Economics: Full Convertibility On Capital Account Unlikely For Few Years

ECONOMICS
Full convertibility on capital account unlikely for few years

Details :
What is the News?
India is not looking at full Capital Account Convertibility for the next few years, a senior finance ministry
official said.
Capital controls are used by the state to protect the economy from potential shocks caused by
unpredictable capital flows.
Capital account convertibility means the freedom to convert a currency for capital transactions and the
rupee is not fully convertible on that front yet, though capital flows have been liberalised in recent years.
What is Capital Account Convertibility ?
Capital Account Convertibility means that the currency of a country can be converted into foreign
exchange without any controls or restrictions.
In other words, Indians can convert their Rupees into Dollars or Euros and Vice Versa without any
restrictions placed on them.
The reason why it is called capital account convertibility is that the conversion of domestic currencies into
foreign currencies is allowed in the capital account and not only the current account.
Capital account refers to expenditures and investments in hard assets, physical premises, and factories
as well as investments in land and other capital-intensive items.
Current account on the other hand, refers to investments that are short term in duration and hence, they
fall under the current account head.
What are Partially and Fully Convertible Currencies?
Partially convertible currencies are those where the currency can be converted in the current account.
This means that investors can invest in stock markets and bond markets of the target countries with an
option to repatriate their holdings.
Further, ordinary citizens can convert their domestic currencies to dollars for expenses like going abroad
for work, tourism, and education.
On the other hand, capital account convertibility or fully convertible currencies are those where just about
anybody can convert the local currency for foreign currency without any questions or restrictions placed on such
conversions.
The key aspect here is that many countries do not allow their currencies to be fully convertible if they do
not hold significant foreign exchange reserves.
This is also the reason why capital controls are imposed in times of economic crises to prevent a capital
flight from these countries.
Many Asian countries have learnt from the bitter experience of the Asian financial crisis of 1997 and the
Russian Default of 1998 where full convertibility lead to a stampede of foreign investors fleeing the countries in
the aftermath of the economic crisis.
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WPI inflation slows to 3.6 per cent

Details :
Wholesale price inflation eased marginally in September to 3.6 per cent from 3.7 per cent in August due to a
cooling off of food prices, data released by the Ministry of Commerce and Industry showed.
From examination point of view, You only need to know the basic Concept of WPI.
What is Wholesale Price Index (WPI)?
WPI measures the change in price level at wholesale market.
WPI consists of 676 commodities (services are not included in WPI in India).
It is measured on year-on-year basis i.e., rate of change in price level in a given month vis a vis
corresponding month of last year.
This is also known as point to point inflation.
This index is the most widely used inflation indicator in India.
This is published by the Office of Economic Adviser, Ministry of Commerce and Industry.
WPI captures price movements in a most comprehensive way.
The current series of Wholesale Price Index has 2004-05 as the base year.
In India, there are three main components in WPI Primary Articles (weight: 20.12%), Fuel & Power
(weight: 14.91%) and Manufactured Products (weight: 64.97).
Within WPI, Food commodities (from which Food Inflation) have a combined weight of 24.31%.
This includes Food Articles in the Primary Articles (14.34%) and Food Products in the Manufactured
Products category (9.97%).
Food Inflation is also calculated on year-on-year basis.

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NITI Aayog reviewing CONCORs stake sale

Details :
What is the News?
Container Corporation of India Ltd. (CONCOR),is a Navratna Public sector undertaking under the Indian
Ministry of Railways.
CONCOR operates three businesses: cargo carrier, terminal operator and warehouse operator.
The logistics company, offering scheduled and on-demand rapid rail and road services between the
hinterland and ports and between terminals across the country, is the only listed company of Indian Railways
with a cash surplus of Rs.2,400 crore and zero debt on its balance sheet.
The Finance Ministry has returned a proposal of NITI Aayog for strategic disinvestment of the Centres
stake in Container Corporation of India Ltd (CONCOR).
According to ministry, the move could lead to a public sector monopoly becoming a private sector
monopoly.
What is Disinvestment?
Disinvestment can be defined as the action of an organisation (or government) selling or liquidating an
asset or subsidiary. It is also called as divestment or divestiture.
It typically refers to sale from the government, partly or fully, of a government-owned enterprise.
A company or a government organisation will typically disinvest an asset either as a strategic move for
the company or for raising resources to meet general/specific needs.
Disinvestment also assumes significance due to the prevalence of an increasingly competitive

environment, which makes it difficult for many PSUs (Public Sector Undertakings) to operate profitably.
The new economic policy initiated in July 1991 indicated that PSUs had shown a very negative rate of
return. Inefficient PSUs had become more of liabilities to the Government than being assets.
The Government adopted the 'Disinvestment Policy' which was identified as an active tool to reduce the
burden of financing the PSUs.
Objectives of Disinvestment:
To reduce the financial burden on the Government
To improve public finances
To introduce, competition and market discipline
To encourage wider share of ownership
To depoliticize non-essential service
Difference between Disinvestment and privatization:
Privatization involves transforming the ownership of a public sector business to the private sector known
as a 'strategic buyer'. In privatization, full ownership is transferred to the strategic partner.
In disinvestment, the same transformation process happens while retaining 26% or in some cases 51%
percent of share right (i.e. the voting power) with the public sector organization.
In disinvestment 26% or 51% of share is retained with the government company and the rest is
transferred to the strategic partner. Here, the ownership is not transferred to strategic buyer.
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Four PSBs may struggle to pay bond coupons

Details :
What is the News?
Four public sector banks that had reported heavy losses due to a surge in bad loans may struggle to
make coupon payments on their additional tier 1 (AT1) bonds.
Decline in profitability and increasing losses could wipe out the revenue reserves of some public sector
banks (PSBs) and affect their ability to pay coupon on Additional Tier 1 (AT1) bonds issued under Basel III
capital regulations.
(Coupon is the annual interest paid on the face value of a bond. It is expressed as a percentage.)
Though government has committed capital support to PSBs, the coupon on AT1 bonds can only be
serviced through current years profit or from revenue reserves and hence any capital infusion by government
alone cannot help the banks to service coupon on these bonds.
Additional Tier 1 Bonds:
These are the hybrid bonds that combine debt and equity elements.
Its defining characteristic is that it may be converted into shares when certain conditions are met.
They are also called as contingent convertible capital instruments (CoCos).
For example, when a company runs into trouble, the owners lose their stake and the debt becomes
equity, lenders turns into owners. But in case of banks such negotiations are not possible. The coco bonds are
designed to anticipate that process and transform automatically from debt to equity.
These bonds have their roots in financial crisis when governments were forced to bail out banks.
Coupon payments can be cancelled on the request by issuer.
AT1 or Cocos are the riskiest debt issued by banks.
They do not have any set maturity date.

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Who will regulate pension products?

Details :
What is the News?
Pension Fund Regulatory and Development Authority (PFRDA) Chairman has recently said that the
government has set up a committee to look into a proposal to have all pension products under the PFRDA.
Last year, PFRDA had said it would seek the government to regulate all pension, including those issued
by insurance companies as well as mutual fund houses.
At present pension products floated by fund houses and insurance companies are regulated by the
Securities and Exchange Board of India (Sebi) and the Insurance Regulatory and Development Authority of India
(Irdai), respectively.
Creating confusion:
While the Pension Fund Regulatory and Development Authority (PFRDA) was set up with the intent of
regulating all pension products, insurers and mutual funds continue to sell pension products outside its watch,
creating confusion among consumers.
The move to set up a panel was made after the issue was flagged at recent meetings of the Financial
Stability and Development Council chaired by Finance Minister.
Pension products floated by insurance companies come under the purview of the Insurance Regulatory
and Development Authority (IRDA) while those sold by mutual funds are overseen by the SEBI.
The committee to be formed by the Department of Financial Services, would have representatives from
all financial sector regulators SEBI, IRDA, RBI and PFRDA.
About the Pension Fund Regulatory and Development Authority (PFRDA):
It is a pension regulatory authority which was established by Government of India on August 23, 2003.
PFRDA is authorized by Ministry of Finance, Department of Financial Services.
PFRDA promotes old age income security by establishing, developing and regulating pension funds and
protects the interests of subscribers to schemes of pension funds and related matters.
About the Financial Stability and Development Council:
It is an apex-level body constituted by the government of India.
The idea to create such a super regulatory body was first mooted by the Raghuram Rajan Committee in
2008.
Finally in 2010, the then Finance Minister of India, Pranab Mukherjee, decided to set up such an
autonomous body dealing with macro prudential and financial regularities in the entire financial sector of India.
The new body envisages to strengthen and institutionalise the mechanism of maintaining financial
stability, financial sector development, inter-regulatory coordination along with monitoring macro-prudential
regulation of economy.
The Union Finance Minister of India is the Chairperson of the Financial Stability and Development
Council.
Question asked in UPSC Pre-2016.
Q. With reference to Financial Stability and Development Council, consider the following statements:
1. It is an organ of NITI Aayog.

2. It is headed by the Union Finance Minister.
3. It monitors macro-prudential supervision of the economy.
Which of the statements given above is/are correct?
(a) 1 and 2 only
(b) 3 only
(c) 2 and 3 only
(d) 1, 2 and 3
Ans: (c)
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Fighting OPEC only for the brave

Details :
The Organisation of Petroleum Exproting Countries is back in the business of influencing oil prices. OPEC will
nail down the details of Algiers deal where it was decided to cut down on output of petroleum as its members
have grown weary of a protracted supply battle with diminishing returns and dwindling financial reserves. There
is uncertainty about OPECs pledge as it has always increased production wherever possible.
About OPEC:
It is intergovernmental organization of 14 countries, account for 73% of Worlds proven oil resources.
Establishment: In 1960, at Baghdad.
Headquarters: Vienna
Member countries:
- Founding members- Iran, Iraq, Kuwait, Saudi Arabia, Venezuela.
- Other members- Algeria, Angola, Ecuador, Gabon, Indonesia, Libya, Nigeria, Qatar, United Arab Emirates.
Mission: To coordinate and unify the petroleum policies of its member countries.
To ensure the stabilization of oil markets, in order to secure an efficient, economic and regular supply of
petroleum to consumers, a steady income to producers and a fair return on capital for those investing in the
petroleum industry.
The formation of OPEC marked a turning point toward national sovereignty over natural resources.
OPEC decisions have come to play a prominent role in the global oil market and international relations.
2014-2016 Oil Glut:
During 2014-16,OPEC, members consistently breached the production ceiling.

At the same time, US (a non-OPEC Petroleum country) oil production nearly doubled owing to
improvement in shale fracking technology. This led to decline in US oil imports and it went on path towards
energy independence, resulting in collapse of oil prices.
In 2015, Iraqi production surged after years of disorder.
-Iranian output was poised to rebound with the lifting of international sanctions
-World leaders at the Paris Agreement committed to limit the use of fossil fuel.
In light of all these changes, OPEC decided to set aside its production ceiling.
In September,2016, OPEC countries met at Algeria and decided about cutting down the production due
to diminished returns.
If things go in line with, Algiers Deal will be finalized in November, 2016.
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Payment Banks need RBIs prior product approval

Details :
What is the news?
The Reserve Bank of India (RBI) said the entities that had been granted a payments bank (PB) licence
would need to take specific approval for the products they would be offering to customers.
Banks do not need to take prior RBI approval to launch products.
The RBI may place suitable restrictions on the design, functioning, or other features of the product or
even discontinue if it feels that the product is not suitable for customers.
RBI move is in right direction as it is better to take prior approval rather than rolling it back after offering to
customers.
RBI has also mandated that employee of Payment Bank should be available for sufficient duration at a
fixed location to attend customers and at least 25% of these access points should be in un-banked rural areas.
Differentiated Banks:
This system of banks is different from universal banks as they are mandated to serve niche interests and
can offer limited products.
Payment banks and small banks are part of differentiated banking.
The purpose of these banks is to promote financial inclusion.
Nachiket Mor committee in 2014 recommended the establishment of such institutions.

Payments Banks:
Objective of payments banks is to increase financial inclusion by providing small savings accounts,
payment/remittance services to migrant labour, low income households, small businesses, other unorganised
sector entities and other users.
Those who can promote payments banks can be a commercial bank, non-bank PPIs (Prepaid payment
issuer), Non Banking Financial Companies, mobile telephone companies, super market chains, real sector
cooperatives companies and public sector entities.
Payments Banks can accept demand deposits (only current account and savings accounts).
No credit lending is allowed for Payments Banks.

