SPR 2022 | Economy Current Affairs Compilation for Prelims 2022

Budget and taxation:

Gross Domestic Product (GDP)

• Context:
  • On May 31, important updates regarding India’s GDP growth and the Centre’s fiscal performance for 2020-21 became available.
  • According to NSO’s provisional estimates for 2020-21, the annual contraction in real GDP turned out to be 7.3%
• What is GDP?
  • GDP is the total monetary or market value of all the finished goods and services produced within a country’s borders in a specific period.
  • As a broad measure of overall domestic production, it functions as a comprehensive scorecard of a given country’s economic health.
• Advantages of GDP:
  • GDP is a simple measure and can be calculated either through the expenditure, income, or value-added approach.
  • GDP enables policymakers and central banks to judge whether the economy is contracting or expanding and promptly take necessary action.
  • Economies of various countries can be easily compared.
  • A country with high GDP can attract foreign investors.
• Disadvantages of GDP:
  • It emphasizes economic output without considering economic well-being.
  • For example, a nation may be experiencing rapid GDP growth, but this may impose a significant cost to society in terms of environmental impact and an increase in income disparity.
  • It does not account for the underground economy, as it relies on official data.
  • It is geographically limited in a globally open economy.
  • Gross National Product (GNP), which measures the output from the citizens and companies of a particular nation regardless of their location, is viewed as a better measure of output than GDP in some cases.

Goods and Services Tax (GST)

• Context:
  • India marked the fourth anniversary of the Goods and Services Tax (GST) on July 1, 2021.
  • The date 1st July has been designated by the Central Government as ‘GST Day’, which is celebrated every year to mark the roll-out of the historic tax reform.
• Goods and Services Tax (GST):
  • GST is an indirect, multi-level, comprehensive tax levied on the supply of goods and services in India.
  • On roll-out, GST subsumed almost all other domestic indirect taxes in the country (petroleum, alcoholic beverages, and stamp duty being the major exceptions) under one head, and is perhaps the biggest tax reform in the history of independent India.
  • The GST is levied at every stage of the production process but is collected from the point of consumption, refunding all parties eventually other than the end consumer.
• Success of GST
  • India’s tax base has almost doubled from 66.25 lakhs to 1.28 crores in the last four years. 
  • GST revenue collection in India has been over the Rs 1 lakh crore mark for eight consecutive months in a row with as much as Rs 102,702 crore collected in May alone.
  • This could happen even when many states remain under strict Covid-19 disease-enforced lockdown
  • It also eased the compliance burden on taxpayers.
  • *Detailed Post on GST is available at Samajho Corner*(Click Here)

Informal economy

• Context:
  • In three years, the informal economy down to 15-20% from 52%, says SBI report.
  • “Based on this data we estimate almost 36.6 lakh jobs have been formalised till August 2021,” the SBI report said.
• What is the informal economy?
  • The informal sector is broadly characterised as consisting of units engaged in the production of goods or services with the primary objective of generating employment and incomes for the persons concerned.
  • These units typically operate at a low level of organisation, with little or no division between labour and capital as factors of production and on a small scale. Labour relations – where they exist – are based mostly on casual employment, kinship or personal and social relations rather than contractual arrangements with formal guarantees. (OECD definition).
  • An informal economy (informal sector or grey economy) is the part of any economy that is neither taxed nor monitored by any form of government.
• E-Shram portal:
  • Launched by The Ministry of Labour and Employment. 
  • Aim:
    • To register 38 crore unorganised workers such as migrant workforce, construction labourers, street vendors, and domestic workers, among others.
  • The workers will be issued an e-Shram card containing a 12 digit unique number.
  • If a worker is registered on the eSHRAM portal and meets with an accident, he will be eligible for Rs 2.0 Lakh on death or permanent disability and Rs 1.0 lakh on partial disability.
• What is the Formalisation of the economy?
  • Formalisation of the economy means bringing companies under the regulatory regime of government and subject to laws related to manufacturing and income tax. According to Economic survey 2018, formalisation includes firms providing some kind of social security to their employees and when they form a part of the tax net.

MGNREGA

• Context:
  • NREGA: low funds, caste-based payment delays, and implications for the economy. Thanks to a central government circular, MGNREGA is witnessing different caste workers getting paid at different times.
• About MGNREGA:
  • The legislation was enacted on August 25, 2005.
  • The MGNREGA provides a legal guarantee for one hundred days of employment in every financial year to adult members of any rural household willing to do public work-related unskilled manual work at the statutory minimum wage.
  • The Ministry of Rural Development (MRD), Govt of India is monitoring the entire implementation of this scheme in association with state governments.
• Loopholes in MGNREGA:
  • Inadequate Allocation and repeated payment delays:
    • The first finding has to do with the Government of India not allocating adequate funds for MGNREGA in the Budget for the current financial year. According to the PAEG, the total budget allocation for MGNREGA this year was 34% less than the revised budget of the last financial year (2020-21).
    • The MGNREGA budget was cut by 34% 2021-22) Budget.
    • In the current year, of the total allocation of Rs 73,000 crore, over Rs, 17,000 crore will be used just to pay off the payments to the rural poor for the work they did in the last financial year.
  • Demand suppression:
    • If due to inadequate budget allocation and resultant delays the rural workers do not get their dues in time, it discourages them to the extent that they do not ask for as much work as they would want to.
  • Caste-based payment delays:
    • Of over 1.8 million (Fund Transfer orders) FTOs over 10 states between April and September this year — they found that, after the Caste-based circular, workers belonging to the “others” categories ended up facing much longer delays in payments. This is crucial because workers belonging to the “others” category account for over 87% of all MGNREGA workers.

 

Banking and finance:

e-Bill

• Context:
  • Nirmala Sitharaman, Union Finance Minister, will launch the electronic bill (e-Bill) processing system under the Digital India eco-system and ease of doing business.
• About 
  • Developed by Public Financial Management System (PFMS) Division in the office of the Controller General of Accounts in the Department of Expenditure, Ministry of Finance. 
  • Aim: To make the entire process of submission and backend processing of bills completely paperless and transparent for Central Government Ministries.
• Objectives of the System:
  • Provide convenience to all vendors/suppliers of the government to submit their bills/claims at any time, from anywhere.
  • Eliminate physical interface between suppliers and government officers.
  • Enhance efficiency in processing bills/claims.
  • Reduce discretion in the processing of bills through the “First-In-First-Out”(FIFO) method.
  • Significance: Under this e-Bill system, vendors/suppliers can upload their bills online along with supporting documents at any time through digital signature. For those not having a digital signature, the facility of e-sign using the Aadhaar has also been provided.

Monetary Policy Committee

• Context:
  • Jayant Varma, a Member of the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI), has been opposing the RBI’s accommodative policy stance.
• About: 
• Origin: It has been instituted by the Central Government of India under Section 45ZB of the RBI Act which was amended in 1934.
• Functions: The MPC is entrusted with the responsibility of deciding the different policy rates including MSF, Repo Rate, Reverse Repo Rate, and Liquidity Adjustment Facility
• Composition of MPC:
• The committee will have six members. Of the six members, the government will nominate three. No government official will be nominated to the MPC.
• The other three members would be from the RBI with the governor being the ex-officio chairperson. 
• The Deputy Governor of RBI in charge of the monetary policy will be a member, as also an executive director of the central bank.
• Selection and term of members:
• Selection: The government nominees to the MPC will be selected by a Search-cum-Selection Committee under the Cabinet Secretary with RBI Governor and Economic Affairs Secretary and three experts in the field of economics or banking or finance or monetary policy as its members.
• Term: Members of the MPC will be appointed for a period of four years and shall not be eligible for reappointment.
• How decisions are made? 
• Decisions will be taken by majority vote with each member having a vote.
• RBI governor’s role: The RBI Governor will chair the committee. The governor, however, will not enjoy a veto power to overrule the other panel members but will have a casting vote in case of a tie.

 UPI123Pay

• Context:
  • On March 8, the Reserve Bank of India launched a new Unified Payments Interface (UPI) payments solution for feature phone users dubbed ‘UPI123Pay’.
• About:
  • UPI ‘123PAY’ is a three-step method to initiate and execute services for users which will work on simple phones.

• • It will allow customers to use feature phones for almost all transactions except scan and pay.
  • It doesn’t need an internet connection for transactions. Customers have to link their bank accounts with feature phones to use this facility.
  • The new UPI payments system offers users four options to make payments without internet connectivity.
  • Interactive Voice Response (IVR): Users would be required to initiate a secured call from their feature phones to a predetermined IVR number and complete UPI on-boarding formalities to be able to start making financial transactions like money transfer, mobile recharge, EMI repayment, balance check, among others.
  • App-based functionality: One could also install an app on a feature phone through which several UPI functions, available on smartphones, will be available on their feature phone, except the scan and pay feature which is currently not available.
  • Missed call facility: The missed call facility will allow users to access their bank account and perform routine transactions such as receiving, transferring funds, regular purchases, bill payments, etc., by giving a missed call on the number displayed at the merchant outlet. The customer will receive an incoming call to authenticate the transaction by entering UPI PIN.
  • Proximity sound-based payments: One could utilize the proximity sound-based payments option, which uses sound waves to enable contactless, offline, and proximity data communication on any device.
• Unified Payments Interface (UPI):
  • It is an advanced version of Immediate Payment Service (IMPS)- round-the-clock funds transfer service to make cashless payments faster, easier and smoother.
  • UPI is a system that powers multiple bank accounts into a single mobile application (of any participating bank), merging several banking features, seamless fund routing & merchant payments into one hood.
  • The top UPI apps today include PhonePe, Paytm, Google Pay, Amazon Pay and BHIM, the latter being the Government offering.

Society for Worldwide Interbank Financial Telecommunication (SWIFT)

• Context:
  • As tensions are increasing between the US and Russia over the Ukraine issue, experts have said that the United States could as a last resort exclude Russia from the Society for Worldwide Interbank Financial Telecommunication (SWIFT).
• What is SWIFT?
  • SWIFT is a messaging network used by banks and financial institutions globally for the quick and faultless exchange of information pertaining to financial transactions. 
  • The network connects more than 11,000 banking and securities organizations in over 200 countries and territories.
  • Headquarters: Belgium
• How does SWIFT work?
  • Each participant on the platform is assigned a unique eight-digit SWIFT code or a bank identification code (BIC). 
  • If a person, say, in New York with a Citibank account wants to send money to someone with an HSBC account in London, the payee would have to submit to his bank the London-based beneficiary’s account number along with the eight-digit SWIFT code of the latter’s bank. Citibank would then send a SWIFT message to HSBC. Once that is received and approved, the money would be credited to the required account.
• How is SWIFT governed?
  • SWIFT is owned and controlled by its shareholders (financial institutions) representing approximately 3,500 firms from across the world. The shareholders elect a Board of 25 independent Directors representing banks across the world, which governs the Company and oversees the management of the Company.
  • SWIFT is overseen by the G-10 central banks (Belgium, Canada, France, Germany, Italy, Japan, The Netherlands, United Kingdom, United States, Switzerland, and Sweden) as well as the European Central Bank (ECB), with its lead overseer being the National Bank of Belgium.
  • In 2012, this framework was reviewed, and the SWIFT Oversight Forum was established in which the G-10 central banks are joined by the central banks of India, Australia, Russia, South Korea, Saudi Arabia, Singapore, South Africa, the Republic of Turkey, and the People’s Republic of China.

Rising Oil Prices and Stagflation

• Context:
  • Crude oil prices soared and touched almost $140 per barrel mark, which was around $70 a barrel in December
• What is the main reason for the increase in oil prices?
  • The most immediate trigger for the spike is the decision by the USA to ban the purchase of Russian oil in response to the invasion of Ukraine. 
  • Russia is the world’s second-largest oil producer and, as such, if its oil is kept out of the market because of sanctions, it will not only lead to prices spiking but also mean they will stay that way for long.
• How will India be affected due to Rising Oil Prices?
  • While India is not directly involved in the conflict, it will be badly affected if oil prices move higher and stay that way.
  • India imports more than 84% of its total oil demand and increases in oil prices is going to increase our import bill further widening the Current Account Deficit.
  • The rise in crude oil prices will lead to an increase in the Prices of Petrol & Diesel if the government doesn’t cut its taxes.
  • Higher petro & diesel prices will further increase inflation and raise the general price level (due to an increase in transportation costs). A 10% increase in crude oil prices raises wholesale inflation by 0.9% and retail inflation by 0.5%. 
  • Higher inflation would rob Indians of their purchasing power, thus bringing down their overall demand.
  • Private consumer demand is the biggest driver of growth in India, accounting for more than 55% of India’s total GDP.
  • Currently, the biggest concern in India’s GDP growth story is the weak consumer demand. Higher prices will further weaken the demand & hurt our economic recovery prospects.
  • Analysts have been revising their forecasts for India — down for growth (7.9% to 7.7%) and up for inflation (5.8% to 6.3%).
  • Also, fewer goods and services being demanded will then disincentivise businesses from investing in new capacities, which, in turn, will exacerbate the unemployment crisis and lead to even lower incomes.
  • One big fear is that such a sudden and sharp spike in oil prices may push a relatively vulnerable economy like India into stagflation.
• What is stagflation?
  • Stagflation is an economic condition of stagnant growth and persistently high inflation. 
  • Typically, rising inflation happens when an economy is booming — people are earning lots of money, demanding lots of goods and services and as a result, prices keep going up. 
  • When the demand is down by the reverse logic, prices tend to stagnate (or even fall).
  • But stagflation is a condition where an economy experiences the worst of both worlds — the growth rate is largely stagnant (along with rising unemployment) and inflation is not only high but persistently so.
  • The best-known case of stagflation is what happened in the early and mid-1970s. The OPEC (Organisation of Petroleum Exporting Countries), which works like a cartel, decided to cut crude oil supply. This sent oil prices soaring across the world; they were up by almost 70%.
  • This sudden oil price shock not only raised inflation everywhere, especially in the western economies but also constrained their ability to produce, thus hampering their economic growth. 
• Is there a threat of stagflation in India due to Rising Oil Prices?
  • It cannot be denied that if oil prices stay high and for long, the inflation situation will worsen considerably and this would be coming after two years of already raised prices and reduced incomes.
  • The other requirement is stalling growth and one of the indicators is unemployment. India is facing the most acute unemployment crisis it has seen in the past five decades
  • So, yes, unlikely as it may be, it can be argued that we could be looking at stagflation in the near future.

RBI’s $5 billion dollar-rupee swap

• Context:
  • The Reserve Bank of India (RBI) recently conducted a $ 5 billion dollar-rupee swap auction as part of its liquidity management initiative.
  • The action has led to an infusion of dollars and sucking out of the rupee from the financial system. 
  • It will reduce the pressure on inflation and strengthen the rupee.
• What happens during the swap auction?
  • The RBI sold $5.135 billion to banks on March 8 and simultaneously agreed to buy back the dollars at the end of the swap settlement period. 
  • When the central bank sells dollars, it sucks out an equivalent amount in rupees, thus reducing the rupee liquidity in the system. 
  • Liquidity means the availability of liquid assets in the market.
  • Dollar inflow into the market will strengthen the rupee which has already hit the 77 levels against the US dollar.
  • The swap auction can be done in a reverse way also when there is a shortage of liquidity in the system. 
  • The RBI then buys dollars from the market and releases an equivalent amount in rupees.

New Microfinance Lending Norms: RBI

• Context:
  • RBI has released new microfinance lending norms.
• About the norms:
  • All entities, banks, non-banking financial companies (NBFCs), and microfinance institutions (MFIs) are subject to the same regulations.
  • A microfinance loan is defined by the RBI as a ‘collateral-free’ loan granted to a household with an annual household income of up to Rs 3 lakh.
  • All collateral-free loans offered to low-income households, regardless of the end-use and mode of application/processing/disbursal, are considered microfinance loans.
  •  The financial entities should have a board-approved policy to provide the flexibility of repayment periodicity on microfinance loans as per borrowers’ requirements. They should also have a board-approved policy for the assessment of household income.
• Microfinance:
  • Microfinance is a form of financial service which provides small loans and other financial services to poor and low-income households.
  • MFIs are financial companies that provide small loans to people who do not have any access to banking facilities.
  • The definition of “small loans” varies between countries. In India, all loans that are below Rs. 1 lakh can be considered microloans.
  • Microcredit is delivered through a variety of institutional channels viz:
    • Scheduled commercial banks (SCBs) (including small finance banks (SFBs) and regional rural banks (RRBs)).
    • Cooperative banks.
    • Non-banking financial companies (NBFCs).
    • Microfinance institutions (MFIs) are registered as NBFCs as well as in other forms.

India Australia Economic Cooperation and Trade Agreement

• Context:
  • The India-Australia Economic Cooperation and Trade Agreement(Ind- Aus ECTA) was recently signed by India and Australia. India and Australia stated their intention to sign such an agreement in February 2022. The India-Australia ECTA negotiations were formally re-launched in September 2021 and concluded on a fast-track basis by the end of March 2022.
• What is meant by the Economic Cooperation and Trade Agreement?
  • It is India's first Free Trade Agreement (FTA) with a major developed country in over a decade.
  • India signed an FTA with the UAE in February and is currently working on FTA's with Israel, Canada, the United Kingdom, and the European Union.
  • The agreement involves cooperation in all sectors of bilateral economic and commercial relations between the two friendly countries, including:
    • Trade-in Goods
    • Rules of Origin
    • Trade-in Services
    • Sanitary and phytosanitary (SPS) measures
    • Technical Barriers to Trade(TBT)
    • Telecom and Customs Procedures
    • Dispute Settlement, Movement of Natural Persons
    • Pharmaceutical products, as well as cooperation in other areas.
  • The ECTA establishes an institutional system to promote and improve trade between the two countries.
  • The ECTA between India and Australia covers practically all tariff lines dealt by India and Australia.
  • Australia would grant India preferential market access on all of its tariff lines.
  • This encompasses all labor-intensive export sectors of interest to India, such as gems and jewelry, leather, textiles, footwear, furniture, and so on.
  • On the other hand, India will provide preferential access to Australia on more than 70% of its tariff lines, including lines of export interest to Australia that are mostly raw materials and intermediaries such as coal, mineral ores, and wines, among others.
  • Indian STEM (Science, Technology, Engineering, and Mathematics) graduates will be granted extended post-study work visas under the agreement.
  • Australia will also establish a program to provide visas to young Indians interested in working holidays in Australia.
• What is the Agreement's Importance?
  • It will provide zero-duty access to 96 percent of Indian exports to Australia, including shipments from key industries such as engineering goods, gems and jewelry, textiles, apparel, and leather.
  • According to the government, it would increase bilateral trade in goods and services to USD 45-50 billion over the next five years, up from roughly USD 27 billion, and create over one million jobs in India.
  • It will also grant zero-free access to the Indian market to around 85 percent of Australian exports, including coal, sheep meat, and wool, as well as lower-duty access to Australian wines, almonds, lentils, and some fruits.
• How has the trade relationship between India and Australia been so far?
  • India and Australia have good bilateral relations that have experienced transformational evolution in recent years, developing into a friendly partnership.
  • This is a special partnership defined by shared values such as pluralistic, parliamentary democracies, Commonwealth traditions, expanded economic engagement, long-standing people-to-people ties, and more high-level interaction.
  • The India-Australia Comprehensive Strategic Partnership, which was launched during the India-Australia Leaders' Virtual Summit in June 2020, is the foundation of India-multifaceted Australia's bilateral relations.
  • Growing India-Australia economic and commercial ties contribute to the stability and strength of the two nations' rapidly diverse and deepening bilateral relationship.
  • India and Australia have been key trading partners for each other.
  • India's 17th largest trading partner in Australia and Australia's 9th largest trading partner in India.
  • In 2021, India-Australia's bilateral trade in merchandise and services is expected to be worth USD 27.5 billion.
  • Between 2019 and 2021, India's merchandise exports to Australia increased by 135 percent. India's exports, which totaled USD 6.9 billion in 2021, are mostly made up of a diverse basket of finished goods.
  • In 2021, India's merchandise imports from Australia were USD 15.1 billion, primarily consisting of raw materials, minerals, and intermediate goods.
  • Along with Japan, India and Australia are partners in the trilateral Supply Chain Resilience Initiative (SCRI), which aims to improve the resilience of supply chains in the Indo-Pacific region.
  • Furthermore, India and Australia are members of the QUAD grouping (India, the United States, Australia, and Japan), which also includes the United States and Japan, to strengthen cooperation and develop partnerships on several issues of common concerns.

Bond yield

• Context:
  • Recently, India’s benchmark 10-year bond yield closed at its highest level in more than six weeks ending at 6.04%
• About Bond yield:
  • Bond yield means the returns an investor will derive by investing in the bond.
  • The mathematical formula for calculating yield is the annual coupon rate divided by the current market price of the bond.
  • Therefore, there is an inverse relationship between the yield and the price of the bond.
  • As the price of the bond goes up, the yield falls; and as the price of the bond goes down, the yield goes up
• Bond yield vs inflation:
  • Inflation is a bond's worst enemy.
  • Inflation erodes the purchasing power of a bond's future cash flows.
  • The higher the current rate of inflation and the higher the (expected) future rates of inflation, the higher the yields will rise across the yield curve, as investors will demand this higher yield to compensate for inflation risk.

Monetary policy

• Context:
  • RBI Governor Shaktikanta Das announced the latest Monetary Policy Review.
• Definition of 'Monetary Policy:
  • Monetary policy refers to the policy of the central bank concerning the use of monetary instruments under its control to achieve the goals specified in the Act.
  • The Reserve Bank of India (RBI) is vested with the responsibility of conducting monetary policy.
  • This responsibility is explicitly mandated under the Reserve Bank of India Act, 1934.
  • In May 2016, the Reserve Bank of India (RBI) Act, 1934 was amended to provide a statutory basis for the implementation of the flexible inflation-targeting framework.
  • The Monetary Policy Committee (MPC) constituted by the Central Government under Section 45ZB determines the policy interest rate required to achieve the inflation target.
  • The amended RBI Act also provides for the inflation target to be set by the Government of India, in consultation with the Reserve Bank, once every five years.
  • Accordingly, the Central Government has notified 4% Consumer Price Index (CPI) inflation as the target with an upper tolerance limit of 6% and the lower tolerance limit of 2%.
• Recent monetary policy review:
  • The MPC kept key policy rates unchanged and decided to “continue with the accommodative stance as long as necessary to revive and sustain growth on a durable basis”.
  • The RBI marked down India’s GDP growth forecast for the current financial year from 10.5% to 9.5% and marked up the inflation forecast for the year from 5% to 5.1%.
  • Typically, faltering growth prompts the RBI to cut interest rates to spur economic activity.
  • But rising inflation requires raising interest rates.
  • And since the RBI is mandated by law to target inflation within the band of 2%–6%, the best it could do — and it has been doing this for several months now — is to maintain the status quo on interest rates.

Consumer Confidence Survey

• Context:
  • RBI’s latest Consumer Confidence Survey shows the public assessment of the current situation at its lowest, and expectations low.
• About:
  • The RBI conducts this survey every couple of months by asking households in 13 major cities about their current perceptions and future expectations on a variety of economic variables.
  • These variables include the general economic situation, employment scenario, overall price situation, own income, and spending levels.
  • Based on these specific responses, the RBI constructs two indices: the Current Situation Index (CSI) and the Future Expectations Index (FEI).
  • The CSI maps how people view their current situation (on income, employment, etc.) vis a vis a year ago. The FEI maps how people expect the situation to be (on the same variables) a year from now.
  • By looking at the two variables as well as their past performance, one can learn a lot about how Indians have seen themselves fairing over the years.

National Asset Reconstruction Company Ltd. (NARCL)

• Context:
  • Banks have identified about 22 bad loans worth ₹ 89,000 crores to be transferred to NARCL in the initial phase.
• About:
  • The setting up of NARCL, the proposed bad bank for taking over stressed assets of lenders, was announced in the Budget for 2021-22.
  • The plan is to create a bad bank to house bad loans of ₹ 500 crore and above, in a structure that will contain an asset reconstruction company (ARC) and an asset management company (AMC) to manage and recover dud assets.
  • The new entity is being created in collaboration with both public and private sector banks.
• How is NARCL different from existing ARCs?
  • The proposed bad bank will have a public sector character since the idea is mooted by the government and majority ownership is likely to rest with state-owned banks.
  • At present, ARCs typically seek a steep discount on loans. With the proposed bad bank being set up, the valuation issue is unlikely to come up since this is a government initiative.
  • The government-backed ARC will have deep pockets to buy out big accounts and thus free up banks from carrying these accounts on their books.

Punjab and Maharashtra Cooperative (PMC) Bank

• Context:
  • RBI recently granted “in-principle” approval to Centrum Financial Services Ltd (CFSL) to set up a small finance bank (SFB), paving the way for it to take over the scam-ridden PMC Bank with its partner BharatPe, a digital payment firm.
• About:
• It is an Urban Cooperative Bank also called Primary Cooperative Bank.
• In September 2019, RBI superseded the management of PMC bank because of financial irregularities and appointed an administrator.
• RBI can supersede the management of the Urban Cooperative Banks (UCB), State Cooperative Banks (StCB), and District Central Cooperative Banks (DCCB) if RBI feels that the affairs of the bank are conducted in a manner detrimental to the interest of the depositors.
• This is done as per the Banking Regulation Act 1949
• Then RBI invited bids from private banks/financial companies to take over the PMC Bank.
• On tap licensing for small finance banks:
• In December 2019 RBI had released guidelines for “‘on tap’ Licensing of Small Finance Banks in the Private Sector”.
• 'On tap' means any financial services or few other fintech companies were allowed to apply/convert themselves into Small Finance Banks anytime by applying to RBI by meeting some minimum criteria
• RBI has allowed Urban (Primary) Cooperative banks can also apply for conversion into Small Finance Bank.
• Even Payment banks have also been allowed to be converted into SFB.
• So, PMC bank has been acquired by “Centrum Financial Services” in a joint venture with “BharatPe” and it has been converted into a “Small Finance Bank”

Initial Public Offer (IPO)

• Context:
  • The Central government has started the process to launch the Initial Public Offer (IPO) of Life Insurance Corporation (LIC).
• About LIC:
  • It is an Indian government-owned insurance and investment corporation.
  • It is under the ownership of the Ministry of Finance, Government of India.
  • It was set up in 1956.
  • It has the biggest share in India’s insurance business.
  • The LIC IPO is expected to be the biggest in the Indian capital markets given the size and scale of LIC.
• What is IPO?
  • Generally, when companies wish to raise funds to fuel their growth, they sell a part of their stock on the stock market.
  • This process is called an initial public offering, or IPO.
  • So it is the selling of securities to the public in the primary market (a type of capital market).
  • The primary market deals with new securities being issued for the first time. It is also known as the new issues market.
  • It is different from the secondary market where existing securities are bought and sold. It is also known as the stock market or stock exchange.
  • Under IPO, an unlisted company makes either a fresh issue of securities or an offer for sale of its existing securities or both for the first time to the public.
  • Through an IPO, an unlisted company can get listed on the stock exchange.
• IPO grey market:
  • IPO grey market is an unofficial market where IPO shares or applications are bought and sold before they become available for trading on the stock market.
  • It is also termed a parallel market or an over-the-counter market
  • Since it’s unofficial, inevitably, there are no regulations that govern it. 

Emergency Credit Line Guarantee Scheme (ECLGS) 4.0

Context: Due to the second wave of the Coronavirus pandemic, the Centre recently expanded the scope of the Emergency Credit Line Guarantee Scheme (now known as ECLGS 4.0).

More about the ECLGS 4.0

• The government has expanded the Rs 3-trillion Emergency Credit Line Guarantee Scheme to help businesses affected by the second wave of the Covid-19 pandemic (ECLGS).
• It also included loans to hospitals and the civil aviation sector for on-site oxygen-producing plants.
• The Centre has also increased the loan outstanding ceiling to Rs 500 crore. The maximum amount of additional loans they can take under the programme is 40 percent of their outstanding debt, or Rs 200 crore, whichever is less.
• ECLGS 1.0 loans will be eligible for up to 10% additional assistance, bringing the total guaranteed loan to 30% of the outstanding amount by February 29, 2020.
• The 100% guarantee cover for installing oxygen plants in hospitals, nursing homes, clinics, and medical institutes will be available for loans up to Rs 2 crore with a 7.5 percent interest rate maximum.

Significance of this move

• By providing additional support to MSMEs, protecting livelihoods, and allowing a smooth return to business, it would boost the utility and effect of ECLGS.
• These measures will make it easier for institutions to obtain finance at reasonable rates.
• The Emergency Credit Line Guarantee Scheme was announced in 2020 as part of the Centre's Atma Nirbhar package to help micro, small, and medium enterprises (MSMEs) cope with the economic hardship caused by the COVID-19 pandemic by providing them with additional funding in the form of a fully guaranteed emergency credit line of up to Rs 3 lakh crore.

Financial Stability Report (FSR) of the RBI

• Context:
  • Recently, the Reserve Bank released the 23rd issue of the Financial Stability Report (FSR).
• About:
  • FSR reflects the collective assessment of the Sub-Committee of the Financial Stability and Development Council (FSDC) on risks to financial stability and the resilience of the financial system in the context of contemporaneous issues relating to the development and regulation of the financial sector.
  • RBI has cautioned that bad loans of the banking system are expected to hit 11.22% of the advances under a severe stress scenario.
  • It also warned about the incipient signs of stress among medium and small units.
  • Only 0.9% of the total loans were restructured.
  • Banks’ resort to restructuring under the COVID-19 resolution framework was not significant and write-offs as a percentage of GNPA at the beginning of the year, fell sharply as compared to 2019-20, except for private banks.

Retail Direct Gilt Account (RDG Account) 

• Context:
  • Recently, RBI issued a scheme ‘RBI Retail Direct’, a one-stop solution to facilitate investment in government securities by individual investors.
• About:
  • The Reserve Bank of India’s (RBI’s) Retail Direct Gilt Account (RDG Account) opens a vista for retail investors to open an account directly with the central bank and access government securities (G-Secs) in retail lot sizes.
  • As per the scheme, Government securities mean securities issued in form of stock by credit to SGL/CSGL account maintained with RBI.
  • These include Government of India Treasury Bills; Government of India dated securities; Sovereign Gold Bonds (SGB); and State Development Loans (SDLs).
  • No fee will be charged for opening and maintaining a ‘Retail Direct Gilt account’ with the RBI.
  • However, the fee for the payment gateway, as applicable, will be borne by the registered investor.
  • Accessibility: The advantage of an RDG Account is that the G-Sec market, which is currently wholesale or institutional because trading lot sizes are big, shall be brought within reach with affordable lot sizes.
  • Credit quality: Gilt fund portfolios are as safe as investing in Gilts directly as they comprise mostly G-Secs.
  • Expenses at RDG Accounts will be minimal or zero to nominal.

Taxation Laws (Amendment) Bill

Context:

• Finance Minister introduced the Taxation Laws (Amendment) Bill in the Lok Sabha to nullify the tax clause provision that allows the government to levy taxes retrospectively.
• The bill seeks to withdraw tax demands made using a 2012 retrospective legislation to tax the indirect transfer of Indian assets.
• The government has been fighting legal cases against Vodafone and Cairn Energy on taxes it has claimed retrospectively on transactions these entities entered into relating to operations in the country.
• Both the U.K.-based companies have won international arbitration rulings that held the Indian government in breach of bilateral investment protection agreements with the Netherlands and the U.K. respectively.

What are the proposed changes in the Taxation Laws (Amendment) Bill?

• The Bill says that it is argued that such retrospective amendments militate against the principle of tax certainty and damage India’s reputation as an attractive destination.
• The country today stands at a juncture when quick recovery of the economy after the COVID-19 pandemic is the need of the hour and foreign investment has an important role to play.
• The Bill proposes to do away with retrospective taxation on the sale of assets in India by foreign entities executed before May 2012, with a caveat, the companies that will benefit from the amendment must withdraw all legal cases against the government and forfeit interest, costs and any damages.
• The government, on its part, is willing to refund any tax dues it may have collected or seized.

Meaning of Retrospective Taxation:

• Retrospective Taxation allows a country to pass a rule on taxing certain products, items or services and deals and charge companies from a time behind the date on which the law is passed.
• Countries use this route to correct any anomalies in their taxation policies that have, in the past, allowed companies to take advantage of such loopholes.
• Apart from India, many countries including the USA, the UK, the Netherlands, Canada, Belgium, Australia and Italy have retrospectively taxed companies.

What is the genesis of the retrospective tax imbroglio?

• In May 2007, Vodafone bought Hong Kong-based Hutchison’s controlling stake in Hutchison Essar for $10.9 billion.
• The transaction took place in the Cayman Islands where Hutchison’s unit which in turn was acquired by Vodafone’s Netherlands-based Vodafone International Holdings.
• That September, India’s Income Tax Department served a notice on Vodafone for failing to deduct tax at source from the amount it paid to Hutchison in lieu of the capital gains tax it contended the seller Hutchison was liable for. The case went to court.
• In January 2012, India’s Supreme Court backed Vodafone, ruling that indirect transfer of shares to a non-Indian company would not attract tax in India.
• Separately, in 2006-07, Cairn Energy U.K. had reorganised its Indian oil and gas exploration business ahead of a planned IPO in India and subsequently sold part of its stake in Cairn India Ltd., first to Malaysia’s Petronas, and then the Vedanta Group during the 2009-11 period.
• In the Union Budget of 2012, the then Finance Minister introduced an amendment to the Finance Act, which allowed the government to retrospectively tax such transactions.
• In 2014, the Income Tax Department froze Cairn’s remaining shares in Cairn India. The next year, Cairn initiated international arbitration against the government under the India-U.K. bilateral investment treaty.

Why did the government decide to rescind the provision?

