OFFICERS'

PULSE
MARK BOOSTER NOTES FOR PRELIMS 2019

ECONOMY
CURRENT AFFAIRS
FOR PRELIMS 2019

THE PULSE OF UPSC AT YOUR FINGER TIPS

 How to Use this Document


Dear Students,

In Economics / Indian Economy what will really get you marks is conceptual clarity, logic and
relating the concepts learnt to topics in the news.

Clarity in Economic Concepts

Whether it is tools of controlling money supply or measurement of national income, you must have
a bare bone understanding of the concepts. Especially concepts and key-terms that have been in the
news, used in the Survey, Budget, RBI related terms etc. Go back to your NCERTs whenever you
don’t understand some concept. Even Arthapedia is a good source

http://www.arthapedia.in/index.php?title=Category:Concepts

Contemporary / Current Affairs

Here is a summary of all the questions from Economy in Prelims 2018. From this let’s see how
many were predictable – based on contemporary relevance in brackets.

• Merchant Discount Rate (Demonetization)
• Public Sector Bank Reforms – Merger, Recapitalization etc. (Banking Reforms were always
in the News – NPA, 2.11 Lakh crore recapitalization etc.)
• Digital payments (Demonetization)
• Capital Adequacy Ratio (Implementation of Basel 3 in news)
• Government Securities and Treasury Bills
• Legal tender money (Demonetization)
• ATMs (Demonetization)
• Fiscal Policy, FRBM related (NK Singh Committee)
• Goods under GST (GST Act)
• Equalization Tax (In news as the “Google Tax”)
• NSSO Survey
• Crops covered under MSP (MSP at 50%+ Basis – 2018 Budget)
• Edible oil import
• Concept of Opportunity Cost
• Concept of capital formation
• Concept of Human Capital Formation (Skill development related news)
• Concept of Real GNP

From this you can see that 11 out of 17 questions have had direct contemporary relevance.
Questions you can crack if you are just a little more curious while reading the newspaper and read
up further.

Topics that grabbed newspaper headlines for days on end have been inescapable target areas.
Example – Demonetization (4 QUESTIONS), GST and Banking Reforms. Keep all this in mind while
referring to this document, pay more attention to topics you remember seeing in the news a lot.

Best Wishes !

R & D Team at Officers IAS Academy


Economy
Banking & Monetary Policy ............................... 6
Ex RBI Governor on bad loans ......................... 6
NPAs decline ........................................................... 6
Resolution of 8 cases outside NCLT .............. 7
Recovery through IBC cases ............................. 7
Banks under PCA ................................................... 8
RBI lifts PCA ............................................................ 9
UNCITRAL ................................................................ 9
Intercreditor Agreement (ICA) ....................... 9
E-Kuber ................................................................... 10
MCLR ........................................................................ 11
CAR ............................................................................ 11
Public Credit Registry ....................................... 11
Banking Ombudsman Scheme, 2006 .......... 12
Frauds on the rise at PSBs ............................... 12
RBI Annual Report (2017-18) ....................... 13
Clean banking ....................................................... 13
Closing down of ATMs? .................................... 14
LoUs, LoCs .............................................................. 15
PNB posts INR 940 cr. loss on higher
provisioning .......................................................... 15
Repo rate & MPC ................................................. 15
Unsecured Loans ................................................. 16
RBI to track transactions ................................. 16
State Development Loans (SDLs) ................. 17
Masala bonds ........................................................ 17
IL&FS crisis ............................................................ 18
Liquidity Crisis ..................................................... 18
Norms for NBFC ................................................... 19
CAPITAL MARKET .................................................. 31
Open Market Operations ................................. 19
List of Wilful Defaulters ................................... 20
RBI Contingency Fund ...................................... 20
RBI allows banks to provide partial
guarantee to NBFC bonds ............................... 20
Liquidity Coverage Ratio ................................. 21
Consolidation of Banks .................................... 21
Loan write-offs & Loan waivers ................... 22
Land Management Agency ............................. 22
Payment regulator ............................................. 23
Outlook for banks - Moody’s ......................... 23
Measures against bank frauds ...................... 24
Former CEC on Indian Economy .................. 24
RBI autonomy and Governor’s resignation
.................................................................................... 25
The Central Board of the RBI ........................ 25
Bank recapitalisation ........................................ 25
Recapitalisation Bonds .................................... 26
Recapitalisation of Exim Bank ...................... 26
ECB ........................................................................... 27
New ECB framework ......................................... 27
Easing capital requirements for banks ..... 27
RBI reserves ratio .............................................. 28
Debt restructuring norms ............................... 29
RBI panel on digital payments ...................... 29
Vijay Mallya declared Fugitive economic
offender .................................................................. 29
Tokenisation ......................................................... 30
RBI dividend issue ............................................. 30
Capital conservation buffer ........................... 30
 Share buyback ...................................................... 31
Sandbox policy ..................................................... 31
FDI & FPI ................................................................. 31
FPI norms tightened .......................................... 32
Mauritius at the top ............................................ 32
Catastrophe Bonds ............................................. 33
Preferential allotment of shares ................... 33
Total Expense Ratio ........................................... 33
Window dressing & Stock Manipulation .. 34
Bear phase .............................................................. 34
Real Estate Investment trust (REIT) .......... 34
Strategic disinvestment .................................... 34
FISCAL POLICY+TAXATION ................................ 35
Direct tax base widens ...................................... 35
DEMAT ..................................................................... 36
Menace of Multiple PANs ................................. 36
GST Council ............................................................ 36
31st meeting of the GST council ................... 37
GST eased for small businesses .................... 38
GST Appellate Tribunal .................................... 38
GSTN ......................................................................... 39
Composition scheme ......................................... 39
Input tax credit ..................................................... 40
Fiscal stress ........................................................... 40
Disinvestment ....................................................... 40
Black Money in Swiss Bank ............................ 41
Merchant Discount Rate ................................... 41
Defining a ‘shell company’ .............................. 41
Interim Budget ..................................................... 42
Changing the calculation of GDP .................. 42
A $6 trillion opportunity .................................. 43
Processing I-T returns in a day ..................... 43
Debt-to-GDP ratio ............................................... 44
Widening of Current account deficit ........... 44
Fiscal deficit Breaches target ......................... 45
MISC ............................................................................... 45
Cryptocurrency .................................................... 45
Sub-prime loans .................................................. 45
Fake currency network intact ....................... 46
Strategy for New India @ 75 ......................... 46
Online sale of drugs, cosmetics .................... 47
Building and Other Construction Workers
Welfare Cess ......................................................... 47
Investment Models ............................................ 48
Air Cargo Policy ................................................... 49
Universal labour guarantee ........................... 49
Bihar outgrew others ....................................... 49
EXTERNAL SECTOR ............................................... 50
India-China DTAA .............................................. 50
Fall of Indian Rupee .......................................... 50
Fall of Rupee ......................................................... 51
Foreign Exchange Reserve ............................. 52
Trade deficit ......................................................... 52
NRIs deposits surge ........................................... 53
Hiking Import Duty ........................................... 53
Safeguard duty ..................................................... 53
Anti-dumping duty ............................................ 54
U.S.-China Tariff war ......................................... 55
Currency war ........................................................ 55
China eyes Indian-manufactured drugs ... 56
Indian Pharmacy Export ................................. 56
India-Japan currency swap agreement ..... 56
Asian premium .................................................... 57
Oil Prices ................................................................ 57
Impact of oil price cut on OMCs’ .................. 57
Generalised System of Preferences (GSP) 58
Gold imports rise ................................................ 59
Doha Development Agenda ........................... 59
Fed rate hike ......................................................... 59
India to export fish meal & fish oil to China
.................................................................................... 60
Credit rating agencies and credibility ....... 60
LOCs ......................................................................... 61
 Local currency trade between India & Export Credit Guarantee Corporation
China ......................................................................... 61 (ECGC) ..................................................................... 76
Easing global trade ............................................. 61 NIIF & AIIB ............................................................ 77
Foreign fund outflows ....................................... 61 Securities Appellate Tribunal ....................... 78
Merchandise Exports from India Scheme Report on unemployment data .................... 78
(MEIS) ...................................................................... 62 IEA’s Report: The Future of Rail .................. 79
INDICATORS/REPORTS ........................................ 63 World Economic Outlook Report ................ 79
Swaminathan Committee Report ................. 63 AGRI & ALLIED, INDUSTRY, SERVICE ............ 80
Index of Industrial Production (IIP) ........... 63 Minimum Support Price (MSP) .................... 80
Purchasing Managers Index (PMI) .............. 64 Pradhan MantriAnnadata Aay Sanrakshan
Retail inflation ...................................................... 64 Abhiyan ................................................................... 80
Base Year ................................................................ 65 Hiking of ethanol prices ................................... 81
GDP deflator .......................................................... 65 Operation Greens ............................................... 81
City-level GDP ....................................................... 66 NABARD study on farm indebtedness ...... 82
FDI Confidence Index – AT Kearney ........... 66 Shrimp production ............................................ 83
State of working in India 2018 ...................... 66 Jhum Cultivation ................................................. 84
Growth of India will accelerate: World Amul model ........................................................... 85
Bank .......................................................................... 67 Blue Economy ...................................................... 85
ADB report on Migrating Indians ................. 68 SEZ Policy Review .............................................. 86
World Bank-Ease of Doing Business ........... 68 Core industries .................................................... 87
Exim Bank Study ................................................. 69 MSME credit growth ......................................... 87
Growth of Credit .................................................. 69 Increasing Agri-Export ..................................... 87
Moody’s Global Emerging Market Outlook Inter-state trade through e-NAM ................ 88
2019 .......................................................................... 70
Credit flows to agri sector .............................. 89
INSTITUTIONS .......................................................... 71
FMCG sector: Double-digit growth ............. 89
OECD ......................................................................... 71
Price controls in Pharma ................................. 89
NPCC - a Miniratna ............................................. 71
Minimum Indicative Export Quotas ........... 90
OPEC-Plus Deal .................................................... 72
SCHEMES, BILLS ...................................................... 91
Financial Stability and Development
Council ..................................................................... 73 AirSewa 2.0 ........................................................... 91