Small Banks:
The purpose of the small banks will be to provide a whole suite of basic banking products such as
deposits and supply of credit, but in a limited area of operation.
The objective is to increase financial inclusion by provision of savings vehicles to under-served and
unserved sections, supply of credit to small farmers, micro and small industries and other unorganised sector
entities.
Resident individuals with 10 years of experience in banking and finance, companies and Societies will be
eligible as promoters to set up small banks.
The banks would be subjected to all prudential norms and RBI regulations including maintenance of
CRR and SLR.
The area of operations would normally be restricted to contiguous districts so that the Small Bank has a
local feel and culture.
The bank can accept deposits and lend to its customers.

Loans and advances of up to Rs 25 lakhs, primarily to micro enterprises, should constitute at least 50 per
cent of the loan portfolio.
For the first three years, 25 per cent of branches should be in unbanked rural areas.
Question Asked in UPSC Pre-2016
Q. The establishment of Payment Banks is being allowed in India to promote financial inclusion. Which
of the following statements is/are correct in this context?
1. Mobile telephone companies and supermarket chains that are owned and controlled by residents are eligible
to be promoters of Payment Banks.
2. Payment Banks can issue both credit cards and debit cards.
3. Payment Banks cannot undertake lending activities.
Select the correct answer using the code given below:
(a) 1 and 2 only
(b) 1 and 3 only
(c) 2 only
(d) 1, 2 and 3
Ans: (b)
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RBI cuts repo rate

Details :
What is the news?
The Reserve Bank of India has reduced repo rate by 25bps & the rate now stands at 6.25 percent.
The policy cut rate is the first decision made by the Monetary Policy Committee (MPC) of the bank and
the decision was unanimous.
Inflation targeting i.e. to keep the inflation with the targeted limits is the primary objective of monetary
policy.
RBI uses Consumer Price Inflation as its nominal anchor.
Implications:
Businessmen are expecting the banks to pass on the benefit to borrowers, a move that will ease the
stressed balance sheets of India.
The banks shall lower the interest rate which will increase liquidity in the market.
The trio of good monsoon, 7th pay commission and the rate cut will give kickstart to the economic
growth.
Cut in rate will also push the real estate sector as the buyers will now have to pay lesser interest.
About Repo and Reverse repo rate:
Repo rate is the rate at which the Reserve Bank of India lends money to commercial banks in the event
of any shortfall of funds - Expansionary measure.
Banks can sell their securities to RBI with an obligation of buying back.
Reverse repo is when RBI sells the securities to commercial banks& absorbs excess liquidity
Contractionary measure.
Repo and reverse repo rates form a part of the liquidity adjustment facility.
Repo rate as a tool to control inflation:
In the event of inflation, central banks increase repo rate and this acts as a disincentive for banks to
borrow from the central bank.
This will reduce the money supply and thus helps in controlling inflation.
The central bank takes the contrary position in the event of a fall in inflationary pressures.
About the Monetary Policy Committee:
MPC is headed by RBI governor, is a six-member panel, of which three members are from RBI and three
are independent members selected by government. The independent members are experts in the field of
economics, banking or finance.
MPC is expected to bring value and transparency to rate-setting decisions.
The MPC will meet four times a year to decide on monetary policy by a majority vote.
The committee was formed on the recommendation of Urjit Patel Committee, 2014.
MPC was constituted onmany-heads-are-better-than-one approachand is expected to ensure that the

decisionsare not influenced by bias or lobbying.
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Global growth to stay weak: IMF

Details :
The International Monetary Fund maintained its forecast for weak global growth. In the latest update of its World
Economic Outlook, the IMF said that a drop in U.S. growth for 2016 due to a weak first-half performance would
be offset by strengthening in Japan, Germany, Russia, India and some other emerging markets.
The IMF kept its overall global growth forecasts unchanged at 3.1 per cent for 2016 and 3.4 per cent for
2017 after cutting its outlook for five straight quarters.
It said India's growth will improve slightly to 7.6 per cent in both years.
About the International Monetary Fund (IMF):
The International Monetary Fund (IMF), also known as the Fund, was conceived at a UN conference in
Bretton Woods, New Hampshire, United States, in July 1944.
The 44 countries at that conference sought to build a framework for economic cooperation to avoid a
repetition of the competitive devaluations that had contributed to the Great Depression of the 1930s.
IMF came into formal existence in 1945 and the goal was to reconstructing the international payment
system.
Now IMF is an organization of 189 countries, working to foster global monetary cooperation, secure
financial stability, facilitate international trade, promote high employment and sustainable economic growth, and
reduce poverty around the world.
The IMFs responsibilities: The IMF's primary purpose is to ensure the stability of the international
monetary systemthe system of exchange rates and international payments that enables countries (and their
citizens) to transact with each other.
Headquarters: Washington, D.C.
World Economic Outlook:

The World Economic Outlook (WEO) is a survey conducted and published by the International Monetary
Fund.
It is published biannually and partly updated two times a year.

It portrays the world economy in the near and medium context, with projections for up to four years into
the future.
Question Asked in UPSC pre-214
Q. Which of the following organizations brings out the publication known as World Economic Outlook?
(a) The International Monetary Fund

(b) The United Nations Development Programme
(c) The World Economic Forum
(d) The World Bank
Ans: (a)
Question Asked in UPSC pre-216
Q. Global Financial Stability Report is prepared by the
(a) European Central Bank
(b) International Monetary Fund
(c) International Bank for Reconstruction and Development
(d) Organisation for Economic Cooperation and Development
Ans: (b)
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Centre rethinks plan to widen EPF coverage

Details :
What is the News?
The labour ministry has proposed to cover the firms with at least 10 employees under Employees
Provident Fund (EPF).
Currently, the EPF Act is applicable to factories with 20 employees.
The move is supported by trade unions as more and more workers will be under the EPF cover thereby
providing them social security.
The proposal will impact the small factories financially as they will have to contribute in Employees
Provident Fund.
The proposal is in contradiction with finance ministers announcement in budget16 where the employees
were given an option to move out of EPF and opt for National Pension System.
What is Employees Provident Fund (EPF)?
It a retirement benefit scheme that is available to all salaried employees.

It helps employees save a part of their salary every month that can be used in the when they unable to
work, or upon retirement.
Both the employee and employer have to contribute certain percentage of salary to the fund.
EPF is managed by Employees Provident Fund Organisation, Ministry of Labour and Employment.
What is National Pension System?
National Pension System (NPS) is a voluntary, defined contribution retirement systemic savings scheme.
NPS was introduced in 2003 for government employees and was later on extended to non-government
employees, self professionals and unorganised sector based on voluntary contributions.
Provident Fund Regulatory and Development Authority is statutory body under Ministry of Finance which
managed NPS.
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Steel lifts infrastructure output 3.2%

Details :
The countrys infrastructure output grew 3.2 per cent in August, up from 3 per cent in July, driven by the steel
and fertiliser sectors, data released by the Ministry of Commerce showed.
The steel sector output grew 17 per cent in August compared with a contraction of 0.5 per cent in July.
Steel also has the second-highest weightage in the Index of Core Industries after the electricity sector.
The fertiliser sector was one of the only other two sectors that saw an improvement in their performance,
growing at 5.7 per cent in August compared with a contraction of 4.3 per cent in July.
The cement sector was the third to see an improvement in August.
What is Index of Industrial Production (IIP)?
IIP measures the quantum of changes in the industrial production in an economy and captures the
general level of industrial activity in the country.
It is a composite indicator expressed in terms of an index number which measures the short-term
changes in the volume of production of a basket of industrial products during a given period with respect to the
base period.
IIP is a short term indicator of industrial growth till the results from Annual Survey of Industries and
National Accounts Statistics are available.
The IIP index is computed and published by the Central Statistical Organisation (CSO) on a monthly
basis.
IIP is a composite indicator that measures the growth rate of industry groups classified namely as Mining,
Manufacturing and Electricity.
Currently IIP figures are calculated considering 2004-05 as base year.
The Eight Core Industries comprise nearly 38 % of the weight of items included in the Index of Industrial
Production (IIP).
They are:
Coal (weight: 4.38 %)
Crude Oil(weight: 5.22 %)
The Natural Gas(weight: 1.71 %)
Petroleum Refinery (weight: 5.94%)
Fertilizer (weight: 1.25%)
Steel (weight: 6.68%)
Cement (weight: 2.41%)
Electricity generation (weight: 10.32%)

Question asked in UPSC pre-2015
Q. In the Index of Eight Core Industries, which one of the following is given the highest weight?
(a) Coal Production
(b) Electricity generation
(c) Fertilizer Production
(d) Steel Production
Solution: (b)
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Centre to wind up Hindustan Cables

Details :
The Cabinet has given its nod for a strategic sale of sick public sector firm Bharat Pumps and Compressors, and
for the closure of Hindustan Cables that has stopped output since 2003. It has also approved an outlay of more
than Rs.4,800 crore to pay statutory dues to these firms employees and creditors.
What is Strategic Sale?
In the strategic sale of a company, the transaction has two elements:
Transfer of a block of shares to a Strategic Partner and
Transfer of management control to the Strategic Partner
The transfer of shares by Government may not necessarily be such that more than 51% of the total
equity goes to the Strategic Partner for the transfer of management to take place.
In the case of Public Sector Enterprises (PSU), in order that the company no longer has the character of
a Government company, the transfer of shares involves bringing down Governments shareholding below 51%.
In fact, it must be remembered that Companies Act, 1956 only defines a Government Company, which
in common parlance, is a company in which Government holds more that 51%.
PSU is not defined in the Act.
Once the Governments shareholding goes below 51%, it ceases to be a Government company and
hence, it requires changes in the Articles of Association of the company especially in relation to the Presidential
directives etc.
The Strategic Partner, after the transaction, may hold less percentage of shares than the Government but
the control of management would be with him.
For instance, if in a PSU the shareholding of Government is 51% and the balance is dispersed in public
holdings, then Government may go in for a 25% strategic sale and pass on management control, though the
Government would post-transfer have a larger share holding (26%) than the Strategic Partner (25%).
It may be noted here that the number 26% has a special significance in Company Law as to get a special
resolution passed, one requires at least majority in a general meeting.
Therefore, the 26% block acts as a check.

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WEF ranks India as 39th most competitive economy

Details :
India has climbed 16 places to the 39th rank on the Global Competitiveness Index prepared by the World
Economic Forum as improved business sophistication and goods market efficiency pushed its ranking higher.
For the eighth straight time, the list is topped by Switzerland as the most competitive economy. Singapore and
the US are at the second and third positions, respectively. At the fourth spot is Netherlands, followed by
Germany (5), Sweden (6) and the UK (7), Japan (8), Hong Kong SAR (9) and Finland (10).
India's performance:
India has climbed 16 places to the 39th rank on the Global Competitiveness Index prepared by the World
Economic Forum.
The jump of 16 places for India from last year's 55th place is the highest for any economy this year.
India is also the second-most competitive among BRICS nations behind neighbouring China, which is
ranked at the 28th position.
On the index, India has a score of 4.52 while that of Switzerland is 5.81.
India's "competitiveness has improved across the board, in particular in goods market efficiency,
business sophistication, and innovation".
Thanks to improved monetary and fiscal policies as well as lower oil prices, the Indian economy has
stabilised and now boasts of the highest growth among G20 countries, according to WEF's Global
Competitiveness Report 2016-17.
Areas of concern:
While recent reforms efforts have concentrated on improving public institutions, opening the economy to
foreign investors and international trade and increasing transparency in the financial system, WEF said, "still, a
lot needs to be done".
Further, the report noted that India is "still long way" from having in place all the competitiveness
elements to realise its potential as a major global economy.
The labour market is still bound by rigid regulations and centralised wage determination while
infrastructure also remains a bottleneck, it added.
Still, a lot needs to be done, huge challenges lie ahead on Indias path to prosperity, the report added,
stressing that despite significant improvements in infrastructure and social indicators such as health and
education over the past decade, it lags other nations on such parameters.
According to executives polled for the report, Indias tax regulations, corruption, tax rates and poor public
health are the most problematic factors for doing business.
About the Global Competitiveness Report (GCR):
It is a yearly report published by the World Economic Forum.
Since 2004, the Global Competitiveness Report ranks countries based on the Global Competitiveness
Index.
The rankings are based on the Global Competitiveness Index (GCI), which is based on country-level
data covering 12 categories.
These include institutions, infrastructure, macroeconomic environment, health and primary education,
financial market development, technological readiness, market size, business sophistication and innovation.
This year, 138 economies have been assessed for their competitiveness while there were 140
economies in the 2015-16 rankings.
About the World Economic Forum (WEF):
It is a Swiss nonprofit foundation, based in Cologny, Geneva.
The forum was founded in 1971 by Klaus Schwab, a German-born business professor at the University
of Geneva.
Recognized by the Swiss authorities as the international institution for public-private cooperation, its
mission is cited as "committed to improving the state of the world by engaging business, political, academic, and
other leaders of society to shape global, regional, and industry agendas".
The Forum is best known for its annual winter meeting for five days in Davos, a mountain resort in
Graubnden, in the eastern Alps region of Switzerland.
The meeting brings together some 2,500 top business leaders, international political leaders, selected
intellectuals, and journalists for up to five days (winter) to discuss the most pressing issues facing the world.
Question asked in UPSC Pre-2016
Q. Global Financial Stability Report is prepared by the
(a) European Central Bank
(b) International Monetary Fund
(c) International Bank for Reconstruction and Development
(d) Organisation for Economic Cooperation and Development
Ans: (b)
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Centre names economists to monetary policy committee

