection and Innovation shut down Silicon Valley Bank.
  • The move put nearly $175 billion in customer deposits under the control of the Federal Deposit Insurance Corp (FDIC).
  • The FDIC created a new bank to hold the deposits and other assets of the failed one.

Reasons behind Bank’s Failure:

  • SVB’s downfall can be attributed to a bank run, which is when a large number of depositors withdraw their funds from a bank all at once, typically due to fears of the bank’s insolvency.
  • In SVB’s case, the bank was largely affected by the downturn in technology stocks over the past year as well as the Federal Reserve’s aggressive plan to increase interest rates to combat inflation.
  • SVB bought billions of dollars’ worth of bonds over the past couple of years, using customers’ deposits.
  • The value of those investments fell because they paid lower interest rates than what a comparable bond would pay if issued in today’s higher interest rate environment.
  • SVB’s customers were largely startups and other tech-centric companies that started becoming more needy for cash over the past year. Venture capital funding was drying up, companies were not able to get additional rounds of funding for unprofitable businesses who then began to withdraw their money.
  • To pay those requests, Silicon Valley Bank was forced to sell off some of its investments at a time when their value had declined.
  • To fund the redemptions, Silicon Valley Bank on March 08,2023 sold a $21 billion bond portfolio consisting mostly of U.S. Treasuries.
  • SVB’s decision to sell $2.25 billion in common equity and preferred convertible stock to fill its funding resulted in decline of share price by 60%, as investors believed that the deposit withdrawals may push it to raise even more capital.
  • Several SVB clients pulled their money from the bank which spooked investors such as that SVB had lined up for the stock sale, and the capital raising effort collapsed resulting in the failure of the bank.

Effects of Silicon Valley Bank’s failure on India:

  • SVB has been a major player in the Indian startup ecosystem, providing banking services and funding to many of the country’s most successful startups, including Flipkart, Ola, and Zomato.The closure has sent shock waves in the Indian startups’ sector, which was already facing a funding problem.
  • It will also dent the fundraising ability of Indian startups as the US-based bank was a key source of funding for tech startups.
  • This could lead to a cash crunch for many companies, which may be forced to cut costs, delay projects, or lay off employees.SVB has also been instrumental in helping Indian startups expand into the US market, by providing them with the necessary infrastructure and support to set up operations in Silicon Valley.

Second leg of Budget Session

Why in News?

  • The second leg of the Budget session will commence on March 13, 2023 with the government asserting that its priority is to pass the Finance Bill.

What is Budget?

  • Annual Financial Statement is a documents presented to the Parliament in every financial year as a part of the Budget Process under Article 112 of the constitution of India.
  • This document comprises the receipts and expenditures of the government of current year, previous year and budget year in three separate parts viz.
  • Consolidated Fund of India, Contingency Fund of India and Public Account of India. The government has to present a statement of receipts and expenditure for each of these funds.
  • Capital receipt comprises of loans raised by the Government, borrowing from the Reserve Bank of India and loans taken from foreign Governments/institutions.
  • It also embraces recoveries of loans advanced by the Government and sale proceeds of government assets, including those realized from divestment of Government equity in PSUs.

Difference between Annual Financial Statement and Budget:

  • The term budget is used for several documents together including the Annual Financial Statement. The other documents in budget include Demands for Grants (DG); Appropriation Bill; Finance Bill; Memorandum Explaining the Provisions in the Finance Bill; Macro-Economic Framework Statement; Fiscal Policy Strategy Statement; Medium Term Fiscal Policy Statement; Medium Term Expenditure Framework Statement etc.
  • However, Annual Financial Statement distinguishes the expenditure on revenue account from the expenditure on other accounts, as is mandated in the Constitution of India. The Revenue and the Capital sections together, therefore make the Union Budget and that is why, Annual Financial Statements is essentially the Budget of the Government.

Budget Pre Independence:

  • Budget was introduced on 7 April 1860 by the East India Company to the British Crown. It was presented by a Scottish Economist and politician James Wilson.
  • For the first 30 years, the Budget didn’t have the word infrastructure. It was introduced in the Budget in the 1900s.

Budget Post Independence:

  • First Union Budget of Independent India: It was introduced on 26 November 1947. It was present by the first Finance Minister R.K. Shanmukham Chetty. However, it was a review of the Indian economy and no new taxes were proposed. It is to be noted that almost 46% of the Budget or Rs. 92.74 crores were allocated for defence services department.
  • Printing of Budget: The Budget was leaked in 1950, following which the government shifted the printing of budget from Rashtrapati Bhawan to a press at Minto Road. In 1980, it was shifted to a government press in North Block.
  • Introduction of Hindi: Till 1955, the Budget was presented only in the English language. However, from 1955-56, the Budget documents are printed both in English and Hindi.
  • First Prime Minister to present the Union Budget: Former Prime Minister Jawaharlal Nehru was the first PM to present the Union Budget for the FY 1958-1959. The Union Budget is usually presented by the Finance Minister. Other than Jawaharlal Nehru, Indira Gandhi and Rajiv Gandhi were the only Prime Ministers to have presented the Budget in their respective administration.
  • First Woman to present the Union Budget: Former Prime Minister Indira Gandhi was the first woman to present the Union Budget for the FY 1970-71. On 5 July 2019, Finance Minister Nirmala Sitharaman became the first full-time woman Finance Minister on India.
  • Maximum Union Budgets by a Minister: Former Finance Minister Moraji Desai presented the Union Budget a record 10 times, followed by former FM P. Chidambaram (9), former FM Pranab Mukherjee (8), former FM Yashwant Sinha (8), and former FM Manmohan Singh (6)
  • Black Budget: For the FY 1973-74, the Budget was presented by the then Finance Minister Yashwantrao B. Chavan and is called as ‘Black Budget’ due to high budget deficit of Rs 550 crores– the maximum until that time. The Budget followed the Indo-Pak war of 1971 and failed the monsoon season.
  • The Epochal Budget: The Budget presented by the then Finance Minister Manmohan Singh for the FY 1991-92 is known as ‘The Epochal Budget’– a budget that changed India forever as it marked the economic liberalisation of the nation.
  • Dream Budget: The Budget presented by the then Finance Minister P. Chidambaram for the FY 1997-98 is known as ‘Dream Budget’ as it proposed to lower the tax slabs of personal and corporate taxes.
  • The Millennium Budget: The Budget presented by the then Finance Minister Yashwant Sinha for the FY 2000-01 is known as ‘The Millennium Budget’– revolutionised India’s IT sector.
  • Change in time: In the year 2001, Finance Minister Yashwant Sinha changed the time for the presentation of Union Budget from 5 p.m. to 11 a.m. on the last working day of February.
  • Merging of Budgets and Change in date: In the year 2017, the Rail Budget was merged with the Union Budget. Also, since the said year, the Budget has been presented on 1 February following the changes introduced by the then Finance Minister Arun Jaitley.
  • Gift Tax: Former Prime Minister Jawaharlal Nehru introduced the Gift Tax in the FY 1958-1959 Budget to make tax evasion more difficult.
  • Goods and Services Tax: On 28 February 2006, Goods and Services Tax was introduced by the then Finance Minister P. Chidambaram in the Budget.
  • Longest Budget speech: Former Finance Minister Arun Jaitley holds the record for delivering the longest Budget speech in 2014– 2.5 hours.
  • Bahi Khata instead of a briefcase: In the year 2019, Finance Minister Nirmala Sitharaman replaced the standard Budget briefcase with the traditional ‘Bahi Khata’ with the National Emblem.
  • Paperless Budget: For the first time in Independent India’s history, the Budget for the FY 2021-22 wass paperless.

Budgeting process in India:

  • The procedure for presentation of the Budget in and its passing by Lok Sabha is as laid down in articles 112—117 of the Constitution of India, Rules 204—221 and 331-E of the Rules of Procedure and Conduct of Business in Lok Sabha and Direction 19-B of Directions by the Speaker.
  • The Budget goes through six stages:
  • Presentation of Budget.
  • General discussion.
  • Scrutiny by Departmental Committees.
  • Voting on Demands for Grants.
  • Passing of Appropriation Bill.
  • Passing of Finance Bill.

Presentation:

  • The Budget is presented to Lok Sabha on such day as the President may direct.
  • Immediately after the presentation of the Budget, the following three statements under the Fiscal Responsibility and Budget Management Act, 2003 are also laid on the Table of Lok Sabha:
  • The Medium-Term Fiscal Policy Statement;
  • The Fiscal Policy Strategy Statement; and
  • The Macro Economic Framework Statement.

India close to Hindu Rate of Growth: Raghuram Rajan

Why in News?

  • Former RBI Governor Raghuram Rajan has warned that India is “dangerously close to the Hindu rate of growth”.

What is Hindu Rate of Growth?

  • The “Hindu Rate of Growth” is a term used to describe the slow growth rate of the Indian economy between the 1950s and the 1980s.
  • It was coined by the Indian economist Raj Krishna in the 1970s.
  • During this period, the Indian economy grew at an average rate of around 3.5% per year, which was much lower than other developing countries like South Korea, Taiwan, and Hong Kong.
  • The term is considered controversial as it suggests that the slow growth rate was a result of cultural or religious factors rather than economic policies and structural issues.
  • However, the term is still used in academic and policy discussions to refer to the slow growth of the Indian economy during this period.

Features of Hindu Rate of Growth:

  • The then features which led to the coining of this term were-
  • Low GDP growth rate: The term refers to the period from the 1950s to the 1980s when India’s economy grew at an average rate of around 3.5% per year, which was much lower than other developing countries.
  • Slow Industrialization: The industrial sector was dominated by a few public sector companies, and the private sector was heavily regulated.
  • Stagnant Agriculture: There was little investment in agriculture, and the sector was not given much priority in government policies.
  • License Raj: India had a socialist economic model with heavy government regulation. The License Raj system required permits and licenses for businesses, creating a bureaucratic and corrupt system that hindered innovation and entrepreneurship.
  • Import Substitution: India followed a policy of import substitution, where the government tried to develop domestic industries by protecting them from foreign competition.
  • This led to a lack of competition, low quality of products, and high prices.
  • Inefficient Public Sector: The public sector dominated the economy, but it was inefficient, unproductive, and plagued by corruption. Public sector companies were often overstaffed and poorly managed, resulting in low productivity.
  • Lack of Foreign Investment: India was not attractive to foreign investors during this period, and there was little foreign investment in the economy. The government imposed strict controls on foreign investment, and the regulatory environment was not conducive to foreign investment.

Concerns flagged by Rajan:

  • Rajan noted that India’s economic growth rate had been declining even before the COVID-19 pandemic hit the country.

(a) Decline in GDP growth rate

  • India’s economic growth rate had fallen to 4.5% in the September quarter of 2019, before the pandemic hit in early 2020.During the pandemic, the Indian economy contracted sharply, with GDP falling by 7.7% in the 2020-21 fiscal year.
  • The economy has rebounded somewhat, with the IMF forecasting GDP growth of 9.5% for the current fiscal year.

(b) Lower growth potential than hyped

  • However, Rajan noted that India’s potential growth rate is likely to be lower than in the past, due to factors such as an aging population, a decline in the working-age population, and sluggish investment.
  • He also cited the country’s poor performance on human development indicators, such as education and health, as a constraint on growth.

Key suggestions:

  • Rajan called for measures to address the structural factors that are holding back growth, such as investment in infrastructure and education, and improving the ease of doing business in India.
  • He also emphasized the importance of macroeconomic stability and maintaining fiscal discipline, to avoid inflation and currency depreciation.
  • He also called for measures to address inequality, such as better targeting of subsidies to those who need them most.

Conclusion:

  • Overall, Rajan’s remarks suggest that India faces significant challenges in maintaining high levels of economic growth, and that structural reforms will be needed to address these challenges.

SDGs: India’s Progress Analysis

Why in News?

  • A recent analysis published in The Lancet has concluded that India is not on-target to achieve 19 of the 33 Sustainable Development Goals (SDGs) indicators. The critical off-target indicators include access to basic services, wasting and overweight children, anaemia, child marriage, partner violence, tobacco use, and modern contraceptive use.

Analysis:

  • On-Target: Districts that have not met the SDG target by 2021 and have observed a magnitude of improvement between 2016 and 2021 sufficient to meet the target by 2030.
  • Off-Target: Districts that have not met the SDG target by 2021 and either observed worsening between 2016 and 2021 or observed an insufficient magnitude of improvement between 2016 and 2021. If these districts continue with either of these trends, they will not meet their targets by 2030.
  • Progress in: Indicators shows the progress in reducing adolescent pregnancy, tobacco use in women, multidimensional poverty, teenage sexual violence, and improving electricity access.
  • Areas where more efforts are needed: More efforts are needed for reducing anaemia in women, improving access to basic services, providing health insurance for women, and reducing anaemia in pregnant women.

Sustainable Development Goals (SDGs)

  • The SDGs, otherwise known as the Global Goals, are a universal call to action to end poverty, protect the planet and ensure that all people enjoy peace and prosperity.
  • The SDGs were adopted by the United Nations in 2015 with a vision to achieve a better and more sustainable future for all. The 17 SDGs came into force with effect from 1st January 2016 as a part of 2030 Agenda for Sustainable Development.
  • India is one of the signatory countries that has committed to achieving these goals by 2030.
  • Though not legally binding, the SDGs have become de facto international obligations and have the potential to reorient domestic spending priorities of the countries during the next fifteen years.
  • Countries are expected to take ownership and establish a national framework for achieving these goals.

Targets set for each of the SDGs:

  • No Poverty: By 2030, eradicate extreme poverty for all people everywhere, currently measured as people living on less than $1.25 a day.
  • Zero Hunger: By 2030, end hunger and ensure access by all people, in particular the poor and people in vulnerable situations, including infants, to safe, nutritious and sufficient food all year round.
  • Quality Education: By 2030, ensure that all girls and boys complete free, equitable and quality primary and secondary education leading to relevant and effective learning outcomes.
  • Gender Equality: End all forms of discrimination, violence, harmful practices against all women and girls everywhere. Ensure women’s full and effective participation and equal opportunities for leadership at all levels of decision-making in political, economic, and public life.

SDG

India’s progress towards achieving SDGs so far

  • SDG 1 (No Poverty): India has made significant progress in reducing poverty, with the poverty rate declining from 21.9% in 2011-12 to 4.4% in 2020. The government’s efforts to provide financial inclusion and social protection schemes have contributed to this progress.
  • SDG 2 (Zero Hunger): India has made progress in reducing hunger, with the prevalence of undernourishment declining from 17.3% in 2004-06 to 14% in 2017-19. The government’s initiatives such as the National Food Security Act and the Pradhan Mantri Garib Kalyan Anna Yojana have contributed to this progress.
  • SDG 3 (Good Health and Well-being): India has made progress in improving maternal and child health, with maternal mortality ratio declining from 167 per 100,000 live births in 2011-13 to 113 in 2016-18. The government’s efforts to strengthen health systems and increase access to healthcare services have contributed to this progress.
  • SDG 4 (Quality Education): India has made progress in improving access to education, with the gross enrolment ratio for primary education increasing from 93.4% in 2014-15 to 94.3% in 2019-20. The government’s initiatives such as the Sarva Shiksha Abhiyan and the Right to Education Act have contributed to this progress.
  • SDG 5 (Gender Equality): India has made progress in improving gender equality, with the sex ratio at birth increasing from 918 in 2011 to 934 in 2020. The government’s initiatives such as the Beti Bachao Beti Padhao and the Maternity Benefit Programme have contributed to this progress.

Recent findings by National Family Health Survey

  • Multidimensional poverty declined: At a compounded annual average rate of 4.8 per cent per year in 2005-2011 and more than double that pace at 10.3 per cent a year during 2011-2021.
  • Declining child mortality: There are some issues with the 2011 child-mortality data, but for each of the 10 components of the MPI index, the rate of decline in 2011-2021 is considerably faster than in 2005-2011.
  • Average decline in overall indicators: The average equally weighted decline for nine indicators was 1.9 per cent per annum in 2005-2011 and a rate of 16.6 per cent per annum, more than eight times higher in 2011-2021.
  • Consumption inequality decline: Every single household survey or analysis has shown that consumption inequality declined during 2011-2021. This is consistent with the above finding of highly inclusive growth during 2011-2021.

Conclusion:

  • The analysis provides a valuable tool for policymakers to address the gaps and focus on the indicators that require more attention, thereby improving the well-being of its citizens and creating a sustainable future for all.

A Budget that signals growth with stability

Why in News?

  • Union Finance Minister Nirmala Sitharaman presented the Union Budget 2023-24 in Parliament on February 01.

Highlights:

  • The Economic Survey 2022-23 has laid emphasis on India’s remarkable broad-based recovery to reach the level of income that existed before the outbreak of the coronavirus pandemic.
  • The pandemic was followed by the Russia-Ukraine conflict and the accompanying sanctions that have been imposed by the West on Russia, the slowdown and the recession in major economies and the rise in inflation leading to sharp increases in interest rates, followed by capital outflow and the pressure on the exchange rate.
  • Even though the economy has staged a recovery and surpassed the pre-pandemic income level, it is still 7% below the pre-pandemic GDP trend.
  • This budget is termed as the “first Budget in Amrit Kaal” by the Union Finance Minister.
  • With an eye on ‘India at 100’, the Budget proposals were aimed at actualising a technology-driven and knowledge-based economy with strong public finances, and a robust financial sector.

Growth and Fiscal Deficit Dilemma:

  • The fiscal deficit ratio is to come down from 6.4% in FY23 to 5.9% in FY24, to achieve the fiscal deficit target of 4.5% of GDP by 2025-26. The fiscal deficit target assumes that the economy is on a relatively strong footing, with another year of healthy tax collections.
  • However, a third of the global economy is expected to slip into recession in the calendar year 2023, as per the International Monetary Fund which may affect manufacturing and other related sectors and impact revenue collections.
  • The fiscal deficit of ₹17.8 lakh crore is to be financed using short-term borrowings and the National Social Security Fund.
  • Given the tight liquidity condition of the banking system, this will not exert pressure on the flow of funds.
  • Inflation is beyond the upper tolerance limit and aggregate fiscal deficit (Centre and States) is in the range of 9% to 10% of GDP.
  • Therefore, ensuring macroeconomic stability requires continued fiscal consolidation.
  • Thus the government is faced with the dilemma of accelerating growth by increasing public investment while containing the fiscal deficit.
  • With interest payments accounting for 40% of the net revenues of the Centre, there is hardly any room for complacency.
  • Despite a significant increase in food and fertiliser subsidies of Rs. 2 lakh crore, the government has managed to keep its goal of the fiscal deficit in the current fiscal to a maximum of 6.4% of GDP mainly due to the increase in the nominal value of GDP and also the increase in tax collections.

A balancing act:

  • Union Budget 2023-24 made a greater allocation to infrastructure spending, and the capital expenditure is budgeted to increase from 2.7% of GDP to 3.3% and considering that capital expenditure has a significant ‘crowding in’ effect, it should help to increase private capital expenditures as well.
  • This comes after the 25% increase in capital expenditures in the last budget.
  • This is also supplemented by the ₹79,000 crore on affordable housing on the revenue expenditure side.
  • But the constraint is demand, as reflected in capacity utilisation, which is still around 75%. Hence, capex needs to percolate down to higher disposable incomes and increase demand.
  • The Reserve Bank of India has estimated the multiplier effect of capital expenditure at 1.2 which should help revive the sluggish investment climate.
  • With deleveraged balance sheets and an increase in commercial lending by banks, the investment climate is expected to further improve and arrest the declining trend in the overall investment-GDP ratio in the country.
  • In addition, the continued provision of an interest-free loan to States to supplement their capital expenditures should contribute to an increase in capital spending by States.
  • Expenditure on the social sector does not register a quantum jump, though there is an increase in absolute terms with some new initiatives towards skilling in both education and health.

Compression in subsidies:

  • Target to achieve fiscal adjustment by mainly containing revenue expenditure will improve the quality of public spending.
  • The budgeted increase in revenue expenditures for 2023-24 is just 1.2% higher than the revised estimate for the current year as there is a significant compression in subsidies.
  • The fertiliser subsidy is expected to be reduced by ₹90,000 crore from ₹2.87 lakh crore to ₹1.87 lakh crore.
  • The fertiliser subsidy is expected to be compressed by ₹50,000 mainly as fertiliser prices have come down.
  • In addition, allocation to centrally sponsored schemes is expected to decrease by about ₹20,000 crore, and the overall current transfer to States is kept constant at 3.3%-3.4% of GDP.
  • The Budget has provided direct tax sops for individuals and MSMEs which may not translate into higher consumption as it is an indexation of the lower tax brackets with inflation, which has been high in the recent past.

RBI’s new pilot project on Coin Vending Machines

Why in News?

  • The RBI in collaboration with banks is set to launch a pilot project to assess the functioning of a QR-code-based coin vending machine.

Coin Vending Machines:

  • The vending machines would dispense coins with the requisite amount being debited from the customer’s account using United Payments Interface (UPI) instead of physical tendering of banknotes.
  • Customers would be endowed the option of withdrawing coins in required quantities and denominations.
  • The central idea here is to ease the accessibility to coins.
  • With particular focus on ease and accessibility, the machines are intended to be installed at public places such as railway stations, shopping malls and marketplaces.

Why such a move?

  • Prevent hoarding of coins: The situation with respect to coins is peculiar with the supply being very high. It is taking up a lot of storage space and is not getting properly distributed despite high demands.
  • Eliminate the physical tendering of banknotes: It was observed that the currency being fed into the machines (for coin exchange) were often found to be fake and could not be checked right at that point of time.

How coins are significant in our economy?

  • As per the latest RBI bulletin, the total value of circulation of rupee coins stood at ₹28,857 crore as of December 30 last year. The figure is an increase of 7.2% from the year-ago period.
  • Circulation of small coins remained unchanged at ₹743 crore.
  • The figures above could be compared to the volume of digital payments until December 2022 which stood at approximately ₹9,557.4 crore, as per the Digidhan Dashboard.
  • The number is inclusive of mobile banking, internet banking, IMPS, BHIM-UPI and NEFT, among others.
  • Hence the reliance on UPI for dispensing coins is particularly noteworthy.

Is it going against the digital push?

  • RBI is in the midst of a pilot for the Central Bank Digital Currency (CBDC).
  • But this proposal should not be viewed as a “zero-sum game of digital versus cash.”
  • The two can easily supplement each other by re-circulating existing coins in the economy.

 

 

 

Essential Commodities Act

Why in News?

  • The Centre has maintained that there is no move to ban the export of onions.

About the Essential Commodities act:

  • The Essential Commodities Act, 1955 was enacted to ensure the easy availability of essential commodities to consumers and to protect them from exploitation by unscrupulous traders.
  • The Act provides for the regulation and control of production, distribution and pricing of commodities which are declared as essential.
  • Essential items under the Act include drugs, fertilisers, pulses and edible oils, and petroleum and petroleum products.
  • The Act aim at maintaining/increasing supplies/securing equitable distribution and availability of these commodities at fair prices.
  • Centre invokes the ECA Act’s provisions to impose stock limits in case of price/quantity distortions in the market to ensure adequate availability of essential commodities at reasonable prices.
  • States are the implementing agencies to implement the EC Act, 1955 and the Prevention of Black marketing & Maintenance of Supplies of Essential Commodities Act, 1980, by exercising powers delegated to them.
  • The list of essential commodities is reviewed from time to time with reference to their production and supply and in consultation with concerned Ministries/Departments.
  • Currently, the restrictions like licensing requirement, stock limits and movement restrictions have been removed from almost all agricultural commodities.
  • Exemptions: Wheat, pulses and edible oils, edible oilseeds and rice are certain exceptions.
  • The recent amendment to the Legal Metrology (Packaged Commodities) Rules 2011 is linked to the ECA. The Government can fix the retail price of any packaged commodity that falls under the ECA.

Arguments against ECA:

  • An archaic law: Essential Commodities Act has been in existence since 1955, when the economy was very different from what it is today. It was an economy ravaged by famine and food shortages.
  • Difference between storage and hoarding: Recently there is evidence of interventions not working. It is because there is a distinction between storage and hoarding.
  • As compared to older times, when the economy experiences acute shortages, today many shortage cases are actually that of hoarding.
  • Stock limits led to onion price volatility: To control soaring prices of onions over the last few months, centre through ECA imposed stock limits on onions. Instead of decreasing prices, this actually increased price volatility.
  • Although the restrictions on both retail and wholesale traders were meant to prevent hoarding and enhance supply in the market, the Survey showed that there was actually an increase in price volatility and a widening wedge between wholesale and retail prices.
  • Lower stock limit led traders and wholesalers to immediately offload most of the kharif crop which led to a sharp increase in the volatility.
  • Disincentivises storage infrastructure development: With too-frequent stock limits, traders may have no reason to invest in better storage infrastructure in the long run.
  • Also, food processing industries need to maintain large stocks to run their operations smoothly. Stock limits curtail their operations. In such a situation, large scale private investments are unlikely to flow into food processing and cold storage facilities.
  • Higher prices of medicines: Drug Price Control Order issued under the ECA also distorted the market and actually made medicines less affordable.
  • The increase in prices is greater for more expensive formulations than for cheaper ones and for those sold in hospitals rather than retail shops.
  • Rent seeking and Low conviction rates: Despite many raids conducted under the ECA in 2019, the conviction rate was abysmally low. The ECA only seems to enable rent-seeking and harassment.

Way Forward:

  • Adequate supply: Given that almost all crops are seasonal, ensuring round-the-clock supply requires adequate build-up of stocks during the season.
  • Without the ECA the common man would be at the mercy of opportunistic traders and shopkeepers.Genuine shortages: There can be genuine shortages triggered by weather-related disruptions in which case prices will move up.
  • So, if prices are always monitored, farmers may have no incentive to farm.
  • Difficult to differentiate between hording and shortage: It may not always be possible to differentiate between genuine stock build-up and speculative hoarding.

 

 

 

 

 

Four-day workweek: Analysis

Why in News?

  • Much is being made about the major breakthrough in one of the largest-ever experiments with a four-day workweek in Britain. Sixty-one companies were part of the six-month trial and 56 of them have opted to continue with the program, while 18 have made it permanent. 4 Day Week Global trial, overseen by Autonomy, aimed to improve work-life balance by allowing workers to work four days instead of five with the same salary and workload.

Advantages of implementing a four-day workweek:

  • Improved Work-life balance: Having a positive work-life balance can also allow professionals to adopt a better attitude about their work, as they can return to their jobs well-rested. This can help employees remain productive and enthusiastic while working.
  • Increased job satisfaction: With more free time, employees may feel more satisfied with their jobs and be more engaged at work.
  • Reduced absenteeism and turnover: Offering a four-day workweek could make companies more attractive to potential employees, and employees may be less likely to miss work or leave their jobs if they have a better work-life balance.
  • Increased productivity: Some studies have shown that shorter workweeks can actually boost productivity, as employees may be more focused and efficient during their work hours.
  • Positive environmental impact: Working four days per week decreases the number of times a professional commute to work. This is helpful to the environment, as most vehicles produce emissions that can harm the environment.

Potential disadvantages:

  • Limited impact: The benefits of a four-day workweek may be limited in certain industries or job types, such as those that require shift work or have strict deadlines.
  • Increased workload: Employees may feel pressure to complete the same amount of work in fewer hours, resulting in an increased workload and potential burnout.
  • Reduced productivity: Some employees may find it difficult to maintain focus and productivity over longer workdays. This could lead to a decrease in overall output and quality of work.
  • Impact on customer service: If businesses are closed for an extra day each week, it may be more difficult to provide customer service or maintain consistent operating hours.
  • Reduced income: With a shorter workweek, employees may see a reduction in their pay, which could be a disadvantage for those who rely on their income to cover living expenses.

Examples of companies/organizations considering a four-day workweek

  • Microsoft Japan: In 2019, the tech giant conducted a trial where employees worked a four-day week and saw a 40% increase in productivity.
  • Iceland: A number of companies and organizations in Iceland have experimented with shorter workweeks, including the country’s government, which is exploring a four-day workweek for public servants.
  • New Zealand: Unilever New Zealand recently announced it would be trialing a four-day workweek for all of its employees, while the country’s prime minister, Jacinda Ardern, has previously spoken in favor of the idea.
  • Spain: The government of Spain has proposed a three-year trial of a four-day workweek, with the goal of improving work-life balance and boosting productivity.

Feasibility of Four-day workweek in India’s context:

  • Will require a careful analysis: The feasibility and impact of a four-day workweek in India would depend on various factors such as industry type, workforce demographics, and cultural norms. Implementing a four-day workweek in India would require careful analysis of various factors.
  • For instance: With the rise of remote work and the increased focus on work-life balance four day week option could be helpful to enhance productivity with improved work life balance in corporate sector.
  • Complex regulations: India’s labour laws and regulations are complex and provide significant protections for workers. Any changes to work arrangements, including a four-day workweek, would need to comply with these laws and ensure that employees’ rights and benefits are protected.
  • For example: Any reduction in working hours would need to be accompanied by appropriate compensation and benefits to ensure that employees do not suffer financial losses.
  • Specific needs of industries: The feasibility of a four-day workweek would depend on the specific needs of different industries.
  • For instance: While some knowledge-based sectors may be well-suited to a four-day workweek, industries that require continuous operations or shift work, such as manufacturing or healthcare, may face significant challenges in implementing a shorter workweek.

Conclusion:

  • It’s important to carefully consider the potential advantages and disadvantages of a four-day workweek before implementing it in any workplace. The impact may vary depending on the specific work arrangements and the needs of the employees and customers.

 

India needs a Budget for its young

     Why in News?

  • India accounted for 20.6% of the global population of 15 to 29-year-olds in the year 2020. This implies that in the coming years, one out of every five workers in the world could be an Indian.

    Key Proposals in Budget 2023-24:

  • There is a considerable increase in capital expenditure. It is expected to be 3.2 lakh crore higher than the revised estimate of 2022-23.
  • The government’s expenditure will fall for various social sector schemes and subsidies. For instance, food subsidies will reduce by ₹0.9 trillion, fertilizer subsidies by ₹0.5 trillion, and Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) by ₹0.3 trillion. There are marginal increases in the budget allocations for health, education, agriculture, and the Angwandi scheme.
  • For detailed information on the Budget, read here: Union Budget 2023 Summary

    Associated concerns:

  • An increase in capital expenditure is important to reinvigorate the economy. Investment as a proportion of income or GDP rose constantly during the mid-2000s and peaked at 42% in 2007 (even better than China).
  • It further increased the economic growth in India which lasted till early 2010.
  • However, the global financial crisis in 2007-08 had been a turning point. On one hand, China increased its domestic investment whereas India restrained its expenditures (due to fear of the rising fiscal deficits).
  • As a result, public expenditures nosedived and private investors lost confidence. Investment as a proportion of GDP fell from 33.8% in 2013-14 to 27.3% in 2020-21.
  • Though subsidies and social sector spending are considered to be ‘wasteful’ for economic growth, the reduction in these segments worsens the existing social inequalities and dampens the long-term growth prospects.
  • There are serious issues of unaffordable education (both basic and higher education), and lack of employment opportunities. For example, in 2022, only 2.6% of the around 1.9 million appeared candidates for the National Eligibility cum Entrance Test (NEET) could secure admission to a government college.
  • Apprehensions about the fiscal deficit and government debt can be counterproductive for a country like India which possesses huge reserves of untapped human resources.
  • It should be noted that only 4.2% of GDP in 2022 is owed to external agencies.
  • Moreover, it is largely held by domestic financial institutions like public sector banks, insurance companies, and provident funds.

    Way Ahead:

  • Notably, public expenditures on the social sectors are an investment for the future, particularly for the young population. For instance, the income a woman receives through MGNREGA can ensure education and nutrition for her children.
  • Increased government expenditure on sectors like health and education can provide a boost to both the supply and the demand fronts in a knowledge-driven economy.
  • Increased government borrowing to strengthen human resources that generate new jobs and incomes would set off a virtuous cycle. For instance, higher incomes and higher levels of development will also lead to fresh savings that will help to pay off debts.

    Conclusion:

  • The share of the population aged 30 years and above in India will rise to 58.6% in 2040 (from 37.5% in 2000). It is important to increase government expenditures to provide food security, health, and education as it will inspire millions of India’s youngsters to grow into bright stars that illuminate the world.

Vostro accounts and how they facilitate trade

Why in News?

  • About 20 Russian banks such as Centro Credit Bank, Credit Bank of Moscow, Rosbank, and Tinkoff Bank have opened Special Rupee Vostro Accounts (SRVA) with partner banks in India.

Special Rupee Vostro Accounts (SRVA) arrangement:

  • A Vostro account refers to an account that a domestic bank holds for a foreign bank in the domestic bank’s currency.Such accounts are used by domestic banks to facilitate international banking services to their clients with global banking requirements.
  • Vostro accounts arrangement is an offshoot of correspondent banking that helps the banks to provide wire transfers, conduct business transactions, accept deposits and gather documents on behalf of the other bank.
  • This arrangement further aids domestic banks to gain broader access to foreign financial markets and serve international clients without the need for being physically present in their home countries.
  • The Special Rupee Vostro Accounts or the SRVA arrangement is an additional arrangement that facilitates the establishment of a complementary system by using freely convertible currencies.

Nostro account:

  • A Nostro Account refers to a bank account that a bank holds in a foreign currency.
  • A bank, through a Nostro Account, holds the currency of the country where the funds are held. i.e Nostro accounts are denominated in foreign currencies.
  • Nostro Accounts are generally used to simplify foreign exchange and trade transactions between countries.
  • The word “Nostro” is derived from the Latin word that means “ours”.

Vostro account:

  • The word “Vostro” is derived from the Latin word that means “yours”.
  • A Vostro account refers to an account that a correspondent bank holds on behalf of another bank.
  • Vostro account helps to enable a foreign correspondent bank to act as an agent or an intermediary for a domestic bank.
  • Services provided by a Vostro account include wire transfers, withdrawals, and deposits for customers in countries where the domestic bank does not have a physical presence.
  • If an Indian bank maintains an account in the US with dollars, such an account, maintained in a foreign currency at a foreign centre is called Nostro Account for that concerned Indian bank.
  • The American bank which is holding dollars from the concerned Indian bank will refer to the same account as a Vostro Account.

Functioning of the SRVA arrangement:

  • The SRVA framework mainly involves three important components which are invoicing, exchange rate and settlement.
  • Invoicing requires all exports and imports to be denominated and invoiced in Indian Rupees.
  • The exchange rate between the two currencies of the partner countries will be market-determined.
  • The final settlement also takes place in Indian Rupees.
  • To facilitate the SRVA arrangement, the authorised domestic banks are mandated to open SRVA accounts for the correspondent banks of the partner country.
  • Further, domestic importers are required to make payments in Indian Rupees into the SRVA account of the correspondent bank against the invoices for the supply of goods or services from overseas suppliers.
  • Likewise, the domestic exporters must be paid for their exports in Indian Rupees from the balances in the designated account of the correspondent bank of the partner country.
  • The reporting of all such cross-border transactions must be done in accordance with the existing guidelines under the Foreign Exchange Management Act (FEMA), 1999.

Eligibility criteria for banks:

  • Banks from the partner trading countries would approach an authorised domestic bank for opening the SRVA.
  • The domestic bank is then required to seek approval from the Reserve Bank of India (RBI) which is the apex banking regulator in India.
  • It is to be noted that, it is the responsibility of the domestic banks to ensure that the correspondent bank is not from a country listed under the updated Financial Action Task Force (FATF) Public Statement on High Risk & Non-Co-operative jurisdictions.
  • Furthermore, domestic banks should also put forth for perusal, financial parameters pertaining to the corresponding bank.
  • Authorised banks are free to open multiple SRV accounts for different banks from the same country and the balances in the account can be recovered in freely convertible currency or the currency of the partner country depending on the transactions for which the account was credited.

The need for SRVA arrangement:

  • The Economic Survey 2022-23 highlighted the fact that such a framework could help reduce the demand for foreign exchange, especially the U.S. dollar, for the settlement of current account-related trade flows.
  • As per the Economic Survey, the SRVA arrangement would also play a key role in reducing the need for holding foreign exchange reserves and dependence on foreign currencies which would make the country less vulnerable to external shocks.
  • Further, the SRVA arrangements help Indian exporters get advance payments in Indian Rupee from foreign clients which in the long-term helps promote Indian Rupee as an international currency once the rupee settlement mechanism gains momentum.

Product Linked Incentive (PLI) scheme of pharmaceuticals

Why in News?

  • Department of Pharmaceuticals (DoP) has released the first tranche of incentives under the Product Linked Incentive (PLI) scheme of pharmaceuticals.

About the News:

  • Under the Atmanirbharta initiative of the Government, the Department of Pharmaceuticals launched the PLI scheme for pharmaceuticals in 2021
  • Objective: To enhance India’s manufacturing capabilities and contribute to product diversification towards high-value goods in the pharmaceutical sector
  • Three different categories of products are being supported under the scheme:
  • Category 1: Biopharmaceuticals; Complex generic drugs; Patented drugs or drugs nearing patent expiry; Cell-based or gene therapy drugs; Orphan drugs; Special empty capsules, Complex excipients,
  • Category 2: Bulk drugs
  • Category 3: Drugs not covered under Category 1 and Category 2 such as Repurposed drugs; Autoimmune drugs, anti-cancer drugs, etc.

About the PLI scheme:

  • The scheme aims to make India a global hub for manufacturing telecom equipment.
  • Its eligibility criteria include achievement of a minimum threshold of cumulative incremental investment and incremental sales of manufactured goods.
  • The incentive structure ranges between 4% and 7% for different categories and years. Financial year 2019-20 will be treated as the base year for computation of cumulative incremental sales of manufactured goods net of taxes.
  • Minimum investment threshold for MSMEs has been kept at Rs 10 crore and for others at Rs 100 crore.
  • Once qualified, the investor will be incentivised up to 20 times of minimum investment threshold enabling them to utilise their unused capacity.

Why is the production linked scheme needed?

  • According to experts, the idea of PLI is important as the government cannot continue making investments in these capital intensive sectors as they need longer times for start giving the returns.
  • Instead, what it can do is to invite global companies with adequate capital to set up capacities in India.
  • The kind of ramping up of manufacturing that we need requires across the board initiatives, but the government can’t spread itself too thin.
  • Electronics and pharmaceuticals themselves are large sectors, so, at this point, if the government can focus on labour intensive sectors like garments and leather, it would be really helpful.

 

 

 

 

 

 

 

 

49th GST Council Meeting

Why in News?

  • Recently, the Goods and Services Tax (GST) Council in its 49th Meeting has reached consensus on the constitution of the GST Appellate Tribunal to resolve the rising number of disputes under the old indirect tax regime.

What are the Key Highlights of the GST Meeting?

  • GST Appellate Tribunal:
  • The council has approved the creation of a national tribunal mechanism with state benches for the redressal of disputes.
  • The Tribunal will resolve the rising number of disputes under the GST regime that are now clogging High Courts and other judicial fora.
  • This year’s Finance Bill can incorporate the enabling legislative provisions for the Tribunal.
  • The GST Tribunal will have one principal bench in New Delhi and many benches or boards in states. The principal bench and state boards would have two technical and two judicial members each, with equal representation.
  • But all four members would not sit to hear each case, which is likely to be decided based on the threshold or value of dues involved.
  • Cleared Pending Compensation Dues:
  • It has cleared the balance of Rs 16,982 crore (for June 2022).
  • It has finalized GST compensation of Rs 16,524 crore to six states/UTs including, Delhi, Karnataka, Odisha, Puducherry, Tamil Nadu, and Telangana
  • Lower Penal Charges:
  • It approved lower penal charges for delayed filing of annual returns by businesses with a turnover of up to Rs 20 crore a year.
  • The council has approved an Amnesty Scheme for taxpayers unable to file three statutory returns, that entail conditional waivers or reductions in late fees for such filings.
  • The GST Amnesty Scheme was introduced to encourage non-filers to voluntarily come forward and file their GST returns by providing a one-time relief from late fees.
  • Rate Changes:
  • The GST rate on several items has been changed, such as pencil sharpeners, rab (liquid jaggery).
  • The Council also decided to extend the GST exemption to educational institutions and central and state educational boards from conducting entrance examinations through any authority, including the National Testing Agency.
  • Plugging Tax Evasion:
  • The Council has decided to switch the compensation cess levied on pan masala and gutkha commodities from an ad valorem basis to a specific tax-based levy.
  • The ad valorem tax is levied according to value.
  • This will boost the first stage collection of the revenue.
  • The Council also mandated that exports only be allowed against letters of undertaking assuring of GST compliance.

What is the GST Council?

  • It is a joint forum of the Centre and the states.
  • It was set up by the President as per Article 279A (1) of the amended Constitution.
  • The members of the Council include the Union Finance Minister (chairperson), the Union Minister of State (Finance) from the Centre.
  • Each state can nominate a minister in-charge of finance or taxation or any other minister as a member.
  • According to Article 279 of the Constitution, the council can make recommendations to the Union and the states on important issues related to GST, like the goods and services that may be subjected or exempted from GST, model GST Laws”.
  • Article 279 as well as Article 279A of the Indian Constitution deal with the financial provisions of the country.
  • They are specifically related to the calculation of “net proceeds” from Union duties and taxes on goods and the formation of the Goods and Services Tax Council, respectively.
  • It also decides on various rate slabs of GST.
  • For instance, an interim report by a panel of ministers has suggested imposing 28 % GST on casinos, online gaming and horse racing.