• Though the government had raised tax demands in 17 such cases, Vodafone and Cairn attracted the most attention.
• Both initiated international arbitration under bilateral agreements.
• Vodafone got a favourable ruling in September 2020 at the Permanent Court of Arbitration at The Hague in the ₹22,000-crore case.
• In December, an Arbitral Tribunal ruled in favour of Cairn, awarding it $1.2 billion-plus interest and costs in damages, which came to $1.7 billion in total.
• The government insisted that introducing this bill would help in establishing an investment-friendly business environment, which can increase economic activity and help raise more revenue over time for the government.
• This could help restore India’s reputation and improve the ease of doing business.

Remission of Duties and Taxes on Exported Products (RoDTEP)

Context:

• Recently, the Ministry of Commerce and Industry has announced rates of tax refunds under the Remission of Duties and Taxes on Exported Products (RoDTEP) scheme for 8,555 products for the FY 2021-22.

About:

• The RoDTEP scheme would refund to exporters the embedded central, state and local duties or taxes that were so far not be rebated or refunded and were, therefore, placing India’s exports at a disadvantage.
• The rebate under the scheme would not be available in respect of duties and taxes already exempted or remitted or credited.

Launch:

• It was started in January 2021 as a replacement for the Merchandise Export from India Scheme (MEIS), which was not compliant with the rules of the World Trade Organisation.
• The MEIS scheme provided additional benefits of 2% to 7% on the Freight On Board (FOB) value of eligible exports.
• As per the WTO norms, a country can't give export subsidies like MEIS if Per capita income is above 1000 USD and India’s Per Capita Income crossed above 1000 USD in 2017. India subsequently lost the case at WTO and had to come up with a new WTO compliant scheme to help Indian exporters.
• For garment exporters, the Rebate of State and Central Levies and Taxes (RoSCTL) Scheme has been notified separately.

Rates:

• The tax refund rates range from 0.5% to 4.3% for various sectors.
• The rebate will have to be claimed as a percentage of the Freight On Board value of exports.

Issuance:

• Rebates will be issued in the form of a transferable duty credit/electronic scrip (e-scrip) which will be maintained in an electronic ledger by the Central Board of Indirect Taxes and Customs (CBIC).

e-RUPI

Context:

• Taking the first step towards having a digital currency in the country, Prime Minister Narendra Modi launched an electronic voucher-based digital payment system “e-RUPI”.

Capturing the unbanked and helping underprivileged:

• With a population of 1.3 billion, India is the world’s second-most populous country and the world’s seventh-largest at 3.288 million sq km.
• Although the nation has achieved grain self-sufficiency from its largest industry, agriculture, production remains resource-intensive, cereal-centric, and regionally biased.
• Food security is still an issue for the majority of people, and the poverty rate is still high at 30%.
• This initiative seems like one of the ways the government is trying to digitalize, while at the same time provide opportunities and resources for the underprivileged.

How will e-RUPI work?

• e-RUPI is a cashless and contactless digital payments medium, which will be delivered to mobile phones of beneficiaries in form of an SMS string or a QR code.
• This will essentially be like a prepaid gift voucher that will be redeemable at specific accepting centres without any credit or debit card, a mobile app or internet banking.
• e-RUPI will connect the sponsors of the services with the beneficiaries and service providers in a digital manner without any physical interface.
• It is important to note, however, that e-RUPI is neither a cryptocurrency nor a central bank digital currency (CBDC). It is also not a digital or e-wallet either, which may admittedly sound strange to some.

Does India have an appetite for digital currency?

• According to the RBI, there are at least four reasons why digital currencies are expected to do well in India:
• One, there is increasing penetration of digital payments in the country that exists alongside sustained interest in cash usage, especially for small value transactions.
• Two, India’s high currency to GDP ratio, according to the RBI, “holds out another benefit of CBDCs”.
• Three, the spread of private virtual currencies such as Bitcoin and Ethereum may be yet another reason why CBDCs become important from the point of view of the central bank.
• As Christine Lagarde, President of the ECB has mentioned in the BIS Annual Report “central banks have a duty to safeguard people’s trust in our money. Central banks must complement their domestic efforts with close cooperation to guide the exploration of central bank digital currencies to identify reliable principles and encourage innovation.”
• Four, central bank digital currency (CBDC) might also cushion the general public in an environment of volatile private VCs.

Voucher System

• Global examples of a voucher-based welfare system:
  • In the US, there is the system of education vouchers or school vouchers, which is a certificate of government funding for students selected for state-funded education to create a targeted delivery system.
  • These are essentially subsidies given directly to parents of students for the specific purpose of educating their children.
  • In addition to the US, the school voucher system has been used in several other countries such as Colombia, Chile, Sweden, Hong Kong, etc.

How will these vouchers be issued?

• The system has been built by NPCI on its UPI platform and has onboarded banks that will be the issuing entities.
• Any corporate or government agency will have to approach the partner banks, which are both private and public-sector lenders, with the details of specific persons and the purpose for which payments have to be made.
• The beneficiaries will be identified using their mobile number and a voucher allocated by a bank to the service provider in the name of a given person would only be delivered to that person.

Current Accounts

Context:

• Some bank borrowers have gone to court demanding that it quash the Reserve Bank of India (RBI) circular dated August 6, 2020, on opening current accounts.

Background:

• Current accounts with non-lending banks are an important channel for diversion.
• Diversion of funds is a major reason for large non-performing assets (NPAs).
• Internal diversion is for non-priority purposes and funds can also be diverted to other firms, owned or controlled by the same group, friends or relatives.
• To prevent this, the RBI mandates a No-Objection Certificate (NOC) from lending banks before opening such accounts.
• Banks should verify with CRILC, the RBI credit database, and inform lenders. Banks should also obtain a NOC from the drawee bank when an account is opened through cheques.
• Widespread non-compliance with mandated safeguards forced the RBI to bar non-lending banks from opening current accounts for large borrowers.
• Thus, if borrowing is through a cash credit or overdraft account, no bank can open a current account.

What are the current regulations?

• If a borrower has no cash credit or overdraft account, a current account can be opened subject to restrictions.
• If the bank’s exposure is less than 10% of total borrowings, debits to the account can only be for transfers to accounts with a designated bank.
• If total borrowing is ₹50 crore or more, there should be an escrow mechanism managed by one bank which alone can open a current account.
• Other lending banks can open ‘collection accounts’ from which funds will be periodically transferred to the escrow account.
• If the borrowing is between ₹5 crores and ₹50 crores, lending banks can open current accounts.
• Non-lending banks can open collection accounts.
• If borrowing is below ₹5 crores, even non-lending banks can open current accounts.
• The working capital credit should be bifurcated into loan and cash credit components at individual bank levels.

Issues with regulations

• If a borrower has an overdraft, how can there not be a current account?
• An overdraft is the right to overdraw in a current account up to a limit.
• The second issue is that the circular forecloses such operational flexibility.
• Third, why should a bank with low exposure transfer funds to another bank when it can use it to adjust other dues with it?
• Fourth, share in borrowing is not static. Crossing the threshold both ways could happen often.
• Fifth, there is a mismatch between what a borrower needs and what the regulations allow.
• Support of non-lending banks through current accounts in other banks is required for large accounts.
• Sixth, transactions in an active current account enable a bank to monitor a borrower’s account, however small.
• The lack of such control was why large development financial institutions of yesteryear built up huge NPAs.
• Seventh, the regulation mandates splitting working capital into the loan and cash credit components across all banks.
• Such a one-size-fits-all regulation does not factor in the purpose of the different facilities.
• A large company might avail itself of loans in Mumbai, but require current accounts with another bank in Assam where it might have a factory.
• Lack of flexibility: Rules are not flexible, do not provide for unforeseen circumstances, and can be easily circumvented.
• Use more generic terms: Regulation needs to use more generic terms. Terms such as Working Capital Term Loan might mean different things in different banks.
• Diversion of funds is a risk better dealt with by banks: Is it not better to leave the management of exceptional risks such as diversion of funds to the banks?
• The cost of regulation: the costs of regulation be justified by the benefits.

Conclusion:

• When regulation ignores market practices, it lacks legitimacy, a construct from neo-institutionalist literature. When legitimacy is wanting, compliance suffers.

Anti-trust probe on Amazon, Flipkart

Context:

• Recently, Supreme Court has ruled that e-commerce giants Amazon and Flipkart will have to face investigation by the Competition Commission of India (CCI) for their alleged anticompetitive business practices.
• The companies had approached the Supreme Court after the Karnataka High Court refused to stop the CCI from proceeding on a complaint filed against them by a traders lobby.

Why are Amazon and Flipkart under scrutiny?

• The CCI initiated its probe against Amazon and Flipkart in 2020 following a complaint filed by the Delhi Vyapar Mahasangh (DVM), a lobby promoting the interests of small traders.

Non-Neutral Platform:

• The complaint alleged that the e-commerce giants favoured certain sellers over others on their platforms by offering them discounted fees and preferential listing.
• Fee discounts offered by platforms can help certain sellers offer lower prices than others.
• Preferential listing is a practice where the products offered by certain sellers are more prominently displayed than the products offered by other sellers.
• Anti-Competitive Practices: The DVM also raised concerns about Amazon and Flipkart entering into tie-ups with mobile phone manufacturers to sell phones exclusively on their platforms.
• The trader body argued that this was anti-competitive behaviour as smaller traders could not purchase and sell these devices.
• Concerns were also raised over the flash sales and deep discounts offered by e-commerce companies, which could not be matched by small traders.

Arguments in favour of CCI Probe:

• Supporters of the CCI probe believe that the scrutiny is justified given the rising market power of both Amazon and Flipkart.
• They argue that these companies engage in predatory pricing practices (low prices, deep discounts) that have already put thousands of small traders out of business.
• The Confederation of All India Traders (CAIT) estimated that in 2019, just prior to the coronavirus pandemic, over 50,000 mobile phone retailers and 25,000 kirana stores were forced out of business by large e-commerce firms.
• The e-commerce giants are also said to break the law frequently in multiple ways.
• One such allegation against these large companies is that they have found a backdoor way to sell their own goods through their platforms (not allowed as per e-commerce rules)
• There are reports that Amazon had an indirect ownership stake in a handful of sellers who contributed the bulk of the sales happening through its platform.
• It is worth noting that India does not allow foreign companies to compete against local traders in the retail space. Amazon and Flipkart (owned by Walmart) are legally allowed to function only as neutral platforms that facilitate transactions between third-party sellers and buyers for a fee.

Arguments against CCI Probe:

• Opponents of the CCI probe view it as an attempt to protect the interests of small traders rather than the interests of consumers.
• They argue that competition from Amazon and Flipkart is a boon for millions of consumers who can now enjoy better products at lower prices.
• Though these companies may be bypassing the law through ingenious ways, critics argue that such laws as unnecessary and anti-competitive in the first place as they try to benefit small traders instead of consumers.
• Critics of the probe also believe that e-commerce platforms are businesses too and that they have the right to decide how to list products on their platforms.
• They argue that the practice of prominent listing of certain products is not exclusive to online platforms; even supermarkets have the power to decide how prominently to showcase various products on their shelves.
• In fact, a preferential listing of certain products may be unavoidable since it is impossible to give all products the same prominence.
• Finally, critics of the CCI probe also dismiss worries about predatory pricing, exclusive supply contracts, and market domination. They say that these do not matter in the long run as long as fresh competitors are not blocked from entering the market.

Sovereign Gold Bond Scheme

Context:

• The Reserve Bank of India (RBI) has announced the Sovereign Gold Bond Scheme 2021-22 Series VI, which will be open for subscription for the period August 30-September 3, 2021.

About the Sovereign Gold Bond Scheme:

• The sovereign gold bond was introduced by the Government in 2015.
• The government introduced these bonds to help reduce India’s over-dependence on gold imports.
• The move was also aimed at changing the habits of Indians from saving in the physical form of gold to a paper form with Sovereign backing.

Key facts:

Eligibility:

• The bonds will be restricted for sale to resident Indian entities, including individuals, HUFs, trusts, universities and charitable institutions.

Denomination and tenor:

• The bonds will be denominated in multiples of gram(s) of gold with a basic unit of 1 gram. The tenor will be for a period of 8 years with an exit option from the 5th year to be exercised on the interest payment dates.

Minimum and Maximum limit:

• The minimum permissible investment limit will be 1 gram of gold, while the maximum limit will be 4 kg for individuals, 4 kg for Hindu Undivided Family and 20 kg for trusts and similar entities per fiscal (April-March) notified by the government from time to time.

Joint Holder:

• In the case of joint holding, the investment limit of 4 kg will be applied to the first applicant only.

Collateral:

• Bonds can be used as collateral for loans. The loan-to-value (LTV) ratio is to be set equal to the ordinary gold loan mandated by the Reserve Bank from time to time.

CRED Mint

Context:

• Recently, the Fintech platform CRED has announced the launch of a peer-to-peer (P2P) lending feature called CRED Mint.

What is CRED Mint?

• It is a service that will allow the company’s users to lend money to other users and make a 9% interest per annum on the amounts they give out a loan.
• It is the company’s very first initiative in this market and also the first community-driven product that enables the members to earn interest on idle money.
• The Fintech platform partnered with Liquiloans, an RBI-registered P2P non-banking financial company (NBFC) to launch CRED Mint.

Working of CRED Mint?

• In order to access CRED Mint, be it if a person is an existing user of CRED or if he/she is new to the fold, the person needs to register for early access to the feature.
• After registration, the person will be able to make his/her investments in CRED Mint.
• The investments that are made in CRED Mint will be lent out through CRED Cash, which is a lending product created specifically for CRED members.
• It was created in partnership with licensed banks and NBFCs.
• The invested money will then be routed directly to an escrow account that is held by the CRED’s NBFC partner, Liquiloans.
• The members of CRED Mint can invest anywhere between Rs. 100,000 to Rs. 1,000,000 which is commission-free.

Significance of CRED Mint:

• It advertises itself as being completely transparent while allowing the user to track their investments’ progress in real-time.
• It also suggests that the members can quickly and easily withdraw their cash at any time they want.
• This can be done either partially or fully with no penalty, while still retaining the interest that you accumulated for the period that it was invested.
• The entire withdrawal process will be entirely online and the money will be returned to the investors within the working day, according to the company.

What is P2P lending?

• It enables individuals to obtain loans directly from other individuals, cutting out the financial institution as the middleman.
• It is also known as “social lending” or “crowdlending”.
• It is a form of direct lending of money to individuals or businesses without an official financial institution participating as an intermediary in the deal.

T+1 system

Context:

• Recently, the Securities and Exchange Board of India (SEBI) allowed stock exchanges to start the T+1 system as an option in place of T+2 for the completion of share transactions.

About:

• T+1 (T+2) are abbreviations that refer to the settlement date of security transactions. The “T” stands for transaction date, which is the day the transaction takes place.
• T+1 means settlements will have to be cleared within one day after the actual transaction takes place. This means the trades executed on Monday gets settled on Tuesday, the next working day.
• T+1 vs T+2 Settlement: On the other hand, T+2 means if an investor sells shares on Tuesday, settlement of the trade takes place in two working days(T+2). The broker who handles the trade will get the money on Thursday but will credit the amount in the investor’s account only by Friday. In effect, the investor will get the money only after three days.

Benefits of T+1 Settlement:

• A shortened cycle not only reduces settlement time but also reduces and frees up the capital required to collateralise that risk.
• Secondly, it will provide liquidity to the investors as they get their funds for the shares sold/ credited to their account earlier.
• Thirdly, it reduces the number of outstanding unsettled trades at any instant, and thus decreases the unsettled exposure to Clearing Corporation by 50%.
• Lastly, a shortened settlement cycle will also help in reducing systemic risk.

Concerns of Foreign Investors:

• Foreign investors have raised concerns as they would face issues while operating from different geographies — time zones, information flow process and foreign exchange problems.

Periodic Labour Force Survey (PLFS) 

Context:

• On the basis of the data collected in PLFS, the quarterly bulletin for the quarter of October- December 2020 has been released.

About:

• Considering the importance of the availability of labour force data at more frequent time intervals, National Statistical Office (NSO) launched the Periodic Labour Force Survey (PLFS) in April 2017.
• To estimate the key employment and unemployment indicators (viz. Worker Population Ratio, Labour Force Participation Rate, Unemployment Rate) in the short time interval of three months for the urban areas only in the ‘Current Weekly Status (CWS).
• To estimate employment and unemployment indicators in both ‘Usual Status’ (ps+ss) and CWS in both rural and urban areas annually.

Conceptual Framework of Key Employment and Unemployment Indicators for the Quarterly Bulletin:

• The Periodic Labour Force Survey (PLFS) gives estimates of Key employment and unemployment Indicators like the Labour Force Participation Rates (LFPR), Worker Population Ratio (WPR), Unemployment Rate (UR), etc. These indicators and the and ‘Current Weekly Status’ are defined as follows:
• Labour Force Participation Rate (LFPR): LFPR is defined as the percentage of persons in the labour force (i.e. working or seeking or available for work) in the population. (Male: 73.6, Female: 20.6; Total: 47.3)
• Worker Population Ratio (WPR): WPR is defined as the percentage of employed persons in the population. (Male: 66.7, Female: 17.9; Total: 42.4).
• Unemployment Rate (UR): UR is defined as the percentage of persons unemployed among the persons in the labour force. (Male: 9.5, Female: 13.1; Total: 10.3.

Overseas settlement of G-sec deals on the anvil: Das

• Context:
  • The Reserve Bank of India (RBI) is planning to enable the international settlement of transactions in government securities (G-secs) through International Central Securities Depositories (ICSDs).
• About:
  • This proposal would expand the investor base for the G-secs market.
  • Once operationalised, this will enhance access of non-residents to the G-secs market, as will the inclusion of Indian G-secs in global bond indices.
  • An international CSD settles trades in international securities such as Eurobonds although many also settle trades in various domestic securities, either directly or through local agents. International CSDs include Clearstream, Euroclear and SIX SIS.
• What is a G-sec?
  • Government security applies to a range of investment products offered by a governmental body. Government securities come with a promise of the full repayment of invested principal at maturity of the security. Some government securities may also pay periodic coupon or interest payments. These securities are considered conservative investments with low risk since they have the backing of the government that issued them.
• G- Sec prices fluctuate sharply in the secondary markets. Factors affecting their prices:
  1. Demand and supply of the securities.
  2. Changes in interest rates in the economy and other macro-economic factors, such as liquidity and inflation.
  3. Developments in other markets like money, foreign exchange, credit and capital markets.
  4. Developments in international bond markets, specifically the US Treasuries.
  5. Policy actions by RBI like changes in repo rates, cash-reserve ratio and open-market operations.

Account Aggregator System

• Context:
  • Recently, eight major banks have joined the Account Aggregator (AA) network that will enable customers to easily access and share their financial data.
• About:
  • An AA is a framework that simply facilitates sharing of financial information in a real-time and data-blind manner (Data flow through AA are encrypted) between regulated entities (Banks and NBFCs).
  • The RBI (Reserve Bank of India) in 2016 approved AA as a new class of NBFC (Non-Banking Financial Companies), whose primary responsibility is to facilitate the transfer of users’ financial data with their explicit consent.
  • AAs enable the flow of data between Financial Information Providers (FIPs) and Financial Information Users (FIUs).
  • The architecture of AA is based on the Data Empowerment and Protection Architecture (DEPA) framework.
  • DEPA is an architecture that lets users securely access their data and share the same with third parties.
• Significance:
  • For Consumers:
    • The AA framework allows customers to avail themselves of various financial services from a host of providers on a single portal based on a consent method, under which the consumers can choose what financial data to share and with which entity.
    • It permits users to control who gets access to their data, track and log its movement and reduce the potential risk of leakage in transit.
  • For Banks:
    • As an addition to India’s digital infrastructure, it will allow banks to access consented data flows and verified data. This will help banks reduce transaction costs, which will enable them to offer lower ticket size loans and more tailored products and services to their customers.
  • Reduce Frauds:
    • AA reduces the fraud associated with physical data by introducing secure digital signatures and end-to-end encryption for data sharing.
• Way Forward:
  • Going ahead, a large number of Small and Medium Enterprises (SMEs) can be reached without physical branches and it will transform credit penetration. As we go deeper into this, open banking works wonderfully as India is underserved when it comes to credit and other financial products. A large push will come from awareness and ecosystem-level adoption.
  • AA framework can be extended to handle data from other domains also, such as data related to healthcare and telecom. However, if non-licensed entities have to be allowed it is important to have a data privacy framework in place as the RBI currently looks at safeguarding only financial data within its mandate.

New Bad Bank Structure

• Context:
  • Recently, the Union Cabinet approved the Rs 30,600 crore guarantee to back Security Receipts issued by National Asset Reconstruction Company Limited (NARCL) for acquiring stressed loan assets.
  • The NARCL is a part of a new Bad bank structure that was announced in Budget 2021.
• About the New Bad Bank Structure:
  • For the resolution of huge NPAs (Non-Performing Assets) in the Indian Banking sector, the government of India has set up two new entities to acquire stressed assets from banks and then sell them in the market.
  • NPA refers to a classification for loans or advances that are in default or in arrears.
  • NARCL:
    • NARCL has been incorporated under the Companies Act and has applied to the Reserve Bank of India for a license as an Asset Reconstruction Company (ARC).
    • NARCL will acquire stressed assets worth about Rs 2 lakh crore from various commercial banks in different phases.
    • Public Sector Banks (PSBs) will maintain 51% ownership in NARCL.
  • IDRCL:
    • Another entity, India Debt Resolution Company Ltd (IDRCL), will then try to sell the stressed assets in the market.
    • PSBs and Public Financial Institutes (FIs) will hold a maximum of 49% stake in IDRCL. The remaining 51% stake will be with private-sector lenders.
    • The NARCL-IDRCL structure is the new bad bank structure.
• Need for NARCL-IDRCL Structure:
  • Existing ARCs have been helpful in the resolution of stressed assets, especially for smaller value loans.
  • Various available resolution mechanisms, including Insolvency and Bankruptcy Code (IBC), have proved to be useful.
  • However, considering the large stock of legacy NPAs, additional options/alternatives are needed and thus, the NARCL-IRDCL structure was announced in the Union Budget 2021.
• Working of NARCL-IDRCL and Guarantee Offered:
  • The NARCL will first purchase bad loans from banks.
  • It will pay 15% of the agreed price in cash and the remaining 85% will be in the form of “Security Receipts”.
  • When the assets are sold, with the help of IDRCL, the commercial banks will be paid back the rest.
  • If the bad bank is unable to sell the bad loan or has to sell it at a loss, then the government guarantee will be invoked.
  • The difference between what the commercial bank was supposed to get and what the bad bank was able to raise will be paid from the Rs 30,600 crore that has been provided by the government.
  • This guarantee is extended for a period of five years.

Security receipts are defined under section 2(1) (zg) of the SARFAESI Act

• Context:
  • It means a receipt or other security, issued by an asset reconstruction company to any qualified buyer pursuant to a scheme, evidencing the purchase or acquisition by the holder, thereof, of an undivided right, title or interest in the financial asset involved in securitization.
• About:
  • The bad bank is an Asset Reconstruction Company (ARC) or an Asset Management Company (AMC) that takes over the bad loans of commercial banks, manages them and finally recovers the money over a period of time.
  • The bad bank is not involved in lending and taking deposits, but helps commercial banks clean up their balance sheets and resolve bad loans.
  • The takeover of bad loans is normally below the book value of the loan and the bad bank tries to recover as much as possible subsequently.
• Effect of Bad Bank:
  • Commercial Banks’ Perspective: Commercial banks are saddled with high NPA levels, setting up of the Bad bank will help.
  • That’s because such a bank will get rid of all its toxic assets, which were reducing its profits, in one quick move.
  • When the recovery money is paid back, it will further improve the bank’s position. Meanwhile, it can start lending again.
• Government and Taxpayer Perspective:
  • Whether it is recapitalising PSBs laden with bad loans or giving guarantees for security receipts, the money is coming from the taxpayers’ pocket.
  • While recapitalisation and such guarantees are often designated as “reforms”, they are band-aids at best.
  • The only sustainable solution is to improve the lending operation in PSBs.
  • The plan of bailing out commercial banks will collapse if the bad bank is unable to sell such impaired assets in the market. The burden indeed will fall upon the taxpayer.

Financial Stability and Development Council (FSDC)

• Context:
  • 24th meeting of Financial Stability and Development Council (FSDC).
  • The 24th meeting deliberated on various mandates of the FSDC such as financial stability, financial sector development, inter-regulatory coordination, financial literacy, financial inclusion, and macro-prudential supervision of the economy including the functioning of large financial conglomerates.
• The council also discussed issues relating to:
  • Management of stressed assets,
  • strengthening institutional mechanism for financial stability analysis,
  • framework for resolution of financial institutions and issues related to IBC,
  • data sharing mechanisms of government authorities,
  • internationalisation of the Indian rupee and
  • pension sector related issues.
• About Financial Stability and Development Council (FSDC):
  • Financial Stability and Development Council (FSDC) was set up by the Government as the apex level forum in December 2010.
  • The Chairman of the Council is the Union Finance Minister and its members include:
    • The heads of financial sector Regulators (RBI, SEBI, PFRDA, IRDA & FMC)
    • Finance Secretary and/or Secretary, Department of Economic Affairs,
    • Secretary, Department of Financial Services, and
    • Chief Economic Adviser.
  • The Council can invite experts to its meeting if required.

Pandora Papers

• Context:
  • The Government directed a multi-agency probe involving the Central Board of Direct Taxes, Enforcement Directorate, Reserve Bank of India, and Financial Intelligence Unit to investigate the cases of Pandora Papers.
• Pandora Paper Leak:
  • These are the leaked files from 14 global corporate services firms which set up about 29,000 off-the-shelf companies and private trusts in obscure tax jurisdictions and in countries such as Singapore, New Zealand, and the United States, for clients across the world.
  • There are at least 380 persons of Indian nationality in the Pandora Papers. The papers consist of as many as 12 million documents from 14 companies in offshore tax havens with details of ownership of 29,000 offshore companies and Trusts.
• What do the Pandora Paper reveal?
  • The Pandora Papers reveal how the rich, the famous and the notorious, set up complex multi-layered trust structures for estate planning, in jurisdictions that are loosely regulated for tax purposes, but characterized by air-tight secrecy laws.
  • The trusts are set up in known tax havens such Samoa, Belize, Panama, and the British Virgin Islands, or in Singapore or New Zealand which offer relative tax advantages, or even South Dakota in the US, the biggest economy.
• Is setting up a trust in India, or one offshore/ outside the country, illegal:
  • No. The Indian Trusts Act, 1882, gives a legal basis to the concept of trusts.
  • India also recognises offshore trusts i.e., trusts set up in other tax jurisdictions.
  • While Indian laws do not see trusts as a legal person/ entity, they do recognise the trust as an obligation of the trustee to manage and use the assets settled in the trust for the benefit of ‘beneficiaries’.
• CBDT:
  • The Central Board of Direct Taxes (CBDT) is the authority vested with the responsibility of the administration of laws related to direct taxes through the Department of Income Tax.
  • It is a statutory body established as per the Central Board of Revenue Act, 1963.
  • It is India’s official financial action task force unit.
  • It is administered by the Department of Revenue under the Ministry of Finance.
• ED:
  • The Enforcement Directorate (ED) is a law enforcement agency of the Government of India that is responsible for enforcing Economic Laws and fighting Economic Crime.
  • Formed with the purpose of handling Exchange Control Law violations under the Foreign Exchange Regulation Act,1947. 
  • Initially established under the Department of Economic Affairs in 1956 as an ‘Enforcement Unit’, it was later shifted to the Department of Revenue for administration in 1960.
  • It is headed by the Director of Enforcement, who is an IRS officer (Indian Revenue Service)
• Financial Intelligence Unit:
  • Under the Finance Ministry, this was set up in 2004 as the nodal agency for receiving, analyzing and disseminating information relating to suspect financial transactions.
  • The Financial Intelligence Unit is the central agency that is mandated to obtain the cash transaction reports from the public and private sector banks every month and after analyzing the same, the suspicious transactions are forwarded to various investigation and law enforcement agencies so that proper inquiry can be launched against such cases to check possible instances of money laundering, tax evasion and terror financing.

Economic Advisory Council

• Context:
  • The government has reconstituted the seven-member Economic Advisory Council to the PM for a period of two years after its term came to an end.
• EAC-PM:
  • EAC-PM is a non-constitutional, non-statutory, independent body constituted to give advice on economic and related issues to the Government of India, specifically to the Prime Minister.
  • The council serves to highlight key economic issues to the government of India from a neutral viewpoint. 
  • It advises the Prime Minister on economic issues like inflation, microfinance, and industrial output.
  • For administrative, logistic, planning and budgeting purposes, the NITI Aayog serves as the Nodal Agency for the EAC-PM.
• Periodic Reports:
  • Annual Economic Outlook.
  • Review of the Economy.

Crypto assets

• Context:
  • IMF in its latest Global Financial Stability Report has warned that the digital currencies, besides providing new opportunities, pose significant financial security challenges.
• Cryptocurrency :
  • A cryptocurrency is a digital asset designed to work as a medium of exchange wherein individual coin ownership records are stored in a ledger existing in a form of a computerized database.
  • Cryptocurrencies typically use decentralized control as opposed to centralized digital currency and central banking systems.
• Cryptocurrencies in India:
  • In 2018, The RBI issued a circular preventing all banks from dealing in cryptocurrencies. This circular was declared unconstitutional by the Supreme Court in May 2020. 
  • Recently, the government has announced to introduce a bill; Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, to create a sovereign digital currency and simultaneously ban all private cryptocurrencies.
  • India ranked second in a list of 20 countries with the highest cryptocurrency adoption rate, according to cryptoanalysis platform Chainalysis. Vietnam secured the first spot, and Pakistan came third.
• Cryptocurrency across the world:
  • El Salvador, a small coastal country in Central America has become the first in the world to adopt Bitcoin, as legal tender.
  • Already, Venezuela and many African countries have started using crypto currencies as a long term store of value, as their currencies are deflating quickly.

Draft e-commerce rule

• Context:
  • Besides triggering a strong pushback internally, the draft e-commerce rules of the government’s Department of Consumer Affairs have drawn flak from at least one sovereign government — Australia — and multiple foreign trade bodies for being intrusive and detrimental to trade.
  • Recently, Key provisions of the Draft e-Commerce Rules have been stridently opposed by the Industry department and Corporate Affairs ministry.
  • The Niti Aayog vice-chairman has warned that they “will severely harm Ease of Doing Business and impact small businesses.
• Draft e-commerce rules,2021:
  • The Department For Promotion of Industry and Internal Trade (DPIIT) released the draft National e-Commerce Policy.
  • The government has proposed changes to the e-commerce rules under the Consumer Protection Act to make the framework under which firms operate more stringent. 
  • Key concerns:
    • Amid criticism from industries and some sections of government, the Department of Consumer Affairs is learning to be revisiting some provisions pertaining to draft e-commerce rules, 2021.

Retro Tax

• Context:
  • Following the decision to scrap the retrospective taxation provision, the Central Board of Direct Taxes (CBDT) under the Ministry of Finance has notified rules that will help close tax disputes with companies.
• Retrospective Taxation:
  • A retrospective tax is one that is charged for transactions in the long past. It can be a new or additional charge on transactions done in the past.
  • It allows a country to pass a rule on taxing certain products, items or services and deals and charge companies from a time behind the date on which the law is passed.
  • Countries use this route to correct any anomalies in their taxation policies that have, in the past, allowed companies to take advantage of such loopholes.
• Doing Away With Retrospective Taxation:
  •  The government has moved to do away with retrospective tax now.
  • Setting the stage for a closure of the retrospective tax disputes over the indirect transfer of assets situated in India, the government late on October 1 notified new rules under the Income Tax Act for specifying the process to be followed by affected taxpayers to settle these long-brewing disputes.

Tax Inspectors Without Borders Programme

• Context:
  • Recently, the United Nations Development Programme (UNDP) and the Organisation for Economic Cooperation and Development (OECD), have launched the Tax Inspectors Without Borders (TIWB) Programme in Seychelles.
  • India has been chosen as the Partner Administration and has provided Tax Expert for this programme.
• About:
  • It is expected to be of 12 months duration where India aims to aid Seychelles in strengthening its tax administration by transferring technical know-how and skills to its tax auditors through sharing of best audit practices.
  • It focuses on Transfer Pricing cases of tourism and financial services sectors.
  • Transfer Price, also known as transfer cost, is the price at which related parties transact with each other, such as during the trade of supplies or labor between departments. Multinational companies can manipulate transfer prices in order to shift profits to low tax regions.
  • It is the sixth TIWB programme which India has supported by providing Tax Expert.
  • The fifth TIWB programme with India was launched in Bhutan in June 2021.
• Tax Inspectors Without Borders Programme:
  • TIWB is a capacity-building programme.
  • It is a joint OECD/UNDP initiative launched in July 2015 to strengthen developing countries' auditing capacity and multinationals' compliance worldwide.
  • It deploys qualified experts in developing countries across Africa, Asia, Eastern Europe, Latin America and the Caribbean to help build tax capacity in the areas of audit, criminal tax investigations and the effective use of automatically exchanged information.
  • TIWB assistance has led to increased domestic resource mobilisation in some of the least developed countries in the world.

Nobel Prize for Economic Sciences, 2021

• Context:
  • The 2021 Nobel Prize in Economic Sciences has been awarded in one half to Canadian-born David Card and the other half jointly to Israeli-American Joshua D Angrist and Dutch-American Guido W Imbens.
  • David Card has been awarded for his empirical contributions to labour economics. Joshua D Angrist and Guido W Imbens won the award “for their methodological contributions to the analysis of causal relationships.”
  • The 2020 Nobel Prize in Economic Sciences was awarded to Paul R Milgrom and Robert B Wilson “for improvements to auction theory and inventions of new auction formats”.
• About:
  • Established: Unlike the other Nobel prizes, the economics award wasn’t established in the will of Alfred Nobel but by the Swedish central bank in his memory in 1968.
• Contributions:
  • David Card:
    • He has analysed how minimum wages, immigration and education impact the labour market.
    • One of the significant findings of this research was that “increasing the minimum wage does not necessarily lead to fewer jobs”.
    • It also led to the understanding that “people who were born in a country can benefit from new immigration, while people who immigrated at an earlier time risk being negatively affected”.
    • It also illuminated the role of resources available in school in shaping the future of students in the labour market.
  • Joshua Angrist and Guido Imbens:
    • They were rewarded for their “methodological contributions” to the research tool.
    • Their work demonstrated “how precise conclusions about cause and effect can be drawn from natural experiments”.