NPCI & UPI ............................................................. 73 Global Mobility Summit- MOVE ................... 91

RBI report on remittances .............................. 74 Boosting Eco-friendly transport .................. 91

Directorate General of Civil Aviation Paisa – Portal ........................................................ 92

(DGCA) ..................................................................... 74
National Financial Reporting Authority .... 74
India in WTO ......................................................... 75
Confederation of Indian Industry (CII) ..... 76
Financial Action Task Force (FATF) ........... 76
Logix India ............................................................. 93
Northeast & Bamboo cultivation ................. 94
GeM ........................................................................... 94
e-Pharmacy ........................................................... 95
PMRPY Achieves one crore Milestone ....... 95
 Prime Minister's Employment Generation Invest India, Start-up India Hub ................ 104
Programme ............................................................ 96 5G networks in India ...................................... 105
Pradhan Mantri Fasal Bima Yojana ............. 96 New telecom policy ......................................... 105
Pradhan Mantri Kaushal Vikas Yojana ....... 97 Single electricity grid ...................................... 106
FASTags ................................................................... 98 National Mineral Exploration Policy
Know India Programme ................................... 98 (NMEP) ................................................................. 107
Indus Food 2019 ................................................. 99 Data localisation policy .................................. 107
Defence manufacturing in India ................... 99 Ease of Doing Business Grand Challenge
Defence India Startup Challenge ............... 100 .................................................................................. 108

Pradhan Mantri Khetriya Khanij Kalyan Interoperability among Payment

Yojna ...................................................................... 100 Instruments ........................................................ 108

UDAN-III ............................................................... 101 Indian Strategic Petroleum Reserves ...... 108

India Post Payments Bank ........................... 101 Duty Drawback Scheme ................................. 109

Electric Vehicle Transformation ................ 102 Fisheries & Aquaculture Infrastructure

Development Fund .......................................... 110
Focus Product Scheme ................................... 102
MSME loans in 59 minutes ........................... 110
SHAKTI Scheme ................................................ 103
Electoral bonds .................................................. 111
Bullet train project .......................................... 103
Regulation of E-Commerce .......................... 111
Growth of Metro Rail ...................................... 104
E-Commerce Regulation ................................ 112
India’s largest Dry Dock ................................ 104

 Banking & Monetary Policy

Ex RBI Governor on bad loans
What is in News?
§ Former RBI Governor Raghuram Rajan has submitted a note on non-performing assets in the
Indian banking system prepared for the Parliament Estimates Committee at the request of
its chairman.
What are NPA’s?
§ NPAs are loans made by a bank or finance company on which repayments or interest
payments are not being made on time.
§ The loan is considered to be an NPA once the borrower fails to make interest or principal
payments for 90 days. In case of Agriculture/Farm Loans, the NPA varies for of Short duration
crop loan (interest not paid for 2 crop seasons), Long Duration Crops (interest not paid for 1
Crop season).
§ India is ranked 5th in the world in terms of countries with the highest number of NPAs,
with the highest among BRICS nations.
Highlights of the report:
Major reasons for the surge in NPAs:
§ Over optimism of Bankers who contributed to the lending spree without proper credit risk
analysis
§ Economic growth slowdown after the global financial crisis
§ Malfeasance and corruption among bankers and frauds
§ Slowdown in the government’s decision making process
Flagged risks MUDRA, Kisan credit card loans, Credit Guarantee Scheme
§ The former RBI Governor has cautioned that the next crisis in India’s banking sector could
come from loans given to the unorganised micro and small businesses, called MUDRA loans,
and credit extended through the Kisan credit card.
§ MUDRA loans are offered under the Prime Minister Mudra Yojana or PMMY, launched in
2015. A total of Rs. 6.37 lakh crore has been disbursed under the scheme by public and
private sector banks, regional rural banks and micro-finance institutions till date. Both
MUDRA loans as well as the Kisan Credit Card, while popular, have to be examined more
closely for potential credit risk, Rajan warned.
§ He also flagged the Credit Guarantee Scheme for MSMEs, run by the Small Industries
Development Bank of India, calling it “a growing contingent liability” that needs to be
examined with urgency.
What needs to be done?
§ Improving governance of public sector banks by professionalising boards and
depoliticising appointments by handing it over to the Banks Board Bureau.
§ Introduction of outside talent into top management of PSBs given the talent deficit they
faced.
§ Implementing proper project evaluation and monitoring processes to lower the risk of
project NPAs.
§ The bankruptcy court should be the final option in resolving NPAs. Banks and
promoters have to strike deals outside of bankruptcy, or if promoters prove
uncooperative, bankers should have the ability to proceed without them.
§ Government should refrain from setting ambitious credit targets or from waiving
loans.

NPAs decline
What is Special Mention Accounts?
§ The classification of Special Mention Accounts (SMA) was introduced by the RBI, to identify
those accounts that has the potential to become an NPA. An early identification will help to
tackle the problem better.
§ The Special Mention Accounts are usually categorized in terms of duration.
 SMA categories Basis for classification –
Principal or interest payment or
any other amount wholly or
partly overdue between

SMA-0 1-30 days

SMA-1 31-60 days

SMA-2 61-90 days

Why in News?
§ Various initiatives taken by the government have yielded results, with the bad loans of public
sector banks (PSBs) declining by over Rs. 23,000 crore from a peak of Rs. 9.62 lakh crore in
March 2018.
§ At the same time, PSBs have also made a record recovery of Rs. 60,726 crore in the first half
of the current financial year, which is more than double the amount recovered in the
corresponding period last year.
§ The non-NPA accounts overdue by 31 to 90 days (Special Mention Accounts 1 & 2) of PSBs
have declined by 61% over five successive quarters — from Rs. 2.25 lakh crore as of June
2017 to Rs. 0.87 lakh crore in September 2018.

Resolution of 8 cases outside NCLT
SC stays RBI’s circular
§ The Supreme Court has stayed the RBI's controversial February 12 circular and asked
banks not to initiate insolvency proceedings under the Insolvency and Bankruptcy
Code against the loan defaulting companies.
§ The bench also directed that the 12 cases related to this issue that are pending before
different high courts should be transferred to the Supreme Court.
What was the circular?
§ In February 2018, the RBI had issued a circular outlining a revised, stricter, framework
for resolution of stressed assets.
§ The new framework made it mandatory that if a borrower delays even by a day the
repayment of a loan, the debt would be classified as stressed and the lenders should
begin the resolution process.
Effects on power sector
§ The RBI circular had particularly impacted the power sector because the sector was
already suffering due to unforeseen circumstances ranging from fuel shortage to
regulatory clearances that hit their cash flows, credit rating, and the like.
§ A considerable part of the NPAs in India is held by the power sector.
Banks hope to resolve 8 cases outside NCLT
§ Power companies welcomed the Supreme Court verdict saying it will prevent many
stressed power plants from insolvency. They are averse to go to NCLT because they feel it
will not fetch the assets a fair price.
§ With the SC’s stay, lenders are hoping to resolve at least eight power sector accounts worth
Rs 70,000 crore outside the National Company Law Tribunal (NCLT).
Note of caution
§ But according to experts, the challenge now will be ensuring that the resolution process
for these defaulting companies do not move at a snail's pace, else they risk going from
stressed to unviable.

Recovery through IBC cases
Insolvency and Bankruptcy Code (IBC)
§ The Code creates time-bound processes for insolvency resolution of companies and
individuals. These processes will be completed within 180 days. If insolvency cannot be
resolved, the assets of the borrowers may be sold to repay creditors.
 § The resolution processes will be conducted by licensed insolvency professionals (IPs).
These IPs will be members of insolvency professional agencies (IPAs).
§ Information utilities (IUs) will be established to collect, collate and disseminate financial
information to facilitate insolvency resolution.
§ The National Company Law Tribunal (NCLT) will adjudicate insolvency resolution for
companies. The Debt Recovery Tribunal (DRT) will adjudicate insolvency resolution for
individuals.
§ The Insolvency and Bankruptcy Board of India (IBBI) will be set up to regulate functioning
of IPs, IPAs and IUs.
§ The Code was amended in 2017 to prohibit (i) wilful defaulters, (ii) promoters or
management of the company if it has an outstanding non-performing debt for over a year,
and (iii) disqualified directors, among others-- from submitting a resolution plan in case of
defaults.
§ It was again amended in August 2018
1. To allow home buyers to be treated as financial creditors like banks and financial
institutions, so that they can take recourse to the protection conferred under the code
2. The voting threshold for routine decisions taken by the committee of creditors
reduced from 75% to 51%. For certain key decisions like approval of a resolution
plan this threshold has been reduced to 66%.
3. The amendment also provided relief to MSME sector by allowing the promoter of an
MSME to bid for his enterprise undergoing Insolvency Resolution Process provided
he is not a wilful defaulter and does not attract other disqualifications not related to
default.
Why in News?
§ Finance Minister Arun Jaitley has said that the government expects a recovery of about Rs.
70,000 crore from the 12 big companies that were identified for bankruptcy proceedings
under IBC by March 31, 2019.
§ These 12 companies are estimated to account for a quarter of the gross non-performing
assets in the system, and so were identified for immediate bankruptcy proceedings.
§ Mr. Jaitley explained that the effectiveness of the IBC process was arising out of three
factors.
○ The first was that debtors were beginning to pay their dues in anticipation of a
potential default in order to avoid the prospect of them being removed from
management.
○ The second is that once a creditor’s petition has been filed with the NCLT, the debtors
have been paying at the pre-admission stage to prevent the declaration of insolvency.
○ Thirdly, many major cases of insolvency have already been resolved or are being
moved to liquidation.