What is Goods and Services Tax?

  • GST was introduced through the 101st Constitution Amendment Act, 2016.
  • It is one of the biggest indirect tax reforms in the country.
  • It was introduced with the slogan of ‘One Nation One Tax’.
  • The GST has subsumed indirect taxes like excise duty, Value Added Tax (VAT), service tax, luxury tax etc.
  • It is essentially a consumption tax and is levied at the final consumption point.
  • This has helped mitigate the double taxation, cascading effect of taxes, multiplicity of taxes, classification issues etc., and has led to a common national market.
  • The GST that a merchant pays to procure goods or services (i.e. on inputs) can be set off later against the tax applicable on supply of final goods and services.
  • The set off tax is called input tax credit.
  • The GST avoids the cascading effect or tax on tax which increases the tax burden on the end consumer.

Tax Structure under GST:

  • Central GST to cover Excise duty, Service tax etc,
  • State GST to cover VAT, luxury tax etc.
  • Integrated GST (IGST) to cover inter-state trade.
  • IGST per se is not a tax but a system to coordinate state and union taxes.
  • It has a 4-tier tax structure for all goods and services under the slabs- 5%, 12%, 18% and 28%.

What are the Issues Related to GST?

Complexity:

  • The GST system in India is quite complex, with multiple tax rates, exemptions, and compliance requirements.
  • It hampers the progress of a single indirect tax rate for all the goods and services in the country.

High Tax Rates:

  • Some industries and goods are subject to high GST rates, which can make them unaffordable for many consumers.
  • For example, the tax rate on luxury goods and services is 28%, which is quite high.
  • Though rates are rationalized, 50% of items are under the 18% bracket.

Compliance Burden:

  • The GST regime has a lot of compliance requirements, including filing of returns, maintaining records, and regular audits. This can be a burden for businesses, especially small and medium enterprises.

Technical Issues:

  • There have been reports of technical glitches in the GST network, leading to delays in filing returns and claiming input tax credits.

Impact on the Unorganized Sector:

  • The unorganized sector, which forms a significant part of the Indian economy, has been adversely affected by the GST.
  • Many small businesses and traders have found it challenging to comply with the new tax regime.

Lack of Clarity:

  • There is still a lack of clarity on some aspects of the GST regime, such as the classification of goods and services and the applicability of tax rates. This lack of clarity can create confusion and disputes.

Way Forward:

  • Simplifying the compliance process, providing easier access to information, and increasing support for taxpayers can help address this issue.
  • Technical issues such as system downtimes, portal errors, and other glitches can cause significant disruptions for businesses. Addressing these technical issues can help businesses comply with GST requirements more effectively.
  • Many small businesses and traders are not fully aware of the GST system and its implications. Increasing awareness and education about the GST system can help improve compliance and reduce errors.
  • GST is a collaborative effort between the central and state governments, and coordination between them is crucial to its success. Improving communication and coordination can help ensure a smooth implementation of the GST system.

 

 

Startup20 Engagement Group On India’s Proposal

Why in News?

  • By agreeing to India’s proposal to create the Startup20 Engagement Group, the only new group by which G20 has turned itself into an ambidextrous institution, one where both large corporations and startups have an equal voice in taking the economies forward.
  • In the new architecture, while the existing B20 Engagement Group continues its focus on corporations, the Startup20 takes on the policy issues concerning the global startup ecosystem, with the necessary linkages between the two groups.

What is the mean by ambidexterity?

  • Ambidexterity is the ability to use both hands with equal skill and ease.
  • In the context of organizations, it is the ability to simultaneously pursue both exploratory and exploitative strategies. This means being able to balance the need for innovation and new opportunities with the need for efficiency and optimization of current operations.
  • For example, Indian IT services companies like TCS and Infosys are investing in areas like artificial intelligence, blockchain, and the IoT, even as they continue to deliver traditional IT services to their clients.

What is B20 Engagement Group?

  • Official G20 dialogue forum representing the global business community: The B20 (Business 20) Engagement Group is a forum for international business leaders from the G20 countries.
  • Established in 2010: It is among the most prominent Engagement Groups in G20, with companies and business organizations as participants.
  • A single voice for the entire G20 business community: The B20 leads the process of galvanizing global business leaders for their views on issues of global economic and trade governance and speaks in a single voice for the entire G20 business community.
  • Aim is to provide recommendations: The group’s aim is to provide recommendations to the G20 on issues such as economic growth, trade, investment, digitalization, sustainability, and job creation.
  • Platform for different stakeholders: The B20 is one of several engagement groups, which also include groups representing civil society, labor, think tanks, and youth, that provide a platform for different stakeholders to share their views and insights with the G20.
  • B20 Secretariat: Confederation of Indian Industry (CII) has been designated as the Business 20 (B20) Secretariat for the India’s G20 Presidency.

What is Startup20?

  • Initiated under India’s G20 Presidency: The Startup20 Engagement Group has been initiated under India’s G20 Presidency in 2023.
  • Aims to support Startups: The group aims to create a global narrative for supporting startups and enabling synergies between startups, corporates, investors, innovation agencies and other key ecosystem stakeholders.
  • Three taskforces: The engagement group comprises of three taskforces, namely Foundation & Alliance, Finance, and Inclusion & Sustainability, where delegates will come together to discuss efficient policy frameworks to promote scaling up of startups in the G20 nations.

How these taskforces will work?

Foundation and Alliances Taskforce:

  • Promotes consensus-based ecosystem: The Foundation and Alliances Taskforce will work to harmonize the global Startup ecosystem through consensus-based definitions and promote a global community of knowledge sharing among the Startup ecosystems to explore opportunities.
  • Help to bridge the knowledge gaps: It will also bridge the knowledge gap between the Startup ecosystems of G20 member countries and emerging economies through partnerships to enable more industry players across G20 nations to work with Startups and concrete solutions.
  • To create supportive policies and point of contact: It will aim to create supportive policies for industry players and government organizations to work with Startups and provide points of contact for the participating G20 countries sustained collaboration.

The Finance Taskforce:

  • To provide financing and investment platforms: The finance taskforce will aim to increase access to capital for Startups by providing financing and investment platforms specifically for early-stage Startups to broaden the array of financial instruments available to Startups.
  • Networking opportunities: It will also create pitching and networking opportunities for Startups with the global investor community.
  • Best practices for funding ecosystem: It will work to provide a framework built upon best practices for global investors to fund Startups across G20 member nations, helping build suggestive frameworks that could be implemented in emerging ecosystems for building investment capabilities.

Taskforce for Inclusion and Sustainability

  • Women led startups and community inclusive: For Inclusion and Sustainability, the roadmap involves increasing support for women led Startups and organizations; promotion of Startups working on making communities more inclusive and to promote Startups working on SDGs in areas of global interest.
  • Encouraging investors to invest in startups built upon sustainable practices: This Task Force aims to enable more investors to invest responsibly in Startups built upon sustainable practices and to encourage mentorship support to the Startup ecosystems of the G20 member countries and emerging economies.

Conclusion:

  • Some of the most pressing challenges facing the world today require innovative solutions at scale. The need for solutions to global problems such as climate change, food security, and energy security is urgent. However, by leveraging global ambidexterity and taking advantage of the G20’s new architecture of B20 and Startup20, we can be optimistic about our ability to systematically solve these problems. With deliberate efforts and focused action, we can create a more sustainable and prosperous future for all.

 

Current Account Deficit

Why in News?

  • Recently, the government released data showing that India’s exports and imports decreased by 6.59% and 3.63%, respectively, in January 2023, there are indications that the country’s current account deficit (CAD) will moderate despite the global slowdown triggered by the rising inflation and interest rates.

About the News:

  • The moderation in CAD is expected to be aided by the fall in commodity prices, rising workers remittances and services exports, and abatement of selling pressure by foreign investors.

What is the Current Account Deficit?

  • Current account deficit (CAD) is when the value of a country’s imports of goods and services is greater than its exports.
  • CAD and fiscal deficit together make up twin deficits that can impact the stock market and investors.
  • Fiscal Deficit is the gap between the government’s expenditure requirements and its receipts. This equals the money the government needs to borrow during the year.

Implication:

  • The CAD is significant because it affects the economy, stock markets, and people’s investments.
  • A lower CAD can boost investor sentiment and make the country’s currency more attractive to investors.
  • A surplus in the current account indicates that money is flowing into the country, which can boost foreign exchange reserves and the value of the local currency.

Recent Status of India’s CAD:

  • The CAD for the first half of 2022-23 was 3.3% of GDP, but the situation improved in Quarter 3:2022-23 due to lower commodity prices and moderated imports.

Negative Effects of CAD on Economy:

  • Weaker Currency: When a country’s imports exceed its exports, it can cause a decrease in demand for its currency, leading to a weaker currency value (depreciation).
  • This can make imports more expensive, leading to higher inflation and a reduction in purchasing power.
  • Debt Accumulation: If a country is unable to finance its current account deficit with foreign investment, it may need to borrow to cover the gap.
  • This can lead to an increase in debt levels, which can further harm the economy.

How India can Moderate Current Account Deficit?

  • Encourage Exports: Increasing exports is one of the most effective ways to reduce CAD.
  • The government can provide incentives for export-oriented industries, streamline export procedures and regulations, and negotiate better trade agreements with other countries.
  • Promote Import Substitution: Encouraging domestic production of goods that are currently being imported can help to reduce the trade deficit.
  • This can be achieved by providing incentives for domestic manufacturers and by imposing tariffs or import duties on certain goods.
  • Improve Productivity and Competitiveness: Improving the productivity and competitiveness of the domestic economy can help to increase exports and reduce the trade deficit.
  • This can be achieved through various measures such as investments in infrastructure, technology, and education.

RBI hikes repo rate by 25 basis points to control inflation

Why in News?

  • The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) has recently decided to increase the policy repo rate by 25 basis points to 6.50%, with immediate effect.  

About the News:

  • Taking various factors into consideration, real GDP growth for 2023-24 is projected at 6.4% with Q1 at 7.8%; Q2 at 6.2%; Q3 at 6.0%; and Q4 at 5.8%. 
  • Taking into account several factors and assuming an average crude oil price (Indian basket) of US$ 95 per barrel, inflation is projected at 6.5% in 2022-23, with Q4 at 5.7%.
  • On the assumption of a normal monsoon, CPI inflation is projected at 5.3% for 2023-24, with Q1 at 5.0%, Q2 at 5.4%, Q3 at 5.4% and Q4 at 5.6%. 

What is Monetary Policy Committee?

  • Strong recommendations to set monetary policy committee in India had come from Urjit Patel panel report.
  • Monetary Policy Committee is an executive body of 6 members. Of these, three members are from RBI while three other members are nominated by the Central Government.
  • Each member has one vote. In case of a tie, the RBI governor has casting vote to break the tie. MPC is required to meet for two days before deciding on rates. Further, it is needed to meet at least four times a year and make public its decisions following each meeting.
  • The core mandate of MPC is to fix the benchmark policy interest rate {Repo Rate} to contain inflation within the target level.
  • In that context, RBI is mandated to furnish necessary information to the MPC to facilitate its decision. Government also, if wishes to convey its views, can do so in writing to MPC.

Different Terminologies in Banking Sector:

  • Loan moratorium period refers to a particular period of a loan tenure during which the borrower does not have repay anything. It can be described as a waiting period before the borrower will have to start paying the equated monthly instalments (EMIs) for his or her loan. It doesn’t mean that he is completely waived off his loans.
  • REPO rate (now 6.5%) denotes Re Purchase Option – the rate by which RBI gives loans to other banks. In other words, it is the rate at which banks buy back the securities they keep with the RBI at a later period. 
  • Bank gives loan to the public at a higher rate, often 1% higher than REPO rate, at a rate known as Bank Rate (6.75%). 
  • RBI at times borrows from banks at a rate lower than REPO rate, and that rate is known as Reverse REPO rate (3.35%).
  • CRR or Cash Reserve Ratio corresponds to the percentage of cash each bank have to keep as cash reserve with RBI (in their current accounts) corresponding to the deposits they have. For example, say if State Bank of India (SBI) got a total deposit of Rs. 1 crore with them, they need to keep 4.5 % of that as cash reserve with RBI (around 4.5 lakh rupees).

The banks and other financial institutions in India have to keep a fraction of their total net time and demand liabilities in the form of liquid assets such as G-secs, precious metals, approved securities etc. The Ratio of these liquid assets to the total demand and time liabilities is called Statutory Liquidity Ratio (18%).

The demand for MGNREGS work is unmet

Why in News?

  • A statement by People’s Action for Employment Guarantee and NREGA Sangharsh Morcha has provided an estimate of 2.72 lakh crore as the minimum budget required.

About the News:

  • The allocation for MGNREGA in the Budget is 60,000 crore. This is less than 0.2% of the GDP, the lowest ever allocation as a percentage of GDP. 
  • World Bank economists had estimated that the allocation should be 1.6% of the GDP. In the last two years, the new financial year began with more than one-fourth of the allocation as pending wages from previous years. 
  • Assuming a conservative estimate that the next financial year will begin with pending wages of 15,000 crore and accounting for inflation, in real terms, the allocation for MGNREGA will be less than 45,000 crore. 
  • A statement by People’s Action for Employment Guarantee and NREGA Sangharsh Morcha has provided an estimate of 2.72 lakh crore as the minimum budget required. 
  • As per this, even 1.24 lakh crore can only generate 40 days of work per household per year. 

About MGNREGA:

  • The scheme was introduced in 2005 as a social measure that guarantees “the right to work”. The key tenet of this social measure and labour law is that the local government will have to legally provide at least 100 days of wage employment in rural India to enhance their quality of life.

Key objectives:

  • Generation of paid rural employment of not less than 100 days for each worker who volunteers for unskilled labour.
  • Proactively ensuring social inclusion by strengthening the livelihood base of rural poor.
  • Creation of durable assets in rural areas such as wells, ponds, roads and canals.
  • Reduce urban migration from rural areas.
  • Create rural infrastructure by using untapped rural labour.

What are the eligibility criteria for receiving the benefits under MGNREGA scheme?

  • Must be Citizen of India to seek MGNREGA benefits.
  • Job seeker has completed 18 years of age at the time of application.
  • The applicant must be part of a local household (i.e. application must be made with local Gram Panchayat).
  • Applicants must volunteer for unskilled labour.

Implementation of the scheme:

  • Within 15 days of submitting the application or from the day work is demanded, wage employment will be provided to the applicant.
  • Right to get unemployment allowance in case employment is not provided within fifteen days of submitting the application or from the date when work is sought.
  • Social Audit of MGNREGA works is mandatory, which lends to accountability and transparency.
  • The Gram Sabha is the principal forum for wage seekers to raise their voices and make demands.
  • It is the Gram Sabha and the Gram Panchayat which approves the shelf of works under MGNREGA and fix their priority.

What is Democratic Decentralisation?

  • Democratic decentralization is the process of devolving the functions and resources of the state from the Centre to the elected representatives at the lower levels so as to facilitate greater direct participation of citizens in governance.
  • Devolution, envisioned by the Indian Constitution, is not mere delegation.
  • It implies that precisely defined governance functions are formally assigned by law to local governments, backed by adequate transfer of a basket of financial grants and tax handles, and they are given staff so that they have the necessary wherewithal to carry out their responsibilities.

Related Constitutional Provisions:

  • Local government, including panchayats, is a state subject in the Constitution, and consequently, the devolution of power and authority to panchayats has been left to the discretion of states.
  • The Constitution mandates that panchayats and municipalities shall be elected every five years and enjoins States to devolve functions and responsibilities to them through law.
  • The 73rd and 74th Amendments, by constitutionally establishing Panchayati Raj Institutions (PRIs) in India, mandated the establishment of panchayats and municipalities as elected local governments.
  • These amendments added two new parts to the Constitution, namely, Part IX titled “The Panchayats” (added by 73rd Amendment) and Part IXA titled “The Municipalities” (added by 74th Amendment).
  • The 11th Schedule contains the powers, authority and responsibilities of Panchayats.
  • The 12th Schedule contains the powers, authority and responsibilities of Municipalities.
  • Article 40: Organization of a village panchayat.

Budget Session of Parliament

Why in News?

  • Parliamentary Affairs Minister Pralhad Joshi has hinted that the first leg of Budget session which is scheduled to end on February 13 is likely to end early.

What is Budget?

  • Annual Financial Statement is a documents presented to the Parliament in every financial year as a part of the Budget Process under Article 112 of the constitution of India.  
  • This document comprises the receipts and expenditures of the government of current year, previous year and budget year in three separate parts viz. Consolidated Fund of India, Contingency Fund of India and Public Account of India. The government has to present a statement of receipts and expenditure for each of these funds. 
  • Capital receipt comprises of loans raised by the Government, borrowing from the Reserve Bank of India and loans taken from foreign Governments/institutions. 
  • It also embraces recoveries of loans advanced by the Government and sale proceeds of government assets, including those realized from divestment of Government equity in PSUs.

Difference between Annual Financial Statement and Budget:

  • The term budget is used for several documents together including the Annual Financial Statement. The other documents in budget include Demands for Grants (DG); Appropriation Bill; Finance Bill; Memorandum Explaining the Provisions in the Finance Bill; Macro-Economic Framework Statement; Fiscal Policy Strategy Statement; Medium Term Fiscal Policy Statement; Medium Term Expenditure Framework Statement etc.
  • However, Annual Financial Statement distinguishes the expenditure on revenue account from the expenditure on other accounts, as is mandated in the Constitution of India. The Revenue and the Capital sections together, therefore make the Union Budget and that is why, Annual Financial Statements is essentially the Budget of the Government.

Budget Pre Independence:

  • Budget was introduced on 7 April 1860 by the East India Company to the British Crown. It was presented by a Scottish Economist and politician James Wilson.
  • For the first 30 years, the Budget didn’t have the word infrastructure. It was introduced in the Budget in the 1900s.

Budget Post Independence:

  • First Union Budget of Independent India: It was introduced on 26 November 1947. It was present by the first Finance Minister R.K. Shanmukham Chetty. However, it was a review of the Indian economy and no new taxes were proposed. It is to be noted that almost 46% of the Budget or Rs. 92.74 crores were allocated for defence services department. 
  • Printing of Budget: The Budget was leaked in 1950, following which the government shifted the printing of budget from Rashtrapati Bhawan to a press at Minto Road. In 1980, it was shifted to a government press in North Block. 
  • Introduction of Hindi: Till 1955, the Budget was presented only in the English language. However, from 1955-56, the Budget documents are printed both in English and Hindi.  
  • First Prime Minister to present the Union Budget: Former Prime Minister Jawaharlal Nehru was the first PM to present the Union Budget for the FY 1958-1959. The Union Budget is usually presented by the Finance Minister. Other than Jawaharlal Nehru, Indira Gandhi and Rajiv Gandhi were the only Prime Ministers to have presented the Budget in their respective administration. 
  • First Woman to present the Union Budget: Former Prime Minister Indira Gandhi was the first woman to present the Union Budget for the FY 1970-71. On 5 July 2019, Finance Minister Nirmala Sitharaman became the first full-time woman Finance Minister on India. 
  • Maximum Union Budgets by a Minister: Former Finance Minister Moraji Desai presented the Union Budget a record 10 times, followed by former FM P. Chidambaram (9), former FM Pranab Mukherjee (8), former FM Yashwant Sinha (8), and former FM Manmohan Singh (6)
  • Black Budget: For the FY 1973-74, the Budget was presented by the then Finance Minister Yashwantrao B. Chavan and is called as ‘Black Budget’ due to high budget deficit of Rs 550 crores– the maximum until that time. The Budget followed the Indo-Pak war of 1971 and failed the monsoon season.
  • The Epochal Budget: The Budget presented by the then Finance Minister Manmohan Singh for the FY 1991-92 is known as ‘The Epochal Budget’– a budget that changed India forever as it marked the economic liberalisation of the nation. 
  • Dream Budget: The Budget presented by the then Finance Minister P. Chidambaram for the FY 1997-98 is known as ‘Dream Budget’ as it proposed to lower the tax slabs of personal and corporate taxes. 
  • The Millennium Budget: The Budget presented by the then Finance Minister Yashwant Sinha for the FY 2000-01 is known as ‘The Millennium Budget’– revolutionised India’s IT sector. 
  • Change in time: In the year 2001, Finance Minister Yashwant Sinha changed the time for the presentation of Union Budget from 5 p.m. to 11 a.m. on the last working day of February. 
  • Merging of Budgets and Change in date: In the year 2017, the Rail Budget was merged with the Union Budget. Also, since the said year, the Budget has been presented on 1 February following the changes introduced by the then Finance Minister Arun Jaitley. 
  • Gift Tax: Former Prime Minister Jawaharlal Nehru introduced the Gift Tax in the FY 1958-1959 Budget to make tax evasion more difficult. 
  • Goods and Services Tax: On 28 February 2006, Goods and Services Tax was introduced by the then Finance Minister P. Chidambaram in the Budget. 
  • Longest Budget speech: Former Finance Minister Arun Jaitley holds the record for delivering the longest Budget speech in 2014– 2.5 hours. 
  • Bahi Khata instead of a briefcase: In the year 2019, Finance Minister Nirmala Sitharaman replaced the standard Budget briefcase with the traditional ‘Bahi Khata’ with the National Emblem.
  • Paperless Budget: For the first time in Independent India’s history, the Budget for the FY 2021-22 wass paperless. 

Budgeting process in India:

  • The procedure for presentation of the Budget in and its passing by Lok Sabha is as laid down in articles 112—117 of the Constitution of India, Rules 204—221 and 331-E of the Rules of Procedure and Conduct of Business in Lok Sabha and Direction 19-B of Directions by the Speaker.
  • The Budget goes through six stages:
  • Presentation of Budget.
  • General discussion.
  • Scrutiny by Departmental Committees.
  • Voting on Demands for Grants.
  • Passing of Appropriation Bill.
  • Passing of Finance Bill.

Presentation:

  • The Budget is presented to Lok Sabha on such day as the President may direct.
  • Immediately after the presentation of the Budget, the following three statements under the Fiscal Responsibility and Budget Management Act, 2003 are also laid on the Table of Lok Sabha:
  • The Medium-Term Fiscal Policy Statement;
  • The Fiscal Policy Strategy Statement; and
  • The Macro Economic Framework Statement.

SC Refuses to Entertain Plea on Google-CCI Issue

Why in News?

  • The Supreme Court of India has refused to entertain a plea by Google against NCLAT’s order refusing the interim stay on 1,337 crore penalty on Google. 

About the News:

  • The SC has granted Google 7 days to deposit 10% of the penalty imposed by the Competition Commission of India (CCI). The Indian companies have welcomed the SC’s stance against Google.  

What’s the issue?

  • CCI found that Google was dominant in the relevant market for licensable smart TV device operating systems in India. It also said that prima facie mandatory pre-installation of all the Google applications under Television App Distribution Agreement (TADA) amounts to imposition of unfair conditions on the smart TV device manufacturers. This is in contravention of Section 4(2)(a) of the Competition Act.
  • So, CCI imposed a penalty on Google for “abusing its dominant position” in markets related to the Android mobile device ecosystem. Google filed an appeal with the NCLAT against the CCI order which was declined by NCLAT.
  • Section 4 of the Act pertains to abuse of dominant position.

About Competition Commission Of India:

  • The Competition Commission of India (CCI) was established under the Competition Act, 2002 for the administration, implementation and enforcement of the Act, and was duly constituted in March 2009. Chairman and members are appointed by the central government.

Functions of the commission:

  • It is the duty of the Commission to eliminate practices having adverse effect on competition, promote and sustain competition, protect the interests of consumers and ensure freedom of trade in the markets of India.
  • The Commission is also required to give opinion on competition issues on a reference received from a statutory authority established under any law and to undertake competition advocacy, create public awareness and impart training on competition issues.

About the Competition Act:

  • The Monopolies and Restrictive Trade Practices Act, 1969 (MRTP Act) was repealed and replaced by the Competition Act, 2002, on the recommendations of Raghavan committee.
  • The Competition Act, 2002, as amended by the Competition (Amendment) Act, 2007, prohibits anti-competitive agreements, abuse of dominant position by enterprises and regulates combinations (acquisition, acquiring of control and M&A), which causes or likely to cause an appreciable adverse effect on competition within India.

GST revenues rise 15% in December 2022, says Finance Ministry

Why in News?

  • India’s Goods and Services Tax (GST) revenues rose to nearly 1.5 lakh crore in December 2022, 15% higher than a year ago and 2.5% over November’s collections that had marked a three-month low.

About the News:

  • This is the tenth month in a row that GST collections have crossed the 1.4 lakh crore mark, with revenues from import of goods rising 8% and revenues from domestic transactions (including import of services) up 18% from the revenues yielded by these sources during December 2021. 
  • The gross GST revenue collected during December 2022, which reflect transactions undertaken in November, is 1,49,507 crore, of which Central GST (CGST) is 26,711 crore, State GST (SGST) is 33,357 crore, Integrated GST (IGST) is 78,434 crore (including 40,263 crore collected on import of goods) and Cess is 11,005 crore (including 850 crore collected on import of goods), the Finance Ministry said.
  •  “The Government has settled 36,669 crore to the CGST and 31,094 crore to SGST from IGST as regular settlement. The total revenue of Centre and the States after regular settlements in the month of December 2022 is 63,380 crore for CGST and 64,451 crore for the SGST,” it added.
  • On a sequential basis, while there was a 2.5% rise in revenues from November to December 2022, the number of e-way bills generated went up 3.95% to 7.9 crore in December.
  • While revenues from domestic transactions rose 18% overall, a dozen States recorded higher growth in tax collections and 13 States reported slower growth rates. 
  • Goa, Odisha and Manipur reported a contraction in revenues of 22%, 6% and 5%, respectively, even as Chhatisgarh’s revenues were flat year-on-year. 
  • Bihar reported the highest growth in revenues at 36%, followed by Nagaland (30%), the erstwhile State of Jammu and Kashmir (28%), Arunachal Pradesh (27%), with Gujarat and Andhra Pradesh seeing GST inflows rise by 26% each. Tamil Nadu’s revenues rose 25%, followed closely by Rajasthan and West Bengal (24%), Madhya Pradesh (22%) and Maharashtra (20%).
  • Among the Union Territories, Ladakh reported a sharp 68% spike in revenues, followed by Dadra Nagar Haveli (37%), Chandigarh (33%) and Puducherry (30%). However, Daman and Diu reported a whopping 86% drop in GST collections, with Lakshadweep and Andaman and Nicobar Islands also recording contractions of 36% and 19%, respectively.
  • Abhishek Jain, partner indirect tax, KPMG said the robust GST collections suggest that 1.5 lakh crore may be ‘the new normal’ for monthly revenues, as the December’s numbers came in after peak festive sales are over.

What are the reasons for the Rise of the GST?

  • The sharp surge has come on the back of anti-evasion measures, “especially action against fake billers”, and a pick-up in economic activity.
  • Rate rationalization measures undertaken by the GST Council to correct ‘inverted duty structure’.
  • Inverted Tax Structure refers to a situation where the rate of tax, that is GST, on inputs is higher than the rate of tax on output supplies or finished goods.
  • Economic recovery and increased domestic consumption.
  • The total number of e-way bills generated in February was 6.91 crore, higher than 6.88 crore seen a month ago, despite it being a shorter month, which indicates the “recovery of business activity at faster pace”.

What is Goods and Services Tax?

  • GST was introduced through the 101st Constitution Amendment Act, 2016.
  • It is one of the biggest indirect tax reforms in the country.
  • It was introduced with the slogan of ‘One Nation One Tax’.
  • The GST has subsumed indirect taxes like excise duty, Value Added Tax (VAT), service tax, luxury tax etc.
  • It is essentially a consumption tax and is levied at the final consumption point.
  • This has helped mitigate the double taxation, cascading effect of taxes, multiplicity of taxes, classification issues etc., and has led to a common national market.
  • The GST that a merchant pays to procure goods or services (i.e. on inputs) can be set off later against the tax applicable on supply of final goods and services.
  • The set off tax is called input tax credit.
  • The GST avoids the cascading effect or tax on tax which increases the tax burden on the end consumer.

Tax Structure under GST:

  • Central GST to cover Excise duty, Service tax etc,
  • State GST to cover VAT, luxury tax etc.
  • Integrated GST (IGST) to cover inter-state trade.
  • IGST per se is not a tax but a system to coordinate state and union taxes.
  • It has a 4-tier tax structure for all goods and services under the slabs- 5%, 12%, 18% and 28%.

Delhi HC in trademark infringement claim

Why in News?

  • The Delhi High Court granted an interim injunction in favour of Hamdard Laboratories in its plea against Sadar Laboratories Private Limited for infringing its registered trademark. 

About the News:

  • The Court has restrained the manufacture and sale of sweet beverage concentrate ‘Sharbat Dil Afza’ during the pendency of a lawsuit for alleged trademark infringement by Hamdard Dawakhana which sells ‘Rooh Afza’.

What is a Trademark?

  • A trademark is a sign capable of distinguishing the goods or services of one enterprise from those of other enterprises. Trademarks are protected by Intellectual Property Rights (IPR).
  • In India, trademarks are governed by the Trade Marks Act 1999, which was amended in 2010.
  • It legally differentiates a product or service from all others of its kind and recognizes the source company’s ownership of the brand.
  • Although trademarks do not expire, the owner must make regular use of it in order to receive the protections associated with them.
  • It serves as a badge of origin exclusively identifying a particular business as a source of goods or services.
  • Trademark infringement is the unauthorised usage of a sign that is identical or deceptively similar to a registered trademark.
  • A mark is said to be strong when it is well-known and has acquired a high degree of goodwill.
  • The degree of the protection of any trademark changes with the strength of the mark; the stronger the mark, the higher the requirement to protect it.

What is the Court’s Verdict?

  • The court said Rooh Afza served as the source identifier for Hamdard for over a century and has acquired immense goodwill and it was essential to ensure that the competitors keep a safe distance from the mark.
  • It is not difficult to conceive that a person who looks at the label of ‘DIL AFZA’ may recall the label of ‘ROOH AFZA’ as the word ‘AFZA’ is common and the meaning of the words ‘ROOH’ and ‘DIL’, when translated in English, are commonly used in conjunction.
  • Both the products have the “same deep red colour and texture” and “structure of the bottles is not materially different” and thus opined that the “commercial impression of the impugned trademark is deceptively similar to the appellants’ trademark”.

Decriminalisation of offences under GST

Why in News?

  • The Finance Minister chaired the 48th GST Council, which recommended decriminalising certain offences under Section 132 of the Central Goods and Services Tax (CGST) Act, 2017

What is the issue?

  • The GST law is still in its early stages of development. Hence, it is vital to recognise that imposing penal provisions in an uncertain ecosystem impacts an enterprise’s ability to conduct business.

What is Goods and Services Tax?

  • GST was introduced through the 101st Constitution Amendment Act, 2016.
  • It is one of the biggest indirect tax reforms in the country.
  • It was introduced with the slogan of ‘One Nation One Tax’.
  • The GST has subsumed indirect taxes like excise duty, Value Added Tax (VAT), service tax, luxury tax etc.
  • It is essentially a consumption tax and is levied at the final consumption point.
  • This has helped mitigate the double taxation, cascading effect of taxes, multiplicity of taxes, classification issues etc., and has led to a common national market.
  • The GST that a merchant pays to procure goods or services (i.e. on inputs) can be set off later against the tax applicable on supply of final goods and services.
  • The set off tax is called input tax credit.
  • The GST avoids the cascading effect or tax on tax which increases the tax burden on the end consumer.

Offences under GST: 

  • Despite technology leverage, instances of tax evasion have surged due to culprits remaining undetected.
  • The GST law imposes severe penalties and guidelines in order to combat corruption and maintain an efficient tax collection system.

Penalties under GST law:

  • The department authorities have the jurisdiction to impose monetary fines and the seizure of goods as penalties for violating statutory provisions.
  • Criminal penalties include imprisonment and fines but can be awarded only in a criminal court following a prosecution.
  • The amount of tax evaded, the amount of Input Tax Credit (ITC) improperly claimed or used, etc, determines the length of the prison sentence.
  • The Act also divides offences into – cognisable and bailable and non-cognisable and bailable. 

Measures recommended at the 48th GST Council meeting:

  • Raising the minimum tax amount for commencing a GST prosecution from one to two crore.
  • Reducing the compounding amount from 50 to 150% of the tax amount to 25 to 100% of the tax amount.
  • Decriminalising certain offences under Section 132 of the CGST Act, 2017, such as preventing an officer from doing his duties, deliberate tampering with material evidence and failure to supply information.
  • Other suggestions include refunding unregistered individuals and facilitating e-commerce for small businesses. 

What impact will the aforementioned measures have?

  • Prosecution, arrest, and imprisonment in GST cases would occur only in the most exceptional cases.
  • Ease of doing business will be made more effective.

GI Status for Kerala’s Five Agricultural Products

Why in News?

  • The Geographical Indications Registry at Guindy, Chennai, has received an application from the Tribal Development Council, Andaman & Nicobar Islands, seeking the Geographical Indication (GI) tag for the Nicobari hodi boat which is the first application from the Union Territory seeking a tag for one its products. 

What are the Key Facts about the Latest GIs?

  • Attappady Attukombu Avara (Beans):
  • It is curved like a goat’s horn as its name indicates.
  • Its higher anthocyanin content compared to other dolichos beans imparts violet colour in the stem and fruits.
  • Anthocyanin is helpful against cardiovascular diseases along with its antidiabetic properties.
  • The higher phenolic content of Attappady Attukombu Avara imparts resistance against pest and diseases, making the crop suitable for organic cultivation.
  • Attappady Thuvara (Red Gram):
  • It is having seeds with white coat.
  • Compared to other red grams, Attappady Thuvara seeds are bigger and have higher seed weight.
  • Onattukara Ellu (Sesame):
  • Onattukara Ellu and its oil are famous for its unique health benefits.
  • Relatively higher antioxidant content in Onattukara Ellu helps in fighting the free radicals, which destroy the body cells.
  • Also, the high content of unsaturated fat makes it beneficial for heart patients.
  • Kanthalloor-Vattavada Veluthulli (Garlic):
  • Compared to the garlic produced in other areas, this garlic contains higher amount of sulphides, flavonoids, proteins and also rich in essential oil.
  • It is rich in allicin, which is effective against microbial infections, blood sugar, cancer, etc.
  • Kodungalloor Pottuvellari (Snapmelon):
  • This snap melon, which is harvested in summer, contains high amount of Vitamin C.
  • Compared to other cucurbits, nutrients such as calcium, magnesium, fibre and fat content are also high in Kodungalloor Pottuvellari.

What is GI Tag?

  • A GI or Geographical Indication is a name or a sign given to certain products that relate to a specific geographical location or origins like a region, town or country.
  • Using Geographical Indications may be regarded as a certification that the particular product is produced as per traditional methods, has certain specific qualities, or has a particular reputation because of its geographical origin.
  • Geographical indications are typically used for wine and spirit drinks, foodstuffs, agricultural products, handicrafts, and industrial products.
  • GI Tag ensures that none other than those registered as authorized users are allowed to use the popular product name. In order to function as a GI, a sign must identify a product as originating in a given place.

Who accords and regulates Geographical Indications?

  • Geographical Indications are covered as a component of intellectual property rights (IPRs) under the Paris Convention for the Protection of Industrial Property. 
  • At the International level, GI is governed by the World Trade Organisation’s (WTO’s) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). 
  • In India, Geographical Indications registration is administered by the Geographical Indications of Goods (Registration and Protection) Act, 1999 which came into force with effect from September 2003. 
  • The first product in India to be accorded with GI tag was Darjeeling tea in the year 2004-05.

What are the Benefits of GI Tags?

  • The Geographical Indication registration confers the following benefits:
  • Legal protection to the products
  • Prevents unauthorised use of GI tag products by others
  • It helps consumers to get quality products of desired traits and is assured of authenticity.
  • Promotes the economic prosperity of producers of GI tag goods by enhancing their demand in national and international markets.

What are the Significances of GI Tags?

  • A geographical indication right facilitates those who have the right to use the indication to prohibit its usage by a third party whose product does not conform to the applicable standards.
  • For example, in the purview in which the Darjeeling geographical indication is protected, producers of Darjeeling tea can omit the term “Darjeeling” for tea not grown in their tea gardens or not produced according to the norms set out in the code of practice for the geographical indication.
  • However, a protected GI does not permit the holder to forbid someone from making a product using the same approaches as those set out in the standards for that indication. Protection for a GI tag is usually procured by acquiring a right over the sign that constitutes the indication.

Challenges in GI Tags:

  • The special treatment to wines and spirits in TRIPS Agreement appears to be developed country centric.
  • Developing countries, including India, seek the same higher level of protection for all GIs as was given under TRIPS for wines and spirits.
  • The battle for GI tag between states. False use of geographical indications by unauthorized parties is detrimental to consumers and legitimate producers.
  • Cheap Power loom saris are sold as reputed Banarsi handloom saris, harming both the producers and consumers.
  • Such unfair business practices result in loss of revenue for the genuine right-holders of the GI and also misleads consumers.
  • Protection of GI has, over the years, emerged as one of the most contentious IPR issues.

Way Forward:

  • The benefits of GI tag are realised only when these products are effectively marketed and protected against illegal copying.
  • Effective marketing and protection require quality assurance, brand creation, post-sale consumer feedback and support, prosecuting unauthorised copiers, etc.
  • For internationally recognised products like Darjeeling tea, international protection is of crucial importance.
  • Legal protection to GIs also extends to protection of traditional knowledge and traditional cultural expression contained in the products.
  • Hence Intellectual Property is a power tool for economic development and wealth creation particularly in the developing world.
  • GIs have the potential to be our growth engine. Policy-makers must pay a heed to this and give Indian GI products their true reward.

RBI’s MPC starts deliberations amid expectations of moderate rate hike

Why in News?

  • The Reserve Bank of India‘s (RBI’s) rate-setting panel recently started brainstorming for the next round of monetary policy amid expectations of a moderate interest rate hike of 25-35 basis points as inflation has started showing signs of easing and economic growth tapering. 

About the News:

  • The RBI has hiked key benchmark lending rate by 50 basis points (bps) thrice since June over and above an off-cycle 40 bps increase in repo in May.
  • The current policy repo rate is 5.9%.
  • Several other experts too expect the rate hike to be in the range of 25-35 basis points on December 7.
  • On September 30, the RBI had hiked the key policy rate (repo) by 50 basis points with an aim to check inflation.
  • It was the third successive hike of 50 bps. Before the September hike, the central bank had raised the repo rate by 50 bps each in June and August, and 40 bps in May.

What is Monetary Policy Committee?

  • Strong recommendations to set monetary policy committee in India had come from Urjit Patel panel report.
  • Monetary Policy Committee is an executive body of 6 members. Of these, three members are from RBI while three other members are nominated by the Central Government.
  • Each member has one vote. In case of a tie, the RBI governor has casting vote to break the tie. MPC is required to meet for two days before deciding on rates. Further, it is needed to meet at least four times a year and make public its decisions following each meeting.
  • The core mandate of MPC is to fix the benchmark policy interest rate {Repo Rate} to contain inflation within the target level.
  • In that context, RBI is mandated to furnish necessary information to the MPC to facilitate its decision. Government also, if wishes to convey its views, can do so in writing to MPC.

Different Terminologies in Banking Sector:

  • Loan moratorium period refers to a particular period of a loan tenure during which the borrower does not have repay anything. It can be described as a waiting period before the borrower will have to start paying the equated monthly instalments (EMIs) for his or her loan. It doesn’t mean that he is completely waived off his loans.
  • REPO rate (now 5.9%) denotes Re Purchase Option – the rate by which RBI gives loans to other banks. In other words, it is the rate at which banks buy back the securities they keep with the RBI at a later period. Bank gives loan to the public at a higher rate, often 1% higher than REPO rate, at a rate known as Bank Rate
  • RBI at times borrows from banks at a rate lower than REPO rate, and that rate is known as Reverse REPO rate.
  • CRR or Cash Reserve Ratio corresponds to the percentage of cash each bank have to keep as cash reserve with RBI (in their current accounts) corresponding to the deposits they have. For example, say if State Bank of India (SBI) got a total deposit of Rs. 1 crore with them, they need to keep 4.5 % of that as cash reserve with RBI (around 4.5 lakh rupees).

The banks and other financial institutions in India have to keep a fraction of their total net time and demand liabilities in the form of liquid assets such as G-secs, precious metals, approved securities etc. The Ratio of these liquid assets to the total demand and time liabilities is called Statutory Liquidity Ratio (18%).

Essential Commodities Act

Why in News?

  • States to set up district-wise price monitoring centres for essential items.

About the Essential Commodities act:

  • The Essential Commodities Act, 1955 was enacted to ensure the easy availability of essential commodities to consumers and to protect them from exploitation by unscrupulous traders.
  • The Act provides for the regulation and control of production, distribution and pricing of commodities which are declared as essential.
  • Essential items under the Act include drugs, fertilisers, pulses and edible oils, and petroleum and petroleum products.
  • The Act aim at maintaining/increasing supplies/securing equitable distribution and availability of these commodities at fair prices.
  • Centre invokes the ECA Act’s provisions to impose stock limits in case of price/quantity distortions in the market to ensure adequate availability of essential commodities at reasonable prices.
  • States are the implementing agencies to implement the EC Act, 1955 and the Prevention of Black marketing & Maintenance of Supplies of Essential Commodities Act, 1980, by exercising powers delegated to them.
  • The list of essential commodities is reviewed from time to time with reference to their production and supply and in consultation with concerned Ministries/Departments.
  • Currently, the restrictions like licensing requirement, stock limits and movement restrictions have been removed from almost all agricultural commodities.
  • Exemptions: Wheat, pulses and edible oils, edible oilseeds and rice are certain exceptions.
  • The recent amendment to the Legal Metrology (Packaged Commodities) Rules 2011 is linked to the ECA. The Government can fix the retail price of any packaged commodity that falls under the ECA.