Secured Overnight Financing Rate (SOFR)

• Context:
  • Rural Electrification Corporation Limited (REC Ltd.) raised a US$75 million 5-year Secured Overnight Financing Rate (SOFR) linked Syndicated Term Loan with Sumitomo Mitsui Banking Corporation (SMBC).
• What is SOFR?
  • Secured Overnight Financing Rate (SOFR) is a secured interbank overnight interest rate.
  • It is a replacement for USD LIBOR (London Inter-bank Offered Rate) that may be phased out end-2021.
  • The overnight rate is generally the interest rate that large banks use to borrow and lend from one another in the overnight market.
• Why SOFR?
  • Global regulators decided to move away from the Libor, a vital part of the financial system after it was revealed in 2012 that banks around the world manipulated it.
  • It also didn’t help that volume underlying the benchmark dried up.
  • U.K regulators set the deadline at 2021 for financial firms and investors to transition away from the Libor.

Goods and services tax

• Context:
  • Explained: Why GST collection has surged, what the trend indicates.
  • GST collection in October rose to Rs 1,30,127 crore, the second-highest since the rollout of the tax regime in July 2017.
• About GST:
  • The Goods and Services Tax (GST) is a value-added tax levied on most goods and services sold for domestic consumption. The GST is paid by consumers, but it is remitted to the government by the businesses selling the goods and services.
  • Gross revenue collections of Goods and Services Tax (GST) in October (for sales in September) rose 23.7 per cent year-on-year to Rs 1,30,127 crore. This is the second-highest revenue collection under GST ever since its rollout in July 2017.
• How have the different GST components been done?
  • Of the Rs 1,30,127 crore collected in gross GST revenue in October, Central GST is Rs 23,861 crore, State GST is Rs 30,421 crore, Integrated GST is Rs 67,361 crore (including Rs 32,998 crore collected on import of goods) and cess is Rs 8,484 crore (including Rs 699 crore collected on import of goods).
• GST trend:

• What does the trend indicate?
  • GST revenues have picked pace, with a 24-per-cent year-on-year growth and a 36-per-cent growth over the pre-pandemic period of 2019-20. The Finance Ministry said this growth in collections is “very much in line with the trend in economic recovery”.
  • The GST revenues for October have been the second-highest ever since the introduction of GST, second only to that in April 2021, which is related to year-end revenues. 
• Payment of taxes:

• Out of the total returns filed, the share of returns for the current period filed in every month has increased. In July, 1.5 crore returns were filed as taxpayers had filed returns of past months due to deadline extensions given due to Covid.
• What are the measures being taken to ensure higher compliance?
  • State and Central tax authorities have been taken measures to ease compliance, such as nil filing through SMS, enabling a Quarterly Return Monthly Payment (QRMP) system and auto-population of return.

New Accountability Norms for NPAs

• Context:
  • Bonafide decisions leading to NPAs: New accountability norms to protect bankers.
  • The Finance Ministry has issued norms to guide state-owned banks in adopting a uniform staff accountability framework for NPA (non-performing asset) accounts up to Rs 50 crore.
• Implementation: 
  • These guidelines shall be implemented with effect from April 1, 2022, for accounts turning NPAs starting next financial year.
• What is the new framework?
  • The ‘Staff Accountability Framework for NPA Accounts up to Rs 50 crore (Other than Fraud Cases)’, issued on October 29 by the Department of Financial Services (DFS), advises public-sector banks to revise their staff accountability policies and frame procedures with the approval of their respective boards.
  • Banks will have to complete an accountability exercise within six months from the date an account is classified as NPA. Depending on the banks’ business size, the guidelines suggest threshold limits for scrutiny of the accountability by the chief vigilance officer.
  • If NPA is caused by external factors — such as a change in government policy, natural calamities, non-release of government subsidy/grant — it should not attract a staff accountability examination.
• Why was the need felt?
  • The step has been taken to protect bankers and remove their fears of being investigated for bona fide business decisions gone wrong.
  • This approach not only adversely affects staff morale but also puts a huge strain on the bank’s resources. punitive action needs to be taken against the officers having mala fide intent/involvement.
• What has led to such fears?
  • After the Rs-13,000-crore loan fraud on Punjab National Bank by diamond trader Nirav Modi came to light in 2018, senior officials of the bank were hauled up and those involved had to face tough action. 
• What are the rules laid down?
  • UP TO RS 10 lakh: Staff accountability need not be examined in NPA accounts with outstanding up to Rs 10 lakh.
  • Rs 10 LAKH–RS 1 CRORE: For examining staff accountability, banks may decide on a threshold of Rs 10 lakh or Rs 20 lakh, depending on their business size. For loans between Rs 10 lakh and Rs 1 crore, which mainly include home and car loans, SME and agriculture credit, staff accountability is to be examined by a committee formed at regional/controlling offices.
  • Rs 1 CRORE–50 CRORE: Accounts in this range are mostly credit facilities sanctioned to business units warranting examination by a specialised unit within the banks. NPA accounts in this range should undergo a preliminary examination by a committee constituted at one level higher than the sanction level.
• What is the existing framework?
  • Currently, different banks are following different procedures for staff accountability exercises. Banks carry out such exercises in respect of all accounts that turn NPA.
• What about accounts above Rs 50 crore?
  • Staff accountability is to be examined as per the existing guidelines. However, the RBI has set a framework under which banks must initiate and complete a staff accountability exercise within six months from the date of classification as a fraud. 
• How will the new norms improve credit growth?
  • Banking industry executives say the new norms will help bankers take credit decisions faster and help support the economy. Slow credit delivery to industries due to the fear of implication needs urgent address.

Asset Reconstruction Company

• Context:
  • RBI panel for ARC participation in IBC cases, investment threshold. 
  • The committee has recommended that ARCs be allowed to participate in the IBC process either through an SR trust or through an AIF sponsored by them.
• About ARCs:
  • It is a specialized financial institution that buys the Non-Performing Assets (NPAs) from banks and financial institutions so that they can clean up their balance sheets.
  • The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 provides the legal basis for the setting up of ARCs in India.
  • The SARFAESI Act helps reconstruction of bad assets without the intervention of courts. Since then, a large number of ARCs were formed and were registered with the Reserve Bank of India (RBI) which has got the power to regulate the ARCs.
• About IBC:
  • This was enacted for reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time-bound manner for maximization of the value of assets of such persons.
• Objectives of IBC:
  • To revive the company in a time-bound manner.
  • To promote entrepreneurship.
  • To get the necessary relief to the creditors and consequently increase the credit supply in the economy.
  • To work out a new and timely recovery procedure to be adopted by the banks, financial institutions or individuals.
  • Consolidate and amend all existing insolvency laws in India.
  • To simplify and expedite the Insolvency and Bankruptcy Proceedings in India.
  • To protect the interest of creditors including stakeholders in a company.
  • To set up an Insolvency and Bankruptcy Board of India.
  • Maximization of the value of assets of corporate persons.
• SARFAESI Act:
  • The Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest (SARFAESI) Act, 2002 allows banks and other financial institutions to seize and sell residential or commercial properties of the Defaulters to recover loans.
  • This Act doesn't apply to unsecured loans below INR 1 Lakh or in the cases where the debt is below 20% of the loan given.
  • Banks can seize and sell the collateral properties of the defaulters within 60 days of demanding repayment without the permission of the court. 

Prompt Corrective Action

• Context:
  • The Reserve Bank of India (RBI) has announced a revised Prompt Corrective Action (PCA) framework.
  • The new provisions will be effective from January 2022.
  • Capital, asset quality and leverage will be the key areas for monitoring in the revised framework, the banking regulator said.
• About PCA:
  • The RBI introduced the PCA framework in 2002 as a structured early-intervention mechanism for banks that become undercapitalised due to poor asset quality, or vulnerable due to loss of profitability.
  • PCA is a framework under which banks with weak financial metrics are put under watch by the RBI.
  • “Indicators to be tracked for capital, asset quality and leverage would be”
    • CRAR/Common Equity Tier I Ratio
    • Net NPA Ratio
    • Tier I Leverage Ratio.
• Objectives:
  • It aims to check the problem of Non-Performing Assets (NPAs) in the Indian banking sector.
  • It is intended to help alert the regulator as well as investors and depositors if a bank is heading for trouble.
• PCA measures:
  • Restrictions on branch expansion, dividend distribution and management compensation.
  • In an extreme situation: resolution through amalgamation, reconstruction or winding up.
  • Restrictions on credit by PCA banks to unrated borrowers or those with high risks.
  • Restrictions on the bank on borrowings from the interbank market.
  • Not be allowed to enter into new lines of business.

Digital lending

• Context:
  • A working group set up by the Reserve Bank of India (RBI) has proposed stringent norms for digital lenders, including separate legislation to prevent illegal digital lending activities.
• About digital lending:
  • Digital lending is the process of offering loans that are applied for, disbursed, and managed through digital channels, in which lenders use digitized data to inform credit decisions and build intelligent customer engagement.
• Role of Digital Lending:
  • Ease for Credit: The quick turnaround time and onboarding, easy KYC, as well as disbursement within minutes have attracted the cash-crunched MSMEs towards these digital routes to secure credit.
  • Financial Inclusion
  • Quality of Financial Services: Digital lending can prove to be a tool acting towards the growth of higher quality financial services to underserved businesses and people.
• Challenges:
  • Data privacy issues while using mobiles, computers etc.
  • Charging excessive rates of interest and additional hidden charges.
  • Lack of education and awareness about digital lending.

Central Bank Digital Currency

• Context:
  • The Reserve Bank of India (RBI) has proposed amendments to the Reserve Bank of India Act, 1934, which would enable it to launch a Central Bank Digital Currency (CBDC).
• About CBDC:
  • The CBDC is a digital form of fiat currency that can be transacted using wallets backed by the blockchain and is regulated by the central bank.
  • Though the concept of CBDCs was directly inspired by bitcoin, it is different from decentralised virtual currencies and crypto assets, which are not issued by the state and lack the ‘legal tender status'.
  • CBDCs enable the user to conduct both domestic and cross border transactions which do not require a third party or a bank.
  • “A CBDC is the legal tender issued by a central bank in a digital form. It is the same as a fiat currency and is exchangeable one-to-one with the fiat currency. Only its form is different,” as per the RBI.
• Advantages of CBDC:
  • Reduced dependency on cash.
  • Higher seigniorage due to lower transaction costs
  • Reduced settlement risk.
  • The introduction of CBDC would also possibly lead to a more robust, efficient, trusted, regulated and legal tender-based payments option.
• Concerns:
  • Cyber security threats.
  • Digital illiteracy: around 90% of India’s population is digitally illiterate.
  • Associated challenges in regulation, tracking investment and purchase, taxing individuals, etc.

Retail Direct Scheme

• Context: 
  • The Prime Minister has launched the Reserve Bank of India (RBI)- Retail Direct Scheme to open up the Government bond market for retail investors.
• About the scheme:
  • Small investors can now buy or sell government securities (G-Secs), or bonds, directly without having to go through an intermediary like a mutual fund.
  • Under the scheme, retail investors (individuals) will have the facility to open and maintain the ‘Retail Direct Gilt Account’ (RDG Account) with the RBI.
• How can individuals access G-Sec offerings?
  • Investors wishing to open a Retail Direct Gilt account directly with the RBI can do so through an online portal set up for the purpose of the scheme.
• Objective:
  • Diversifying the government securities market, which is dominated by institutional investors such as banks, insurance companies, mutual funds and others.
• Who are retail investors?:
  • A retail Investor is a non-professional investor who buys and sells securities or funds that contain a basket of securities such as mutual funds and Exchange Traded Funds (ETFs).
• What is the gilt account?
  • A Gilt Account can be compared with a bank account, except that the account is debited or credited with treasury bills or government securities instead of money.
• About government security:
  • A tradable instrument issued by the Central Government or the State Governments.
  • Such securities are short term (usually called treasury bills) and long term (usually called Government bonds or dated securities).
  • G-Secs carry practically no risk of default and, hence, are called risk-free gilt-edged instruments.
  • 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).

Q2 GDP Data

• Context: Ministry of Statistics and Programme Implementation (MoSPI) has released the GDP data for the second quarter (July, August and September) of the current financial year (2021-22).
• India Q2 GDP Data:
  • India’s gross domestic product (GDP) grew by 8.4% in the July to September quarter, compared to a 7.4% contraction a year ago, with the economy’s gross value added (GVA) rising 8.5%.
    • India’s GDP which measures economic activity from the demand side was 8.4% more than it was in the same quarter last year.
    • India’s GVA which measures economic activity from the supply side was 8.5% more than it was in the same quarter last year.
  • The Indian economy clocked a healthy growth rate due to increased vaccination and an uptick in agriculture, public administration and defence services sectors.
  • All high-frequency indicators such as industrial production, vehicle sales, exports, port cargo and rail freight traffic, and GST e-way bills point to the economy growing faster in the second quarter.
  • Though the absolute GDP in the second quarter (Q2) was 0.3% higher than pre-pandemic levels, there were still many worrying areas.
    • Private consumption spending that still lagging below pre-COVID levels along with activity in employment-intensive sectors like construction and contact-intensive sectors like retail and hotels. 
    • The base effect of negative growth last year also helped nudge the GDP numbers up.
• Referring Basics:
  • GDP: Gross domestic product (GDP) is the monetary value of all the finished goods and services produced within a country’s borders in a specific time period.
    • GDP includes all private and public consumption, government outlays, investments, private inventories, paid-in construction costs and the foreign balance of trade (exports are added, imports are subtracted).
    • GDP is calculated using this standard formula: C + I + G + (X-M).
      • Consumption (C); Investment (I); Government Spending (G); BOP i.e. Exports minus Imports (X-M)
    • GDP is commonly used as an indicator of the economic health of a country, as well as to determine a country’s standard of living.
    • Since the mode of measuring GDP is uniform from country to country, GDP can be used to compare the productivity of various countries.
  • GVA: GVA provides a picture of the overall health of the economy and provides information on which sectors are struggling and which are leading the recovery.
    • The term that is used to denote the net contribution made by a firm is called its value-added.
    • Gross value added (GVA) is defined as the value of output less than the value of intermediate consumption.
    • When the value of taxes on products (fewer subsidies on products) is added, the sum of value added for all resident units gives the value of the gross domestic product (GDP).
    • Thus, Gross value added (GVA) = GDP + subsidies on products – taxes on products.
  • GDP vs GVA:
    • Gross value added (GVA) is the value addition done to a product resulting in the production of the final product whereas Gross Domestic Product (GDP) is the total value of products produced in the country.
    • While GDP gives a picture of the whole economy, GVA gives pictures at enterprises, government and households levels.
    • In other words, GDP is the GVA of all enterprises, government and households.

Accommodative Monetary Policy

• Context: Despite the threat posed by the new Covid variant — Omicron — the Reserve Bank of India (RBI) is likely to continue with its plan on gradual exit from the ultra-accommodative monetary policy settings, experts said.
• Accommodative Monetary Policy:
  • Accommodative monetary policy, also known as loose credit or easy monetary policy, occurs when a central bank (such as the Reserve Bank of India) attempts to expand the overall money supply to boost the economy when growth is slowing (as measured by GDP).
  • The policy is implemented to allow the money supply to rise in line with national income and the demand for money.
  • Accommodative monetary policy is when central banks expand the money supply to boost the economy.
  • These measures are meant to make money less expensive to borrow and encourage more spending. 

• How does it work?
  • When the economy slows down, the Central Bank can implement an accommodative monetary policy to stimulate the economy.
  • It does this by running a succession of decreases in the funds' rate, making the cost of borrowing cheaper.
  • The RBI can also allow the money supply to increase or increase the money supply via quantitative easing (QE).
  • Accommodative monetary policy is triggered to encourage more spending from consumers and businesses by making money less expensive to borrow through the lowering of short-term interest rates.
  • When money is easily accessible through banks, the money supply in the economy increases.
  • This leads to increased spending. When businesses can easily borrow money, they have more funds to expand operations and hire more workers, which means that the unemployment rate will decrease.
  • On the other hand, people and businesses tend to save less when the economy is stimulated due to the low savings interest rates offered by banks. Instead, any additional funds are invested in the stock market, pushing up stock prices.
• Concerns:
  • While accommodative monetary policy expands economic growth mid-term, there may be negative repercussions in the long term.
  • If the money supply is loosened for too long, there will be too much money chasing too few goods and services, leading to inflation.
    • This leads to increased costs for some goods, such as housing. 
  • As well, the increased money supply can depreciate the currency (exchange rate). 
  • To avoid inflation, most central banks alternate between the accommodative monetary policy and the tight monetary policy in varying degrees to encourage growth while keeping inflation under control. 
• Tight Monetary Policy:
  • Tight, or contractionary monetary policy is a course of action undertaken by a central bank to slow down overheated economic growth, to constrict spending in an economy that is seen to be accelerating too quickly, or to curb inflation when it is rising too fast.
  • Converse to accommodative monetary policy, a tight monetary policy involves increasing interest rates to constrain borrowing and to stimulate savings.
    • The central bank tightens policy or makes money tight by raising short-term interest rates through policy changes to the discount rate and federal funds rate.
    • Boosting interest rates increases the cost of borrowing and effectively reduces its attractiveness.
    • Tight monetary policy can also be implemented via selling assets on the central bank's balance sheet to the market through open market operations (OMO).
• Referring Basics:
  • Monetary Policy and Fiscal Policy

RBI Brings NBFCs under PCA framework

• Context: Reserve Bank of India (RBI) has recently decided to bring Non-Banking Finance Companies (NBFCs) under the ambit of the Prompt Corrective Action (PCA) framework.
  • The RBI decision has come 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.
• NBFCs under PCA:
  • NBFCs: 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, leasing, hire-purchase, insurance business, chit business but 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 the 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).
  • PCA: The Prompt Corrective Action (PCA) framework is aimed at nursing a lender facing issues on the asset quality, profitability and capital fronts back to health.
    • Since lenders are interconnected (for example, Banks have exposure to other banks through the inter-bank call money market and lend to non-banking finance companies/NBFCs and housing finance companies/HFCs), there can be spillovers and spillbacks, leading to contagion.
    • So, to prevent shocks from spreading in the financial system and preserve financial stability, the Reserve Bank of India (RBI) intervenes when a lender shows signs of distress by invoking PCA.
    • The RBI’s PCA Framework was introduced in December 2002 as a structured early intervention mechanism along the lines of the US Federal Deposit Insurance Corporation’s PCA framework.
  • NBFCs under PCA:
    • Time frame: The PCA framework for NBFCs will come into effect from October 1, 2022, based on the financial position of NBFCs on or after March 31, 2022.
    • Restrictions: NBFCs will face restrictions when certain parameters like non-performing assets, capital adequacy ratio and Tier 1 capital fall below the stipulated levels.
    • Application: The revised PCA framework is 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.
    • Exclusion: It has excluded NBFCs not accepting/not intending to accept public funds, primary dealers and housing finance companies along with government-owned ones.
    • Supersede the board: The central bank can even supersede the board under the RBI Act, appoint an administrator and send the NBFC to NCLT for insolvency resolution.
    • Review: The PCA framework will be reviewed after three years of being in operation. 
  • Need for such action:
    • NBFCs have been growing in size and have substantial inter-connectedness with other segments of the financial system. So, a PCA framework for NBFCs would strengthen the supervisory tools applicable to NBFCs.
    • Moreover, 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.
    • Applicability:
      • It will be applicable for all deposit-taking NBFCs — excluding government NBFCs, primary dealers and housing finance companies — and other non-deposit taking NBFCs in the middle, upper and top layers.
      • PCA will be imposed if the net non-performing assets (NPAs) is between 6-9 per cent (risk threshold 1), 9-12 per cent (risk threshold 2) and greater than 12 per cent (risk threshold 3).
        • If the capital adequacy ratio(CAR) falls 300 basis points from the current level of 15-12 per cent (risk threshold 1), 300-600 bps from 12-9 per cent (risk threshold 2) and by 600 bps from 9 per cent (risk threshold 3), PCA will be imposed.
    • Impact of such actions:
      • There are three risk thresholds in the PCA framework for NBFCs.
        • An NBFC under the PCA framework, caused by triggering the first threshold, will be restricted on dividend distribution, promoters will be asked to infuse capital and reduce leverage.
        • The RBI will also restrict the issuance of guarantees or taking other contingent liabilities on behalf of group companies, in the case of core investment companies.
        • After hitting risk threshold 2, the NBFC will be prohibited from opening branches, while on risk threshold 3, capital expenditure will be stopped, other than for technological upgradation.
      • There will be other issues such as heightened regulatory supervision and inspections.
      • The RBI will also actively engage with the board of the NBFCs on various aspects as deemed appropriate by the central bank.
    • Conclusion: 
      • The objective of the framework is to enable supervisory intervention at an appropriate time and require the supervised entity to initiate and implement remedial measures in a timely manner, so as to restore its financial health.
      • The PCA framework is also intended to act as a tool for effective market discipline.
      • The PCA framework does not preclude the Reserve Bank from taking any other action as it deems fit at any time in addition to the corrective actions prescribed in the framework.

• Referring Basics:
  • Difference between banks and NBFCs:
    • NBFC cannot accept demand deposits;
    • NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on themselves;
    • The deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs, unlike in the case of banks.

Bank-NBFC Co-lending

• Context: Recently, several banks have entered into co-lending 'master agreements' with registered Non-Banking Financial Companies (NBFCs), and more are in the pipeline. In 2020, the Reserve Bank of India (RBI) allowed the co-lending model based on a prior agreement.
• Co-Lending model:
  • Background: In September 2018, the RBI had announced the “co-origination of loans” by banks and Non-Banking Financial Companies (NBFCs) for lending to the priority sector. 
    • The arrangement entailed joint contribution of credit at the facility level by both the lenders as also sharing of risks and rewards.
  • Co-lending or co-origination is a set-up where banks and non-banks enter into an arrangement for the joint contribution of credit for priority sector lending.
    • To put it simply, under this arrangement, both banks and NBFCs share the risk in a ratio of 80:20 (80 per cent of the loan with the bank and a minimum of 20 per cent with the non-banks).
  • These guidelines were later amended in 2020 and rechristened as co-lending models (CLM) by including Housing Finance Companies and some changes in the framework.
    • Under priority sector norms, banks are mandated to lend a particular portion of their funds to specified sectors, like weaker sections of the society, agriculture, MSME and social infrastructure.
  • As per RBI norms, a minimum of 20 per cent of the credit risk by way of direct exposure shall be on NBFC’s books till maturity and the balance will be on the bank’s books.
    • Upon maturity, the repayment or recovery of interest is shared by the bank and NBFC in proportion to their share of credit and interest.
  • This joint origination allows banks to claim priority sector status in respect of their share of the credit.
  • NBFCs act as the single point of interface for the customers and a tripartite agreement is done between the customers, banks and NBFCs.
  • Focus: The primary focus of the revised scheme, rechristened as ‘Co-Lending Model’ (CLM), was to improve the flow of credit to the unserved and underserved sector of the economy and make available funds to the ultimate beneficiary at an affordable cost, considering the lower cost of funds from banks and a greater reach of the NBFCs.
  • Several banks have entered into co-lending ‘master agreements’ with NBFCs, and more are in the pipeline.
    • SBI, the country’s largest lender, signed a deal with Adani Capital, a small NBFC of a big corporate house, for co-lending to farmers to help them buy tractors and farm implements.
    • Union Bank of India entered into a co-lending agreement with Capri Global Capital Ltd (CGCL), with the aim to enhance last-mile finance and drive financial inclusion to MSMEs by offering secured loans between Rs 10 lakh to Rs 100 lakh initially through 100+ touch points pan-India.
    • IIFL Home Finance recently tied up with Punjab National Bank.
    • Small Business Finance (SBFC), an NBFC lending to small businesses, was one of the first NBFCs to co-originate loans with ICICI Bank in 2019.
  • Opportunities:
    • The co-lending model if it takes off and is executed rightly will ensure delivery of credit to the unserved and underserved.
    • The opportunity can be taken up by digital lending start-ups and mid-size NBFCs, and they can actually marry their strength of distribution with bank’s funds.
    • As banks are flushed with funds, they can cater to vast customers as NBFCs have reach in tier-3 and tier-4 cities. 
  • Concerns: The move by big banks to tie up with small NBFCs for co-lending has come in for criticism from several quarters.
    • Higher risk in case of defaults: Under the CLM, NBFCs are required to retain at least a 20 per cent share of individual loans on their books.
      • This means 80 per cent of the risk will be with the banks — who will take the big hit in case of a default.
      • In effect, while the banks fund the major chunk of the loan, the NBFC decides the borrower.
    • Corporates in banking: While the RBI hasn’t officially allowed the entry of big corporate houses into the banking space, the NBFCs are mostly floated by corporate houses.
      • Risky business since four giants- IL&FS, DHFL, SREI and Reliance Capital- which collected public funds through fixed deposits and non-convertible debentures, have collapsed in the last three years despite tight monitoring by the RBI.
    • Disputes regarding the reach: While the RBI has referred to the greater reach of the NBFCs, many bankers point out that the reach of banks is far wider than small NBFCs with 100-branch networks in serving underserved and unserved segments.
    • Integration of the systems: Some of the main hurdles were IT integration of systems as both banks and NBFCs would operate on different systems, different underwriting processes and parameters.
  • Way Ahead:
    • To address the huge credit gap the co-lending model is one of the right ways to go forward, but challenges around tech integrations and ground-level executions should be addressed.
    • The co-lending model is still in the nascent stages but over a period of time, the relationship should sustain.
    • As the economy recovers coupled with pent-up demand, these kinds of models will evolve and grow to fulfil the credit requirements of the priority sector segments.
    • There is a need to give greater powers to the bank's board in order to drive, review & oversight the decision-making process. And for that, the best talent must be recruited.
    • The need is to now look at foreign markets and set up appropriate business policies (in terms of the global location & the product these banks can target) that will help in increasing the efficiency and the competition of these banks with their global counterparts.

WPI Inflation

• Context: Wholesale inflation jumped to 14.23 per cent in November from 12.54 per cent in October.
• WPI inflation:
  • WPI: The Wholesale Price Index represents the price of a basket of wholesale goods.
    • WPI focuses on the price of goods that are traded between corporations.
    • It does not concentrate on goods purchased by the consumers.
    • WPI shows the combined price of a commodity basket comprising 676 items.
    • But WPI does not include services, and it neither reflects the bottlenecks between producer and wholesaler nor between wholesaler and retailer (consumer).
    • The main objective of WPI is monitoring price drifts that reflect demand and supply in manufacturing, construction and industry.
    • WPI helps in assessing the macroeconomic as well as microeconomic conditions of an economy.
  • Generally, WPI and CPI (Consumer Price Index) is used to calculate the inflation rates.
  • Inflation at the wholesale level:
    • This is the most popular inflation rate calculation methodology in India.
    • The index used to calculate wholesale inflation is known as the Wholesale Price Index (WPI).
    • This inflation rate is often known as headline inflation. WPI is released by the Ministry of Commerce and Industry.
    • The base year of All-India WPI has been revised from 2004-05 to 2011-12 in 2017.
  • Record high WPI inflation:
    • Wholesale inflation, based on the Wholesale Price Index, jumped to 14.23 per cent in November from 12.54 per cent in October (on a year-on-year basis), primarily due to the rise in food prices especially of vegetables, and minerals and petroleum products.
    • This is the highest level of wholesale inflation in the 2011-12 series and the eighth consecutive month in which it has stayed at the double-digit level.
    • This comes after the retail inflation print for November had shown a spike to a three-month high of 4.91 per cent despite a cut in excise duty on fuels.
    • The wide gap between WPI and CPI inflation reflects the price pressures on the inputs side, which are expected to pass through to the retail level in the coming months.
  • Factors behind the uptick:
    • High food, fuel and commodity prices along with supply-side bottlenecks are reflected in the inflation rates at both retail and wholesale levels.
    • A sharp surge in primary articles inflation which doubled to 10.34 per cent in November 2021 from 5.20 per cent in October 2021 was mainly responsible for taking the wholesale inflation to record levels.
      • Within primary articles, food articles inflation jumped to 4.88 per cent in November from a negative 1.69 per cent a month ago. 
    • Inflation in crude petroleum at the wholesale level inched further to 91.74 per cent in November 2021 as compared to 80.57 per cent a month ago.
      • As a result, fuel and power inflation remained firm at 39.81 per cent in November 2021 (October 2021: 37.18%).
    • Core inflation — the non-food, non-fuel inflation component — jumped to a five-month high of 6.08 per cent at the retail level in November.
      • At the wholesale level, it climbed to a fresh high of 12.3 per cent in November 2021.
• Referring Basics:
  • CPI and WPI

Bank Deposit Insurance Programme

• Context: The PM noted that the deposits worth Rs 76 lakh crore were insured under the Deposit Insurance and Credit Guarantee Corporation (DICGC) Act providing full coverage to around 98 per cent of bank accounts.
• Deposit Insurance Programme:
  • It is a protection cover against losses accruing to bank deposits if a bank fails financially and has no money to pay its depositors and has to go in for liquidation.
  • The government has set up Deposit Insurance and Credit Guarantee Corporation(DICGC) under the RBI to protect depositors if a bank fails.
    • 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 Rs5 lakh in February 2020, raising it from Rs1 lakh since 1993.
    • Credit Guarantee: It is the guarantee that often provides for a specific remedy to the creditor if his debtor does not return his debt.
  • Coverage: Deposit insurance covers all deposits such as saving, fixed, current, recurring deposits, etc. in all commercial banks, functioning in India.
    • Deposits in State, Central and Primary cooperative banks, functioning in States/Union Territories are also covered.
    • Types of deposits covered:
      • DICGC insures all bank deposits, such as saving, fixed, current, recurring, etc. except the following types of deposits:
        • Deposits of foreign Governments.
        • Deposits of Central/State Governments.
        • Inter-bank deposits.
        • Deposits of the State Land Development Banks with the State co-operative banks.
        • Any amount due on account of any deposit received outside India.
        • Any amount which has been specifically exempted by the corporation with the previous approval of the RBI.
  • Limit: Currently, a depositor has a claim to a maximum of Rs 5 lakh per account as insurance cover. This amount is termed ‘deposit insurance.
    • Depositors having more than Rs 5 lakh in their account have no legal recourse to recover funds in case a bank collapses.
    • The premium for the insurance has been raised from 10 paise for every Rs 100 deposit, to 12 paise and a limit of 15 paise has been imposed.
  • Procedure to claim money from a failed bank: 
    • DICGC doesn't deal directly with the depositors.
    • The RBI (or the Registrar), on directing that a bank be liquidated, appoints an official liquadator to oversee the winding-up process.
    • Under the DICGC Act, the liquidator is supposed to hand over a list of all insured depositors(with their dues) to the DICGC within 3 months of taking charge.
    • The DICGC is supposed to pay these dues within 2 months of receiving this list.
  • Need of Deposit Insurance:
    • Earlier account holders could not access their own money for up to 8-10 years after financial stress at banks.
    • The new changes would give confidence to depositors and strengthen the banking and financial system.
• Referring Basics:
  • DICGC: It came into existence in 1978 after the merger of Deposit Insurance Corporation (DIC) and Credit Guarantee Corporation of India Ltd. (CGCI) after the passing of the Deposit Insurance and Credit Guarantee Corporation Act, 1961 by the Parliament.
    • It serves as a deposit insurance and credit guarantee for banks in India.
    • It is a fully owned subsidiary of and is governed by the Reserve Bank of India (RBI).
    • The Corporation maintains the following funds :
      • Deposit Insurance Fund
      • Credit Guarantee Fund
      • General Fund
    • The first two are funded respectively by the insurance premia and guarantee fees received and are utilized for settlement of the respective claims.
    • The General Fund is utilized for meeting the establishment and administrative expenses of the Corporation.

Multistate Cooperatives

• Context: The Centre has decided to amend the Multi-State Cooperative Societies (MSCS) Act, 2002 to “plug the loopholes in the Act”.
• Multistate Cooperatives:
  • Although Cooperatives is a state subject, there are many societies such as those for sugar and milk, banks, milk unions etc whose members and areas of operation are spread across more than one state.
    • For example, most sugar mills along the districts on the Karnataka-Maharashtra border procure cane from both states.
  • Maharashtra has the highest number at 567, followed by Uttar Pradesh (147) and New Delhi (133).
  • They draw their membership from two or more states, and they are thus registered under the MSCS Act.
• Multi-State Cooperative Societies (MSCS) Act, 2002:
  • Their board of directors has representation from all states they operate in.
  • Administrative and financial control of these societies is with the central registrar, with the law making it clear that no state government official can wield any control on them.
  • The exclusive control of the central registrar was meant to allow smooth functioning of these societies, without the interference of state authorities.
• Need for amendment:
  • Poor accountability: While the system for state-registered societies includes checks and balances at multiple layers to ensure transparency in the process, these layers do not exist in the case of multi-state societies.
    • The central registrar can only allow inspection of the societies under special conditions.
    • Further, inspections can happen only after prior intimation to societies.
  • Issues with Central Registrar: The on-ground infrastructure for the central registrar is thin — there are no officers or offices at the state level, with most work being carried out either online or through correspondence.
    • Due to this, the grievance redressal mechanism has become very poor.
    • This has led to several instances when credit societies have launched Ponzi schemes taking advantage of these loopholes.
  • Lack of government control: There is an apparent lack of day-to-day government control in such societies.
    • Unlike state cooperatives, which have to submit multiple reports to the state registrar, multistate cooperatives need not.
• Expected amendments:
  • Strengthening Institutional Infrastructure: The Centre government after consultation with various stakeholders should strengthen necessary institutional infrastructure to ensure better governance of the societies. For example:
    • Increasing the manpower.
    • Technology shall be used to bring in transparency.
  • Involving States: The administrative control of such societies should be vested in the state commissioners.
• Referring Basics:
  • Cooperatives in India:  Cooperative are “an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise.” ( definition according to International Cooperative Alliance (ICA) )
    • Constitutional Provisions: The Constitution (97th Amendment) Act, 2011 added a new Part IXB regarding the cooperatives working in India.
      • The word “cooperatives” was added after “unions and associations” in Article 19(1)(c) under Part III of the Constitution.
      • A new Article 43B was added in the Directive Principles of State Policy (Part IV) regarding the “promotion of cooperative societies”.
  • Ministry of Cooperation:
    • A separate ‘Ministry of Co-operation’ has been created by the Central Government for realizing the vision of ‘Sahkar se Samriddhi’ (Prosperity through Cooperation) and to give a new push to the cooperative movement.