Banks under PCA
What is Prompt Corrective Action (PCA)?
§ The PCA framework specifies the trigger points or the level in which the RBI will intervene
with corrective action if a commercial bank’s financial condition worsens below a mark. It
is to ensure that banks don't go bust.
§ The parameters that invite corrective action from the central bank are:
o Capital to Risk weighted Asset Ratio (CRAR)
o Net Non-Performing Assets (NPA)
o Return on Assets (RoA)
What will happen when a bank brought under PCA?
§ When these parameters reach the set trigger points for a bank, the RBI will initiate certain
structured and discretionary actions for the bank including
○ Restriction on dividend distribution/remittance of profits;
○ Requirement on promoters/owners/parents to bring in more capital;
○ Restrictions on branch expansion;
○ Higher provisioning requirement; and,
 ○ Restrictions on management compensation.
Board for Financial Supervision
§ The Board for Financial Supervision (BFS) of RBI is chaired by the RBI Governor and
includes the four deputy governors and a few other board members.
§ BFS has been entrusted by the central bank board to review the performance of the banks
under PCA.
Why in News?
§ The BFS has asked the banks under the PCA framework to provide an estimate of the
quantum of provision for bad loans required for the January-March quarter and the
shortfall in capital due to the provisioning, to the RBI before a decision can be taken to
remove restrictions on some banks.
(Provisioning refers to the percentage of the loan amount that the bank has set aside as provisions to
meet an eventuality where the loan might have to be written off it becomes irrecoverable)
§ If there is a shortfall in capital, the government can step in to meet the capital requirement
which could help some of the banks out of the PCA framework.

RBI lifts PCA

Why in News?
§ The RBI has decided to allow three public sector banks — Bank of India, Bank of
Maharashtra and Oriental Bank of Commerce — to exit the PCA framework following
capital infusion by the government and a decline in net NPA.
§ The RBI conducted a review following a demand made by government to lift the restrictions
in order to boost credit growth.
§ With these three lenders out of PCA, there are another eight public sector banks which are
still facing restrictions which were imposed due to deteriorating financial health.

UNCITRAL
What’s in the news?
§ The Insolvency Law Committee (ILC), established to suggest amendments to the Insolvency
and Bankruptcy Code of India, has recommended adopting United Nations Commission on
International Trade Law (UNCITRAL) Model Law of Cross Border Insolvency, 1997, to
handle cross-border insolvency cases.
§ At present sections 234 and 235 of the IBC, relates to cross-border insolvency.
§ It allows the Centre to enter into an agreement with a foreign country for enforcing the
provisions of the Code.
§ But the current method is time-taking and inefficient as they pertain only to bilateral pacts.
What is cross -border insolvency?
§ It is the provision that deals with the insolvency of persons or entities that operates or has
assets in more than one country.
About UNCITRAL model law
§ The UNCITRAL Model Law has been adopted in 44 countries and is one of the best
international practices in dealing with cross border insolvency issues.
§ The necessity of having cross-border insolvency framework under the IBC arises because
many Indian companies have global presence and many foreign companies have presence
in multiple countries, including India.
§ The advantages of the model law include the precedence given to domestic proceedings
and protection of public interest, greater confidence generation among foreign investors,
adequate flexibility for seamless integration with the domestic insolvency law and a robust
mechanism for international cooperation.

Intercreditor Agreement (ICA)
What is ICA?
§ It is an agreement in to speed up the resolution process of stressed assets in the range of
Rs. 50 – Rs. 500 crores, under consortium lending. It is a part of the Project Sashakt.
 § The mechanism is expected to make sure that there is effective, good communication
amongst banks and remove procedural glitches to ensure timely availability of credit to
enterprises.
§ The agreement says if 66 per cent of lenders by value agree to a resolution plan, it would
be binding on all lenders.
§ The ICA is originally designed to be signed by 22 PSBs, 19 Private Banks & 32 Foreign
Banks along with financial intermediaries like Life Insurance Corporation, Power Finance
Corporation and Rural Electrification Corporation.
What is Consortium lending?
§ Consortium lending is a process under which several banks finance a borrower based on
common appraisal and documentation, and conduct joint supervision and follow-up
exercises.
§ Consortium lending was considered a must for big-ticket loans (typically above ₹500
crore) to stem cases of fraud and help check the rise in bad loans in the system.
§ However, the inability of banks to share information about a ‘bad’ account in a timely and
adequate manner has led to a rise in the number of frauds involving consortium lending,
once considered the best route to help spread risk.
What is Project Sashakt?
§ It was proposed by a panel led by the PNB Chairman Sunil Mehta established to address
the bad loans problem.
§ For bad loans up to Rs. 50 crores, it should be managed at the Bank level itself.
§ For bad loans of Rs. 50-500 crores, banks will enter an inter-creditor agreement. The ICA
will authorize the lead bank to implement a resolution plan in 180 days or refer the asset
to NCLT.
§ For Loans above Rs. 500 crores, the panel recommended an independent Asset
Management Company (AMC) which will be supported by institutional Funding by AIF
(Alternative Investment Fund).
§ This panel has rejected the proposal for a bad bank.
Why in news?
§ About 24 banks have signed up for the ICA and more banks are expected to sign up soon.
§ So far, no foreign bank or private banks have signed the ICA.

E-Kuber
E-Kuber
§ E-Kuber is the Core Banking Solution of Reserve Bank of India. E-Kuber provides the
provision of a single current account for each bank across the country, with decentralised
access to this account from anywhere-anytime using portal-based services in a safe manner.
Application
§ Auction of Government securities is done through the e-kuber system. Sovereign Gold Bonds
are available for subscription at the branches of scheduled commercial banks and designated
post offices through RBI’s e-kuber system.
§ Goods and Service Tax (GST) settlements are also proposed to be done through e-kuber. RBI
has also launched a platform to enable trading in the priority sector lending certificates
(PSLC) through its Core Banking Solution (CBS) portal (e-Kuber).
What is Core Banking Solution?
§ Core Banking Solutions (CBS) can be defined as a solution that enables banks to offer a
multitude of customer-centric services on a 24x7 basis from a single location, supporting
retail as well as corporate banking activities, as well as all possible delivery channels existing
and proposed.
§ The centralisation thus makes a “one-stop” shop for financial services a reality. Using CBS,
customers can access their accounts from any branch, anywhere, irrespective of where they
have physically opened their accounts. Almost all branches of commercial banks, including
the Regional Rural Banks (RRBs), are brought into the core-banking fold.
Why in News?
 § The Government of India has announced the Sale (Re-issue) of certain government bonds.
For this purpose, both competitive and non-competitive bids for the auction can be submitted
in electronic format on the Reserve Bank of India Core Banking Solution (E-Kuber).

MCLR
What is MCLR?
§ It is an internal benchmark or reference rate for the bank.
§ It refers to the minimum interest rate of a bank below which it cannot lend (except in
certain cases allowed by the RBI).
§ The MCLR methodology for fixing interest rates for advances was introduced by the RBI with
effect from April 1, 2016.
What was the previous benchmark used?
§ Base rate was the previous benchmark used, which has been replaced by MCLR.
Why switch from Base Rate to MCLR?
§ MCLR is revised monthly which makes it very dynamic in comparison to base rate. This
is very essential for the effective implementation of monetary policy which 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.
Why in News?
§ RBI is yet to mandate banks to allow customers who signed up for loans during the ‘Base
Rate’ regime to switch to ‘MCLR’ regime. (Those still in the Base Rate regime pay higher
interest rates)

CAR
Why in news?
§ While the government wants the capital adequacy ratio (CAR) of banks to be at 8% as per
Basel norms, but RBI has prescribed 9%.
What is Capital Adequacy Ratio?
§ Capital Adequacy Ratio (CAR) is the ratio which protects banks against excess leverage,
insolvency and keeps them out of difficulty.
§ It is defined as the ratio of banks capital in relation to its current liabilities and risk weighted
assets.
§ An appropriate level of capital adequacy ensures that the bank has sufficient capital to expand
its business, while at the same time its net worth is enough to absorb any financial downturns
without becoming insolvent.
§ CAR = (Tier I + Tier II + Tier III (Capital funds)) /Risk weighted assets
§ The risk weighted assets take into account credit risk, market risk and operational risk.
Why RBI wants banks to maintain higher CAR?
§ Avoid potential losses and banking crises.
§ RBI says banks in India remain one of the most under provisioned ones in maintaining CAR.