Arguments against ECA:

  • An archaic law: Essential Commodities Act has been in existence since 1955, when the economy was very different from what it is today. It was an economy ravaged by famine and food shortages.
  • Difference between storage and hoarding: Recently there is evidence of interventions not working. It is because there is a distinction between storage and hoarding.
  • As compared to older times, when the economy experiences acute shortages, today many shortage cases are actually that of hoarding.
  • Stock limits led to onion price volatility: To control soaring prices of onions over the last few months, centre through ECA imposed stock limits on onions. Instead of decreasing prices, this actually increased price volatility.
  • Although the restrictions on both retail and wholesale traders were meant to prevent hoarding and enhance supply in the market, the Survey showed that there was actually an increase in price volatility and a widening wedge between wholesale and retail prices.
  • Lower stock limit led traders and wholesalers to immediately offload most of the kharif crop which led to a sharp increase in the volatility.
  • Disincentivises storage infrastructure development: With too-frequent stock limits, traders may have no reason to invest in better storage infrastructure in the long run.
  • Also, food processing industries need to maintain large stocks to run their operations smoothly. Stock limits curtail their operations. In such a situation, large scale private investments are unlikely to flow into food processing and cold storage facilities.
  • Higher prices of medicines: Drug Price Control Order issued under the ECA also distorted the market and actually made medicines less affordable.
  • The increase in prices is greater for more expensive formulations than for cheaper ones and for those sold in hospitals rather than retail shops.
  • Rent seeking and Low conviction rates: Despite many raids conducted under the ECA in 2019, the conviction rate was abysmally low. The ECA only seems to enable rent-seeking and harassment.

Way Forward:

  • Adequate supply: Given that almost all crops are seasonal, ensuring round-the-clock supply requires adequate build-up of stocks during the season.
  • Without the ECA the common man would be at the mercy of opportunistic traders and shopkeepers.
  • Genuine shortages: There can be genuine shortages triggered by weather-related disruptions in which case prices will move up.
  • So, if prices are always monitored, farmers may have no incentive to farm.
  • Difficult to differentiate between hording and shortage: It may not always be possible to differentiate between genuine stock build-up and speculative hoarding.

Government forms Panel to look into MGNREGA’s efficacy

Why in News?

  • The Central government has constituted a committee to review the implementation of the MGNREGA scheme, especially to assess the programme’s efficacy as a poverty alleviation tool.  

Background:

  • The Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) was enacted in 2005, and the demand-driven scheme promises 100 days of unskilled work per year to every rural household that wishes to participate.
  • It was launched as a poverty alleviation instrument for the rural region, providing them with a safety net in the form of guaranteed work and wages. The scheme now has 51 crore active workers enrolled.
  • However, it was felt that states like UP and Bihar where there is a higher level of poverty, haven’t been able to utilise the scheme optimally.
  • The scheme has also been criticised by economists like Jagdish Bhagwati and Arvind Panagariya as an “inefficient instrument of shifting income to the poor”.

About the committee:

  • The Sinha committee (named after former Rural Development secretary Amarjeet Sinha) has now been tasked to study –
  • The various factors behind the demand for MGNREGA work,
  • The expenditure trends and inter-State variations, and
  • The composition of work.
  • It will suggest (within 3 months) what changes in focus and governance structures are required to make MGNREGA more effective.

Terms of reference of the committee:

  • It will look at the argument that the cost of providing work has also shot up since the scheme first started.
  • It will review the reasons and recommend ways to bring in a greater focus on poorer areas.
  • It will study if the composition of work taken up presently under the scheme should be changed, i.e., whether it should focus more on community-based assets or individual works.

Criticism of the scheme:

  • Lack of tangible asset creation: Bihar, for example, despite its levels of poverty, does not generate assets to make a concrete difference, while Kerala which is economically better has been utilising it for asset creation.
  • Allocation of funds is not as per the needs of the states: From the above example, while Bihar needs MGNREGA more, Kerala cannot be denied funds because of the current structure of the programme.

India-Australia Economic Cooperation and Trade Agreement

Why in News?

  • Commerce and Industry Minister Piyush Goyal recently said that the trade pact with Australia that was ratified by the Australian Parliament on November 22 will “significantly open up opportunities” for many Indian business sectors.

About the News:

  • In February 2022, India and Australia announced that they were going to sign such an agreement.
  • The negotiations for India-Australia ECTA were formally re-launched in September 2021 and concluded on a fast-track basis by the end of March 2022.

What is the Economic Cooperation and Trade Agreement?

  • It is the first Free Trade Agreement (FTA) that India has signed with a major developed country in over a decade.
  • In February, India signed an FTA with the UAE and is currently working on FTAs with Israel, Canada, UK and the European Union.
  • The Agreement encompasses cooperation across the entire gamut of bilateral economic and commercial relations between the two friendly countries, and covers areas like:
  • Trade in Goods, Rules of Origin.
  • Trade in Services.
  • Technical Barriers to Trade (TBT).
  • Sanitary and Phytosanitary (SPS) measures.
  • Dispute Settlement, Movement of Natural Persons.
  • Telecom, Customs Procedures.
  • Pharmaceutical products, and Cooperation in other Areas.
  • ECTA provides for an institutional mechanism to encourage and improve trade between the two countries.
  • The ECTA between India and Australia covers almost all the tariff lines dealt in by India and Australia respectively.
  • India will benefit from preferential market access provided by Australia on 100% of its tariff lines.
  • This includes all the labour-intensive sectors of export interest to India such as Gems and Jewellery, Textiles, leather, footwear, furniture etc.
  • On the other hand, India will be offering preferential access to Australia on over 70% of its tariff lines, including lines of export interest to Australia which are primarily raw materials and intermediaries such as coal, mineral ores and wines etc.
  • Under the agreement, Indian graduates from STEM (Science, Technology, Engineering and Mathematics) will be granted extended post-study work visas.
  • Australia will also set up a programme to grant visas to young Indians looking to pursue working holidays in Australia.

What is the Significance of the Agreement?

  • It will provide zero-duty access to 96% of India’s exports to Australia including shipments from key sectors such as engineering goods, gems and jewellery, textiles, apparel and leather.
  • It will boost bilateral trade in goods and services to USD 45-50 billion over five years, up from around USD 27 billion, and generate over one million jobs in India, according to a government estimate.
  • It will also give about 85% of Australia’s exports zero-duty access to the Indian market, including coal, sheep meat and wool, and lower duty access on Australian wines, almonds, lentils, and certain fruits.

What are Free Trade Agreements?

  • It is a pact between two or more nations to reduce barriers to imports and exports among them. Under a free trade policy, goods and services can be bought and sold across international borders with little or no government tariffs, quotas, subsidies, or prohibitions to inhibit their exchange.
  • The concept of free trade is the opposite of trade protectionism or economic isolationism.
  • FTAs can be categorised as Preferential Trade Agreement, Comprehensive Economic Cooperation Agreement (CECA), Comprehensive Economic Partnership Agreement (CEPA).

How has been the India- Australia Trade Relation so far?

  • India and Australia enjoy excellent bilateral relations that have undergone transformational evolution in recent years, developing along a positive track, into a friendly partnership.
  • This is a special partnership characterised by shared values of pluralistic, parliamentary democracies, Commonwealth traditions, expanding economic engagement, long standing people-to-people ties and increasing high level interaction.
  • The India-Australia Comprehensive Strategic Partnership initiated during the India-Australia Leaders’ Virtual Summit held in June 2020 is the cornerstone of India-Australia multi-faceted bilateral relations.
  • Growing India-Australia economic and commercial relations contribute to the stability and strength of a rapidly diversifying and deepening bilateral relationship between the two countries.
  • India and Australia have been each other’s important trading partners.
  • Australia is the 17th largest trading partner of India and India is Australia’s 9th largest trading partner.
  • India-Australia bilateral trade for both merchandise and services is valued at USD 27.5 billion in 2021.
  • India’s merchandise exports to Australia grew 135% between 2019 and 2021. India’s exports consist primarily of a broad-based basket largely of finished products and were USD 6.9 billion in 2021.
  • India’s merchandise imports from Australia were USD 15.1 billion in 2021, consisting largely of raw materials, minerals and intermediate goods.
  • India and Australia are partners in the trilateral Supply Chain Resilience Initiative (SCRI) arrangement along with Japan which seeks to enhance the resilience of supply chains in the Indo-Pacific Region.
  • Further, India and Australia are also members of the QUAD grouping (India, the US, Australia and Japan), also comprising the US, and Japan, to further enhance cooperation and develop partnership across several issues of common concern.

Way Forward:

  • Shared values, shared interests, shared geography and shared objectives are the bedrock of deepening India-Australia ties and the cooperation and coordination between the two countries have picked up momentum in recent years.
  • Both India and Australia share a vision of a free, open, inclusive and rules-based Indo-Pacific region and cooperative use of the seas by adherence to international law including the United Nations Convention on the Law of the Sea (UNCLOS) and peaceful resolution of disputes rather than through unilateral or coercive actions.
  • The India-Australia ECTA will further cement the already deep, close and strategic relations between the two countries and will significantly enhance bilateral trade in goods and services, create new employment opportunities, raise living standards, and improve the general welfare of the peoples of the two countries.

A & N seeks GI Tag for Nicobari hodi Boat

Why in News?

  • The Geographical Indications Registry at Guindy, Chennai, has received an application from the Tribal Development Council, Andaman & Nicobar Islands, seeking the Geographical Indication (GI) tag for the Nicobari hodi boat which is the first application from the Union Territory seeking a tag for one its products. 

About the Brass and Bell Metal products:

  • The hodi is the Nicobari tribe’s traditional craft. 
  • It is an outrigger canoe, very commonly operated in the Nicobar group of islands. 
  • The technical skills for building a hodi are based on indigenous knowledge inherited by the Nicobarese from their forefathers. 
  • The hodi is built using either locally available trees or from nearby islands, and its design varies slightly from island to island.

What is GI Tag?

  • A GI or Geographical Indication is a name or a sign given to certain products that relate to a specific geographical location or origins like a region, town or country.
  • Using Geographical Indications may be regarded as a certification that the particular product is produced as per traditional methods, has certain specific qualities, or has a particular reputation because of its geographical origin.
  • Geographical indications are typically used for wine and spirit drinks, foodstuffs, agricultural products, handicrafts, and industrial products.
  • GI Tag ensures that none other than those registered as authorized users are allowed to use the popular product name. In order to function as a GI, a sign must identify a product as originating in a given place.

Who accords and regulates Geographical Indications?

  • Geographical Indications are covered as a component of intellectual property rights (IPRs) under the Paris Convention for the Protection of Industrial Property. 
  • At the International level, GI is governed by the World Trade Organisation’s (WTO’s) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). 
  • In India, Geographical Indications registration is administered by the Geographical Indications of Goods (Registration and Protection) Act, 1999 which came into force with effect from September 2003. 
  • The first product in India to be accorded with GI tag was Darjeeling tea in the year 2004-05.

What are the Benefits of GI Tags?

  • The Geographical Indication registration confers the following benefits:
  • Legal protection to the products
  • Prevents unauthorised use of GI tag products by others
  • It helps consumers to get quality products of desired traits and is assured of authenticity.
  • Promotes the economic prosperity of producers of GI tag goods by enhancing their demand in national and international markets.

What are the Significances of GI Tags?

  • A geographical indication right facilitates those who have the right to use the indication to prohibit its usage by a third party whose product does not conform to the applicable standards.
  • For example, in the purview in which the Darjeeling geographical indication is protected, producers of Darjeeling tea can omit the term “Darjeeling” for tea not grown in their tea gardens or not produced according to the norms set out in the code of practice for the geographical indication.
  • However, a protected GI does not permit the holder to forbid someone from making a product using the same approaches as those set out in the standards for that indication. 
  • Protection for a GI tag is usually procured by acquiring a right over the sign that constitutes the indication.

Challenges in GI Tags:

  • The special treatment to wines and spirits in TRIPS Agreement appears to be developed country centric.
  • Developing countries, including India, seek the same higher level of protection for all GIs as was given under TRIPS for wines and spirits.
  • The battle for GI tag between states.
  • False use of geographical indications by unauthorized parties is detrimental to consumers and legitimate producers. Cheap Power loom saris are sold as reputed Banarsi handloom saris, harming both the producers and consumers.
  • Such unfair business practices result in loss of revenue for the genuine right-holders of the GI and also misleads consumers.
  • Protection of GI has, over the years, emerged as one of the most contentious IPR issues.

Way Forward:

  • The benefits of GI tag are realised only when these products are effectively marketed and protected against illegal copying.
  • Effective marketing and protection require quality assurance, brand creation, post-sale consumer feedback and support, prosecuting unauthorised copiers, etc.
  • For internationally recognised products like Darjeeling tea, international protection is of crucial importance.
  • Legal protection to GIs also extends to protection of traditional knowledge and traditional cultural expression contained in the products.
  • Hence Intellectual Property is a power tool for economic development and wealth creation particularly in the developing world.
  • GIs have the potential to be our growth engine. Policy-makers must pay a heed to this and give Indian GI products their true reward.

Pradhan Mantri Garib Kalyan Anna Yojana scheme (PMGKAY)

Why in News?

  • The extension of the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY), a scheme to distribute free foodgrains to the poor, for another three months, comes as a surprise for many reasons.

What is PMGKAY?

  • The Pradhan Mantri Garib Kalyan Anna Yojana scheme was part of the Centre’s initial COVID-19 relief package, back in March 2020 when the first lockdown was announced.
  • It provides for 5 kg of rice or wheat per person per month to be distributed free of cost to the 80 crore beneficiaries of the National Food Security Act.
  • This is over and above the 5 kg already provided to ration card holders at a subsidised rate, thus ensuring a doubling of foodgrain availability to poor people at a time when the pandemic and lockdown was decimating livelihoods.
  • The scheme was initially meant to run from April to June 2020, but was then extended for another five months from July to November.
  • In these first two phases, 320 lakh tonnes of grain were allotted and about 95% distributed to beneficiaries.
  • Initially, one kg of pulses was also provided under the scheme, which was later restricted to chana dal only, and then discontinued in later phases.
  • After the onset of the second wave of the pandemic, PMGKAY was rolled out for two months again, in May-June 2021, and was then further extended for another five months, from July to November.
  • Another 278 lakh tonnes of grain were allotted for these two phases, and distribution is still ongoing.

Were all poor people covered under the scheme?

  • The scheme only provided grain for those families who held ration cards.
  • During the first lockdown, the plight of migrant workers who held cards registered in their home villages but were stranded without food or employment in the cities where they worked, came to the limelight.
  • A number of other poor families did not possess ration cards at all for a variety of reasons, including the state quotas on the number of ration cards.
  • In May and June 2020, the Centre allocated 8 lakh tonnes of foodgrain to be distributed by States under the Atma Nirbhar Bharat scheme for stranded migrants and others without ration cards, although only 40% had been distributed even by August. The scheme was not revived during the second lockdown.
  • The 80 crore cap on NFSA beneficiaries and state ration card quotas are based on 2011 census data.
  • Given the projected increase in population since then, economists have estimated that 10 crore eligible people are being excluded from the NFSA’s safety net.
  • In its June 2021 judgement in a suo moto case on the plight of migrant workers, the Supreme Court directed that the Centre and State should continue providing foodgrains to migrants whether or not they had ration cards.

What are the arguments for and against extension of PMGKAY?

  • As the economy is also reviving and the OMSS [or Open Market Sale Scheme] is also exceptionally good, there is no proposal from the department for extension.
  • It was previously noted that States are free to buy rice and wheat under OMSS, and distribute it to migrants and other vulnerable communities.
  • The Right to Food Campaign, pointing to the SC judgement and noting that the pandemic still exists, unemployment remains at record levels and there is widespread hunger among vulnerable communities.
  • ThWhy in News?
    • The extension of the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY), a scheme to distribute free foodgrains to the poor, for another three months, comes as a surprise for many reasons.

    What is PMGKAY?

    • The Pradhan Mantri Garib Kalyan Anna Yojana scheme was part of the Centre’s initial COVID-19 relief package, back in March 2020 when the first lockdown was announced.
    • It provides for 5 kg of rice or wheat per person per month to be distributed free of cost to the 80 crore beneficiaries of the National Food Security Act.
    • This is over and above the 5 kg already provided to ration card holders at a subsidised rate, thus ensuring a doubling of foodgrain availability to poor people at a time when the pandemic and lockdown was decimating livelihoods.
    • The scheme was initially meant to run from April to June 2020, but was then extended for another five months from July to November.
    • In these first two phases, 320 lakh tonnes of grain were allotted and about 95% distributed to beneficiaries.
    • Initially, one kg of pulses was also provided under the scheme, which was later restricted to chana dal only, and then discontinued in later phases.
    • After the onset of the second wave of the pandemic, PMGKAY was rolled out for two months again, in May-June 2021, and was then further extended for another five months, from July to November.
    • Another 278 lakh tonnes of grain were allotted for these two phases, and distribution is still ongoing.

    Were all poor people covered under the scheme?

    • The scheme only provided grain for those families who held ration cards.
    • During the first lockdown, the plight of migrant workers who held cards registered in their home villages but were stranded without food or employment in the cities where they worked, came to the limelight.
    • A number of other poor families did not possess ration cards at all for a variety of reasons, including the state quotas on the number of ration cards.
    • In May and June 2020, the Centre allocated 8 lakh tonnes of foodgrain to be distributed by States under the Atma Nirbhar Bharat scheme for stranded migrants and others without ration cards, although only 40% had been distributed even by August. The scheme was not revived during the second lockdown.
    • The 80 crore cap on NFSA beneficiaries and state ration card quotas are based on 2011 census data.
    • Given the projected increase in population since then, economists have estimated that 10 crore eligible people are being excluded from the NFSA’s safety net.
    • In its June 2021 judgement in a suo moto case on the plight of migrant workers, the Supreme Court directed that the Centre and State should continue providing foodgrains to migrants whether or not they had ration cards.

    What are the arguments for and against extension of PMGKAY?

    • As the economy is also reviving and the OMSS [or Open Market Sale Scheme] is also exceptionally good, there is no proposal from the department for extension.
    • It was previously noted that States are free to buy rice and wheat under OMSS, and distribute it to migrants and other vulnerable communities.
    • The Right to Food Campaign, pointing to the SC judgement and noting that the pandemic still exists, unemployment remains at record levels and there is widespread hunger among vulnerable communities.
    • They argued that the government should not only extend PMGKAY for another six months, but also universalise the public distribution system itself, so that anyone in need would receive food support regardless of whether they possessed a ration card or not.
    • They also suggested that pulses and cooking oils be added to the monthly entitlements, given the recent rise in prices of these commodities.

    ey argued that the government should not only extend PMGKAY for another six months, but also universalise the public distribution system itself, so that anyone in need would receive food support regardless of whether they possessed a ration card or not.

  • They also suggested that pulses and cooking oils be added to the monthly entitlements, given the recent rise in prices of these commodities.

Eklavya Model Residential Schools

Why in News?

  • The government is pushing to set up 740 Eklavya Model Residential Schools (EMRS) for Scheduled Tribe (ST) students.

What are EMRS?

  • EMRS is a scheme for making model residential schools for STs across India.
  • It started in the year 1997-98.
  • Its nodal ministry is Ministry of Tribal Affairs.
  • The aim of the scheme to build schools at par with the Jawahar Navodaya Vidyalayas and Kendriya Vidyalayas with focus on special state-of-the-art facilities for preserving local art and culture besides providing training in sports and skill development.
  • The EMR School follows the CBSE curriculum.
  • In 2018-19, revamping of the EMRS scheme was approved by the Cabinet.
  • Since the new guidelines have been put into place, the Ministry of Tribal Affairs sanctioned 332 of the targeted 452 schools till 2021-22.
  • As of November 2022, a total of 688 schools have been sanctioned, of which 392 are functional.
  • Of the 688, 230 have completed construction and 234 are under construction, with 32 schools still stuck due to land acquisition issues.

What were the Old Guidelines?

  • Although the Union government had sanctioned a certain number of preliminary EMRS, the States and Union Territories were responsible for seeking sanction of new schools as and when they needed it.
  • The funds for these schools were to come from the grants under Article 275(1) and the guidelines mandated that unless States finished constructing the schools sanctioned by the Centre, they would not be entitled to funds for new ones.
  • Apart from the infrastructural requirements of 20-acre plots for each EMRS, the guidelines did not have any criteria of where the EMRS could be set up, leaving it to the discretion of State governments.

What are the New Guidelines?

  • The new guidelines in 2018-19 gave the Union government more power to sanction schools and manage them.
  • A National Education Society for Tribal Students (NESTS) was set up and entrusted with the management of the State Education Society for Tribal Students (SESTS), which would run the EMRS on the ground.
  • The new guidelines set a target of setting up an EMRS in every tribal sub-district and introduced a “population criteria” for setting them up.
  • One EMRS will be set-up per sub-district that has at least a 20,000-odd Scheduled Tribe (ST) population, which must be 50% of the total population in that area.
  • The minimum land requirement for setting up an EMRS was reduced from 20 acres to 15 acres.

What are the Challenges?

  • Requirement of 15-acre Area: 
  • As per the Standing Committee Report, requirement of 15-acre area is making the identification and acquisition of land troublesome, especially in hilly areas, leftwing extremism-affected areas and the northeast.
  • Population Criteria: 
  • The Standing Committee noted that the population criteria is depriving a scattered tribal population of the benefit of EMRS. Sometimes, when the population criteria are fulfilled, 15-acre plots are not available.
  • Shortage of Teachers: 
  • Despite the setting up of the NESTS, there was a shortage of teachers.
  • Though the new guidelines allowed NESTS to suggest measures for teacher recruitment, they never made them mandatory for the States to follow.
  • This led to non-uniformity in the quality of teachers, not enough recruitment in reserved positions, and a large number of schools recruiting teachers contractually, in a bid to save on salary expenses.
  • As of July 2022, all functional EMRS had a teaching strength of just under 4,000 against the 11,340 recommended by NESTS.

Way Forward:

  • Guidelines regarding area of land and population criteria should be relaxed so that the less dense tribal populations can also reap the benefit of EMRS scheme.
  • More control of school management should be given to NESTS to overcome the shortage of teachers.
  • Also, mandatory guidelines about teacher recruitment must be issued for the States.

Declining Consumer Demand and Reluctant Investors

Why in News?

  • In September, Finance Minister Nirmala Sitharaman was anguished that industry was holding back from investing in manufacturing despite a significant cut in corporate tax rates in 2019.

Analyzing the corporate Investment since the pandemic:

  • Less investment is not the result of losses: The slowdown in corporate investment did not happen because companies were making losses.
  • More profit but less investments by corporates: In fact, private companies, boosted by considerable tax cuts, made windfall profits. A State Bank of India analysis shows that tax cuts contributed 19% to the top line of companies during the pandemic. But this did not result in increased investments.
  • Dividends to shareholders: Before the pandemic, instead of investing in themselves, companies chose to reward shareholders with higher dividends.
  • Investment in equity and debt instead of Infrastructure: During the pandemic, they did not use the profits for paying out dividends; they retained a big chunk of the profits. However, instead of investing in buildings, plants and machinery, they invested in equity shares and debt instruments.
  • Corporate cited the slowdown in demand as reason for less investment: So, both before and after the outbreak, they shied away from capital investments. The hesitancy to invest can be explained by a slowdown in the demand side of the economy.
  • Corporates didn’t invest in long term returns sectors: Consumer demand started to decline the year before the pandemic and worsened after the COVID19 outbreak. This forced companies to use the increased profits to decrease their debts, pay dividends and invest in financial instruments instead of increasing productivity by making capital investments.

 

What is the current consumer’s demand situation?

  • Average Consumer sentiment index: Private companies invest when they are able to estimate profits, and that comes from demand. The Centre for Monitoring Indian Economy’s (CMIE) consumer sentiment index is still below pre-pandemic levels but is far higher than what was seen 12-18 months ago.
  • Buoyant Aggregate demand: RBI’s Monetary policy report dated September 30 says, Data for Q2 (ended Sept) indicate that aggregate demand remained buoyant, supported by the ongoing recovery in private consumption and investment demand. It shows that seasonally adjusted capacity utilization rose to 74.3% in Q1 the highest in the last three years.
  • High household savings: Along with household savings intentions remaining high, might hold the key to the investment cycle kicking in.

Statistic on demand and investment:

  • New investment projects: The new investment projects announced as a % of GDP, since FY18, the share has remained below the 5% mark, compared to over 9% between FY05 and FY22.
  • Collection of corporate tax decreased: Corporate tax and income tax collected in India as a % of GDP after the cut in 2019, the share of corporate tax declined dramatically, while the share of income tax gradually increased.
  • Double burden on tax payers: The shift in tax burden from the corporates to the people came at a time of job losses and reduced income levels. This pushed more people into poverty.
  • Corporate profit increased after tax cut: Profit after tax earned by non-financial private companies in ₹ trillion after the tax cut, the profits of these companies rose to ₹4-5 trillion in the last two financial years from ₹1-2 trillion in many of the previous periods.
  • Increase and decrease in dividend to shareholders: Dividends paid by non-financial private companies as a share of profits earned after tax, Payouts to shareholders surged in FY20, the year before the pandemic, but reduced in the following years.
  • Profit retention increased: Retained profits as a % of profit after tax surged to 63% in FY22 the highest in a decade (limited companies were analyzed in FY22, so data are provisional).
  • Profits are invested in equities: In FY21, the debt-to-equity ratio came down to 0.86 the lowest in at least three decades. In FY22 (provisional data), it came down further to 0.71.
  • Year on year decline in capital investment: Year on year change in the investments of non-financial private companies in fixed assets such as buildings, plants, machinery, transport and infrastructure have declined in recent years. But the year on year change in investments in financial instruments such as equity, debt and mutual funds have surged.

Conclusion:

  • Corporates are holding their pockets in hope of demand rise in future. However, this affects the post-pandemic recovery of economy. IMF and RBI was right to revise their growth forecast this year. Unequal recovery of economy have certainly affected the income levels of middle class. Government has taken a lot of step on supply side (corporate side and banking reform) but no intervention in revival of demand.

The Protection of Children from Sexual Offences (POCSO) Act

Why in News?

  • The POCSO Act brings tribals in the Nilgiris into conflict with the law, as youth under the age of 18 in relationships within or outside marriage are subject to the Act’s stringent provisions.

About the News:

  • The POCSO Act brings tribals in the Nilgiris into conflict with the law, as youth under the age of 18 in relationships within or outside marriage are subject to the Act’s stringent provisions.

About the Protection of Children from Sexual Offences (POCSO) Act:

  • The Union Ministry of Women and Child Development led the introduction of the POCSO Act in 2012.
  • The Act was designed to protect children from sexual assault, sexual harassment and pornography offences, as well as to provide for the establishment of Special Courts for the trial of such offences.
  • The Act was amended in 2019 for enhancing the punishments for specific offences in order to deter abusers and ensure a dignified childhood.

Salient features:

  • A gender-neutral law: The POCSO Act establishes a gender-neutral tone for the legal framework available to child sexual abuse victims by defining a child as “any person” under the age of 18.
  • Not reporting abuse is an offence: Any person (except children) in charge of an institution who fails to report the commission of a sexual offence relating to a subordinate is liable to be punished.
  • No time limit for reporting abuse: A victim can report an offence at any time, even a number of years after the abuse has been committed.
  • Maintaining confidentiality of the victim’s identity: The Act prohibits disclosure of the victim’s identity in any form of media, except when permitted by the special courts established under the act.

New obligations under the POCSO Rules 2020:

  • Any institution housing children or coming in regular contact is required to conduct a periodic police verification and background check of every employee.
  • Such an institution must impart regular training to sensitise its employees on child safety and protection.
  • The institution has to adopt a child protection policy based on the principle of zero tolerance for violence against children.

POCSO Act’s performance in comparison to global standards:

  • A 2019 Economist Intelligence Unit report ranked India’s legal system for safeguarding children from sexual abuse and exploitation as the best of the countries surveyed.
  • On this metric, India outranked the United Kingdom, Sweden and Australia.

Concerns:

  • Despite the existence of such comprehensive child sexual abuse law, the scale of such abuse is staggering.
  • According to a recent survey, one in every two children is a victim of sexual abuse in India.
  • Furthermore, in the vast majority of cases, the perpetrators are known to the victim, causing the victim to be hesitant to approach authorities for redress.
  • Incidents of child abuse have also risen exponentially since the Covid-19 pandemic, with the emergence of new forms of cybercrime.
  • The general level of awareness or knowledge on the part of minor girls and boys of the POCSO Act remains severely inadequate in the country.
  • Child marriage is common among certain tribal groups in the country, resulting in the criminalisation of 17-18 years old youths due to a lack of knowledge of the POCSO Act.

Way ahead: 

  • Recently, the Karnataka HC has directed the State Education Department to set up a mechanism for educating students, at least from Class IX onwards about the act and its provisions.

Pradhan Mantri Jan-Aushadhi Yojana

Why in News?

  • Janaushadhi Diwas week has been observed from 1st March to 7th March 2022.

About the News:

  • Theme of 4th Janaushadhi Diwas: “Jan Aushadhi-Jan Upyogi”
  • Pharmaceuticals & Medical Devices Bureau of India (PMBI) is the implementing agency of Pradhan Mantri Bhartiya Janaushadhi Pariyojana (PMBJP).
  • All the districts of the country have been covered under the scheme.
  • Effective IT-enabled logistics and supply-chain systems for ensuring real-time distribution of medicines at all outlets have also been introduced.
  • Product basket of PMBJP presently comprises 1,451 drugs and 240 surgical instruments.

What is National Health Authority (NHA)?

  • National Health Authority (NHA) is the apex body responsible for implementing India’s flagship public health insurance/assurance scheme called “Ayushman Bharat Pradhan Mantri Jan Arogya Yojana”.
  • It has been entrusted with the role of designing strategy, building technological infrastructure and implementation of “National Digital Health Mission” to create a National Digital Health Eco-system.
  • National Health Authority is the successor of the National Health Agency, which was functioning as a registered society since 23rd May, 2018.
  • Pursuant to Cabinet decision for full functional autonomy, National Health Agency was reconstituted as the National Health Authority on 2nd January 2019, under Gazette Notification.
  • NHA is governed by a Governing Board chaired by the Union Minister for Health and Family Welfare headed by a Chief Executive Officer (CEO), an officer of the rank of Secretary to the Government of India, who manages its affairs. The CEO is the Ex-Office Member Secretary of the Governing Board.
  • To implement the scheme at the State level, State Health Agencies (SHAs) in the form of a society/trust have been set up by respective States. SHAs have full operational autonomy over the implementation of the scheme in the State including extending the coverage to non SECC beneficiaries.
  • NHA is leading the implementation for national Digital Health Mission NDHM in coordination with different ministries/departments of the Government of India, State Governments, and private sector/civil society organizations.

About Universal Health Coverage:

  • The scheme will ensure Universal Health Coverage and focus on providing financial risk protection and ensuring quality and affordable essential health services to all individuals and communities.
  • Universal Health Coverage (UHC) includes the full spectrum of essential, quality health services, from health promotion to prevention, treatment, rehabilitation, and palliative care.
  • UHC enables everyone to access the services, protecting people from the financial consequences of paying for health services out of their own pockets and reducing the risk that people will be pushed to poverty.

What is Ayushman Bharat PMJAY Yojana?

  • The PMJAY, world’s largest health insurance/assurance scheme fully financed by the government, provides a cover of Rs. 5,00,000 per family per year for secondary and tertiary care hospitalisation across public and private empanelled hospitals in India.
  • Pre-hospitalisation and Post-hospitalisation expenses such as diagnostics and medicines are also included in the scheme.
  • Coverage: Over 10.74 crore poor and vulnerable entitled families (approximately 50 crore beneficiaries) are eligible for these benefits.
  • Provides Cashless Access to health care services for the beneficiary at the point of service.

What is its Significance?

  • Helps reduce catastrophic expenditure for hospitalizations, which pushes 6 crore people into poverty each year.
  • Helps mitigate the financial risk arising out of catastrophic health episodes.

Eligibility Criteria’s:

  • No Restrictions on family size, age or gender.
  • All pre–existing conditions are covered from day one.
  • Covers up to 3 days of pre-hospitalization and 15 days post-hospitalization expenses such as diagnostics and medicines.
  • Benefits of the scheme are portable across the country.
  • Services include approximately 1,393 procedures covering all the costs related to treatment, including but not limited to drugs, supplies, diagnostic services, physician’s fees, room charges, surgeon charges, OT and ICU charges etc.
  • Public hospitals are reimbursed for the healthcare services at par with the private hospitals.

Challenges and Concerns:

  • Medical audits have also revealed that private hospitals are more likely to indulge in fraud and abuse than public hospitals and more likely to discharge patients early post-surgery to cut Costs.
  • Ensuring the Accountability of Private Hospitals to provide efficient and high-quality care is a pre-eminent challenge for scheme Implementation.
  • There is huge State-wise variation in the share of Empanelled private hospitals from less than 25% in most of the north-eastern and hill States to 80% in Maharashtra.
  • Private hospitals have fewer beds than public hospitals and are more likely to be empanelled for surgical packages and super-specialties.

GST Revenues Cross 1.3 Lakh Crore in Feb

Why in News?

  • The Gross Goods and Services Tax (GST) Revenue in February was 26% higher than the pre-pandemic levels at ₹1,33,026 crore.

What is GST?

  • GST is an Indirect tax that has replaced many Indirect Taxes in India such as excise duty, VAT, services tax, etc.
  • The Goods and Service Tax Act was passed in Parliament on 29th March 2017 and came into effect on 1st July 2017. It is a single domestic indirect tax law for the entire country.
  • It is a comprehensive, multi-stage, destination-based tax that is levied on every value addition.
  • Under the GST regime, the tax is levied at every point of sale. In the case of intra-state sales, Central GST and State GST are charged. All the inter-state sales are chargeable to the Integrated GST.

What are the Components of GST?

  • There are three taxes applicable under this system:
  • CGST: It is the tax collected by the Central Government on an intra-state sale (e.g., a transaction happening within Maharashtra)
  • SGST: It is the tax collected by the state government on an intra-state sale (e.g., a transaction happening within Maharashtra)
  • IGST: It is a tax collected by the Central Government for an inter-state sale (e.g., Maharashtra to Tamil Nadu)

Advantages Of GST:

  • GST has mainly removed the cascading effect on the sale of goods and services.
  • Removal of the cascading effect has impacted the cost of goods.
  • Since the GST regime eliminates the tax on tax, the cost of goods decreases.
  • Also, GST is mainly technologically driven.
  • All the activities like registration, return filing, application for refund and response to notice needs to be done online on the GST portal, which accelerates the processes.

Issues with GST:

  • High operational cost
  • GST has given rise to complexity for many business owners across the nation.
  • GST has received criticism for being called a ‘Disability Tax’ as it now taxes articles such as braille paper, wheelchairs, hearing aid etc.
  • Petrol is not under GST, which goes against the ideals of the Unification of Commodities.
  • Take a look at the share of GST in Government Earnings for the previous fiscal:

 

 

Amazon- Future Deal

Why in News?

  • The Amazon-Future Group Dispute over a ₹24, 731–crore merger deal with Reliance took an unexpected turn in the Supreme Court when the U.S.-based e-commerce giant proposed talks to possibly end the quarrel.

About the News:

  • The SC Bench adjourned the case to March 15, giving Future time to take a call on the Amazon’s proposal.
  • The apex court did not pass any orders on Amazon’s plea for ‘withholding’ proceedings in the company law tribunal and the Delhi High Court in connection with the dispute.

What’s the Issue?

  • Future Group and Reliance Industries Limited had signed a Rs 24,713-crore deal in August 2020 for Future Retail to sell its retail, wholesale, logistics and warehousing units to Reliance Retail and Fashionstyle.
  • Amazon is Future Group’s Indian partner.
  • Amazon says Future violated a partnership contract with the asset sale to its rival and wants to scuttle it, while the indebted Indian group says it would collapse if the transaction fails.

Why did Amazon Approach SIAC?

  • The parties in a deal usually sign a contractual agreement which specifies about:
  • The arbitral institution administering the arbitration.
  • The applicable rules.
  • The seat of arbitration.
  • In this case Amazon and Future Group have under their agreement agreed to refer their disputes to SIAC, with Singapore presumably being the contractual choice for the seat/place of arbitration.

How is the Dispute taken up at the SIAC? What is the Procedure to be followed?

  • Once a dispute is referred to arbitration, the process of appointment of the arbitral tribunal takes place.
  • Composition: Typically, in case of a three member tribunal, both the parties appoint one member each to the tribunal, while the third member is jointly appointed by the two nominees or, if they fail to agree, by SIAC.

Appointment of an Emergency Arbitrator:

  • Appointment of the arbitral tribunal usually takes time.
  • Therefore, under the rules of SIAC, parties can move SIAC to appoint an emergency arbitrator to get urgent interim relief, even as the process of appointment of the main Arbitral Tribunal is Underway.

What Happens when the Parties don’t comply with the Order Voluntarily?

  • Currently under Indian law, there is no express mechanism for enforcement of the orders of the Emergency Arbitrator.
  • But, the parties voluntarily comply with the Emergency Award.
  • However, if the parties don’t comply with the order voluntarily, then the party which has won the emergency award, in this case Amazon, can move the High Court in India under Section 9 of the Arbitration & Conciliation Act, 1996, to get similar reliefs as granted by the Emergency Arbitrator.

Why has Singapore become the Hub of International Arbitration?

  • Foreign investors investing in India typically want to avoid the rigmarole of the Indian courts.
  • Foreign investors feel that Singapore is neutral ground for dispute resolution.
  • Singapore itself over time has built a stellar reputation as jurisdiction driven by rule of law with international standards and high integrity. This gives comfort to investors that the arbitration process will be quick, fair and just”.
  • According to the 2019 annual report of SIAC, India was the top user of its arbitration seat with 485 cases being referred to SIAC, followed by Philippines at 122, China at 76 and the United States at 65.

Does India has any International Arbitration centre?

  • India now has its own international arbitration centre in Mumbai.

About Singapore International Arbitration Centre (SIAC):

It is a not-for-profit international arbitration organisation based in Singapore, which administers arbitrations under its own rules of arbitration and the United Nations Commission on International Trade Law (UNCITRAL) Arbitration Rules.

Time to Rationalize Fuel Taxes

Why in News?

  • The disconnect between retail and wholesale inflation suggests that the two measures are driven by distinct and Unrelated Shocks.

The Disconnect between retain Inflation and Wholesale Inflation:

  • In the months between April 2020 and November 2020, retail inflation remained above 6%, while average wholesale inflation was -0.20%.
  • During the financial crisis (2008-2009) wholesale inflation came down significantly as commodity prices crashed after a boom, but retail inflation kept rising.
  • Correlation: This disconnect is reflected in the Contemporaneous correlation between these two measures of inflation, which we find to be very low (0.04), and not significant.
  • Understanding the reasons for the Disconnect
  • We cannot rule out feedback from wholesale inflation to retail inflation.
  • To better explore this, it helps to understand the driving forces behind retail and wholesale inflation.
  • Driving factors for CPI: Retail inflation is closely linked to food and beverage prices, partly because of their higher weightage in the consumer price index (CPI).
  • The dominance of supply shocks: High retail inflation in 2020 was primarily due to the rising prices of food and beverages.
  • The surge was likely led by the usual supply shocks—rainfall, agricultural productivity, or Covid-19-induced supply shocks.
  • This suggests two important features of Indian retail inflation: it is predominantly led by supply shocks (food inflation shock) and it is transitory in nature.
  • Driving factor for WPI: High wholesale inflation in recent months was mainly due to rising prices in fuel and power and manufacturing, which together comprise around 77% of the wholesale price index (WPI).
  • Rising fuel and energy prices in India were a result of the recent increase in global oil prices.

Takeaways:

  • High wholesale inflation should not warrant any immediate policy responses as the two inflation measures seem to reflect Different Things.
  • Overall, the high correlation between world energy inflation and India’s wholesale inflation (0.88) Indicates that India’s wholesale inflation is predominantly driven by world Commodity Prices.
  • On the other hand, the low correlation between India’s retail inflation and world energy Inflation (-0.13, and not significant), suggests that India’s retail inflation is primarily driven by domestic food prices.
  • Higher wholesale inflation implies a higher profit margin for producers, which acts as an incentive for Investment.
  • There are, in fact, some early signs of a revival in investment in recent quarters, and policy must be careful not to Derail this.

Policy Options:

  • Given the pass-through of wholesale inflation into retail inflation, if the ongoing commodity boom persists, then the fuel and power component of the WPI is likely to raise retail inflation directly.
  • At that point, there would be some urgency to increase the interest rate, which may be premature and could dampen the revival of growth prospects.
  • To avoid the interest rate response, the best option going forward would be to rationalise fuel taxes, to reduce the pass-through of global commodity prices into wholesale prices and ultimately into retail inflation.