Details :
The Centre named three academics trained in economics as the external appointees on the monetary policy
committee (MPC) that will work with the Reserve Bank of Indias three members to decide interest rates. The RBI
is represented on the MPC by Governor Urjit Patel, Deputy Governor in-charge of monetary policy R. Gandhi,
and M.D. Patra, the executive director who was nominated by the RBI board. The three external members
Pami Dua, Chetan Ghate and Ravindra Dholakia will have a fixed four-year term, which is non-renewable. The
RBI will set interest rates according to the majority view of the six-member MPC, with the Governor having the
casting vote in case of a tie. The MPC will be responsible for ensuring inflation based on the Consumer Price
Index is contained within a range of 2 per cent to 6 per cent, a target announced as part of the new monetary
policy framework agreed to by the Centre and the RBI.
What is the Monetary Policy Committee (MPC)?
The new MPC is to be a six-member panel that is expected to bring value and transparency to interest
rate-setting decisions.
It will feature three members from the RBI the Governor, a Deputy Governor and another official
and three independent members to be selected by the Government.
A search committee will recommend three external members, experts in the field of economics, banking
or finance, for the Government appointees.
The MPC will meet four times a year to decide on monetary policy by a majority vote.
And if theres a tie between the Ayes and the Nays, the RBI governor gets the deciding vote.
Why is it important?
Until recently, Indias central bank used to take its monetary policy decisions based on the multiple
indicator approach.
Its rate decisions were expected to take into account inflation, growth, employment, banking stability and
the need for a stable exchange rate.
As you can see, this is a tall order.

Thus, RBI (with the Governor as the focal point) would be subject to hectic lobbying ahead of each policy
review and trenchant criticism after it.
The Government would clamour for lower rates while consumers bemoaned high inflation.
Bank chiefs would want rate cuts, but pensioners would want high rates.
RBI ended up juggling all these objectives and focussing on different indicators at different points in time.
To resolve this, RBI set up an Expert Committee under Urijit Patel to revise the monetary policy
framework, and it came up with its report in January 2014.
It suggested that RBI abandon the multiple indicator approach and make inflation targeting the primary
objective of its monetary policy.
It also mooted having an MPC so that these decisions could be made through majority vote.
Having both Government and RBI members on the MPC was suggested for accountability.
The Government would have to keep its deficit under check and RBI would owe an explanation for
runaway inflation.
===========================================================================
Centre unveils sops to boost goods exports

Details :
In the backdrop of the continued challenging global environment being faced by Indian exporters, Department of
Commerce has extended support to certain new products and enhanced the rate of incentives for certain other
specified products under the Merchandise Exports from India Scheme (MEIS).
About the Merchandise Exports from India Scheme (MEIS):
Objective of Merchandise Exports from India Scheme (MEIS) as per Indian Foreign Trade Policy 2015-20
(FTP 2015-20) is to offset infrastructural inefficiencies and associated costs involved in export of goods/products,
which are produced/manufactured in India, especially those having high export intensity, employment potential
and thereby enhancing Indias export competitiveness.
Exports of notified goods/products shall be rewarded under MEIS.
The basis of calculation of reward would be on realized FOB value of exports in free foreign exchange, or
on FOB value of exports as given in the Shipping Bills in free foreign exchange, whichever is less, unless
otherwise specified.
Earlier there were 5 different schemes (Focus Product Scheme, Market Linked Focus Product Scheme,
Focus Market Scheme, Agri. Infrastructure Incentive Scrip, VKGUY) for rewarding merchandise exports with
different kinds of duty scrips with varying conditions (sector specific or actual user only) attached to their use.
Now all these schemes have been merged into a single scheme, namely Merchandise Export from India
Scheme (MEIS) and there would be no conditionality attached to the scrips issued under the scheme.
Under the MEIS, the government usually provides exporters duty credit scrip at 2% and 3% of their
export turnover, depending upon the product and the export destination, as envisaged in the foreign trade policy
2015-20.
The scrip can be transferred or used for payment of a number of duties, including the basic customs
duty.
The total potential revenue losses for the government under the MEIS is now expected to go up to Rs
23,500 crore a year from the earlier Rs 22,000 crore, according to a commerce ministry estimate.
==========================================================================
BSNL to get Rs.1,250-crore subsidy for rural landlines

Details :
The Union Cabinet has approved the long-pending compensation of Rs.1,250 crore for state-run Bharat Sanchar
Nigam Ltd. (BSNL) for the deficit incurred in operating rural landline connections installed before April 1, 2002.
The subsidy support to the state-owned telecommunications company will be paid from the Universal Service
Obligation Fund (USOF). The USOF, since inception in 2002, has provided subsidy to BSNL for the rural wireline
connections installed prior to April 2002. A total of Rs.8,692 crore has been extended as USOF subsidy support
till date.
About the Universal Service Obligation Fund (USOF):
The scheme was started in 2002-03.
The USOF, which is maintained by the government under the Department of Telecommunications,
Ministry of Communications was formed to help fund projects to boost connectivity in rural areas.
The money for this fund comes through a Universal Access Levy, charged from the telecom operators
as a percentage of various licenses fees being paid by them.
The vision of USOF is to enabling rural Indians to achieve their fullest potential and participate
productively in the development of the nation by virtue of being effectively connected through a reliable and
ubiquitous telecommunications network, access to which is within their reach and within their means.
=================================================================================
Coastal corridor: ADB approves $631 mn. loan

Details :
Multilateral funding agency Asian Development Bank has approved $631 million for building Indias first coastal
industrial corridor between Visakhapatnam and Chennai. The fund will help develop the first key 800-km
section of the planned 2,500-km East Coast Economic Corridor expected to spur development on Indias eastern
coast and enable seamless trade links with other parts of South and Southeast Asia. The total cost of the project
is $846 million and work on it is expected to be over by 2031. The remaining $215 million would be funded by
the Andhra Pradesh government.
About the Visakhapatnam-Chennai Industrial Corridor:
The Visakhapatnam-Chennai Industrial Corridor section of the East Coast Economic Corridor,
connecting four economic hubs and nine industrial clusters, will mark the first industrial corridor developed along
Indias coast.
The East Coast Economic Corridor will ultimately extend from Kolkata in West Bengal in the northeast of
India to Tuticorin in Tamil Nadu near the southern-most point of the country.
The Indian government is keen to encourage manufacturing, including through its Make in India
initiative, to maintain strong economic growth over the longer term and to create productive, well-paying jobs for
a labor force that is growing by around 12 million people per year.
Currently, manufacturing provides around 15% of Indias gross domestic product (GDP).
Indias National Manufacturing Policy is targeting manufacturing contributing at least 25% of GDP by
2022, much the same as in the Peoples Republic of China, Malaysia, and Viet Nam now.
The new infrastructure will be built in the four main centers along the corridor - Visakhapatnam,
Kakinada, Amaravati, and Yerpedu-Srikalahasti - as well as in nearby industrial areas.
It will include 138 kilometers of state highways and roads, effluent and water treatment plants, 488
kilometers of drinking water pipes, 47 kilometers of storm drains, 10 power substations, and 281 kilometers of
power transmission and distribution lines.
The program will also focus on increasing womens participation in the industrial workforce.
Skills training for 25,000 male and female workers, entrepreneurs, and students along with an investor
promotion plan is expected to help develop businesses along the corridor.
About the Asian Development Bank (ADB) :
The Asian Development Bank (ADB) is a regional development bank established on 19 December 1966.
which is headquartered in Ortigas Center located in Mandaluyong, Metro Manila, Philippines, and
maintains.
It promote social and economic development in Asia.
The bank admits the members of the United Nations Economic and Social Commission for Asia and the
Pacific (UNESCAP, formerly the Economic Commission for Asia and the Far East or ECAFE) and non-regional
developed countries.
From 31 members at its establishment, ADB now has 67 members, of which 48 are from within Asia and
the Pacific and 19 outside.
The ADB was modeled closely on the World Bank, and has a similar weighted voting system where votes
are distributed in proportion with members' capital subscriptions.
At the end of 2014, Japan holds the largest proportion of shares at 15.7%. The United States holds
15.6%, China holds 6.5%, India holds 6.4%, and Australia holds 5.8%.
-===================================================================================
Current account moves into surplus, raises export concerns

Details :
India's current account moved in to surplus because of Slow growth in imports, in the April-June quarter of the
current fiscal year, after a gap of 9 years. The current account was in surplus last in the January-March quarter
in the year 2007.A surplus is expected to bolster the rupee, which could render India's already subdued exports
less competitive.The RBI could be expected to intervene in the foreign exchange markets to prevent the rupee
from strengthening too much. A current account in deficit reflects that the imports of goods, services and
investment incomes into the economy outstripped the value of its exports.
How Appreciation and Depreciation of Rupee affect Export?
As the Rupee depreciates, it becomes lucrative for various companies to export things.
Why is it so?
The mere reason being the local value of the currency that is being used to do the trade, which in our
case is US dollars.
When companies in India export goods to other countries, the payment for these deals are usually done
in US Dollars.
Now since the value of the Rupee has depreciated, these companies will get more Indian rupees for
every dollar that they convert here.
For instance if we consider a company that was having export incomes of US $500 would be making
around Rs. 25,000 after the conversion considering $1 = Indian Rs. 50.
Now when the Rupee value has depreciated, the new value of $1 = Indian Rs. 60 (lets consider).
This means that the same company which was making Rs. 25,000 earlier in earnings will now be
making Rs. 30,000 owing to the depreciation.
The amount of goods exported stays same and so does the amount of dollars earned.
Now lets say that the rupee has appreciated against the dollar and the value of $1 = Indian Rs. 40/- In
this case the above company which is still exporting the same amount of goods and getting paid US $500 will get
less money after converting the american dollars to Indian currency, approx. Rs. 20,000 considering our
scenario.
Thus we can see from the above case scenario as to how the Depreciating rupee is good for exporters
and how the appreciating rupee is a lot less lucrative for the exporters in India.
Headline : Exports shrink 0.3% on weak global demand
Details :
The countrys merchandise exports in August shrank 0.3 per cent year-on-year to $21.5 billion due to weak
global demand and a fall in exports of petroleum products. Exports of goods had contracted for 18 consecutive
months from December 2014 to May 2016, but moved slightly to the positive territory in June with marginal 0.92
per cent growth because of a low base. However, it quickly slipped back to the red in July when it shrank 6.86
per cent. Imports in August contracted by 14.09 per cent to $29.19 billion. (These facts are not relevant for
Your exam)
Important Economics Concepts fro Preliminary Exam.
What is Balance Of Payment?
According to the RBI, balance of payment is a statistical statement that shows
The transaction in goods, services and income between an economy and the rest of the world,
Changes of ownership and other changes in that economy's monetary gold, special drawing rights
(SDRs), and financial claims on and liabilities to the rest of the world, and
Unrequited transfers.
The transactions in BOP are categorised in
Current account showing export and import of visibles (also called merchandise) and invisibles (also
called non-merchandise). Invisibles take into account services, transfers and income.
Capital account showing a capital expenditure and income for a country.
It gives a summary of the net flow of both private and public investment into an economy.
External commercial borrowing (ECB), foreign direct investment, foreign portfolio investment, etc form a
part of capital account.
Sometimes the balance of payment does not balance.
This imbalance is shown in the BOP as errors and omissions.
BOP is compiled using the double entry book keeping system consisting assets and liabilities.
What is Current Account?
Current account is one of the two component accounts of the balance of payments of a nation.
It records the trade of goods and services of an economy with other countries of the world.
Current account includes three components - net exchange i.e. exports minus imports of goods, net
exchange of services and net transfers to and from the country.
The balance in this account before accounting for the transfer component is generally referred to as the
balance of trade.
In India, current account is reported by the Reserve Bank of India.
The exchange of goods and services is recorded for the current period and hence is called current
account.
The current account figure reveals the pattern of foreign trade.
If the balance of trade is negative, then the country is importing more goods and services than its exports
of these.
The other component of the BOP is the capital account.
What is Capital Account?