Public Credit Registry
What is Public Credit Registry?
§ It is an information repository that collates all loan information of individuals and
corporate borrowers which will help banks to distinguish between a bad and a good
borrower and accordingly offer attractive interest rates to good borrowers and higher
interest rates to bad borrowers.
Why in News?
§ The Reserve Bank has initiated steps to set up a digital Public Credit Registry (PCR).
How can PCR affect our economy?
 § PCR will increase the efficiency of lending institutions by reducing information asymmetry.
The PCR would be the single point of mandatory reporting for all material events for each
loan. Currently, there are multiple credit information repositories in India like CRILC
Equifax, Experian, etc.
§ The lender can get a 360-degree view of the borrower’s other outstanding credits and past
performance, allowing better screening at time of credit origination and superior
monitoring during the life of the credit.
§ It can address the bad loan problem, as corporate borrowers will be unable to lend from
multiple banks without disclosing their existing debt.
§ Setting up the public credit registry will help improve India’s rankings in the World Bank’s
ease of doing business index.

Banking Ombudsman Scheme, 2006
What is it?
§ It is an expeditious and inexpensive forum for bank customers for resolution of complaints
relating to certain services rendered by banks. All Scheduled Commercial Banks, Regional
Rural Banks and Scheduled Primary Co-operative Banks are covered under the Scheme.
§ Customers can approach Ombudsman for complaints relating to the deficiency in banking
services like
○ Non-payment or inordinate delay in the payment or collection of cheques, drafts,
bills etc.
○ Non-acceptance, without sufficient cause, of small denomination notes or coins
tendered for any purpose, and for charging of commission in respect thereof;
○ Refusal to open deposit accounts without any valid reason for refusal;
○ Levying of charges without adequate prior notice to the customer;
▪ One can file a complaint before the Banking Ombudsman if the reply is not received from
the bank within a period of one month after the bank concerned has received one's
complaint, or the bank rejects the complaint, or if the complainant is not satisfied with the
reply given by the bank.
Why in news?
▪ To strengthen the grievance redressal mechanism for customers, RBI has tightened rules
concerning the banking ombudsman scheme and issued revised directions in the form of
‘Internal Ombudsman Scheme, 2018’.
Internal Ombudsman Scheme, 2018
▪ The IOS 2018 mandates Banks with more than 10 branches to have an Internal
Ombudsman to review complaints that were partially or wholly rejected by the respective
banks.
▪ It aimed to ensure that the complaints of the customers are redressed at the level of the
bank itself so as to minimize the need for the customers to approach other fora for
redressal.
▪ Banks need to grant a fixed term of three to five years, which cannot be renewed, to the
IO. The IO can be removed only with prior approval from RBI. IO should be people from
outside the bank, which will give the post an independent status in a bank hierarchy.
▪ The implementation of IO Scheme 2018 will be monitored by the bank’s internal audit
mechanism, apart from regulatory oversight by the RBI.

Frauds on the rise at PSBs
Why in the news?
§ There has been a sharp increase in cases of bank frauds as per a report of the RBI.
§ Public Sector Banks accounted for most of the victims as a result of frauds, the recent being
the Nirav Modi case, causing significant losses to banks.
Statistics
§ In the loan category of frauds, PSBs accounted for a major share with 87%, followed by
private sector banks at 11%.
 § The share of PSBs in frauds relating to ‘off- balance sheet items’ such as Letter of Credit
(LCs), Letter of Undertaking, and Letter of Acceptance was even higher at 96%; Off- balance
sheet items accounted for 14.68% of fraud cases.
§ New private sector banks accounted for more than 20% of the frauds related to
‘cash/cheques/clearing’ and foreign exchange transactions.
§ Public sector banks (PSBs) accounted for about 85% of the cumulative amount involved in
frauds as of March 2018 and private banks accounted for a little over 10%.
RBI’s response
§ RBI has asked Chief Executives of Public Sector banks to examine all NPAs exceeding INR
50 crores for fraud/violations (such as diversion of loan amounts for unstated purposes)
and report them, failing which, they would face criminal cases.

RBI Annual Report (2017-18)
Findings
§ The report reveals that 99.3% of the Rs. 15.41 lakh crore of demonetised currency has
returned to the banking system post the note-ban.
What does this imply?
§ That would suggest that tax evaders managed to legalize their ill-gotten gains which
questions the efficacy of Demonetisation in curbing black money.
Counter-argument
§ The government pointed out the increased tax compliance post demonetization.
§ The number of tax filings increased from 3.8 crores to 6.86 crores.
§ Besides this, more formalisation of economy, money in the system, higher tax revenue and
expenditure, higher growth after the first two quarters were observed.
Impact on digital payments
§ Despite the increased cash holding and currency in circulation, demonetisation has boosted
digital payments. In 2017-18, non- cash transactions rose 45 percent by volume and 29
percent by value.
Impact on household savings
§ Household financial savings — the most important source of funds for investment in an
economy, recorded a jump from 9.1% of gross national disposable income in FY17, to
11.1% in FY18, the highest reading in the last seven years.
Gross national disposable income = National Income + Net Indirect Taxes + Net Transfer payments from rest
of the world + Depreciation
§ However, major part of this increase was in currency, which indicates that Demonetisation
had no impact on cash savings by the Indian household.
§ As per the report, the household savings in form of currency to 2.8 percent of national
income, the highest in almost a decade. Significantly, the currency in circulation is now
much higher than the pre- ‘note ban’ levels at Rs 19.38 lakh crore as of August 2018.
Impact on shares and bonds
§ Investments in shares and bonds, a category of financial savings, saw a significant jump in
FY18.
§ RBI estimates that household money flowing into these instruments jumped more than
fourfold from Rs. 36,265 crores in FY17 to over Rs. 1.5 lakh crore in FY18.
§ This can be attributed to the fall in bank deposit rates complimenting with the soaring
stock market returns from shares and mutual funds, which may have drawn households
towards these instruments.

Clean banking
What is it?
▪ It refers to the shrewd approach by banks to business in the wake of increased liabilities
in the form of Non-Performing Assets.
 Why in the news?
▪ To tackle with major problems with banks- twin balance sheets/ Non-Performing Assets,
banks have adopted several measures to cut down losses and create a more thriving
banking sector in the country.
▪ This is being achieved by adopting EASE (Enhanced Access & Service Excellence)
approach by banks, the 4 Rs -- Recognition, Recapitalization, Resolution, and Reform,
implementation of Asset Quality Review and Insolvency and Bankruptcy Code.
▪ All these measures have cut the losses down due to NPAs, by a huge amount besides laying
down procedures to deal with defaulters/ insolvents.

Closing down of ATMs?
ATMs in India
§ An automated teller machine (ATM) is an electronic banking outlet that allows customers to
complete basic transactions without the aid of a branch representative or teller. The first
ATM in India was set up in 1987 by HSBC in Mumbai. The following are types of ATMs:
1. White Label ATM: ATM Provided by NBFC (Non-Banking Financial Company)
2. Green Label ATM: ATM Provided for Agricultural Transaction
3. Orange Label ATM: ATM Provided for Share Transactions
4. Yellow Label ATM: ATM provided for E-commerce
5. Pink Label ATM: ATM for women banking
6. Brown Label ATM: ATM are those Automated Teller Machines where hardware and
the lease of the ATM machine is owned by a service provider but cash management
and connectivity to banking networks is provided by a sponsor bank.
§ National Payments Corporation of India (NPCI) is an umbrella organisation for operating
retail payments and settlement systems in India.
§ National Financial Switch (NFS) is the network of shared ATMs in India which with the goal
of inter-connecting the ATMs in the country and facilitating convenience banking was
designed, developed and deployed by the Institute for Development and Research in Banking
Technology (IDRBT) in 2004; It is run by the National Payments Corporation of India (NPCI).
§ The Confederation of ATM industry (CATMi), headquartered at Mumbai, is a registered
non-profit trade association representing ATM Manufacturing & Outsourcing Companies,
White Label ATM Operators, Payment Services Companies, Cash Replenishment & Cash in
Transit Agencies, ATM Security Services & Solutions Companies etc. in India.
§ There are about 2.40 lakh ATMs in the country.
Why in News?
§ Confederation of ATM Industry (CATMi) said changes in the regulatory landscape are making
it un-viable to operate ATMs, and may lead to the closure of half of the 2.38 lakh machines in
the country by March 2019.
What is the problem?
§ Recent regulatory guidelines for ATMs hardware and software upgrade on cash management
standards, and ask ‘Cassette Swap’ method of loading cash. It is a type of upgradation in
which a box of money which has chip which accounts the data is directly uploaded in ATM
machines.
§ ATM operation with Cassette swap method is very difficult. CATMi said that the forced
closure was on account of unviability of operations in all places.
What is the effect?
§ If a large number of ATMs had to stop operations, then the financial inclusion programme
would be severely impacted as millions of beneficiaries under the government’s Pradhan
Mantri Jan Dhan Yojana scheme, who withdrew subsidies through ATMs, may find their
neighbourhood ATM shut.
§ CATMi said that its members were already reeling under the financial impact caused by huge
losses during and post-demonetization as cash supply was impacted and remained
inconsistent for months.
§ Unless banks stepped in to bear the additional cost of compliance, ATMs would have to shut
down.
 § A large number of ATMs in non-urban locations may be shut down due to unviability of
operations.
§ PNB has retaliated by saying that it doesn’t have any plan to reduce no. of ATMs by March
2019. PNB is one of the largest ATM service providers with 9,428 ATMs on pan-India basis.