The Myth of the Trickle-Down

Why in News?

  • There is fear that the way the money will be used by the Centre will disempower the states further, just when they must do most of the heavy lifting on Public Welfare.

Wealth Creation and Trickle-Down:

  • Failure of trickle-down: Evidence from around the world is that the economic policy paradigm, of first increasing the overall size of the pie by reducing taxes at the top and then “redistributing” the wealth, has not delivered benefits to people.
  • Gandhiji had declared that he was not against wealth creators. He lauded wealth creation.
  • However, it must not be at the cost of workers and welfare.
  • Wealth creators must be trustees of the wealth they create, not its exclusive owners.
  • The demand-side problem of the Indian Economy
  • The Indian economy is suffering from a chronic “demand-side” problem that is becoming worse with Misguided Economic Policies.
  • Young people who have been getting educated in larger numbers than before, even learning vocational skills, cannot find jobs.
  • If people don’t earn, demand will not increase, and investments in businesses will not be attractive.
  • Moreover, frustrated youth are tinderboxes for social unrest.

Financial Globalization and its Impact on India:

  • Around the world, there is reaction to the Financial Globalisation of the last 30 years.
  • In his book, Davos Man, Peter Goodman Explains how the wealthiest people have influenced economic policies in democratic countries from the 1990s to make themselves wealthier.
  • Thomas Piketty has documented how wealth inequalities have increased alarmingly.
  • Wealth has accumulated at the top, with regressive tax policies along with deregulation.
  • Government expenditure on social reforms has been crimped.

Way Forward:

  • The Global Economy must move on from hyper-financial, deregulated capitalism, which has given Easy Money too much Freedom.
  • They must move out from their Ideological Ruts.
  • Invest in Human Capital: That until the economy grows there will be no resources to invest in Human Development — whereas China invested in human development before its Economic take-off.
  • Protection to Industrial Sector: That an unprepared industrial sector will thrive in Global Free Trade — whereas the UK and US (and Japan and China too), grew their industrial sectors behind walls of protection, and then demanded that the rest open their markets to the might of their Enterprises.
  • Inclusive Growth: Political divisions by religion and caste are tearing India’s social fabric again. The Indian economy must grow inclusively to repair it.

Conclusion:

  • Indian Policymakers must urgently discover India’s own, Contextually appropriate model of Development and shed Defunct Economic Theories.

Improvements in Agri-credit System can Revive Agriculture

Why in News?

  • The Budget Speech as well as the Economic Survey 2021-22 Recommended that priority should be given to crop Diversification and allied sectors including horticulture, organic Farming, Dairying and Fishing to increase farmers income.

Focus on Increasing the Institutional Credit:

  • The Government has increased the agricultural credit target to Rs 18 lakh crore for 2022-23 from Rs 16.5 lakh crore for the current fiscal, with an allocated subsidy of Rs 20,870 crore.
  • To enable small farmers to shift from wheat and paddy or improve their income through allied sectors, they must have access to institutional credit at reasonable rates of interest.
  • Decreased quality and impact on agriculture: While the volume of credit has grown over the decades, its quality and impact on agriculture has deteriorated.
  • Over the years, the growth rate in the agriculture sector has been falling.
  • Agricultural credit has become less efficient in delivering growth.
  • Small and marginal farmers left out
  • Low penetration: In the last 10 years, agriculture credit increased by 350 per cent, but it has not reached even 15 per cent of the 12.56 crore small and marginal farmers.
  • Agricultural households with the lowest landholding (up to two hectares) get only about 15 per cent of the subsidised loan from institutional sources.
  • As per the Situation Assessment Survey of Agricultural Households by NSSO, the share of institutional loans increases with an increase in land possessed.
  • The bulk of subsidised agri-credit is grabbed by a handful of big farmers and agri-business companies.A loose definition of agri-credit has led to the leakage of loans at subsidised rates to large agri-firms.
  • One of the main reasons for this diversion is that subsidised credit disbursed at 4 per cent to 7 per cent rate interest is being refinanced to small farmers and in the open market at interest rates up to 24 per cent.

Way Forward:

  • Institutional Development: The flow of agricultural credit has not been uniform across states.
  • Institutional Development across states is a priority area for equitable flow of subsidised credit.
  • Close coordination between State and NABARD: State governments should work in close coordination with the banking system for the promotion of more Joint Liability Groups (JLGs) as per NABARD guidelines to ensure that formal credit reaches financially-excluded farmers.
  • States should monitor credit flow: State governments should regularly monitor credit flow.
  • Low Interest Rate: Four, the rate of interest for long-term loans should be kept at 4 per cent.
  • List of farm related activities: A comprehensive list of all farm-related activities should be prepared by the banks in consultation with NABARD, agriculture experts, farmers and administration.
  • Simplify eligibility criteria: Eligibility conditions/criteria for providing agriculture loans should be further simplified and liberalised.
  • The repayment schedule should be according to the farmers’ capacity.

Conclusion:

  • Credit is critical for achieving higher farm output. Institutional credit will help Delink Farmers from non-institutional sources, where they are compelled to Borrow at Usurious rates of Interest.

Supreme Court examines allegations of rampant misuse of PMLA

Why in News?

  • The Supreme Court is looking into allegations of the metamorphosis of the Prevention of Money Laundering Act (PMLA), brought to sniff out drug money, into a potent weapon to raid rivals and Deny Rights.

Prevention of Money Laundering Act (PMLA):

  • PMLA, 2002 is an Act of the Parliament of India enacted by the NDA government to prevent money-laundering and to provide for confiscation of property derived from money-laundering.
  • It was enacted in response to India’s global commitment (including the Vienna Convention) to combat the menace of money laundering.
  • PMLA and the Rules notified there under came into force with effect from July 1, 2005.
  • The act was amended in the year 2005, 2009 and 2012.

Objectives of PMLA:

  • The PMLA seeks to combat money laundering in India and has three main objectives:
  • To prevent and control money laundering.
  • To confiscate and seize the property obtained from the laundered money; and
  • To deal with any other issue connected with money laundering in India.

Key Definitions:

  • Payment System: A system that enables payment to be effected between a payer and a beneficiary, involving clearing, payment or settlement service or all of them. It includes the systems enabling credit card, debit card, smart card, money transfer or similar operations.
  • Money-laundering: Whosoever directly or indirectly attempts to indulge or assist other person or actually involved in any activity connected with the proceeds of crime and projecting it as untainted property.
  • Attachment: Prohibition of transfer, conversion, disposition or movement of property by an appropriate legal order.
  • Proceeds of crime: Any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence.

Salient Features:

  • Punishment and Jail term: The Act prescribes that any person found guilty of money-laundering shall be punishable with rigorous imprisonment from three years to seven years. The maximum punishment may extend to 10 years instead of 7 years.
  • Powers of attachment of tainted property: The Director or officer above the rank of Deputy Director with the authority of the Director, can provisionally attach property believed to be “proceeds of crime”.
  • Adjudicating Authority: It is the authority appointed by the central government which decides whether any of the property attached or seized is involved in money laundering.
  • Presumption in inter-connected transactions: Where money laundering involves two or more inter-connected transactions. It is presumed that the remaining transactions form part of such inter-connected transactions.
  • Burden of proof: A person, who is accused of having committed the offence of money laundering, has to prove that alleged proceeds of crime are in fact lawful property.
  • Appellate Tribunal: It is given the power to hear appeals against the orders of the Adjudicating Authority and any other authority under the Act. Its orders are not final and can be challenged.
  • Establishment of Special Court: To ensure speedy trial.

Issues with PMLA:

  • Misuse of Central Agencies: PMLA is being pulled into the investigation of even ordinary crimes by the Enforcement Directorate.
  • Seizing of Assets: Assets of genuine victims have been attached. The ED could just walk into anybody’s house.
  • Politically Motivated Raids: In all this, the fundamental purpose of PMLA to investigate the conversion of “illegitimate money into legitimate money” was lost.
  • Opacity of charges: Petitioners pointed out that even the Enforcement Case Information Report (ECIR) – an equivalent of the FIR – is considered an “internal document” and not given to the accused.
  • Vagueness over Evidences: The accused is called upon to make statements which are treated as admissible in evidence.
  • Harassment: The ED begins to summon accused persons and seeks details of all their Financial Transactions and of their family members.
  • Against individual liberty: The initiation of an investigation by the ED has consequences which have the potential of curtailing the liberty of an individual.

Way Ahead:

  • It is unlikely that corruption can be substantially reduced without modifying the way Government Agencies operate.
  • The fight against Corruption is intimately linked with the reform of the Investigations.
  • Therefore the adjudicating authorities must work in cooperation and ensure the Highest standards of Transparency and Fairness.

Capital Gains Tax

Why in News?

  • The capital gains tax structure in India is complicated, and it is time for a relook since the union budget has provisions for 30% tax on cryptocurrency.

What is Capital Gains Tax?

  • Capital gains tax is levied on the profits made on investments.
  • It covers real estate, gold, stocks, mutual funds, and various other financial and non- financial assets.
  • Types
  • It is divided into long-term capital gains tax (LTCG) and short-term capital gains tax (STCG) depending on how long you have held the investment in question.
  • Unlike income tax, the percentage of tax does not change on the basis of your overall tax slab.
  • The LTCG tax, excluding surcharge, on equity is the same for gains of ₹10 lakh or ₹10 crore.
  • There is also a separate set of deductions that apply to LTCG, which do not apply to Ordinary Income.

Why is it so Complicated?

  • Capital gains tax is complicated for a few primary reasons.
  • First, the rate changes from asset to asset. LTCG tax on stocks and equity mutual funds is 10% but on debt mutual funds is 20% with indexation.
  • Second, holding period changes from asset to asset. The holding period for LTCG tax is two years in real estate, one year for stocks, and three years for debt mutual funds and gold.
  • Third, exemptions available against it come with their own complex conditions. For instance, buying a house after selling one can get you an exemption, but the new house must be bought in two years or built in three years of the sale.

Is cryptocurrency taxed as capital gains?

  • The 2022 budget has proposed a 30% tax on cryptocurrency, which is higher than capital Gains Tax in many Cases.
  • Besides, under Capital Gains Tax, Investors can adjust profits and losses on different investments against each other or against profits/losses in the future.
  • However, this cannot be done with Cryptocurrency.

What Distortions does it Create?

  • As capital gains tax is the same regardless of your overall income it can compound Inequality.
  • For instance, a person with a salary of ₹40 lakh will pay 30% tax on it but just 10% LTCG tax on gains from stock trading.
  • A person with a salary of ₹5 lakh will pay a 5% tax on it but the same 10% LTCG tax on stock trading.
  • Second, the smaller one-year qualifying period for LTCG in stocks compared to three years in debt mutual funds may encourage short-term trading in equity.

What can be Done to fix these Anomalies?

  • The government can bring about uniformity in rates and holding periods for various assets to ensure that the tax for one asset is not more attractive than another.
  • A uniform and long holding period to qualify for LTCG can also discourage short-term trading and speculative  behavior  in assets  such as  stocks.
  • The exemptions for LTCG such as reinvestment in another house property or capital gains bonds can also be made simpler, with fewer conditions.
  • Small Investors can also be given relief by reducing rates of capital gains.

Ratings Agency

Why in News?

  • Finance Secretary has accused rating agencies of “Double Standards” when assessing Emerging Markets and Developing Economies.

What is the News?

  • Fitch, a rating agency, has termed India as the most indebted emerging market.
  • It claimed that the latest budget did not provide clarity on fiscal consolidation plans.

What is a Rating Agency?

  • Rating agencies assess the creditworthiness or potential of an equity, debt or country.
  • Their reports are read by investors to make an informed decision on whether or not to invest in a particular country or companies in that geography.
  • They assess if a country, equity or debt is financially stable and whether it at a low/high default risk.
  • In simpler terms, these reports help investors gauge if they would get a return on their Investment.

What do they do?

  • The agencies periodically re-evaluate Previously assigned ratings after new developments Geopolitical Events or a significant Economic Announcement by the concerned entity.
  • Their reports are sold and published in Financial and Daily Newspapers.

What Grading Pattern do they follow?

  • The three prominent ratings agencies, viz., Standard & Poor’s, Moody’s and Fitch subscribe to largely similar grading patterns.
  • Standard & Poor’s accord their highest grade, that is, AAA, to countries, equity or debt with the Exceedingly high capacity to meet their financial commitments.
  • Its grading slab includes letters A, B and C with an addition a single or double letter denoting a higher grade.
  • Moody’s separates ratings into short and long-term definitions. Its longer-term grading ranges from Aaa to C, with Aaa being the highest.
  • Fitch, too, rates from AAA to D, with D being the lowest. It follows the same succession scheme as Moody’s and Fitch.

Criticism of Rating Agencies

  • Popular ratings agencies publicly reveal their methodology, which is based on macroeconomic data publicly made available by a country, to lend credibility to their inferences.
  • However, credit rating agencies were subjected to severe criticism for allegedly spurring the financial crisis in the United States, which began in 2017.
  • The agencies underestimated the credit risk associated with structured credit products and failed to adjust their ratings quickly enough to deteriorating market conditions.
  • They were charged for methodological errors and conflict of interest on multiple counts.

Do countries Pay Attention to Ratings Agencies?

  • Lowered rating of a country can potentially cause panic selling or offloading of investment by a foreign investor.
  • In 2013, the European Union opted for regulating the agencies.
  • Over reliance on credit ratings may reduce incentives for investor to develop their own capacity for credit risk assessment.
  • Ratings Agencies in the EU are now permitted to issue ratings for a country only thrice a year, and after close of trade in the entire Union.

RBI extends Liquidity Window for Healthcare

Why in News?

  • The Reserve Bank of India (RBI) recently proposed to extend the term-liquidity facility of ₹50,000 crore offered to emergency health services by three months till June 30.

About the News:

  • Last year in May, RBI had announced an on-tap liquidity window of ₹50,000 crore, at the repo rate with tenors of up to three years, to boost provision of immediate liquidity for ramping up COVID-19-related healthcare infrastructure and services in the country.
  • Banks were incentivised for quick delivery of credit under the scheme through extension of priority-sector classification to such lending up to March 31, 2022.
  • “In view of the response to the scheme, it is now proposed to extend this window up to June 30, 2022 from March 31, 2022 as announced earlier,” the RBI said in a statement on development and regulatory policies on Thursday.
  • Under the scheme, banks were expected to create a COVID-19 loan book.

What is the Significance?

  • Under the scheme, banks can provide fresh lending support to a wide range of entities including vaccine manufacturers, importers and suppliers of vaccines and priority medical devices, hospitals and dispensaries, pathology labs, manufactures and suppliers of oxygen and ventilators, importers of vaccines and Covid-related drugs, logistics firms and also patients for treatment.Banks are being incentivised for quick delivery of credit under the scheme through extension of priority sector classification to such lending.
  • These loans will continue to be classified under priority sector till repayment or maturity, whichever is earlier. “Banks may deliver these loans to borrowers directly or through intermediary financial entities regulated by the RBI.

Step up agri-spending, boost farm incomes

Why in News?

  • While the overall budgetary allocation towards the agricultural sector has marginally increased by 4.4% in the Union Budget 2022-23, the rate of increase is lower than the current inflation rate of 5.5%-6%.

India’s low spending in Agriculture:

  • The Food and Agriculture Organization (FAO) of the United Nations (UN) report for 2001 to 2019 shows that, globally, India is among the top 10 countries in terms of government spending in agriculture, constituting a share of around 7.3% of its total government expenditure.
  • However, India lags behind several low-income countries such as Malawi (18%), Mali (12.4%), Bhutan (12%), Nepal (8%), as well as upper middle-income countries such as Guyana (10.3%) and China (9.6%).
  • Low Budgetary Allocation:
  • 1.  Low allocation for important schemes
  • A closer look at the budgetary allocation towards the agricultural sector shows that there has been a drastic slashing of funds toward important schemes such as crop insurance and minimum support price (MSP).
  • Even with an overall increase in budgetary outlays, the allocation towards Market Intervention Scheme and Price Support Scheme (MIS-PSS) was only ₹1,500 crore.
  • This is 62% less than the previous allocation of ₹3,959.61 crore in revised estimates (RE) of FY 2021-22.
  • Similarly, the Pradhan Mantri Annadata Aay SanraksHan Abhiyan (PM-AASHA) was allocated just ₹1 crore for the year as against an expenditure of ₹400 crore in 2021-22.
  • Both schemes are pertinent to ensure MSP-based procurement operations in the country, especially for pulses and oil seeds.
  • 2.  Low capital investment
  • Capital investment in the agricultural sector is more crucial than price support programmes.
  • However, there has not been any considerable and commensurate increase in the allocation towards capital investment, especially for promotion of rural infrastructure and marketing facilities.
  • The allocation of funds towards schemes such as Pradhan Mantri Kisan Samman Nidhi (PM KISAN), Pradhan Mantri Kisan Maandhan Yojana, though desirable, will not result in long run asset generation.

Agriculture Orientation Index (AOI):

  • It measures the ratio between government spending towards the agricultural sector and the sector’s contribution to GDP.
  • AOI was developed as part of the Goal 2 (Zero Hunger) of the 2030 Agenda for Sustainable Development in 2015.
  • What low AOI indicates: India’s index is one of the lowest, reflecting that the spending towards the agricultural sector is not commensurate with the sector’s contribution towards GDP.
  • India holds only the 38th rank in the world.
  • Although the AOI has shown an improvement since the mid-2000s, as part of the general revival that took place in several middle-income countries, India’s AOI is one of the lowest in Asia and among several other middle-income and upper-income countries.
  • Low crop yield in India:
  • The enormous spending on the agricultural sector by East Asian countries is also reflected in their higher crop yield.
  • For example, the total cereal yield in India is only around 3,282 kilograms per hectare compared to 4,225 kg per hectare in Asia.
  • In China, even with an average landholding size of 0.6 hectares, which is much lower than India’s average landholding size, the performance of the sector in terms of crop yield is much higher than India.

Way Forward:

  • The focus on development of irrigation facilities, urban Infrastructure and development of national highways must be complemented with an emphasis on the Development of rural infrastructure and rural transportation facilities, along with an increase in the number of markets, as suggested by the National Commission on Farmers.

Green Bonds to have Long Tenure, says Centre

Why in News?

  • Asserting that the issuance of sovereign green bonds is part of the government’s overall borrowing programme, Economic Affairs Secretary Ajay Seth has said these rupee-denominated papers will have long tenure to suit the Requirement of Green Infrastructure Projects.

About the News:

  • Finance Minister Nirmala Sitharaman in her Budget speech announced that the government proposes to issue sovereign green bonds to mobilise resources for green infrastructure.
  • The proceeds will be deployed in public sector projects which help in reducing the carbon intensity of the economy which is a part of the overall borrowing for the Next Financial Year.

What is a Green Bond?

  • A green bond is a type of fixed-income instrument that is specifically earmarked to raise money for climate and environmental projects.
  • These bonds are typically asset-linked and backed by the issuing entity’s balance sheet, so they usually carry the same credit rating as their issuers’ other debt obligations.​
  • Green bonds may come with tax incentives to enhance their attractiveness to investors.
  • The World Bank is a major issuer of green bonds. It has issued 164 such bonds since 2008, worth a combined $14.4 billion. In 2020, the total issuance of green bonds was worth almost $270 billion, according to the Climate Bond Initiative.

How Does a Green Bond Work?

  • Green bonds work just like any other corporate or Government Bond.
  • Borrowers issue these securities in order to secure financing for projects that will have a positive environmental impact, such as ecosystem restoration or reducing pollution.
  • Investors who purchase these bonds can expect to make as the bond matures.
  • In addition, there are often Tax Benefits for Investing in Green Bonds.

Green Bonds Vs Blue Bonds:

  • Blue bonds are sustainability bonds to finance projects that protect the ocean and related ecosystems.
  • This can include projects to support sustainable Fisheries, protection of coral reefs and other Fragile Ecosystems, or reducing Pollution and Acidification.
  • All blue bonds are green bonds, but not all Green Bonds are blue bonds.

Green Bonds Vs Climate Bonds:

  • “Green bonds” and “climate bonds” are sometimes used interchangeably, but some authorities use the latter term specifically for projects focusing on reducing carbon Emissions or Alleviating the effects of Climate Change.

Forex Reserves

Why in News?

  • According to recent data from Reserve bank of India (RBI), India’s Foreign Exchange (Forex) reserves posted a decline of USD 678 million during the week ended 21st January 2022 to reach USD 634.287 billion.

About the News:

  • The slip in the reserves was on account of a drop in the Foreign Currency Assets (FCA), a vital component of the overall reserves. FCA declined by USD 1.155 billion to USD 569.582 billion in the reporting week.
  • Gold reserves saw an increase of USD 567 million to USD 40.337 billion in the reported week.
  • The Special Drawing Rights (SDRs) with the International Monetary Fund (IMF) fell USD 68 million to USD 19.152 billion.

About Foreign Exchange Reserves:

  • Foreign exchange reserves are assets held on reserve by a central bank in foreign currencies, which can include bonds, treasury bills and other government securities.
  • It needs to be noted that most foreign exchange reserves are held in US dollars.
  • India’s Forex Reserve include:
  • Foreign Currency Assets
  • Gold reserves
  • Special Drawing Rights
  • Reserve position with the International Monetary Fund (IMF).

Objectives of Holding Forex Reserves:

  • Supporting and maintaining confidence in the policies for monetary and exchange rate management.
  • Provides the capacity to intervene in support of the national or Union Currency.
  • Limits external vulnerability by maintaining foreign currency liquidity to absorb shocks during times of crisis or when access to borrowing is curtailed.

Significance of Rising Forex Reserves:

  • Comfortable Position for the Government: The rising forex reserves give comfort to the government and the RBI in managing India’s external and internal financial issues.
  • Managing Crisis: It serves as a cushion in the event of a Balance of Payment (BoP) crisis on the economic front.
  • Rupee Appreciation: The rising reserves have also helped the rupee to strengthen against the dollar.
  • Confidence in Market: Reserves will provide a level of confidence to markets and investors that a country can meet its external obligations.

Foreign Currency Assets:

  • FCAs are assets that are valued based on a currency other than the country’s own currency.
  • FCA is the largest component of the forex reserve. It is expressed in dollar terms.
  • The FCAs include the effect of appreciation or depreciation of non-US units like the euro, pound and yen held in the foreign exchange reserves.

About Special Drawing Rights:

  • The SDR is an international reserve asset, created by the IMF in 1969 to supplement its member countries’ official reserves.
  • The SDR is neither a currency nor a claim on the IMF. Rather, it is a potential claim on the freely usable currencies of IMF members. SDRs can be exchanged for these currencies.
  • The value of the SDR is calculated from a weighted basket of major currencies, including the US dollar, the euro, Japanese yen, Chinese yuan, and British pound.
  • The interest rate on SDRs or (SDRi) is the interest paid to members on their SDR holdings.
  • Recently, the IMF has made an allocation of SDR 12.57 billion (equivalent to around USD 17.86 billion) to India. Now, the total SDR holdings of India stand at SDR 13.66 billion.

Reserve Position in the International Monetary Fund:

  • A reserve tranche position implies a portion of the required quota of currency each member country must provide to the IMF that can be utilized for its own purposes.
  • The Reserve Tranche is basically an emergency account that IMF members can access at any time without Agreeing to conditions or paying a Service Fee.

Budget Session of Parliament

Why in News?

  • The Budget Session of Parliament has begun and is scheduled to conclude on April 8.

What is Budget?

  • Annual Financial Statement is a documents presented to the Parliament in every financial year as a part of the Budget Process under Article 112 of the constitution of India.
  • This document comprises the receipts and expenditures of the government of current year, previous year and budget year in three separate parts viz. Consolidated Fund of India, Contingency Fund of India and Public Account of India. The government has to present a statement of receipts and expenditure for each of these funds.
  • Capital receipt Comprises of loans raised by the Government, borrowing from the Reserve Bank of India and loans taken from foreign Governments/institutions.
  • It also Embraces recoveries of loans advanced by the Government and sale proceeds of Government assets, including those realized from divestment of Government equity in PSUs.

Difference between Annual Financial Statement and Budget:

  • The term budget is used for several documents together including the Annual Financial Statement. The other documents in budget include Demands for Grants (DG); Appropriation Bill; Finance Bill; Memorandum Explaining the Provisions in the Finance Bill; Macro-Economic Framework Statement; Fiscal Policy Strategy Statement; Medium Term Fiscal Policy Statement; Medium Term Expenditure Framework Statement etc.
  • However, Annual Financial Statement distinguishes the expenditure on revenue account from the expenditure on other accounts, as is mandated in the Constitution of India.
  • The Revenue and the Capital sections together, therefore make the Union Budget and that is why, Annual Financial Statements is essentially the Budget of the Government.

Budget Pre Independence:

  • Budget was introduced on 7 April 1860 by the East India Company to the British Crown. It was presented by a Scottish Economist and politician James Wilson.
  • For the first 30 years, the Budget didn’t have the word infrastructure. It was introduced in the Budget in the 1900s.

Budget Post Independence:

  • First Union Budget of Independent India: It was introduced on 26 November 1947. It was present by the first Finance Minister R.K. Shanmukham Chetty. However, it was a review of the Indian economy and no new taxes were proposed. It is to be noted that almost 46% of the Budget or Rs. 92.74 crores were allocated for defence services department.
  • Printing of Budget: The Budget was leaked in 1950, following which the government shifted the printing of budget from Rashtrapati Bhawan to a press at Minto Road. In 1980, it was shifted to a government press in North Block.
  • Introduction of Hindi: Till 1955, the Budget was presented only in the English language. However, from 1955-56, the Budget documents are printed both in English and Hindi.
  • First Prime Minister to present the Union Budget: Former Prime Minister Jawaharlal Nehru was the first PM to present the Union Budget for the FY 1958-1959. The Union Budget is usually presented by the Finance Minister. Other than Jawaharlal Nehru, Indira Gandhi and Rajiv Gandhi were the only Prime Ministers to have presented the Budget in their respective administration.
  • First Woman to present the Union Budget: Former Prime Minister Indira Gandhi was the first woman to present the Union Budget for the FY 1970-71. On 5 July 2019, Finance Minister Nirmala Sitharaman became the first full-time woman Finance Minister on India.
  • Maximum Union Budgets by a Minister: Former Finance Minister Moraji Desai presented the Union Budget a record 10 times, followed by former FM P. Chidambaram (9), former FM Pranab Mukherjee (8), former FM Yashwant Sinha (8), and former FM Manmohan Singh (6)
  • Black Budget: For the FY 1973-74, the Budget was presented by the then Finance Minister Yashwantrao B. Chavan and is called as ‘Black Budget’ due to high budget deficit of Rs 550 crores– the maximum until that time. The Budget followed the Indo-Pak war of 1971 and failed the monsoon season.
  • The Epochal Budget: The Budget presented by the then Finance Minister Manmohan Singh for the FY 1991-92 is known as ‘The Epochal Budget’– a budget that changed India forever as it marked the economic liberalisation of the nation.
  • Dream Budget: The Budget presented by the then Finance Minister P. Chidambaram for the FY 1997-98 is known as ‘Dream Budget’ as it proposed to lower the tax slabs of personal and corporate taxes.
  • The Millennium Budget: The Budget presented by the then Finance Minister Yashwant Sinha for the FY 2000-01 is known as ‘The Millennium Budget’– revolutionised India’s IT sector.
  • Change in time: In the year 2001, Finance Minister Yashwant Sinha changed the time for the presentation of Union Budget from 5 p.m. to 11 a.m. on the last working day of February.
  • Merging of Budgets and Change in date: In the year 2017, the Rail Budget was merged with the Union Budget. Also, since the said year, the Budget has been presented on 1 February following the changes introduced by the then Finance Minister Arun Jaitley.
  • Gift Tax: Former Prime Minister Jawaharlal Nehru introduced the Gift Tax in the FY 1958-1959 Budget to make tax evasion more difficult.
  • Goods and Services Tax: On 28 February 2006, Goods and Services Tax was introduced by the then Finance Minister P. Chidambaram in the Budget.
  • Longest Budget speech: Former Finance Minister Arun Jaitley holds the record for delivering the longest Budget speech in 2014– 2.5 hours.
  • Bahi Khata instead of a briefcase: In the year 2019, Finance Minister Nirmala Sitharaman replaced the standard Budget briefcase with the traditional ‘Bahi Khata’ with the National Emblem.
  • Paperless Budget: For the first time in Independent India’s history, the Budget for the FY 2021-22 wass paperless.

Budgeting Process in India:

  • The procedure for presentation of the Budget in and its passing by Lok Sabha is as laid down in articles 112—117 of the Constitution of India, Rules 204—221 and 331-E of the Rules of Procedure and Conduct of Business in Lok Sabha and Direction 19-B of Directions by the Speaker.
  • The Budget goes through six stages:
  • Presentation of Budget.
  • General discussion.
  • Scrutiny by Departmental Committees.
  • Voting on Demands for Grants.
  • Passing of Appropriation Bill.
  • Passing of Finance Bill.

Presentation:

  • The Budget is presented to Lok Sabha on such day as the President may direct.
  • Immediately after the presentation of the Budget, the following three statements under the Fiscal Responsibility and Budget Management Act, 2003 are also laid on the Table of Lok Sabha:
  • The Medium-Term Fiscal Policy Statement;
  • The Fiscal Policy Strategy Statement; and
  • The Macro Economic Framework Statement.

Demand for MGNREGA work softens

Why in News?

  • The Department of Economic Affairs recently said in its annual Economic Survey, that the demand for work under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) scheme has dropped from the peak of the first lockdown, but is still higher than pre-COVID levels.

About the News:

  • However, it cautioned against drawing conclusions about the movement of migrant labour on the basis of MGNREGA employment, noting that the highest demand for work under the scheme was seen in States which are usually the destination of migrant workers, rather than source States.
  • Advocates for rural workers argued that the drop in demand is also due to funding constraints, and urged a significant increase in allocations for the scheme in Union budget.
  • According to the Survey’s analysis, though demand for work stabilised after the second COVID wave with a maximum of 4.59 crore persons in June 2021, aggregate MGNREGA employment is still higher than pre-pandemic levels of 2019, after accounting for the Seasonality of demand.

What is the Issue Now?

  • In 2021-22, additional funding was not available until late in the year when many States had already run out of money, forcing an artificial suppression in demand on the ground.
  • For the upcoming 2022-23 financial year, activists have asked for a budget allocation of Rs. 2.6 lakh crore, which would cover the guaranteed 100 days of work for all active job card holders.
  • But anything less than Rs. 1.4 lakh crore, which is the amount spent in 2020-21 plus inflation, will be a clear Suppression of Demand by the Government.

Why this Imbalance?

  • Intuitively, one may expect that higher MGNREGS demand may be directly related to the movement of migrant labour i.e. source States would be more impacted.
  • Nevertheless, State-level analysis shows that for many migrant source States like West Bengal, Madhya Pradesh, Odisha, Bihar, the MGNREGS employment in most months of 2021 has been lower than the corresponding levels in 2020.
  • According to the Survey, demand has been higher for migrant recipient States like Punjab, Maharashtra, Karnataka and Tamil Nadu.
  • Karnataka, Tamil Nadu and Rajasthan have a record of administrative sensitivity and efficiency with regard to MGNREGA implementation even pre-COVID.
  • These States also see high levels of short–term migration within their own borders.

About MGNREGA: 

  • The scheme was introduced in 2005 as a social measure that guarantees “the right to work”.
  • The key tenet of this social measure and labour law is that the local government will have to legally provide at least 100 days of wage employment in rural India to enhance their quality of life.

Key Objectives:

  • Generation of paid rural employment of not less than 100 days for each worker who volunteers for unskilled labour.
  • Proactively ensuring social inclusion by strengthening the livelihood base of rural poor.
  • Creation of durable assets in rural areas such as wells, ponds, roads and canals.
  • Reduce urban migration from rural areas.
  • Create rural infrastructure by using untapped rural labour.

What are the Eligibility Criteria for receiving the benefits under MGNREGA scheme?

  • Must be Citizen of India to seek MGNREGA benefits.
  • Job seeker has completed 18 years of age at the time of application.
  • The applicant must be part of a local household (i.e. application must be made with local Gram Panchayat).
  • Applicants must volunteer for Unskilled Labour.

Implementation of the scheme:

  • Within 15 days of submitting the application or from the day work is demanded, wage employment will be provided to the applicant.
  • Right to get unemployment allowance in case employment is not provided within fifteen days of submitting the application or from the date when work is sought.
  • Social Audit of MGNREGA works is mandatory, which lends to accountability and transparency.
  • The Gram Sabha is the principal forum for wage seekers to raise their voices and make demands.
  • It is the Gram Sabha and the Gram Panchayat which approves the shelf of works under MGNREGA and fix their priority.

GI Tag Sought for Kumbakonam Vetrilai, Thovalai Manikka Malai

Why in News?

  • Geographical Indications Registry in Chennai has received applications seeking GI tag for Two Famous products from Tamil Nadu — Kumbakonam Vetrilai and Thovalai Manikka Malai.

About the News:

  • The application for Kumbakonam Vetrilai was filed by the Tamil Nadu Agricultural University, Coimbatore while the application for Thovalai Manikka Malai was given by the Thovalai Manikkamaalai Kaivinai Kalaingargal Nalasangam, Kanniyakumari.

About the Kumbakonam Betel Leaves:

  • The Kumbakonam betel leaves were heart shaped and grown in the Cauvery delta region by small and marginal farmers. It is particularly grown in Ayyampettai, Rajagiri, Pandaravadai and Swamimalai in Thanjavur district.

  • On an average, about 60-80 lakh betel leaves were harvested annually from a one-hectare plot. A betel leaf cultivator spends ₹10,000 to ₹50,000 to grow these leaves on a one-acre land.
  • Harvested leaves are washed, cleaned, and graded according to their size and quality. They were traditionally packed in bamboo baskets but now there are several options such as Plantain Leaves and Cloth Bags.

About the Thovalai Manikka Malai:

  • Thovalai Manikka Malai is a special type of garland that is made only in Thovalai, a small village in Kanniyakumari. The flowers used in this particular garland are positioned in a way that when folded they look like a gem.

  • The flowers are generally arranged in five rows, but at times for other decorations, 20 rows are used. The height ranges from one foot to 24 feet and above.
  • Chamba fibre, nochi leaves, oleander and rose flowers are the key materials used for making this garland. Thovalai is famous for its abundance of flowers and most of flowers are procured locally.

What is GI Tag?

  • A GI or Geographical Indication is a name or a sign given to certain products that relate to a specific geographical location or origins like a region, town or country.
  • Using Geographical Indications may be regarded as a certification that the particular product is produced as per Traditional Methods, has certain specific qualities, or has a particular reputation because of its geographical origin.
  • Geographical indications are typically used for wine and spirit drinks, foodstuffs, agricultural products, handicrafts, and industrial products.
  • GI Tag ensures that none other than those registered as authorized users are allowed to use the popular product name. In order to function as a GI, a sign must identify a product as originating in a given place.

Who Accords and Regulates Geographical Indications?

  • Geographical Indications are covered as a component of intellectual property rights (IPRs) under the Paris Convention for the Protection of Industrial Property.
  • At the International level, GI is governed by the World Trade Organisation’s (WTO’s) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).
  • In India, Geographical Indications registration is administered by the Geographical Indications of Goods (Registration and Protection) Act, 1999 which came into force with effect from September 2003.
  • The first product in India to be accorded with GI tag was Darjeeling tea in the year 2004-05.

What are the Benefits of GI Tags?

  • The Geographical Indication registration confers the following benefits:
  • Legal protection to the products
  • Prevents unauthorised use of GI tag products by others
  • It helps consumers to get quality products of desired traits and is assured of Authenticity.
  • Promotes the economic prosperity of producers of GI tag goods by enhancing their demand in national and International Markets.

What are the Significances of GI Tags?

  • A geographical indication right facilitates those who have the right to use the indication to prohibit its usage by a third party whose product does not conform to the applicable standards.
  • For example, in the purview in which the Darjeeling geographical indication is protected, Producers of Darjeeling tea can omit the term “Darjeeling” for tea not grown in their tea Gardens or not produced according to the norms set out in the code of practice for the Geographical Indication.
  • However, a protected GI does not permit the holder to forbid someone from making a product using the same approaches as those set out in the standards for that indication. Protection for a GI tag is usually procured by acquiring a right over the sign that constitutes the Indication.

Challenges in GI Tags:

  • The special treatment to wines and spirits in TRIPS Agreement appears to be developed Country Centric.
  • Developing countries, including India, seek the same higher level of protection for all GIs as was given under TRIPS for wines and spirits.
  • The battle for GI tag between states.
  • False use of geographical indications by unauthorized parties is detrimental to consumers and Legitimate Producers.
  • Cheap Power loom saris are sold as reputed Banarsi handloom saris, harming both the producers and consumers.
  • Such unfair business practices result in loss of revenue for the genuine right-holders of the GI and also misleads consumers.
  • Protection of GI has, over the years, emerged as one of the most contentious IPR issues.

Way Forward:

  • The benefits of GI tag are realised only when these products are effectively marketed and protected against illegal copying.
  • Effective marketing and protection require quality assurance, brand creation, post-sale consumer feedback and support, prosecuting Unauthorised Copiers, etc.
  • For internationally recognised products like Darjeeling tea, international protection is of Crucial Importance.
  • Legal protection to GIs also extends to protection of traditional knowledge and traditional Cultural Expression contained in the products.
  • Hence Intellectual Property is a power tool for economic development and wealth creation particularly in the Developing World.
  • GIs have the potential to be our growth engine. Policy-makers must pay a heed to this and give Indian GI products their true Reward.

Airtel Payments Bank is now a Scheduled Bank

Why in News?

  • The Reserve Bank of India (RBI) has announced the inclusion of Airtel Payments Bank Ltd. in the Second Schedule to the Reserve Bank of India Act, 1934.

Implications:

  • With this, the bank can now pitch for Government-issued Requests for Proposals (RFP) and Primary Auctions and undertake both Central and State Government business.

What is a Schedule Bank?

  • Scheduled Banks in India refer to those banks which have been included in the Second Schedule of Reserve Bank of India Act, 1934.
  • Every Scheduled bank enjoys two types of principal facilities: It becomes eligible for debts/loans at the bank rate from the RBI; and, it automatically acquires the membership of Clearing House.

About Airtel Payments Bank:

  • It is among the fastest-growing digital banks in the country, with a base of 115 million users.
  • It offers a suite of digital solutions through the Airtel Thanks app and a retail network of over 500,000 Neighbourhood Banking Points.
  • The bank Turned Profitable in the Quarter ended September 2021.

What is Payment’s bank?

  • Payment banks were established to promote financial inclusion by offering; ‘modest savings accounts and payments/remittance services to migratory labour workforce, low-income households, small enterprises, other unorganised sector entities, and other users.’
  • These banks can accept a restricted deposit, which is now capped at Rs 200,000 per person but could be raised in the future.
  • These banks are unable to provide loans or credit cards. Banks of this type can handle both current and savings accounts.
  • Payments banks can provide ATM and debit cards, as well as online and mobile banking.

Extending the GST Compensation

Why in News?

  • Finance Ministers of several States have demanded that the GST compensation scheme be Extended beyond June 2022.

What’s the Issue?

  • The adoption of GST was made possible by States ceding almost all their powers to impose local-level indirect taxes and Agreeing to let the prevailing multiplicity of imposts be Subsumed into the GST.
  • This was agreed on the condition that revenue shortfalls arising from the transition to the new indirect taxes regime would be made good from a pooled GST Compensation Fund for a period of five Years that is set to end in June 2022.

Need for Extension:

  • Citing the impact of the COVID-19 pandemic on the overall economy and more specifically States’ revenues, the States including Tamil Nadu, Kerala, West Bengal, Rajasthan and Chhattisgarh stressed that while their revenues had been adversely impacted by the introduction of GST, the hit from the pandemic had pushed back any possible rebound in revenue especially at a time when they had been forced to spend substantially more to address the public health emergency and its socio-economic fallout on their residents.

What is the GST Compensation?

  • The Constitution (One Hundred and First Amendment) Act, 2016, was the law which created the mechanism for levying a common nationwide Goods and Services Tax (GST).
  • While States would receive the SGST (State GST) component of the GST, and a share of the IGST (integrated GST), it was agreed that revenue shortfalls arising from the transition to the new indirect taxes regime would be made good from a pooled GST Compensation Fund for a period of five years that is currently set to end in June 2022.

How is the GST Compensation Fund funded?

  • This corpus is funded through a Compensation cess that is levied on so-called ‘demerit’ Goods.
  • The items are pan masala, Cigarettes and tobacco products, aerated water, caffeinated Beverages, Coal and certain Passenger motor vehicles.

Computation of the Shortfall:

  • The computation of the shortfall is done annually by projecting a revenue assumption based on 14% compounded growth from the base year’s (2015-2016) revenue and calculating the difference between that figure and the actual GST collections in that year.

Can the deadline be Extended? If so, how?

  • The deadline for GST compensation was set in the original legislation and so in order to extend it, the GST Council must first recommend it and the Union government must then move an amendment to the GST law allowing for a new date beyond the June 2022 deadline at which the GST compensation scheme will come to a close.

GI tag sought for Arunachal Pradesh Apatani textile product

Why in News?