Capital account can be regarded as one of the primary components of the balance of payments of a
nation.
It gives a summary of the capital expenditure and income for a country.

The capital expenditure and income is tracked by way of funds in the form of investments and loans
flowing in and out of an economy.
This account comprises foreign direct investments, portfolio investments, etc.
A capital account deficit shows that more money is flowing out of the economy along with increase in its
ownership of foreign assets and vice-versa in case of a surplus.
The balance of payments contains the current account (which provides a summary of the trade of goods
and services) in addition to the capital account which records all capital transactions.
==================================================================================
Rich Indians worry as dollar visa set to end

Details :
The United States of America's EB-5 Programme, labelled in a lighter vein as the 'Green Card for greenback'
scheme, has been attracting oodles of eyeballs including from India of late.
However, many high net worth individuals the world over, including in India, are worried as the controversial
immigrant visa programme for the wealthy is set to expire this month-end.
About the Programme:
Simply put, the programme grants rich entrepreneurs as well as their spouses and unmarried children
below the age of 21 an opportunity to bag the coveted U.S. Green Card (or status of permanent residence)
and Citizenship.
All they have to do is invest in just over half a million dollars in the U.S. and ensure that the funds help
generate at least ten full-time jobs for qualified U.S. workers.
The visa, given in exchange for investments, grants the holder a conditional permanent residence
status.
After two years, the conditions may be removed, when it becomes permanent green card that can lead to
citizenship, provided it has resulted in the creation of 10 jobs.
The programme is named EB-5 as it is the fifth preference category under the Employment-Based (EB)
immigration visas.
The EB-5 programme was created in 1990 with the approval of the US Congress Americas highest
law-making body.
It aims to boost the American economy by attracting investment from foreign nationals and generating
employment for locals.
In 1992, its scope was widened through an Immigrant Investor Programme, or the Regional Centre
Programme.
In 2015, the U.S. authorities issued 111 EB-5 visas to Indians that is 15 more than the previous year,
and 74 more than the number of such immigrant visas issued in 2011.
The rapid rise in the number of EB-5 visas to Indians in the last few years had led to the filing of over a
thousand applications under that category from India this year.
==================================================================================
Finance Ministry moves to fill SAARC Development Fund posts

Details :
Ahead of the SAARC Summit in Islamabad, the Union Finance Ministry has posted a call for applications for
economy, infrastructure and social development posts in the umbrella financial mechanism for the regions
projects and programmes, the SAARC Development Fund. The openings include the jobs of the Directors of the
Funds three funding windows: Social, Economic and Infrastructure. They will be located in the Funds Secretariat
in Thimphu, Bhutan.
What is the SAARC Development Fund, and what does it do?
SAARC Development Fund (SDF) Secretariat, based in Thimphu, was inaugurated by the Heads of
State/Governments of SAARC Member States on the first day of the 16th SAARC Summit in Thimphu on April
28, 2010.
The SDF Charter has been ratified by Parliaments of the eight SAARC Member States and the
Instrument of Ratification issued on April 15, 2010.
The primary objective of the SDF is
To promote the welfare of the people of SAARC Region,
To improve their quality of life, and
To accelerate economic growth, social progress and poverty alleviation in the SAARC Region.
Who owns the SAARC Development Fund?
The eight SAARC Member States i.e. Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan
and Sri Lanka created/established the fund.
Who runs the Fund?
The Governing Council is the apex management body of the SDF.
The Member States are represented in the Governing Council, by their respective Finance Ministers.
The GC is the apex policy-making body of the Fund.
The GC meets once a year for operational matters.

================================================================================
Task force to evolve steps to boost Indias innovation ecosystem

Details :
The Department of Industrial Policy & Promotion (DIPP) has decided to set up a Task Force on Innovation, It will
comprise members from the industry and the government and will assess Indias position as an innovative
country, suggest measures to enhance the innovation ecosystem and improve the countrys ranking in the Global
Innovation Index (GII). Indias ranking in GII-2016 rose 15 places to 66th position.
The Global Innovation Index 2016 Report:
India scored a major improvement in its Global Innovation Index ranking in 2016, moving up to the 66th
place from 81 in 2015.
India's better performance in the latest index readings was due to its strengths in tertiary education,
software exports, corporate R&D and market sophistication.
Among middle-income countries, India (25) came second after China (17) in innovation quality,
overtaking Brazil (27).
China figured at the 25th position (29 in 2015), the only middle-income country in the top 25.
The report said India was starting to excel in ICT and creative goods exports, setting a good example of
how policy was improving the innovation environment.
Overall, Switzerland emerged as the global leader followed by Sweden, the UK, the US and Finland.
Switzerland had ranked first in the 2015 index as well.
About the Global Innovation Index:
The Global Innovation Index (GII) aims to capture the multi-dimensional facets of innovation and provide
the tools that can assist in tailoring policies to promote long-term output growth, improved productivity, and job
growth.
The GII helps to create an environment in which innovation factors are continually evaluated.
The Global Innovation Index 2016 (GII), in its 9th edition this year, is co-published by Cornell University,
INSEAD, and the World Intellectual Property Organization (WIPO, an agency of the United Nations).
The index was started in 2007.
The core of the GII Report consists of a ranking of world economies innovation capabilities and results.
=============================================================================
Exports shrink 0.3% on weak global demand

Details :
The countrys merchandise exports in August shrank 0.3 per cent year-on-year to $21.5 billion due to weak
global demand and a fall in exports of petroleum products. Exports of goods had contracted for 18 consecutive
months from December 2014 to May 2016, but moved slightly to the positive territory in June with marginal 0.92
per cent growth because of a low base. However, it quickly slipped back to the red in July when it shrank 6.86
per cent. Imports in August contracted by 14.09 per cent to $29.19 billion. (These facts are not relevant for
Your exam)
Important Economics Concepts fro Preliminary Exam.
What is Balance Of Payment?
According to the RBI, balance of payment is a statistical statement that shows
The transaction in goods, services and income between an economy and the rest of the world,
Changes of ownership and other changes in that economy's monetary gold, special drawing rights
(SDRs), and financial claims on and liabilities to the rest of the world, and
Unrequited transfers.
The transactions in BOP are categorised in
Current account showing export and import of visibles (also called merchandise) and invisibles (also
called non-merchandise). Invisibles take into account services, transfers and income.
Capital account showing a capital expenditure and income for a country.
External commercial borrowing (ECB), foreign direct investment, foreign portfolio investment, etc form a
part of capital account.
Sometimes the balance of payment does not balance.
This imbalance is shown in the BOP as errors and omissions.
BOP is compiled using the double entry book keeping system consisting assets and liabilities.
What is Current Account?
Current account is one of the two component accounts of the balance of payments of a nation.
It records the trade of goods and services of an economy with other countries of the world.
Current account includes three components - net exchange i.e. exports minus imports of goods, net
exchange of services and net transfers to and from the country.
The balance in this account before accounting for the transfer component is generally referred to as the
balance of trade.
In India, current account is reported by the Reserve Bank of India.
The exchange of goods and services is recorded for the current period and hence is called current
account.
The current account figure reveals the pattern of foreign trade.
If the balance of trade is negative, then the country is importing more goods and services than its exports
of these.
The other component of the BOP is the capital account.
What is Capital Account?

Capital account can be regarded as one of the primary components of the balance of payments of a
nation.
It gives a summary of the capital expenditure and income for a country.

The capital expenditure and income is tracked by way of funds in the form of investments and loans
flowing in and out of an economy.
This account comprises foreign direct investments, portfolio investments, etc.
A capital account deficit shows that more money is flowing out of the economy along with increase in its
ownership of foreign assets and vice-versa in case of a surplus.
The balance of payments contains the current account (which provides a summary of the trade of goods
and services) in addition to the capital account which records all capital transactions.
==================================================================================
Plan to boost exports to Islamic nations flounders

Details :
Indias move to boost its goods and services exports to over 50 Islamic nations mainly in Africa and Asia through
a $100 million commercial Line of Credit (LoC), has failed to take off even five months after a pact to that effect.
There have been no disbursements under the financing mechanism -- though Export-Import Bank of India (Exim
Bank) and the Islamic Corporation for the Development of the Private Sector (ICD) had signed a Memorandum
of Understanding (MoU) for it in April this year. A worried Exim Bank has now urged ICD to raise awareness
about the facility in the 52 Islamic nations that are ICD members. ICD is the private sector arm of Islamic
Development Bank (IDB) Group.
About the Islamic Corporation for the Development of the Private Sector (ICD):
The Islamic Corporation for the Development of the Private Sector (ICD) is a multilateral development
financial institution and is part of the Islamic Development Bank (IDB) Group.
ICD was established in November 1999 to support the economic development of its member countries
through the provision of finance for private sector projects, promoting competition and entrepreneurship,
providing advisory services to the governments and private companies and encouraging cross-border
investments.
Currently, the shareholders of ICD are the IDB, 52 Islamic countries and five public financial institutions.
ICD fosters sustainable economic growth in its 52 member countries by financing private sector
investment, mobilizing capital in the international financial markets, and providing advisory services to business
and governments.
ICD financing projects are selected on the basis of their contribution to economic development
considering factors such as job creation, Islamic finance development, contribution to exports etc.
ICD operates to complement the activities of the IDB in member countries and also that of national
financial institutions.
About the Islamic Development Bank:
The Islamic Development Bank is an international financial institution established in pursuance of the
Declaration of Intent issued by the Conference of Finance Ministers of Muslim Countries held in Jeddah in
December 1973, and the Bank was formally opened on 20 October 1975.
The purpose of the Bank is to foster the economic development and social progress of member countries
and Muslim communities individually as well as jointly in accordance with the principles of Shari'ah i.e., Islamic
Law.
FunctionsThe functions of the Bank are to participate in equity capital and grant loans for productive
projects and enterprises besides providing financial assistance to member countries in other forms for economic
and social development.
The present membership of the Bank consists of 56 countries.