LoUs, LoCs
What is LoC and LoUs?
§ Letter of Undertaking (LoU) is a bank guarantee and is issued for overseas import payments.
A bank, while issuing LoUs for a client, agrees to repay the principal and interest on the
client's loan unconditionally.
§ Letter of credit (LoC) is a letter issued by a bank to another bank (especially one in a different
country) to serve as a guarantee for payments made to a specified person under specified
conditions.
§ In many cases they may sound the same but they have minor variations depending on nature
of transaction.
§ After the uncovering of the recent PNB fraud, the RBI stopped the issuance of LoUs and LoCs.
Why in the news?
§ Taking into consideration all stakeholders’ opinions regarding the stopping of the issuance
of LoUs/LoCs, a parliamentary committee constituted to study the issue has concluded that
RBI should restart issuing LoU/LoC.
§ The discontinuance had caused increase in credit cost of 2-2.5%. Increased cost results
directly affect competitiveness, which finally has an effect on jobs.
§ The MSME is the most vulnerable in this aspect.
Magnitude of bank frauds
§ As a result of frauds committed, banks have taken a blow (especially Public sector banks)
to the tune of Rs. 70,000 crores in the last 3 years.
§ This has negatively affected the financial health of the banks, which are already suffering
due to stressed assets, caused by aggressive lending practices, willful default, loan frauds,
corruption and economic slowdown.
§ Such cases reduce the credibility of the banking sector besides makes it more difficult for
industries to avail, access or afford economic capital.

PNB posts INR 940 cr. loss on higher provisioning
Provisioning
§ Provisioning is a part of the RBI’s prudential regulation norm, designed to tackle the NPA or
bad assets problem.
§ Under provisioning, banks have to set aside or provide funds to a prescribed percentage of
their bad assets.
§ The percentage of bad asset that has to be ‘provided for’ is called provisioning coverage
ratio.
§ The provisioning coverage ratio is the percentage of bad assets that the bank has to provide
for (keep money) from their own funds –most probably profit.
§ For example, if the provisioning coverage ratio is 70% for a particular category of bad loans,
banks have to set aside funds equivalent to 70% those bad assets out of their profits.
Why in the news?
§ As a result of provisioning of bad debts such as the Nirav Modi scam that rocked the Punjab
National Bank, the bank projected an overall loss of INR 940 crores.

Repo rate & MPC
What is Repo rate?
§ Repo rate is the rate of interest which is applied by RBI to commercial banks when the latter
borrows from RBI.
§ Repo rate is used to control inflation. In the event of raising inflation, RBI increase repo rate
which will act as a disincentive for banks to borrow from the central bank. This ultimately
 reduces the money supply in the economy and thus helps in arresting inflation. Similarly, if it
wants to make it cheaper for banks to borrow money it reduces the repo rate.
About MPC
§ The Monetary Policy Committee (MPC) is a committee of the RBI, headed by its Governor,
which is entrusted with the task of fixing the benchmark policy interest rate (repo rate) to
contain inflation within the specified target level.
§ The MPC have six members
o RBI Governor (Chairperson), RBI Deputy Governor in charge of monetary policy, one
official nominated by the RBI Board and remaining 3 members would represent the
Government.
§ The MPC takes decisions based on majority vote. In case of a tie, the RBI governor will have
the second or casting vote. The decision of the Committee would be binding on the RBI.

Unsecured Loans
What are unsecured loans?
▪ Unsecured loans are loans that are approved without the need for collateral.
▪ Instead of pledging assets, borrowers qualify based on their credit history and income.
Why in the news?
▪ Share of unsecured loans (Such as personal loans and dues on credit cards) in retail credit
is high, constituting almost a third of the retail portfolio.
▪ Banks’ unsecured loans are at a record high, contributing 32% to the retail loan basket,
which at 25% of the total loan book, is almost at its peak due to corporate credit growth
being sluggish, as a result of which lenders have been on a retail lending spree.
RBI data
▪ RBI data shows that while overall credit growth as on May 25 2018 was 10.9% year-on-
year, retail loans grew 18.6% and outstanding dues on credit cards grew 33.1%.

RBI to track transactions
What’s in the news?
§ The centre has asked the RBI to devise an info-tech (IT) framework, to keep track on non-
cash financial transactions.
§ RBI shall be the sole repository of the repository and other agencies such as the income tax
department and the enforcement directorate may be required to make specific requests to
the central bank if they want information on a particular set of entities.
About the IT- Unit
§ The data will be captured for all transactions irrespective of the size of the transactions.
§ Large transactions would be relevant for enforcement purposes.
§ All suspicious transactions need to report to the unit within seven days after it is concluded
that those are suspicious in nature.
Rationale
§ Following the 2016 demonetisation exercise that rendered more than 86% of the currency
in circulation invalid, it was found there had been a significant spurt in the operations of
shell firms that typically have no assets or active businesses.
§ In FY17, the Financial Intelligence Unit had received more than 15.9 million Cash
Transaction Reports and 4.73 lakh Suspicious Transaction Reports.
§ This move to track all financial transactions is the latest in a series to curb black money and
identify shell companies.
Measures already In Place
§ Under the Prevention of Money Laundering Act, banks and financial institutions are already
required to alert the Financial Intelligence Unit, under the Finance Ministry, to any
suspicious transactions, cash or otherwise.
§ Cash transactions of more than Rs.10 lakh (including a series of transactions integrally
connected to each other and exceeding Rs.10 lakh in a month), need to be reported to the
FIU.
 What is the Financial Intelligence Unit (FIU)?
§ The FIU was set by the Government of India in 2004 as the central national agency
responsible for receiving, processing, analyzing and disseminating information relating to
suspect financial transactions.
§ It is an independent body reporting directly to the Economic Intelligence Council (EIC)
headed by the Finance Minister.

State Development Loans (SDLs)
What are SDLs?
§ SDLs are dated securities issued by states for meeting their market borrowings
requirements.
§ Purpose of issuing State Development Loans is to meet the budgetary needs of state
governments. Each state can borrow up to a set limit through State Development Loans.
What’s in the news?
§ According to a recent report of ICRA, an independent credit rating agency, states are likely to
miss their fiscal consolidation targets budgeted at the beginning of the year mainly because
of farm loan waivers, election-related spending, flood relief and other populist measures.

Masala bonds
What are masala bonds?
§ These are rupee-denominated borrowings by Indian entities in overseas markets.
Usually, while borrowing in overseas markets, the currency is a globally accepted one
like dollar, euro or yen.
What is the advantage of borrowing abroad in rupees?
§ Companies issuing masala bonds do not have to worry about rupee depreciation, which is
usually a big worry while raising money in overseas markets.
§ For instance, a corporate could issue Rs. 10 billion worth of bonds with the promise of
paying back Rs. 11 billion in one year. Due to the limited convertibility of Indian rupee, the
foreign investors will lend the dollar equivalent of the Rs. 10 billion. After one year, the
Indian corporate needs to pay back the dollar equivalent of Rs. 11 billion. The currency risk
is with the investor.
Dual listing of Masala bonds
§ The National Stock Exchange (NSE) has signed a pact with the London Stock Exchange
Group (LSEG) to work on a dual listing route for masala bonds as well as foreign
currency bonds of Indian issuers. (Dual listing refers to a listing of any security on two
or more different exchanges)
§ Under the pact, LSEG and NSE will together look to provide a route for masala bonds
and foreign currency bonds of Indian issuers listed on the London Stock Exchange to be
dual listed on NSE’s International Exchange, NSE IFSC Ltd, at Gujarat International
Finance Tech (GIFT) city.
§ Similarly, masala bonds and foreign currency bonds of Indian issuers listed on NSE IFSC
at GIFT City will be dual listed on the London Stock Exchange.
§ Dual listing of masala bonds and foreign currency bonds of Indian issuers would
enhance visibility, increase liquidity in secondary markets and enhance the efficiency
of price discovery for the bond issuers. This would also reduce the cost of raising capital
for all issuers and encourage the participation of a wider variety of issuers in the masala
bond market.
Why investors look at masala bonds?
§ The Finance Ministry has exempted masala bonds from the withholding tax (a tax
deducted at source on residents outside the country).
§ Also, capital gains from rupee appreciation are exempted from tax, making it attractive
for investors.