  • An application seeking Geographical Indication (GI) tag for the Arunachal Pradesh Apatani textile product has been filed by a firm, Zeet Zeero Producer Company Ltd.

About the Apatani Weave:

  • The Apatani weave comes from the Apatani tribe living at Ziro, the headquarters of Lower Subansiri district.
  • The woven fabric of this tribe is known for its geometric and zigzag patterns and for its Angular Designs.
  • The tribe predominantly weaves shawls known as jig-jiro, and jilan or jackets called supuntarii.
  • The people use leaves and plant resources for organic dyeing of the cotton yarns in their traditional ways. And only women folk are engaged in weaving.

What is GI Tag?

  • A GI or Geographical Indication is a name or a sign given to certain products that relate to a specific geographical location or origins like a region, town or country.
  • Using Geographical Indications may be regarded as a certification that the particular product is produced as per traditional methods, has certain specific qualities, or has a particular reputation because of its Geographical Origin.
  • Geographical indications are typically used for wine and spirit drinks, foodstuffs, agricultural Products, Handicrafts, and Industrial Products.
  • GI Tag ensures that none other than those registered as authorized users are allowed to use the popular product name. In order to function as a GI, a sign must identify a product as originating in a given Place.

Who Accords and regulates Geographical Indications?

  • Geographical Indications are covered as a component of intellectual property rights (IPRs) under the Paris Convention for the Protection of Industrial Property.
  • At the International level, GI is governed by the World Trade Organisation’s (WTO’s) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).
  • In India, Geographical Indications registration is administered by the Geographical Indications of Goods (Registration and Protection) Act, 1999 which came into force with effect from September 2003.
  • The first product in India to be accorded with GI tag was Darjeeling tea in the year 2004-05.

What are the Benefits of GI Tags?

  • The Geographical Indication registration confers the following benefits:
  • Legal protection to the products
  • Prevents unauthorised use of GI tag products by others
  • It helps consumers to get quality products of desired traits and is assured of authenticity.
  • Promotes the economic prosperity of producers of GI tag goods by enhancing their demand in national and international markets.

What are the Significances of GI Tags?

  • A geographical indication right facilitates those who have the right to use the indication to prohibit its usage by a third party whose product does not conform to the applicable standards.
  • For example, in the purview in which the Darjeeling geographical indication is protected, producers of Darjeeling tea can omit the term “Darjeeling” for tea not grown in their tea Gardens or not produced according to the norms set out in the code of practice for the Geographical Indication.
  • However, a protected GI does not permit the holder to forbid someone from making a product using the same approaches as those set out in the standards for that indication. Protection for a GI tag is usually procured by acquiring a right over the sign that Constitutes the indication.

Challenges in GI Tags:

  • The special treatment to wines and spirits in TRIPS Agreement appears to be developed country centric.
  • Developing countries, including India, seek the same higher level of protection for all GIs as was given under TRIPS for wines and spirits.
  • The battle for GI tag between states.
  • False use of geographical indications by unauthorized parties is detrimental to consumers and legitimate producers.
  • Cheap Power loom saris are sold as reputed Banarsi handloom saris, harming both the producers and consumers.
  • Such unfair business practices result in loss of revenue for the genuine right-holders of the GI and also misleads consumers.
  • Protection of GI has, over the years, emerged as one of the most contentious IPR issues.

Way Forward:

  • The benefits of GI tag are realised only when these products are effectively marketed and protected against illegal copying.
  • Effective marketing and protection require quality assurance, brand creation, post-sale consumer feedback and support, prosecuting unauthorised copiers, etc.
  • For internationally recognised products like Darjeeling tea, international protection is of crucial importance.
  • Legal protection to GIs also extends to protection of traditional knowledge and traditional cultural expression contained in the products.
  • Hence Intellectual Property is a power tool for economic development and wealth creation particularly in the developing world.
  • GIs have the potential to be our growth engine. Policy-makers must pay a heed to this and give Indian GI products their true reward.

PLI scheme for Textile Sector

Why in News?

  • The Ministry of Textiles has recently said that it will accept applications from January 1 for the Production Linked Scheme for Textiles announced in September this year.

About the News:

  • The Union government in September approved production-linked incentive (PLI) for the textile sector with a budgetary outlay of ₹10,683 crore.
  • The scheme is for man-made fibre (MMF) apparel, MMF fabrics and 10 segments/products of technical textiles.
  • According to an official statement, the incentive structure for the textile sector is designed to Encourage investment in fresh capacities in MMF apparel, MMF fabrics, and 10 segments or products of technical textiles.
  • The Scheme Envisages two types of investment with different set of incentive structure. In type one, any person, (which includes firm/company) willing to invest minimum ₹300 crore in Plant, Machinery, and civil works (excluding land and administrative building cost) to produce the notified products will be able to participate in the scheme. In the second type, anyone willing to invest minimum ₹100 crore will be eligible to participate.
  • The government has already launched a National Technical Textiles Mission to promote research and development in that sector.

What is its Significance?

  • The scheme is expected to attract fresh investment of more than ₹19,000 crore and cumulative turnover of over ₹3 lakh crore will be achieved under this scheme. It will create additional 7.5 lakh jobs in the sector.
  • Further, priority will be given for investment in aspirational districts, tier-three, tier-four towns and Rural Areas.
  • The scheme will benefit States such as Gujarat, U.P., Maharashtra, Tamil Nadu, Punjab, Andhra Pradesh, Telangana, and Odisha.

About the Textile Sector in India:

  • Textiles & Garments industry is labour intensive sector that employs 45 mn people in India and is Second only to the agriculture sector in terms of employment.
  • India’s textiles sector is one of the oldest industries in the Indian economy, and is a storehouse and carrier of traditional skills, heritage and culture.
  • It can be divided into two segments-
  • The unorganised sector is small scale and uses traditional tools and methods. It consists of handloom, handicrafts and sericulture (production of silk).
  • The Organised sector uses modern machinery and techniques and consists of the spinning, apparel and Garments Segment.

Significance of the Textiles Sector:

  • It contributes 2.3% to Indian Gross Domestic Product, 7% of Industrial Output, 12% to the export earnings of India and employs more than 21% of total employment.
  • India is the 6th largest producer of Technical Textiles with 6% Global Share, largest producer of cotton & jute in the world.
  • Technical textiles are functional fabrics that have applications across various industries including automobiles, civil engineering and construction, agriculture, healthcare, industrial safety, personal protection etc.
  • India is also the second largest producer of silk in the world and 95% of the world’s hand woven fabric comes from India.

About the PLI Scheme:

  • The scheme aims to make India a global hub for manufacturing telecom equipment.
  • Its eligibility criteria include achievement of a minimum threshold of cumulative incremental investment and incremental sales of manufactured goods.
  • The incentive structure ranges between 4% and 7% for different categories and years. Financial year 2019-20 will be treated as the base year for computation of cumulative incremental sales of manufactured goods net of taxes.
  • Minimum investment threshold for MSMEs has been kept at Rs 10 crore and for others at Rs 100 Crore.
  • Once qualified, the investor will be Incentivised up to 20 times of minimum investment threshold enabling them to utilise their Unused Capacity.

Why is the Production Linked Scheme Needed?

  • According to experts, the idea of PLI is important as the government cannot continue making investments in these capital intensive sectors as they need longer times for start giving the Returns.
  • Instead, what it can do is to invite global companies with adequate capital to set up capacities in India.
  • The kind of ramping up of manufacturing that we need requires across the board Initiatives, but the government can’t spread itself too thin.
  • Electronics and pharmaceuticals themselves are large sectors, so, at this point, if the Government can focus on labour intensive sectors like garments and leather, it would be Really helpful.

Anti-Dumping Duty on Five Chinese Goods

Why in News?

  • India has imposed anti-dumping duty on five Chinese products, including certain Aluminium Goods and some Chemicals, for Five Years to guard local manufacturers from cheap imports from the Neighbouring Country.

About the News:

  • According to Separate Notifications of the Central Board of Indirect Taxes and Customs (CBIC), the duties have been imposed on certain flat rolled products of aluminium; sodium hydrosulphite (used in dye industry); silicone sealant (used in manufacturing of solar photovoltaic modules, and thermal power applications); hydrofluorocarbon (HFC) component R-32; and Hydrofluorocarbon blends (both have uses in refrigeration industry).
  • These duties were imposed following recommendations of the Commerce Ministry’s investigation arm, the Directorate General of Trade Remedies (DGTR).
  • The DGTR, in separate probes, has concluded that these products have been exported at a price below normal value in Indian markets, which has resulted in Dumping and has suffered material injury due to the dumping.
  • India’s exports to China during the April-September 2021 period were worth $12.26 billion while imports aggregated at $42.33 billion, leaving a trade deficit of $30.07 billion.

What is Dumping?

  • In international trade practise, dumping happens when a country or a firm exports an item at a price lower than the price of that product in its domestic market.
  • Dumping impacts the price of that product in the importing country, hitting margins and profits of local Manufacturing Firms.

What is Anti-Dumping Duty?

  • Anti-dumping duty is imposed to rectify the situation arising out of the dumping of goods and its Trade Distortive Effect.
  • According to Global Trade norms, including the World Trade Organization (WTO) regime, a country is allowed to impose tariffs on such dumped products to provide a level-playing field to Domestic Manufacturers.
  • The duty is aimed at ensuring fair trading practices and creating a level-playing field for domestic producers vis-a-vis foreign producers and exporters.
  • While the DGTR recommends the duty to be levied, the Finance Ministry imposes it.

How is it Different from CVD?

  • Anti-dumping duty is different from countervailing duty. The latter is imposed in order to counter the negative impact of import subsidies to protect domestic producers.
  • Countervailing Duties (CVDs) are tariffs levied on imported goods to offset subsidies made to producers of these goods in the exporting country.
  • CVDs are meant to level the playing field between domestic producers of a product and foreign producers of the same product who can afford to sell it at a lower price because of the subsidy they receive from their Government.

Amazon- Future deal

Why in News?

  • The Competition Commission of India (CCI) has frozen its approval given in November 2019 to Amazon’s investment in a Future Group unit on the grounds that the U.S. e-commerce company had suppressed the scope and full details of its investment while seeking Regulatory Approval.

What are its Implications?

  • The CCI decision further roils the legal landscape as Amazon seeks to block the Future Group’s 2020 decision to sell its retail assets to Reliance Industries.

What’s the Issue?

  • Future Group and Reliance Industries Limited had signed a Rs 24,713-crore deal in August 2020 for Future Retail to sell its retail, wholesale, logistics and warehousing units to Reliance Retail and Fashionstyle.
  • Amazon is Future Group’s Indian partner.
  • Amazon says Future violated a partnership contract with the asset sale to its rival and wants to scuttle it, while the indebted Indian group says it would collapse if the Transaction Fails.

Why did Amazon Approach SIAC?

  • The parties in a deal usually sign a contractual agreement which specifies about:
  • The arbitral institution administering the arbitration.
  • The applicable rules.
  • The seat of arbitration.
  • In this case Amazon and Future Group have under their agreement agreed to refer their disputes to SIAC, with Singapore presumably being the contractual choice for the seat/place of arbitration.

How is the dispute taken up at the SIAC? What is the procedure to be followed?

  • Once a dispute is referred to arbitration, the process of Appointment of the arbitral tribunal takes place.
  • Composition: Typically, in case of a three member Tribunal, both the parties appoint one member each to the tribunal, while the third member is jointly appointed by the two nominees or, if they fail to agree, by SIAC.

Appointment of an Emergency Arbitrator:

  • Appointment of the arbitral tribunal Usually takes time.
  • Therefore, under the rules of SIAC, parties can move SIAC to appoint an emergency arbitrator to get urgent Interim relief, even as the process of appointment of the main Arbitral Tribunal is Underway.

What happens when the Parties don’t comply with the Order Voluntarily?

  • Currently under Indian law, there is no express mechanism for enforcement of the orders of the Emergency Arbitrator.
  • But, the Parties Voluntarily comply with the Emergency Award.
  • However, if the parties don’t comply with the order voluntarily, then the party which has won the emergency award, in this case Amazon, can move the High Court in India under Section 9 of the Arbitration & Conciliation Act, 1996, to get similar reliefs as granted by the Emergency Arbitrator.

Why has Singapore become the hub of International Arbitration?

  • Foreign investors investing in India typically want to avoid the rigmarole of the Indian courts.
  • Foreign investors feel that Singapore is neutral ground for dispute resolution.
  • Singapore itself over time has built a stellar reputation as jurisdiction driven by rule of law with international standards and high integrity. This gives comfort to investors that the arbitration process will be quick, fair and just”.
  • According to the 2019 annual report of SIAC, India was the top user of its arbitration seat with 485 cases being referred to SIAC, followed by Philippines at 122, China at 76 and the United States at 65.

Does India have any International Arbitration Centre?

  • India now has its own international arbitration centre in Mumbai.

About Singapore International Arbitration Centre (SIAC):

  • It is a not-for-profit international arbitration organisation based in Singapore, which administers arbitrations under its own rules of arbitration and the United Nations Commission on International Trade Law (UNCITRAL) Arbitration Rules.

RBI introduces Prompt Corrective Action Framework for NBFCs

Why in News?

  • The Reserve Bank of India (RBI) has introduced the prompt corrective action (PCA) Framework for non-banking Financial Companies (NBFCs).

About the News:

  • The PCA framework for NBFCs will come into effect on October 1,2022 on the basis of their Financial Position on or after March 31.

What is PCA Framework?

  • The objective of the framework is to enable supervisory intervention at the appropriate time and require the supervised entity to initiate and implement remedial measures in a timely manner, to restore its Financial Health.

Applicability:

  • The framework will be applicable to all deposit-taking non-banking financial companies (NBFCs), all non-deposit taking NBFCs in the middle, upper and top layers including investment and credit companies, core investment companies, infrastructure debt funds, infrastructure finance companies and microfinance institutions.
  • However, it has excluded NBFCs not accepting/not intending to accept public funds, primary dealers and Housing Finance companies along with government-owned ones.

Indicators based on which PCA will be Invoked for NBFC:

  • The central bank will track three indicators — capital to risk-weighted assets ratio (CRAR), Tier I ratio and net non-performing assets (NNPAs) including non-performing investments (NPIs).
  • In the case of core investment companies (CICs), the RBI will track adjusted net worth/aggregate risk-weighted assets, leverage ratio and NNPAs, including NPIs.
  • A breach in any of the three risk thresholds under the above-mentioned indicators could result in invocation of PCA.

Need for:

  • The PCA Framework for NBFCs has been brought after four big finance firms — IL&FS, DHFL, SREI and Reliance Capital — which collected public funds through fixed deposits and non-convertible debentures collapsed in the last three years despite the tight monitoring in the financial sector. They collectively owe over Rs 1 lakh crore to investors.

What will happen once the PCA is invoked for an NBFC?

  • Based on the risk threshold, the RBI may prescribe mandatory corrective actions such as restriction on dividend distribution/remittance of profits, requiring promoters /shareholders to infuse equity and reducing leverage.
  • The RBI can also restrict the issuance of guarantees or take other contingent liabilities on behalf of group companies (only for CICs).
  • Further, the central bank may also restrict branch expansion, impose curbs on capital expenditure other than for technological up-gradation within board-approved limits and restrict/ directly reduce variable operating costs.

Cabinet Nod to Extend Irrigation Scheme for Another Five Years

Why in News?

The Cabinet has recently given its approval to extend its umbrella scheme for irrigation, water supply, ground water and watershed development projects for another five years.

About the News:

  • According to Jal Shakti Ministry, less than half of identified irrigation projects have been completed since the scheme began in 2015.
  • The extension of the Pradhan Mantri Krishi Sinchayee Yojana till 2026 will cost ₹93,068 crore, benefit 22 lakh farmers and fund dams critical for water supply to Delhi and five other States in the upper Yamuna basin.
  • In 2015-16, 99 projects were identified which were completed more than 50% but had been pending for years. Of the 99 projects, 46 have been completed. The rest of the projects will be completed by 2024-25.
  • Har Khet Ko Pani, another component of the PMKSY, focuses on expanding physical access on farms and increasing the cultivable area under assured irrigation through surface water projects and by restoring water bodies. This is targeted to bring another 4.5 lakh hectares under irrigation by 2026.
  • The Cabinet has now expanded inclusion criteria for water body rejuvenation projects, including both urban and rural water bodies, and enhancing Central assistance from 25% to 60%.

About Pradhan Mantri Krishi Sinchayee Yojana (PMKSY):

  • Launched in 2015, PMKSY is a centrally sponsored scheme to provide assured irrigation to cultivated areas, reduce wastage of water and improve water-use efficiency.
  • It not only focuses on creating sources for assured irrigation but also aims to create protective irrigation by harnessing rainwater at the micro-level through “Jal Sanchay’’ and “Jal Sinchan”.
  • The scheme has been formulated by amalgamating other existing schemes like Accelerated Irrigation Benefit Programme (AIBP), Integrated Watershed Management Programme (IWMP), and On Farm Water Management (OFWM).
  • Ministries of Agriculture, Water Resources, and Rural Development are the implementing agencies of the scheme.
  • PMKSY is being implemented in an area development approach, adopting decentralized state-level planning and projectized execution, allowing the states to draw their irrigation development plans based on district/block plans with a horizon of 5 to 7 years. States can take up projects based on the District/State Irrigation Plan.
  • All the States and Union Territories including the North-Eastern States are covered under the program
  • The motto of the Scheme is ‘Har Khet Ko Pani’.
  • The funding pattern of the Scheme is 60:40 center-state share in the case of States, for the Himalayan and North-Eastern states, the center-state cost-share is 90:10, and for the Union Territories, 100% of the cost is borne by the Central Government.

Focus areas of the Scheme:

  • PMKSY will strategize by focussing on end-to-end solutions in the irrigation supply chain, viz. water sources, distribution network, efficient farm level applications, extension services on new technologies & information, etc. The major focus areas include,
  • Creation of new water sources; repair, restoration, and renovation of defunct water sources; construction of water harvesting structures, secondary & micro storage, groundwater development, enhancing potentials of traditional water bodies at the village level.Developing/augmenting distribution network where irrigation sources (both assured and protective) are available or Created.
  • Promotion of scientific moisture conservation and runoff control measures to improve Groundwater Recharge.
  • Promoting efficient water conveyance and field application devices within the farm viz, underground piping system, drip & sprinklers, pivots, rain-guns, and other application devices, etc.
  • Encouraging community irrigation through registered user groups/farmer producers’ organizations/NGOs.
  • Farmer-oriented activities like capacity building, training and exposure visits, demonstrations, farm schools, skill development in efficient water and crop management practices (crop alignment) including large scale awareness through mass media campaigns, exhibitions, field days, and extension activities through short animation films, etc.
  • More focus on irrigation development will be given to deficient states in terms of irrigation coverage.

Components of the Scheme:

  • Accelerated Irrigation Benefit Programme (AIBP) focuses on faster completion of ongoing major and medium irrigation projects including national Projects.
  • PMKSY (Har Khet ko Pani) focuses on the creation of new water sources through minor Irrigation (both surface and groundwater), repair, restoration, and renovation of water bodies; strengthening carrying capacity of traditional water sources, construction of rainwater harvesting structures; command area development, strengthening and creation of distribution network from source to farm, groundwater development in water-abundant areas, improvement in the water management and distribution system, diversion of water from water-abundant to water-deficient areas and creation and rejuvenation of traditional water storage systems.
  • PMKSY (Per Drop More Crop) focuses on maximizing water use efficiency at the farm level through program management, promotion of efficient water conveyance, precision water application devices, and water-lifting devices. Construction of micro-irrigation structures, secondary storage structures, conducting extension activities for the promotion of scientific moisture conservation and agroeconomic measures, capacity building, training, and awareness campaign, and information technology interventions are other measures to promote water use efficiency.
  • PMKSY (Watershed Development) focuses on effective management of runoff water and improved soil & moisture conservation activities, construction of water harvesting structures, and convergence with MGNREGS for the creation of a water-source to full potential in identified backward rainfed blocks including renovation of traditional water bodies.

Implementation Framework

  • PMKSY follows a “decentralized” three-tiered institutional structure with High-Level Empowered Committee (HLEC) at the Central level, State Level Sanctioning Committee (SLSC) at the State level, and District Level Implementation Committee (DLIC) at the district level besides dynamic involvement of other stakeholders.
  • At the national level, National Steering Committee (NSC) and National Executive Committee (NEC) are the key committees that oversee the implementation of programs, allocate resources, undertake monitoring and performance assessment, etc.
  • At the State level, the State Department of Agriculture is the nodal department for implementation of the program.
  • At the district level, the District Level Implementation Committee (DLIC) oversees the implementation of PMKSY.

WORLD BANK APPROVES $ 1 BILLION FOR INDIA TO FIGHT AGAINST COVID-19

Why in News?

  • The Government of India is getting $1 billion loan from the World Bank to support its COVID-19 relief measures and financial assistance for the poorest and most vulnerable communities.

About the News:

  • The money will be used for reforms in social security net, making it more integrated, portable and focussed on the urban poor.
  • The new support will be funded in two phases. An allocation of $750 million — more than ₹5,600 crore —will be made immediately to help fund the Pradhan Mantri Garib Kalyan Yojana, which the Centre announced in March to scale up cash transfers and free food grain distribution to vulnerable communities, pensioners and poor workers, and provide insurance support to health workers.
  • The second phase will provide $250 million — almost ₹1,900 crore —post July, which will fund additional cash and in-kind benefits based on local needs through the State governments and portable social protection delivery systems.
  • The COVID-19 pandemic has also put the spotlight on some of the gaps in the existing social protection systems.
  • This programme will support the Government of India’s efforts towards a more consolidated delivery platform – accessible to both rural and urban populations across state boundaries.

About Pradhan Mantri Garib Kalyan Yojana:

  • The Pradhan Mantri Garib Kalyan Yojana was launched in the year 2016 by PM Narendra Modi along with the other provisions of Taxation Laws (Second Amendment) Act, 2016.
  • This scheme was valid from December 16, 2016 to March 31, 2017 and provided an opportunity to declare the unaccounted wealth and black money in a confidential manner and avoid prosecution after paying a fine of 50% on the undisclosed income.
  • An additional 25% of the undisclosed income is invested in the scheme which can be refunded after four years, without any interest.
  • Due to the outbreak of COVID-19 in India, the Finance Minister announced a ₹7 lakh crore Gareeb Kalyan package to mitigate the loss faced by the poor due to the coronavirus lockdown.

What are its Recent Updates?

  • To provide an insurance cover of Rs 50 lakhs per health worker affected by COVID-19.
  • To provide free resources of 5 kg wheat or rice and 1 kg of preferred pulses for 80 crore poor people for the next three months under the PM Garib Kalyan Ann Yojana.
  • 20 crore Women Jan Dhan account holders will be provided Rs 500 per month for next three months.
  • There will be an increase in MGNREGA wage to Rs 202 per day to benefit 13.62 crore families.
  • The Central Government has given orders to State Governments to use the Building and Construction Workers Welfare Fund to provide relief to Construction Workers.

What are its Implications?

  • The loan would help India move from more than 460 fragmented social protection schemes to an integrated system, which would be faster, more flexible and also acknowledge the diversity of needs across states.
  • Geographic portability would be introduced to ensure that social protection benefits could be accessed from anywhere in the country, providing relief to inter-State migrant workers.
  • There would also be a shift from the current rural focus of social protection schemes to include the needs of the urban poor as well.
  • The platform draws on the country’s existing architecture of safety nets – the PDS, the digital and banking infrastructure, and Aadhaar – while positioning the overall social protection system for the needs of a 21st century India.Importantly, such a system will need to leverage India’s federalism enabling and supporting the States to respond quickly and effectively in their context

ECONOMIC STIMULUS PACKAGE – III

Why in News?

  • In the third tranche of the COVID-19 economic package, the government announced a slew of measures for agriculture sector, including a ₹63 lakh crore outlay.

About the News:

  • It also amended the stringent Essential Commodities Act to remove cereals, edible oil, oilseeds, pulses, onions and potato from its purview.
  • The package would focus on infrastructure and building capacities in the agriculture and allied activities.
  • The interest subvention will unlock ₹5,000 crore additional liquidity, benefitting 2 crore farmers.
  • This also included ₹7 lakh crore package comprising free food grain and cash to poor for three months announced in March, and ₹5.6 lakh crore stimulus provided through various monetary policy measures by the Reserve Bank of India (RBI).
  • Of the remaining, the government has made two tranches of announcements with a cumulative package of ₹1 lakh crore, comprising largely of credit lines to smaller firms, concessional credit to farmers and support to shadow banking and electricity distributors.

Regulating Essential Commodities:

  • The government will amend the six-and-a-half-decade old Essential Commodities Act to deregulate food items, including cereals, edible oil, oilseeds, pulses, onion and potato.
  • The amendment, besides deregulating production and sale of food products, will provide for no stock limit to be imposed on any produce.
  • A stock limit will be imposed only under very exceptional circumstances like national calamities, famine with a surge in prices.
  • Also, no stock limit shall apply to processors or value chain participants.

Other Important Announcements:

  • ₹15,000 crore Animal Husbandry Infrastructure Development Fund will be set up to support investment in dairy processing, value addition and cattle feed infrastructure.
  • To ensure 100 per cent vaccination of all livestock against foot and mouth disease (FMD) ₹13,343 crore will be provided, she said.
  • As much as ₹10,000 crore will be provided for fishermen through Pradhan Mantri Matsya Sampada Yojana (PMMSY).
  • For promoting herbal cultivation, ₹4,000 crore National Medicinal Plants Fund will be started to help 10 lakh hectares to be covered under herbal cultivation.
  • Also, Operation Greens will be extended from tomato, onion and potato to all fruit and vegetables by providing 50 per cent subsidy on transportation and storage of these commodities.
  • For beekeepers, a ₹500-crore scheme was announced for infrastructure development and post-harvest facilities.

ECONOMIC STIMULUS-II PACKAGE

Context:

  • The Union Finance Minister has recently announced the short term and long-term measures for supporting the poor, including migrants, farmers, tiny businesses and street vendors as part of the second tranche of Atmanirbhar Bharat Abhiyan.

About Free Food Grains:

  • The allocation of additional food grain to all the States/UTs (5 kg per migrant labourer and 1 kg chana per family per month) for two months (May and June, 2020) free of cost. It is an extension of the Pradhan Mantri Gharib Kalyan Yojana.
  • The Migrant labourers not covered under National Food Security Act (NFSA), 2013 or without a ration card in the State/UT in which they are stranded at present.
  • The entire outlay of ₹3500 crores will be borne by the Government of India.

About One Nation One Ration Card:

  • It is part of Technology Driven System Reforms and will enable migrant workers and their family members to access PDS benefits from any Fair Price Shop in the country.
  • Around 67 crore beneficiaries covering 83% of Public Distribution System (PDS) population will be covered by National portability of Ration cards by August, 2020 and 100% National portability will be achieved by March, 2021.It will ensure that the people in transit, especially migrant workers can also get the PDS benefit across the country.

About Scheme for Affordable Rental Housing Complexes:

  • It will be launched soon and under this, the Central Government will provide ease of living at affordable rent for Migrant Workers and Urban Poor.
  • It will be converted into Affordable Rental Housing Complexes (ARHC) of government funded houses in the cities under PPP mode (Public Private Partnerships) through Concessionaires.

About Credit Linked Subsidy Scheme:

  • This Scheme for Middle Income Group (MIG, annual income between ₹6 and ₹18 lakhs) will be extended up to March 2021. It comes under the Pradhan Mantri Awas Yojana (Urban).
  • It will benefit 2.5 lakhs middle income families during 2020-21 and will lead to investment of over ₹70,000 crores in housing sector.
  • It will create a significant number of jobs by giving a boost to the Housing sector and will stimulate demand for steel, cement, transport and other construction materials.

Credit Boost for Kisan Credit Card Scheme:

  • It is a special drive to provide concessional credit to Pradhan Mantri Kisan Samman Nidhi (PM-KISAN) beneficiaries through Kisan Credit Cards.
  • It will inject additional liquidity of ₹2 lakh crore in the farm sector.
  • The 2.5 crore farmers will be covered and fisherman and animal husbandry farmers will also be included in this drive.

Shishu MUDRA loanees and their Interest Subvention:

  • The Government will provide Interest subvention of 2% for prompt payees for a period of 12 months to MUDRA Shishu loanees, who have loans below ₹50,000.
  • The current, MUDRA Shishu loans is around ₹62 Lakh crore. This will provide relief of about ₹1,500 crore to Shishu MUDRA loanees.

Street Vendors and Credit Facility:

  • It will be launched to facilitate easy access to credit to Street vendors and enable them to restart their businesses.
  • It is expected that 50 lakh street vendors will be benefited under this scheme and credit of ₹5,000 crores would be provided.
  • The Bank credit facilities for initial working capital up to ₹10,000 for each enterprise will be extended.

About Employment using CAMPA Funds:

  • Around ₹6,000 crore of funds under Compensatory Afforestation Management & Planning Authority (CAMPA) will be used.
  • It will be utilised in afforestation and plantation works, artificial regeneration, forest management, soil & moisture conservation works, forest protection, forest and wildlife related infrastructure development, wildlife protection and management etc.
  • The Government will grant immediate approval to these plans which will create job opportunities in urban, semi-urban and rural areas and also for Tribals.

Additional Emergency Working Capital:

  • The NABARD will extend additional re-finance support of ₹30,000 crore for meeting crop loan requirements of Rural Cooperative Banks (RCBs) and Regional Rural Banks (RRBs).
  • It is over and above ₹90,000 crore that will be provided by NABARD to this sector in the normal course.
  • It will benefit around 3 crore farmers, mostly small and marginal and will meet their post-harvest Rabi and current Kharif requirements.

Demerits:

  • The Economists feel, that this intervention was too little, too late, and that the free food grains provision should have been universalised to deal with widespread distress.
  • They have asked the government for a one-time cash transfer to vulnerable sections like migrant labourers.
  • Around 50 crore people in the country without ration cards, of which 10 crores are legally entitled to PDS grain under NFSA.
  • There are many people who were managing in normal times, vegetable vendors, gig economy workers, auto rickshaw drivers, who are in dire straits now. PDS needed to be extended to all these people at this time.
  • There were no steps taken to extend MGNREGA employment guarantee to at least 200 days. It aims to provide at least 100 days of wage employment.

MEASURES TO STRENGTHEN AGRICULTURE SECTOR IN INDIA

Why in News?

  • Union Finance Minister announced the 3rd Tranche of measures to strengthen Infrastructure Logistics, Capacity Building, Governance and Administrative Reforms for Agriculture, Fisheries and Food Processing Sectors.

Highlights:

  • The recent package is a part of the Special economic and comprehensive package of Rs 20 lakh crore – equivalent to 10% of India’s GDP, announced recently amid COVID-19 pandemic.
  • Aatmanirbhar Bharat or Self-Reliant India Movement having five pillars – Economy, Infrastructure, System, Vibrant Demography and Demand, is what this special economic and comprehensive package called.
  • Two significant Agriculture-related measures were also announced as part of 2nd tranche to support farmers –
  • Additional Emergency Working Capital facility through NABARD to enable RRBs and Cooperative Banks extending farm loans for Rabi post-harvest and Kharif expenses and
  • Credit boost to the farm sector by covering 2.5 crore PM-KISAN beneficiaries under Kisan Credit Card Scheme.

Measures Announced:

  • Out of these 11 measures, 8 measures are for improving agricultural infrastructure and 3 measures are for administrative and governance reforms, including removing restrictions on sale and stock limits of farm produce. Measures are
  • Rs 1 lakh crore Agri Infrastructure Fund for farm-gate infrastructure for farmers:
  • Impetus for development of farm-gate & aggregation point, affordable and financially viable Post Harvest Management infrastructure. The fund will be created immediately.
  • Rs 10,000 crore scheme for Formalisation of Micro Food Enterprises (MFE):
  • A Scheme promoting the government’s vision: ‘Vocal for Local with Global outreach’ will be launched to help 2 lakh MFEs who need technical upgradation to attain FSSAI food standards, build brands and marketing.
  • The focus will be on women and SC/ST owned units and those in Aspirational districts and a Cluster based approach (e.g. Mango in UP, Tomato in Karnataka, Chilli in Andhra Pradesh, Orange in Maharashtra etc.) will be followed.

Pradhan Mantri Matsya Sampada Yojana (PMMSY):

  • The Government will launch the PMMSY for integrated, sustainable, inclusive development of marine and inland fisheries.  The focus will be on Islands, Himalayan States, North-east and Aspirational Districts.
  • Rs 11,000 crore for activities in Marine, Inland fisheries and Aquaculture and Rs. 9000 crore for Infrastructure – Fishing Harbours, Cold chain, Markets etc shall be provided.
  • Impact: This will lead to Additional Fish Production of 70 lakh tonnes over 5 years, Employment to over 55 lakh persons and double the exports to Rs 1,00,000 crore.

National Animal Disease Control Programme:

  • National Animal Disease Control Programme for Foot and Mouth Disease (FMD) and Brucellosis launched with total outlay of Rs. 13,343 crore to ensure 100% vaccination of cattle, buffalo, sheep, goat and pig population for Foot and Mouth Disease (FMD) and for brucellosis.

DIRECT SEEDING OF RICE (DSR)

Why in News?

  • Recently, the farmers are now being encouraged to adopt Direct Seeding of Rice (DSR) in place of Conventional Transplanting due to the Shortage of Labourers.

About Conventional Transplanting:

  • The farmers prepare nurseries where the paddy seeds are first sown and raised into young Plants.
  • These seedlings are then uprooted and replanted 25-35 days later in the main field.
  • It is transplanted on fields that are “puddled” or tilled in standing water using tractor-drawn disc harrows.

Direct Seeding of Rice (DSR):

  • There is no nursery preparation or transplantation. The seeds are instead directly drilled into the field by a tractor-powered machine.
  • Conventionally the water act as a herbicide for paddy but in DSR, water is replaced by real chemical herbicides. Farmers have to only level their land and give one pre-sowing irrigation or rauni.
  • Once the field has good soil moisture, they need to do two rounds of ploughing and planking (smoothening of soil surface), which is followed by the sowing of the seeds and spraying of herbicides.

Advantages of DSR:

  • The most important one is water savings. The first irrigation (apart from the pre-sowing rauni) under DSR is necessary only 21 days after sowing.
  • It is unlike in transplanted paddy, where watering has to be done practically daily to ensure submerged/flooded conditions in the first three weeks.
  • It saves more number of working labours, which about three labourers are required to transplant one acre of paddy at almost Rs 2,400 Per Acre.
  • Here, the cost of herbicides under DSR will not exceed Rs 2,000 per acre.

Disadvantages of DSR:

  • The main issue is the Availability of Herbicides.
  • The seed requirement for DSR is also higher, at 8-10 kg/acre, compared to 4-5 kg in Transplanting.
  • The laser land levelling, which costs Rs 1,000/acre, is compulsory in DSR. This is not so in Transplanting.
  • Here, the yields are as good as from normal transplanting, but one need to sow by the first fortnight of June. The plants have to come out properly before the Monsoon Rains Arrive.
  • In Transplanting there is no such problem, where the saplings have already been raised in the Nursery.

GUJARAT AMENDS APMC ACT

Why in News?

  • Following the Centre’s directive to States to amend their Agricultural Produce Markets (APMC) Acts, the Gujarat government has promulgated an Ordinance expanding the purview of the Act to include livestock under agricultural produce and to provide better market access to farmers.

What is APMC?

  • It is a statutory market committee constituted by a State Government in respect of trade in certain notified agricultural or horticultural or livestock products, under the Agricultural Produce Market Committee Act issued by that state government.
  • The Ministry of Agriculture formulated a model law on agricultural marketing, State Agricultural Produce Marketing (Development and Regulation) Act, 2003 and requested the state governments to suitably amend their respective APMC Acts.
  • Union Budgets of 2014-15 and 2015-16 had suggested the creation of a National Agricultural Market (NAM) following which e-NAM was launched on April 2016 as a pan-India electronic trade portal to link APMCs across the States.

What are its objectives?

  • Ensure transparency in pricing systems and transactions taking place in the market area.
  • Provide market-led extension services to farmers.
  • Ensure payment for agricultural produce sold by farmers on the same day.
  • Promote agricultural processing including activities for value addition in agricultural produce.
  • Setup and promote public private partnership in the management of agricultural markets, etc.

Changes Made and Their Implications:

  • As per the amendment, the new Act is termed Gujarat Agricultural Produce and Livestock Marketing (Promotion and Facilitation) Act, 1963.
  • The Act paves the way for establishment of a livestock market.
  • Also, it seeks to have involvement of local authorities, including Panchayati raj institutions that own and operate rural periodical markets such as haats within their area.
  • Changed Structure of the market committee of a market yard. It is deemed to be of national importance with increased membership from farmers.
  • A single licence will be applicable to the whole of the State for the traders to be granted or renewed by the Director. The existing trader licences granted by the market committees shall be converted into State wide single trader licence by the Director.
  • Now, even private entities can set up their own market committees or sub-market yards that can compete and offer the best possible remuneration to farmers for their produce.
  • The ordinance also restricts the jurisdiction of the market committees to the physical boundaries of their respective marketing yards. They can levy cess only on those transactions, happening within the boundary walls of their marketing yard.

Significance of these Changes:

  • The changes help develop these markets to efficiently function as marketing platform nearest to the farm gate.
  • They also ensure that the spirit of competition is encouraged and the principle of ‘farmer first’ is kept in mind.
  • Also, the act removes the conventional involvement of middlemen by allowing farmers to sell their crops in a free market. This is a progressive step towards a more robust farm economy.

Concerns from APMC:

  • APMCs have not welcomed the decision because it ends their monopoly and allows private players to enter.
  • The ordinance will also affect revenues because no cess will be collected on transactions outside the physical boundaries of marketing yards.
  • For example, last year, of the ₹5 crore earned as market fees, ₹1.5 crore came from transactions that were conducted outside the marketing yard. With the new ordinance in place, this revenue will be lost.

ECONOMIC PACKAGE TO MAKE INDIA SELF-RELIANT

Why in News?

  • Union Finance Minister announced a ₹20-lakh-crore economic stimulus package to deal with the COVID-19 pandemic.

Highlights:

  • This is the first tranche of the Atmanirbhar Bharat Abhiyan announced by Prime Minister Narendra Modi recently as a ₹20 lakh crore economic package.
  • That package includes the ongoing Pradhan Mantri Garib Kalyan Yojana, meant to support the poorest and most vulnerable communities during the pandemic, as well as several measures taken by the Reserve Bank of India to improve liquidity.
  • More tranches are expected in the next few days.

Pradhan Mantri Garib Kalyan Package (1):

  • 1.70 Lakh Crore relief package under Pradhan Mantri Garib Kalyan Yojana for the poor to help them fight the battle against Coronavirus which includes –
    • Insurance cover to Health Worker
    • 5 kg wheat or rice per person for next 3 months to poor people
    • 20 crore women Jan Dhan account holders get Rs 500 per month for next 3 months;
    • Gas cylinders, free of cost, provided to 8 crore poor families for the next 3 months;
    • Increase in MNREGA wage to Rs 202 a day from Rs 182 to benefit 13.62 crore families;
    • Ex-gratia of Rs 1,000 to 3 crore poor senior citizens, poor widows and poor Divyang.

Pradhan Mantri Garib Kalyan Package (2):

  • Front-loaded Rs 2,000 paid to farmers under existing PM-KISAN to benefit 8.7 crore farmers; Building and Construction Workers Welfare Fund allowed to be used to provide relief to workers;
  • Five crore workers registered under Employee Provident Fund (EPF) to get non-refundable advance of 75% of the amount or three months of the wages, whichever is lower, from their accounts;
  • Limit of collateral free lending to be increased from Rs 10 to Rs 20 lakhs for Women Self Help Groups supporting 6.85 crore households;
  • District Mineral Fund (DMF) to be used for supplementing and augmenting facilities of medical testing, screening etc.

Measures taken by Reserve Bank of India:

  • Reduction of Cash Reserve Ratio (CRR) has resulted in liquidity enhancement of ₹1,37,000 crores Targeted Long Term Repo Operations (TLTROs) of ₹1,00,050 crore for fresh deployment in investment grade corporate bonds, commercial paper, and non-convertible debentures.
  • Increased the banks’ limit for borrowing overnight under the marginal standing facility (MSF). Announced special refinance facilities to NABARD, SIDBI and the NHB for a total amount of ₹50,000 crore at the policy repo rate.
  • Moratorium of three months on payment of instalments and payment of Interest on Working Capital Facilities in respect of all Term Loans.
  • For loans by NBFCs to the commercial real estate sector, additional time of one year has been given for extension of the date for commencement for commercial operations (DCCO).

Other Measures:

  • On the request of the Government of India, RBI raised the Ways and Means advance limits of States by 60% and enhanced the Overdraft duration limits;
  • Issued all the pending income-tax refunds up to ₹5 lakh, immediately benefiting around 14 lakh taxpayers;
  • Implemented “Special Refund and Drawback Disposal Drive” for all pending refund and drawback claims;
  • Sanctioned Rs 15,000 crores for Emergency Health Response Package.