The basic condition for membership is that the prospective member country should be a member of the
Organisation of Islamic Cooperation (OIC), pay its contribution to the capital of the Bank and be willing to accept
such terms and conditions as may be decided upon by the IDB Board of Governors.
The Bank's principal office is in Jeddah in the Kingdom of Saudi Arabia.
==================================================================================
Slower inflation, contraction in IIP spur rate cut hopes

Details :
Indias industrial output slowed drastically led by a decline in manufacturing and an almost 30 per cent
contraction in capital goods production, signalling a slump in investments. Retail inflation on the other hand
slowed significantly, spurring expectations that the Reserve Bank of India (RBI) would likely reduce interest rates
later this year to support economic growth. The Index of Industrial Production (IIP) contracted 2.4 per cent in
July, compared with a growth of two per cent in June, mainly on account of weakness in manufacturing, which
contracted 3.4 per cent.
base period.
basis.
Production (IIP).
They are:
Question asked in UPSC pre-2015

Q. In the Index of Eight Core Industries, which one of the following is given the highest weight?
(a) Coal Production
(b) Electricity generation
(c) Fertilizer Production
(d) Steel Production
Solution: (b)
================================================================
EPFO subscribers may get 8.6 per cent interest this fiscal
Details :
Over 4 crore EPFO subscribers may get a lower interest at a rate of 8.6 per cent on their PF deposits for the
current financial year as the Labour Ministry is expected to toe the Finance Ministry line to cut the rate. The
Employees Provident Fund Organisation had provided 8.8 per cent rate of interest on EPF deposits for 2015-16
despite Finance Ministrys ratification for 8.7 per cent.
Employees Provident Fund (EPF) is a retirement benefit scheme thats available to all salaried
employees.
This fund is maintained and overseen by the Employees Provident Fund Organisation of India (EPFO)
and any company with over 20 employees is required by law to register with the EPFO.
Its a savings platform that helps employees save a fraction of their salary every month that can be used
in the event that you are rendered unable to work, or upon retirement.
The Employees' Provident Fund Organisation (EPFO), is an Organization tasked to assist the Central
Board of Trustees, a statutory body formed by the Employees' Provident Fund and Miscellaneous Provisions Act,
1952 and is under the administrative control of the Ministry of Labour and Employment, Government of India.
==================================================================================
Chinas BRICS trade pact idea finds no takers

Details :
India and three others in the BRICS bloc Brazil, Russia and South Africa have cold-shouldered China's
attempt to bring to the negotiating table a proposal for a Free Trade Agreement (FTA) between the five major
emerging economies. The development comes amid hectic preparations for the BRICS Trade Ministers Meeting
on October 13 and the first BRICS Trade Fair from October 12 to 14 (both in Delhi) as well as the Eighth BRICS
Summit (to be held in Goa) on October 15-16. India is hosting these events as it currently holds the BRICS
Chairmanship.
Apprehensions:
Their apprehensions about the plan include the fear that it could lead to a surge in imports of Chinese
goods into their territory in turn, hurting local manufacturing.
While Russia and South Africa did not respond to the BRICS FTA proposal, Brazil pointed out that it
participates in FTA negotiations as part of the Mercosur a trading bloc and customs union of Latin American
nations.
Declining to take up the FTA proposal, Brazil also cited the recent political turmoil surrounding the regime
change in that country, they said.
India said it is already participating in negotiations on the Regional Comprehensive Economic

Partnership (or RCEP, a proposed mega-regional FTA between the 16 Asia-Pacific nations including India and
China).
Indias goods trade deficit with China has escalated from $1.1 billion in 2003-04 to $52.7 billion in 201516, according to Indian government statistics.
So for Beijings proposal for a 'BRICS FTA' is aimed at boosting trade ties in the grouping through binding
commitments on eliminating tariffs, BRICS members barring China are not keen on such a pact.
=============================================================================
Public goods cost may fall on anti-cartelisation drive

Details :
The government may be able to prune its massive public procurement expenditure soon, as a growing number of
departments and public sector firms are cracking down on vendors indulging in cartelisation and collusive
bidding for contracts to deliver public goods and services, Competition Commission of India (CCI) chief D.K.
Sikri said. Public procurement expenditure accounts for around 30 per cent of Indias gross domestic product
and the competition watchdog said that over half of the budget allocated to the ministries of railways, defence
and telecom are for the procurement of goods and services. If the government agencies become alert and
ensure better competition in the bidding process, even a 2 per cent saving in costs could wipe out the fiscal
deficit of the Budget.
Competition Commission Of India:
Competition is the best means of ensuring that the Common Man or Aam Aadmi has access to the
broadest range of goods and services at the most competitive prices.
With increased competition, producers will have maximum incentive to innovate and specialize.
This would result in reduced costs and wider choice to consumers.
So the Competition Commission of India (CCI) was established under the Competition Act, 2002 for the
administration, implementation and enforcement of the Act, and was duly constituted in March 2009.
The following are the objectives of the Commission:
To prevent practices having adverse effect on competition.
To promote and sustain competition in markets.
To protect the interests of consumers and
To ensure freedom of trade
Consequent upon a challenge to certain provisions of the Act and the observations of the Hon'ble
Supreme Court, the Act was amended by the Competition (Amendment) Act, 2007.
The Monopolies and Restrictive Trade Practices Act, 1969 [MRTP Act] repealed and is replaced by the
Competition Act, 2002, with effect from 01st September, 2009.
====================================================================
Customers should be free to port policies

Details :
The insurance regulator is keen to allow portability of policy or giving customers the freedom to shift their in-force
policy from one insurer to another as such a move will help improve service levels in the industry. Various
conditions ought to be in place prior to introduction of portability, starting with simple and standardised policies.
Hence, the issue needs to be discussed openly, IRDAI Chairman said recently.
About the Insurance Regulatory and Development Authority of India (IRDAI):
It is an autonomous apex statutory body which regulates and develops the insurance industry in India.
It was constituted by a Parliament of India act called Insurance Regulatory and Development Authority
Act, 1999 and duly passed by the Government of India.
IRDAs Mission is to protect the interests of policyholders, to regulate, promote and ensure orderly growth
of the insurance industry and for matters connected therewith or incidental thereto.
The agency operates from its headquarters at Hyderabad, Telangana where it shifted from Delhi in 2001.
============================================================================
India inks open skies pact with Greece

Details :
India has signed a memorandum of understanding (MoU) with Greece to allow unlimited number of flights into
each others countries. Greece will become the first country with an open sky arrangement under India's new
civil aviation policy. Under the new civil aviation policy, India plans to enter into open sky air service agreements
(ASA) with SAARC countries and with countries beyond 5,000 km radius from Delhi.
About the Open Sky Policy:
Countries sign ASAs through bilateral negotiations to decide on the number of flights that airlines can fly
into each others countries.
Under the open sky pact, there is no restriction on flights or seats.
At present, India has an open sky agreement with the U.S. and a near open sky agreement with the U.K.
under which there are certain limitations on the number of flights that can be operated at the Mumbai and Delhi
Airports.
For ASEAN or SAARC countries, India has an open sky agreement with more than a dozen countries.
===================================================================================
CSCs may assemble LED lamps to boost rural economy: Prasad

Details :
The Centre plans to use the common service centres (CSC) for assembly and manufacture of LED lamps in a
bid to boost rural economy, according to Ravi Shankar Prasad, Electronics and IT Minister.
The Centre will also provide tele-consultation services for animal healthcare as well as legal issues through
these centres where kits for testing diseases such as malaria and dengue will also be available. The minister
also unveiled a scheme under which IIT courses will be taught to students in village using CSCs. These centres
had also tied up with TCS and Siemens for skill development courses.
About the Common Services Centers (CSCs):
CSCs are a strategic cornerstone of the Digital India programme.

They are the access points for delivery of various electronic services to villages in India, thereby
contributing to a digitally and financially inclusive society.
Digital India is a flagship programme of the Government of India with a vision to transform India into a
digitally empowered society and knowledge economy.
CSCs enable the three vision areas of the Digital India programme:
Digital infrastructure as Utility to Every Citizen
Governance and services on demand
Digital empowerment of citizens
CSCs are more than service delivery points in rural India.
They are positioned as change agents, promoting rural entrepreneurship and building rural capacities
and livelihoods.
They are enablers of community participation and collective action for engendering social change
through a bottom-up approach with key focus on the rural citizen.
Offering government services should be an enabler for CSCs.
But gradually they will find their own business model, for example education and selling of insurances.
India ramped up the number of CSCs to 2.29 lakh from 80,000 in 2014.
India soon plan to take it up to 2.50 lakh.
If one CSC employs 10 people, these centres can generate employment for 2.5 crore people.
========================================================================
Carriers risk overseas flights over idle rights

Details :
The Civil Aviation Ministry has revised the norms for grant of an international permit for domestic airlines.
New Norms:
While domestic airlines will need to have at least 20 aircraft to secure international flying rights, the ones
that do not utilise the allocated bilateral air traffic rights will have to return it to the Centre for fresh allocation to
other airlines, according to the new rules.
Earlier, airlines with five years of domestic flying experience and 20 aircraft in its fleet were eligible for
securing international flying rights.
The new rules state that traffic rights to fly on overseas routes for a particular schedule (summer or
winter) will have to be utilised during the same schedule.
Failure to do so shall result in the unutilised rights reverting back to Ministry of Civil Aviation for fresh
allocation to other airlines.
The defaulter airline will be ineligible to apply for such rights for the next two schedule periods.
===============================================================================
GDP growth slows to 7.1% in first quarter

Details :
Indias Gross Domestic Product (GDP) growth slowed to 7.1 per cent in the first quarter of this financial year, with
private consumption still the mainstay of the expansion. GDP growth stood at 7.9 per cent in the fourth quarter
(January-March) of the previous financial year and at 7.5 per cent in Q1 of 2015-16. The slowdown in the first
quarter of this year was mainly driven by a slowdown in mining, construction and agriculture sectors. Now, the
GDP growth data is calculated under the new methodology (GDP at market prices).
What is Gross Value Added (GVA)
In simple terms GVA is the grand total of all revenues, from final sales and (net) subsidies, which are
incomes into businesses.
Those incomes are then used to cover expenses (wages and salaries, dividends), savings (profits,
depreciation), and (indirect) taxes.
GVA is used to estimate or assess the Gross Domestic Product (GDP).
When using income or production approaches, contribution of each and every sector to the economy is
measured using GVA.
It is further divided into GVA at basic prices and GVA at Factor Costs . i. GVA at basic prices includes
production taxes and excludes production subsidies available on the commodity.
GVA at factor cost on the other hand includes no taxes and excludes no subsidies.
====================================================================================
U.S. to look into Indias concerns on visa fee hike

Details :
The U.S. agreed to look into Indias concerns about Obama administrations move to increase fee for H1B and
L1 visas. Indian corporations raised the issue at the India-U.S. CEO Forum saying the move will hurt Indian IT
firms, which are the main users of these non-immigrant temporary work visas meant for professionals. Also the
External affairs minister Sushma Swaraj and Commerce Minister Nirmala Sitharaman said India took up the
matter with the U.S. during the bilateral Strategic & Commercial Dialogue.
What is the issue?
In December 2015, the US had raised the fee for H-1B visa from $2,000 to $4,000, while that for L-1 visa
went up from $2,250 to $4,500.
Indian IT companies are heavily dependent on the H-1B and L-1 visas to carry out their business
functions in the US as this geography contributes around 60% of the sectors revenue.
Also recently the H-1B and L-1 Visa Reform Act of 2016 has been introduced in US Congress to prohibit
companies from hiring H-1B employees if they employ more than 50 people and if more than 50% of their
employees are H-1B and L-1 visa holders.
What are H1B and L1 visas:
H1B Visa:
Allows U.S. employers to employ a foreign professional to work in a specialty occupation for a period of
up to six years.
L1A Visa:
Allows qualified employees of an international company to be transferred to a related company in the
U.S. in an executive or managerial capacity.
L1B Visa:
Allows employees of an international company to be transferred to a related company in the U.S.
because he or she has Specialized Knowledge.
==============================================================================
Jaitley invites U.S. to invest in infra fund

Details :
Union Finance Minister Arun Jaitley urged U.S.-based insurance funds, pension funds, and endowment funds to
invest in Indias National Investment and Infrastructure Fund (NIIF) and said that trade interactions between
Indian States and U.S. investors could boost bilateral trade. The U.S. Secretary of State John Kerry is in New
Delhi for the August 30-31 India-U.S. Strategic & Commercial Dialogue (S&CD) the premier bilateral forum for
discussions on trade, economic and defence-related issues.
About the National Investment and Infrastructure Fund (NIIF):
It is a fund created by the Government of India for enhancing infrastructure financing in the country.
NIIF was proposed to be set up as a Trust, to raise debt to invest in the equity of infrastructure finance
companies such as Indian Rail Finance Corporation (IRFC) and National Housing Bank (NHB). The idea is that
these infrastructure finance companies can then leverage this extra equity, manifold.
Its creation was announced in the Union Budget 2015-16.
NIIF got registered with SEBI as Category II Alternative Investment Fund (AIF) on December 28, 2015.
Functions of NIIF
The functions of NIIF are as follows:

Fund raising through suitable instruments including off-shore credit enhanced bonds, and attracting
anchor investors to participate as partners in NIIF;
Servicing of the investors of NIIF.
Considering and approving candidate companies/institutions/ projects (including state entities) for
investments and periodic monitoring of investments.
Investing in the corpus created by Asset Management Companies (AMCs) for investing in private equity.
Preparing a shelf of infrastructure projects and providing advisory services.