Financial Resolution and Deposit Insurance Bill

• Context:
  • Recently, the government has started discussions to put in place a resolution mechanism to deal with the insolvency of firms in the financial sector. 
• About Financial Resolution and Deposit Insurance (FRDI) Bill:
  • The bill will provide for establishing a resolution authority, which would have powers to undertake prompt resolution for banks, insurance companies and systemically important financial firms.
  • The legislation will also provide for insurance of up to Rs 5 lakh for bank depositors, which already has legal backing.
• Need for legislative backing:
  • There is no resolution framework for banks and systemically important financial institutions. The routine insolvency process will not be able to handle it if a bank were to collapse.
  • The current resolution regime is especially inappropriate for private-sector financial firms in the light of significant expansion and many of these acquiring systemically important status in India.
  • The Insolvency and Bankruptcy Code, 2021 along with the FRDI bill would have streamlined the procedure for the winding up or revival of an ailing financial sector firm.

Reverse Repo Normalisation

• Context:
  • In a recent report, the State Bank of India, which is the largest public sector bank in the country, has stated: “…we believe the stage is set for a reverse repo normalisation.”
  • What are repo rates and reverse repo rates?
  • The Repurchase agreement (Repo) and the Reverse repo agreement are two key tools used by the Reserve Bank of India (RBI) to control the money supply.
  • The repo rate is the interest rate at which a country's central bank(in India, the RBI) loans money to the commercial banks in the event of a shortfall of funds. The central bank purchases the security in this case.
  • The reverse repo rate is the interest rate paid by the RBI to commercial banks that park excess “liquidity”(money) with the RBI. Thus, the reverse repo rate is the opposite of the repo rate.
  • It is one of the main tools of RBI to keep inflation under control. The current repo rate in 2021 is at 4% and the current reverse repo rate is at 3.35%.
• What does reverse repo normalization mean?
  • It means the reverse repo rates will go up.
  • Over the past few months, in the face of rising inflation, several central banks across the world have either increased interest rates or signalled that they would do so soon.
  • In India, too, it is expected that the RBI will raise the repo rate. But before that, it is expected that the RBI will raise the reverse repo rate and reduce the gap between the two rates. In the immediate aftermath of Covid, RBI had increased this gap.
  • This process of normalization, which is aimed at curbing inflation, will not only reduce excess liquidity but also result in higher interest rates across the board in the Indian economy — thus reducing the demand for money among consumers (since it would make more sense to just keep the money in the bank) and making it costlier for businesses to borrow fresh loans.

Bad Bank

• Context:
  • A key proposal announced in this year’s (2021) Budget, a bad bank to deal with stressed assets in the loss-laden banking system, has received all regulatory approvals.
• What is a Bad Bank?
  • A ‘bad bank’ is a bank that buys the bad loans of other lenders and financial institutions to help clear their balance sheets. The bad bank then resolves these bad assets over a period of time. When the banks are freed of the NPA burden, they can take a more positive look at the new loans. Ideally, such a bank should be owned by the banks which have the most of NPAs.
• What is the structure of the bad bank?
  • For the resolution of huge NPAs (Non-Performing Assets) in the Indian Banking sector, the government of India has set up two new entities to acquire stressed assets from banks and then sell them in the market.
  • NARCL will acquire and aggregate the identified NPA accounts from banks, while IDRCL, under an exclusive arrangement, will handle the debt resolution process.
  • Padmakumar Nair, a Chief General Manager from SBI’s Stressed Assets vertical, will manage NARCL, while Manish Makharia, Head of Alternate Investment Fund, SBI Funds Management Pvt Ltd, will head IDRCL.
  • Majority-owned by state-owned banks, the NARCL will be assisted by the India Debt Resolution Company Ltd (IDRCL), in turn, majority-owned by private banks, in resolution process in the form of a Principal-Agent basis.

Foreign Contribution (Regulation) Act (FCRA), 2010

• Context:
  • The Foreign Contribution (Regulation) Act (FCRA) registration of nearly 6,000 Non-Governmental Organisations (NGOs) has ceased to operate from January 1 as the Ministry of Home Affairs (MHA) refused to renew their application or the NGOs did not apply for one.
• About Foreign Contribution (Regulation) Act (FCRA):
  • The Foreign Contribution (Regulation) Act, 2010 regulates foreign donations and ensures that such contributions do not adversely affect internal security.
  • First enacted in 1976, it was amended in 2010 when a slew of new measures were adopted to regulate foreign donations.
  • The FCRA is applicable to all associations, groups and NGOs which intend to receive foreign donations.
  • It is mandatory for all such NGOs to register under the FCRA, initially valid for five years that can be renewed subsequently if it complies with all norms.
  • Foreign funding of persons in India is regulated under FCRA Act and is implemented by the Ministry of Home Affairs.
  • The Act ensures that the recipients of foreign contributions adhere to the stated purpose for which such contribution has been obtained.
  • Registered NGOs can receive foreign contributions for five purposes:
    • Social, educational, religious, economic and cultural.
• When is a registration suspended or cancelled?
  • The MHA on inspection of accounts and upon receiving any adverse input against the functioning of an association can suspend the FCRA registration initially for a period of 180 days. Till the time any decision is taken, the association cannot receive any fresh donation and cannot utilise more than 25% of the amount available in the designated bank account without the permission of the MHA. The MHA can cancel the registration of an organisation which will not be eligible for registration or grant of ‘prior permission’ for three years from the date of cancellation.
• Have there been suspensions in the past?
  • According to MHA data, since 2011 when the Act was overhauled, the registration of 20,664 associations was cancelled for violations such as misutilisation of foreign contribution, non-submission of mandatory annual returns and for diverting foreign funds for other purposes. There are 22,762 FCRA-registered NGOs.
• Foreign Contribution (Regulation) Amendment Act, 2020:
  • Prohibition to accept foreign contribution:
    • The Act bars public servants from receiving foreign contributions.
  • Transfer of foreign contribution:
    • The Act prohibits the transfer of foreign contributions to any other person not registered to accept foreign contributions.
  • Aadhaar for registration: 
    • The Act makes Aadhaar number mandatory for all office bearers, directors or key functionaries of a person receiving the foreign contribution, as an identification document.
  • FCRA account:
    • The foreign contribution must be received only in an account designated by the bank as an FCRA account in such branches of the State Bank of India, New Delhi.
  • Reduction in use of foreign contribution for administrative purposes:
    • Not more than 20% of the total foreign funds received could be defrayed for administrative expenses. In FCRA 2010 the limit was 50%.
  • Surrender of certificate:
    • The Act allows the central government to permit a person to surrender their registration certificate.

• Context:
  • The Government of India has appointed Anantha Nageswaran as the new Chief Economic Advisor. He is a former member of the Prime Minister Economic Advisory Council.
• Chief Economic Advisor (CEA):
  • About:
    • Chief Economic Advisor (CEA) is a post-government of India, responsible for advising the Government of India on matters related to finance, commerce, trade, economy.
  • Institutional Structure:
    • The CEA heads the Economic Division under the Department of Economic Affairs (DEA), Ministry of Finance.
    • The post of CEA is equivalent to Secretary in India.
    • Chief Economic Advisor (CEA) reports directly to the Union Minister of Finance.
  • Tenure:
    • CEA has no security of tenure.
  • Appointing Authority:
    • Chief Economic Advisor (CEA) is appointed by the Appointment Committee headed by the Prime Minister of India.
  • Nature of Recommendations:
    • Decisions of the Chief Economic Advisor (CEA) are only recommendatory in nature and not binding on the government.
  • Legal Status:
    • The Office of Chief Economic Advisor (CEA) is neither constitutional nor statutory.
  • Chief Economic Advisor- Roles and Responsibilities
    • CEA is responsible for bringing the Economic Survey each year which is basically an economic report card of the Union Government.
    • CEA is also the ex-cadre controlling authority of the Indian Economic Services (IES).
  • Other key responsibilities include:
    • Economic policy inputs on industrial development.
    • Rendering advice relating to formulation of Industrial Policy, Foreign Trade Policy with respect to the industrial sector in general with thrust on manufacturing, issues relating to bilateral and multilateral trade, as well as taxes and duties related to the industry, including but not restricted to safeguard and anti-dumping duties.
    • Analysis of trends of industrial production and growth.
    • Examination of multilateral and bilateral issues and processing Policy Notes with economic implications referred to the Office.
    • Planning and Gender Budgeting on behalf of the Department of Industrial Policy and Promotion.
• PM Economic Advisory Council:
  • EAC-PM is a non-constitutional, non-statutory, independent body constituted to give advice on economic and related issues to the Government of India, specifically to the Prime Minister.
  • The council serves to highlight key economic issues to the government of India from a neutral viewpoint.
  • For administrative, logistic, planning and budgeting purposes, the NITI Aayog serves as the Nodal Agency for the EAC-PM.

Limited Liability Partnership (LLP) Act

• Context:
  • The Corporate Affairs Ministry is planning to decriminalise 12 offences as well as omit a provision entailing criminal liability under the Limited Liability Partnership (LLP) Act, 2008, for greater ease of doing business for law-abiding LLPs.
• What is an 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 the 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 residents 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 the services sector in particular.
  • Internationally, LLPs are the preferred vehicle of business particularly for the service industry or for activities involving professionals.

Govt securities

• Context:
  • The Reserve Bank of India (RBI) has given small investors direct access to its government securities trading platform.
  • Now, Retail investors can directly open their gilt accounts with RBI, and trade in government securities.
• What is the need for the current proposal, then?
  • The g-sec market is dominated by institutional investors such as banks, mutual funds, and insurance companies. These entities trade in lot sizes of Rs 5 crore or more.
  • So, there is no liquidity in the secondary market for small investors who would want to trade in smaller lot sizes. In other words, there is no easy way for them to exit their investments.
  • Thus, currently, direct g-secs trading is not popular among retail investors.
• What are G- Secs?
  • Government security (G-Sec) is a tradeable instrument issued by the central government or state governments.
• Key features:
  • It acknowledges the government’s debt obligations.
  • Such securities can be both short term (treasury bills — with original maturities of less than one year) or long term (government bonds or dated securities — with an original maturity of one year or more).
  • The central government issues both: treasury bills and bonds or dated securities.
  • State governments issue only bonds or dated securities, which are called state development loans.
  • Since they are issued by the government, they carry no risk of default, and hence, are called risk-free gilt-edged instruments.
  • FPIs are allowed to participate in the G-Secs market within the quantitative limits prescribed from time to time.
• G- Sec prices fluctuate sharply in the secondary markets. Factors affecting their prices:
  1. Demand and supply of the securities.
  2. Changes in interest rates in the economy and other macro-economic factors, such as liquidity and inflation.
  3. Developments in other markets like money, foreign exchange, credit and capital markets.
  4. Developments in international bond markets, specifically the US Treasuries.
  5. Policy actions by RBI like change in repo rates, cash-reserve ratio and open-market operations.

Open market operations

• Context:
  • RBI announces ₹20,000 crore open market operations on February 10.
• What is OMO?
  • Open market operations are the sale and purchase of government securities and treasury bills by RBI or the central bank of the country.
  • The objective of OMO is to regulate the money supply in the economy.
  • It is one of the quantitative monetary policy tools.
• How is it done?
  • RBI carries out the OMO through commercial banks and does not directly deal with the public.
• OMOs vs liquidity:
  • When the central bank wants to infuse liquidity into the monetary system, it will buy government securities in the open market. This way it provides commercial banks with liquidity.
  • In contrast, when it sells securities, it curbs liquidity. Thus, the central bank indirectly controls the money supply and influences short-term interest rates.
• RBI employs two kinds of OMOs:
  • Outright Purchase (PEMO) – this is permanent and involves the outright selling or buying of government securities.
  • Repurchase Agreement (REPO) – this is short-term and are subject to repurchase.

P-Notes

• Context:
  • Participatory notes of Overseas Derivative Instruments have a tendency to raise the hackles of the regulators.
  • Outstanding P-notes hitting a 31-month high in November is likely to have caused considerable consternation.
• What's the Concern?
  • These instruments have gained notoriety on account of their rampant misuse prior to 2008.
  • The anonymity provided by P-notes, where the final owner can be concealed from regulators, had led to entities using this route to round-trip funds.
• What has the SEBI said?
  • There is no real cause for alarm; these instruments account for only 2 per cent of FPI assets currently.
• But, why there is an increase in the value of outstanding P-notes?
  1. The rally in stock prices has resulted in inflating the value of existing P-note holdings.
  2. There has been a great surge in FPI inflows this fiscal, with investments so far exceeding ₹2,42,000 crore.
• What are Participatory Notes?
  • Participatory Notes or P-Notes (PNs) are financial instruments issued by a registered foreign institutional investor (FII) to an overseas investor who wishes to invest in Indian stock markets without registering themselves with the market regulator, the Securities and Exchange Board of India (SEBI).
• Key points:
  1. P-Notes are Offshore Derivative Investments (ODIs) with equity shares or debt securities as underlying assets.
  2. They provide liquidity to the investors as they can transfer the ownership by endorsement and delivery.
  3. While the FIIs have to report all such investments each quarter to SEBI, they need not disclose the identity of the actual investors.

UNION BUDGET 2022-23

• Context:
  • The Union Budget seeks to complement macro-economic level growth with a focus on micro-economic level all-inclusive welfare. The Union Minister for Finance & Corporate Affairs, Smt Nirmala Sitharaman tabled the Union Budget 2022-23 in Parliament today.
  • For a basic and static portion of the Annual Financial Statement (AFS)/budget, please visit for more information: GOVERNMENT BUDGETING.
• Key Highlights:
  • India’s economic growth is estimated at 9.2% to be the highest among all large economies.
  • 60 lakh new jobs to be created under the productivity linked incentive scheme in 14 sectors.
  • PLI Schemes have the potential to create an additional production of Rs 30 lakh crore.
  • Entering Amrit Kaal, the 25 year-long lead up to India @100, the budget provides the impetus for growth along with four priorities:
    • PM GatiShakti
    • Inclusive Development
    • Productivity Enhancement & Investment, Sunrise opportunities, Energy Transition, and Climate Action.
    • Financing of investments.

For more information:

https://samajho.com/upsc/key-highlights-of-the-union-budget-2022-23/

ECONOMIC SURVEY 2021-22

• Context:
  • The Economic Survey 2021-22 was tabled in Parliament on Monday by Finance Minister Nirmala Sitharaman soon after the President's address to both Houses of Parliament. The survey presented a day before the Union Budget, underlines the state of the economy and outlines suggestions for policy actions.
• State of the Economy Projections:
  • Indian economy is estimated to grow by 9.2 percent in real terms in 2021-22.
  • GDP is projected to grow by 8- 8.5 percent in real terms in 2022-23. 
  • The financial system is in a good position to provide support for the economy’s revival, thus, a pickup in private sector investment is estimated.
  • As per IMF’s latest World Economic Outlook projections, India’s real GDP is projected to grow at 9 percent in 2021-22 and 2022-23 and at 7.1 percent in 2023-2024, which would make India the fastest-growing major economy in the world for all 3 years.
  • Macroeconomic stability indicators suggest that the Indian Economy is well placed to take on the challenges of 2022-23.
  • The combination of high foreign exchange reserves, sustained foreign direct investment, and rising export earnings will provide an adequate buffer against possible global liquidity tapering in 2022-23.
  • Government of India’s unique response comprised of safety nets to cushion the impact on vulnerable sections of society and the business sector, a significant increase in capital expenditure to spur growth, and supply-side reforms for a sustained long-term expansion.

For more information:

https://samajho.com/upsc/key-highlights-from-economic-survey-2021-22/

Infrastructure:

BharatNet Project

• Context:
  • The implementation of BharatNet has slowed and is likely to miss the 2025 completion deadline owing to a number of factors.
• Progress made so far:
  • As of February 2022, only about 1.72 lakh of the initially targeted 2.5 lakh gram panchayats had been connected to the central grid under BharatNet.
• About BharatNet Project:
  • It is a project envisioned by the Government of India to digitally connect all the Gram  Panchayats (GPs) and Villages of India. 
  • It originally aimed to provide broadband services at 100 Mbps to around 2.5 lakh gram panchayats of the country.
  • It is a highly scalable network infrastructure accessible on a non-discriminatory basis.
  • It is the world’s largest rural connectivity scheme to be connected by the Optical Fibre network.
  • Aim: To provide on-demand, affordable broadband connectivity of 2 Mbps to 20 Mbps for all households of India, especially in rural areas.
  • Implementing Agency: The project is being implemented by Bharat Broadband Network Limited (BBNL) through a Special Purpose Vehicle (SPV).
  • Funding: The entire project is being funded by the Universal Service Obligation Fund (USOF), which was set up for improving telecom services in rural and remote areas of the country.
  • The scope of work under the BharatNet PPP Project includes:
  • Connecting the remaining unconnected GPs under the BharatNet project (Phase 1 & Phase 2) and all the inhabited Villages beyond the GPs.
  • Upgradation of the existing BharatNet Network from Linear to a Ring topology.
  • Operation and Maintenance (O&M) and Utilisation of the existing as well as the newly deployed network.
  • Support: Central Public Sector in Undertakings (CPSUs) BSNL, RailTel, and PGCIL are providing the optical fibre network for broadband connections for the BharatNet project.
• Benefits:
  • It would reduce the cost of broadband services in India.
  • It would have advantages like easy maintenance, faster implementation, and utilisation of the present power line infrastructure.
  • It would provide internet connectivity to citizens especially in rural areas via Wi-Fi Hotspots.
  • It would provide a boost to the economy and would generate around 10 crore man-days of employment during the rollout of the project.
  • It will help in the expedition of government’s initiatives such as Make In India, Start-up India, Stand-up India etc
  • It is considered to be the backbone of ‘Digital India’ aiming to reduce the digital divide between urban and rural India.
• Of these, 1.5 lakh gram panchayats had been connected by 2017, within the first three years of the project being re-christened ‘BharatNet’.

States vs Centre on Fuel Taxes

• Context:
  • The Centre and the states are at loggerheads over taxes and duties on petrol and diesel.
• What is the issue?
  • As fuel prices soared in November 2021, the Centre, for the first time in over three years, cut central excise duties on petrol by Rs 5 per litre and diesel by Rs 10 per litre.
  • 21 states then cut VAT in the range of Rs 1.80-10 per litre for petrol and Rs 2-7 per litre for diesel.
  • As per the RBI’s State Finances report for 2021-22, the revenue loss to states due to this is estimated at 0.08% of GDP.
  • The global oil prices have been at elevated levels since the time Russia invaded Ukraine due to which global oil supply halted.
  • So, the relief measures that were provided were outweighed by a series of 14 price hikes in 16 days.
  • The Centre feels that the states are not reducing VAT in line with the Centre’s cut in excise duty.
  • But the states have expressed concerns over their fiscal cushion, especially with the GST compensation regime due to end in June.
  • Value-added tax (VAT) is a consumption tax on goods and services that is levied at each stage of the supply chain where value is added, from initial production to the point of sale.
• How significant is fuel taxes?
  • Excise duty and VAT on fuel constitute an important source of revenue for both the Centre and the states.
  • Excise duty on fuel makes up about 18.4% of the Centre’s gross tax revenues.
  • Petroleum taxes with states are shared out of basic excise duty.
  • The Centre also levies additional excise duties and cesses on petroleum products.
  • Of the revenue receipts of states, central tax transfers comprise 25-29% and own tax revenues 45-50%.
  • Central and state taxes currently account for about 43% and 37% of the retail price of petrol and diesel respectively in Delhi.
• How fuel is taxed?
  • The tax on fuel does not fall under the Goods and Services Tax (GST).
  • Taxes on petrol and diesel are split into multiple components at the state and central levels.
  • States apply an ad valorem VAT or sales tax on the base price, freight charges, excise duty and dealer commission on petrol and diesel.
  • While state VAT collections have risen along with higher fuel prices and previous hikes in excise duties, the states’ share of excise duties on fuel was reduced in the FY2022 Budget.
• Changes introduced:
  • The  Basic Excise Duty (BED) on petrol and diesel was cut by Rs 1.6 and Rs 3 per litre respectively
  • The special additional excise duty was cut on both by Rs 1 per litre
  • An Agriculture Infrastructure and Development Cess (AIDC) of Rs 2.5 per litre on petrol and Rs 4 on diesel was introduced
  • It reduced the states’ share as collections from cesses are not part of the shareable pool.
  • The Latin phrase ad valorem means “according to value.” All ad valorem taxes are based on the assessed value of the item being taxed.
• What is the reason for the variation in fuel prices?
  • External factors- Since the retail prices of petrol and diesel in India are linked to the international prices of crude oil, global crude oil prices play a key role.
  • Internal factors- Taxes and dealers’ commissions also impact the price of domestic petrol.
  • Inter-regional variation- This difference in fuel retail prices is due to the different tax rates levied by the respective state governments on the same products.
  • Freight charges depend upon the distance between the refining plant and the petrol pump; the farther is the petrol pump from the oil refining unit, the more is the freight charge.
  • Because of this, the prices may vary from region to region.

BharatNet PPP: As an incentive, DoT to assume revenue risk

• Context:
  • In the first round of requests for proposals (RFP) for the implementation of BharatNet in the public-private partnership (PPP) model, the Department of Telecommunications (DoT) did not receive any bid.
  • Hence, the DoT has decided to assume the revenue risk for the second round of bidding.
• About BharatNet Project:
  • BharatNet is the world's largest optical fibre-based rural broadband connectivity project.
  • It is executed by Bharat Broadband Network Limited (BBNL), a special purpose vehicle under the Telecom Ministry.
  • It is an ambitious rural internet access programme. An initiative by the Union government under its Digital India
  • National Optical Fibre Network (NOFN) which was launched in October 2011 was renamed Bharat Net Project in 2015.
  • NOFN was envisaged as an information superhighway through the creation of a robust middle-mile infrastructure for reaching broadband connectivity to Gram Panchayats.
  • In 2019, the Ministry of Communications also launched the ‘National Broadband Mission’ to facilitate universal and equitable access to broadband services across the country.
• Features & Benefits of BharatNet:
  • Using optical fibre, the programme is intended to bring broadband internet connectivity to each of the more than 2.5 lakh gram panchayats(GPs) across the country.
  • The government intends to provide a minimum of 100 Mbps bandwidth at each Gram Panchayat through BharatNet so that everyone, especially those in rural India, can access online services.
  • As part of the BharatNet project, the Centre will also provide last-mile connectivity through Wi-Fi and other means and is setting up Wi-Fi hotspots in all gram panchayats.
  • This covers services such as e-governance, e-learning, e-banking, e-commerce, and e-health.
  • The penetration and proliferation of broadband are also expected to increase direct and indirect employment and income generation.
• PPP Mode of Implementation:
  • The Public-Private-Partnership (PPP) model for implementation of BharatNet, which was approved by the Union Cabinet in June 2021, is yet to take off.
  • The first request for proposal (RFP) for implementation of the project, which was floated in July 2021, failed to get any response from private companies.
  • The industry had highlighted that some of the terms and conditions of the tender were too onerous for the private players while the revenue sharing model proposed by the government was also unfavourable to them.
  • The Government will come out with a revised PPP model for the BharatNet project in a couple of months.
  • As part of the revised plan, the government is likely to either provide a minimum revenue per month per state to the bidders who successfully complete their project or subsidise some of their operational expenditure.

Start-Up Village Entrepreneurship Programme

• Context:
  • The Union Ministry of Rural Development (MoRD) and the National Institute of Entrepreneurship and Small Business Development (NIESBUD) have signed a memorandum of understanding (MoU) to develop a sustainable model for promoting entrepreneurship at the grassroots by initiating the ‘start-up village entrepreneurship programme’ (SVEP).
• About:
  • It was launched in 2016 by the Ministry of Rural Development as a sub-scheme under the Deendayal Antyodaya Yojana – National Rural Livelihoods Mission(DAY-NRLM).
• Objective:
  • To support the rural poor to come out of poverty by supporting them to set up enterprises and provide support till the enterprises stabilize.
  • It also focuses on providing self-employment opportunities with financial assistance and training in business management and soft skills while creating local community cadres for the promotion of enterprises.
  • Pillars: It addresses three major pillars of rural start-ups namely – finances, incubation and skill ecosystems. 
• Features:
  • SVEP promotes both individual and group enterprises set-up and promotes enterprises majorly in the manufacturing, trading and service sectors.
  • Community resource persons – enterprise promotion (CRP-EP): These are certified local persons who provide business support services to the entrepreneurs.
  • Block resource center(BRC): It has been set up to monitor and manage the community resource persons, appraise SVEP loan application and acts as the repository of enterprise-related information in the concerned block.
  • Technical Support: Entrepreneurship Development Institute of India (EDII), Ahmedabad is the technical support partner of SVEP

MSME Innovative Scheme

 

• Context:
  • Recently, the Ministry of MSME (Medium, Small and Micro Enterprises) has launched the MSME Innovative Scheme 
  • (Incubation, Design and IPR) along with the MSME IDEA HACKATHON 2022.
• About:
  • The aim is to promote and support untapped creativity of the MSME sector and the National Land Monetization Corporation MSME Innovative Scheme To act as a hub for innovation activities, facilitating and guiding the development of ideas into a viable business proposition that benefits society directly.
  • The three sub-schemes under this scheme include:
    • Incubation: It aims to promote and support untapped creativity and to promote the adoption of the latest technologies in MSMEs that seek the validation of their ideas at the proof-of-concept level.
    • Financial assistance up to Rs 15 lakh per idea and up to Rs one crore for relevant plants and machines will be provided. 
    • Design: It aims to bring the Indian manufacturing sector and design expertise/design fraternity onto a common platform. Financial assistance up to Rs 40 lakh for design projects and up to Rs 2.5 lakh for student projects will be provided.
    • IPR (Intellectual Property Rights): It aims to improve the IP culture in India with a view to enhancing the awareness of Intellectual Property Rights(IPRs) amongst the MSMEs and encouraging creative intellectual endeavours in the Indian economy.
    • Financial assistance up to Rs 5 lakh for a foreign patent, Rs one lakh for a domestic patent, Rs two lakh for GI registration, Rs 15,000/- for design registration, Rs.10,000/- for a trademark in the form of reimbursement.

Export Preparedness Index 2021

• Context:
  • Export Preparedness Index 2021 was recently released.
• About:
  • The Export Preparedness Index (EPI) ranks all States and Union Territories (UTs) on the basis of their export readiness and performance.
  • NITI Aayog releases the Export Preparedness Index (EPI) in collaboration with the Institute of Competitiveness.
• Key Finding:
  • Gujarat has topped NITI Aayog’s Export Preparedness Index (EPI) 2021 for the second consecutive time.
  • Maharashtra has been ranked second and Karnataka has been ranked third.
  • Among the landlocked states: Rajasthan tops the list followed by Telangana and Haryana. Bihar emerged as the weaker state.
  • Among the Himalayan states: Uttarakhand tops the index followed by Tripura and Himachal Pradesh.
  • Among UTs: Delhi gained the tag of best Union Territory followed by Goa and Chandigarh.
• Importance of Export Preparedness Index (EPI) :
  • The Export Preparedness Index (EPI) can be used by States and UTs to benchmark their performance against their peers and analyze the potential challenges to develop better policy mechanisms to foster export-led growth at the subnational level.

• • Promoting competitive federalism: Export Preparedness Index (EPI) shows the Government’s continued commitment to promoting competitive federalism.
  • With EPI, each state can identify its export opportunities and challenges and subsequently establish context-specific strategies for ensuring a conducive export ecosystem.

Ukraine war could cut 1% off global growth: OECD

• Context
  • The Organisation for Economic Co-operation and Development (OECD) recently reported that the Russian invasion of Ukraine could reduce the global growth rate by a percentage this year and increase inflation by two-and-a-half percentage points.
• What were the other important observations made by OECD?
  • War’s impact on European Union could be high because of its high dependence on Russia’s energy imports
  • OECD countries through increased government spending by 0.5% could lessen the impact of inflation on these countries
• About OECD:
• Origin:
  • The organisation for European Economic Co-operation (OEEC) was founded in 1948 to help administer the Marshall Plan
  • In 1961, the OEEC was reformed into the Organisation for Economic Co-operation and Development by the Convention on the Organisation for Economic Co-operation and Development and membership was extended to non-European states
  • Headquarters — Paris, France
  • It works through consensus to develop policy recommendations and other “soft law” instruments to encourage policy reform in member countries
• Membership:
  • Currently, it has 38 members
  • India is not a member but a key partner 
  • It is a forum of countries describing themselves as committed to democracy and the market economy
  • Most OECD members are high-income economies with a very high Human Development Index (HDI) and are regarded as developed countries
  • It provides a platform to compare policy experiences, seek answers to common problems, identify good practices and coordinate domestic and international policies of its members.
  • Resources — funded by contributions from member states at varying rates of governance
  • OECD Council — provides direction and guidance to the work of the Organisation. Each member country is represented.
  • OECD Substantive Committees — oversee all the work on each theme (publications, task forces, conferences, and so on)
  • OECD Secretariat — led by the Secretary-General provides support to Standing and Substantive Committees
• Special bodies and entities associated with OECD:
  • International Transport Forum (ITF) (formally known as the European Conference of Ministers of Transport)
  • International Energy Agency
  • Nuclear Energy Agency
  • Partnership for Democratic Governance (PDG)
  • Trade Union Advisory Committee (TUAC)

Chennai-Kanyakumari Industrial Corridor (CKIC)

• Context:
  • The Asian Development Bank (ADB) will provide a $484 million loan for Chennai-Kanyakumari Industrial Corridor (CKIC) in Tamil Nadu.
• About:
  • CKIC is part of India's East Coast Economic Corridor (ECEC), which stretches from West Bengal to Tamil Nadu and connects India to the production networks of South, Southeast, and East Asia.
  • The Asian Development Bank is the lead partner of the Indian government in developing the East Coast Economic Corridor.
  • In line with Strategy 2030, ADB''s long-term corporate strategy, the project emphasizes sustainability, climate change resilience, and road safety elements.
  • Enhanced connectivity of industrial hubs with hinterland and ports will particularly help increase the participation of Indian manufacturing in global production networks and global value chains, thereby creating jobs along the corridor.
  • The project will also strengthen road safety improvement programs through advanced technologies for road monitoring and enforcement.
  • In addition, it will help improve the planning capacity of Tamil Nadu's Highways and Minor Ports Department.

BharatNet Project

• Context:
  • The Bharat Broadband Network Limited (BBNL) has invited bids for the BharatNet project to roll out high-speed broadband services in rural areas across 16 states.
• About:
• BharatNet is the government's flagship project and is considered to be the backbone of ‘Digital India’ aiming to reduce the digital divide between urban and rural India.
• The latest phase of BharatNet would be implemented through the Public-Private Partnership (PPP) model in 16 states, pushing the outlay of the project to Rs 61,109 crore.
• BharatNet started as the National Optical Fibre Network in 2011, a “middle mile” project with a mandate to extend the existing optical cable fiber network from the Block Headquarters to 2.5 lakh Gram Panchayats (GP) in the country.
• So far, 60% (1.57 lakh) of GPs have been made service-ready.
• Just 34% (89,149) of these panchayats have been provided with a Fibre to the Home (FTTH) connection.
• Once the GPs were provided with fiber optic connectivity, the government expected private players to lease bandwidth and provide internet services at the last mile — with speeds above 2 MBPS for as little as Rs 250. 
• However, in the decade since the BharatNet began, persistent delays and the unreliability of the Phase-I infrastructure, which is prone to faults and has poor maintenance, meant there were few private takers to lease the network and provide internet services.
• The current Public-Private Partnership (PPP) Model makes the private concessionaire responsible for implementing all aspects of the project from end-to-end, including maintaining and operating it for 30 years, which is in line with what state-led models have done.
• The provision of good end-to-end infrastructure could also stoke interest from private players for bandwidth, which was largely missing in the earlier model.

India’s largest solar park

• Context:
  • State-run NTPC Ltd will set up India’s largest solar park of 4.75 gigawatts (GW) at Rann of Kutch in Gujarat from where it will also generate green hydrogen on a commercial scale.
• About:
  • Kutch region in Gujarat, the largest salt desert in the country and host to two of India’s largest coal-fired power plants, will now add another feather to its cap.
  • NTPC’s park is part of the central government’s plan of making state-run companies build massive clean energy parks to help developers achieve economies of scale and further bring down solar and wind power tariffs.
  • Gujarat government has identified the Kutch region for setting up 40 Gw of hybrid renewable energy projects in the region and has earmarked 60,000 hectares for the same.
  • There are, however, environmental concerns for the region, as it is a prime spot of several bird species.
• Five Major Solar Parks in India:
  1. Bhadla Solar Park, Rajasthan
  2. Pavagada Solar Park, Karnataka
  3. Kurnool Ultra Mega Solar Park, Andhra Pradesh
  4. NP Kunta Ultra Mega Solar Park, Andhra Pradesh
  5. Rewa Ultra Mega Solar, Madhya Pradesh
• Green hydrogen:
  • It is a zero-carbon fuel made by electrolysis, using renewable power from wind and solar to split water into hydrogen and oxygen.
  • NTPC’s pivot towards green energy comes at a time when India is considering a proposal to make it mandatory for fertilizer plants and oil refineries to purchase green hydrogen as part of plans to cut the nation’s dependence on fossil fuels.
• UMREPP scheme:
  • India’s largest power generation utility subsidiary NTPC Renewable Energy Ltd has received the go-ahead from the ministry of new and renewable energy (MNRE) under the ultra-mega renewable energy power parks (UMREPP) scheme.
  • State-run companies present in the conventional power space, including NTPC, plan to build massive green energy parks under the UMREPP scheme in wind- and solar-resource rich states such as Jammu and Kashmir, Andhra Pradesh, Gujarat, Karnataka, Madhya Pradesh, Maharashtra, Rajasthan, Tamil Nadu, and Telangana.