Dissecting the Current Economic Package:

  • For Salaried Workers and Taxpayers:
    • Some relief was provided in the form of an extended deadline for income tax returns for financial year 2019-20, with the due date now pushed to November 30, 2020.
    • The rates of tax deduction at source (TDS) and tax collection at source (TCS) have been cut by 25% for the next year.
    • While statutory provident fund (PF) payments have been reduced from 12% to 10% for both employers and employees for the next three months.
  • MSMEs Get Attention:
    • A major chunk (₹3 lakh crore) of this package is for collateral free loan schemes for businesses, especially micro, small and medium enterprises (MSMEs).
    • The ₹3 lakh crore emergency credit line will ensure that 45 lakh units will have access to working capital to resume business activity and safeguard jobs.
    • For two lakh MSMEs which are stressed or considered non-performing assets, the Centre will facilitate provision of ₹20,000 crore as subordinate debt.
    • A ₹50,000 crore equity infusion is also planned, through an MSME fund of funds with a corpus of ₹10,000 crore.
    • In a bid to fulfil the Prime Minister’s vision of a self-reliant or “Atmanirbhar” India, global tenders will not be allowed for government procurement up to ₹200 crore.
    • Other interventions for MSMEs: e-market linkage and Fintech will be used to enhance transaction-based lending using the data generated by the e-marketplace.
    • The definition of an MSME is being expanded to allow for higher investment limits and the introduction of turnover-based criteria.
  • Non-banking finance companies (NBFCs):
    • NBFCs/HFCs/MFIs are finding it difficult to raise money in debt markets.
    • Government will launch a Rs 30,000 crore Special Liquidity Scheme;
    • Under this scheme investment will be made in both primary and secondary market transactions in investment grade debt paper of NBFCs/HFCs/MFIs;
    • Will supplement RBI/Government measures to augment liquidity;
    • Securities will be fully guaranteed by GoI.
  • This will provide liquidity support for NBFCs/HFC/MFIs and mutual funds and create confidence in the market.
  • Power Distribution Companies:
    • Revenues of Power Distribution Companies (DISCOMs) have plummeted. Unprecedented cash flow problem accentuated by demand reduction.
    • PFC/REC to infuse liquidity of Rs 90,000 cr to DISCOMs against receivables.
    • Loans to be given against State guarantees for the exclusive purpose of discharging liabilities of Discoms to Gencos.
  • Linkage to specific activities/reforms: Digital payments facility by Discoms for consumers, liquidation of outstanding dues of State Governments, Plan to reduce financial and operational losses.
  • Central Public Sector Generation Companies shall give rebate to Discoms which shall be passed on to the final consumers (industries).
  • Relief to Contractors:
    • Extension of up to 6 months (without costs to contractor) to be provided by all Central Agencies (like Railways, Ministry of Road Transport & Highways, Central Public Works Dept, etc)
    • Covers construction/ works and goods and services contracts.
    • Covers obligations like completion of work, intermediate milestones etc. and extension of Concession period in PPP contracts.
    • Government agencies to partially release bank guarantees, to the extent contracts are partially completed, to ease cash flows
  • The Real Estate Industry:
    • Adverse impact due to COVID and projects stand the risk of defaulting on RERA timelines. Time lines need to be extended.
    • Ministry of Housing and Urban Affairs will advise States/UTs and their Regulatory Authorities to the following effect:
    • Treat COVID-19 as an event of ‘Force Majeure’ under RERA.
    • Extend the registration and completion date suo-moto by 6 months for all registered projects expiring on or after 25th March, 2020 without individual applications.
    • Issue fresh ‘Project Registration Certificates’ automatically with revised timelines.
    • Extend timelines for various statutory compliances under RERA concurrently.
    • These measures will de-stress real estate developers and ensure completion of projects so that homebuyers are able to get delivery of their booked houses with New Timelines.

KAILASH MANSAROVAR LINK ROAD

Why in News?

  • Recently, Nepal has strongly objected to the newly inaugurated link road which connects Pithoragarh, Uttarkhand to Lipulekh pass, China border significantly reducing the time of Kailash Mansarovar Yatra.

Highlights:

  • Nepal claims the territory at the Lipulekh pass around 400 sq km area east of Kali river in the tri-junction of Nepal, Tibet and India, through which the road passes as its own.
  • It referred to the 2014 agreement between Prime Ministers of both countries, for Foreign Secretaries to work out the “outstanding boundary issues” on Kalapani where Lipulekh lies and Susta bordering Bihar.
  • The unilateral decision to build a road there, is a breach of the 2014 agreement.
  • Nepal has the maps during the 1816 Sugauli treaty and other complementing treaties that followed, fixing that Limpiadhura, Kalapani and Lipulekh were shown east of Kali river and part of Nepal.
  • These arrangements were made following Nepal’s war with the British due to which Nepal had to cede a large part of territory which currently forms the present Uttarakhand.
  • Nepal seeks to question China and India because both had signed an agreement in May 2015 to develop Lipulekh as a commercial passage without consulting Nepal which majorly affected the triangulation of the countries.

About India’s Stand:

  • According to the External Affairs minister, the road going through Pithoragarh lies Completely within the Territory of India.
  • It is the pre-existing route used by the pilgrims of the Kailash Mansarovar Yatra which has been made pliable for the ease and convenience of Pilgrims, Locals and Traders, under the Present Project.
  • India held that the boundary delineation exercise with Nepal is in process and it is committed to resolving outstanding boundary issues through Diplomatic Dialogue.

Other Issues between Indian and Nepal:

  • Nepal protested against the publication of Indian maps that included the Kalapani area.
  • India rejected Nepal’s contention, asserting that the map accurately depicts the sovereign territory of India.
  • Both nations are in the process of scheduling foreign secretary-level talks, which will be held once dates are finalised after the two governments have successfully dealt with the challenge of Covid-19.

About Kali River:

  • It is also known as Sharda river or Kali Ganga in Uttarakhand.
  • It joins Ghagra river in Uttar Pradesh, which is a tributary of Ganga.
  • Its river projects are Tanakpur hydro-electric project, Chameliya hydro-electric project, Sharda Barrage.

About Lipulekh Pass:

  • It is also known as Lipu-Lekh Pass/Qiangla or Tri-Corner is a high altitude mountain pass situated in the western Himalayas with a height of 5,334 metre or 17,500 feet.
  • It is an International mountain pass between India, China and Nepal.

HELICOPTER MONEY

Why in News?

  • Telangana Chief Minister has recently suggested that the helicopter money can help states to come out of the economic chaos created by Covid-19 pandemic.

What is meant by Helicopter money?

  • It is an unconventional monetary policy tool, which involves printing large sums of money and distributing it to the public, to stimulate the economy during a recession (decline in general economic activity) or when interest rates fall to zero.
  • Under such a policy, a central bank “directly increases the money supply and, via the government, distribute the new cash to the population with the aim of boosting demand and inflation”.
  • The term was coined by American economist Milton Friedman. It basically denotes a helicopter dropping money from the sky.

Difference between Helicopter Money and Quantitative Easing:

  • Helicopter money should not be confused with quantitative easing, because both aim to boost consumer spending and increase inflation.
  • In case of helicopter money, currency is distributed to the public and there is no repayment liability.
  • Whereas in case of quantitative easing, it involves the use of printed money by central banks to buy government bonds. Here the government has to pay back for the assets that the central bank buys.

Pros of Helicopter Money:

  • It boosts spending and Economic Growth more Effectively than quantitative easing because it increases aggregate demand – the demand for goods and services – immediately.
  • It does not rely on increased borrowing to fuel the economy, which means that it doesn’t create more debt.

Cons of Helicopter Money:

  • It may lead to over-inflation.
  • It may devalue the currency in the foreign exchange market.
  • It does not involve repayment liability, therefore many people argue that it’s not a feasible solution to revive the economy.

SBI TO EXTEND LOAN MORATORIUM TO NBFCS

Why in News?

  • The State Bank of India (SBI) has decided to extend loan moratorium to NBFCs that could give a huge relief to the entities facing a Cash Crunch.

What is Loan Moratorium?

  • It refers to a particular period of a loan tenure during which the borrower does not have to repay anything.
  • It can be described as a waiting period before the borrower will have to start paying the equated monthly instalments (EMIs) for his or her loan.
  • It doesn’t mean that he is completely waived off his Loans.

Why this Move?

  • At end March, following the nationwide lockdown, the RBI had allowed banks to extend three-month repayment moratorium to their term loan customers without classifying them as non-performing assets.
  • While the banks had extended the facility to the retail borrowers, they were reluctant to extend the same to the NBFCs, including housing finance companies and micro-finance institutions.
  • Bank funding is a key source of liquidity for the NBFCs. As a result, NBFCs that had extended the benefit to their customers but were not granted one from the banks were facing a severe liquidity crunch.
  • Rating agency Crisil had said that the NBFCs rated by the agency would face a ₹75 lakh-crore debt obligation maturing by June end.
  • Similarly, micro-finance institutions had informed the RBI during a recent meeting that they had to repay a debt of ₹18,500 crore in the next three months.
  • With SBI now deciding to offer the moratorium, NBFCs expect other commercial banks also to follow suit.

What is Non-Banking Financial Company (NBFC)?

  • A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 engaged in the business of loans and advances, acquisition of shares/stocks/bonds/debentures/securities issued by Government or local authority or other marketable securities of a like nature.
  • NBFC does not include any institution whose principal business is that of agriculture activity, industrial activity, purchase or sale of any goods (other than securities) or providing any services and sale/purchase/construction of immovable property.
  • A non-banking institution which is a company and has principal business of receiving deposits under any scheme or arrangement in one lump sum or in instalments by way of contributions or in any other manner, is also a non-banking financial company (Residuary non-banking company).

What are the Differences between banks & NBFCs?

  • NBFCs lend and make investments and hence their activities are akin to that of banks; however there are a few differences as given below:
    • NBFC cannot Accept Demand Deposits;
    • NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on itself;
    • Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs, unlike in case of Banks.

PRADHAN MANTRI BHARTIYA JANAUSHADHI PARIYOJANA (PMBJP)

Why in News?

  • Pradhan Mantri Bhartiya Janaushadhi Kendras (PMBJKs) are accepting orders on WhatsApp and e-mail and delivering on patient’s doorsteps to facilitate medicine procurement During Lockdown.

About PMBJP:

  • ‘Pradhan Mantri Bhartiya Janaushadhi Pariyojana’ is a campaign launched by the Department of Pharmaceuticals, Govt. Of India, to provide quality medicines at affordable prices to the masses through special Kendra’s known as Pradhan Mantri Bhartiya Jan Aushadhi Kendra.
  • Bureau of Pharma PSUs of India (BPPI) is the implementing agency of PMBJP. BPPI (Bureau of Pharma Public Sector Undertakings of India) has been established under the Department of Pharmaceuticals, Govt. of India, with the support of all the CPSUs.

What are the Salient Features of the scheme?

  • Ensure access to quality medicines.
  • Extend coverage of quality generic medicines so as to reduce the out of pocket expenditure on medicines and thereby redefine the unit cost of treatment per person.
  • Create awareness about generic medicines through education and publicity so that quality is not synonymous with only high price.
  • A public programme involving Government, PSUs, Private Sector, NGO, Societies, Co-operative Bodies and other Institutions.
  • Create demand for generic medicines by improving access to better healthcare through low treatment cost and easy availability wherever needed in all therapeutic categories.

What is a Generic Medicine?

  • There is no definition of generic or branded medicines under the Drugs & Cosmetics Act, 1940 and Rules, 1945 made thereunder. However, generic medicines are generally those which contain same amount of same active ingredient(s) in same dosage form and are intended to be administered by the same route of administration as that of branded medicine.
  • The price of an unbranded generic version of a medicine is generally lower than the price of a corresponding branded medicine because in case of generic version, the pharmaceutical company does not have to spend money on promotion of its brand.

How are they Regulated in India?

  • Drugs manufactured in the country, irrespective of whether they are generic or branded, are required to comply with the same standards as prescribed in the Drugs and Cosmetics Act, 1940 and Rules, 1945 made thereunder for their quality.

Outreach of Generic Medicines:

  • With developments like more and more doctors prescribing generic medicines and opening of over 5050 Janaushadhi stores across 652 districts, awareness and availability of high quality affordable generic medicines has increased in the country.
  • About 10-15 lakh people benefit from Janaushadhi medicines per day and the market share of generic medicines has grown over three fold from 2% to 7%in last 3 years.
  • The Janaushadhi medicines have played a big role in bringing down the out of pocket expenditure of patients suffering from life threatening diseases in India.
  • The PMBJP scheme has led to total savings of approximately Rs.1000 crores for common citizens, as these medicines are cheaper by 50% to 90% of average market price.
  • The PMBJP is also providing a good source of self-employment with self-sustainable and regular earnings.

CO-OPERATIVE BANKS UNDER SARFAESI ACT

Why in News?

  • The Supreme Court held that Co-operative banks established under a State law and multi-State level co-operative societies come within the ambit of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi) Act of 2002.

Issues Involved:

  • The Judgment Came in view of Several Conflicting decisions by high courts on the issues of
    • Whether the Co-operative banks can be called  as “Banks (financial Institutions)” under the Banking Regulation Act of 1949
    • Whether the Parliament has legislative competence to regulate financial assets of cooperative banks formed under state law.
  • The argument was that under Lists I and II of the 7th Schedule, the Constitution provides for distinct fields of legislative entries for the state legislature and Parliament and once there is already a valid law made by the state referring to its own field, there should not be a parallel parliamentary law on the same topic.

Verdict of the Supreme Court:

  • The court has upheld the central government’s notification which brought co-operative societies within the purview of the Sarfaesi Act.
  • The Supreme court said Co-operative banks come within the definition of “Banks” under the Banking Regulation Act, 1949 for the purposes of the Sarfaesi Act. The recovery procedure under the Sarfaesi Act is also applicable to co-operative banks and there is no clash with the Banking Regulation Act, 1949.
  • The court also ruled that the Parliament has legislative competence to provide procedures for recovery of loans under the Sarfaesi Act with respect to cooperative banks.
  • The court was of the opinion that recovery of dues would be an essential function of any financial institution and co-operative banks cannot carry on any activity without compliance of provisions of the banking Act and any other legislation applicable to such banks and the RBI Act.

About Sarfaesi Act:

  • Banks utilize Sarfaesi Act as an effective tool for bad loans (Non Performing Asset) recovery.
  • The Sarfaesi Act is effective only against secured loans where banks can enforce the underlying security.
  • Major feature of Sarfaesi is that it promotes the setting up of asset reconstruction companies (ARCs) and asset securitization companies (SCs) to deal with NPAs accumulated with the banks and financial institutions.
  • Following are the main objectives of the Sarfaesi Act.
    • Provides the legal framework for securitization activities in India.
    • It gives the procedures for the transfer of NPAs to asset reconstruction companies for the reconstruction of the assets.
    • Enforces the security interest without Court’s intervention.
    • Gives powers to banks and financial institutions to take over the immovable property that is pledged to enforce the recovery of debt.

LIQUOR REVENUE FOR STATES

Why in News?

  • Recently, the central government eased restrictions in the third phase of the nationwide lockdown and allowed the sale of liquor.

About the News:

  • The Delhi government announced a 70% hike as ‘Special Corona Fee’ in the price of liquor across categories. This shows the importance of liquor to the economy of the states.
  • Liquor contributes a considerable amount to the exchequers of all states and Union Territories (UTs) except Gujarat and Bihar, both of which have enforced prohibition.
  • Andhra Pradesh announced prohibition in 2019, however, sale of the liquor has been allowed with “prohibition tax”.
  • States levy excise duty on manufacture and sale of liquor.
  • States also charge special fees on imported foreign liquor, transport fee, and label & brand registration charges.
  • A few states like Uttar Pradesh, have imposed a ‘special duty on liquor’ to collect funds for special purposes, such as maintenance of stray cattle.

RBI’s report on State Finance:

  • The Reserve Bank of India published the report ‘State Finances: A Study of Budgets of 2019-20’ in September 2019.
  • It shows that state excise duty on alcohol accounts for around 10-15% of Own Tax Revenue of a majority of states.
  • In fact, state excise duties on liquor is the second or third largest contributor to the category State’s Own Tax revenue; Goods and Services Tax-GST is the largest.
  • This is the reason states have always wanted liquor kept out of the purview of GST.
  • According to the report, in 2019-20, state GST had the highest share, 43.5%, in states’ Own Tax Revenue, followed by Sale Tax at 23.5% (mainly on petroleum products which are out of GST), state excise at 12.5%, and taxes on property and capital transactions at 11.3%.

About State Excise:

  • Excise duty on production of few items including that on liquor and other alcohol-based items is imposed and collected by state governments and is called ‘State Excise’ duty.
  • Excise duty is basically a production tax. It is imposed on manufactured items in India that are meant for domestic consumption.Revenue receipts from state excise come mainly from commodities such as Country Spirits; Liquor; Foreign Liquors and Spirits; Medicinal and Toilet Preparations containing Alcohol, Opium etc; Opium, Hemp and other Drugs; Sales to Canteen Stores Depots. Apart from these, a substantial amount comes from licences, fine and confiscation of alcohol products.

What are the Sources of Revenue for States?

Tax Revenue:

  • State’s Own Tax Revenue:
    • Taxes on Income (agricultural income tax and taxes on professions, trades, callings and employment)
    • Taxes on Property and Capital Transactions (land revenue, stamps and registration fees, urban immovable property tax)
    • Taxes on Commodities and Services (sales tax, state sales tax/VAT, central sales tax, surcharge on sales tax, receipts of turnover tax, other receipts, state excise, taxes on vehicles, taxes on goods and passengers, taxes and duties on electricity, entertainment tax, state GST, and “other taxes and duties”)

Share in Central Taxes:

  • Article 280 of the Indian Constitution requires the composition of the Finance Commission in every five years so that the states can get a reasonable part in the tax revenue of the Union Government.

Non-Tax Revenue:

  • These are collected by the governments for providing/facilitating any goods and service.
  • It is compulsory to pay a part of the income earned/generated and amount of goods and services consumed as tax. However, non-tax revenue becomes payable only when services offered by the government are availed.

Other Components:

  • Interest:It comprises interest of loans given to states and union territories for reasons like non-plan schemes and planned schemes with a maturity period of 20 years and also interest on loans advanced to Public Sector Enterprises (PSEs), Port Trusts and other statutory bodies etc.
  • Dividends and profits, Petroleum license, Power supply fees, Fees for Communication Services, Broadcasting fees, Road, Bridges usage fees, Examination fees etc.

DEPOSIT INSURANCE AND CREDIT GUARANTEE CORPORATION (DICGC)

Why in News?

  • RBI has asked the Registrar of Co-operative Societies, Maharashtra to start the process of winding up operations of CKP Co-operative bank and appoint a liquidator.

What’s the Issue?

  • Recently, the Reserve Bank of India (RBI) recently cancelled the licence of Mumbai-based CKP Co-operative Bank for the Following Reasons:
    • Financial position of the bank was highly adverse and unsustainable.
    • The bank is not in a position to pay its present and future depositors.
    • The bank failed to meet the regulatory requirement of maintaining a minimum capital adequacy ratio of 9% and reserves.

What is Capital to Risk Weighted Assets Ratio (CRAR)?

  • The CRAR, also known as the Capital Adequacy Ratio (CAR), is the ratio of a bank’s capital to its risk. It is a measure of the amount of a bank’s core capital expressed as a percentage of its risk-weighted asset.
  • It is decided by central banks and bank regulators to prevent commercial banks from taking excess leverage and becoming insolvent in the process.
  • The Basel III norms stipulated a capital to risk weighted assets of 8%.
  • However, as per RBI norms, Indian scheduled commercial banks are required to maintain a CRAR of 9%.

What is Deposit Insurance? How is it Regulated in India?

  • Deposit insurance is providing insurance protection to the depositor’s money by receiving a premium.
  • The government has set up Deposit Insurance and Credit Guarantee Corporation (DICGC) under RBI to protect depositors if a Bank Fails.
  • DICGC charges 10 paise per ₹100 of deposits held by a bank. The premium paid by the insured banks to the Corporation is paid by the banks and is not to be passed on to depositors.
  • DICGC last revised the deposit insurance cover to ₹5 lakh in Feb, 2020, raising it from ₹1 lakh since 1993.

What is the Procedure for Depositors to Claim the Money from a Failed Bank?

  • The DICGC does not deal directly with depositors.
  • The RBI (or the Registrar), on directing that a bank be liquidated, appoints an official liquidator to oversee the winding up process.
  • Under the DICGC Act, the liquidator is supposed to hand over a list of all the insured depositors (with their dues) to the DICGC within three months of taking charge.
  • The DICGC is supposed to pay these dues within two months of receiving this list.

Who are Insured by the DICGC?

  • The corporation covers all commercial and co-operative banks, except in Meghalaya, Chandigarh, Lakshadweep and Dadra and Nagar Haveli.
  • Besides, only primary cooperative societies are not insured by the DICGC.

Which type of depositors is not included under the DICGC?

  • Deposits of Foreign Governments.
  • Deposits of Central/State Governments.
  • Inter-bank Deposits.
  • Deposits of the State Land Development Banks with the state Co-operative Bank.
  • Any amount due on account of Any Deposit received outside India.
  • Any amount specifically Exempted by the DICGC with Previous Approval of RBI.

INSURANCE CLAIMS AMID COVID-19 OUTBREAK

Why in News?

  • Companies that suffered business interruption losses due to the Covid-19 outbreak and lockdown are likely to bat for the “loss of profit” clause in their insurance contracts.
  • Many companies had taken insurance policies to cover loss arising due to certain unforeseen circumstances but the question has risen whether Covid-19 outbreak is covered by such policies.
  • The net result is that they may not get any insurance claim from the insurance companies under the Standard Fire and Special Perils Policy, commonly known as property policy.

Types of Insurances:

  • Corporations usually Take Two Types of insurance policies -Material damage policy and Business Interruption Policy.
    • Material damage policy is triggered if there is loss of property due to fire or flood or machine breakdown.
    • Business interruption, on the other hand, only comes into force if loss of profit has happened due to the clauses mentioned under the material damages policy.

Provisions of the “Property Policy”:

  • If the insured plant or office is shut down due to any damage or fire, the company is eligible for claims.
  • Also the Policy specifies if the building insured or containing the insured property becomes unoccupied and so remains for a period of more than 30 days (not applicable for dwellings), the insurance claims may not be applicable.
  • For claim, before the occurrence of any loss or damage to the property, the continuation of the coverage needs to be ensured.

Relaxation from Policy Lapse:

  • The insurers have given relief to corporates, which shut their units for more than a month. Their policies will be allowed to be operational despite the clause that “if a unit is shut for 30 days continuously – the policy cover will lapse”.
  • The above relief is applicable for the “unoccupied properties” for more than one month till May 3 under the property policy.
  • It means companies can claim insurance if the property is damaged due to fire or any other loss even if the factory or unit is not operational during the period till May 3.

Force Majeure, or “Act of God” Clause:

  • Most insurers will also use the Force Majeure, or “Act of God” clause but again there is no concrete conclusion or clause stating that loss of profit due to Covid-19 is Force Majeure.
  • Force majeure is a common clause in contracts that essentially frees both parties from liability or obligation when an extraordinary event or circumstance beyond the control of the parties occurs. It prevents one or both parties from fulfilling their obligations under the contract.

MANUFACTURING HITS RECORD LOW

Why in News?

  • According to a recent IHS Markit India monthly survey, Manufacturing Purchasing Managers’ Index (PMI) fell to 27.4 in April, 2020 from 51.8 in March, 2020.
  • The Index (PMI) is compiled by IHS Markit for more than 40 economies worldwide. IHS Markit is a global leader in information, analytics and solutions for the major industries and markets that drive economies worldwide.

Highlights of the Report:

  • The PMI slipped into contraction mode, after remaining in the growth territory for 32 consecutive months.
  • In PMI’s language, a reading above 50 means expansion, while a score below that denotes contraction.
  • According to the 12-month outlook for production the demand will rebound once the Covid-19 threat is diminished and lockdown restrictions are eased.
  • The deteriorating demand conditions has led the manufacturers to drastically cut back staff numbers.Export orders have also witnessed a sharp decline.
  • There was also evidence of supply-side disruption due to the lockdown.

Reasons Behind the Fall:

  • India’s manufacturing sector activity has witnessed contraction in the month of April, 2020 due to national lockdown restrictions.
  • The new business orders have collapsed at a record pace severely hampering the demand.
  • This is the sharpest deterioration in business conditions across the manufacturing sector since data collection began over 15 years ago.

About Purchasing Managers’ Index:

  • Purchasing Managers’ Index (PMI) is an indicator of business activity – both in the manufacturing and services sectors. It is calculated separately for the manufacturing and services sectors and then a composite index is also constructed.
  • The PMI summarizes whether market conditions as viewed by purchasing managers are expanding, neutral, or contracting.
  • The purpose of the PMI is to provide information about current and future business conditions to company decision makers, analysts, and investors.
    • The PMI is a number from 0 to 100.
    • PMI above 50 represents an expansion when compared to the previous month;
    • PMI under 50 represents a contraction, and
    • A reading at 50 indicates no change.
  • The PMI is usually released at the start of every month. It is, therefore, considered a good leading indicator of economic activity.
  • It is different from the Index of Industrial Production (IIP), which also gauges the level of activity in the economy.

FOREIGN PORTFOLIO INVESTORS (FPIS)

Why in News?

  • Recently, the Foreign Portfolio Investors (FPIs) have significantly reduced the pace of outflows from the equity and debt market in April, 2020, according to the data from Central Depository Services Limited (CDSL).

Highlights:

  • The Foreign Portfolio Investers sold a net of Rs 6,883 crore from the equities market and net holdings worth Rs 12,551 crore from the debt market in April.
  • Equity market: Its shares are issued and traded, either through exchanges or over-the-counter markets (i.e directly). It is also known as the stock market.
  • Debt market: It is the market where debt instruments are traded. Debt instruments are instruments that require a fixed payment to the holder, usually with interest. E.g. bonds (government or corporate) and mortgages.
  • However, they invested a net of Rs 4,032 crore in debt Voluntary Retention Route (VRR) scheme.
  • VRR scheme allows FPIs to participate in Repo Transactions and also invest in Exchange Traded Funds that Invest in Debt Instruments.
  • The success on developing medicine and vaccines will lead to a V-shaped recovery in the Economy and Markets.

About Voluntary Retention Route (VRR) Scheme:

  • It is aimed at attracting long-term and stable FPI investments into debt markets.
  • Its Investment route will be free of the regulatory norms applicable to FPI investments in debt markets, provided investors maintain a minimum share of their investments for a fixed period.
  • It has a minimum retention period of three years and investors need to maintain a minimum of 75% of their investments in India
  • FPIs registered with Securities and Exchange Board of India (SEBI) are eligible to voluntarily invest through the route in government and corporate bonds.

About V-Shaped Recovery:

  • It is characterized by a sharp economic decline followed by a quick and sustained recovery.
  • The recession of 1953 is an example of a V-shaped recovery.
  • It is different from an L-shaped recovery, in which the economy stays in a slump for a prolonged period of time.

About Foreign Portfolio Investment:

  • It consists of securities and other financial assets passively held by foreign investors.
  • It does not provide the investor with direct ownership of financial assets and is relatively liquid depending on the volatility of the market.
  • It is part of a country’s capital account and is shown on its Balance of Payments (BOP).
  • The BOP measures the amount of money flowing from one country to other countries over one monetary year.
  • Its investor does not actively manage the investments through FPIs, he does not have control over the securities or the business. The investor’s goal is to create a quick return on his money.
  • It is more liquid and less risky than Foreign Direct Investment (FDI).

About Foreign Direct Investment (FDI):

  • It is an investment made by a firm or individual in one country into business interests located in another country.
  • It lets an investor purchase a direct business interest in a foreign country.
  • It is often referred to as “hot money” because of its tendency to flee at the first signs of trouble in an Economy.
  • Bout FPI and FDI are important sources of funding for most economies. Foreign capital can be used to develop infrastructure, set up manufacturing facilities and service hubs, and invest in other productive assets such as machinery and equipment, which contributes to economic growth and stimulates employment.

DECLINE IN FPI OUTFLOWS

Why in News?

  • As per the recent data published by Central Depository Services Limited (CDSL), the Foreign Portfolio Investors (FPIs) have significantly reduced the pace of outflows from the equity and debt market in April 2020, after a record net outflow in the month of March 2020.

Highlights of the Report:

  • FPIs sold a net of Rs 6,883 crore from the equities market and net holdings worth Rs 12,551 crore from the debt market in April..
  • However, they invested a net of Rs 4,032 crore in debt Voluntary Retention Route (VRR) scheme.
  • VRR scheme allows FPIs to participate in repo transactions and also invest in exchange traded funds that invest in debt instruments.
  • Outflows have continued due to uncertainty surrounding economic conditions caused by Covid-19 lockdown and investors are cautious. However, the pessimism also continues to grip the markets.
  • So far, India has been able to contain the Covid-19 pandemic from spreading aggressively. The measures announced by the government and the Reserve Bank of India (RBI) periodically to revitalize the sagging economy have also resonated well with investors.
  • With selective relaxation in the lockdown and gradual opening up of economic activity in the country, foreign investors will be closely watching the developments on this front.
  • A success on developing medicine and vaccines will lead to a V-shaped recovery in the economy and markets.

Voluntary Retention Route (VRR) Scheme:

  • The VRR scheme is aimed at attracting long-term and stable FPI investments into debt markets.Investments through the route will be free of the regulatory norms applicable to FPI investments in debt markets, provided investors maintain a minimum share of their investments for a fixed period.
  • VRR Scheme has a minimum retention period of three years and investors need to maintain a minimum of 75% of their investments in India.
  • FPIs registered with Securities and Exchange Board of India (SEBI) are eligible to voluntarily invest through the route in government and corporate bonds.

What is meant by Foreign Portfolio Investment?

  • Foreign portfolio investment (FPI) consists of securities and other financial assets passively held by foreign investors. It does not provide the investor with direct ownership of financial assets and is relatively liquid depending on the volatility of the market.
  • Foreign portfolio investment is part of a country’s capital account and is shown on its Balance of Payments (BOP).
  • The BOP measures the amount of money flowing from one country to other countries over one monetary year.
  • The investor does not actively manage the investments through FPIs, he does not have control over the securities or the business.
  • The investor’s goal is to create a quick return on his money.
  • FPI is more liquid and less risky than Foreign Direct Investment (FDI).
  • A Foreign Direct Investment (FDI) is an investment made by a firm or individual in one country into business interests located in another country. FDI lets an investor purchase a direct business interest in a foreign country.
  • FPI is often referred to as “hot money” because of its tendency to flee at the first signs of trouble in an economy.
  • FPI and FDI are both important sources of funding for most Economies. Foreign capital can be used to develop infrastructure, set up manufacturing facilities and service hubs, and invest in other Productive assets such as Machinery and Equipment, which contributes to Economic Growth and Stimulates Employment.

FOREIGN EXCHANGE RESERVES

Why in News?

  • Recently, India’s Foreign Exchange (Forex) reserves declined by $113 million to $479.45 billion in the week to 24 April, 2020 due to a Fall in Foreign Currency Assets.

Highlights:

  • The foreign currency assets (FCAs) decreased by $321 million to $441.56 billion. The Gold reserves rose by $221 million to $32.901 billion.
  • The country’s reserve position with the IMF also was down by $8 million to $3.57 billion. The special drawing rights with the International Monetary Fund (IMF) fell by $6 million to $1.42 billion.
  • Earlier, the reserve had touched a life-time high of $487.23 billion in the week ended by 6 March, 2020. During 2019-20, the country’s foreign exchange reserves rose by almost $62 billion.

About Foreign Exchange Reserves:

  • It is an asset, which is held on reserve by a central bank in foreign currencies, which can include bonds, treasury bills and other government securities.
  • It needs to be noted that most foreign exchange reserves are held in U.S. dollars. These assets serve many purposes but are most significantly held to ensure that the central bank has backup funds if the national currency rapidly devalues or becomes altogether insolvent.
  • India’s Forex Reserve includes Foreign Currency Assets, Gold reserves, Special Drawing Rights and Reserve position with the International Monetary Fund (IMF).

 About Reserve Position in the International Monetary Fund:

  • A reserve tranche position implies a portion of the required quota of currency each member country must provide to the International Monetary Fund (IMF) that can be utilized for its own purposes.
  • It is basically an emergency account that IMF members can access at any time without Agreeing to Conditions or Paying a Service Fee.

About Foreign Currency Assets (FCA):

  • These are assets that are valued based on a currency other than the country’s own currency.
  • It is the largest component of the forex reserve, which is expressed in dollar terms.
  • It includes the effect of appreciation or depreciation of non-US units like the euro, pound and yen held in the foreign exchange reserves.

About Special Drawing Rights (SDR):

  • It is an international reserve asset, created by the IMF in 1969 to supplement its member countries’ official reserves.
  • It is neither a currency nor a claim on the IMF. Rather, it is a potential claim on the freely usable currencies of IMF members. SDRs can be exchanged for these currencies.
  • Its value is calculated from a weighted basket of major currencies, including the U.S. dollar, the euro, Japanese yen, Chinese yuan, and British pound. The Interest rate on SDRs or (SDRi) is the interest paid to members on their SDR Holdings.

KASHMIR SAFFRON GETS GI TAG

Why in News?

  • Kashmir saffron, which is cultivated and harvested in the Karewa (highlands) of Jammu and Kashmir, has been given the Geographical Indication (GI) tag by the Geographical Indications Registry.

About Kashmir Saffron:

  • Kashmir saffron is a very precious and costly product renowned globally as a spice.
  • It rejuvenates health and is used in cosmetics and for medicinal purposes. It has been associated with traditional Kashmiri cuisine and represents the rich cultural heritage of the region.
  • The unique characteristics of Kashmir saffron are its longer and thicker stigmas, natural deep-red colour, high aroma, bitter flavour, chemical-free processing, and high quantity of crocin (colouring strength), safranal (flavour) and picrocrocin (bitterness).
  • Iran is the largest producer of saffron and India is a close competitor. With the GI tag, Kashmir saffron would gain more prominence in the export market.
  • It is the only saffron in the world grown at an altitude of 1,600 m to 1,800 m AMSL (above mean sea level), which adds to its uniqueness and differentiates it from other saffron varieties available the world over.

What is GI Tag?

  • A GI or Geographical Indication is a name or a sign given to certain products that relate to a specific geographical location or origins like a region, town or country.
  • Using Geographical Indications may be regarded as a certification that the particular product is produced as per traditional methods, has certain specific qualities, or has a particular reputation because of its geographical origin.
  • Geographical indications are typically used for wine and spirit drinks, foodstuffs, agricultural products, handicrafts, and industrial products.
  • GI Tag ensures that none other than those registered as authorized users are allowed to use the popular product name. In order to function as a GI, a sign must identify a product as originating in a given place.

Who accords and regulates Geographical Indications?

  • Geographical Indications are covered as a component of intellectual property rights (IPRs) under the Paris Convention for the Protection of Industrial Property.
  • At the International level, GI is governed by the World Trade Organisation’s (WTO’s) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).
  • In India, Geographical Indications registration is administered by the Geographical Indications of Goods (Registration and Protection) Act, 1999 which came into force with effect from September 2003.
  • The first product in India to be accorded with GI tag was Darjeeling tea in the year 2004-05.

What are the Benefits of GI Tags?

  • The Geographical Indication registration confers the following benefits:
    • Legal protection to the products
    • Prevents un-authorised use of GI tag products by others
    • It helps Consumers to get quality products of desired traits and is assured of authenticity.
    • Promotes the economic prosperity of producers of GI tag goods by enhancing their demand in national and international markets.

What are the Significances of GI Tags?

  • A geographical indication right facilitates those who have the right to use the indication to prohibit its usage by a third party whose product does not conform to the applicable standards.
  • For example, in the purview in which the Darjeeling geographical indication is protected, producers of Darjeeling tea can omit the term “Darjeeling” for tea not grown in their tea gardens or not produced according to the norms set out in the code of practice for the geographical indication.
  • However, a protected GI does not permit the holder to forbid someone from making a product using the same approaches as those set out in the standards for that indication. Protection for a GI tag is usually procured by acquiring a right over the sign that constitutes the Indication.

Challenges in GI Tags:

  • The special treatment to wines and spirits in TRIPS Agreement appears to be developed country centric.
  • Developing countries, including India, seek the same higher level of protection for all GIs as was given under TRIPS for wines and spirits.
  • The battle for GI tag between states.
  • False use of geographical indications by unauthorized parties is detrimental to consumers and legitimate producers.
  • Cheap Power loom saris are sold as reputed Banarsi handloom saris, harming both the producers and consumers.
  • Such unfair business practices result in loss of revenue for the genuine right-holders of the GI and also misleads consumers.
  • Protection of GI has, over the years, emerged as one of the most contentious IPR issues.

Way Forward:

  • The benefits of GI tag are realised only when these products are effectively marketed and protected against illegal copying.
  • Effective marketing and protection require quality assurance, brand creation, post-sale consumer feedback and support, prosecuting unauthorised copiers, etc.
  • For internationally Recognised products like Darjeeling tea, International Protection is of crucial importance.
  • Legal protection to GIs also extends to protection of Traditional Knowledge and Traditional cultural expression contained in the products.
  • Hence Intellectual Property is a Power Tool for economic development and wealth creation particularly in the Developing World.
  • GIs have the potential to be our growth engine. Policy-makers must pay a heed to this and give Indian GI Products their True Reward.

FINAL REPORT ON NATIONAL INFRASTRUCTURE PIPELINE

Why in News?

  • The task force headed by Atanu Chakraborty on National Infrastructure Pipeline (NIP) submitted its final report to the Finance Minister recently.
  • The summary report for, National Infrastructure Pipeline (NIP), 2020-25 was released by the finance minister in the month of December,2019.

Highlights of the Report:

  • The final report has revised up NIP from earlier Rs 100 lakh crore in light of additional data provided by central ministries/state governments since the release of summary NIP report.
  • The taskforce has forecast an investment need of ₹111 lakh crore over the next five years (2020-2025) to build infrastructure projects and drive economic growth.
  • Bulk Share: Energy, roads, railways and urban projects are estimated to account for the bulk of projects (around 70%).

Various Measures Suggested by the Report:

  • Aggressive Push towards Asset Sales
  • Monetisation of Infrastructure Assets
  • Setting up of Development Finance Institutions
  • Strengthening the Municipal Bond MARKET

Various Committees need to be set up (Recommended in the Report):

  • The task force has also recommended set up of three committees:
    • Timely Execution: Panel to monitor NIP progress and eliminate delays.
    • Follow Up: Steering committee in each infrastructure ministry for following up implementation
    • Raising Financial Resources: Committee in the Department of Economic Affairs for raising financial resources for the NIP.

About National Infrastructure Pipeline:

  • The task force was set up after the Prime Minister, in his Independence Day speech of 2019, promised to roll out an infrastructure push worth ₹100 trillion over five years to make India a $5 trillion economy.
  • NIP will enable a forward outlook on infrastructure projects which will create jobs, improve ease of living, and provide equitable access to infrastructure for all, thereby making growth more inclusive.
  • NIP includes economic and Social Infrastructure Projects.
  • It also includes both greenfield and Brownfield Projects.
  • It will help in stepping-up annual infrastructure investment to achieve the Gross Domestic Product (GDP) of $5 trillion by 2024-25.
  • The Centre and states are expected to have almost equal share in implementing NIP, while the private sector contribution is expected to be around 21%.
    • Out of the total expected capital expenditure of Rs 111 lakh crore
    • Projects worth Rs 44 lakh crore (40 % of NIP) are under implementation.
    • Projects worth Rs 33 lakh crore (30 % of NIP) are at conceptual stage.
    • Projects worth Rs 22 lakh crore (20 % of NIP) are under development.

PM LAUNCHES SWAMITVA YOJANA ON PANCHAYATI RAJ DIWAS

Why in News?

  • On Panchayati Raj Diwas (April 24th), the Prime Minister of India launched ‘Swamitva Yojana’ or Ownership Scheme to map residential land ownership in the Rural Sector using Modern Technology like the use of drones.

About Swamitva Yojana:

  • The scheme is piloted by the Panchayati Raj ministry that aims to revolutionise property record maintenance in India.
  • The residential land in villages will be measured using drones to create a non-disputable record.
  • Property card for every property in the village will be prepared by states using accurate measurements delivered by drone-mapping. These cards will be given to property owners and will be Recognised by the Land Revenue Records Department.

What would be the Benefits of the Scheme?

  • The delivery of property rights through an official document will enable villagers to access bank finance using their property as collateral.
  • The property records for a village will also be maintained at the Panchayat level, allowing for the collection of associated taxes from the owners. The money generated from these local taxes will be used to build rural infrastructure and facilities.
  • Freeing the residential properties including land of title disputes and the creation of an official record is likely to result in appreciation in the market value of the properties.
  • The accurate property records can be used for facilitating tax collection, new building and structure plan, issuing of permits and for thwarting attempts at Property Grabbing.

What is the Significance of the Scheme?

  • The need for this Yojana was felt since several villagers in the rural areas don’t have papers proving ownership of their land.
  • In most states, survey and measurement of the populated areas in the villages has not been done for the purpose of attestation/verification of properties.
  • The new scheme is likely to become a tool for empowerment and entitlement, reducing social strife on account of discord over properties.

About Panchayati Raj:

  • After the Constitution came into force, Article 40 made a mention of Panchayat and Article 246 empowered the state legislature to legislate with respect to any subject relating to local self-government.
  • Panchayati Raj Institution (PRI) was constitutionalized through the 73rd Constitutional Amendment Act, 1992 to build democracy at the grass roots level and was entrusted with the task of rural development in the country.
  • PRI is a system of rural local self-government in India. Local Self Government is the management of local affairs by such local bodies who have been elected by the local people.