IL&FS crisis
What’s in the news?
§ After a report from the Ministry of Corporate Affairs concluded that the affairs of the
Infrastructure Leasing & Financial Services Ltd. (IL&FS) holding company and its group
companies were being conducted in a manner that was prejudicial to public interest, the
government has intervened in the IL&FS crisis, superseding its board and appointing new
members, with banker Uday Kotak as chairman.
About IL&FS
§ IL&FS is a PSU which was set up in 1987 to finance and promote infrastructure projects in
the country.
§ It is jointly owned by the State Bank of India (SBI), LIC, ORIX (Japan), Abu Dhabi Investment
Authority and Greenspring Associates.
§ It has been associated with landmark projects such as the tunnel under the Zoji La Pass, Delhi-
Noida toll bridge, Gujarat International Finance Tec-City (GIFT) and a host of road, power,
water and port projects.
What is the crisis?
§ The crisis in IL&FS started with a series of loan defaults in August and September of 2018 by
the company and some of its subsidiaries.
§ The IL&FS Group is facing tremendous debt pressure and struggling to service around Rs.
91,000 crores the outcome of its mismanaged borrowings in the past.
How the crisis unveiled
§ Following rise in bad loans in the last few years and the banking regulator tightening norms
on restructuring, banks became extremely cautious in lending, particularly for infrastructure
projects.
§ This made IL&FS to face a liquidity crunch to continue with ongoing projects leading to loan
defaults.
Negligence by credit rating agencies
§ Four leading rating agencies-- ICRA, CARE, India Ratings and Brickwork-- were involved in
rating papers and schemes of different IL&FS group entities.
§ The role of credit rating agencies has come under the scanner in the wake of the IL&FS
defaulting issue.
§ IL&FS and its subsidiaries were rated AAA for their commercial papers as well as debt
programmes until just a few months ago.
§ It has raised questions on the methodology and processes adopted by the rating agencies in
evaluating the companies and their papers.
Government’s assurance
§ The government has made clear its commitment to ensuring that the ailing IL&FS receives
the liquidity it needs from the financial system, and that no further defaults take place and
the infrastructure projects are implemented smoothly.

Liquidity Crisis
What is a Liquidity Crisis?
§ This refers to a situation where an individual, a business or a government is unable to gather
enough cash to meet its payment obligations to lenders.
Background
§ The loan defaults of the IL&FS, a leading NBFC, has led to widespread panic over risks in the
entire non-banking financial sector. The defaults also jeopardised hundreds of investors,
banks and mutual funds associated with IL&FS.
§ It has raised the cost of funds for NBFCs by 30-40 basis points. (100 bps= 1 percent)
§ The situation has created a liquidity shortage across the NBFC system of close to Rs 1 lakh
crore.
What is a Non-Banking Financial Company (NBFC)?
 § A NBFC is a company registered under the Companies Act, 1956 which provide banking
services without meeting the legal definition of a bank.
§ They engage in the business of loans and advances, acquisition of shares, bonds, etc. issued
by Government or local authority. They also deal in other marketable securities of a like
nature, leasing, hire-purchase, insurance business, chit business.
§ However, they cannot accept demand deposits; they do not form part of the payment and
settlement system and cannot issue cheques drawn on itself;
§ The working and operations of NBFCs are regulated by the Reserve Bank of India (RBI).
RBI to inject Rs. 40,000 cr. in November
§ The Reserve Bank has announced that it would inject Rs. 40,000 crore into the NBFC system
in November 2018 through purchase of government securities under Open Market
Operations (OMO). It is aimed to help NBFCs in meeting festive season demand for funds.

Norms for NBFC
What is a NBFC?
▪ Non-banking financial companies (NBFCs) are companies registered under the Companies
Act, 1956 which provide banking services without meeting the legal definition of a bank.
▪ There are around 10,000 NBFCs, also referred to as shadow banks, registered with the RBI.
Background
▪ In December 2018, RBI said it intends to strengthen the asset liability management (ALM)
norms for NBFCs — on lines similar to that for banks — to avert asset liability mismatches.
▪ The move comes after the sector faced stress on liquidity following the IL&FS crisis.
Why in News?
▪ Chiefs of NBFCs have written to the Prime Minister Narendra Modi that such tighter
regulations will hamper the growth of the sector.
▪ They also said those NBFCs having asset base of Rs 500 crore, must be allowed to accept
public deposits.
▪ Since 1997, RBI has endeavoured to limit the operations and growth of NBFCs with the
objective of securing depositors’ interest. There are only 108 deposit-taking NBFCs.
▪ Further, it said application from an NBFC to convert to a bank should be treated differently
from any other application for a banking licence.
▪ Since NBFCs are already subject to onsite and offsite inspection and regular submission of
returns to RBI, they said, due diligence of NBFC application for a bank licence should be less
time consuming.
▪ The sector sought a liquidity window from the RBI against sale of secured loans by taking
appropriate margins on these loans.
▪ They also said all HFCs should be permitted access to the National Housing Bank’s refinance
facility.

Open Market Operations
What are Open Market Operations (OMOs)?
§ Open Market Operations are conducted by the RBI which involve sale or purchase of G-Secs
to or from the market. The objective is to control the money supply conditions.
§ If there is excess money supply (i.e. excess liquidity) in the market, the RBI resorts to sale of
securities which reduces the volume of money. Similarly, when the liquidity conditions are
tight, it buys securities from the market, thereby releasing money into the market.
What are Government Securities (G-Secs)?
§ G-Secs are tradable instruments like bonds issued by the Central Government or the State
Governments with a promise of repayment upon maturity.
§ The Central Government can issue both treasury bills and bonds while the State Governments
can issue only bonds, which are called the State Development Loans (SDLs).
§ These securities are considered low-risk, since they involve the government and hence, are
called risk-free gilt-edged instruments.
Why in News?
 § The RBI is planning to inject Rs 10,000 crore into the system through purchase of government
securities through OMOs to increase liquidity.

List of Wilful Defaulters
Who is Wilful Defaulter?
§ A wilful defaulter is an entity or a person that has not paid the loan back despite the ability to
repay it.
Background
§ The Central Information Commission (CIC) issued a notice to RBI Governor Urjit Patel for
denial of information under the Right to Information Act.
▪ RBI has denied disclosing names of wilful defaulters who have taken bank loans of Rs. 50
crore and above in spite of a Supreme Court order.
▪ In the RBI vs Jayantilal N Mistry case (2015), SC had directed the RBI to comply with the
provisions of the RTI Act.
▪ The PMO too refused to comply with CIC’s direction to explain what action has been taken on
former RBI Governor Raghuram Rajan’s 2015 letter alerting the PMO to high-profile cases of
wilful default.
Why in News?
▪ The CIC slammed the PMO and the RBI for not complying with its directive to disclose the list
of wilful defaulters and action taken for recovery of loans in response to Rajan's letter.
▪ Calling the response of the RBI and PMO as against the RTI Act, an affront to democracy,
reflecting disrespect to the Supreme Court's directions, the commission has again directed
the PMO and the RBI to disclose those details.
▪ The commission also urged parliamentary committees such as Public Accounts Committee,
Committee on Finance and Committee on Estimates to deliberate the issues raised in this
case.

RBI Contingency Fund

About RBI Contingency Fund:
§ Contingency Fund is meant for unforeseen circumstances it is basically a buffer against
valuation losses on bond holdings or foreign exchange assets in the event of a rise in interest
rates or appreciation of the rupee.
§ The Fund would also be helpful in a “black swan” event such as the collapse of Lehman
Brothers or of local banks that may threaten financial stability.
§ RBI maintains this fund as a part of the reserves that the bank maintains out of its business
and profit.
Why in news?
§ A recent report said that RBI has “more than adequate” reserves and it can transfer up to 1
trillion of the contingency fund to the government.

RBI allows banks to provide partial guarantee to NBFC bonds
Why in news?
▪ The Reserve Bank has permitted banks to provide partial credit enhancement (PCE), or a
partial guarantee, to bonds issued by systemically important NBFCs and Housing Finance
Companies, a move that will enhance their liquidity position.
What is Partial Credit Enhancement (PCE)?
▪ Credit enhancement is used to obtain better terms for an outstanding debt. Through credit
enhancement, the lender is provided reassurance that the corporate borrower will honour
its obligation through additional collateral, insurance or a third-party guarantee.
More on this guarantee
▪ Only the existing NBFC, HFC bond will be covered. This move will enable confidence in NBFC
when they are facing liquidity crisis.

Liquidity Coverage Ratio
What is the liquidity coverage ratio (LCR)?
§ The liquidity coverage ratio requires banks to hold enough high-quality liquid assets (HQLA),
such as short-term government debt that can be sold to fund banks to their meet short-term
obligations.
§ The LCR was introduced as part of the Basel III reforms following the 2008 global financial
crisis and was finalised by the Basel Committee on Banking Supervision in January 2013.
Why in News?
§ The RBI decided to allow banks to carve out up to 15% of holdings under statutory liquidity
ratio (SLR) reserves to meet their LCR requirements compared with 13% earlier. The move
is aimed at increasing money supply.
§ This relaxation in SLR requirement came at the backdrop of the IL&FS crisis which has raised
concerns of liquidity crunch in the NBFC system.
What is SLR?
§ Statutory Liquidity Ratio (SLR) is the proportion of funds that banks have to maintain as cash
or government securities out of the total deposits that they hold.
§ SLR should be in the form of:
1. Cash,
2. Gold valued at a price not exceeding the current market price, or
3. Unencumbered investment in any of the following instruments, namely: -
4. Dated securities of the Government of India or
5. Treasury Bills of the Government of India; or
6. State Development Loans (SDLs) of the State Governments
§ The deposit and unencumbered approved securities required to be made with the Reserve
Bank by a banking company incorporated outside India;
§ Any balance maintained by a scheduled bank with the Reserve Bank in excess of the balance
required to be maintained by it under section 42 of the Reserve Bank of India Act.
Which institutions are required to keep SLR?
§ All Commercial Banks (Scheduled and non-scheduled), Primary (Urban) Co-operative Banks
(UCBs), State and Central Cooperative Banks.