Operational Aspects
The government has set up this Rs. 40000 crore fund to provide long term capital for infrastructure
projects.
Government can provide upto 20000 crore per annum into these funds.
Government's contribution/share in the corpus will be 49% in each entity set up as an alternate
Investment Fund (AIF) and will neither be increased beyond, nor allowed to fall below, 49%.
The whole of 49% would be contributed by Government directly.
Rest is open for contribution from others.
The contribution of Government of India to NIIF would enable it to be seen virtually as a sovereign fund
and is expected to attract overseas sovereign/ quasi-sovereign/multilateral/bilateral investors to co-invest in it.
=========================================================================
SFIO widens Mallya probe to add bankers

Details :
Widening its probe into the financial irregularities at erstwhile Kingfisher Airlines, the Serious Fraud Investigation
Office (SFIO) has started examining former chiefs of various banks, including public sector lenders, for having
extended fresh loans allegedly without full due-diligence amid ballooning losses at the Vijay Mallya-owned
carrier.
About the Serious Fraud Investigation Office (SFIO):
The SFIO is a multi-disciplinary organization under Ministry of Corporate Affairs, consisting of experts in
the field of accountancy, forensic auditing, law, information technology, investigation, company law, capital
market and taxation for detecting and prosecuting or recommending for prosecution white-collar crimes/frauds.
The SFIO will normally take up for investigation only such cases, which are characterized by
complexity and having inter-departmental and multi-disciplinary ramifications ;
substantial involvement of public interest to be judged by size, either in terms of monetary

misappropriation or in terms of persons affected, and;
the possibility of investigation leading to or contributing towards a clear improvement in systems, laws or
procedures.
The SFIO shall investigate serious cases of fraud received from Department of company Affairs.
What is White Collar Crime?
Reportedly coined in 1939, the term white-collar crime is now synonymous with the full range of frauds
committed by business and government professionals.
These crimes are characterized by deceit, concealment, or violation of trust and are not dependent on
the application or threat of physical force or violence.
The motivation behind these crimes is financialto obtain or avoid losing money, property, or services or
to secure a personal or business advantage.
These are not victimless crimes.

A single scam can destroy a company, devastate families by wiping out their life savings, or cost
investors billions of dollars (or even all three).
======================================================================
Important Concepts of Economics from Today's News Paper:

Details :
Important Concepts of Economics from Today's News Paper:
Repo (Repurchase) rate:
It is also known as the benchmark interest rate.
It is the rate at which the RBI lends money to the banks for a short term.
When the repo rate increases, borrowing from RBI becomes more expensive.
If RBI wants to make it more expensive for the banks to borrow money, it increases the repo rate
similarly, if it wants to make it cheaper for banks to borrow money it reduces the repo rate.
Reverse Repo rate:
It is the short term borrowing rate at which RBI borrows money from banks.
The Reserve bank uses this tool when it feels there is too much money floating in the banking system.
An increase in the reverse repo rate means that the banks will get a higher rate of interest from RBI.
As a result, banks prefer to lend their money to RBI which is always safe instead of lending it others
(people, companies etc) which is always risky.
CRR - Cash Reserve Ratio:
Banks in India are required to hold a certain proportion of their deposits in the form of cash.
However Banks don't hold these as cash with themselves, they deposit such cash with Reserve Bank of
India , which is considered as equivalent to holding cash with themselves.
This minimum ratio (that is the part of the total deposits to be held as cash) is stipulated by the RBI and
is known as the CRR or Cash Reserve Ratio.
SLR - Statutory Liquidity Ratio:
Every bank is required to maintain at the close of business every day, a minimum proportion of their Net
Demand and Time Liabilities as liquid assets in the form of cash, gold and un-encumbered approved securities.
The ratio of liquid assets to demand and time liabilities is known as Statutory Liquidity Ratio (SLR).
An increase in SLR also restricts the bank's leverage position to pump more money into the economy.
Net Demand Liabilities - Bank accounts from which you can withdraw your money at any time like your savings
accounts and current account.
Time Liabilities - Bank accounts where you cannot immediately withdraw your money but have to wait for
certain period. e.g. Fixed deposit accounts.
MSF - Marginal Standing facility:
It is a special window for banks to borrow from RBI against approved government securities in an
emergency situation like an acute cash shortage.
MSF rate is higher then Repo rate.
Bank Rate:
This is the long term rate(Repo rate is for short term) at which central bank (RBI) lends money to other
banks or financial institutions.
==================================================================
Banks to issue Masala bonds, RBI opens currency markets

Details :
The Reserve Bank of India (RBI) has announced a raft of measures to boost investor participation and market
liquidity in both the corporate bond and currency markets.
Steps Taken By RBI:
Accepting many of the recommendations of the Khan Committee to develop the corporate bond market,
RBI has been decided to enhance the aggregate limit of partial credit enhancement (PCE) provided by banks,
The main utility of a PCE is to enable corporate bonds get higher credit ratings, which help attract investments
from insurance and pension funds.
RBI has also given permit to brokers in corporate bond repos, authorise the platform for repo in corporate
bonds and encourage credit supply for large borrowers through market mechanism.
In order to ease access to the foreign exchange market for hedging in over the counter (OTC) and
exchange-traded currency derivatives, the RBI has allowed entities exposed to exchange rate risk, both resident
and non-resident, to undertake hedge transactions with simplified procedures, up to a limit of $30 million at any
given time.
To enhance participation in the corporate bond market, the RBI has decided that brokers authorised as
market makers will be allowed to participate in the corporate bond repo market.
This measure is expected to meet their funding and securities requirement arising out of market making
activities, according to the RBI. Currently, banks, primary dealers, mutual funds, insurance companies are only
allowed.
In addition, foreign portfolio investors have been allowed to transact in corporate bonds directly without
involving brokers.
Also the RBI will allow commercial banks to issue rupee bonds in overseas markets known as Masala
bonds, both for their capital requirement and for financing infrastructure and affordable housing.
==========================================================================
Cabinet clears India-Cyprus DTAA

Details :
The Cabinet approved the revised Double Taxation Avoidance Agreement (DTAA) with Cyprus, a move that gives
India the right to tax capital gains on investments routed through Cyprus prospectively from April 1, 2017. The
fresh DTAA with Cyprus, which is considered a haven for money laundering, round-tripping, and profit-shifting,
assumes significance coming soon after the signing of the revised pact with Mauritius. India is also in the
process of revising its treaty with Singapore. Cyprus used to have a DTAA with India but was blacklisted on
November 1, 2013, by the Indian government for non-cooperation.
What is the Double Taxation Avoidance Agreement (DTAA) ?
A DTAA is a tax treaty signed between two or more countries.
Its key objective is that tax-payers in these countries can avoid being taxed twice for the same income.
A DTAA applies in cases where a tax-payer resides in one country and earns income in another.
DTAAs can either be comprehensive to cover all sources of income or be limited to certain areas such as
taxing of income from shipping, air transport, inheritance, etc.
Revised DTAA provides for source-based taxation of capital gains on transfer of shares, instead of
residence based taxation.
Why is it important?
DTAAs are intended to make a country an attractive investment destination by providing relief on dual
taxation.
Such relief is provided by exempting income earned abroad from tax in the resident country or providing
credit to the extent taxes have already been paid abroad.
DTAAs also provide for concessional rates of tax in some cases.

For instance, interest on NRI bank deposits attract 30 per cent TDS (tax deduction at source) here. But
under the DTAAs that India has signed with several countries, tax is deducted at only 10 to 15 per cent. Many of
Indias DTAAs also have lower tax rates for royalty, fee for technical services, etc.
===============================================================
RCEP negotiations may miss December deadline

Details :
The negotiations for the proposed mega Free Trade Agreement (FTA) between 16 Asia Pacific nations known as
the Regional Comprehensive Economic Partnership (RCEP) are likely to miss the December 2016 deadline for
their conclusion, Commerce and Industry Minister Nirmala Sitharaman said.
The Issue:
The trade ministers of the RCEP members, including from the 10-member ASEAN bloc, had met earlier
this month in Laos to resolve outstanding issues including those related to liberalisation of trade in services
and goods.
The RCEP member nations are now considering a single-tier system of tariff relaxation from the earlier
three-tier system.
It is learnt that India, however, will agree to this single-tier system only if it results in flexibility for it to
bring down or eliminate tariffs in some select items over a very long period of time so that such a move does not
hurt India Inc.
About the Regional Comprehensive Economic Partnership (RCEP):
It is a proposed free trade agreement (FTA) between the ten member states of the Association of
Southeast Asian Nations (ASEAN) (Brunei, Myanmar, Cambodia, Indonesia, Laos, Malaysia, the Philippines,
Singapore, Thailand, Vietnam) and the six states with which ASEAN has existing FTAs (Australia, China, India,
Japan, South Korea and New Zealand).
RCEP negotiations were formally launched in November 2012 at the ASEAN Summit in Cambodia.
RCEP potentially includes more than 3 billion people or 45% of the world's population, and a combined
GDP of about $21.3 trillion, accounting for about 40 percent of world trade.
Question asked in UPSC pre-2016:

The term Regional Comprehensive Economic Partnership often appears in the news in the context of
the affairs of a group of countries known as
(a) G20
(b) ASEAN
(c) SCO
(d) SAARC
Ans: (b)
=========================================================================
NSE picks Citi, three others to manage IPO

Details :
The National Stock Exchange (NSE), which is the countrys largest bourse in terms of market share, has
appointed merchant bankers to manage its initial public offering of shares (IPO). Current regulations do not allow
self-listing of exchanges in India.
What is an Initial public offering (IPO)?
Initial public offering is the process by which a private company can go public by sale of its stocks to
general public.
If a company wants to sell stock shares to the general public, it conducts an IPO.
By doing so, a company goes from the status of private (no general shareholders) to public (a firm with
general shareholders).
The company which offers its shares, known as an 'issuer'.
After IPO, the company's shares are traded in an open market.
Those shares can be further sold by investors through secondary market trading.
Why does a company go public?
It's simply a money-making move.
The idea is to raise funds and have more liquidity or cash on hand by selling shares publicly.
The money can be used in various ways, such as re-investing in the company's infrastructure or
expanding the business.
Next step:
The firm going public hires an investment bank, or banks, to handle the IPO.
Because current regulations do not allow self-listing of exchanges in India.

================================================================
EPFO investments in ETFs to rise

Details :
Union Labour Minister Bandaru Dattatreya has said that EPFO would raise proportion of its investments in
exchange traded funds (ETFs) from the present 5 per cent and a final decision on the quantum for current fiscal
would be taken very soon. SBI Mutual Fund and UTI Mutual Fund will manage the corpus of the retirement fund
in ETFs, he said.
Employees Provident Fund (EPF) is a retirement benefit scheme thats available to all salaried
employees.
This fund is maintained and overseen by the Employees Provident Fund Organisation of India (EPFO)
and any company with over 20 employees is required by law to register with the EPFO.
Its a savings platform that helps employees save a fraction of their salary every month that can be used
in the event that you are rendered unable to work, or upon retirement.
The Employees' Provident Fund Organisation (EPFO), is an Organization tasked to assist the Central
Board of Trustees, a statutory body formed by the Employees' Provident Fund and Miscellaneous Provisions Act,
1952 and is under the administrative control of the Ministry of Labour and Employment, Government of India.
About Exchange Traded Funds (ETF's):
ETFs are just what their name implies: baskets of securities that are traded, like individual stocks, on an
exchange.
Unlike regular open-end mutual funds, ETFs can be bought and sold throughout the trading day like any
stock.
Most ETFs charge lower annual expenses than index mutual funds.
However, as with stocks, one must pay a brokerage to buy and sell ETF units, which can be a significant
drawback for those who trade frequently or invest regular sums of money.
==========================================================================
Deputy Governor Urjit Patel named Rajans successor
Details :
The Appointments Committee of the Cabinet (ACC) on 20th August announced the appointment of Reserve
Bank of India Deputy Governor Urijit Patel as successor to Governor Raghuram Rajan. Dr. Patel will take up the
top job for a three-year term on September 4, the day Dr. Rajans three-year term expires.
About the Appointments Committee of the Cabinet (ACC):
The Appointments Committee of the Cabinet (ACC) decides appointments to several top posts under the
Government of India.
The Appointments Committee of the Cabinet, has been reconstituted in 2014, along with five other
Cabinet panels by Prime Minister Narendra Modi.
The Appointments Committee of the Cabinet now includes only the Prime Minister and the Home
Minister marking a departure from the previous government which also roped in the 'minister in-charge of the
concerned ministry' into the panel while selecting officials for their departments.
The Establishment Officers Division (EO Division) processes all proposals for senior appointments in the
Government of India that require approval of the Appointments Committee of the Cabinet under the Government
of India Transactions of Business Rules, 1961.
These include Board level appointments in Public Sector Undertakings and appointments to the posts at
the level of Joint Secretary.
About the Financial Sector Regulatory Appointments Search Committee (FSRASC):
The FSRASC was set up based on the recommendation of the Financial Sector Legislative Reforms
Commission as a standing committee to recommend suitable persons for selection of Chairperson and Whole
Time and Part Time Members of the financial sector regulators.
The FSRASC be used for the selection of Chairpersons, Chief Executive Officers and members of other
proposed institutions such as the Public Debt Management Authority, the Monetary Policy Committee and the
Financial Data Management Centre.
The composition of the FSRASC are the Cabinet Secretary, who would head it, it would include
Additional Principal Secretary to the Prime Minister; Secretary, Department of Economic Affairs or Department of
Financial Services (depending on the administrative role); Chairperson of the regulatory authority concerned,
and three outside experts.
===================================================
SBI to sharpen marketing focus