Open Network for Digital Commerce (ONDC)

• Context:
  • The central government has recently set up an advisory council for Open Network for Digital Commerce (ONDC).
• About:
  • The Department for Promotion of Industry and Internal Trade (DPIIT) had announced ONDC to cater to the challenge of digital monopolies.
  • It is to digitize e-commerce value chains, standardize operations, promote inclusion of suppliers, and derive efficiencies in logistics.
  • This is another effort by the government to facilitate the creation of shared digital infrastructure, as it has previously done for identity (Aadhaar) and payments (Unified Payments Interface).
  • Currently, e-commerce in India, which is likely to be worth $188 billion market by 2025 as per Grant Thornton, is led by Walmart’s Flipkart and Amazon India.
  • Out of roughly 6.33 crore MSMEs in India, only a handful of enterprises sell goods and services online.
  • This step would encourage easy digital adoption by small businesses that are yet to get onboard online commerce.
  • ONDC is likely to make e-commerce more inclusive and accessible for consumers who can potentially discover any seller, product, or service by using any ONDC compatible application or platform, thus increasing freedom of choice for consumers.
  • The initiative to integrate e-commerce platforms through a network based on open-source technology independent of any single or unique e-commerce platform has been tasked to the Quality Council of India (QCI).

India Industrial Land Bank (IILB)

• Context:
  • The India Industrial Land Bank will achieve pan-India integration by December 2021, said the Ministry of Commerce and Industry.
• About:
  • The India Industrial Land Bank, or IILB, is a GIS-based portal that acts as a one-stop repository of all industrial infrastructure-related information, including connectivity, infrastructure, natural resources and terrain, plot-level information on vacant plots, line of activity, and contact details.
  • The system has been integrated with industry-based GIS systems of 17 states so that details can be updated on the portal on a real-time basis.
  • Currently, the portal has approximately 4,000 industrial parks mapped across an area of 5.5 lakh hectares of land and serves as a decision support system for investors scouting for land remotely.
  • The industrial land bank has grown in popularity, with its website registering a 30% increase in page views each month since April 2021. 
  • The land bank can be accessed via its website or a mobile application on Android and iOS.
  • The application and portal do not require visitors to log in to access the information.

Vehicle Scrapping Policy

Context:

• Recently, the Union Road and Transport Minister announced the Vehicle Scrapping Policy in the Lok Sabha.
• It was first announced in the Union Budget for 2021-22.
• The policy is estimated to cover 51 lakh Light Motor Vehicles (LMVs) that are above 20 years of age and another 34 lakh LMVs above 15 years of age.
• India will also implement a Global Positioning System (GPS)-based toll collection system and do away with all toll booths within a year.

Aim:

• Reducing the population of old and defective vehicles, bringing down vehicular air pollutants, improving road and vehicular safety.

Provisions:

Fitness Test:

• Old vehicles will have to pass a fitness test before re-registration and as per the policy government commercial vehicles more than 15 years old and private vehicles which are over 20 years old will be scrapped.
• Old vehicles will be tested at the Automated Fitness Center and the fitness test of the vehicles will be conducted according to international standards.
• Emission test, braking system, safety components will be tested and the vehicles which fail in the fitness test will be scraped.
• The Ministry has also issued rules for the registration procedures for scrapping facilities, their powers, and the scrapping procedure to be followed.

Road Tax Rebate:

• The state governments may be advised to offer a road-tax rebate of up to 25% for personal vehicles and up to 15% for commercial vehicles to provide incentives to owners of old vehicles to scrap old and unfit vehicles

Vehicle Discount:

• Vehicle manufacturers will also give a discount of 5% to people who will produce the 'Scrapping Certificate' and registration fees will be waived off on the purchase of a new vehicle.

Disincentive:

• As a disincentive, increased re-registration fees would be applicable for vehicles 15 years or older from the initial date of registration.

Significance:

Creation of Scrap yards:

• It will lead to the creation of more scrap yards in the country and the effective recovery of waste from old vehicles.

Employment:

• In the new fitness centres, 35 thousand people will get employment and an investment of Rs 10,000 crores will be pumped in.

Improved Revenue:

• This will boost sales of heavy and medium commercial vehicles that had been in the contraction zone as a result of the economic slowdown triggered by the bankruptcy of IL&FS (Infrastructure Leasing & Financial Services) and the Covid-19 pandemic.
• The government treasury is expected to get around Rs 30,000 to 40,000 crores of money through Goods and Services Tax (GST) from this policy.

Reduction in Prices:

• Prices of auto components would fall substantially with the recycling of metal and plastic parts.
• As scrapped materials will get cheaper the production cost of the vehicle manufacturers will also reduce.

Reduce Pollution:

• It will help improve fuel efficiency and reduce pollution.
• As older vehicles pollute the environment 10 to 12 times more and estimated that 17 lakh medium and heavy commercial vehicles are more than 15 years old.

Electricity (Amendment) Bill, 2021

Context:

• Despite the last 25 years of power sector reforms, the electricity distribution companies are unable to pay the generation and transmission companies as well as banks / financial institutions due to poor financial health.
• In this situation, patchwork may not turn around the power sector and a holistic approach is the need of the hour.

Key features of Electricity (Amendment) Bill, 2021

• De-licensing: Electricity distribution is delicensed, at least in the letter, giving consumers a choice to choose a distribution company in their area.
• Universal service obligation: There is the provision of a universal service obligation fund, which shall be managed by a government company.  This fund shall be utilized to meet any deficits in cross-subsidy. In case of supply through pre-paid meters, the security deposit will not be required.

Appellate Tribunal for Electricity (APTEL):

• It is being strengthened by an increasing number of members. The domains from where the chairperson and members of Central Electricity Regulatory Commission (CERC) and State Electricity Regulatory Commissions (SERC) will come have been described.
• Renewable Power Obligation: Keeping in view the national climate change goals, the responsibility of fixing renewable power obligations (RPO) is shifted from state commissions to the central government.

Penalty:

• The penalty for contravention of the provisions of the Act has been increased up to Rs 1 crore. Non-fulfilment of RPO will attract stringent penalties as per the proposed amendments.

Important issues not addressed

Recovery of dues:

• Discoms collect revenue from the consumers and feed the supply chain upstream. They are, however, unable to recover their costs, out of which nearly 75-80% are power purchase costs.

Tariff:

• A broad guideline to reduce tariffs could have been part of the proposed amendment bill. Recently, the Forum of Regulators came out with a report on cost elements of tariff and suggested measures to reduce the same.

AT&C losses:

• The Aggregate Technical & Commercial (AT&C) losses of 12 states were more than 25% and of six states between 15 and 25%, according to a report released by the distribution utility forum based on the Uday dashboard in 2020.

Gati Shakti

Context:

• Announced by PM Modi on the eve of Independence day.

Highlights the scheme:

• Gati Shakti will be a National Infrastructure Master Plan for our country which will lay the foundation of holistic Infrastructure.
• This scheme of more than 100 lakh crores rupees will result in new employment opportunities for lakhs of youth.
• The plan will help raise the global profile of local manufacturers and help them compete with their counterparts worldwide.
• It also raises possibilities of new future economic zones.

Note:

• A similar plan, called the National Infrastructure Pipeline was previously announced.

About the National Infrastructure Pipeline:

• In the budget speech of 2019-2020, Finance Minister announced an outlay of Rs 100 lakh Crore for infrastructure projects over the next 5 years.

What is it?

• NIP is a first-of-its-kind initiative to provide world-class infrastructure across the country and improve the quality of life for all citizens.
• It will improve project preparation, attract investments (both domestic & foreign) into infrastructure, and will be crucial for attaining the target of becoming a $5 trillion economy by FY 2025.
• Covers both economic and social infrastructure projects.

Report by Taskforce:

• The task force headed by Atanu Chakraborty on National Infrastructure Pipeline (NIP), in May 2020, submitted its final report to the Finance Minister.

Important recommendations and observations made:

• Investment needed: ₹111 lakh crore over the next five years (2020-2025) to build infrastructure projects and drive economic growth.
• Energy, roads, railways and urban projects are estimated to account for the bulk of projects (around 70%).
• The centre (39%) and state (40%) are expected to have an almost equal share in implementing the projects, while the private sector has a 21% share.
• The aggressive push towards asset sales.
• The monetisation of infrastructure assets.
• Setting up of development finance institutions.
• Strengthening the municipal bond market.

National Monetisation Pipeline

Context:

• Recently, the government of India has launched the National Monetisation Pipeline (NMP). The NMP estimates an aggregate monetisation potential of Rs 6 lakh crores through core assets of the Central Government, over a four-year period, from FY 2022 to FY 2025.
• The plan is in line with Prime Minister's strategic divestment policy, under which the government will retain a presence in only a few identified areas with the rest tapping the private sector.

About the NMP:

• It aims to unlock value in brownfield projects by engaging the private sector, transferring them revenue rights and not ownership in the projects, and using the funds generated for infrastructure creation across the country.
• The NMP has been announced to provide a clear framework for monetisation and give potential investors a ready list of assets to generate investor interest.
• Union Budget 2021-22 has identified the monetisation of operating public infrastructure assets as a key means for sustainable infrastructure financing.
• Currently, only assets of central government line ministries and Central Public Sector Enterprises (CPSEs) in infrastructure sectors have been included.
• The government has stressed that these are brownfield assets, which have been “de-risked” from execution risks, and therefore should encourage private investment.
• Roads, railways and power sector assets will comprise over 66% of the total estimated value of the assets to be monetised, with the remaining upcoming sectors including telecom, mining, aviation, ports, natural gas and petroleum product pipelines, warehouses and stadiums.
• In terms of annual phasing by value, 15% of assets with an indicative value of Rs 0.88 lakh crore are envisaged for rollout in the current financial year.
• The NMP will run a co-terminus with the Rs 100 lakh crore National Infrastructure Pipeline (NIP) announced in December 2019.
• The estimated amount to be raised through monetisation is around 14% of the proposed outlay for the Centre of Rs 43 lakh crore under NIP.
• 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.
• Other Initiatives for Infrastructure Development include the Scheme of Financial Assistance to States for Capital Expenditure, Industrial corridors, etc.

Delhi-Alwar RRTS (Rapid Rail transit system) corridor

Context:

• The Supreme Court-Appointed Committee has permitted the construction of a stretch of the proposed Delhi-Alwar RRTS (Rapid Rail transit system) corridor under the Aravalli Biodiversity Park and the extended ridge area.

Committee’s Report:

• The committee observed that the project is in the public interest and since the proposed rail corridor will run 20 metres below the ground, trees will not have to be cut.
• There will be no construction on the surface in the Morphological Ridge area.
• A ridge or a mountain ridge is a geographical feature consisting of a chain of mountains or hills that form a continuous elevated crest for some distance.
• The Aravalli ridge areas, which are essentially extensions of the Aravalli ranges and extend over 7,000 hectares in Delhi, are considered the lungs of the capital (Delhi).

Delhi-Alwar RRTS Corridor:

• It is a 164-km rapid rail corridor, which will be a mix of elevated tracks and tunnels. It is slated to be implemented in three phases.
• A 3.6-km stretch of the corridor is supposed to pass below the extended or ‘morphological’ ridge in South Delhi.
• 1.7-km of the 3.6-km stretch under consideration will pass below the Aravalli Biodiversity Park near Vasant Kunj, Delhi.

Significance of Corridor:

Travel Time:

• It is expected to reduce travel time between these places to 117 minutes – a little less than two hours.

Air Quality:

• It is expected to improve the air quality in Delhi/NCR (National Capital Region), because the share of public transport is expected to increase.

Ease in Road Traffic:

• Road traffic congestion is expected to ease with a better transport network and the project is expected to address regional connectivity issues and develop an efficient multimodal transport system connecting Delhi-NCR with the road, rail and air.

Aravalli Biodiversity Park:

 

• It is developed on 699 acres of land located in South Delhi near Vasant Vihar.
• The area is highly degraded due to past mining and infested with Prosopis juliflora (an Invasive Shrub).
• The biodiversity of Delhi is nearly extinct.
• The prime objective of ABP is to bring back the lost biodiversity of Delhi Aravallis. The other objective of ABP is to promote nature education among students and create environmental awareness among the public.
• It is also helping in preserving the threatened medicinal plants of the Aravallis.

Alternative Investment Fund for export-oriented micro, small and medium enterprises (MSMEs)

Context:

• The finance minister has launched Rs 250 crore worth Alternative Investment Fund for export-oriented micro, small and medium enterprises (MSMEs).

The objective of the fund:

• To Identify Indian enterprises with potential advantages by way of technology, products or processes along with export potential, but which are currently underperforming or unable to tap their latent potential to grow.
• The main purpose is to encourage MSMEs as they are vital to the economy in terms of creating jobs, fostering innovations and reviving the economy.

Type of fund:

• Ubharte sitaare fund is a type of alternative investment fund.

Key features of the scheme:

• The Fund has been set up by Exim Bank and SIDBI (Small Industries Development Bank of India).
• The fund is a mix of structured support, both financial and advisory services.
• It will also have a Greenshoe Option of Rs 250 crore.
• The Fund covers potential companies, across various sectors such as pharma, auto components, engineering solutions, agriculture, and software etc.

Alternative Investment Fund (AIF):

• Alternative Investment Fund comprises pooled investment funds that invest in venture capital, private equity, hedge funds, managed futures etc.
• In simpler terms, an AIF refers to an investment that differs from conventional investment avenues such as stocks, debt securities, etc.
• AIF does not include funds covered under the SEBI (Mutual Funds) Regulations, 1996, SEBI (Collective Investment Schemes) Regulations, 1999 or any other regulations of the Board to regulate fund management activities.
• Nonetheless, the alternative investment funds have to register with SEBI.

Inland Vessels Bill, 2021

Context:

• Recently, Parliament passed a new law to bring uniformity in the rules and regulations governing inland waterways and navigation on them. The Inland Vessels Bill, 2021 replaces the century-old Inland Vessels Act, 1917.

Issues with the 1917 Act

• The 1917 Act was seen as a purely consolidating legislation with limited applicability and purposes. 
• It had undergone several amendments, the last major ones in 1977 and 2007.  
• It had provisions for the restrictive movement of mechanically propelled vessels within the jurisdiction of the state government. 
• Non-uniform standards and regulations varied from one State to another. 
• The government wants to promote inland waterways as a supplement to freight movement across India.  

Aim and objective of the bill

• It seeks to bring all inland waterways in India and the movement of vessels on them for any purpose under a central regulatory regime. 
• It is aimed at developing India’s inland waterways as a viable, thriving mode of transport, especially for cargo. The inland waterways network spans close to 15,000 km across rivers, channels, backwaters, creeks etc. 
• Key features of the Inland Vessels Bill, 2021

Registration:

• To operate in inland waters, vessels must have a certificate of survey and registration.  
• Those with Indian ownership must be registered with the Registrar of Inland Vessels. 
• It will be valid across India.  
• While the state government will issue the certificate, the form will be prescribed by the Centre like in the case of motor vehicles.  
• The Bill defines mechanically propelled vessels like ships, boats, sailing vessels, container vessels, and ferries.  

Functions of the central government: 

• It empowers the Centre to prescribe what kind of pollutants and sewage vessels and can discharge, and how much. 
• It envisages maintaining a fund, which will be used for emergency preparedness, checking pollution and boosting navigation.  
• The Centre will frame classification, standards of design, construction, and crew accommodation.  
• Construction or modification will require the approval of the designated authority.  
• All such vessels are to be registered with respective states or Union Territories. Their movement and identities will be logged in a central database. 
• The new law mandates that if any distress or SOS signal is sent out by the master of a vessel, any other vessel nearby must respond like maritime custom and rules on the sea.  
• In case of accidents, the nearest police station is to be involved for inquiry and action.  
• Non-compliance will attract a penalty of up to Rs 10,000 for the first offence, and Rs 25,000 for subsequent offences. 
• However, the Bill has been criticized on the ground that it takes away a lot of rights of the states and vests them with the Centre.

SPIN Scheme

Context:

• The SPIN (Strengthening the Potential of India) scheme was recently launched by the Khadi and Village Industries Commission (KVIC) to help potters become self-sufficient.

About

• It is an initiative through which KVIC will make it easier for potters to obtain low-interest bank loans, allowing them to diversify their businesses and increase their income.

Objective:

• It is aimed at sustainable development by creating local self-employment which is aligned with the Prime Minister’s commitment of “Job to Every Hand” (Har Hath Me Kaam).

Features:

• It is a no-subsidy program.
• KVIC facilitates potters to get bank loans under Pradhan Mantri Shishu Mudra Yojana.
• No financial burden on the exchequer.
• Beneficiaries can repay the loans in easy instalments.

Significance:

• It will reduce their dependence on government subsidies and thus make potters self-reliant.

KVIC:

• A statutory body established under the Khadi and Village Industries Commission Act, 1956.
• It functions under the Ministry of Micro, Small and Medium Enterprises.
• In 2017-18, it launched the Honey Mission programme.
• Recently, it launched a project named Bamboo Oasis on Lands in Drought (BOLD) from the village NichlaMandwa in Udaipur, Rajasthan

PLI for Texttiles Sector

Context:

• The Government has approved the Production Linked Incentive (PLI) Scheme for Textiles with a budgetary outlay of Rs. 10,683 crore. 
• The scheme has been designed with a view to providing a big fillip to the man-made fibres and technical textiles segments of the industry.

About:

Aim  of the Scheme:

• To promote industries that invest in the production of 64 select products.
• The product lines include
  • 40 in man-made fibre apparel, 
  • 14 in man-made fibre fabrics, and 
  • 10 technical textile segments/products. 
• The investment period is 2 years, and the incentive will be paid for 5 years after the first year of post-investment operation. 
• The scheme is for two types of investments. 
• The first entails a minimum of 300 crores in plant, machinery, equipment and civil works in a unit.
• The unit must register a minimum turnover of 600 crores once it commences operation.
• The second is for a minimum of 100 crores, where the business achieves a minimum turnover of 200 crores. 
• Thus, the incentive is based on a combination of investment and turnover.
• Priority will also be given to investment in aspirational districts, Tier­3, Tier­4 towns, and rural areas. 

Expected benefits from the Scheme:

• Lower dependence on imports. 
• During 2018­-19, the import of man ­made fibre garments and the man-made fibre yarn and fabrics jumped up significantly.
• Recently, the government removed the anti-dumping duty on viscose staple fibre and Purified Terephthalic Acid, 
• This step has made most man-made fibre available in India at internationally competitive prices.
• With an incentive to invest in production too, Indian manufacturing of man­made fibre value ­added products is expected to increase.
• Thus, it will bring down imports, especially of man ­made fibre apparel and fabrics, from countries such as China and Bangladesh.
• Leveraging Economies of Scale, the scheme will help Indian companies to emerge as Global Champions in the Textile Sector.
• It will incentivise the companies to grow more as higher the turnover, more is the incentive.
• Reduce unemployment:
  • It will help in the creation of additional employment of over 7.5 lakh people directly and several lakhs more for supporting activities.
  • The scheme will also pave the way for the participation of women in large numbers.
  • As it is evident from the experience of Bangladesh, the Textile and Apparel industry helps in women empowerment.
• New Investment and Production Boom:
  • It is expected that this scheme will result in a fresh investment of above Rs 19,000 crore.
  • It may also result in an additional production turnover of over Rs.3 lakh crore in 5 years.
• Focus on Aspirational Districts:
  • Higher priority for investment in Aspirational Districts & Tier 3/4 towns
  • The scheme will positively impact especially States like Gujarat, UP, Maharashtra, Tamil Nadu, Punjab, AP, Telangana, Odisha etc.
• Criticism of the Scheme
  • Less or No impact on Traditional Textile Segment
  • The scheme will not impact traditional textile segments such as jute or cotton. 
  • Separate schemes will be required for them.
  • Targets Limited Number of Players even in Target Segment
  • It has minimum investment thresholds and select product lines and hence targets a limited number of players.
• Yet to announce the final list
  • The final list of products eligible for the scheme is yet to be notified even 10 months after the proposal.
  • It is expected that most of the top globally traded man-made fibre products in which India’s share is less than 5% will be covered in the final list.

Transport and Marketing Assistance (TMA)

Context:

• The government enhanced the scope of the Transport and Marketing Assistance (TMA) scheme for specified agriculture products by including dairy products under its purview and increasing the rates of assistance.
• The scheme has been extended till March 31, 2022.

About:

• The “Transport and Marketing Assistance” (TMA) for specified agriculture products scheme aims to provide assistance for the international component of freight and marketing of agricultural produce which is likely to mitigate the disadvantage of the higher cost of transportation of export of specified agriculture products due to trans-shipment and to promote brand recognition for Indian agricultural products in the specified overseas markets.

Coverage:

• All exporters, duly registered with relevant Export Promotion Council as per Foreign Trade Policy, of eligible agriculture products, shall be covered under this scheme.
• The assistance, at notified rates, will be available for the export of eligible agriculture products to the permissible countries, as specified from time to time.

Eligibility of Products:

• The assistance will be provided on the export of all agriculture products covered in HSN chapter 1 to 24 including marine and plantation products with a few exceptions.

Exceptions:

• Products exported from SEZs.
• Exports through trans-shipment, i.e. exports that are originating in a third country but trans-shipped through India;
• Export products that are subject to Minimum Export Price or export duty, unless specifically notified.
• Export of goods through courier or foreign post offices using e-Commerce.

Pattern of Assistance:

• Assistance under TMA would be provided in cash through a direct bank transfer as part reimbursement of freight paid.
• The level of assistance would be different for different regions as notified from time to time for the export of eligible products.
• The assistance shall be admissible only if payments for the exports are received in Free Foreign Exchange through normal banking channels.
• The scheme shall be admissible for the exports made through EDI ports only.
• The scheme covers freight and marketing assistance for export by air as well as by sea (both normal and reefer cargo)

Rail Kaushal Vikas Yojana

Context:

• Recently, Rail Kaushal Vikas Yojana, a programme under the aegis of Pradhan Mantri Kaushal Vikas Yojana(PMKVY) was launched.

About:

• It is a skill development programme, where training is provided to youth with a special focus on jobs relevant to the Railways, in four trades viz. Electrician, Welder, Machinist and Fitter and other trades will be added by zonal railways and production units based on regional demands and needs assessment.
• Training will be provided to apprentices under the Apprentice Act 1961.

Objectives:

• To train 50,000 candidates over the next three years.
• To impart training skills to the youth in various trades to bring qualitative improvement.

Eligibility:

• Candidates who are 10th passed and between 18-35 yrs.
• Participants in the scheme shall however have no claim to seek employment in Railways on the basis of this training.

Steering Committee for Local Value Addition, Manufacturing and Exports or SCALE 

Context:

• Ministry of Commerce and Industry and Manufacturing industry has set up the Steering Committee for Local Value Addition, Manufacturing and Exports or SCALE to revive manufacturing. 

About:

Aim:

• Navigating Indian manufacturing away from the import-dependence pitfalls exposed by the COVID-19 pandemic. 

Composition:

• The SCALE includes the top officials from three industry bodies — CII, FICCI and Asshocham — three representatives from the government and three industry leaders. 
• The group is working on ideas for 17 sectors — from toys, textiles, furniture and e-cycles to drones, and even fisheries.
• It shall have no deadlines and will follow a rigorous process of consultations to align different factions of the industry with varying agendas at multiple levels. 

Services Exports from India Scheme (SEIS)

Context:

• The Directorate General of Foreign Trade has imposed a cap on the total entitlement under the Services Exports from India Scheme (SEIS) at Rs 5 crore per exporter for shipments done in 2019-20 (FY20). The move is expected to benefit small businesses in the services sector.

About SEIS:

• Service Exports from India Scheme (SEIS) aims to promote the export of services from India by providing duty scrip credit for eligible exports.
• Under the scheme, service providers, located in India, would be rewarded under the SEIS scheme, for all eligible export of services from India.
• SEIS was earlier termed as Served from India Scheme (SFIS).

Eligibility:

• Service Providers of notified services, located in India are eligible for the Service Exports from India Scheme.
• To be eligible, a service provider (Company / LLP / Partnership Firm) should have a minimum net free foreign exchange earnings of USD 15000 in the preceding financial year to be eligible for duty credit scrips.
• For proprietorships or individual service providers, minimum net foreign exchange earnings of USD10,000 in the preceding financial year is required to be eligible for the scheme.
• Also, in order to claim reward under the SEIS scheme, the service provider shall have to have an active Import Export Code (IE Code) at the time of rendering such services for which rewards are claimed.

Exports rose 45% in August

• Context:
  • India’s merchandise exports in August touched $33.14 billion, 45.17% higher than a year ago and 27.5% over the pre-pandemic level of August 2019
• About:
  • Despite the increase in export, the trade deficit widened to a four-month high driven by a sharp uptick in gold imports.
  • Merchandise imports grew during this time. It grew 51.47% year-on-year to $47 billion, which is also 18% higher than August 2019. This was the primary reason for the widened trade deficit despite an increase in export.
  • Gold saw a large increase in import numbers. Gold imports surged to a five-month high of $6.7 billion in August 2021 and were responsible for 88% of the rise in the merchandise trade deficit relative to July 2021.
  • The government has set a target of merchandise exports worth $400 billion for the year and so far has achieved 163 billion of dollar exports.
  • Though the global trade is recovering which is helping Indian exporters, attention must be given to resolving increasing freight rates, large container shortages and releasing benefits under various export schemes
  • Growth in export in the labour-intensive sectors such as textiles and the apparel sector has been less than expected (14%) during this period.

National Monetisation Pipeline (NMP)

• Context:
  • NITI Ayog recommendations to achieve monetisation goal.
• National Monetisation Pipeline (NMP):
  • The National Monetisation Pipeline (NMP), prepared by the NITI Aayog, aims to create a virtuous cycle of “develop, commission, monetise and invest” in national infrastructure.
  • It aims to unlock value in brownfield projects by engaging the private sector, transferring to revenue rights and not ownership in the projects, and using the funds generated for infrastructure creation across the country.
• NITI Aayog Recommendations:
  • Bringing InvITs Under Insolvency and Bankruptcy Code (IBC): Extending IBC provisions to InvITs would help lenders access a faster and more effective debt restructuring and resolution option.
  • Tax Breaks: Tax-efficient and user-friendly mechanisms like allowing tax benefits in InvITs would attract retail investors (individual/non-professional investors).
• Rationale For NMP:
  • India needs more infrastructure but the public sector simply doesn’t have the resources to build it. There are two possible responses.
  • For setting new infrastructure, one can think of bringing in the private sector with a contractual framework for what it has to do, and then let it bring its own resources.
  • To recognise that there are more risks in the construction stage and it is perhaps better to let the public sector build the asset and then sell it off to private players or if not an outright sale, let the private sector manage it.
• Building new infrastructure has two constraints for any country including India:
  • Access to patient, predictable and cheap capital; and
  • Execution capability, where government and private agencies can take up multiple marquee projects simultaneously.
  • Thus, NMP is devised to provide a stimulus to improve the infrastructure sector.

• Advantages of NMP:
  • Generate Resource Augmentation:
    • NMP will help the government get access to capital via interested private parties.
    • These investors will maintain and operate the monetised assets, generating cash flows, but also create technical and human resource capacity in the infrastructure sector.
    • This virtuous cycle of resource augmentation, in turn, will help the government invest in new infrastructure immediately, without waiting for annual budgetary capital expenditure allocations.
  • Government Maintains the Ownership of Asset:
    • The existing brownfield, de-risked assets, which are part of the four-year monetisation pipeline, will help create execution capacities for new greenfield assets.
    • The government is monetising the rights to operate and maintain the assets, not their ownership.
  • Fair Value Share:
    • Contracts will be designed in a way that the government receives fair present value from the monetisation, while private parties get enough operational flexibility and regulatory visibility.
    • Moreover, given that the contract terms can be 25 years or even higher, the bidding interest shows investors are confident of long-term regulatory stability and certainty.
  • Better Targeted:
    • NMP introduces no new financial liability to the taxpayers and, in fact, represents a better targeted “user pays” structure.
    • Eg. If a stadium in Delhi is not monetised, taxpayers around the country as a whole will pay for its upkeep. But a monetised stadium is paid for only by those accessing the facilities in Delhi. This is a much better way to generate operational revenues.
  • Successful Examples:
    • The asset monetisation idea has already been tried by the National Highways Authority of India and Power Grid Corporation of India in various forms.
    • Even at the state level, the Mumbai-Pune Expressway is maintained by a concessionaire against tolling rights.
• Associated Challenges:
  • Realising Adequate Value:
    • The First and foremost criticism is whether the adequate value from the assets will be realised or not.
    • This depends on the quality of the bidding process and whether enough private players are attracted to bid.
  • Ensuring Sufficient Participation From Bidders:
    • The only way of ensuring that asset monetisation doesn’t lead to cronyism is to make the bidding conditions such that the people eligible to bid are not a small, predetermined set.
    • However, because of the capital intensity of the project, not everybody is going to be able to bid. Even so, you can ensure that there is sufficient participation.
  • Execution Risk:
    • There will be execution risk in such a large programme. However, this is exactly why NMP is not adopting a one-size-fits-all approach.
  • Issue of Taxpayers’ Money:
    • The taxpayers have already paid for these public assets — and, so, why should they pay again to a private party to use them.
  • Suboptimal Contractual Enforcement:
    • A criticism is born out of scepticism about a sub-optimal contractual and judicial framework to make such a plan a success.
  • Monopolistic Outlook:
    • A few business houses will corner the bulk of the assets offered under NMP.
• Way Forward:
  • Other Ways of Raising Resources: The other methods of raising resources such as setting up of a development finance institution (DFI) and raising the share of infrastructure investment in the central and State Budgets can be adopted.
  • Dispute Resolution Mechanism: Strengthening the judicial processes can not be much emphasised. Efficient and effective dispute resolution mechanisms will naturally and automatically accrue to the design and execution of NMP too.
  • Streamline PPP: Recent experience suggests that public-private partnerships (PPP) now involve transparent auctions, a clear understanding of the risks and payoffs, and an open field for any and all interested parties.
  • Thus, the utility of PPP in greenfield projects can not be neglected.
  • Transparent Bidding: Transparent bidding is one of the most important parts of the NMP project. Thus, maintaining transparency is the key to the adequate realisation of the asset value.

Green Hydrogen

• Context:
  • The government is working on plans to boost the use of green hydrogen in the oil refining and fertiliser production sectors.
• Green Hydrogen:
  • Green hydrogen is produced by the electrolysis of water using renewable energy (like Solar, Wind) and has a lower carbon footprint. 
    • The electricity splits water into hydrogen and oxygen. (By-Products: Water, Water Vapor.)
  • Green hydrogen can drive India’s transition to clean energy, combat climate change.
• National Hydrogen Energy Mission:
  • Part of the 2021-22 Budget proposals; will draw up a road map for using hydrogen as an energy source. The initiative has the potential of transforming transportation.
  • The launch of NHM would enable the generation of hydrogen “from green power sources”.
  • The added advantage of hydrogen is that, apart from transportation, it can be a “decarbonizing agent” for industries like chemicals, iron, steel, fertilizer and refining, transport, heat and power.
• Other types of hydrogen:
  • Grey hydrogen is produced from natural gas, fossil fuels where the associated emissions are released into the air.
    • Constitutes India’s bulk Production.
    • By product: CO2
  • Blue hydrogen is produced from natural gas, where the emissions are captured using carbon capture and storage.
    • By product: CO, CO2
    • By-products are Captured and Stored, so better than gey hydrogen.

Coal Shortage

• Context:
  •  High demand, low supply: Power plants left with 4 days of coal stock

• Coal Crisis:
  • India’s power sector is the largest consumer of coal in the country, with state-run Coal India Ltd (CIL) being the largest miner of fossil fuel.
  • A sharp uptick in power demand and low supply of coal due to the monsoon has pushed the overall stock of coal at thermal power plants in India down.

• Coal-“buried sunshine”:
  • The most abundantly found fossil fuel.
  • The coal which we are using today was formed millions of years ago when giant ferns and swamps got buried under the layers of earth.
  • The coal-producing areas of India include Raniganj, Jharia, Dhanbad and Bokaro in Jharkhand.
  • Coal is also classified into four ranks: anthracite, bituminous, subbituminous, and lignite. The ranking depends on the types and amounts of carbon the coal contains and on the amount of heat energy the coal can produce.

Air India Privatisation

• Context:
  • Tata Sons makes winning bid of Rs 18,000 cr for Air India: Govt.
• Air India Disinvestment
  • Recently, the government approved the highest price bid of Talace Pvt Ltd, a wholly-owned subsidiary of Tata Sons Pvt. Ltd for sale (Disinvesting) of 100% equity shareholding of Government of India in Air India (AI).

• Disinvestment:
  • Disinvestment means the sale or liquidation of assets by the government, usually Central and state public sector enterprises, projects, or other fixed assets.
  • The government undertakes disinvestment to reduce the fiscal burden on the exchequer, or to raise money for meeting specific needs, such as to bridge the revenue shortfall from other regular sources.
  • Strategic Disinvestment:
    • Strategic disinvestment is the transfer of the ownership and control of a public sector entity to some other entity (mostly to a private sector entity).
    • Unlike the simple disinvestment, strategic sale implies a kind of privatization.
  • The Department of Investment and Public Asset Management (DIPAM) under the Ministry of Finance is the nodal department for the strategic stake sale in the Public Sector Undertakings (PSUs).