About the 73rd constitutional Amendment:

  • The 73rdConstitutional Amendment added Part IX titled “The Panchayats” to the Constitution.
  • Basic unit of democratic system-Gram Sabhas (villages) comprising all the adult members registered as voters.
  • Three-tier system of panchayats at village, intermediate block/taluk/mandal and district levels except in States with population is below 20 lakhs (Article 243B).
  • Seats at all levels to be filled by direct elections Article 243C (2).
  • Reservation of Seats:
    • Seats reserved for Scheduled Castes (SCs) and Scheduled Tribes (STs) and the chairpersons of the Panchayats at all levels also shall be reserved for SCs and STs in proportion to their population.
    • One-third of the total number of seats to be reserved for women.
    • One-third offices of chairpersons at all levels reserved for women (Article 243D).
    • Uniform Five Year Term and elections to constitute new bodies to be completed before the expiry of the term.
  • In the event of dissolution, elections compulsorily within six months (Article 243E).
  • Independent Election Commission in each State for superintendence, direction and control of the electoral rolls (Article 243K).
  • Panchayats have been authorised to prepare plans for economic development and social justice in respect of subjects illustrated in Eleventh Schedule (Article 243G).
  • Source of Revenue (Article 243H):State legislature may authorise the Panchayats with
    • Budgetary allocation from State Revenue.
    • Share of revenue of certain taxes.
    • Collection and retention of the revenue it raises.
  • Establish a Finance Commission in each State to determine the principles on the basis of which adequate financial resources would be ensured for panchayats and municipalities (Article 243I).
  • The following areas have been exempted from the operation of the Act because of the socio-cultural and administrative considerations:
    • Scheduled areas listed under the Schedule V in the states of Andhra Pradesh, Bihar, Gujarat, Himachal Pradesh, Madhya Pradesh, Maharashtra, Orissa and Rajasthan.
    • The states of Nagaland, Meghalaya and Mizoram.
  • The hill areas of the district of Darjeeling in the state of West Bengal for which Darjeeling Gorkha Hill Council exists.
  • However, an Act called the Provisions of Panchayats (Extension to the Scheduled Areas) Act, 1996 passed by the Government of India for the mentioned scheduled areas.

OPERATION TWIST

Why in News?

  • The Reserve bank of India has decided to bring back its bond swapping programmed billed as India’s Operation Twist with an aim to help monetary transmission. The RBI said that it will conduct purchase and sale of government securities under open market operations (OMO) for Rs10,000 crore each on 27 April.

Operation Twist:

  • Operation Twist is the name given to a US Federal Reserve monetary policy operation, which involves the purchase and sale of Government Securities to boost the economy by bringing down long-term Interest Rates.
  • Operation Twist normally leads to lower longer-term yields, which will help boost the economy by making loans less expensive, while saving becomes less desirable because it doesn’t pay as much Interest.

Functioning of Operation Twist by RBI:

  • This operation involves buying and selling government securities simultaneously in order to bring down long-term interest rates and bolster short-term rates.
  • There is an inverse relationship between the bond prices and their yields. As the central bank buys long-term securities (bonds), their demand rise which in turn pushes up their prices.
  • However, the bond yield comes down with an increase in prices. Yield is the return an investor gets on his (bond) holding/investment.
  • The interest rate in an economy is determined by yield. Thus, lower long-term interest rates mean people can avail long-term loans (such as buying houses, cars or financing projects) at lower rates.
  • This also results in a dip in the expected returns from long-term savings which tilts the balance from saving towards spending. Hence, cheaper retail loans can help encourage consumption spending which is the largest GDP component in the Economy.

COMMODITY MARKETS OUTLOOK

Why in News:

  • Recently, the World Bank’s has released Commodity Markets Outlook.

About Commodity Markets Outlook

  • It provides market analysis for major commodity groups – energy, metals, agriculture, precious metals, and fertilizers.
  • The Report Forecasts Prices for 46 Key Commodities, Including Oil.

Highlights

  • Energy and metals commodities:They are the most affected by the sudden stop to economic activity and the serious global slowdown that is anticipated. Commodities associated with transportation, including oil, have experienced the steepest declines.
  • Agricultural prices: They are likely to stay broadly stable in 2020 because of relatively stable demand and all-time high levels of staple production and stock.  However, supply chain disruptions and government steps to restrict exports or stockpile commodities raise concerns that food security may be at risk in places.
  • Gold prices:They were up 6.9% in the last quarter (January- March,2020) – its sixth consecutive quarterly rise.  The strong investor demand propped gold up despite weak jewelry demand in India and China.
  • Oil Prices:These are expected to average at $35 per barrel in 2020. The decline in crude oil prices has been exacerbated by uncertainty around production agreements among the Organization of the Petroleum Exporting Countries (OPEC) and other oil producers.
  • Importers and Exporters:They are likely to see some long-term shifts in their markets due to the pandemic. These include Increasing transport costs due to enhanced border checks and thus impact on supply chains and substituting for imports with domestic goods.
  • The Changing consumer behaviour, such as, people may choose to work remotely, travel less, and this could impact permanent drops in demand for oil, favourably impacting the accounts for oil importers.
  • This leads to reduction in emissions of the harmful gases caused by the restrictions may also increase public pressure for greener transport and lowered fossil fuel use.

World Bank:

  • The Bretton Woods Conference held in 1944, created the International Bank for Reconstruction and Development (IBRD) along with the International Monetary Fund (IMF).
  • The IBRD later became the World Bank.
  • The World Bank Group is a unique global partnership of five institutions working for sustainable solutions that reduce poverty and build shared prosperity in developing countries.
  • It has 189 Member Countries.

Few Important Reports Released by the World Bank are:

  • Ease of Doing Business
  • Human Capital Index and
  • World Development Report

The Development Institutions of the World Bank are:

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

PAYMENT OF MGNREGS IN FOODGRAINS

Why in News?

  • Chhattisgarh Chief Minister Bhupesh Baghel in a letter to Union Rural Development Minister Narendra Singh Tomar has asked the Centre to allow payment of the MGNREGA wages in the form of Foodgrains.

What is the reason for Chhattisgarh’s demand?

  • The Chief Minister proposed that handing the workers foodgrains directly is better due to the lockdown and the continuing scare of the COVID-19.
  • “Once we credit the MGNREGA wages, the worker will have to go to the banks to withdraw the money. This would not only be a bother but also could jeopardise social distancing norms.”
  • Chhattisgarh does not have many bank branches and faces the problem of Internet connectivity in Naxal-affected areas. “Due to this, there are often problems like link failure and workers have to contact the branch many times to withdraw the amount,” he wrote in his letter.

What is the Concern?

  • There are many concerns about making payments through foodgrains like at what rate the grains would be charged. Will the government make the payments based on the PDS or the FCI rates.
  • The other concern is that the pay-outs during the pandemic should not exhaust the 100-day entitlement.
  • These payments via food grains should not eat into the 100-day entitlement per family. Because they will need employment even after this pandemic subsides.
  • If accessibility to banks is a problem, then the government must make timely cash payments in a public place.

About MGNREGA:

  • The scheme was introduced as a social measure that guarantees “the right to work”.
  • The key tenet of this social measure and labour law is that the local government will have to legally provide at least 100 days of wage employment in rural India to enhance their quality of life.

Key Objectives of the Scheme:

  • Generation of paid rural employment of not less than 100 days for each worker who volunteers for unskilled labour.
  • Proactively ensuring social inclusion by strengthening livelihood base of rural poor.
  • Creation of durable assets in rural areas such as wells, ponds, roads and canals.
  • Reduce urban migration from rural areas.
  • Create rural infrastructure by using untapped rural labour.

Eligibility criteria for receiving the benefits under MGNREGA scheme:

  • Must be Citizen of India to seek NREGA benefits.
  • Job seeker has completed 18 years of age at the time of application.
  • The applicant must be part of a local household (i.e. application must be made with local Gram Panchayat).
  • Applicant must volunteer for unskilled labour.

What are the other Key Facts Related to the Scheme?

  • The Ministry of Rural Development (MRD), Government of India is monitoring the entire implementation of this scheme in association with state governments.
  • Individual beneficiary oriented works can be taken up on the cards of Scheduled Castes and Scheduled Tribes, small or marginal farmers or beneficiaries of land reforms or beneficiaries under the Indira Awaas Yojana of the Government of India.
  • Within 15 days of submitting the application or from the day work is demanded, wage employment will be provided to the applicant.
  • Right to get unemployment allowance in case employment is not provided within fifteen days of submitting the application or from the date when work is sought.
  • Social Audit of MGNREGA works is mandatory, which lends to accountability and transparency.
  • The Gram Sabha is the principal forum for wage seekers to raise their voices and make demands.
  • It is the Gram Sabha and the Gram Panchayat which approves the shelf of works under MGNREGA and fixes their priority.

What is the Role of Gram Sabha?

  • It determines the order of priority of works in the meetings of the Gram Sabha keeping in view potential of the local area, its needs, and local resources.
  • Monitor the execution of works within the GP.

What are the Roles of Gram Panchayat?

  • Receiving applications for registration
  • Verifying registration applications
  • Registering households
  • Issuing Job Cards (JCs)
  • Receiving applications for work
  • Issuing dated receipts for these applications for work
  • Allotting work within fifteen days of submitting the application or from the date when work is sought in the case of an advance application.
  • Identification and planning of works, developing shelf of projects including determination of the order of their priority.

What are the Responsibilities of State Government in MGNREGA?

  • Frame Rules on matters pertaining to State responsibilities under Section 32 of the Act and to Develop and notify the Rural Employment Guarantee Scheme for the State.
  • Set up the State Employment Guarantee Council (SEGC).
  • Set up a State level MGNREGA implementation agency/ mission with adequate number of high calibre professionals.
  • Set up a State level MGNREGA social audit agency/directorate with adequate number of people with knowledge on MGNREGA processes and demonstrated commitment to social audit.
  • Establish and operate a State Employment Guarantee Fund (SEGF).

OIL PRICE FELL BELOW ZERO

Context:

  • Recently, the oil prices of West Texas Intermediate (WTI) fell to minus $40.32 a barrel in interlay trade in New York (the USA). It has the best quality of crude oil in the world.
  • It is the lowest crude oil price ever recorded below the zero mark while the previous lowest was recorded immediately after World War II (WWII).

Oil Pricing Around the World:

  • The Organization of the Petroleum Exporting Countries (OPEC) used to work as a cartel and fix prices in a favourable band. It is led by Saudi Arabia, which is the largest exporter of crude oil in the world (single-handedly exporting 10% of the global demand).
  • It could bring down prices by increasing oil production and raise prices by cutting production.The global oil pricing mainly depends upon the partnership between the global oil exporters instead of well-functioning competition.
  • Cutting oil production is a difficult decision, because restarting it is immensely costly and complicated. If a country cuts production, it risks losing market share if other countries do not follow the suit.

Causes for the Oil Price Fall:

  • The Crude oil prices were already falling before the global lockdown due to the higher supply and lower demand.
  • The price was close to $60 a barrel at the start of 2020 and, by March-end, they were closer to $20 a barrel. The Problems arose when Saudi Arabia and Russia disagreed over the production cuts, required to keep prices stable.
  • Likewise, Saudi Arabia led oil-exporting countries started undercutting each other on price while producing the same quantities of oil.
  • The global spread of Covid-19 made it even worse as it sharply reduced the economic activity and the oil-demand, which made the Oil-exporting countries to cut production by 10 million barrels a day (the highest production cuts) and yet the demand for oil was reducing even further.
  • The supply demand mismatch resulted in exhausted storage capacities. The oil prices started falling steeply because the May contracts for WTI were due to expire on 21st April, 2020 which posed huge challenges for both the oil producers and the consumers (contractors/buyers).
  • The Producers started selling the oil at unbelievably low prices because shutting production would have been costlier to restart when compared to the marginal loss on May sales.The Consumers were facing the problem of storage. There is no space to store the oil even if they decided to buy and take the delivery.
  • Accepting the oil delivery, paying for the transportation and storage would have been costlier than the hit on contract price.
  • For both the holders of the delivery contract and the oil producers, it was less costly to pay $40 a barrel and get rid of the oil instead of storing it (consumers/buyers) or stopping production (producers). So this led to the negative WTI oil contract prices.

Impact of Oil pricing in India:

  • It does not have any direct impact on India because Indian crude oil basket does not comprise WTI and it only has Brent and oil from some of the Gulf countries.
  • But, the weakness in WTI reflects on the falling prices of Indian basket as well because oil is traded globally and has indirect impacts.
  • The fall of oil pricing will benefit India in two ways:
  1. 1.If the government passes on the lower prices to consumers, then individual consumption will be boosted whenever the economic recovery starts in India.
  2. 2.If both, central and the state, governments decide to levy higher taxes on oil, it can boost Government Revenues.

Way Ahead:

  • It was the WTI price for May in the US markets that went so low. Crude oil prices at other places fell but not too much. The prices for June and the coming months are pegged between $20 and $35 a barrel.The Investment budgets of exploration and production companies are expected to drop because of the low shale oil prices.
  • Normally, this should force oil exporting countries to cut back production and negate the excess supply, restoring balance in the oil markets but the possibility of recent events from happening again cannot be ruled out.Eventually, it would be the demand-supply mismatch (adjusted for how much can be stored away) that will decide the fate of oil prices.

INDIAN TRADE CURBS AGAINST WTO PRINCIPLES, SAYS CHINA

Why in News?

  • China has recently stated that India’s recently adopted policy to curb opportunistic takeovers of domestic companies goes against the principles of the World Trade Organisation (WTO).

What is the Issue?

  • The Government has amended certain sections of the FDI policy for curbing opportunistic takeovers/acquisitions of Indian companies due to the current COVID-19 pandemic.
  • While India shares a land border with Pakistan, Bangladesh, Myanmar, Nepal, Bhutan, China and Afghanistan, the move appears directed mostly at China.

What were the Changes Introduced?

  • All FDI proposals from countries sharing border with India will be under the government approval route.
  • The so-called automatic route, under which the central bank simply had to be informed after money was invested, has been blocked in such cases.
  • Companies whose beneficial ownership also lies in such countries will have to undergo government scrutiny for any change in Foreign Holding.

How was the FDI Policy for Neighbours so far?

  • A non-resident entity can invest in India, subject to the FDI Policy except in those sectors/activities which are prohibited.
  • However, a citizen of Bangladesh or an entity incorporated in Bangladesh can invest only under the Government route.
  • Further, a citizen of Pakistan or an entity incorporated in Pakistan can invest, only under the Government route, in sectors/activities other than defence, space, atomic energy and sectors/activities prohibited for foreign investment.

What Would be the Impact?

  • The amended policy makes every type of investment by Chinese investors subject to government approval. Such a blanket application could create unintended problems.
  • It does not distinguish between Greenfield and Brownfield investments. It may pose obstacles to Greenfield investments where Chinese investors bring fresh capital to establish new factories and generate employment in India.
    • Greenfield investments include building new production facilities in a foreign country. It refers to investment in a manufacturing, office, or other physical company-related structure or group of structures in an area where no previous facilities exist.
    • Brownfield investments are those used for purchasing or leasing existing production facilities to launch a new production activity.
  • The new policy does not distinguish between the different types of investors, such as industry players, financial institutions, or venture capital funds. The restrictions on Venture capital funds may impact the prospects of many start-ups in the Indian market.

Why Chinese investment in India is Targeted?

  • China’s footprint in the Indian business space has been expanding rapidly, especially since 2014.
  • The Chinese investment in India in 2014 stood at $1.6 billion. This involved mostly investment from Chinese state-owned players in the infrastructure space in India.
  • By 2017, the total investment had increased five-fold to at least $8 billion accompanied by a marked shift from a state-driven to market-driven approach.
  • Total current and planned Chinese investment in India has crossed $26 billion in March 2020.

What is China’s Point on WTO Trade Violation?

  • The additional barriers set by Indian side for investors from specific countries violate WTO’s principle of non-discrimination, and go against the general trend of liberalisation and facilitation of trade and investment.
  • India also do not conform to the consensus of the G20 leaders and Trade Ministers to realise a free, fair, non-discriminatory, transparent, predictable and stable trade and investment environment, and to keep our markets open.

WAYS AND MEANS ADVANCES

Why in News?

  • The Reserve Bank of India (RBI) has announced a 60% increase in the Ways and Means Advances (WMA) limit of state governments over and above the level as on March 31.

What is the Significance of this Move?

  • It was done with a view to enabling them “to undertake COVID-19 containment and mitigation efforts” and “to better plan their market borrowings”.
  • The increased limit comes at a time when government expenditure is expected to rise as it battles the fallout of a spreading Coronavirus.
  • The availability of these funds will give government some room to undertake short term expenditure over and above its long term market borrowings.

What are Ways and Means Advances?

  • The WMA scheme for the Central Government was introduced on April 1, 1997, after putting an end to the four-decade old system of adhoc (temporary) Treasury Bills to finance the Central Government deficit.
  • They are temporary loan facilities provided by RBI to the government to enable it to meet temporary mismatches between revenue and expenditure.
  • The government makes an interest payment to the central bank when it borrows money.
  • The rate of interest is the same as the repo rate, while the tenure is three months.
  • The limits for WMA are mutually decided by the RBI and the Government of India.
  • They aren’t a source of finance per se. Section 17(5) of the RBI Act, 1934 authorises the central bank to lend to the Centre and state governments subject to their being repayable “not later than three months from the date of the making of the advance”.

What if the Government needs Extra Money for Extra Time?

  • When the WMA limit is crossed the government takes recourse to overdrafts, which are not allowed beyond 10 consecutive working days.
  • The interest rate on overdrafts would be 2 percent more than the repo rate.

Types of WMA:

  • There are two types of Ways and Means Advances — normal and special.
    • Special WMA or Special Drawing Facility is provided against the collateral of the government securities held by the state. After the state has exhausted the limit of SDF, it gets normal WMA. The interest rate for SDF is one percentage point less than the repo rate.
    • The number of loans under normal WMA is based on a three-year average of actual revenue and capital expenditure of the state.

What are the existing WMA limits and Overdraft Conditions?

  • For the Centre, the WMA limit during the first half of 2020-21 (April-September) has been fixed at Rs 120,000 crore. This is 60% higher than the Rs 75,000 crore limits for the same period of 2019-20. The limit for the second half of the last fiscal (October-March) was Rs 35,000 crore.
  • For the states, the aggregate WMA limit was Rs 32,225 crore till March 31, 2020. On April 1, the RBI announced a 30% hike in this limit, which has now been enhanced to 60%, taking it to Rs 51,560 crore. The higher limit will be valid till September 30.
  • The central bank, on April 7, also extended the period for which a state can be in overdraft from 14 to 21 consecutive working days, and from 36 to 50 working days during a quarter.

SPECIAL DRAWING RIGHTS (SDR)

Why in News?

  • India is not supporting a general allocation of new Special Drawing Rights (SDR) by the International Monetary Fund (IMF) because it feels it might not be effective in easing COVID-19-driven financial pressures.

What is a Special Drawing Right (SDR)?

  • The SDR is an international reserve asset, created by the IMF in 1969 to supplement its member countries’ official reserves.
  • The value of the SDR is based on a basket of five currencies—the U.S. dollar, the euro, the Chinese renminbi, the Japanese yen, and the British pound sterling.
  • So far SDR 204.2 billion (equivalent to about US$281 billion) have been allocated to members, including SDR 182.6 billion allocated in 2009 in the wake of the global financial crisis.

What is the Reason Behind India’s Stand?

  • The new SDR allocation was supposed to provide all 189 members with new foreign exchange reserves with no conditions.
  • Such a major liquidity injection could produce potentially costly side-effects if countries used the funds for “extraneous” purposes.

What is the role of the SDR?

  • The SDR was created as a supplementary international reserve asset in the context of the Bretton Woods fixed exchange rate system.
  • The SDR serves as the unit of account of the IMF and some other international organizations.
  • The SDR is neither a currency nor a claim on the IMF. Rather, it is a potential claim on the freely usable currencies of IMF members.
  • SDRs can be exchanged for these currencies.

Do SDRs are Reviewed Periodically?

  • Yes, the SDR basket is reviewed every five years or earlier if warranted, to ensure that the basket reflects the relative importance of currencies in the world’s trading and financial systems.
  • The reviews cover the key elements of the SDR method of valuation, including criteria and indicators used in selecting SDR basket currencies and the initial currency weights used in determining the amounts (number of units) of each currency in the SDR basket.

NBFC’S GETS 50,000 CRORE BOOSTER

Why in News?

  • The Reserve Bank of India (RBI) has announced a host of measures to provide liquidity support to non-banking financial companies (NBFCs), apart from giving them certain benefits for loans extended to the commercial Real Estate Sector.

What Measures did RBI took?

  • Banks have to invest the funds availed under targeted long-term repo operation (TLTRO), in investment grade bonds, commercial paper, and non-convertible debentures of NBFCs. Small and mid-sized NBFCs and micro-finance institutions (MFIs) should receive at least 50% of these funds.
  • Banks can avail Rs. 50,000 crore through the targeted long-term repo operation. The first auction of TLTRO for Rs. 25,000 crore will be conducted on April 23.
  • The RBI has also decided to provide special refinance facility of Rs. 50,000 crore to NABARD, SIDBI and NHB to enable them to meet sectoral credit needs.
  • The regulator has also allowed non-banking institutions to extend the date for commencement for commercial operations (DCCO) by an additional one year, without treating the same as restructuring, if the project is delayed due to reasons beyond the control of the promoter.

What are the NBFC’s?

  • A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 engaged in the business of loans and advances, acquisition of shares/stocks/bonds/debentures/securities issued by Government or local authority or other marketable securities of a like nature.
  • NBFC does not include any institution whose principal business is that of agriculture activity, industrial activity, purchase or sale of any goods (other than securities) or providing any services and sale/purchase/construction of immovable property.
  • A non-banking institution which is a company and has principal business of receiving deposits under any scheme or arrangement in one lump sum or in installments by way of contributions or in any other manner, is also a non-banking financial company (Residuary non-banking company).

How they are Differed from other Commercial Banks?

  • NBFCs lend and make investments and hence their activities are akin to that of banks; however there are a few differences as given below:
  1. 1.NBFC cannot Accept Demand Deposits;
  2. 2.NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on itself;
  3. 3.Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs, unlike in case of Banks.

SOVEREIGN GOLD BONDS

Why in News?

  • Recently, Reserve Bank of India (RBI) has decided to issue Sovereign Gold Bonds (SGBs) in six instalments, from April 2020 to September 2020.

About Sovereign Gold Bonds:

  • They are government securities denominated in grams of gold. They are substitutes for holding physical gold.
  • Its objective is to reduce the demand for physical gold and shift a part of the domestic savings (used for the purchase of gold) into financial savings.
  • The Investors have to pay the issue price in cash and the bonds will be redeemed (bought back by the issuer) in cash on maturity. Issue price is the price at which bonds are offered for sale when they first become available to the public.
  • The investor gets a fixed rate of interest on the investment amount throughout the tenure of the fund.
  • The government will pay an interest at the rate of 2.5% per annum. The interest is payable semi-annually.
  • It has a tenure of eight years, with exit options are available from the fifth year.
  • It will be restricted for sale to resident individuals, Hindu Undivided Families (HUFs), Trusts, Universities and Charitable Institutions.
  • Its minimum Permissible Investment Unit is 1 Gram of Gold.

How to Buy this Bonds?

  • It can be bought through designated scheduled commercial banks (except Small Finance Banks and Payment Banks), Stock Holding Corporation of India Limited, and designated post offices.
  • We can also buy these bonds through National Stock Exchange of India Limited and Bombay Stock Exchange(BSE) Limited.

Advantages of the Gold Bond:

  • It is advisable to invest in gold for portfolio diversification.
  • It is considered one of the better ways of investing in gold as along with capital appreciation an investor gets a fixed rate of interest.
  • It is tax efficient as no capital gains is charged in case of redemption on maturity.
  • It a good way to ensure an investment that does not need physical storage of Gold.

Disadvantages of the Gold Bonds

  • In long term investment unlike physical gold which can be sold immediately.
  • It is listed on exchange but the trading volumes are not high, therefore it will be difficult to exit before Maturity.

IMF PROJECTS 1.9% GROWTH FOR INDIA IN 2020

Why in News?

  • The COVID-19 pandemic is expected to cause a -3% change in global output in 2020, much worse than the 2008-09 financial crises, as per the International Monetary Fund’s (IMF) World Economic Outlook (WEO).

Highlight:

  • A rare disaster, a coronavirus pandemic, has resulted in a tragically large number of Human Lives being lost.
  • As countries implement necessary quarantines and social distancing practices to contain the pandemic, the world has been put in a Great Lockdown.
  • The magnitude and speed of collapse in activity that has followed is unlike anything experienced in our lifetimes.

World Economic Outlook (WEO), April 2020:

  • India’s growth is expected to dip to 1.9% in 2020 and rebound to 7.4% in 2021.
  • Assuming that the pandemic fades in the second half of 2020, the world economy is projected to grow at 5.8% in 2020 as economic activity normalizes, aided by policy.
  • If the pandemic does not recede in the second half of 2020, global GDP would fall an additional 3% in 2020 and if the pandemic continues into 2021, global GDP may fall by an additional 8% relative to the baseline scenario.
  • The cumulative loss to global GDP over 2020 and 2021 from the pandemic crisis could be around 9 trillion dollars, greater than the economies of Japan and Germany, combined.

Emerging Asia:

  • Emerging Asia is projected to be the only region that grows in 2020, at a rate of 1.0%.
  • Apart from India’s modest 1.9% in 2020, Indonesia is expected to grow at 0.5%, while others in the region experience contractions.

Factors of Economic Impact of the Disease:

  • The economic impact of the disease depends on a number of factors and their unpredictable interaction, including the pandemic’s pathway, the intensity and effectiveness of containment efforts, supply chain disruptions, spending pattern changes, behavioural changes (for example around people visiting shopping malls and public transport use), significant tightening of global financial market conditions and so forth.

Way Forward:

  • The IMF called on policymakers to make targeted fiscal, monetary and financial sector interventions to support impacted households and businesses.
  • Fiscal measures should be two-fold, cushioning the impact on the most-exposed households and businesses, and reducing firm closures, i.e., preserving economic relationships.
  • Fiscal support will need scaling up, if activity does not pick up sufficiently once restrictions are lifted or if economic activity stoppages are persistent.
  • Monetary stimulus by large central banks and liquidity facilities to reduce systemic stress would be required to limit the shock, positioning the economy for a better recovery.
  • Further Strong multilateral cooperation is essential to overcome the effects of the pandemic, including to help financially constrained countries facing twin health and funding shocks, and for channelling aid to countries with weak healthcare systems.

HELICOPTER MONEY

Why in News?

Telangana Chief Minister K. Chandrashekar Rao has suggested RBI to adopt the concept of Helicopter Money to help state governments tide over the current crisis and kick-start economic activity in India.

What is Helicopter Money?

  • This is an unconventional monetary policy tool aimed at bringing a flagging economy back on track.
  • It involves printing large sums of money and distributing it to the public. American economist Milton Friedman coined this term.

Why it is Called So?

  • It basically denotes a helicopter dropping money from the sky. Friedman used the term to signify “unexpectedly dumping money onto a struggling economy with the intention to shock it out of a deep slump.”
  • Under such a policy, a central bank “directly increase the money supply and, via the government, distribute the new cash to the population with the aim of boosting demand and inflation.”

Why is Helicopter Money Needed Now?

  • With the coronavirus-hit economy falling deeper and deeper into a chasm with each passing day, Telangana chief minister KC Rao has said helicopter money can help states comes out of this crisis.
  • He asked for the release of 5% funds from GDP by way of quantitative easing (QE).

Is Helicopter Money the Same as Quantitative Easing?

  • Quantitative easing also involves the use of printed money by central banks to buy government bonds. But not everyone views the money used in QE as helicopter money.
  • It sure means printing money to monetise government deficits, but the government has to pay back for the assets that the central bank buys. It’s not the same as bond-buying by central banks “in which bank-owned assets are swapped for new central bank reserves.”

How will Helicopter Money Help Indian Economy?

  • Simply put, Helicopter Money means extension of non-repayable money transfer from the central bank to the state and central governments, to infuse liquidity in the system.
  • The policy aims at putting more money into the pockets of people to nudge them to spend more money and in turn pick-up economic activity in the country.
  • The direct impact of Helicopter Money is rise in disposable incomes of the people, increase in money supply with an intention to boost demand and inflation in the economy.

RETAIL INFLATION

Why in News?

  • Recently, The Consumer Price Index (CPI) data has been released by the National Statistical Office (NSO), the retail inflation in March 2020 dropped to 5.91% due to decrease in demand and lowered food prices.

Highlights:

  • Its rate was based on 66% of the usual price quotations as the nationwide lockdown to counter Covid-19 pandemic had led to suspension of fieldwork for price collection after March 19,2020.
  • The inflation rate in March 2020 remained within the Reserve Bank of India’s (RBI’s) medium-term target of 4±2% for Consumer Price Index (CPI) inflation, which is due to suppressed demand, especially for non-essential items, as the lockdown was imposed towards the end of March,2020.
  • The inflation rose to 6.59% from 6.36% in Fuel and Light segment February 2020. The Food inflation moderated to 8.76% from 10.81% in March 2020.The inflation of various items like vegetables, spices, pulses continue to be in double digits.
  • Pressure is expected due to the shortages witnessed in different centres with mandi arrivals being affected due to lockdown.
  • The inflation is expected to be brought down by low energy prices and subdued economic activity. However, the food price inflation of 8.7% will tend to increase.
  • It is expected that the Reserve Bank of India (RBI) undertakes further repo rate cuts. Repo Rate is the rate at which the RBI lends money to commercial banks in the event of any shortfall of funds.
  • When RBI increases the repo rate, this acts as a disincentive for banks to borrow from the central bank. This ultimately reduces the money supply in the economy and thus helps in Arresting Inflation.
  • The RBI reduces the repo rate in the event of a fall in inflationary pressures. Ideally, a low repo rate should translate into low-cost loans for general masses.

Inflation:

  • It refers to the rise in the prices of most goods and services of daily or common use, such as food, clothing, housing, recreation, transport, consumer staples, etc.
  • It measures the average price change in a basket of commodities and services over time.
  • It is indicative of the decrease in the purchasing power of a unit of a country’s currency. This could ultimately lead to a deceleration in economic growth.
  • It is measured by the Ministry of Statistics and Programme Implementation.
  • It is primarily measured by two main indices — WPI (Wholesale Price Index) and CPI (Consumer Price Index) which measure wholesale and retail-level price changes.
  • The CPI has five sub-groups including food and beverages, fuel and light, housing and clothing, bedding and footwear.

About the National Statistical Office:

  • It is the central statistical agency of the Government mandated under the Statistical Services Act 1980under the Ministry of Statistics and Programme Implementation.
  • It is responsible for the development of arrangements for providing statistical information services to meet the needs of the Government and other users for information on which to base policy, planning, monitoring and management decisions.
  • Its services include collecting, compiling and disseminating official statistical information.
  • All business operations in NSO are done in compliance with international standards, procedures and best practices.

COVID-19: GLOBAL MARKETS AND ECONOMY

Context:

  • The COVID-19 pandemic has caused an unprecedented human and health crisis. The measures necessary to contain the virus have triggered an economic downturn. The latest Global Financial Stability Report shows that the financial system has already felt a dramatic impact, and a further intensification of the crisis could affect global financial stability.
  • Volatility has spiked –
    • The uncertainty about the economic impact of the pandemic, had increased the volatility in the market.
    • With the spike in volatility, market liquidity has deteriorated significantly.
  • The First Line of Defense –
    • To preserve the stability of the global financial system and support the global economy, central banks across the globe have been the first line of defense.
    • 1. First,they have significantly eased monetary policy by cutting policy rates.
    • 2. Second,central banks have provided additional liquidity to the financial system, including through open market operations.
    • 3. Third,a number of central banks have agreed to enhance the provision of U.S. dollar liquidity through swap line arrangements.
    • 4. And finally, central banks have reactivated programs used during the global financial crisis, including to purchase riskier assets such as corporate bonds.
    • By effectively stepping in as “buyers of last resort” in these markets and helping contain upward pressures on the cost of credit, central banks are ensuring that households and firms continue to have access to credit at an Affordable Price.
  • The Vulnerability of Emerging Markets –
    • As so often happens at times of financial distress, emerging markets risk bearing the heaviest burden.
    • In fact, emerging markets have experienced the sharpest portfolio flow reversal on record (FPIs cashing out all they can) posing stark challenges to more vulnerable countries.
  • The Spiralling Effect –
    • Tougher & lasting containment measures = further tightening of global financial conditions = more severe and prolonged downturn.
    • Such a tightening may, in turn, expose financial vulnerabilities that have built in recent years in the environment of extremely low interest rates. This would further exacerbate the COVID-19 shock.
    • As firms become distressed and default rates climb higher, credit markets may come to a sudden stop.
  • Looking Ahead –
    • Central banks will remain crucial to safeguarding the stability of global financial markets and maintaining the flow of credit to the economy.
    • But this crisis is not simply about liquidity.
    • It is primarily about solvency—at a time when large segments of the global economy have come to a complete stop.
    • As a result, both monetary and fiscal policy have a vital role to Play.
  • The Troubled Path of India –
    • The immediate economic and market impacts of the coronavirus have been on India’s financial markets as well as the rupee, which hit a new low.
    • For firms laden with dollar-denominated debts, a continuous weakening of the rupee is likely to intensify their struggles to repay their obligations.
    • Beyond the financial shocks, India has to urgently find a way to cushion the demand-side shocks induced by ongoing containment measures.
    • Although the recent drop in oil prices offers some reprieve, it is inevitable that India will have to undertake more aggressive counter-cyclical fiscal measures at some stage to buffer against acute negative shocks arising from the spread of Covid-19.
  • Together, monetary, fiscal, and financial policies should aim to cushion the impact of the COVID-19 shock and to ensure a steady, sustainable recovery once the pandemic is under control. Close, continuous international coordination will be essential to support vulnerable countries, to restore market confidence, and to contain Financial Stability Risks.

DEVELOPING COUNTRY STATUS IN WTO

Why in News?

  • US president has asked for changing the WTO rules for changing the developing country status of China.

China – a developing country or Developed Country?

  • China became a WTO member in 2001. By 2011, China became the second-largest economy in GDP terms, the first largest merchandise exporter, the fourth largest commercial services exporter and the first destination for inward FDI among developing countries.
  • So if China is forced to take on the duties of a developed country and forego the benefits of a developing country, the West could soon ask other developing countries that are ahead of China (at least in per capita terms) to do the same.

Who are the developing countries in the WTO?

  • There are no WTO definitions of “developed”and “developing”
  • Members announce for themselves whether they are “developed” or “developing” countries.
  • However, other members can challenge the decision of a member to make use of provisions available to developing countries.

What are the advantages of “Developing Country” status?

  • Developing country status in the WTO brings certain rights.
  • Developing country status ensures special and differential treatment (S&DT)or provisions which allow them more time to implement agreements and commitments, include measures to increase trading opportunities, safeguard their trade interests, and support to build capacity to handle disputes and implement technical standards.

WTO Norms for Recognition of Developed, Developing and LDCs:

  • Under the WTO system, generally, countries are designated as developed, developing, and least developed countries (LDCs).
  • The uneven level of development between developed and developing countries in the WTO is a well-recognised fact.
  • Article XVIII of the General Agreement on Tariffs and Trade (GATT) recognises that attaining the objectives of this agreement would require facilitating the progressive development of those countries that can only support low levels of development and are at the early stages of development.
  • Accordingly, countries self-designate themselves as ‘developing country’ to take advantage of provisions like Article XVIII of GATT and other special and differential treatment (S&DT) provisions in the WTO agreements.
  • These provisions are aimed at increasing trade opportunities for developing countries, ensuring longer transitional periods to comply with WTO obligations, and affording technical assistance to countries, among other things.

What are “Special and Differential Treatment” Provisions?

  • Longer time periods for implementing Agreements and commitments,
  • Measures to increase trading opportunities for developing countries,
  • Provisions requiring all WTO members to safeguard the trade interests of developing countries,
  • Support to help developing countries build the capacity to carry out WTO work, handle disputes, and implement technical standards, and
  • Provisions related to least-developed country (LDC) Members.
  • The concept of non-reciprocal preferential treatment for developing countries that when developed countries grant trade concessions to developing countries, they should not expect the developing countries to make matching offers in return.

Demands by Developed Countries:

  • For some time now, developed countries, mainly the US, have been asking the WTO to end the benefits being given to developing countries.
  • Nearly two-thirds of the members of the World Trade Organization (WTO) have been able to avail themselves of special treatment and to take on weaker commitments under the WTO framework by designating themselves as Developing Countries.

CORPORATE SOCIAL RESPONSIBILITY (CSR) EXPENDITURE

Why in News?

  • The Ministry of Commerce and Industry has clarified that the contributions to the Chief Minister’s Relief Fund or the State relief fund will not qualify as Corporate Social Responsibility (CSR) expenditure, while any donation to the PM CARES Fund will.

What are the Key Points?

  • The Chief Minister’s Relief Fund or State Relief Fund for COVID-19 is not included in Schedule VII of the Companies Act, 2013, and therefore any contribution to such funds shall not qualify as admissible CSR expenditure.
    • Schedule VII of the Companies Act, 2013 provides the list of activities that can be included in CSR.
  • Some political parties criticised this saying it is discriminatory and goes against the constitutional principle of federalism.
  • However, donations to the State Disaster ManagementAuthority to combat COVID-19 can be counted as admissible CSR expenditure.

What is Corporate Social Responsibility?

  • The term “Corporate Social Responsibility” in general can be referred to as a corporate initiative to assess and take responsibility for the company’s effects on the environment and impact on social welfare.In India, the concept of CSR is governed by clause 135 of the Companies Act, 2013. India is the first country in the world to mandate CSR spending along with a framework to identify potential CSR activities.
  • The CSR provisions within the Act is applicable to companies with an annual turnover of 1,000 crore and more, or a net worth of Rs. 500 crore and more, or a net profit of Rs. 5 crore and more.
  • The Act requires companies to set up a CSR committee which shall recommend a Corporate Social Responsibility Policy to the Board of Directors and also monitor the same from time to time.
  • The Act encourages companies to spend 2% of their average net profit in the previous three years on CSR activities.
  • The indicative activities, which can be undertaken by a company under CSR, have been specified under Schedule VII of the Act. The activities include:
    • Eradicating extreme hunger and poverty,
    • Promotion of education, gender equality and empowering women,
    • Combating Human Immunodeficiency Virus, Acquired Immune Deficiency Syndrome and other diseases,
    • Ensuring environmental sustainability;
    • Contribution to the Prime Minister’s National Relief Fund or any other fund set up by the Central Government for socio-economic development and relief and funds for the welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women etc.

Strategic importance of Social Responsibility:

  • A healthy business can only succeed in a healthy society. Thus, it is in the best interest of a company to produce only goods and services which strengthen the health of society
  • If the company wants to succeed in the long term it needs to have the acceptance—or licence to operate—from social actors affected by the company’s’ operations.

PRADHAN MANTRI JAN AROGYA (PM-JAY)

Context:

  • Recently, the National Health Authority has launched an express empanelment process called Hospital Empanelment Module (HEM) Lite to bring a large number of private hospitals under Ayushman Bharat Pradhan Mantri Jan Arogya Yojana (AB PM-JAY).

Highlights:

  • With the launch of express empanelment process, patients suffering from serious illnesses, such as cancer, cardiac issues and diabetes that require continuous treatment, will be able to continue getting inpatient services without the fear of contracting the Covid -19 infection.
  • Hospitals can empanel themselves for a temporary period of 3 months through a simpler, user friendly online system available on the scheme’s website pmjay.gov.in.
  • Using the HEM Lite process, the system has been built in a way to ensure that the rest of the process of approvals by concerned authorities is expeditious.
  • The hospitals have the choice whether to provide regular treatment for serious illnesses such as cancer and cardiac illnesses under the scheme or convert themselves into covid-19 only hospitals providing dedicated testing and treatment to covid-19 patients.
  • The government recently decided to bring testing and treatment of covid-19 under AB PM-JAY scheme.

About Pradhan Mantri Jan Arogya (PM-JAY):

  • It offers a sum insured of Rs.5 lakhs per family for secondary care (which doesn’t involve a super specialist) as well as tertiary care (which does).
  • It is an entitlement-based scheme that targets the beneficiaries as identified by latest Socio-Economic Caste Census (SECC) data. Once identified by the database, the beneficiary is considered insured and can walk into any empanelled hospital.
  • The insurance cost is shared by the centre and the state mostly in the ratio of 60:40.
  • Empanelled hospitals agree to the packaged rates under PM-JAY—there are about 1,400 packaged rates for various medical procedures under the scheme.
  • It also has prescribed a daily limit for medical management.