Consolidation of Banks
What’s in the News?
§ The Government has initiated steps to merge three public sector banks- Bank of Baroda,
Vijaya Bank and Dena Bank.
Significance
§ The move improve the quality of corporate governance for the banks.
§ The merged entity will be the third largest bank in the country (after State Bank of India and
HDFC Bank) making it stronger and sustainable and increase their lending ability.
§ It will also reduce their dependence on government for capital.
Background
§ The government had announced the consolidation of public sector banks in 2016 owing to
mounting non-performing assets. The plan was to cut down the number of PSBs by half from
21 to about 10-12 banks.
§ The announcement to merge the three banks was made after the latest meeting on
‘alternative mechanism’.
Alternative Mechanism Panel
§ The Union Government had constituted Alternative Mechanism Panel headed by Union
Finance Minister. The other members of the panel include Railway and Coal Minister Piyush
Goyal and Defence Minister Nirmala Sitharaman.
§ This alternative mechanism has been set up by the government to fast-track consolidation
among public sector banks to create strong lenders. The mechanism will oversee the
proposals coming from boards of PSBs for consolidation.

Loan write-offs & Loan waivers
What is writing-off a loan?
§ A loan write-off occurs when a bank decides that a loan is not collectible and removes it from
their balance sheet. The lender judges that it will not be able to recover its dues through
collection for a variety of reasons.
§ Although non-performing assets are written off, borrowers of such loans remain liable for
repayment. Recovery of such accounts happens on ongoing basis under the legal mechanism.
What is the loan waiver?
§ Loan waiver is quite different from writing off a loan as it is the cancellation of recovery or
refraining from claiming the dues. Banks will completely give up on such loans and no
recovery will be made.
Why in News?
§ According to a recent RBI report, 21 public sector banks wrote-off Rs 3.16 lakh crore of loans
in four years, and recovered only Rs 44,990 crore during the same period.
§ Union Finance Minister Arun Jaitley has defended loan write-offs saying these did not lead to
loan waivers and writing off non-performing assets is a regular exercise conducted by banks
to clear their balance sheet and achieve taxation efficiency.
§ He said loan write-offs did not lead to any loan waiver. Recovery of loans continues rigorously
by banks under legal mechanisms, which included the Securitization and Reconstruction of
Financial Assets and Enforcement of Security Interest Act (SARFAESI Act) and Debts
Recovery Tribunals (DRTs).

Land Management Agency
Land Management Agency
§ NBCC (India) Limited, formerly known as National Buildings Construction Corporation Ltd.,
is a blue-chip Government of India Navratna Enterprise under the Ministry of Housing and
Urban Affairs.
§ NBCC has been designated as Land Management Agency (LMA) by the Govt. of India to assist
in the disposal of land/ immovable assets of the sick/ loss making CPSEs to ensure their time-
bound closure as per the decision taken by Government.
What is a blue-chip enterprise?
§ A blue chip is a nationally recognized, well-established, and financially sound company. Blue
chips generally sell high-quality, widely accepted products and services.
§ Blue chip companies are known to weather downturns and operate profitably in the face of
adverse economic conditions, which helps to contribute to their long record of stable and
reliable growth.
Categorization of PSUs
PSU companies are divided into three categories
▪ Maharatna
▪ Navratna
▪ Miniratna (Category 1 & Category 2)
Current status
▪ There are currently 7 Maharatnas, 17 Navratnas and 53 Miniratnas-I and 16 Miniratna-II.
Basis of categorization
▪ Maharatna: Three years with an annual net profit of over Rs. 2,500 crores + Net worth of
Rs. 10,000 crores + Turnover of Rs. 25,000 crores. Eg: Coal India Limited, GAIL, BHEL
▪ Navratna: A score of 60 (out of 100), based on six parameters which include net profit, net
worth, total manpower cost, total cost of production, cost of services, PBDIT (Profit Before
Depreciation, Interest and Taxes), capital employed, etc. Eg: BEL, HAL, BPCL, HPCL
▪ Miniratna I: Have made profits continuously for the last three years or earned a net profit
of Rs. 30 crore or more in one of the three years. Eg: AAI, Antrix Corporation Limited
▪ Miniratna II: Have made profits for the last three years continuously and should have a
positive net worth. Eg: Bharat Pumps & Compressors Limited, National Film Development
Corporation Limited

Payment regulator
Background
▪ In August 2018, an inter-ministerial panel set up to finalize amendments to the Payment &
Settlement Systems Act, 2007 had recommended an independent Payments Regulatory
Board (PRB) to oversee all payment systems in the country.
▪ The panel proposed that the PRB should have a chairman appointed by the government in
consultation with the RBI.
Why in News?
▪ The RBI has submitted a dissent note opposing the proposal to set up an independent
regulator for payment systems outside the purview of the central bank.
▪ The RBI argued that the PRB must remain with the central bank and headed by the RBI
governor. It proposed that the RBI and the government may nominate three members each
to the board, with a casting vote for the governor.
▪ It cited the report of the Ratan Watal Committee on digital payments as recommending the
establishment of the PRB within the overall structure of the RBI.
▪ The central bank submitted that payment systems are technology-based substitutes for
currency and regulation of such systems can be best done within the ambit of the monetary
authority.

Outlook for banks - Moody’s
What’s in the news?
§ Moody’s Investors Service, a rating agency, has released its annual banking system outlook
for India.
§ The outlook for the banking system in India over the next 12-18 months is stable as economic
growth prospects remain healthy.
What are the parameters?
§ The stable outlook is based on Moody’s assessment of six drivers — operating environment,
asset quality, capital, funding and liquidity, profitability and efficiency, and government
support.
More on news
§ The agency expects the real gross domestic product (GDP) in India to grow 7.2 per cent in the
year ending March 2019 and 7.4 per cent in the following year, driven by investment growth
and strong consumption.
§ However, liquidity constraints among NBFCs (which was aggravated by IL&FS default) will
prove a drag on growth as NBFCs are increasingly important providers of credit for the
economy.
§ On asset quality, Moody's said it will remain stable but weak, as Banks have recognised the
bulk of NPAs and would start making recoveries. The degree of success in resolution of large
NPAs will determine the extent of asset quality improvements.
§ Capitalisation at public sector banks would remain weak but that government support would
provide relief.
§ Profitability of the lenders will improve but remain weak due to high credit costs.
Fitch retains negative outlook for banks on weak capital
§ Another rating agency- Fitch- has maintained a negative outlook for Indian banks due to weak
capitalisation and poor profitability.
§ Fitch estimated that state run banks would need $38 billion by FY19 to sufficiently meet
minimum Basel III capital standards, and achieve 65% cover for non-performing assets, and
to leave some surplus capital for growth.
§ The agency expects the NPA problem to peak in 2019, but the size and complexity of the
banking sector’s $140 billion NPA stock will take time to resolve.
Basel III norms
§ Basel III is the latest of comprehensive set of reform measures, developed by the Basel
Committee on Banking Supervision, to strengthen the regulation, supervision and risk
 management of the banking sector. These measures aim to improve the banking sector's
ability to absorb shocks arising from financial and economic stress.
§ Basel norms III stipulate banks to maintain minimum capital ratio requirement of 8% to
ensure that they are protected against unexpected losses.

Measures against bank frauds
List of measures
§ Government has issued “Framework for timely detection, reporting, investigation etc.
relating to large value bank frauds” to Public Sector Banks (PSBs), which provides,
o All accounts exceeding Rs. 50 crore, if classified as Non-Performing Assets be
examined by banks from the angle of possible fraud, and a report placed before the
bank’s Committee for Review of NPAs on the findings of this investigation;
o Examination be initiated for wilful default immediately upon reporting fraud to RBI;
o Report on the borrower be sought from the Central Economic Intelligence Bureau in
case an account turns NPA.
§ Fugitive Economic Offenders Act, 2018 has been enacted to deter economic offenders from
evading the process of Indian law by remaining outside the jurisdiction of Indian courts. It
provides for attachment of property of a fugitive economic offender, confiscation of such
offender’s property and disentitlement of the offender from defending any civil claim.
§ Central Fraud Registry (CFR), based on Fraud Monitoring Returns filed by banks and select
financial institutions, has been set up by RBI as a searchable online central database for use
by banks.
§ For enforcement of auditing standards and ensuring the quality of audits Government has
initiated establishment of National Financial Reporting Authority as an independent
regulator.
§ PSBs have also been instructed to ensure implementation, within stipulated deadlines,
measures prescribed by RBI for strengthening the SWIFT operating environment in banks,
About SWIFT
§ The SWIFT (Society for Worldwide Interbank Financial Telecommunication) is a global
member-owned cooperative that is headquartered in Brussels, Belgium.
§ Founded in 1973 by a group of 239 banks from 15 countries to develop a secure electronic
messaging service and common standards to facilitate cross-border payments.
§ SWIFT does not facilitate funds transfer, rather, it sends payment orders, that must be settled
by correspondent accounts that institutions have with each other.
§ On receiving this message through SWIFT, banks abroad, mostly branches of domestic banks
abroad provide funds to the company.

Former CEC on Indian Economy

What’s in the news?
§ Former Chief Economic Adviser Arvind Subramanian said that both demonetisation and
implementation of GST have resulted in moderation of the economy and the budget estimate
of revenue collection from the GST seems to be unreasonable.
§ He warned that the Indian economy is facing a slowdown because of combination of reasons
including
○ Stress in the financial system
○ Stress in the agriculture sector
○ Tight liquidity conditions which is not conducive for rapid growth
‘RBI’s excess capital should not be used to fund deficit’
§ Dr. Subramanian said that the autonomy of the RBI should not be undermined.
§ He said even though RBI is over-capitalised, it should not be used for funding the fiscal
deficit. The excess capital must only be used for the recapitalisation of public sector banks
which would add to long-term growth of the economy.