Ordnance Factory Board

• Context:
  • Corporatization of Ordnance Factory Board
  • Seven new defence companies carved out of Ordnance Factory Board (OFB), were dedicated to the nation
• OFB:
  • It is an umbrella body for the ordnance factories and related institutions and is currently a subordinate office of the Ministry of Defence (MoD).
  • The first Indian ordnance factory was set up in the year 1712 by the Dutch Company as a GunPowder Factory, West Bengal.
  • A major chunk of the weapon, ammunition and supplies for not just armed forces but also paramilitary and police forces comes from the OFB-run factories.
• Corporatization:
  • In September 2020, an Empowered Group of Ministers (EGoM) for Corporatization was constituted under the chairmanship of the Defence Minister.
  • The corporatization will result in the conversion of the OFB into (single or multiple) fully (100%) government-owned entities under the Companies Act, 2013 like other public sector undertakings.

 

Renewable Energy Certificate (REC) mechanism

• Context:
  • Union Minister of Power and New & Renewable Energy has given his assent to amendments in the existing Renewable Energy Certificate (REC) mechanism.   
• Aim:
  • The intent behind this decision is to align the ‘mechanism’ with the emerging changes in the power scenario and also to promote new renewable technologies.
• Significance of the move:
  • It will provide some flexibility to the players, additional avenues, rationalization and also address the RECs validity period uncertainty issues.
• Salient features of changes proposed:
  • The validity of REC would be perpetual., till it is sold.
  • Floor and forbearance prices are not required to be specified.
  • Central Electricity Regulatory Commission (CERC) to have monitoring and the surveillance mechanism to ensure that there is no hoarding of RECs.
  • The RE generator who are eligible for REC will be eligible for issuance of RECs for the period of PPA as per the prevailing guidelines.
  • The existing RE projects that are eligible for REC would continue to get RECs for 25 years.
  • A technology multiplier can be introduced for the promotion of new and high priced RE technologies, which can be allocated in various baskets specific to technologies depending on maturity.
  • RECs can be issued to obligated entities (including DISCOMs and open access consumers) which purchase RE Power beyond their RPO compliance notified by the Central Government.
  • No REC to be issued to the beneficiary of subsidies/concessions or waiver of any other charges. The FOR to define concessional charges uniformly for denying the RECs.
  • Allowing traders and bilateral transactions in the REC mechanism.
  • The changes proposed in revamped REC mechanism will be implemented by CERC through the regulatory process.
• What is the REC mechanism?
  • To address mismatch between the availability of RE sources and the requirement of the obligated entities to meet their renewable purchase obligation (RPO), Pan-India market-based Renewable Energy Certificate (REC) Mechanism was introduced in the year 2010.
• What is the objective of the Renewable Energy Certificate (REC) mechanism?
  • The Renewable Energy Certificate (REC) mechanism is a market-based instrument to promote renewable energy and facilitate the compliance of renewable purchase obligations (RPO).
  • It is aimed at addressing the mismatch between the availability of RE resources in the state and the requirement of the obligated entities to meet the renewable purchase obligation (RPO).
• What is the denomination of each REC issued?
  • One Renewable Energy Certificate (REC) is treated as equivalent to 1 MWh.
• How many types of RECs are there?
  • There are two categories of RECs, viz., solar RECs and non-solar RECs.
  • Solar RECs are issued to eligible entities for the generation of electricity based on solar as a renewable energy source, and non-solar RECs are issued to eligible entities for the generation of electricity based on renewable energy sources other than solar.
  • The solar certificate shall be sold to the obligated entities to enable them to meet their renewable purchase obligation for solar, and the non-solar certificate shall be sold to the obligated entities to enable them to meet their obligation for purchase from renewable energy sources other than solar.

The Draft Electricity (Rights of Consumers) Amendment Rules, 2021

• Context:
  • The Draft Electricity (Rights of Consumers) Amendment Rules, 2021 were recently published on September 30, 2021.
  • Please note that the draft amendment introduces some key additions and revisions to the Electricity (Rights of Consumer) Rules, 2020.
• Overview of the new rules:
  • Distribution licencees should ensure 24×7 uninterrupted power supply to all consumers so that there is no requirement of running Diesel Generating (DG) sets.
  • The electricity regulatory commission could consider a separate reliability charge for the distribution company if it required funds for investment in infrastructure.
  • The state electricity regulatory commission should also make a provision of penalty in case the standards laid down are not met by the distribution company.
• Electricity (Rights of Consumers) Rules, 2020:
  • These rules serve to “empower” consumers with rights that would allow them to access a continuous supply of quality, reliable electricity.
  • The following areas are covered under the rules:
    • Rights of consumers and Obligations of Distribution licensees;
    • release of new connection and modification in existing connection;
    • metering arrangement;
    • billing and payment;
    • disconnection and reconnection;
    • reliability of supply;
    • consumer as ‘prosumer’;
    • standards of performance of licensee;
    • compensation mechanism;
    • call centre for consumer services;
    • grievance redressal mechanism.
• Key Provisions:
  • States will have to implement these rules and discoms will be held more accountable for issues like delays in providing and renewing connections of electricity.
  • They are also obligated to provide round-the-clock electricity to consumers, as per the Ministry of Power.
  • To ensure compliance, the government will apply penalties that will be credited to the consumer’s account.
  • There are certain exceptions to these rules, especially where used for agricultural purposes is concerned.

One Sun, One World, One Grid (OSOWOG)

• Context:
  • India and the UK are likely to announce a joint declaration on “one sun, one world, one grid” — or OSOWOG at the upcoming Conference of Parties (COP26).
  • The UN Climate Change Conference, or COP26, is scheduled to be held between 31st October and 12th November in Scotland.
  • The concept of OSOWOG is what the British have called a green grid.
  • The idea behind the concept is a trans-national electricity grid supplying solar power across the globe.
• OSOWOG or the Green Grid:
  • The vision behind the OSOWOG is ‘The Sun Never Sets’ and is a constant at some geographical location, globally, at any given point of time.
  • This is by far one of the most ambitious schemes undertaken by any country (India) and is of global significance in terms of sharing economic benefits.
  • It has been taken up under the technical assistance program of the World Bank.
  • The OSOWOG plan may also leverage the International Solar Alliance (ISA), co-founded by India that has 80 countries as members.
• With India in the middle, the solar spectrum can easily be divided into two broad zones, which are:
  • The Far East includes countries like Myanmar, Vietnam, Thailand, Lao, Cambodia etc.
  • Far West covering the Middle East and the Africa Region.
• Three Phases of the Plan:
  • First Phase: It will entail interconnectivity within the Asian continent.
  • Second Phase: It will add Africa.
  • Third Phase: It is about global interconnection.
• Significance of the Project:
  • Help all the participating entities in attracting investments in renewable energy sources as well as utilizing skills, technology and finances.
  • Lead to reduced project costs, higher efficiencies and increased asset utilization for all the participating entities.
  • Resulting economic benefits would positively impact poverty alleviation and support in mitigating water, sanitation, food and other socio-economic challenges.
  • Allow national renewable energy management centres in India to grow as regional and global management centres.
  • This move, during the time of the Covid-19 pandemic, gives India the opportunity to be seen as taking a lead in evolving global strategies.
• Issues with the Project:
  • Geopolitics:
    • The project is seen as an Indian endeavour for world leadership but under Covid-19 uncertainties, the geopolitical implications of projects like OSOWOG are hard to decipher.
    • The mechanism of cost-sharing will be challenging, given the varied priorities of participating countries depending on their socio-economic orders.
  • Globalisation vs De-Globalisation:
    • The OSOWOG will turn out to be an expensive, complex and very slow progress project.
    • The strategic benefits, if any, of having a single grid will be obliterated in the wake of any geopolitical problem.
    • In India, the major issue of renewable energy developers is to deal with different state governments and hence, different laws and regulations.
    • Further, the project also contradicts the Prime Minister’s Aatmanirbhar Bharat (self-dependent India) vision, as it extends the reliance for a major strategic entity, energy supply, to other countries through this grid.
  • Centralised vs Distributed Generation:
    • There is a difference in voltage, frequency and specifications of the grid in most regions.
    • Maintaining grid stability with just renewable generation would be technically difficult.
• Way Forward:
  • The move is the key to future renewable-based energy systems globally because regional and international interconnected green grids can enable sharing and balancing of renewable energy across international borders.
  • It allows grabbing opportunities to learn quickly from global developments and share renewable energy resources to reduce the global carbon footprint and insulate societies from pandemics.
  • Institution building is key to fulfilling the ambitions of a multi-country grid project. In this context, ISA (International Solar Alliance) can act as an independent supranational institution to make decisions about how the grid should be run and conflicts settled.

How a railway station’s name is changed?

• Context:
  • It is a common misconception that Indian Railways can change the name of its stations. That is not the case.
  • The name of Bhopal’s Habibganj railway station has been changed to Rani Kamlapati station. 
• Who was queen Kamlapati?
  • Rani Kamlapati was the widow of Nizam Shah, whose Gond dynasty ruled the then Ginnorgarh, 55 km from Bhopal, in the 18th century. Nizam Shah built the famous seven-storeyed Kamlapati Palace in her name in Bhopal.
• How are railway station names changed?
  • While Indian Railways may own the station, it does not get involved in the business of naming it. This is left to the discretion of the state government concerned.
  • Change of station names is entirely a state subject even though Railways belong to the Union government.
  • The state governments send the request to the Ministry of Home Affairs, the nodal ministry for these matters, which then accords its approval, keeping the Ministry of Railways in the loop.
• What happens when a name is changed?
  • A new station “code” for railway operation purposes may need to be invented. For instance, Faizabad Junction’s code used to be “FD” but post the name change, the new code is “AYC”.
  • The name change is then fed into its ticketing system so that the new name along with the code is reflected on its tickets and reservation and train information.
  • Lastly, it physically changes the name written at the station — building, platform signage, etc, and also in its communication materials for all practical purposes.

Shale gas

 

• Context:
  • What is shale, and its potential in India.
• The key difference between shale oil and conventional crude:
  • The former also called ‘tight oil’, is found in smaller batches, and deeper than conventional crude deposits.
  • Its extraction requires the creation of fractures in oil and gas-rich shale to release hydrocarbons through a process called hydraulic fracking.
• Details about shale:
  • Russia and the US are among the largest shale oil producers in the world.
  • Currently, there is no large-scale commercial production of shale oil and gas in India.
  • ONGC’s assessment found prospects of shale oil at the Cambay basin in Gujarat and the Krishna Godavari basin in Andhra Pradesh, the company concluded that “ the quantity of oil flow observed in these basins” did not indicate “commerciality”.

Expressway

• Context:
  • Three successive regimes in UP have focused extensively on building expressways, but these have also faced delays, political one-upmanship and public protests. As a result, policy and planning have evolved.

• Difference between highway and expressway:
  • National Highways are the backbone of the road infrastructure that connects every major city of India whether ports, capital of states etc. It consists of two, four or more lanes built by charcoal and a few by cement concrete. That is in India, National Highways are at-grade roads. This network is owned by the Ministry of Road Transport and Highways. It is constructed and managed by NHAI, NHIDCL and PWDs) of state governments.
  • Expressways are the highest class roads in India. These are the highways with six to eight-lane controlled access road networks. Basically, expressways are of high quality consisting of modern features like access ramps, grade separation, lane dividers and elevated sections.

Oil strategic reserve

• Context:
  • Why do oil-consuming countries keep strategic petroleum reserves? Why have the United States, India and some other nations announced concerted action to release a part of these reserves?
• Why are these countries releasing oil from strategic reserves?
  • It is part of a concerted effort to negate upward pressure on crude prices from OPEC+ to decide production quotas — keeping supply below demand, even though the action is largely symbolic in nature.
• India's stand:
  • India has called for an increase in the supply by OPEC+ at multiple international forums and in bilateral talks with oil-producing countries. India argues that high crude oil prices are impacting the post-Covid economic recovery, especially in developing countries.
• How will this affect crude oil prices?
  • OPEC+ countries are not releasing oil according to the rising international demand. supply of oil by other countries will reduce the pressure from the international prices. (more supply equals to fewer prices)
• What is strategic reserve?
  • Strategic petroleum reserves are huge stockpiles of crude oil to deal with any crude oil-related crisis like the risk of supply disruption from natural disasters, war or other calamities.
• Indian strategic reserve:
  • Visakhapatnam (Andhra Pradesh)
  • Mangaluru (Karnataka)
  • Padur (Karnataka).
  • The government has also given approval for the setting up of two additional facilities at Chandikhol (Odisha) and Padur (Karnataka).
• These facilities can provide for about 9.5 days of India’s crude oil requirements based on 2019-20 consumption levels.
• The construction of the Strategic Crude Oil Storage facilities in India is being managed by Indian Strategic Petroleum Reserves Limited (ISPRL).
• ISPRL is a wholly-owned subsidiary of the Oil Industry Development Board (OIDB) under the Ministry of Petroleum & Natural Gas.

Jewar Airport

• Context:
  • Jewar airport is critical to support the growth of air traffic. Delhi's IGI airport could be saturated within a decade.
  • The airport, the first phase of which is scheduled to open in 2024, is being built through a public-private partnership (PPP) with an investment of Rs 5,730 crore. The airport will be spread over an area of 5,000 hectares and is being developed by Zurich International Airport AG.

5G Spectrum Pricing

• Context: An empowered group of secretaries of the Central government is likely to meet again to deliberate on the issue of high pricing of spectrum.
• Spectrum Pricing and Auction:
  • Spectrum: 
    • Devices such as cellphones and wireline telephones require signals to connect from one end to another.
    • These signals are carried on airwaves (medium of radio waves), which must be sent at designated frequencies to avoid any kind of interference.
    • These airwaves are called a spectrum, which is subdivided into bands that have varying frequencies.
    • With the expansion in the number of cellphones, wireline telephone and internet users, the need to provide more space for the signals arises from time to time.
    • Airwaves in the 3500 MHz band are considered ideal for the first wave of the 5G.
  • Spectrum Auction:
    • The Union government owns all the publicly available assets within the geographical boundaries of the country, which also include airwaves.
    • To sell these assets to companies willing to set up the required infrastructure to transport these waves from one end to another, the central government through the Department of Telecom (Ministry of Communications) auctions these airwaves from time to time.
    • All these airwaves are sold for a certain period of time, after which their validity lapses, which is generally set at 20 years.
    • The last spectrum auctions were held in 2016.
    • The need for a new spectrum auction has arisen because the validity of the airwaves bought by companies is set to expire in 2021.
  • In 2018, Trai had recommended the base price of 5G spectrum at Rs 492 crore per MHz of spectrum in the 3,300-3,600MHz bands, which are considered ideal for 5G telecom services owing to their latency.
  • One of the suggestions, made by the players as well as the industry association, was to cut down the reserve prices “by at least 50-60 per cent” to bring it to realistic levels, given that “a large quantity of spectrum in the recent 4G auction” had remained unsold.
  • 5G auction, a first for India, is expected to be a catalyst for the internet of things (IoT) innovations that would speed up machine learning and artificial intelligence.
• 5G:
  • 5G is the fifth generation cellular technology that will increase the downloading and uploading speeds over the mobile network.
  • In the high-band spectrum of 5G, internet speeds have been tested to be as high as 20 Gbps (gigabits per second) as compared to the maximum internet data speed in 4G recorded at 1 Gbps.
  • 5G will also reduce the latency i.e. the time taken by a network to respond.
• Referring Basics:
  • From 1G to 5G:

• 5G Specifications:

 

• Adjusted Gross Revenue(AGR):
  • It is the usage and licensing fee that telecom operators are charged by the Department of Telecommunications (DoT).
  • AGR is divided into spectrum usage charges and licensing fees that are fixed between 3-5% and 8% respectively.
  • As per DoT, the charges are calculated based on all revenues earned by a telco – including non-telecom related sources such as deposit interests and asset sales.
  • Telcos, on their part, insist that AGR should comprise only the revenues generated from telecom services.

Kashi Vishwanath Corridor Project

• Context:
  • Recently, the Prime Minister has inaugurated Phase 1 of the Kashi Vishwanath Corridor Project in Uttar Pradesh’s Varanasi.

• About  Kashi Vishwanath Corridor Project:
  • It is the massive makeover and the first after 1780 AD when the Maratha queen Ahilyabai Holkar of Indore renovated the Kashi Vishwanath temple and the area surrounding it.
  • The foundation was laid in March 2019. The project was conceptualised to create an easily accessible pathway for the pilgrims.
• Location:
  • The Kashi Vishwanath temple stands on the western bank of the holy river Ganga.
  • Kashi Vishwanath Temple is also part of the twelve Jyotirlingas, the holiest of Shiva temples.
• Origin:
  • Kashi Vishwanath Temple was constructed in the year 1780 by the Maratha monarch, Maharani Ahilyabai Holkar of the Indore.

Green Energy Corridor

• Context:
  • Recently, the Cabinet Committee on Economic Affairs approved the scheme on Green Energy Corridor (GEC) Phase-II for Intra-State Transmission System (InSTS).
• What is Green Energy Corridor?
  • The Green Energy Corridor Project aims at synchronizing electricity produced from renewable sources, such as solar and wind, with conventional power stations in the grid.
  • Green Energy Corridor is an intra-/ inter-state transmission system that is being implemented by eight renewable rich states in India – Tamil Nadu, Rajasthan, Karnataka, Andhra Pradesh, Maharashtra, Gujarat, Himachal Pradesh and Madhya Pradesh.
  • Intra-State Transmission System is being implemented by respective State Transmission Utilities (STU) and Inter-State Transmission System is being implemented by Power Grid Corporation of India Ltd. (PGCIL).
• Objectives:
  • It aims to achieve the target of 450 GW installed RE capacity by 2030.
  • The objective of the GEC is to evacuate approx. 20,000 MW of large-scale renewable power and improvement of the grid in implementing states.

BharatNet Project

• Context:
  • In a move to consolidate all its telecom operations under one umbrella, the government is likely to merge the operations and assets of Bharat Broadband Network Limited (BBNL) with Bharat Sanchar Nigam Limited (BSNL).
• About BharatNet:
  • BharatNet Project was originally launched in 2011 as the National Optical Fibre Network(NOFN) and renamed as Bharat-Net in 2015.
• Aim:
  • It seeks to provide connectivity to 2.5 lakh Gram Panchayats (GPs) through optical fibre.
  • It is a flagship mission implemented by Bharat Broadband Network Ltd. (BBNL).
  • The objective is to facilitate the delivery of e-governance, e-health, e-education, e-banking, Internet and other services to rural India.
• Implementation:
  • The project is a Centre-State collaborative project, with the states contributing free Rights of Way for establishing the Optical Fibre Network.

Open Network for Digital Commerce

• Context:
  • Dynamic pricing, inventory management and optimisation of delivery cost will be key to the success of the Open Network for Digital Commerce (ONDC) initiative of the government.
• What is ONDC?
  • Open Network for Digital Commerce christened ONDC is a globally first-of-its-kind initiative that aims to democratise Digital Commerce, moving it from a platform-centric model to an open network.
  • The ONDC aims at promoting open networks developed on open-sourced methodology, using open specifications and open network protocols, independent of any specific platform.
  • The project to integrate e-commerce platforms through a network based on open-source technology has been tasked to the Quality Council of India.
  • As UPI is to the digital payment domain, ONDC is to e-commerce in India.
  • ONDC will enable, buyers and sellers, to be digitally visible and transact through an open network, no matter what platform/application they use.
  • ONDC will empower merchants and consumers by breaking silos to form a single network to drive innovation and scale, transforming all businesses from retail goods, food to mobility.
• Significance:
  • This could give a huge booster shot to smaller online retailers and new entrants.
  • ONDC is expected to digitise the entire value chain, standardise operations, promote inclusion of suppliers, derive efficiency in logistics and enhance value for consumers.

The Devas-Antrix deal and its aftermath

• Context:
  • A 2005 satellite deal between Antrix Corporation — the commercial arm of the Indian Space Research Organisation (ISRO) – and Devas Multimedia Pvt Ltd, a start-up headquartered in Bengaluru, is at the heart of a global legal tussle between the Indian government and foreign investors in Devas. The tussle is a fallout of the cancellation of the deal in 2011 by the then UPA government citing requirement of satellite spectrum allotted to Devas for security purposes.
• Supreme Court decision:
  • On Monday, the Supreme Court upheld a May 25, 2021 order of the National Company Law Tribunal (NCLT) to liquidate Devas on the ground that the firm was created under fraudulent circumstances. 
• What was the Devas-Antrix deal?
  • They signed an “Agreement for the Lease of Space Segment Capacity on ISRO/Antrix S-band spacecraft by Devas Multimedia Pvt Ltd” on January 28, 2005.
  • Under the deal, ISRO would lease to Devas two communication satellites (GSAT-6 and 6A) for 12 years for Rs 167 crore. Devas would provide multimedia services to mobile platforms in India using S-band transponders on the satellites, with ISRO leasing 70 MHz of the S-band spectrum.
  • The deal progressed smoothly for six years before it was annulled by the UPA government on February 25, 2011, following a Cabinet Committee on Security decision of February 17 to terminate the agreement to use the S-band for security purposes. The government decision was taken in the midst of the 2G scam and allegations that the Devas deal involved the handing over of communication spectrum valued at nearly Rs 2 lakh crore for a pittance.
• Corruption Charges:
  •  In August 2016, the Central Bureau of Investigation (CBI) filed a charge sheet against officials from Devas, ISRO and Antrix linked to the deal for “being party to a criminal conspiracy”.
• International Tribunal Arbitration:
  • Devas were awarded compensation of $1.2 billion by an International Chamber of Commerce tribunal on September 14, 2015, Deutsche Telekom was awarded $ 101 million-plus interest by the Permanent Court of Arbitration in Geneva on May 27, 2020, and the Mauritius investors were awarded $111 million by the UN Commission on International Trade Law tribunal on October 13, 2020.
  • The German investors claimed compensation for violation of an India-Germany bilateral investment treaty and the Mauritius investors for an India-Mauritius BIT.
• Seizure of Property by Foreign Countries:
  • Due to the Indian Government not paying the compensation, a French court has recently ordered the freezing of Indian government property in Paris, to enforce a USD 1.3 billion arbitration award.

National Rail Plan (NRP)

• Context:
  • The Government has issued the Draft Final Report of the National Rail Plan.
  • The Plan aims at providing a long term perspective planning for augmenting the Railway Network.
• Objectives of the plan:
  1. To create capacity ahead of demand by 2030, which in turn would cater to growth in demand right up to 2050.
  2. To increase the modal share of Railways from 27% currently to 45% in freight by 2030 as part of a national commitment to reduce carbon emission and to continue to sustain it.
  3. To assess the actual demand in freight and passenger sectors, a yearlong survey was conducted over a hundred representative locations by survey teams spread all over the country.
  4. Forecast growth of traffic in both freight and passenger year on year up to 2030 and on a decadal basis up to 2050
  5. Formulate strategies based on both operational capacities and commercial policy initiatives to increase the modal share of the Railways in freight to 45% by 2030.
  6. Reduce transit time of freight substantially by increasing the average speed of freight trains from the present 22Kmph to 50Kmph.
  7. Reduce the overall cost of Rail transportation by nearly 30% and pass on the benefits to the customers.
• As part of the National Rail Plan, Vision 2024 has been launched for accelerated implementation of certain critical projects by 2024 such as:
  1. 100% electrification.
  2. Multitracking of congested routes.
  3. Upgradation of speed to 160 kmph on Delhi-Howrah and Delhi-Mumbai routes.
  4. Upgradation of speed to 130kmph on all other Golden Quadrilateral-Golden Diagonal (GQ/GD) routes.
  5. Elimination of all Level Crossings on all GQ/GD routes.

National Coal Index

• Context:
  • Ministry of Coal has started Commercial Auction of coal mines on a revenue share basis.
  • In order to arrive at the revenue share based on market prices of coal, National Coal Index (NCI) was conceptualized.
• What is the NCI?
  • The NCI is a price index that reflects the change of price level of coal on a particular month relative to the fixed base year.
  • The base year for the NCI is FY 2017-18.
  • Rolled out on 4th June 2020.
  • The aim is to have an index that will truly reflect the market price of coal.
• Benefits:
  • For taxation purposes, the Coal Index will be the base indicator.
  • For future calculation of the upfront amount and intrinsic value of mine, this Index will be helpful.
  • For calculation of annual escalation (monthly payment), this index can be the basis.

Manufacturing:

Hallmarking of gold jewellery

• Content:
  • The government has made hallmarking of gold jewellery mandatory in India from June 16, 2021.
  • This comes two decades after gold hallmarking was introduced in India voluntarily.
• What is hallmarking of gold jewellery?
  • This is a quality certificate issued by the Bureau of Indian Standards (BIS) guaranteeing the purity of gold in a certain piece of jewellery.
  • This certificate will be issued to all registered jewellers based on purity tests at certificated centers.
  • Hallmarking is allowed on 14-, 18- and 22-carat gold jewellery.
  • Gold in additional carats, 20, 23, and 24, will also be allowed for hallmarking in due course.
  • Under the hallmarking scheme of the BIS, jewellers need to be registered to sell hallmarked jewellery.
  • BIS is the authorizing authority for the testing and hallmarking centers.
  • BIS (Hallmarking) Regulations were introduced effective June 14, 2018, but now it has been made mandatory.
  • India is the only country with significant gold consumption that did not have mandatory hallmarking of gold.
• What is the need for hallmarking?
  • Hallmarking will enable consumers/jewellery buyers to make authentic choices and save them from unnecessary confusion while buying gold.
  • At present, only 30% of Indian gold jewellery is hallmarked. 
  • Consumer protection is another key priority that will be served in the process.
  • This step, the government said it believed, would help develop India as a leading gold market center in the world.

Production Linked Incentive (PLI) Scheme on White Goods

• Context:
  • The application window for the Production Linked Incentive (PLI) scheme for white goods was recently opened.
• What are 'White Goods'?
  • They are large home appliances such as refrigerators, freezers, washing machines, tumble driers, dishwashers, and air conditioners, LED.
  • They are (large) electrical goods for the house which were traditionally available only in white.
• About the scheme:
  • The PLI Scheme will be implemented within the overall financial limits of Rs. 6,238 Crores over 5 years.
  • The objective of the scheme is to create a complete component ecosystem in India and make India an integral part of the global supply chains.
  • With due consultations with industry and other stakeholders, DPIIT issued detailed Scheme Guidelines for effective operation and smooth implementation of the Scheme.
  • The Scheme is expected to attract global investments, enhance manufacturing and generate large-scale employment opportunities.
  • The Scheme is expected to be instrumental in achieving growth rates that are much higher than existing ones for AC and LED industries, develop complete component eco-systems in India, and create global champions manufacturing in India.

Right to repair movement

• Context:
  • In recent years, countries around the world have been attempting to pass effective 'right to repair' laws.
• Initiatives
  • US President Joe Biden signed an executive order calling on the Federal Trade Commission to curb restrictions imposed by manufacturers that limit consumers’ ability to repair their gadgets on their terms.
  • The UK, too, introduced right-to-repair rules that should make it much easier to buy and repair daily-use gadgets such as TVs and washing machines.
• What is the right to repair movement?
  • Activists and organizations around the world have been advocating for the right of consumers to be able to repair their electronics and other products as part of the ‘right to repair’ movement.
  • The movement traces its roots back to the very dawn of the computer era in the 1950s.
  • The goal of the movement is to get companies to make spare parts, tools, and information on how to repair devices available to customers and repair shops to increase the lifespan of products and to keep them from ending up in landfills.
  • They argue that these electronic manufacturers are encouraging a culture of ‘planned obsolescence’ — which means that devices are designed specifically to last a limited amount of time and to be replaced.
  • This, they claim, leads to immense pressure on the environment and wasted natural resources.
  • Right to repair advocates also argue that this will help boost business for small repair shops, which are an important part of local economies
• Opposition:
  • Large tech companies, including Apple, Microsoft, Amazon, and Tesla, have been lobbying against the right to repair.
  • Their argument is that opening up their intellectual property to third-party repair services or amateur repairers could lead to exploitation and impact the safety and security of their devices.
  • Tesla, for instance, has fought against right-to-repair advocacy, stating that such initiatives threaten data security and cybersecurity.

Base Effect and IIP Growth

• Context:
  • Industrial production growth slips to 3.1 per cent in September, mainly due to the waning low base effect while mining and manufacturing sectors performed well.
• About the base effect:
  • The base effect is the effect that choosing a different reference point for a comparison between two data points can have on the result of the comparison.
• About IIP:
  • The Index of Industrial Production (IIP) is an indicator that measures the changes in the volume of production of industrial products during a given period.
  • It calculates the data of eight core sectors.
  • IIP’s current base year is 2011-12 since May 2017.
  • The Central Statistical Organisation (CSO) under the “Ministry of Statistics ” is responsible for the compilation and publication of the Index of Industrial Production (IIP) since 1950.
  • Published monthly.
  • It calculates the data of eight core sectors namely;
    • Coal: Its total weightage is 10.33% in the core sectors
    • Crude: Its total weightage is 8.98% in the core sectors
    • Natural gas: Its total weightage is 6.88% in the core sectors
    • Refinery products: Its total weightage is 28.04% in the core sectors
    • Steel: Its total weightage is 17.92% in the core sectors
    • Cement: Its total weightage is 5.37% in the core sectors
    • Fertilizers: Its total weightage is 2.63% in the core sectors
    • Electricity: Its total weightage is 19.85% in the core sectors
  • The eight-core sectors comprise 40.27% of the weight of items included in the Index of Industrial Production (IIP).

Agriculture:

AgriStack

• Context:
  • The government is working on a digital 'stack' of agricultural datasets, with its core as land records. 
  • But, such a centralized stack will use old and inaccurate land records; farmers' personal and financial details will be used without a strong data protection law; and rural areas have a low level of digital literacy. Hence, experts say such an 'AgriStack' is problematic. 
• What is AgriStack?
  • The AgriStack is a collection of technologies and digital databases proposed by the Central Government focusing on India’s farmers and the agricultural sector. 
  • The central government has claimed that these new databases are being built to primarily tackle issues such as poor access to credit and wastage in the agricultural supply chain. 
• Features and significance:
  • Under AgriStack’, the government aims to provide ‘required data sets’ of farmers’ personal information to Microsoft to develop a farmer interface for ‘smart and well-organized agriculture’. 
  • The digital repository will aid precise targeting of subsidies, services and policies, the officials added. 
  • Under the programme, each farmer of the country will get what is being called an FID, or a farmers’ ID, linked to land records to uniquely identify them. India has 140 million operational farm-land holdings. 
• Issues with the move:
  • Agriculture has become the latest sector getting a boost of ‘techno solutionism’ by the government. 
  • But it has, since then, also become the latest sector to enter the whole debate about data privacy and surveillance. 
  • Since the signing of the MoUs, several concerns related to sharing farmers’ data with private companies are raised. 
  • The development has raised serious concerns about information asymmetry, data privacy and consent, profiling of farmers, mismanaged land records and corporatization of agriculture. 
  • The formation of ‘Agristack’ also implies commercialization of agriculture extension activities as they will shift into a digital and private sphere. 
• Why such concerns?
  • The project was being implemented in the absence of data protection legislation. 
  • It might end up being an exercise where private data processing entities may know more about a farmer’s land than the farmer himself. 
  • Without safeguards, private entities would be able to exploit farmers’ data to whatever extent they wish to. 
  • This information asymmetry, tilted towards the technology companies, might further exploit farmers, especially small and marginal ones. 
• Need:
  • At present, the majority of farmers across India are small and marginal farmers with limited access to advanced technologies or formal credit that can help improve output and fetch better prices. 
  • Among the new proposed digital farming technologies and services under the program include sensors to monitor cattle, and drones to analyze soil and apply pesticides, which may significantly improve the farm yields and boost farmers' incomes.

Indonesia’s palm oil crisis

• Context:
  • It’s rare for any country that is the largest producer and exporter of a product to experience domestic shortages of the same product — so much so as to force its government to introduce price controls and curbs on shipments.
• Indonesia & Palm Oil sector
  • It has been estimated that Indonesia’s palm oil production for 2021-22 (October-September) at 45.5 million tonnes (mt).
  • That’s almost 60% of the total global output and way ahead of the next bigger producer:
  • Malaysia (18.7 mt). It is also the world’s No. 1 exporter of the commodity, at 29 mt, followed by Malaysia (16.22 mt).
• Recent Crisis in Indonesia:
  • The country has seen domestic prices of branded cooking oil spiral, from around 14,000 Indonesian rupiah (IDR) to 22,000 IDR per litre between March 2021 and March 2022.
  • On February 1, the Indonesian government imposed a ceiling on retail prices.
  • The price caps, however, led to the product disappearing from supermarket shelves, amid reports of hoarding and consumers standing in long queues for hours to get a pack or two (14,000 IDR is less than $1 or Rs 74).
  • Besides domestic price controls, the government also made it compulsory for exporters to sell 20% of their planned shipments in the domestic market at pre-determined prices.
• How does one explain this conundrum — consumers unable to access or paying through the nose for a commodity in which their country is the preeminent producer and exporter?
  • There are two possible reasons.
  • The first has to do supply disruptions — manmade and natural — in other cooking oils, especially sunflower and soyabean.
  • Ukraine and Russia together account for nearly 80% of the global trade in sunflower oil, quite comparable to the 90% share of Indonesia and Malaysia in palm.
  • Russia’s invasion of Ukraine on February 24, which is ongoing, has resulted in port closures and exporters avoiding Black Sea shipping routes.
  • Sanctions against Russia have further curtailed trade in sunflower oil, the world’s third most exported vegetable oil (12.17 mt, according to USDA estimates for 2021-22) after palm (49.63 mt) and soyabean (12.39 mt).
  • Supply tightness in sunflower and soyabean — from war and drought, respectively — has, in turn, transmitted to palm oil
  • The second factor is linked to petroleum, more specifically the use of palm oil as a bio-fuel.
  • The Indonesian government has, since 2020, made 30% blending of diesel with palm oil mandatory as part of a plan to slash fossil fuel imports.
  • Palm oil getting increasingly diverted for bio-diesel is leaving less quantity available, both for the domestic cooking oil and export market.
  • Such diversion has become all the more attractive with Brent crude prices hardening post the Ukrainian war — to a closing high of $127.98 per barrel on March 8 and staying elevated at $100-plus levels.
• What is the impact on India?
  • India is the world’s biggest vegetable oils importer. Out of its annual imports of 14-15 mt, the lion’s share is of palm oil (8-9 mt), followed by soyabean (3-3.5 mt) and sunflower (2.5).
  • Indonesia has been India’s top supplier of palm oil, though it was overtaken by Malaysia in 2021-22.
  • India will have to get used to lower supplies from Indonesia.