Significance of PM_JAY:

  • It will be cashless and largely paperless. The poor and vulnerable stand to benefit from the scheme.
  • It will be an enabler of quality, affordability and accountability in the health system.
  • Ayushman Bharat is expected to advance India’s pursuit of universal health coverage (UHC).
  • This will ensure all people can access quality health services when and where they need them,without suffering financial hardship, which is also one of the WHO South-East Asia Region’s Flagship
  • From the day PMJAY was launched, almost half of all eligible families are now covered for hospital
  • Another impact of the PMJAY will be rationalisation of the cost of care in the private sector.The scheme will create lakhs of jobs for professionals and non-professionals — especially women.

About State Health Agency (SHA)

  • It is the apex body of the State Government responsible for the implementation of AB PM-JAY in the State.It will sign an MoU with express empanelled hospital for three months only. It can continue with the empanelment on mutual agreement between hospital and SHA after this period, but only after the detailed empanelment process is followed i.e. hospital has filled the entire form and District Implementation Unit (DIU) and SHA have verified the details, etc.
  • These packaged rates also mention the number of average days of hospitalization for a medical procedure and supporting documents that are needed.
  • These rates are flexible, but once fixed hospitals can’t change it and under no circumstances can they charge the beneficiary.
  • The National Health Agency has been constituted as an autonomous entity under the Society Registration Act, 1860 for effective implementation of PM-JAY in alliance with state governments.

Way Forward:

  • There is a Need for real-time monitoring of implementation. This will allow problems to be detected early on, thereby enhancing accountability, as well as facilitating course corrections where necessary.
  • Money must be spent wisely. The investment in frontline services is cost-effective.  This must be backed up by effective and affordable hospital care. Special attention is needed to build confidence in and demand for the country’s primary care services.

INDUSTRIAL BODIES CLAIMS FOR A RELIEF PACKAGE

Why in News?

  • The National Real Estate Development Council (NAREDCO) and the Associated Chambers of Commerce and Industry of India (ASSOCHAM) have sought 200 billion dollars from the government as a relief package to minimise the economic impact of COVID-19.
  • The relief package demanded is around 10% of the nation’s Gross Domestic Product (GDP).

Demands of the Industrial Bodies:

  • They have also called for a partial lifting of the lockdown on construction sites to reduce job losses.
  • NAREDCO also called for suspending all cases under the National Company Law Tribunal (NCLT) for the next six months amid economic slowdown.
  • The real estate sector accounts for 7% of the GDP and employs 11% of the country’s population.

About NAREDCO:

  • NAREDCO is hailed as the apex national body for the real estate industry.
  • National Real Estate Development Council (NAREDCO) was established as an autonomous self-regulatory body in 1998. It comes under the aegis of the Ministry of Housing and Urban Affairs, Govt. of India.

About ASSOCHAM:

  • The Associated Chambers of Commerce and Industry of India is one of the highest trade associations in India. It was established in 1920.

CORONA BONDS

Context:

  • Corona bonds is recently seen in news, which could be a possible resolution to alleviate Eurozone financial struggles amid the coronavirus crisis.

About Corona Bonds:

  • It would be a collective debt amongst EU member states, with the aim of providing financial relief to Eurozone countries battered by the coronavirus.
  • It would also be mutualised and supplied by the European Investment Bank, with the debt taken collectively by all member states of the European Union.
  • The idea of corona bonds has received reinforcement from nine EU countries, all keen to reach a financial solution as soon as possible. Not all countries in the European Union (EU) are in favour of this idea.
  • The resistance has come most notably from the ‘Frugal Four’. The Frugal Four consists of Germany, The Netherlands, Finland, Austria
  • These countries are of the opinion that finance is an individual nation’s responsibility. They believe that each EU member state should keep their finances in order.

Significance:

  • It would allow European countries to gain essential financial support.
  • Their States could receive economic aid without expanding their national debt.
  • If all the EU member states support this idea, then this would likely strengthen confidence amongst Europe.

Way Forward:

  • Its disadvantage is that it would not necessarily enhance debt sustainability.
  • Its concept would only aid future debt forgiveness, distinguishing between coronavirus related debt and legacy debt.
  • The implementation of a common bond amongst EU member states could also potentially take a lot of time. The delay is not ideal for countries who require access to funds immediately.

IHS MARKIT INDIA SERVICES BUSINESS ACTIVITY INDEX

Why in News?

  • The IHS Markit India Services Business Activity Index (i.e Service Purchasing Managers’ Index (PMI)) has registered a fall in the month of March.

Key Points:

  • The Index registered 49.3 in March, down from February’s 85-month high of 57.5.
  • In PMI parlance, a print above 50 means expansion, while a score below that denotes contraction. The fall implies contraction in India’s services sector activity during March basically due to COVID-19.
  • The COVID-19 pandemic has reduced demand, particularly in overseas markets. Nationwide store closures and prohibition to leave the house weighed heavily on the services economy.

Composite PMI Output Index:

  • The Composite PMI Output Index that maps both the manufacturing and services sector also fell to 50.6 in March, down 7 points from February’s 57.6.
  • This signals a sharp slowdown in private sector output growth and brought an abrupt end to the recent strong upward-moving Expansion Trend.

What is Purchasing Managers’ Index:

  • The Index is compiled by IHS Markit for more than 40 economies worldwide.
  • IHS Markit is a global leader in information, analytics and solutions for the major industries and markets that drive economies worldwide.
  • PMI is an index of the prevailing direction of economic trends in the manufacturing and service sectors.
  • It consists of a diffusion index that summarizes whether market conditions, as viewed by purchasing managers, are expanding, staying the same, or contracting.
  • The purpose of the PMI is to provide information about current and future business conditions to company decision makers, analysts, and Investors.

RBI PLANS FOR AN FRAUD OVERSIGHT WING

Why in News?

  • The Reserve Bank of India (RBI) is in the process of putting together an exclusive wing for banking fraud oversight.

About “Fraud Oversight Wing”:

  • This wing will have teams for meta-data processing and analysis, artificial intelligence analysis units, as well as proactive risk assessment cells.
  • The banking fraud oversight wing may comprise up to 600 officers along with experts from the private sector. The RBI plans to hire industry veterans to lead the teams.
  • Experts from the private sector working in all these domains will be brought in to train the new members in the fraud oversight wing. These training sessions will be repeated every year in the initial years.
  • These new teams will also be given training in the latest technologies, so that they can also prevent another Yes Bank kind of event.

Need of such an Institution:

  • The RBI had been mulling ways to proactively detect such frauds after various Bank loan fiascos.
  1. 1.Punjab National Bank Fraud. The bank fraud was of the tune of Rs 11,450 crore involving diamond merchant Nirav Modi.
  2. 2.Yes Bank Case: Even though there were representatives of RBI on the Yes Bank board, it was found to be difficult for them to flag the risk, as they had never done a credit risk assessment task in their career so far.

Earlier Attempts of RBI:

  • The banking regulator in 2019 had moved to create a separate cadre of its own employees who would work in regulation and oversight sections.
  • However, the working conditions were very strict and anyone opting for that cadre would not be allowed to leave for three years. To overcome this problem, the RBI sought to create a fraud oversight wing.

THE SPECTRE OF A POST-COVID-19 WORLD

Context:

  • In many parts of the world, borders are closed, airports, hotels and businesses shut, and school cancelled. These unprecedented measures are tearing at the social fabric of some societies and disrupting many economies, resulting in mass job losses and raising the spectre of widespread hunger.

Digital Factor:

  • The physical analog world is being decimated, with traditional analog businesses including hotels, restaurants and airplanes in crisis.
  • The digital world, however, is thriving. We are surviving through this pandemic because of technology like smartphones.
  • In the post-pandemic world, technology will be as ubiquitous as it is now, if not more, and tech companies will become even more powerful and dominant.
  • Use of surveillance –
    • It is a useful weapon to fight the virus – for instance, countries like Israel are using smartphones to figure out who’s been where in order to track clusters of the virus.
    • The technocratic authoritarian model in Beijing and East Asia, such as in Singapore and to some extent South Korea are dealing more effectively with the virus.
    • But at the same time, such moves threaten to undermine individual freedom and privacy.
    • The sophistication of such technologies may determine our socio-political rights in the future.

Social Change:

  • Changes in people:
    • COVID-19 can have lasting effects on people’s values.
    • It changes the habits of the people– they work and travel in a different way, their daily routines and the very rhythm of their lives change, including when they eat and how they communicate with their families
    • Religion – one of the biggest sources of culture for the human being will undergo changes, the epistemology of society – will never again be the same.
  • Police States:
    • COVID-19 will fast-forward the fourth industrial revolution and digitalization of all services, including public services. .
    • Digital technology makes it possible to create subtle police states as citizens might voluntarily offer private data in hope the state can provide security.
  • International cooperation:
    • On the international level, there will be less cooperation.
    • The trend of nationalism and self-reliance will continue, especially as the fear of the “external” and “foreign” can be exploited by populists.
  • Fragile healthcare and weak Economy:
    • Most states are challenged in their resilience economically, socially and in terms of public health.
    • The public health crisis compounds existing domestic economic crises amid a global economic depression following the end of the COVID-19 crisis.
    • This might overthrow those regimes whose legitimacy is undermined by inability to manage the crisis.

Prognosis for India

  • India was estimated to be among the 15 most affected economies by the COVID-19 epidemic
    • An early estimate by the Asian Development Bank, soon after the epidemic was declared, was that it would cost the Indian economy $29.9 billion.
    • A recent industry estimate pegs the cost of the lockdown at around $120 billion or 4% of India’s GDP.
    • The Confederation of Indian Industry (CII) had at one point warned that India would require up to six months even after the entire course of the COVID-19 epidemic is over to restore normalcy and business continuity.
  • To compensate for this loss, massive inflows of government funds would be needed.
  • India, like any other developing country, might find it difficult to find adequate resources for this purpose. Hence, it would be wise to start thinking of what next, if at least to try and handle a situation created by the most serious pandemic in Recent Centuries.

INDIA’S DEFENCE EXPORT -IMPORT

Why in News?

  • Based on the latest estimates released by the Stockholm International Peace Research Institute (SIPRI) in the period between 2009-13 and 2014-18, Indian defence imports fell even as Exports Increased.

Highlights:

  • Indeed, the period between 2012 and 2019 saw Indian defence exports experiencing a considerable jump sourced from Indian public and private sector enterprises.
  • In the last two fiscal years, 2017-18 and 2018-19, exports have witnessed a surge from 7,500 crore to 11,000 crore, representing a 40% increase in exports. Small naval crafts account for the bulk of India’s major defence exports. However, export of ammunition and arms remain low.
  • As a percentage of total Indian trade, defence-related exports for the fiscal years 2017-18 and 2018-19 were 0.8 and 0.73%, respectively.
  • Russia’s arms export to India fell 42?tween 2014-18 and 2009-2013. In the same period, India’s arms imports decreased 24%.
  • Although India is still the second-largest arms importer in the world over the last five years, with Pakistan ranking at 11th.
  • Broadly, Two Factors appear to be driving this shift.
  • The first is the ‘Make in India’ initiative, as part of which a number of components from Indian private and public sector enterprises have been prioritised by the government.
  • The second set of factors is extraneous to India in the form of delays in supplying equipment by vendors and the outright cancellation of contracts by the Indian government or at least a diminution of existing contracts.

Role of Make in India and DPP:

  • Under the ‘Make in India’ initiative, the Defence Procurement Procedure (DPP) lays out the terms, regulations and requirements for defence acquisitions as well as the measures necessary for building India’s defence industry.
  • It created a new procurement category in the revised DPP of 2016 dubbed ‘Buy Indian Indigenously Designed, Developed and Manufactured’ (IDDM).
  • The ‘Make’ procedure has undergone simplification “earmarking projects not exceeding ten crores” that are government funded and 3 crore for Micro, Small and Medium Enterprises (MSMEs) that are industry funded.
  • In addition, the government has also introduced provisions in the DPP that encourages technology transfers.
  • Further Government dispensed with the erstwhile No Objection Certificate (NOC) under the DPP restricting exports of aerospace products, several dual-use items and did away with two-thirds of all products under these heads.

Public Sector Support:

  • According to government of India data for the financial year 2018-19, the three armed services for their combined capital and revenue expenditures sourced 54% of their defence equipment from Indian industry which in turn helped decrease imports and augment exports.
  • Among arms producers, India has four companies among the top 100 biggest arms producers of the world.
  • Hindustan Aeronautics Limited (HAL)
  • Indian ordnance factories
  • Bharat Electronics Limited (BEL)
  • Bharat Dynamics Limited (BDL)
  • It is estimated, according to SIPRI, their combined sales were $7.5 billion in 2017, representing a 6.1% jump from 2016.

Impact on Exports-Imports owing to Cancellation and Delays:

  • Indian defence acquisitions have also fallen due to the cancellation of big-ticket items.
  • Take for instance the India-Russia joint venture for the development of the advanced

Su- 57 stealth Fifth Generation Fighter Aircraft (FGFA).

  • India cancelled involvement in 2018 due to rising dissatisfaction in delays with the project as well as the absence of capabilities that would befit a fifth generation fighter jet.
  • In 2015, the government also reduced the size of the original acquisition of 126 Rafale Medium Multi-Role Combat Aircraft (MMRCA) from Dassault to 36 aircraft, which is also responsible for significantly driving down the import bill.
  • The delays in the supplies of T-90 battle tanks, and Su-30 combat aircraft from Russia and submarines from France, in 2009-13 and 2014-18, also depressed imports.

Bottlenecks in the Defence Sector:

  • Governments, including the incumbent, have tended to privilege Defence Public Sector Units (DPSUs) over the private sector, despite ‘Make in India’.
  • This model is highly skewed, undermining the growth of private players and diminishes the strength of research and development, thereby impairing development of the sector.

Stockholm International Peace Research Institute:

  • SIPRI is an independent international institute dedicated to research into conflict, armaments, arms control and disarmament.
  • Established in 1966, SIPRI provides data, analysis and recommendations, based on open sources, to policymakers, researchers, media and the interested public.
  • Based in Stockholm, SIPRI is regularly ranked among the most respected think tanks worldwide.

ELECTRONIC MANUFACTURING SCHEME

Why in News:

  • The government has recently notified three Electronic Manufacturing Scheme involving total incentives of around Rs 48,000 crore for Electronics Manufacturing.

About:

  • The Three Schemes are
  • The Production Linked Incentive Scheme (PLI) for large scale electronics manufacturing.
  • The scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS).
  • The modified Electronics Manufacturing Clusters (EMC 2.0) Scheme.
  • They are expected to attract Rs 1 lakh crore investment in the sector, Boost local electronics manufacturing and generate manufacturing revenue potential of Rs 10 lakh crore by 2025 and create 20 lakh direct and indirect jobs by 2025.

About Production Linked Incentive Scheme (PLI) for Large Scale Electronics Manufacturing:

  • It proposes a financial incentive to boost domestic manufacturing and attract large investments in the electronics value chain including electronic components and semiconductor packaging.
  • It will get an incentive of 4 to 6% to electronic manufacturing companies on incremental sales (over base year) of goods manufactured in India and covered under target segments, to eligible companies over a period of next 5 years.
  • It shall only be applicable for target segments namely mobile phones and specified electronic components.
  • The production of mobile phones in the country has surged eight-times in the last four years.

About the Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors:

  • It is notified for manufacturing of electronics components and semiconductors has a budget outlay of Rs 3,285 crore spread over a period of eight years.
  • Under the scheme, a financial incentive of 25% of capital expenditure has been approved by the Union Cabinet for the manufacturing of goods that constitute the supply chain of an electronic product.
  • It is estimated by the government that the push for manufacturing of electronics components and electronic chips will create around 6 lakh direct and Indirect Jobs.

About Modified Electronics Manufacturing Clusters 2.0 Scheme:

  • It has a total incentive outlay of Rs 3,762.25 crore spread over a period of 8 years with an objective to create 10 lakh direct and indirect jobs under the scheme.
  • It will provide financial assistance up to 50% of the project cost subject to a ceiling of Rs 70 crore per 100 acres of land for setting up of Electronics Manufacturing Cluster projects.
  • Under the scheme, the Electronic manufacturing clusters to be set up will be spread in an area of 200 acres across India and 100 acres in North East part of the country.

BATTLE TO SET OIL PRICES

Context:

  • The global economy, grappling with the COVID-19 pandemic, is now facing an energy war, with crude oil prices crashing in the international market. Crude oil prices crashed, as the Organisation of the Petroleum Exporting Countries (OPEC) and its alliance partners failed to reach any consensus on cutting back production to levels that would enable prices to Remain Stable.

COVID-19 and its Impact on Oil market:

  • There has been a spectacular fall of around 30% in crude oil prices.
  • The International Energy Agency (IEA) has scaled down global demand for oil, a move not taken by the energy watchdog since 2009.
  • Demand for oil had already weakened owing to the global economic slowdown, and this weakening has become more pronounced due to the COVID-19 pandemic, which has hit China’s economy and reduced consumption by the world’s largest importer.

US – Russia: Capturing the Market:

  • The U.S., as the largest oil producer today, has stayed away from the OPEC-plus arrangement, hoping that production cuts by OPEC-plus countries will help it increase its market share.
  • Russia refused any production cuts, unleashing an energy war with Saudi Arabia.
  • Russia’s decision to reject any production cuts is driven directly by its strategy of denying market share to American shale oil producers.

American Shale:

  • The American producers rely on higher prices in the range of $50-$60 to remain profitable because of higher production costs.
  • At $31 per barrel, not more than five American shale oil producers can remain profitable at current prices.
  • President Donald Trump has scrambled to put together a rescue package for the shale oil companies.

Sanctions on Rosneft:

  • Russia also remains resentful of sanctions imposed on Rosneft, which is building the gas pipeline project Nord Stream 2 across the Baltic Sea, carrying Siberian gas to Germany, a major consumer.
  • This pipeline was delayed due to opposition from Denmark’s environmental activists and could not be completed before the U.S. sanctions kicked in.
  • Moscow has accused Washington of using geopolitical tools for Commercial Reasons.

Saudi Arabia and Russia:

  • Both Saudi Arabia and Russia depend heavily on oil revenues — upwards of 80% of export revenues accrue from crude oil.
  • Both are also fighting to retain market share.
  • It has been reported that Saudi Arabia has agreed to supply crude oil at lower rates to refiners in India and China, two primary customers, but refused to supply to other refiners in Asia.
  • This will impact on India’s oil procurement from the U.S.
  • Can Russia and Saudi Arabia sustain the energy war for long? –
  • Saudi Arabia’s production cost is the cheapest in the world and it can ramp up production to around 12 million barrels a day.
  • By offering discounts, it can undercut other producers, including Russia. Domestic considerations also matter.

Benefit to Importing Countries:

  • Lower crude oil prices are not necessarily bad news for oil importing countries like India, which is the world’s third-largest importer of crude oil and the fourth largest importer of LNG.
  • Impact on the global economy: The global economy, already impacted by President Donald Trump’s trade war with China and other countries, including India, and the COVID-19 pandemic, may find lower energy costs helpful in overall growth.

Benefits for India:

  • From a high of $147 per barrel in 2008, crude oil prices have fallen to around $24 per barrel and may even go further southwards.
  • India, with 80% of its energy requirements met by imports from the international market, stands to save ₹10,700 crores for every $1 drop in prices.
  • While this may help manage the current account deficit, fiscal deficit and inflation.
  • If the cost of fuel at the pump is passed on to consumers, it will have a multiplier effect.
  • Lower cost will reduce transportation costs and boost demand.
  • The consumer, however, may not benefit much since the government may choose to use this financial windfall for other purposes, like bailing out banks which have been hollowed out by NPAs to leading Indian companies.

COVID-19: MEASURES BY RBI

Context:

  • The Reserve Bank of India (RBI) has announced measures to fight economic disruptions caused by COVID19, including extension of the realisation period of export proceeds and allowing States to Borrow More.

Realisation Period of Export Proceeds:

  • Presently, the value of the goods or software exports made by exporters is required to be realised fully and repatriated to the country within nine months from the date of exports.
  • In view of the disruption caused by the pandemic, the time period for realisation and repatriation of export proceeds for exports made up to or on July 31, 2020, has been extended to 15 months from the date of export.
  • The measure will enable exporters to realise their receipts, especially from COVID19 affected countries, within the extended period.
  • This will also provide greater flexibility to exporters  to negotiate future export  contracts with buyers abroad.

Ways and means limit for the states:

  • The RBI has formed an advisory committee to review the ways and means limit for State governments and union territories.
  • Till the panel submits its report, the RBI has increased the ways and means advances limit by 30% for States and union territories.
  • This would enable State governments to tide over the situation arising from the outbreak of the COVID19 pandemic.
  • The revised limits will come into force with effect from April 1, 2020 and will be valid till September 30, 2020.

‘Ways and Means Advances’:

  • It is a temporary facility to meet revenue mismatches – mismatches in receipts and payments of the government.Under this scheme, a government can avail itself of immediate cash from the RBI.

Counter Cyclical Capital Buffers (CCyB):

  • The central bank has also deferred the implementation of counter cyclical capital buffers (CCyB) for banks.
  • Based on the review and empirical analysis of CCyB indicators, RBI has decided that it is not necessary to activate CCyB for a period of one year or earlier, as may be necessary.

CCyB:

  • Counter Cyclical Capital buffer is the capital to be kept by a bank to meet business cycle related risks.
  • It is aimed to protect the banking sector against losses from changes in economic conditions.
  • Banks may face difficulties in phases like recession when the loan amount doesn’t return. To meet such situations, banks should have their own additional capital.
  • This is an important theme of the Basel III norms.

WAYS AND MEANS ADVANCE SCHEME

Why in News?

  • The Government has recently hiked Ways and Means Advance (WMA) limit with the Reserve Bank of India (RBI) by 60%.

Highlights:

  • The government has announced a Rs 1.7 lakh crore package (Pradhan Mantri Garib Kalyan Yojana) to provide income support, free food and other facilities to the poor to help them during the 21-day national lockdown.
  • The fundraising resources are not only from the market, but also from institutions such as the RBI.
  • The 2020-21 budget has pegged the Centre’s net market borrowing, including government securities, treasury bills and post office life insurance fund.
  • In FY21, the Centre also plans to issue the Debt Exchange Traded Fund comprising government securities to widen the base of investors.
  • This will enable retail investors, who otherwise find it difficult to buy government bonds directly, take an exposure in this risk free instrument.

About Ways and means Advance scheme:

  • It was introduced in 1997 to meet mismatches in the receipts and payments of the government.
  • The government can avail of immediate cash from the RBI, if required. But it has to return the amount within 90 days. Interest is charged at the existing repo rate.
  • If exceeds 90 days, it would be treated as an overdraft (the interest rate on overdrafts is 2 percentage points more than the repo rate).
  • Its limits are decided by the government and RBI mutually and revised periodically. A higher limit provides the government flexibility to raise funds from RBI without borrowing them from the market.
  • There are two types of Ways and Means Advances, Special WMA and Normal WMA
  • Special WMA or Special Drawing Facility is provided against the collateral of the government securities held by the state. After the state has exhausted the limit of SDF, it gets normal WMA. The interest rate for SDF is one percentage point less than the repo rate.
  • The loans Normal WMA is based on a three-year average of actual revenue and capital expenditure of the state.

About Exchange Traded Fund:

  • It is a basket of securities that trade on an exchange, just like a stock.
  • It reflects the composition of an Index, like BSE Sensex. Its trading value is based on the Net Asset Value (NAV) of the underlying stocks (such as shares) that it represents.
  • It shares prices fluctuate all day as it is bought and sold. This is different from mutual funds that only trade once a day after the market closes.
  • It can own hundreds or thousands of stocks across various industries, or it could be isolated to one particular industry or sector.

RBI INTRODUCES “FULLY ACCESSIBLE ROUTE (FAR)”

Why in News?

  • In the Union Budget, it has been announced that certain specified categories of government securities would be opened fully for non-resident investors without any restrictions.
  • As a follow up of the announcement, the Reserve Bank of India (RBI) has introduced a separate channel called “Fully Accessible Route (FAR)” to enable non-residents to invest in specified Government of India dated securities.
  • ‘Specified securities’ shall mean Government Securities as periodically notified by the Reserve Bank for investment under the FAR route.

Key Points:

  • FPI consists of securities and other financial assets passively held by foreign investors.
  • The RBI has said that all new issuances of Government securities (G-secs) of 5-year, 10-year, and 30-year tenors will be eligible for investment as specified securities.
  • Non Resident investors can invest in specified government securities without being subject to any investment ceilings.
  • This scheme shall operate along with the two existing routes: The Medium Term Framework (MTF) for Foreign Portfolio Investment (FPI) in Central Government Securities (G-secs) and State Government Securities (SDLs), which was introduced in October 2015.
  • The Voluntary Retention Route (VRR) encourages Foreign Portfolio Investors to undertake long-term investments in Indian debt markets.

Benefits of the Scheme:

  • This would facilitate inflow of stable foreign investment in government bonds.
  • This would facilitate inclusion in global bond indices.
  • Being part of the global bond indices would help Indian G-secs attract large funds from major global investors, including Pension Funds.
  • This will ease the access of non-residents to Indian Government Securities Markets.

What is meant by Government Security (G-Sec)

  • A G-Sec is a tradable instrument issued by the Central Government or the State Governments.
  • It acknowledges the Government’s debt obligation. Such securities are short term (usually called treasury bills, with original maturities of less than one year- presently issued in three tenors, namely, 91 day, 182 day and 364 day) or long term (usually called Government bonds or dated securities with original maturity of one year or more).
  • In India, the Central Government issues both treasury bills and bonds or dated securities while the State Governments issue only bonds or dated securities, which are called the State Development Loans (SDLs).

COMPANIES FRESH START SCHEME, 2020

Why in News?

  • Ministry of Corporate Affairs introduces the “Companies Fresh Start Scheme, 2020” and revised the “LLP Settlement Scheme, 2020” to provide relief to law abiding companies and Limited Liability Partnerships (LLPs) in the wake of COVID 19.

What do these Schemes Entail?

  • These schemes incentivise compliance and reduce compliance burden during the unprecedented public health situation caused by COVID-19.
  • The schemes provide a one-time waiver of additional filing fees for delayed filings by the companies or LLPs with the Registrar of Companies during the currency of the Schemes, i.e. during the period starting from 1stApril, 2020 and ending on 30th September, 2020.
  • They also significantly reduce the related financial burden on them, especially for those with long standing defaults, thereby giving them an opportunity to make a “fresh start”.
  • Both the Schemes also contain provision for giving immunity from penal proceedings, including against imposition of penalties for late submissions.
  • They also provide additional time for filing appeals before the concerned Regional Directors against imposition of penalties, if already imposed.

What is a LLP?

  • A Limited Liability Partnership (LLP) is a partnership in which some or all partners have limited liability. It therefore exhibits elements of partnerships and corporations.
  • In an LLP, one partner is not responsible or liable for another partner’s misconduct or negligence.

Salient features of an LLP:

  • An LLP is a body corporate and legal entity separate from its partners. It has perpetual Succession.
  • Being the separate legislation (i.e. LLP Act, 2008), the provisions of Indian Partnership Act, 1932 are not applicable to an LLP and it is regulated by the contractual agreement between the partners.
  • Every Limited Liability Partnership shall use the words “Limited Liability Partnership” or its acronym “LLP” as the last words of its Name.

 Composition:

  • Every LLP shall have at least two designated partners being individuals, at least one of them being resident in India and all the partners shall be the agent of the Limited Liability Partnership but not of other partners.

 Need for and significance LLP:

  • LLP format is an alternative corporate business vehicle that provides the benefits of limited liability of a company but allows its members the flexibility of organizing their internal management on the basis of a mutually arrived agreement, as is the case in a partnership firm.
  • This format would be quite useful for small and medium enterprises in general and for the enterprises in services sector in particular.
    • Internationally, LLPs are the preferred vehicle of business particularly for service industry or for activities involving professionals.

KERALA SOUGHT RELAXATION OF FRBM RULES

Why in News?

  • To help fund the emergency relief package, Kerala proposes to borrow ₹12,500 crore from the market and has urged the Centre to provide Kerala with flexibility under the Fiscal Responsibility and Budget Management (FRBM) Act.

What is the FRBM Act?

  • The Fiscal Responsibility and Budget Management Act (FRBM Act), 2003, establish financial discipline to Reduce Fiscal Deficit.

What are the objectives of the FRBM Act?

  • The FRBM Act aims to introduce transparency in India’s fiscal management systems.
  • The Act’s long-term objective is for India to achieve fiscal stability and to give the Reserve Bank of India (RBI) flexibility to deal with inflation in India.
  • The Act was enacted to introduce more equitable distribution of India’s debt over the years.

How does a relaxation of the FRBM Work?

  • The law does contain what is commonly referred to as an ‘escape clause’.
  • Under Section 4(2) of the Act, the Centre can exceed the annual fiscal deficit target citing grounds that include national security, war, national calamity, collapse of agriculture, structural reforms and decline in real output growth of a quarter by at least three percentage points below the average of the previous four quarters.

Key Features of the FRBM Act:

  • The FRBM Act made it mandatory for the government to place the following along with the Union Budget documents in Parliament Annually:
    • Medium Term Fiscal Policy Statement.
    • Macroeconomic Framework Statement.
    • Fiscal Policy Strategy Statement.
  • The FRBM Act proposed that revenue deficit, fiscal deficit, tax revenue and the total outstanding liabilities be projected as a percentage of gross domestic product (GDP) in the medium-term fiscal policy statement.

What are the Amendments Made?

  • The Act has been amended several times.
  • In 2013, the government introduced a change and introduced the concept of effective revenue deficit. This implies that effective revenue deficit would be equal to revenue deficit minus grants to states for the creation of capital assets.
  • In 2016, a committee under N K Singhwas set up to suggest changes to the Act. According to the government, the targets set under FRBM Act previously were too rigid.

What are the various recommendations made by N.K. Singh Committee?

  • Targets:The committee suggested using debt as the primary target for fiscal policy and that the target must be achieved by 2023.
  • Fiscal Council:The committee proposed to create an autonomous Fiscal Council with a chairperson and two members appointed by the Centre (not employees of the government at the time of appointment).
  • Deviations:The committee suggested that the grounds for the government to deviate from the FRBM Act targets should be clearly specified
  • Borrowings:According to the suggestions of the committee, the government must not borrow from the RBI, except when:
    • The Centre has to meet a temporary shortfall in Receipts.
    • RBI subscribes to government securities to Finance Any Deviations.
    • RBI purchases government securities from the Secondary Market.

COAL CAPACITY PIPELINE DECLINES IN INDIA

Why in News?

  • The latest report ‘Boom and Bust 2020:Tracking the Global Coal Plant Pipeline’ which is the fifth annual survey of the coal plant pipeline has been released recently. The report highlights that the capacity of coal power plants in the pre-construction phase fell by half from 2018 to 2019 in the country.
  • Jointly released by the Centre for Research on Energy and Clean Air (CREA), Greenpeace International, the Sierra Club and Global Energy Monitor.

Highlights:

  • The capacity of coal power plants which was 60.2GW in 2018, saw a sharp fall to 29.3GWlast year.
  • In India, capacity under construction and in pre-construction phase declined 80% from311.1GW in 2015 to 66GW in 2019, with only 2.8GW newly proposed in 2019
  • The findings state that the biggest growth in construction took place in South Asia in 2019, with India starting construction of 8.8GW of new coal power capacity.
  • Along with this, 8.1GW coal- based capacity was commissioned in the country last year.
  • The new construction includes four coal plants-Adani Godda, Patratu and Udangudi having 1.6GW each and Yadadri with 4GW.
  • All the 8.8GW of new construction received substantial financing from the Power Finance Corporation or the Rural Electrification Corporation, both of which fall under the jurisdiction of the Ministry of Power and are set to merge this year.
  • The report indicated that the private sector is exiting coal plant development in the country, the public sector is stepping in and footing the bill.

Concerns:

  • The shrinking coal pipeline in India, forced by huge over-capacity, subdued demand for electricity, falling utilization factor, falling prices of renewable energy, drying investments, and increasing public resistance due to pollution gives hope for a future with reduced fossil footprint for the country.
  • But, at the same time new capacity is being added to the grid, new projects are given clearances and infusion of public money into new projects by the government stresses on the environmental and economic crisis faced by the country.
  • A strict policy against building or clearing new coal-based plants with rapid retirement of older units is urgently required.

LOCKDOWN AND THE AGRI SECTOR

Context:

  • COVID-19 and the 21-day lockdown to contain it, has brought all the sectors of the economy to a standstill. During such lockdowns, it is relatively easy to shut factories, IT parks, hotels, malls and multiplexes. But the agriculture and animal husbandry will continue to produce and also they must.
  • The Great Bengal Famine of 1943, as Amartya Sen famously documented, wasn’t brought about by a decline in food availability. Instead, it was a result of people not having access to food due to a collapse of “exchange entitlements”.

Lockdown and the Agriculture Supply Chain:

  • The Food Corporation of India’s current wheat and rice stocks are over 3.5 times the required normative buffer reserve.
  • Farmers are also set to harvest a bumper crop of wheat, chana, mustard, onion and other rabi season produce.
  • What India is at present facing is not a “supply”, but a “supply chain” problem.
  1. Inter-state movement restrictions and arbitrary actions by local authorities to enforce the lockdown had hit the supply chain.
  2. This includes closing down of produce collection centres and warehouses of organised retailers, which has broken the links in the chain connecting farmers to consumers.
  3. This in turn has opened up arbitrage opportunities for unscrupulous speculators and middlemen.
  • It is the government’s responsibility to ensure that farmers are able to keep their animals alive and market the crop that has been, or will be, harvested during the lockdown period.
  • There is an urgent need to ensure that those keeping supply chains of essential items running are protected against COVID-19 lockdown.

Problems in the Supply Chain:

  • Many essential services were kept out of the purview of the lockdown. Food, feed and agricultural inputs have been specifically notified as essential services.
    • But there are several implementational hurdles due to the vague specifications in the Government Notifications.
  • There are also reports of conflict between the police and citizens, including people involved in the transportation and delivery of food as well as inputs to farms.
  • Thelabour shortage has become a problem in the labour intensive dairy and poultry sectors. There were also issues of hoarding, done by the middlemen expecting shortages to increase their profits.

Way Forward:

  • The government needs an immediate action plan to manage the agriculture and livestock sectors in the interest of both producers and consumers.
  • Ensure free movement of farm produce, livestock feed and veterinary medicines.
  • The Centre must issue a single notification relating to food items in a standard format and uniform language so that all ambiguities are removed.
    • This needs to be finalised after consultations with the stakeholders.
    • The Essential Services Maintenance Act (ESMA) be invoked for the delivery of all essential services relating to food to prevent disruption of supplies.
    • The government must start planning now to prevent post-lockdown chaos, especially profiteering in the event of shortages.
      • Place all food items, agri-inputs, packaging material and transport services under ESMA for a six-month period to prevent profiteering.
    • Suspend APMC (agricultural produce market committee) laws for the next six months.
      • As traders with APMC licence are bound to act as cartels during rush hour, which will hurt both farmers and consumers.
    • Even in the Bengal Famine, the maintenance of essential food supplies to Calcutta was accorded very high priority by the authorities; the three million who died then were mostly the rural masses or those who did not survive after trekking from the districts to the city. That lesson from history should not be forgotten. This is the moment to free movement and trade in all agricultural produce and prevent the unfortunate.

RBI CUTS RATES, ALLOWS LOAN MORATORIUM

Why in News?

  • To ease impact of lockdown, RBI reduced the repo and reverse repo rates and the EMIs deferred for three months.

About the News:

  • The Reserve Bank of India (RBI) has opened up the liquidity floodgates for banks even as it reduced the key interest rate sharply by 75 bps and allowed equated monthly instalments (EMIs) to be deferred by three months in a move to fight the economic impact of the countrywide lockdown to check the spread of novel coronavirus.
  • The repo rate was reduced to by 75 bps 4.4% while the reverse repo rate was cut by 90 bps point to 4%.
  • The higher reduction in the reverse repo rate was aimed at prompting banks to lend more rather than keeping their excess liquidity with the RBI.
  • Apart from cutting the repo rate, RBI has also reduced the cash reserve ratio of banks which released ₹37 lakh crore liquidity. This, along with other measures, will see an infusion of ₹3.74 lakh crore into the banking system.
  • RBI has also allowed banks to defer payment of EMIs on home, car, personal loans as well as credit card dues for three months. Since non-payment will not lead to non-performing asset classification by banks, there will be no impact on credit score of the borrowers.
  • The following decisions were taken after the meeting of the Monetary Policy Committee headed by the RBI Governor.

What is Monetary Policy Committee?

  • Strong recommendations to set monetary policy committee in India had come from Urjit Patel panel report.
  • Monetary Policy Committee is an executive body of 6 members. Of these, three members are from RBI while three other members are nominated by the Central Government.
  • Each member has one vote. In case of a tie, the RBI governor has casting vote to break the tie. MPC is required to meet for two days before deciding on rates. Further, it is needed to meet at least four times a year and make public its decisions following each meeting.
  • The core mandate of MPC is to fix the benchmark policy interest rate {Repo Rate} to contain inflation within the target level.
  • In that context, RBI is mandated to furnish necessary information to the MPC to facilitate its decision. Government also, if wishes to convey its views, can do so in writing to MPC.

Different Terminologies in Banking Sector:

  • Loan moratorium period refers to a particular period of a loan tenure during which the borrower does not have repay anything. It can be described as a waiting period before the borrower will have to start paying the equated monthly instalments (EMIs) for his or her loan. It doesn’t mean that he is completely waived off his loans.
  • REPO rate (now 4.4%) denotes Re Purchase Option – the rate by which RBI gives loans to other banks. In other words, it is the rate at which banks buy back the securities they keep with the RBI at a later period.
  • Bank gives loan to the public at a higher rate, often 1% higher than REPO rate, at a rate known as Bank Rate.
  • RBI at times borrows from banks at a rate lower than REPO rate, and that rate is known as Reverse REPO rate (now 4%).
  • CRR or Cash Reserve Ratio corresponds to the percentage of cash each bank have to keep as cash reserve with RBI (in their current accounts) corresponding to the deposits they have. For example, say if State Bank of India (SBI) got a total deposit of Rs. 1 crore with them, they need to keep 4 % of that as cash reserve with RBI (around 4 lakh rupees).
  • The banks and other financial institutions in India have to keep a fraction of their total net time and demand liabilities in the form of liquid assets such as G-secs, precious metals, approved securities etc. The Ratio of these liquid assets to the total demand and time liabilities is called Statutory Liquidity Ratio(18.25%).

INDIAN RED CROSS SOCIETY AND COVID-19

Context:

  • Recently, President Ramnath Kovind exhorted the collective strength of the society and urged Governors, LGs and Administrators to mobilise volunteers of Indian Red Cross society, voluntary and religious organisations to contain the menace of COVID 19 at the Earliest.

COVID-19 and Indian Red Cross Society:

  • The President of India stressed the role of the Red Cross, civil society/voluntary organisations in complementing the efforts of the Union and State governments to contain the spread of the Novel Coronavirus, especially with the lockdown and other challenges emerging from the evolving situation.
  • In general, the Indian Red Cross’s programmes are grouped into four Main Core Areas:
  • Promoting humanitarian principles and values;
  • Disaster response;
  • Disaster preparedness; and
  • Health and Care in the Community.
  • Indian Red Cross Society is currently, used to create awareness among the masses on COVID-19 and educate them about social distancing
  • In Karnataka, around 8000 Indian Red Cross volunteers are involved in the awareness creation activities.
  • Also, the Red Cross has been helping to supply food packets in Chandigarh to the people in need.
  • The health care expertise of Indian Red Cross Society is used to make efficient delivery of such services to the society.
  • Red Cross Ambulance services are used widely by the District authorities to support other measures.

Indian Red Cross Society:

  • The Indian Red Cross is a voluntary humanitarian organization providing relief in times of disasters/emergencies and promotes health & care of the vulnerable people and communities.
  • It is a leading member of the largest independent humanitarian organization in the world, the International Red Cross & Red Crescent Movement.
  • Indian Red Cross Society (IRCS) was established in 1920 under the Indian Red Cross Society Act and incorporated under Parliament Act XV of 1920. The act was last amended in 1992 and rules were formed in 1994.
  • The President of India serves as the President and Union Health Minister serves as the Chairman of the Society.
  • The Vice Chairman is elected by the members of the Managing Body.
  • The National Managing Body consists of 18 members.
  • The Chairman and 6 members are nominated by the President. The remaining 12 are elected by the state and union territory branches through an electoral college.
  • The IRCS adopted RED CROSS as its emblem.

History of Red Cross and Red Crescent Movement:

  • Jean Henry Dunant, a young Swiss businessman, was deeply influenced by the condition of the wounded soldiers he witnessed in the battlefield during the Franco – Austrian war(1859).
  • During the war, he arranged relief services with the help of the local community.
  • In his book ‘Memory of Solferino’, he suggested that a neutral organization be established to aid the wounded soldiers in times of war.
  • An international conference was convened in Geneva to consider the suggestions of Henry Dunant and thus the Red Cross Movement was established by Geneva Convention of 1864.
  • The name and the emblem of the movement are derived from the reversal of the Swiss national flag, to honor the country in which the Red Cross was found.
  • In the Russo-Turkish war the Ottoman empire used a Red Crescent in place of the Red Cross. Egypt too opted for the Red Crescent while Persia chose a Red Lion on a white background. These symbols were written and accepted into the 1929 Geneva Conventions.
  • During the General Assembly and the council of Delegates in November 2005 at Geneva, Red Crystal was adopted as another emblem for the Red Cross Red Crescent movement.