Details :
Recently the board of SBI approved the share swap ratio for the three listed associate banks, State Bank of
Mysore, State Bank of Travancore and State Bank of Bikaner & Jaipur, and also for Bharatiya Mahila Bank.
State Bank of Hyderabad and State Bank of Patiala are 100 per cent owned by SBI. The merger is expected to
be completed by March 2017.
The merger will result in reduction in operating costs, SBI said since there will be reduction in overheads,
administrative offices and centralisation of treasury.
What are Operating costs?
Operating costs are the expenses which are related to the operation of a business, or to the operation of
a device, component, piece of equipment or facility.
They are the cost of resources used by an organization just to maintain its existence.
Headline : SBI sets swap ratio for merger with associates

Details :
The board of State Bank of India (SBI) approved a swap ratio for the merger of its three listed associate banks
and the Bhartiya Mahila Bank.
The three listed associate banks of State Bank of India (SBI) are State Bank of Bikaner and Jaipur, State Bank of
Mysore and State Bank of Travancore.
The other two associate banks, that is, State Bank of Hyderabad and State Bank of Patiala, are unlisted entities,
which are fully owned by the SBI.
The Bharatiya Mahila Bank, which is also an unlisted entity but owned by the government.
About the issue:
The government on June 15, 2016, has given approval for State Bank of India (SBI) to bring into its fold
five associate banks paves the way for major consolidation in the banking sector.
The five banks to merge with SBI are State Bank of Bikaner and Jaipur, State Bank of Travancore, State
Bank of Mysore, State Bank of Hyderabad and State Bank of Patiala.
SBI will also absorb Bharatiya Mahila Bank.
In the past, SBI has absorbed two other associates State Bank of Saurashtra in 2008 and State Bank
of Indore in 2010.
SBI had said that the merger process will be completed by the end of the current financial year.
The merged entity will have a business of around Rs.40 lakh crore, and SBI will aspire to be in the top 50
global banks, going ahead.
SBIs market share will increase from 17 per cent to 22.5-23 per cent, it staff strength will increase by 3540 per cent and branch network will grow by 6,000.
At present, SBI alone has more than 15,000 branches.
What is swap ratio?
Swap ratio is an exchange ratio used in case of mergers and acquisitions.
It is the ratio in which the acquiring company offers its own shares in exchange for the target company's
shares.
To calculate the swap ratio, companies analyze financial ratios such as book value, earnings per share,
profits after tax as well as other factors, such as size of company, long-term debts, strategic reasons for the
merger or acquisition and so on.
For example, if company A is acquiring company B and offers a swap ratio of 1:5, it will issue one share
of its own company (company A) for every 5 shares of the company B being acquired.
==============================================================================
Panel suggests corporate bond index, easier norms for FPIs

Details :
With an aim to develop corporate bond market in India, an expert panel suggested easing of norms for foreign
investors, a corporate bond index on the lines of Sensex or Nifty, and making it mandatory for large corporates to
tap this market for funds beyond a threshold.
What is corporate bonds?
A bond is a debt obligation.
Investors who buy corporate bonds are lending money to the company issuing the bond.
In return, the company makes a legal commitment to pay interest on the principal and, in most cases, to
return the principal when the bond comes due, or matures.
Corporate bond issuance in India is dominated by private placements as bonds account for more than 95
per cent of the total issuance of corporate debt.
==================================================================================
SBI sets swap ratio for merger with associates

Details :
The board of State Bank of India (SBI) approved a swap ratio for the merger of its three listed associate banks
and the Bhartiya Mahila Bank.
The three listed associate banks of State Bank of India (SBI) are State Bank of Bikaner and Jaipur, State Bank of
Mysore and State Bank of Travancore.
The other two associate banks, that is, State Bank of Hyderabad and State Bank of Patiala, are unlisted entities,
which are fully owned by the SBI.
The Bharatiya Mahila Bank, which is also an unlisted entity but owned by the government.
About the issue:
The government on June 15, 2016, has given approval for State Bank of India (SBI) to bring into its fold
five associate banks paves the way for major consolidation in the banking sector.
The five banks to merge with SBI are State Bank of Bikaner and Jaipur, State Bank of Travancore, State
Bank of Mysore, State Bank of Hyderabad and State Bank of Patiala.
SBI will also absorb Bharatiya Mahila Bank.
In the past, SBI has absorbed two other associates State Bank of Saurashtra in 2008 and State Bank
of Indore in 2010.
SBI had said that the merger process will be completed by the end of the current financial year.
The merged entity will have a business of around Rs.40 lakh crore, and SBI will aspire to be in the top 50
global banks, going ahead.
SBIs market share will increase from 17 per cent to 22.5-23 per cent, it staff strength will increase by 3540 per cent and branch network will grow by 6,000.
At present, SBI alone has more than 15,000 branches.
What is swap ratio?
Swap ratio is an exchange ratio used in case of mergers and acquisitions.
It is the ratio in which the acquiring company offers its own shares in exchange for the target company's
shares.
To calculate the swap ratio, companies analyze financial ratios such as book value, earnings per share,
profits after tax as well as other factors, such as size of company, long-term debts, strategic reasons for the
merger or acquisition and so on.
For example, if company A is acquiring company B and offers a swap ratio of 1:5, it will issue one share
of its own company (company A) for every 5 shares of the company B being acquired.
==================================================================
Food lifts WPI inflation to 23-month high

Details :
Wholesale price inflation accelerated to a 23-month high of 3.6 per cent in July, driven mainly by higher food
prices, according to official data.
What is Wholesale Price Index (WPI)?
WPI measures the change in price level at wholesale market.
WPI consists of 676 commodities (services are not included in WPI in India).
It is measured on year-on-year basis i.e., rate of change in price level in a given month vis a vis
corresponding month of last year.
This is also known as point to point inflation.
This index is the most widely used inflation indicator in India.
This is published by the Office of Economic Adviser, Ministry of Commerce and Industry.
WPI captures price movements in a most comprehensive way.
The current series of Wholesale Price Index has 2004-05 as the base year.
In India, there are three main components in WPI Primary Articles (weight: 20.12%), Fuel & Power
(weight: 14.91%) and Manufactured Products (weight: 64.97).
Within WPI, Food commodities (from which Food Inflation) have a combined weight of 24.31%.
This includes Food Articles in the Primary Articles (14.34%) and Food Products in the Manufactured
Products category (9.97%).
Food Inflation is also calculated on year-on-year basis.

What is Consumer Price Index?
Consumer Price Index is a measure of change in retail prices of goods and services consumed by
defined population group in a given area with reference to a base year.
Presently the consumer price indices compiled in India are CPI for Industrial workers CPI(IW), CPI for
Agricultural Labourers CPI(AL) and; Rural Labourers CPI(RL) and (Urban) and CPI(Rural). Consumer Price
Index for Urban Non Manual Employees was earlier computed by Central Statistical Organisation.
However this index has been discontinued since April 2008.
The CPI(IW) and CPI(AL& RL) compiled are occupation specific and centre specific and are compiled by
Labour Bureau.
This means that these index numbers measure changes in the retail price of the basket of goods and
services consumed by the specific occupational groups in the specific centres.
CPI(Urban) and CPI(Rural) are new indices in the group of Consumer price index and has a wider
coverage of population.
This index compiled by Central Statistical Organisation tries to encompass the entire population and is
likely to replace all the other indices presently compiled.
In addition to this, Consumer Food Price Indices (CFPI) for all India for rural, urban and combined
separately are also released w.e.f May, 2014.
Price data are collected from selected towns by the Field Operations Division of NSSO and from selected
villages by the Department of Posts.
Price data are received through web portals being maintained by the National Informatics Centre (NIC).
The Reserve Bank of India (RBI) has started using CPI-combined as the sole inflation measure for the
purpose of monetary policy.
As per the agreement on Monetary Policy Framework between the Government and the RBI dated
February 20, 2015 the sole of objective of RBI is price stability and a target is set for inflation as measured by the
Consumer Price Index-Combined.
============================================================================
BBB should appoint top executives at state-owned banks, says Rajan

Details :
Governor of Reserve Bank of India (RBI) Raghuram Rajan has stressed the need to improve governance at
public sector banks and said the task of appointing top executives and non-official directors in these entities
should be left to the Bank Board Bureau (BBB). Mr. Rajans suggestion is in line with the proposals of the P.J.
Nayak committee set up by the RBI to look into the issue of governance in Indian banks. At present, the Centre
appoints the chief executive, executive directorsand other board members.
About Banks Board Bureau (BBB):
With a view to improve the Governance of Public Sector Banks (PSBs), the Government had decided to
set up an autonomous Banks Board Bureau in February 2016.
The Bureau will recommend for selection of heads - Public Sector Banks and Financial Institutions and
help Banks in developing strategies and capital raising plans.
Until now, a government-appointed search panel, typically headed by the Reserve Bank of India
governor, would select chief executives of public sector banks.
The BBB, originally proposed by the PJ Nayak Committee, was proposed to review governance issues in
the banking sector.
It is headed by former Comptroller and Auditor General Vinod Rai.

A deputy governor of RBI, the secretary, financial services, and the secretary, public enterprises, are exofficio members.
It will be based in Mumbai.
At present, BBB is involved in the short-listing and selection process of public sector bank executives.
The final appointments are made by the government.

=========================================================================
Share pledging on the rise as promoters search for cash

Details :
Growing concern over bad debt and reduced access to bank credit has forced promoters of many companies to
pledge their stake to meet the working capital requirements of their firms.
Data from BSE shows that between March and August, the number of companies with 100 per cent of the
promoters' share being pledged has almost doubled from 25 to 48.
What is Share pledging?
In India, promoters are the majority shareholder group that manages the day-to-day affairs of a
company.
When they need money, very often, promoters of listed companies pledge all or some of their shares with
lenders.
It means that these shares are offered as collateral to banks in exchange for loans.
This is one of the many sources of borrowing money, especially in a volatile market with tight liquidity
conditions.
Pledging of shares is common in companies where promoter holding is high.
While pledging shares, ownership is retained by promoters.
In a rising interest rate scenario, promoters often use shares owned by them as collateral for loans.
If the majority owner in your company has pledged a sizeable chunk of his or her equity, it could trigger a
volatile price movement in a falling market.
Shares of companies with high pledging of promoter holding tend to witness volatility.
Higher the pledging, greater could be the risk of volatility in the companys share price.
This is because, as share prices fall, the overall value of the pledged collateral falls.
This would put pressure on the promoter to produce more assets as collateral.
Sometimes, the lender may also be forced to sell some of the shares to ensure that the loan does not
turn into a bad loan.
If the promoter is unable to meet obligations of borrowing, the ownership of shares is transferred to the
lender, who may then sell it to recover loans.
The Reserve Bank of India, in its latest Financial Stability report, flagged a concern over pledged
shares.
===========================================================================
RBI may not meet inflation target: IMF