Why lemons are so costly now

• Context:
  • Over the last few weeks, the price of lemon has touched unprecedented highs, with a single lemon selling between Rs 10 and Rs 15 in most markets. 
• What is Lemon(Nimbu)?
  • In India, Nimbu comes under two broad categories: lemon and lime. The small, round and thin-skinned kaagzi is the most commonly grown variety in the country. On the other hand, Lime refers to the dark green fruits that are grown commercially in North India and the Northeast.
  • Suitable Climate: A warm, moderately dry and moist climate is the most suitable for the lemon.
  • The method used for planting: Plants are grown through grafting, with the Nagpur-headquartered ICAR Central Citrus Research Institute(CCRI) and various state agricultural institutes maintaining quality rootstocks.
  • – Note: Grafting is the act of placing a portion of one plant (bud or scion) into or on a stem, root, or branch of another (stock) in such a way that a union will be formed, and the partners will continue to grow. 
  • Lemon Production in India: Annually, India produces over 37 lakh tonnes of lemon which is consumed domestically. The fruit is neither exported nor imported.
  • Lemon Growing State: Andhra Pradesh is the largest lemon-growing state, with 45,000 hectares under the fruit. Maharashtra, Gujarat, Odisha and Tamil Nadu are the other major lemon-growing states.
  • Lemon Fruit Cycle: Farmers supply the fruit round the year by inducing flowering through what is known as the ‘bahar treatment’.
  • – In bahar treatment, farmers withhold irrigation and spray chemicals, prune the orchards and then resume fertilizer treatment and irrigation which subsequently leads to flowering and thus to fruit formation.
  • – Lemon growers take three bahars in a year — known as Ambe, Mrig and Hasta and named based on the season when the flowering is induced. These bahars overlap, and thus farmers have fruit around the year to market.
• Why are Lemon prices high currently?
  • Soaring Temperatures: Since the end of February, soaring temperatures have hit the crop, causing the younger fruits to drop off.
  • Exceptionally Heavy Rains: There was exceptionally heavy rain during the months of September and October. Lemon orchards are extremely sensitive to excess moisture and thus, due to the heavy rainfall, the bahar treatment failed and flowering did not happen. 
  • High Demand: In the summer months, lemons are already in high demand, owing to which there is already a rise in prices.
  • Hike in Petrol and Diesel prices: The hike in petrol, diesel and CNG prices has resulted in increased transportation costs which have been one of the main factors for price rise.

•  

Inflation in Rural India

• Context:
  • The retail inflation rate surged to 6.95% in March 2022— its highest level in nearly one and a half years, with six successive months of accelerating prices for consumers. 
• Official data pegs rural inflation in March at 7.66%, with several States reporting even higher inflation, including West Bengal (8.85%), Uttar Pradesh and Assam (8.19%) as well as Madhya Pradesh (7.89%). 
• With incremental fuel price hikes only kicking in during the latter half of March, the full impact of higher global oil prices being passed on to consumers will only begin reflected in April. 
• Economists expect inflation to go past 7% and stay around that level till as far as September. 
• How have urban and rural inflation trends differed over the past year? 
  • Urban inflation has usually tended to be higher than rural inflation by an average of about 0.8 percentage points through most of 2021.
  • In December 2021, urban inflation was 5.9%, while rural inflation was 5.4%. In contrast, March 2022 marked the third consecutive month that the pace of price rise in the rural areas outstripped urban India, and the gap has been widening rapidly. 
  • From a minor 0.2 percentage points higher inflation rate over urban India in January, rural inflation hit a nine-month high of 6.38% in February even as urban inflation declined to 5.75%. 
  • In March, the gap between the two has surpassed 1.5% with urban inflation at 6.12% and rural areas clocking 7.66%. 
• What are the key drivers of higher inflation in the hinterland? 
  • While food inflation was the key driver for the headline inflation rate jump in March, with the overall consumer food price index racing to 7.68% from 5.85% in February, the spike was far more pronounced in rural India where food inflation hit 8.04%. 
  • Food inflation in urban India was a full percentage point lower. 
  • Higher inflation in food, which has a higher weight in the Consumer Price Index, along with inflation in fuel and light and clothing, were the key factors driving up rural prices. 
  • Consider the inflation rates for some items faced by rural consumers vis-à-vis their urban peers — 
    • oils and fats (20.75% v. 15.15%)
    • Clothing (9.9% v. 7.74%)
    • Footwear (12.2% v. 9.9%)
    • Fuel and light (8.3% v. 6.3%)
    • Personal care and effects (9.3% v. 7.7%) 
  • Last but not the least, persistently higher inflation in education costs of about 1 to 1.5 percentage points. 
  • Interestingly, while vegetable prices declined in the urban areas between February and March 2022, they inched up sharply in rural India. Vegetable price trends have been most intriguing — rural inflation was 1.4% in January, 3.7% in February and a whopping 10.6% in March. 
  • The pent-up demand appears to be higher in rural India, so clothing is seeing higher inflation as demand picks up. 
  • Moreover, fuel prices are higher in rural areas due to connectivity issues, while prices of traditional fuels like firewood have also risen in tandem. 
  • Part of this trend could also be explained by the shift of labour between urban and rural areas in the last two years, which has also injected volatility into demand dynamics.

Why is India looking to boost wheat exports?

 

• Context:
  • Russia’s invasion of Ukraine and the subsequent Western sanctions on Russia have affected wheat exports from the Black Sea region and impacted food security in several countries, especially in Africa and West Asia.
  • The disruption to global wheat supplies in turn has thrown open opportunities that India’s grain exporters are eyeing, especially given the domestic surplus availability of the cereal.
• India’s wheat production and consumption:
  • India expects to produce 112 million tonnes of wheat in the current season. The government requires 24-26 million tonnes a year for its food security programmes.
• Status of India’s wheat exports:
  • Wheat exports in the 2021-2022 financial year were estimated at 7.85 million tonnes, a quadrupling from 2.1 million tonnes in the previous year.
  • Exports this fiscal are expected to be almost 10 million tonnes worth $3 billion.
• Why India?
  • More countries are turning to India because of the competitive price, acceptable quality, availability of surplus wheat and geopolitical reasons.
• Which new markets are expected to buy from India?
  • Egypt, Jordan and countries in East Africa are also likely to source the foodgrain from India.
• What is being done to facilitate exports?
  • The Commerce Ministry has put in place an internal mechanism to facilitate it and get the paperwork ready for the related sanitary and phytosanitary applications to help facilitate shipments.
  • The railways are providing rakes on priority to move the wheat.
  • The railways, ports, and testing laboratories are all geared up to meet the requirements.

India's Agriculture Trade (Summary for 2020-21)

• Context:
  • Recently, Secretary, Department of Commerce, Government of India Dr Anup Wadhawa said that Agriculture Exports have performed well during 2020-21.
• About:
• After remaining stagnant for the past three years, the export of agriculture and allied products during 2020-21 jumped to $ 41.25 billion, indicating an increase of 17.34%.
• India’s agricultural and allied imports during 2020-21 are $ 20.67 billion.
• Despite COVID-19, the balance of trade (exports minus imports) in agriculture in 2020-21 is $ 20.58 billion.
• The largest markets for India’s agriculture products are the USA, China, Bangladesh, UAE, Vietnam, Saudi Arabia, Indonesia, Nepal, Iran, and Malaysia.
• Among the key agriculture commodities exported from India were marine products, rice, buffalo meat, spices, etc.
• The organic exports during 2020-21 were $ 1.04 billion against $ 0.69 million in 2019-20, registering a growth of 50.94%.
• Organic exports include oil cake/ meals, oilseeds, cereals and millets, spices and condiments, tea, medicinal plant products, dry fruits, sugar, pulses, coffee, etc.

Black rice

• Context:
  • Chandauli in Uttar Pradesh is one of India’s four most progressed districts since the beginning of the Aspirational Districts Programme, according to the United Nations Development Programme (UNDP)’s latest appraisal report
  • Among the best practices that pushed Chandauli’s progress was the black rice experiment in the district
• Black rice origin and cultivation in India:
  • Black rice is said to have roots in ancient China, where it is called ‘forbidden rice’ and was believed to be exclusive for royal consumption.
  • In India, however, black rice or chak-hao (delicious rice) has been indigenous to Manipur for centuries.
  • Until some years ago, the crop was mostly consumed locally with little export.
  • But better price realization and growing international demand on account of numerous health benefits have attracted farmers across the country to cultivate black rice.
  • There are also some difficulties in growing black rice as it’s completely organic requiring lots of manual labor
• Black rice in Chanduali:
• Chanduali started producing the ‘healthier’ black rice in 2018.
• This commodity is now being exported to Australia and New Zealand, with options of other countries also being explored.
• The project is being seen as a huge success due to high demand and good profit margin on black rice in global markets.
• The cultivation of black rice in areas around Chandauli, which is called the ‘rice bowl of eastern UP’, received a major boost after it was branded and marketed the product in the neighboring district of Mirzapur as ‘Vindhya black rice’. 
• Moreover, its cultivation has been promoted under various schemes such as ‘One District-One Product’ and ‘Export Policy 2020-25’.
• These schemes aim at doubling farmers’ income and increasing exports from various sectors including agriculture.
• However, despite high returns, farmers in Chandauli are facing the problem of marketing black rice due to the non-availability of its GI (geographical indication) tag to the region.
• Manipur was awarded the GI tag for black rice last year.
• Benefits of black rice:
• It contains a compound called ‘anthocyanins’, responsible for its black color and grants its powerful anti-inflammatory, antioxidant, and anti-cancer properties.
• It also contains important carotenoids known for improving eye health.
• Moreover, it is also naturally gluten-free and rich in protein, iron, vitamin E, calcium, magnesium, natural fiber, hence promoting weight loss.
• It is known to be a natural detoxifier and its consumption helps in the prevention of ailments such as atherosclerosis, diabetes, Alzheimer’s, hypertension, among others.

Beed model of crop insurance

• Context:
  • Recently, Maharashtra Chief Minister met Prime Minister and asked him for state-wide implementation of the ‘Beed model’ of the crop insurance scheme Pradhan Mantri Fasal Bhima Yojana (PMFBY).
• About PMFBY:
  • Launched in 2016, the flagship PMFBY insures farm losses against inclement weather events.
  • Farmers pay 1.5-2% of the premium with the rest borne by the state and central governments.
  • It is a central scheme implemented by state agriculture departments as per central guidelines.
  • For farmers, the low rate of premium and relatively decent coverage make the scheme attractive.
  • Since 2020, it has been optional for all farmers.
• Concerns regarding the scheme:
  • Delay in claim settlement
  • Failure to recognize localized weather events
  • Stringent conditions for claims
  • Alleged profiteering by insurance companies
• Problems in the Beed region:
  • Located in the drought-prone Marathwada region, the district of Beed presents a challenge for any insurance company.
  • Farmers here have repeatedly lost crops either to failure of rains or too heavy rains.
  • Given the high payouts, insurance companies have sustained losses.
  • The state government had a difficult time getting bids for tenders to implement the scheme in Beed.
  • During the 2020 Kharif season, tenders for implementation did not attract any bids.
• Beed model:
  • State Agriculture Department tweaked the guidelines for the district.
  • The state-run Indian Agricultural Insurance Company implemented the scheme.
  • Under the new guidelines, the insurance company provided a cover of 110% of the premium collected, with caveats.
  • If the compensation exceeded the cover provided, the state government would pay the bridge amount.
  • If the compensation was less than the premium collected, the insurance company would keep 20% of the amount as handling charges and reimburse the rest to the state government.
  • In a normal season where farmers report minimal losses, the state government is expected to get back money that can form a corpus to fund the scheme for the following year.
  • However, the state government would have to bear the financial liability in case of losses due to extreme weather events.

Minimum support price (MSP)

• Context:
  • Recently, center announced a hike in MSP for paddy, pulses, oilseeds
• About the recent hike:
  • In a bid to encourage crop diversification, there were slightly higher increases in the MSP for pulses, oilseeds, and coarse cereals.
  • Concerted efforts were made over the last few years to realign the MSPs in favor of oilseeds, pulses, and coarse cereals to encourage farmers to shift to the larger area under these crops and adopt the best technologies and farm practices, to correct the demand-supply imbalance.
  • The added focus on Nutri-rich Nutri-cereals is to incentivize its production in the areas where rice-wheat cannot be grown without long term adverse implications for groundwater table.
  • This year, the MSP for bajra was set at 85% above the cost of production, while the MSP for urad and tur will ensure 60% returns.
  • The MSPs for the remaining crops were mostly set around the stipulated 50% above the cost of production
• About MSP:
  • The MSP is the rate at which the government purchases crops from farmers, and is based on a calculation of at least 1.5 times the cost of production incurred by the farmers.
  • MSP is recommended by Commission for Agricultural Costs & Prices (CACP) for 22 mandated crops and fair & remunerative price (FRP) for sugarcane.
  • 14 crops of Kharif season, 6 crops of rabi season and 2 other commercial crops are mandated crops
  • The decision will be taken by the Cabinet Committee on Economic Affairs
  • It is not backed by law.
  • Farm Unions have been demanding legislation to guarantee MSP for all farmers for all crops.

Agri exports

• Context:
  • India broke into the top 10 list of agricultural produce exporters in 2019 with a sizeable share in the export of rice, cotton, soya beans, and meat, according to a World Trade Organization (WTO) report on the trends in world agricultural trade in the past 25 years.
• About:
  • In 2019, Mexico and India, with 3.4% and 3.1% share in global Agri exports, respectively, replaced Malaysia (7th) and New Zealand (9th) as the largest exporters.
  • The US, which topped the list in 1995 (22.2%), was overtaken by the European Union in 2019 (16.1%).
  • The top rice exporters in 1995 included Thailand (38%), India (26%), and the US (19%).
  • In 2019, India (33%) overtook Thailand (20%) to top the list.
  • India is also the third-largest cotton exporter (7.6%), and the fourth-largest importer (10%) in 2019. 
  • In the largest traded Agri product, soya beans, India (0.1%) has a meagre share but was ranked ninth in the world.
  • In the “meat and edible meat offal” category, India was ranked eighth in the world with a 4% share in global trade.
  • While India was the seventh-largest wheat and meslin exporter in 1995, it does not feature in the top 10 list in 2019.
  • However, India lagged as a value-added contributor to world Agri exports.
  • India’s share of foreign value-added content in its Agri exports was also low at 3.8% primarily due to high tariffs on Agri imports to protect the domestic market.

Agriculture infrastructure fund

• Context:
  • Recently, Union Cabinet approved modifications to financing under the ‘agriculture infrastructure fund’, allowing it to be used for strengthening state-regulated agriculture markets.
• About the scheme:
• The scheme shall provide a medium – long-term debt financing facility for investment in viable projects for post-harvest management Infrastructure and community farming assets through interest subvention and financial support.
• The duration of the Scheme shall be from FY2020 to FY2032 (10 years).
• Under the scheme, Rs. 1 Lakh Crore will be provided by banks and financial institutions as loans to eligible beneficiaries.
• Benefits:
  • All loans under this financing facility will have an interest subvention of 3% per annum up to a limit of Rs. 2 crores.
  • This subvention will be available for a maximum period of seven years.
  • Further, credit guarantee coverage will be available for eligible borrowers from this financing facility under Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) scheme for a loan up to Rs. 2 crores. The fee for this coverage will be paid by the Government.
  • In the case of FPOs, the credit guarantee may be availed from the facility created under the FPO promotion scheme of the Department of Agriculture, Cooperation & Farmers Welfare (DACFW).
  • The moratorium for repayment under this financing facility may vary subject to a minimum of 6 months and a maximum of 2 years.
• Modifications:
  • Under the modification, eligibility has now been extended to state agencies/APMCs, National & State Federations of Cooperatives, Federations of Farmers Producers Organisations (FPOs), and Federations of Self-Help Groups (SHGs).
  • If an eligible entity takes up projects in different locations, all such efforts will be eligible for 'interest subvention' for loans up to Rs.2 crore.
  • However, there will be a maximum limit of 25 such projects for a private sector unit.

Bhut Jolokia

• Context:
  • Recently, Bhut Jolokia, one of the hottest chilies in the world, was exported from Nagaland to London for the first time.
• About:
• Bhoot Jolokia is an interspecific hybrid chili pepper grown in Northeast India.
• The term bhoot translates to ghost.
• In Assam, chili is known as Jolokia.
• The chili’s name denotes its extreme spiciness and heat.
• It is also known as “Raja Mircha” or king chili from Nagaland, Bhut Jolokia got its GI certification in 2008
• Bhut or Bhoot Jolokia is considered the world's hottest chili based on the Scoville Heat Units (SHU)
• Because of their perishable nature, exporting the Bhut Jolokia proved to be a challenge.
• To facilitate the export, APEDA, the apex body which promotes the export of agricultural products from the country, collaborated with the Nagaland State Agricultural Marketing Board. 
• It is a major boost to exports of Geographical Indications (GI) products from the north-eastern region
• Used as food and spice in both fresh and dried forms, it is also known for its medical properties.

Bhalia wheat 

• Context:
  • Recently, the first shipment of Geographical Indication (GI) certified Bhalia variety of wheat was exported to Kenya and Sri Lanka from Gujarat.
• About:
• The GI-certified wheat has high protein content and is sweet.
• The crop is grown mostly across the Bhal region of Gujarat, including Ahmedabad, Anand, Kheda, Bhavanagar, Surendranagar, Bharuch districts.
• The unique characteristic of the wheat variety is that grown in rainfed conditions and cultivated in about two lakh hectares in Gujarat.
• The Bhalia variety of wheat received GI certification in July 2011.
• The registered proprietor of GI certification is the Anand Agricultural University, Gujarat.
• This is expected to give boost wheat exports, said a press release from the Agricultural and Processed Food Products’ Authority o India (APEDA).
• Wheat exports:
• In 2020-21, wheat exports witnessed a significant growth of 808%.
• In US dollar terms, the exports rose by 778% to $ 549 million.
• India exported a substantial quantity of grain to seven new countries – Yemen, Indonesia, Bhutan, Philippines, Iran, Cambodia, and Myanmar during 2020-21.
• In the previous financial years, only small quantities of wheat were exported to these countries

Madurai Malli

• Context:
  • GI certified Madurai Malli and other traditional flowers like button rose, Lilly exported to the USA and Dubai from the three districts of Tamil Nadu.
• About:
  • Madurai Malli, a popular jasmine flower known for its fragrance, was given GI recognition in 2013.
  • GI protection prevents producers of similar flowers in other regions from using the specific tag and helps growers in the specific region preserve their identity in the local and global market.
• Export of flowers during 2020-21
  • During 2020-21, fresh jasmine and other traditional flower bouquets were exported to countries like the USA, UAE, Singapore, and many other countries, which valued around Rs. 66.28 crores.
  • Out of which, Tamil Nadu managed to export the traditional flowers worth Rs. 11.84 crores through the major airports of Chennai, Coimbatore, and Madurai.
  • Jasmine flower is very famous in Madurai and around Tamil Nadu.
  • Madurai has also evolved as the 'jasmine capital' of India in recent times.
• Impact of COVID-19 on Floriculture
  • Amid the ongoing coronavirus pandemic, the floriculture sector is also badly affected due to the restrictions on religious places, social gatherings, and celebrations.
  • According to ICAR data, the floriculture sector was expanding only at a rate of 7% while the trade in the sector was rising at a rate of 10% per annum earlier.
  • Many farmers have the crops in the field as there is no labor, transport, or demand.

Pokkali farming

• Context:
  • Kochi-based Agronature mulls promoting organic rice planting through Pokkali farming
• About:
  • Pokkali is an integrated rice-fish rotational complementary farming system in the saline backwaters of Alappuzha, Ernakulam, and Thrissur.
  • The rice varieties are salt-tolerant and adapted to submergence.
  • The brand Pokkali already has bagged a geographical indication (GI) tag.
  • Pokkali farming is more than preserving a farming heritage; it holds the clue to a sustainable and secure food future for India.
  • It is of great interest to the responsible tourism community as well.
  • Further, conserving this traditional variety also forms the basis for the efforts to address climate change-related issues such as sea-level rise and saline water intrusion.

Export of Sugar

Context:

• Sugar mills have surpassed their 60 lakh tonne export target this year, making it easier for them to pay sugarcane farmers and reducing the arrears for this year to less than rupees 9,000 crore

Key points related to this

• The government has been encouraging the diversion of excess sugar towards ethanol production and for exporting purposes
• In the last 4 years, exports of sugar have increased by more than 10 times
• The growth in export is primarily due to demand for Indian sugar in the global market and also the assistance of the centre to the tune of Rupees 6,000 per tonne to facilitate exports
• Despite this impressive growth, arrears are a major issue for sugarcane farmers in the country

National initiative on Palm oil Production

Context:

• Prime Minister Narendra Modi has announced this new national initiative on palm oil production to help increase farm incomes.
• The scheme involves an investment of over Rs 11,000 crore.

Aims and Objectives of the scheme:

• Achieve self-reliance in edible oil.
• Harness domestic edible oil prices that are dictated by expensive palm oil imports.
• To raise the domestic production of palm oil by three times to 11 lakh MT by 2025-26.

Key features of the scheme:

• The special emphasis of the scheme will be on India's north-eastern states and the Andaman and Nicobar Islands due to the conducive weather conditions in the regions.
• Under the scheme, oil palm farmers will be provided financial assistance and will get remuneration under a price and viability formula.

Benefits and significance of the scheme:

• It is expected to incentivise the production of palm oil to reduce dependence on imports and help farmers cash in on the huge market.

Need for such schemes:

• India is the largest consumer of vegetable oil in the world. Of this, palm oil imports are almost 60% of its total vegetable oil imports.
• In 2016- 2017, the total domestic consumption of palm oil by India was 9.3 million MT, with 98.97%  of it imported from Malaysia and Indonesia. This means India was producing only 1.027 per cent of its requirement.
• Also, in India, 94.1 per cent of its palm oil is used in food products, especially for cooking purposes. This makes palm oil extremely critical to India's edible oils economy.

Palm oil:

 

• Palm oil is currently the world’s most consumed vegetable oil.
• It is used extensively in the production of detergents, plastics, cosmetics, and biofuels.
• The top consumers of the commodity are India, China, and the European Union (EU).

Edible Oil Prices

• Context:
  • Edible oil prices are likely to reduce by December as international commodity futures show a declining trend and the production of domestic oilseed crops.
• Recent Rise in the prices of Edible Oil:
  • Last year, the retail prices of six edible oils — groundnut, mustard, vanaspati, soya, sunflower, and palm oil had risen up to 48%. This was due to:
    • The surge in global prices, and lower domestic production of soybean which is India’s largest oilseed crop.
    • Excessive buying of edible oil by China.
    • Many major oil producers are aggressively pursuing biofuel policies and diverting their edible oil crops for that purpose.
    • Governmental taxes and duties also make up a major chunk of the retail price of edible oils in India.
• India’s Dependence on Edible Oil:
  • India is the world's biggest vegetable oil importer.
  • India imports about 60% of its edible oil needs, leaving the country’s retail prices vulnerable to international pressures.
  • It imports palm oil from Indonesia and Malaysia, soyoil from Brazil and Argentina, and sunflower oil, mainly from Russia and Ukraine.
• Facts about Edible Oils:
  • Primary sources of Edible oil (Soybean, Rapeseed & Mustard, Groundnut, Sunflower, Safflower & Niger) and secondary sources of Edible Oil (Oil palm, Coconut, Rice Bran, Cotton seeds & Tree Borne Oilseeds).
  • In India major challenge in oilseed production is:
    • Growing in largely rain-fed conditions (around 70% area),
    • high seed cost (Groundnut and Soybean),
    • smallholding with limited resources,
    • low seed replacement rate and low productivity.

MSP is not the way to increase farmers’ income

• Context:
  • The recently released data for the 2018-19 Situation Assessment Survey (SAS) of agricultural households paints a bleak picture for doubling farmers’ income.
• Background:
  • Prime Minister Narendra Modi set out an ambitious target to double farmers’ incomes by 2022-23.
  • The Ashok Dalwai Committee made it clear that the target of doubling farmers’ incomes was in real terms.
  • Required rate: The committee clearly stated that a growth rate of 10.4 per cent per annum would be required to double farmers’ real income by 2022-23.
  • The goal was to be achieved over seven years with the base year of 2015-16.
  • According to an estimate of farmers’ income for 2015-16 by NABARD in 2016-17, the average monthly income of farmers for 2015-16 was Rs 8,931.
  • However, unless a similar survey is conducted in 2022-23, we won’t really know what happened to the target of doubling farmers’ real income.
• Determining the growth rate of farmers income:
  • As per the Situation Assessment Survey (SAS) of agricultural households for 2018-19, an average agricultural household earned a monthly income of Rs 10,218 in 2018-19 (July-June) in nominal terms.
  • We have a similar SAS for 2012-13 when the nominal income was Rs 6,426.
  • In nominal terms, the compound annual growth rate (CAGR) turns out to be 8 per cent between 2012-13 to 2018-19.
  • Choice of deflator: If one deflates nominal incomes by using CPI-AL (consumer price index for agricultural labour), which should be the logical choice, then the CAGR turns out to be just 3 per cent.
  • If one uses WPI (wholesale price index of all commodities), the CAGR in real incomes turns out to be 6.1 per cent.
  • This vast difference is just due to the choice of deflator.
  • However, there is another SAS that the NSO conducted for 2002-03.
  • When one compares CAGR in farmers’ real income (deflated by CPI-AL) over 2002-03 to 2018-19, it turns out to be 3.4 per cent (and 5.3 per cent if deflated by WPI).
  • A better method would have been to look at average annual growth rates (AAGR), if yearly data was available.
  • The AAGR for agri-GDP is available and at an all-India level, between 2002-03 to 2018-19, it turns out to be 3.3 per cent.
• Policy message about farmers income from SASs:
  • One, the share of income from rearing animals (this includes fish) has gone up dramatically from 4.3 per cent in 2002-03 to 15.7 percent.
  • Two, the share of income from the cultivation of crops has decreased from 45.8 per cent to 37.7 per cent.
  • Three, the share of wages and salaries has gone up from 38.7 per cent to 40.3 per cent.
  • Four, the share of income coming from non-farm business has come down from 11.2 per cent to 6.4 per cent.
• Way forward:
  • Survey results indicate that the scope for augmenting farmers’ incomes is going to be more and from rearing animals (including fisheries).
  • There is no minimum support price (MSP) for products of animal husbandry or fisheries and no procurement by the government.
  • It is demand-driven, and much of its marketing takes place outside APMC mandis.
  • This is the trend that will get reinforced in the years to come as incomes rise and diets diversify.
  • Those who advocate raising the MSP of grains and government procurement, irrespective of increasing grain stocks to more than double the buffer stocking norms, are living in the past — and advocating a very expensive food system.
  • That will fail sooner or later.
  • Wisdom lies in investing more in animal husbandry (including fisheries) and fruits and vegetables, which are more nutritious.
  • The best way to invest is to incentivise the private sector to build efficient value chains based on a cluster approach.

Paddy Procurement

• Context:
  • Farmers from Punjab and Haryana were upset about the paddy procurement delay.
• Paddy Procurement:
  • The procurement operation is undertaken by the central government’s nodal agency Food Corporation of India (FCI) along with state agencies.
  • Paddy procurement usually commences from October 1.
  • Only the paddy crop is procured by the government at a minimum support price, while basmati is purchased by private players/basmati exporters in both states.
  • Recent issue:
    • The Centre has postponed paddy procurement from October 1 to October 11 in Punjab and Haryana, on the ground that heavy rainfall in these two states has delayed maturity of paddy and left the moisture content in fresh arrivals beyond the permissible limit.
• Concerns:
  • Delayed procurement raises concerns about increased stubble burning this year. This is because farmers, who get only 20 to 25 days between paddy harvesting and wheat sowing to manage the paddy stubble during normal procurement time, will get only 9-15 days this.

 

National Digital Livestock Mission Blueprint

• Context:
  • Recently, the Union Minister of State Fisheries, Animal Husbandry & Dairying unveiled the National Digital Livestock Mission(NDLM) Blueprint at the National Dairy Development Board (NDDB).
  • National Dairy Development Board (NDDB) was created to promote, finance and support producer-owned and controlled organisations.
• Objectives and Need :
  • The livestock sector has a unique combination of being the backbone of rural livelihood. 
  • The growth would have been a lot better if there were concerted efforts to harmonise programmes across the country to create an ecosystem that is conducive to the growth of the sector.
  • This has been the main idea behind the deployment of NDLM, keeping the welfare of the farmer at the core.
• About National Digital Livestock Mission(NDLM): 
  • It is a digital platform being developed jointly by the Department of Animal Husbandry and Dairying (DAHD) and NDDB on the foundation of the existing Information Network for Animal Productivity and Health (INAPH).
  • The bedrock of NDLM will be the unique identification of all livestock, which will be the foundation for all the state and national level programmes including domestic and international trade. 
  • It aims to create a farmer-centric, technology-enabled ecosystem where the farmers can realize better income through livestock activities with the right information.
  • By this, farmers will be able to effortlessly access the markets, irrespective of their location or holdings through this digital platform as a wide range of stakeholders will be connected in this ecosystem.
  • This system will also include robust animal breeding systems, nutrition, disease surveillance, disease control programmes and a traceability mechanism for animals and animal products.
• National Livestock Mission:
  • It is an initiative of the Ministry of Agriculture and Farmers’ Welfare, introduced in 2014-15, with the objective of sustainable development of the livestock sector.
  • The livestock sector in the country has been growing at a compound annual growth rate of 8.15% from 2014-15 to 2019-20.
• Significance:
  • It helps in creating rural entrepreneurship by engaging farmers in the sector. 
  • The scheme would also provide livelihood opportunities to the unemployed youth and livestock farmers in the cattle, dairy, poultry, sheep, goat, piggery, feed, and fodder sectors.

Petro and Agri Inflation

• Context:
  • Fuel, food and fertilisers are all globally on fire today. And that is almost history repeating itself after 10 years, with consequences for inflation in India as well.
• Why petroleum and agri-commodity prices move in tandem is the bio-fuels link?
  • When crude prices rise, blending ethanol from sugarcane and corn (maize) with petrol or diverting palm and soyabean oil for biodiesel production becomes that much more attractive. Cotton, likewise, turns relatively affordable vis-à-vis petrochemicals-based synthetic fibres. Also, since corn is primarily an animal feed, its diversion to ethanol leads to substitution by other grains, including wheat, for livestock use. That, then, pushes up prices of foodgrains as well. The same happens to sugar, as mills step up the proportion of cane crushed for fermenting into alcohol.
  • Farmers are being forced to pay much more for fuel and fertilisers, as their international prices also have shot up. Diesel is now retailing in Delhi at Rs 86.67 a litre. This is higher than the Rs 70.46/litre a year ago, even after the Centre’s recent Rs 10 excise duty cut.
  • Landed prices of urea, on the other hand, have crossed unheard-of levels of $900 per tonne. Together with fertilisers, the prices of their intermediates and raw materials such as rock phosphate, sulphur, phosphoric acid and ammonia have also skyrocketed due to a combination of demand-pull (from higher crop plantings) and cost-push (from oil and gas).

Minimum Support Price

• Context:
  • The unions want the Modi government to enact legislation conferring mandatory status to MSP, rather than just being an indicative or desired price.
• About MSP:
  • The MSP is the rate at which the government purchases crops from farmers, and is based on a calculation of at least one-and-a-half times the cost of production incurred by the farmers.
  • The Centre currently announces the MSPs of 23 crops.
  • They include:
    • 7 cereals (paddy, wheat, maize, bajra, jowar, ragi and barley)
    • 5 pulses (chana, tur/arhar, moong, urad and masur)
    • 7 oilseeds (rapeseed-mustard, groundnut, soyabean, sunflower, sesamum, safflower and nigerseed)
    • 4 commercial crops (sugarcane, cotton, copra and raw jute).
  • The Commission for Agricultural Costs & Prices (CACP) recommends MSPs for 22 mandated crops and fair and remunerative price (FRP) for sugarcane.
• How can MSP be implemented?
  • Forcing private traders or processors to pay MSP. This is already applicable in sugarcane (fair and remunerative price).
  • The government undertaking procurement at MSP through its agencies such as the Food Corporation of India (FCI), Nafed and Cotton Corporation of India (CCI).
  • Price deficiency payments: Farmers are simply paid the difference between the government’s MSP and the average market price for the particular crop during the harvesting season.
• What would be the fiscal cost of making the MSP legally binding?
  • 11.9 lakh crore in 2020-21.

Sugar Subsidy

• Context: A panel set up by the Dispute Settlement Body (DSB) of the World Trade Organization (WTO) has ruled against India’s sugar subsidies.
  • India has rejected the report, said its sugar sector policies would not be impacted, and that it would appeal to the findings.
• Sugar:
  • India is the second-largest producer of sugar in the world after Brazil and is also the largest consumer. 
  • The sugar industry is an important agro-based industry that impacts the rural livelihood of about 50 million sugarcane farmers and around 5 lakh workers directly employed in sugar mills. 
    • Employment is also generated in various ancillary activities relating to transport, trade servicing of machinery and supply of agriculture inputs.
  • Pricing Policy:
    • The concept of Statutory Minimum Price (SMP) of sugarcane was replaced with the ‘Fair and Remunerative Price (FRP)’ of sugarcane for 2009-10 and subsequent sugar seasons with the amendment of the Sugarcane (Control) Order, 1966 in 2009.
    • Under the FRP system, the farmers are not required to wait till the end of the season or for any announcement of the profits by sugar mills or the Government. 
    • The new system assures margins on account of profit and risk to farmers, irrespective of the fact whether sugar mills generate profit or not and is not dependent on the performance of any individual sugar mill.
    • The FRP has been determined on the basis of recommendations of the Commission for Agricultural Costs and Prices and after consultation with State Governments and other stakeholders.
• Sugar Subsidy and WTO
  • A panel set up by the Dispute Settlement Body (DSB) of the World Trade Organization (WTO) has ruled against India’s sugar subsidies and asked to withdraw its prohibited subsidies under the Production Assistance, the Buffer Stock, and the Marketing and Transportation Schemes within 120 days from the adoption of the report. 
  • The panel circulated its report, ‘India — Measures Concerning Sugar and Sugarcane’.
  • The report is yet to be adopted (or rejected) by the WTO’s full membership. 
  • Three countries, Australia, Brazil and Guatemala, complained about “support allegedly provided by India in favour of producers of sugarcane and sugar (domestic support measures), as well as all export subsidies that India allegedly provides for sugar and sugarcane (export subsidy measures)”.
  • Complaints against India:
    • India’s domestic support and export subsidy measures appeared to be inconsistent with various articles of the:
      • WTO’s Agreement on Agriculture,
      • the Agreement on Subsidies and Countervailing Measures (SCM),
      • Article XVI (which concerns subsidies) of the General Agreement on Trade and Tariffs (GATT).
    • All three countries complained that India provides domestic support to sugarcane producers that exceed the de minimis level of 10% of the total value of sugarcane production, which they said was inconsistent with the Agreement on Agriculture.
    • They also raised the issue of India’s alleged export subsidies, subsidies under the production assistance and buffer stock schemes, and the marketing and transportation scheme.
    • Australia accused India of “failing” to notify its annual domestic support for sugarcane and sugar subsequent to 1995-96, and its export subsidies since 2009-10, which it said were inconsistent with the provisions of the SCM Agreement.
  • India's arguments:
    • According to the panel’s report, India replied the “complainants have failed to meet their burden of showing” that India’s market price support for sugarcane and its various schemes violate the Agreement on Agriculture.
    • It also argued that “the requirements of Article 3 of the SCM Agreement are not yet applicable to India and that India has a phase-out period of 8 years to eliminate export subsidies, if any, pursuant to Article 27 of the SCM Agreement”.
    • India argued that the mandatory minimum prices are not paid by the central or state governments but by sugar mills, and hence do not constitute market price support.
  • Findings of the panel:
    • The panel found that for five consecutive sugar seasons from 2014-15 to 2018-19, India provided non-exempt product-specific domestic support to sugarcane producers in excess of the permitted level of 10% of the total value of sugarcane production.
      • India is acting inconsistently with its obligations under Article 7.2(b) of the Agreement on Agriculture.
    • The panel rejected the argument regarding market price support— saying “market price support does not require governments to purchase or procure the relevant agricultural product”.
    • Regarding India's alleged export subsidies for sugar, the panel found that the challenged schemes are export subsidies within the meaning of Article 9.1(a) of the Agreement on Agriculture.
    • Since India’s WTO Schedule does not specify export subsidy reduction commitments with respect to sugar, the panel found that such export subsidies are inconsistent with Articles 3.3 and 8 of the Agreement on Agriculture.
    • With respect to Australia’s claims regarding India’s notification obligations, the panel’s report said that “by failing to notify to the Committee on Agriculture its domestic support to sugarcane producers subsequent to the 1995-96 marketing year, as well as its export subsidies for sugar subsequent to the 2009-10 marketing year”, India had violated its obligation under Article 18.2 of the Agreement on Agriculture.
    • Also, by failing to notify the SCM Committee of its export subsidies for sugar under the Production Assistance, the Buffer Stock, the Marketing and Transportation, and the DFIA Schemes, India has violated its obligations under Articles 25.1 and 25.2 of the SCM Agreement.
  • Recommendations of the panel:
    • Recommend that India bring its WTO-inconsistent measures into conformity with its obligations under the Agreement on Agriculture and the SCM Agreement.
    • Also, India should withdraw its prohibited subsidies under the Production Assistance, the Buffer Stock, and the Marketing and Transportation Schemes within 120 days from the adoption of our Report.
  • India's response:
    • India rejected the panel’s findings as “erroneous”, “unreasoned”, and “not supported by the WTO rules”.
    • It argued that the requirements of Article 3 of the SCM Agreement are not yet applicable to India.
      • It has a phase-out period of 8 years to eliminate export subsidies under the agreement.
    • Union Ministry of Commerce and Industry said:
      • there would be “no impact” on any of India’s “existing and ongoing policy measures” in the sugar sector.
      • India has initiated all measures necessary to protect its interest and file an appeal at the WTO against the report, to protect the interests of its farmers”.
      • “India believes that its measures are consistent with its obligations under the WTO agreements.”
• DSB of WTO:
  • The General Council convenes as the Dispute Settlement Body (DSB) to deal with disputes between WTO members.
  • It decides the outcome of a trade dispute on the recommendation of a Dispute Panel and (possibly) on a report from the Appellate Body of the WTO.
  • Only the DSB can make these decisions: Panels and the Appellate Body are limited to making recommendations.
  • Such disputes may arise with respect to any agreement contained in the Final Act of the Uruguay Round.
  • The DSB has authority to:
    • Establish dispute settlement panels,
    • Refer matters to arbitration, 
    • Adopt panel, Appellate Body and arbitration reports,
    • maintains surveillance over the implementation of recommendations and
    • Authorize suspension of concessions in the event of non-compliance.

PepsiCo Verdict

• Context: The Protection of Plant Varieties and Farmers Rights (PPV&FR) Authority has revoked a PVP (Plant Variety Protection) certificate granted to PepsiCo India Holding (PIH) on a potato variety (FL-2027) on various grounds.
• Background: Pepsico had a patent for the potato plant variety FL-2027 (commercial name FC-5). For growing this variety, Pepsico had entered into a buyback agreement with farmers.
  • In 2019, PepsiCo sued some Indian farmers based in Gujarat for cultivating the FC5 potato variety, which has a lower moisture content required to make snacks such as potato chips.
  • However, farmers have cited Section 39 of the Protection of Plant Varieties and Farmers’ Rights (PPV&FR) Act,2001 which specifically says that a farmer is allowed to grow and sell any variety of crop or even seed as long as they don’t sell branded seed of registered varieties.
  • Later, Pepsico decided to withdraw lawsuits against the farmers.
• Impact of the verdict:
  • Although the PPV&FRA verdict largely depended on procedural errors and shortcomings of PepsiCo and the registrar with regard to documentation and transfer of rights between the plant breeder and the production company, it does touch briefly on the protection of farmers’ rights and public interest. 
  • “Farmers have been put to hardship including the looming possibility of having to pay huge penalty on the alleged infringement they were supposed to have been committing which violated the public interest,” said the judgment. 
  • The verdict sent a strong signal to those who hold intellectual property rights for seeds that the unique rights that the PPV&FR Act provides Indian farmers are not to be transgressed.
• Protection of Plant Varieties and Farmers’ Rights (PPV&FR) Act, 2001:
  • Enacted by India in 2001 adopting sui generis system.
  • It is in conformity with International Union for the Protection of New Varieties of Plants (UPOV), 1978.
  • The legislation recognizes the contributions of both commercial plant breeders and farmers in plant breeding activity and also provides to implement TRIPs in a way that supports the specific socio-economic interests of all the stakeholders including private, public sectors and research institutions, as well as resource-constrained farmers.
  • Objectives of the act:
    • To establish an effective system for the protection of plant varieties, the rights of farmers and plant breeders and to encourage the development of new varieties of plants.
    • To recognize and protect the rights of farmers in respect of their contributions made at any time in conserving, improving and making available plant genetic resources for the development of new plant varieties.
    • To accelerate agricultural development in the country, protect plant breeders’ rights; stimulate investment for research and development both in public & private sector for the development new of plant varieties.
    • Facilitate the growth of the seed industry in the country which will ensure the availability of high-quality seeds and planting material to the farmers.
    • Protection of Plant Varieties and Farmers’ Rights Authority (PPVFRA) is set up under the Protection of Plant Varieties and Farmers’ Rights Act 2001.
  • Rights under the act:
    • Breeders’ Rights: Breeders will have exclusive rights to produce, sell, market, distribute, import or export the protected variety.
      • A breeder can appoint an agent/ licensee and may exercise civil remedy in case of infringement of rights.
    • Researchers’ Rights: The researcher can use any of the registered variety under the Act for conducting experiments or research.
      • This includes the use of a variety as an initial source of variety for the purpose of developing another variety but repeated use needs prior permission of the registered breeder.
    • Farmers’ Rights:
      • A farmer who has evolved or developed a new variety is entitled to registration and protection in like manner as a breeder of a variety;
      • Farmer's variety can also be registered as an extant variety;
      • A farmer can save, use, sow, re-sow, exchange, share or sell his farm produce including seed of a variety protected under the PPV&FR Act, 2001 in the same manner as he was entitled before the coming into force of this Act provided farmer shall not be entitled to sell branded seed of a variety protected under the PPV&FR Act, 2001;
      • Farmers are eligible for recognition and rewards for the conservation of Plant Genetic Resources of landraces and wild relatives of economic plants;
      • There is also a provision for compensation to the farmers for non-performance of variety under Section 39 (2) of the Act, 2001 and
      • The farmer shall not be liable to pay any fee in any proceeding before the Authority or Registrar or the Tribunal or the High Court under the Act.
  • Concerns with the Act:
    • The biggest problem with the law is the lack of proper enforcement, according to the seeds industry. 
    • There must be a mechanism to catch and punish those who illegally sell the variety, but enforcement is left to States and is uneven.
      • The rampant spread of unauthorised and genetically modified HTBt cotton seeds is an example of this.
    • The unique protections provided to farmers in India can act as an enforcement loophole given the grey area between farmers and aggregators. 
    • A farmer is allowed to grow protected varieties, sell the produce, even sell the unbranded seeds under the law, and that intention is good.
      • But there is ambiguity on what happens when many farmers sell registered seeds to an aggregator who collects them and then sells them in a branded fashion, or sells them to a competitor.
    • If the aggregator owns an acre of land somewhere, he may also call himself a farmer, and therefore there is a possibility of pilferage of the parent seed from farmers’ fields to other farmers.
    • Other issues with PPV&FR implementation which obstruct innovation include the slow turnaround time for registration of varieties and the requirement that companies submit parent seeds when applying for registration. 
    • As a result, not just foreign investment, even domestic investment in innovation is low because of the lack of protection of IPR.
    • The Indian seed market has annual revenues of ₹20,000 crores, but less than 3% or about ₹500-600 crore is ploughed back into research, in contrast with 10-12% which is the global standard.
• FC-5 variety:
  • The FC5 variety, registered in the US as FL2027, has a 5 per cent lower moisture content than other varieties.
  • With 80 per cent moisture content, as compared to the usual 85 per cent, this variety is considered more suitable for processing and therefore, for making snacks such as potato chips.
  • FL2027 came to be registered in the US in 2005 and was put to commercial use in India in 2009, according to a Quartz report.
  • PepsiCo had then granted a licence to some farmers in Punjab to grow the variety on a buyback system.
  • This arrangement allows the company to buy all the produce from these farmers at pre-decided rates. 
  • PepsiCo applied for registration of the potato variety in India in June 2011. It was granted in 2016.

PM-KISAN

• Context:
  • Observing that many economic indicators are better than the pre-Covid times, Prime Minister Narendra Modi on January 1, 2022, said that coronavirus has posed challenges but it cannot stop India’s pace. The Prime Minister also emphasized that the country needs to accelerate its pace further in 2022. He also released the 10th instalment of financial benefit under the Pradhan Mantri Kisan Samman Nidhi (PM-KISAN) scheme.
• About PM-KISAN:
  • It is a Central Sector Scheme with 100% funding from the Government of India.
  • “Pradhan Mantri Kisan Samman Nidhi (PM-KISAN)” was officially launched on 24th February 2019.
  • Under the scheme, the Centre transfers an amount of Rs 6,000 per year, in three equal instalments, directly into the bank accounts of all landholding farmers irrespective of the size of their landholdings.
  • It is being implemented by the Ministry of Agriculture and Farmers Welfare.
• Objective:
  • To protect them from falling in the clutches of moneylenders for meeting such expenses and ensure their continuance in the farming activities.
  • To supplement the financial needs of the Small and Marginal Farmers in procuring various inputs to ensure proper crop health and appropriate yields, commensurate with the anticipated farm income at the end of each crop cycle.
• Benefits and Eligibility conditions:
  • All land-holding eligible farmer families (subject to the prevalent exclusion criteria) are to avail of the benefits under this scheme, as per the cabinet decision taken during May 2019. The revised Scheme is expected to cover around 2 crores more farmers, increasing the coverage of PM-KISAN to around 14.5 crore beneficiaries. 
• PM-KISAN Mobile App:
  • The PM-KISAN Mobile App developed and designed by the National Informatics Centre in collaboration with the Ministry of Electronics and Information Technology has been launched.
  • The farmers can view the status of their application, update or carry out corrections of their Aadhaar cards and also check the history of credits to their bank accounts.

WTO verdict on sugar

• Context:
  • India recently filed an appeal with the Appellate Body of the World Trade Organization (WTO) disputing a verdict by the WTO’s dispute settlement panel last month on sugar subsidies. 
  • The WTO’s dispute settlement panel had ruled that India, by subsidising sugar producers, was breaking rules framed under the General Agreement on Tariffs and Trade (GATT) which govern international trade.
• What is it?
  • In 2019, Australia, Brazil, and Guatemala complained against India at the WTO arguing that subsidies offered by the Indian government to sugar producers were against the rules governing international trade.
  • They argued that these subsidies, which include both domestic subsidies as well as export subsidies, exceed the limits imposed by WTO trade rules.
  • According to WTO rules, subsidies cannot exceed 10% of the total value of sugar production. 
  • These countries believe that subsidies offered by India have led to increased production of sugar and caused the price of sugar to drop significantly in the global market.
• What is India’s stand?
  • India has stated that the WTO’s dispute panel ruling has made certain “erroneous” findings about domestic schemes to support sugarcane producers and exports and the findings of the panel are completely “unacceptable” to it.
  • India has argued at the WTO that it does not offer direct subsidies to sugarcane farmers and thus doesn’t break any international trade rule. 
  • This argument, however, has not convinced other countries who point out that, among other things, the Centre and the State governments in India mandate the minimum price (the Fair and Remunerative Price, or FRP) at which sugar mills can buy sugarcane from farmers. 
  • The high procurement price for sugarcane set by the Government is believed to have led to a supply glut that in turn has caused sugar prices to drop. In fact, several sugar mills are caught in a debt trap as consumer demand for sugar has remained stagnant. 
  • To help the sugar sector, the Centre has even mandated the compulsory blending of ethanol derived from sugarcane with fuels such as petrol and diesel. According to the Food Ministry, the country’s sugar production is likely to remain flat at 30.5 million tonnes in the next 2021-22 season as more sugarcane will be diverted for ethanol making.
• What lies ahead?
  • India has filed an appeal with the Appellate Body of the WTO disputing a verdict by the WTO’s dispute settlement panel on sugar subsidies.
  • The WTO Appellate Body’s decision will be considered final on the dispute.
  • But the appellate body of the WTO is not functioning because of differences among member countries to appoint members, and disputes are already pending with it.
  • In case India refuses to comply with the decision, it might have to face retaliatory action from other countries in the form of additional tariffs on Indian exports and other stringent measures.
• Sugarcane prices in India:
  • The Centre announces Fair and Remunerative Prices(FRP) which are determined on the recommendation of the Commission for Agricultural Costs and Prices (CACP) and are announced by the Cabinet Committee on Economic Affairs(CCEA).
  • The State Advised Prices (SAP) are announced by key sugarcane producing states which are generally higher than FRP.

Odisha repromulgates ordinance on APMCs

• Context:
  • The State Cabinet has approved repromulgation of Agricultural Produce and Livestock Marketing (Promotion and Facilitation) for the third time.
  • With this, the Odisha government seeks to set up and operate private market yards and farmer consumer market yards to enhance competition among different markets and market players for agricultural produce.
• Overview of the ordinance:
  • The law has been drafted on the lines of a model law titled ‘The Agricultural Produce and Livestock Marketing (Promotion and Facilitation) Act, 2017’ circulated by the Union Ministry of Agriculture and Farmer Welfare.
  • The ordinance proposes to abolish fragmentation of market within the State by removing the concept of the notified market area so far as enforcement of regulation by the Agricultural Produce and Livestock Market Committee is concerned.
  • The government aims to declare warehouses or silos or cold storages and other structures or space as market sub-yard to provide better market access or linkage to the farmers.
• Key features of the Model Act:
  1. A state government may declare the whole state as a single unified market area.
  2. In such an area, a single license will be applicable for the trade of agricultural produce and livestock.
  3. Market Committee: A Market Committee will manage market yards in a specified area
  4. Private market yards may be set up by private individuals to facilitate operations of traders and commission agents.

World Pulses Day

• Context:
  • February 10 is a designated global event to recognize and emphasize the importance of pulses and legumes as a global food.
  • The UN General Assembly adopted 2016 as the International Year of Pulses (IYP).
• World Pulses Day 2021 Theme: #LovePulses.
• Background:
  • Burkina Faso (a landlocked country in West Africa) proposed the observance of World Pulses Day. In 2019, the General Assembly announced February 10 as World Pulses Day.
• Key Points:
  • India is the biggest producer and consumer of pulses in the world and it has almost achieved self-sufficiency in pulses.
  • India accounted for 23.62% of the world’s total pulses production in 2019-20.
  • In the last five-six years, India has increased pulses production from 140 lakh tonnes to more than 240 lakh tonnes.
• Benefits of pulses:
  1. Pulses are rich in nutritional and protein values and are an important part of a healthy diet.
  2. Pulses, and legumes (lentils, peas, chickpeas, beans, soybeans, and peanuts) play an equally important role in health maintenance and overall improvement.
  3. Pulses also contribute majorly to achieving the goals of the 2030 Agenda of Sustainable Development.
  4. Pulses play a critical role in marking challenges of poverty, food chain security, degraded health, and climate change.
  5. Pulses and legume crops help in improving the feasibility of agricultural production systems.
  6. Pulses contribute to environmental benefits. The nitrogen-fixing properties of pulses improve soil fertility, which increases the productivity and fertility of the farmland.
  7. Pulses are important for a healthy diet. 

External sector:

Global Minimum Corporate Tax (GMCTR)

• Context:
  •  Recently, Finance Ministers from the Group of Seven (G7) rich nations reached a landmark accord setting a GMCTR, an agreement that could form the basis of a worldwide deal.
• About Base erosion and profit shifting:
  • It refers to corporate tax planning strategies used by multinationals to “shift” profits from higher-tax jurisdictions to lower-tax jurisdictions, thus “eroding” the “tax-base” of the higher-tax jurisdictions.
  • The Organisation for Economic Co-operation and Development (OECD) defines BEPS strategies as “exploiting gaps and mismatches in tax rules”.
• Need for GMCTR:
  • Major economies are aiming to discourage multinationals from shifting profits — and tax revenues — to low-tax countries regardless of where their sales are made.
  • Increasingly, income from intangible sources such as drug patents, software, and royalties on intellectual property has migrated to these jurisdictions, allowing companies to avoid paying higher taxes in their traditional home countries.
  • With its proposal for a minimum 15% tax rate, the Biden administration hopes to reduce such tax base erosion without putting American firms at a financial disadvantage, allowing competition on innovation, infrastructure and other attributes.
• How would a global minimum tax work?
  • The global minimum tax rate would apply to overseas profits.
  • Governments could still set whatever local corporate tax rate they want, but if companies pay lower rates in a particular country, their home governments could “top-up” their taxes to the minimum rate, eliminating the advantage of shifting profits.
• What about that minimum rate?
• Talks are focusing on the U.S. proposal of a GMCTR of 15% – above the level in countries such as Ireland but below the lowest G7 level.
• Any final agreement could have major repercussions for low-tax countries and tax havens.
• The Irish economy has boomed with the influx of billions of dollars in investment from multinationals.
• Dublin, which has resisted EU attempts to harmonize its tax rules, is unlikely to accept a higher minimum rate without a fight.
• However, the battle for low-tax countries is less likely to be about scuppering the overall talks and more about building support for a minimum rate as close as possible to its 12.5% or seeking certain exemptions.

Foreign direct investment (FDI)

• Context:
  • India has attracted the highest ever total FDI inflow of U.S.$81.72 billion during the financial year 2020-21 and it is 10 percent higher as compared to the last financial year 2019-20
• About increased Inflows:
  • The Reserve Bank of India (RBI) reported that the equity component of inflows was over the U.S.$61.4 billion, a 19% increase over the U.S.$51.7 billion received in 2019-20.
  • Taken on their face value, these numbers are indeed creditable, especially given that global FDI inflows in 2020 had declined by 42% over the level in 2019, and inflows to developing countries had fallen by 12%.
  • The credit for this record level of inflows was given to FDI policy reforms, investment facilitation, and ease of doing business.
  • The highest FDI is coming from Singapore and the maximum FDI is received by the Gujarat state.
  • A characteristic feature of foreign capital inflow in 2020-21 is:
    • Sizable repatriation of long term FDI capital
    • The large inflow of speculative capital i.e. FPI/FII
• Issues associated:
• The majority of the FDI is through the indirect acquisition of shares held by Reliance Industries without creating any productive asset.
• The majority of FDI (more than 80%) is in the services sector and very less in the non-acquisition (mere transfer of shares) manufacturing sector
• Three Reliance group companies like Jio Platform, Reliance Retail Venture and Reliance BP Mobility getting more than 50% of the FDI

Net International Investment Position (NIIP)

• Context:
  • The Reserve Bank of India (RBI) recently released data relating to India's International Investment Position as it stood at the end of March 2020
• About NIIP:
  • It measures the gap between a nation’s stock of foreign assets and a foreigner's stock of that nation's assets.
  • Essentially, it can be viewed as a nation’s balance sheet with the rest of the world at a specific point in time
  • It is an important barometer of a nation’s financial condition and creditworthiness.
  • A nation with a positive NIIP is a creditor nation, while a nation with a negative NIIP is a debtor nation.
• Recent data:
  • The ratio of overseas financial assets to India's GDP in 2019-20 (at current market prices) moved up to 26.5% in March 2020 as compared to 23.4% a year ago
  • International financial assets of Indian residents increased by USD 73.9 billion due to the rise in reserve assets and overseas direct investment
  • Net claims of non-residents in India declined 

Forex reserves

• Context:
  • In early June, India’s foreign exchange reserves crossed $600 billion for the first time.
• About:
  • The forex reserves are assets held by the central bank and comprise:
    • Foreign currencies
    • Bonds
    • Bank deposits
    • Gold
    • Special drawing rights (SDR)
    • Financial assets
  • Foreign currencies, the largest constituent of Indian forex reserves, are held in the form of treasury and institutional bonds.
  • Expressed in dollar terms, the foreign currency assets include the effect of appreciation or depreciation of non-US units such as the euro, pound sterling and Japanese yen held in the forex reserves
• Reasons for the recent increase in forex reserves:
  • Sustained foreign direct investment (FDI) and foreign portfolio investor (FPI) inflows had led to the gains in  forex reserves in the past few weeks
  • RBI’s forex intervention
    • It is motivated by concerns about currency movements
    • RBI does not want the rupee to appreciate as that makes exports uncompetitive.
    • Hence it intervenes in the forex market to buy dollars
• Benefits of rising forex reserves:
  • The rising forex reserves could bring some comfort to the government as well as the Reserve Bank in managing the nation’s external and internal financial issues at a time when the economy is facing Covid stress once again
  • Brings confidence to markets that a country can meet its external obligations
  • Demonstrates the backing of domestic currency by external assets
  • Assist the government in meeting its foreign exchange needs and external debt obligations
  • Maintain a reserve for national disasters or emergencies
  • It is a big cushion in the event of any crisis on the economic front and enough to cover India’s import bill for a year
  • An increase in the forex kitty could also help strengthen the rupee against the US dollar.

Current account surplus 

• Context:
  • India reports a current account surplus of 0.9% in pandemic-affected FY21, as against a deficit of 0.9% in FY20.
• About the news:
  • The current account is one-half of the balance of payments, the other half being the capital account.
  • While the capital account measures cross-border investments in financial instruments and changes in central bank reserves, the current account measures imports and exports of goods and services, payments to foreign holders of a country's investments, payments received from investments abroad, and transfers such as foreign aid and remittances.
  • The current account may be positive (a surplus) or negative (a deficit
  • A country's current account balance, whether positive or negative, will be equal but opposite to its capital account balance.
  • Exports are recorded as credits in the balance of payments, while imports are recorded as debits.
• Factors Affecting the Current Account:
  • Since the trade balance (exports minus imports) is generally the biggest determinant of the current account surplus or deficit, the current account balance often displays a cyclical trend.
  • The exchange rate exerts a significant influence on the trade balance, and by extension, on the current account.
  • An overvalued currency makes imports cheaper and exports less competitive, thereby widening the current account deficit or narrowing the surplus.
  • An undervalued currency, on the other hand, boosts exports and makes imports more expensive, thus increasing the current account surplus or narrowing the deficit.

Energy exchange

• Context:
  • Nepal to sell surplus electricity in India’s energy exchange market.
  • The Energy Exchange under India’s Power Ministry on Monday granted permission to Nepal after persistent lobbying from Kathmandu, as Nepal Electricity Authority (NEA) is now in a position to sell its surplus energy, according to a report in The Kathmandu Post.
• Details of exchange:
  • In the first phase, 39MW power, including 24MW produced by NEA-owned Trishuli hydropower and 15MW Devighat powerhouse, has been permitted for trading in Indian Energy Exchange (IEX). Both projects were developed with India’s assistance.
  • Nepal was the first country that commences transactions at the IEX platform and has been buying electricity regularly in the day-ahead market.
•  Indian Energy Exchange (IEX):
  • It is the first and largest energy exchange in India providing a nationwide, automated trading platform for physical delivery of electricity, Renewable Energy Certificates and Energy Saving Certificates.
  • The exchange platform enables efficient price discovery and increases the accessibility and transparency of the power market in India while also enhancing the speed and efficiency of trade execution.
  • The Exchange is a publicly listed company with NSE and BSE. IEX is approved and regulated by Central Electricity Regulatory Commission (CERC) and has been operating since 27 June 2008.

Intellectual property

• Context:
  • Darjeeling Himalayan Railway (DHR) was designated a UNESCO World Heritage Site, India has finally registered the logos of the iconic ‘Toy Train’ internationally as its intellectual property.

• Darjeeling Himalayan Railway (DHR):
  • The DHR, which started operations in 1880, more than 140 years ago.
  • It has two logos, both of which have been patented. One has “DHR” in bold black, intertwined letters; the other is a circular seal with a picture of mountains, forests and a river, with “Darjeeling Himalayan Railway” in white lettering on a green background around it.
• World Intellectual Property Organisation (WIPO):
  • A specialised agency of the United Nations based in Geneva, Switzerland, in accordance with the procedure laid down in WIPO’s Vienna Classification (VCL).
  • India joined WIPO in 1975.
  • Currently has 191 member states.
• What is the intellectual property right?
  • Intellectual property rights (IPR) are the rights given to persons over the creations of their minds: inventions, literary and artistic works, and symbols, names and images used in commerce. They usually give the creator an exclusive right over the use of his/her creation for a certain period of time.
• Advantage of IPR for toy train:
  • The use of these logos anywhere in the world will now require written permission from India and the payment of a fee.

US inflation and its impact on India

• Context:
  • At 6.2%, retail inflation in the US has made the highest year-on-year jump in 3 decades. Why is that a concern for India, where inflation has frequently breached the RBI’s comfort zone in the last 2 years?
• What is the inflation rate?
  • It is the rate at which prices increase over a given period. Typically, in India, the inflation rate is calculated on a year-on-year basis. In other words, if the inflation rate for a particular month is 10 per cent, it means that the prices in that month were 10 per cent more than the prices in the same month a year earlier.
  • A high inflation rate erodes the purchasing power of people.
• Why is US inflation a matter of concern?
  • Indians may not find a 6.2 per cent inflation rate a very sharp increase in prices. But in the US, this data is the largest year-on-year increase in the last three decades.
• What has caused the inflation surge in the US?
  • The rapid rollout of the Covid-19 vaccination drive. the US economy posted a sharp recovery.
  • Billions of dollars are pumped by the government to not only provide relief to consumers and those who lost their jobs but also to stimulate demand.
• Is this a US-specific phenomenon?
  • No. inflation has surprised policymakers across most of the major economies, be it Germany, China or Japan.
• What is happening in India?
  • India was one of those rare major economies where high inflation predates the pandemic.
  • The pandemic did make matters worse because of supply constraints even when in India demand has not yet recovered to pre-Covid levels. 

Cryptocurrency

• Context:
  • The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, is listed for introduction — one of 26 Bills — in Lok Sabha in the winter session starting November 29.
• About cryptocurrency:
  • A cryptocurrency, crypto-currency, or crypto is a collection of binary data which is designed to work as a medium of exchange. Individual coin ownership records are stored in a ledger, which is a computerized database using strong cryptography to secure transaction records, control the creation of additional coins, and verify the transfer of coin ownership.
  • Examples: Bitcoin, Ethereum etc.
• The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021:
  • The Bill seeks to “create a facilitative framework for the creation of the official digital currency to be issued by the Reserve Bank of India”.
  • It also “seeks to prohibit all private cryptocurrencies in India, however, it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses”.

Web Portal And App:

Tokenization of Online transactions 

 

• Context: The Reserve Bank of India (RBI) has decided to defer the implementation of tokenization of debit and credit cards for online transactions by a further six months following representations from stakeholders.
• Tokenization:
  • Tokenisation refers to the replacement of credit and debit card details with an alternative code called a ‘token’.
  • This token is unique for a combination of card, token requestor (the entity that accepts a request from the customer for tokenisation of a card and passes it on to the card network to issue a token) and the device.
  • Tokenisation of the card is absolutely free and can be availed by anyone.
  • Benefits:
    • Transaction safety: Tokenization reduces the chances of fraud arising from sharing card details.
      • A tokenised card transaction is considered safer as the actual card details are not shared with the merchant during transaction processing.
    • Easy payments: The token is used to perform contactless card transactions at point-of-sale (PoS) terminals and QR code payments.
      • Customers who do not have the tokenisation facility will have to key in their name, 16-digit card number, expiry date and CVV each time they order something online.
    • Data storage: Only card networks and card-issuing banks will have access to and can store any card data.
  • RBI Decisions and Impact:
    • In September 2021, the RBI prohibited merchants from storing customer card details on their servers with effect from January 01, 2022, and mandated the adoption of card-on-file (CoF) tokenisation as an alternative to card storage. It applies to domestic, online purchases.
    • While RBI’s intent is to protect consumer interest, the challenge on the ground pertains to implementation.
      • Online merchants can lose up to 20-40% of their revenues post 31 December due to tokenisation norms, and for many of them, especially smaller ones, this would sound the death knell, causing them to shut shop.
      • An estimated 5 million customers, who have stored their card details for online transactions on various platforms, could be impacted if the online players and merchants are not able to implement the changes at their backend.
      • E-commerce platforms, online service providers and small merchants could be especially hit.
      • Equated monthly instalments and subscription-based transactions that are paid through stored cards will also have to adhere to new rules.
      • Even as CoF conversion to a tokenised number is being done, the system is not geared up for processing the tokens as merchants are not ready at their end.
      • Specifically, the RBI policy change affects three major players: banks, intermediary payment systems and merchants.
    • Stakeholders demanded extension:
      • Digital payment firms and merchant bodies had sought urgent intervention of the RBI to extend the deadline for implementation of the new credit and debit card data storage norms, or card-on-file tokenisation (CoF). 
        • If implemented in the present state of readiness, the new mandate could cause major disruptions and loss of revenue, especially for merchants.
        • Industry sources argue that all stakeholders – banks, card schemes, aggregators, gateways, processors, merchants, consumers and the regulator – in effect have to come together for successful implementation of the norms, which requires time and preparation.
        • Three steps have to be completed for the smooth implementation of tokenisation.
          • Token provisioning: the consumer’s card number should be convertible into a token, which means the card networks have to be ready with the relevant infrastructure.
          • Token processing: Consumers should be able to complete their transactions successfully through the tokens.
          • Scale-up for multiple use cases: Consumers should be able to use the token for things like refunds, EMIs, recurring payments, offers, promotions, guest checkouts etc.
    • The Reserve Bank of India has extended the implementation date of card-on-file (CoF) tokenisation norms by six months to June 30, 2022.
      • While extending the guideline, the RBI said that in addition to tokenisation:
        • the industry stakeholders may devise alternate mechanism(s) to handle any use case (including recurring e-mandates, EMI option, etc.) or
        • post-transaction activity (including chargeback handling, dispute resolution, reward/ loyalty programme, etc.) that currently involves/requires the storage of CoF data by entities other than card issuers and card networks.”
• Current transaction procedure:
  • There are many players involved in processing one card transaction today:
    • Merchant
    • Payment aggregator
    • Issuing bank
    • Card network
  • When a transaction happens on a merchant platform, the data is sent to the payment aggregator (PA).
  • The PA next sends the details to either the issuing bank or the card network.
  • Then issuing bank sends an OTP and the transaction flows back.
• Way Ahead:
  • The new system is a much bigger disruption to the way digital payments will henceforth be processed.
  • Integration of systems and the ability to process is one part.
  • The industry also needs to test the performance and success rate of the tokenization solution.
• The Jewar airport is expected to serve residents of Noida and Greater Noida, and provide an alternative airport for residents of New Delhi and Gurgaon. Jewar airport will also serve western UP cities like Aligarh, Bulandshahr, Meerut, and Agra.