Details :
A recent IMF paper has raised question marks over the ability of the Reserve Bank of India (RBI) to target
inflation through monetary measures, saying the size of the formal financial sector is small in India and may
undermine the effectiveness of interest rate changes on aggregate demand.
The IMF working paper assumes significance as the RBI has recently implemented an inflation-targeting regime
that requires it to hit publicly announced targets for retail inflation, based on Consumer Price Index (CPI). Under
the new dispensation, RBI will be required to meet retail inflation target of 4 per cent, plus or minus two per cent
over the next five years.
Headline : Centres inflation target could help macro stability
Details :
The Centre on 6th July has notified its inflation target of 4%, with an upper limit of 6% and lower bound of 2%, up
to 2021.
If the inflation remain out of these bounds for three consecutive quarters, then the RBI would have to provide a
written explanation on why that had happened, what it planned to do to rectify the situation, and the timeline for
the recovery effort.
What is Inflation Targeting?
Inflation targeting is a monetary policy strategy used by Central Banks for maintaining price level at a
certain level or within a range.
It indicates the primacy of price stability as the key objective of monetary policy.
The argument for price stability stems from the fact that rising prices create uncertainties in decision
making, adversely affecting savings and encouraging speculative investments.
Inflation targeting brings in more predictability and transparency in deciding monetary policy.
If the central banks could ensure price stability, households and companies can plan ahead, negotiating
wages on the basis of expecting low and stable inflation.
Various advanced economies including United States, Canada and Australia have been using inflation
targeting as a strategy in their monetary policy framework.
The case for inflation targeting has been made in India as the country has been experiencing a high level
of inflation till recently.
What is the Monetary Policy Framework Agreement?
The Reserve Bank of India and Government of India signed a Monetary Policy Framework Agreement on
20th February 2015.
As per terms of the agreement, the objective of monetary policy framework would be primarily to
maintain price stability, while keeping in mind the objective of growth.
The monetary policy framework would be operated by the RBI.
RBI would aim to contain consumer price inflation within 6 percent by January 2016 and within 4 percent
with a band of (+/-) 2 percent for all subsequent years.
The central bank would be seen as failing to meet the targets, if retail inflation is more than 6 per cent for
three consecutive quarters from 2015-16 and less than 2 per cent for three consecutive quarters from 2016-17.
If this happens, RBI will have to explain the reason for its failure to meet as well as give a timeframe
within which it will achieve it.
RBI will publish the operating targets as well as operating procedure for the monetary policy though
which the target for the monetary policy will be achieved.
The RBI will also be required to bring a document every six months to explain the sources of inflation and
forecast for inflation for next 6-18 months.
RBI has been using headline CPI (Combined) inflation as the nominal anchor for monetary policy stance
from April 2014 onwards.
=======================================================================
IRDAI moots guidelines on listing of insurers

Details :
There could be a flood of insurance IPOs hitting the capital market soon with the Insurance Regulatory and
Development Authority of India (IRDA) proposing that all general insurance companies, including standalone
health insurers, that have been in existence for 8 years and life insurance companies in operation for 10 years
should initiate steps to get their shares listed.
The listing would be an important measure to strengthen corporate governance, bring market discipline among
the insurers and enhance transparency, according to the regulator.
About the Insurance Regulatory and Development Authority (IRDA):
Following the recommendations of the Malhotra Committee report, in 1999, the Insurance Regulatory
and Development Authority (IRDA) was constituted as an autonomous body to regulate and develop the
insurance industry.
The IRDA was incorporated as a statutory body in April, 2000.
The key objectives of the IRDA include promotion of competition so as to enhance customer satisfaction
through increased consumer choice and lower premiums, while ensuring the financial security of the insurance
market.
==================================================================
Retail inflation accelerates to 6.07%

Details :
Industrial output for the first quarter of 2016-17 has grown by just 0.6 per cent. While the index of industrial
production (IIP) rose 2.1 per cent in June 2016, compared to June 2015, it reflected a marginal uptick from the
1.1 per cent growth recorded this May. (These facts are not relevant, only you need to know about, what is
IIP?)
base period.
basis.
===============================================================
RBI holds rates on inflation concerns

Details :
The Reserve Bank of India (RBI) Governor Raghuram Rajan left the benchmark interest rate unchanged on 9th
August citing upside risks to its target of 5 per cent inflation by March 2017. The RBI kept the repo rate, the key
rate at which the central bank lends money to commercial banks, at 6.5 per cent.
What is Base Rate?
The Base Rate is the minimum interest rate of a bank below which it cannot lend, except in some cases
allowed by the RBI.
It is the minimum interest rate of a bank below which it is not viable to lend.
The base rate, introduced with effect from 1st July 2011 by the Reserve Bank of India, is the new
benchmark rate for lending operations of banks.
Thus all categories of domestic rupee loans should be priced only with reference to the Base Rate.
The reason for introducing Base Rate was to bring out the transparency in bank lending rates as well as
to improve monetary policy transmission.
Since the Base Rate will be the minimum rate for all loans, banks are not permitted to resort to any
lending below the Base Rate.
What is Marginal Cost of funds based Lending rate (MCLR)
The marginal cost of funds based lending rate (MCLR) refers to the minimum interest rate of a bank
below which it cannot lend, except in some cases allowed by the RBI.
It is an internal benchmark or reference rate for the bank.
MCLR actually describes the method by which the minimum interest rate for loans is determined by a
bank - on the basis of marginal cost or the additional or incremental cost of arranging one more rupee to the
prospective borrower.
The MCLR methodology for fixing interest rates for advances was introduced by the Reserve Bank of
India with effect from April 1, 2016.
This new methodology replaces the base rate system introduced in July 2011.
In other words, all rupee loans sanctioned and credit limits renewed w.e.f. April 1, 2016 would be priced
with reference to the Marginal Cost of Funds based Lending Rate (MCLR) which will be the internal benchmark
(means a reference rate determined internally by the bank) for such purposes.
Reasons for introducing MCLR
RBI decided to shift from base rate to MCLR because the rates based on marginal cost of funds are
more sensitive to changes in the policy rates.
This is very essential for the effective implementation of monetary policy. Prior to MCLR system, different
banks were following different methodology for calculation of base rate /minimum rate that is either on the
basis of average cost of funds or marginal cost of funds or blended cost of funds. Thus, MCLR aims
To improve the transmission of policy rates into the lending rates of banks.
To bring transparency in the methodology followed by banks for determining interest rates on advances.
To ensure availability of bank credit at interest rates which are fair to borrowers as well as banks.
To enable banks to become more competitive and enhance their long run value and contribution to
economic growth.
One question has been asked from this topic in this year's prelims examination(2016).
Q. What is/are the purpose/ purposes of the Marginal Cost of Funds based Lending Rate (MCLR)
announced by RBI?
1. These guidelines help improve the transparency in the methodology followed by banks for
determining the interest rates on advances.
2. These guidelines help ensure availability of bank credit at interest rates which are fair to the
borrowers as well as the banks.
Select the correct answer using the code given below:
(a) 1 only
(b) 2 only
(c) Both 1 and 2

(d) Neither 1 nor 2
Ans: (c)
-===========================================================================
Power, cement, coal drive core sectors up 5.2%

Details :
Eight core sectors of the economy registered a 5.2 per cent year-on-year growth in June due to higher electricity,
coal and cement output, according to latest data.
Production (IIP).
They are:

==============================================================================
Poor returns nip guar production

Details :
Little overseas demand and poor returns have forced guar-seed farmers in Rajasthan and Haryana to cut down
on production this kharif.
Guar gum is extracted from the guar seed.
Rajasthan and Haryana account for 80 per cent of Indias guar-seed production.
Use of Guar gum:
Guar gum, extracted from the pods of the guar plant, is widely used as an emulsifier, thickener, and
stabilizer in food and cosmetics.
Guar gum is used in food as a thickening and binding agent.
It is also used in textile, paper, pharmaceutical, oil and many other industries.
After refine process, Guar Gum is used in various industries: in the food industry as a stabilizer, in ice
creams instant puddings and whipped cream substitutes, as a meat binder and a stabilizer for cheeses, in
industrial applications including cloth and paper manufacture, oil well drilling, explosives, ore flotation and many
other applications.
====================================================================
U.S. asks India to remove duties, barriers on ICT items

Details :
The U.S. has asked India to eliminate customs duties on Information and Communications Technology (ICT)
items.
what is Custom Duty?
Customs Duty is a type of indirect tax levied on goods imported into India as well as on goods exported
from India.
Import of goods means bringing into India of goods from a place outside India.
India includes the territorial waters of India which extend up to 12 nautical miles into the sea to the coast
of India.
Export of goods means taking goods out of India to a place outside India.
What is the U.S.-India Strategic and Commercial Dialogue?
It is a forum to discuss bilateral issues with an aim to boost economic growth, generate jobs and improve
the investment climate in both countries.
============================================================================
Do not bureaucratise selection of RBI governor

Details :
What is 'Inflation Targeting'
Inflation targeting is a central banking policy that revolves around meeting preset, publicly displayed
targets for the annual rate of inflation.
Reserve Bank of India has targeted the inflation target at under 6% by January 2016, with the goal for
2016-17 onwards set at 4%.
Inflation has to stay within the 2-6% band from 2016-17 and any deviation for three consecutive quarters
will have to be explained by RBI
The Urjit Patel Committee suggested this framework.
we now have single CPI index today for the country, which acts as an anchor for the monetary policy.
How the RBI governor is appointed?
The Reserve Bank of India Governor is appointed by the Prime Ministers Office (PMO) on the
recommendation of the Union Finance Minister, the Centre informed Parliament recently.
Section 8(1)(a) of the Reserve Bank of India Act, 1934, provides that there shall be one Governor and
not more than four Deputy Governors to be appointed by the central government on the central board of RBI.
=========================================================================

Economics: Full Convertibility On Capital Account Unlikely For Few Years

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Economics: Full Convertibility On Capital Account Unlikely For Few Years

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ECONOMICS

Full convertibility on capital account unlikely for few years

WPI inflation slows to 3.6 per cent

WPI measures the change in price level at wholesale market.

This is also known as point to point inflation.

This index is the most widely used inflation indicator in India.

WPI captures price movements in a most comprehensive way.

Food Inflation is also calculated on year-on-year basis.

NITI Aayog reviewing CONCORs stake sale

Disinvestment also assumes significance due to the prevalence of an increasingly competitive

To reduce the financial burden on the Government

To improve public finances

To introduce, competition and market discipline

To encourage wider share of ownership

To depoliticize non-essential service

Difference between Disinvestment and privatization:

Four PSBs may struggle to pay bond coupons

They are also called as contingent convertible capital instruments (CoCos).

Coupon payments can be cancelled on the request by issuer.

AT1 or Cocos are the riskiest debt issued by banks.

They do not have any set maturity date.

Who will regulate pension products?

PFRDA is authorized by Ministry of Finance, Department of Financial Services.

It is an apex-level body constituted by the government of India.

1. It is an organ of NITI Aayog.

Fighting OPEC only for the brave

Establishment: In 1960, at Baghdad.

During 2014-16,OPEC, members consistently breached the production ceiling.

Payment Banks need RBIs prior product approval

Payment banks and small banks are part of differentiated banking.

The purpose of these banks is to promote financial inclusion.

Nachiket Mor committee in 2014 recommended the establishment of such institutions.

No credit lending is allowed for Payments Banks.

The bank can accept deposits and lend to its customers.

RBI cuts repo rate

RBI uses Consumer Price Inflation as its nominal anchor.

MPC is expected to bring value and transparency to rate-setting decisions.

MPC was constituted onmany-heads-are-better-than-one approachand is expected to ensure that the

Global growth to stay weak: IMF

About the International Monetary Fund (IMF):

World Economic Outlook:

It is published biannually and partly updated two times a year.

(a) The International Monetary Fund

Centre rethinks plan to widen EPF coverage

It a retirement benefit scheme that is available to all salaried employees.

Steel lifts infrastructure output 3.2%

What is Index of Industrial Production (IIP)?

Coal (weight: 4.38 %)

Crude Oil(weight: 5.22 %)

The Natural Gas(weight: 1.71 %)

Petroleum Refinery (weight: 5.94%)

Fertilizer (weight: 1.25%)

Steel (weight: 6.68%)

Cement (weight: 2.41%)

Electricity generation (weight: 10.32%)

Centre to wind up Hindustan Cables

In the strategic sale of a company, the transaction has two elements:

Transfer of a block of shares to a Strategic Partner and

Transfer of management control to the Strategic Partner

PSU is not defined in the Act.

Therefore, the 26% block acts as a check.

WEF ranks India as 39th most competitive economy