RBI autonomy and Governor’s resignation
Background
▪ The RBI and the govt are at loggerheads for many reasons including
○ Issue of inadequate control of RBI over public sector banks
○ Govt’s threat to invoke section 7 of the RBI
○ Proposal for the creation of Payment Regulatory Authority independent of RBI
○ Govt’s push to ease Prompt Corrective Action Plan on PSBs and lending norms on
MSMEs
○ Issue of transferring RBI’s excess capital reserves to the government to finance
Recapitalisation of banks
Urjit Patel resigns as RBI governor
▪ RBI Governor Urjit Patel has resigned, citing personal reasons, amid tensions between the
government and the central bank on various issues.
▪ Patel is the fifth RBI governor in independent India to have resigned from his post before his
term was over. He was appointed the Governor in September 2016.
Urjit Patel strongly argued with govt. for RBI’s autonomy
▪ Urjit Patel had recently spoken strongly about the need for the central bank’s autonomy
when he deposed in front of the Parliamentary Panel on Finance.
▪ Dr. Patel strongly made the point that depositors’ interests were of primary importance and
that central bank autonomy on this was non-negotiable.
▪ He added that setting monetary policy must also be the exclusive domain of the RBI.
‘Curbing RBI freedom is credit negative’
▪ Ratings agency Moody’s Investors Service reacted to the resignation of Urjit Patel, saying that
any government attempt to curtail the central bank’s independence will be credit negative.
(which means India’s credit rating may be lowered)
▪ The ratings agency said independence of central bank is an important consideration of its
assessment of a country’s institutional strength.

The Central Board of the RBI
Why in news?
§ RBI and the central board were in news, because the government threatened to use
section 7 of RBI Act, 1934.
§ Section 7 basically empowers the government to supersede the RBI Board and issue
directions to the central bank if they are considered to be “necessary in public interest”.
What is RBI Board?
§ The RBI Board is a body comprising officials from the central bank and the Government
of India, including officials nominated by the government.
§ According to the RBI, the “general superintendence and direction of the affairs and
business of the RBI is entrusted to the Central Board” and the Board exercises all powers
and does all acts and things that are exercised by the RBI.
§ The Board is also to recommend to the government the design, form and material of bank
notes and also when and where they can serve as legal tender.
When does the Board meet?
§ The Governor has to call a Board meeting at least six times in a year, and at least once
each quarter.
§ A meeting can be called if a minimum of four Directors ask the Governor to call a meeting.

Bank recapitalisation
What is Recapitalisation of Banks?
§ Recapitalization is injection of capital by the government to financially strengthen the banks.
Since the government is the majority shareholder of public sector banks, the responsibility
of adding capital to them falls on the shoulders of the government.
 § Recapitalisation was necessary because the PSBs are facing financial problems and they need
money in the context of rising NPAs.
Why in News?
§ The government has moved a proposal in Parliament for an additional Rs. 41,000 crore to
recapitalise public sector banks, over and above the already budgeted Rs. 65,000 crore.
§ If approved by the House, this would take the total recapitalisation package for the current
financial year to Rs. 1,06,000 crore, of which the government plans to utilise Rs. 83,000 crore
over the remaining portion of the year.
Need for recapitalisation
§ The proposal aimed at:
o Meeting regulatory capital norms
o Providing capital to better-performing Prompt Corrective Action (PCA) Banks to
achieve 9% Capital to Risk-weighted Asset Ratio (CRAR)
o Facilitating non-PCA banks that are in breach of some PCA thresholds to not be in
breach
o Strengthen amalgamating banks by providing regulatory and growth capital

Recapitalisation Bonds
What are recapitalisation bonds?
§ A government bond is an instrument to raise money from the market with a promise to repay
the face value on the maturity date and a periodic interest.
§ A bond issued for the purpose of recapitalisation (injection of capital by the government to
financially strengthen banks) is called recapitalisation bonds.
How will recapitalisation bonds work?
§ The government will issue recapitalisation bonds, which banks will subscribe and enter it as
an investment in their books. The banks will lend money to the government for subscribing
the bonds.
§ This money raised by the government through these bonds will go back to banks as capital.
§ This will immediately strengthen the balance-sheet of the banks and show capital-adequacy.
The funds can be used to write-off the bad loans and help banks to resume lending.
Why in News?
§ The government is planning to infuse Rs 28,615 crore into seven public sector banks (PSBs)
through recapitalisation bonds by the end of December 2018.
§ The amount infused will help the banks meet regulatory capital requirement.
§ Finance Minister Arun Jaitley had said that recapitalisation would enhance the lending
capacity of PSBs and help them exit the RBI’s Prompt Corrective Action framework.

Recapitalisation of Exim Bank
About EXIM Bank
▪ Export-Import Bank of India (EXIM Bank) was established in 1982 under an Act of Parliament
as the apex financial institution for financing, facilitating and promoting India's international
trade.
▪ The Bank primarily lends for exports from India including supporting overseas buyers and
Indian suppliers for export of developmental and infrastructure projects, equipment, goods
and services from India. It is regulated by RBI.
Why in News?
▪ The Union Cabinet has approved issuance of recapitalisation bonds to the tune of Rs 6,000
crore for capital infusion in Exim Bank.
▪ The Cabinet also approved an increase in the authorized capital of Exim Bank from Rs. 10,000
crore to Rs. 20,000 crore.
Significance
▪ Exim Bank is the principal export credit agency for India. The infusion of capital into Exim
Bank will enable it to augment capital adequacy and support Indian exports with enhanced
ability.


ECB
What is External Commercial Borrowings?
§ ECB is basically a loan availed by an Indian entity from a non-resident lender. Most of these
loans are provided by foreign commercial banks and other institutions.
§ It is a loan availed from non-resident lenders with a minimum average maturity of 3 years.
§ Large number of Indian corporate and PSUs have used the ECBs as sources of investment.
Advantages of ECBs
§ ECBs provide opportunity to borrow large volume of funds
§ The funds are available for relatively long term
§ Interest rate are also lower compared to domestic funds
§ ECBs are in the form of foreign currencies. Hence, they enable the corporate to have foreign
currency to meet the import of machineries etc.
§ Corporate can raise ECBs from internationally recognised sources such as banks, export
credit agencies, international capital markets etc.
Why in News?
§ The RBI has announced a cap on the outstanding stock of ECBs at 6.5% of GDP at current
prices.
§ Based on the GDP figures, the limit works out to $160 billion for the current financial year.
§ The outstanding stock of ECB as on September 30, 2018, stood at $126.29 billion.
What does GDP at current prices mean?
§ It is the money value of final goods and services produced by residents of a country in a year,
measured at the prices of the current year. For example, measurement of GDP of 2018-2019
at the prices of 2018-2019.
§ It is different from GDP at constant prices which measures money value of final goods and
services produced by residents of a country in a year at base year price. Base Year is a normal
year which is free from price fluctuations. Currently, the base year for GDP calculation in India
is 2011-12.

New ECB framework
Why in News?
▪ To further improve the ease of doing business in India, the RBI has drawn up a new ECB
framework allowing all eligible borrowers to raise up to $750 million per financial year under
the automatic route, replacing the existing sector-wise limits.
▪ The list of eligible borrowers has been expanded to include all entities eligible to receive
foreign direct investment (FDI).
▪ Additionally, port trusts, units in SEZ, SIDBI, EXIM Bank, registered entities engaged in
microfinance activities, registered societies/trusts/ cooperatives and non-government
organisations can also borrow under the new framework.
▪ Any entity who is a resident of a country which is financial action task force compliant, will
be treated as a recognised lender. This change increases lending options and allows various
new lenders in ECB space while strengthening the anti money laundering framework.
▪ The RBI has decided to keep the minimum average maturity period at 3 years for all ECBs,
irrespective of the amount of borrowing instead of multiple layers in the existing framework.

Easing capital requirements for banks
What’s in the News?
▪ The Parliament’s standing committee on finance, headed by former Union Minister M
Veerappa Moily, has tabled its report in the parliament.
Key Recommendations
▪ The parliamentary panel urged the government to set up a committee to look into issues
concerning accountability of the central bank as a regulator.
 ▪ The panel said it is apprehensive that the PCA framework may end up bringing more and
more PSBs under its ambit and therefore urged both the RBI and the government to
constantly monitor the situation of banks under PCA and relax/review the PCA framework.
▪ It also asked the RBI to evaluate the efficacy of its own guidelines on dealing with frauds.
▪ Calling the capital adequacy norms of RBI as unrealistic and unwarranted, the parliamentary
panel has asked the central bank to ease its rules so that banks can increase lending.
(Indian banks are required to maintain a minimum capital to risk weighted asset ratio (CRAR)
at 9%, against the global Basel-III requirement of 8%)
▪ The panel also suggested that a three-month overlap may be provided at CEO level to
facilitate smooth transition in PSBs. Further, with a view to utilising the expertise of senior
bankers, the retirement age of CEOs of PSBs can be raised to 70 years as in the case of their
private sector counterparts.

RBI reserves ratio
What’s in the News?
▪ Consultancy firm Quantum Advisors in an analysis of the balance sheets of the central banks
of 10 comparable economies found that the RBI's reserves as a percentage of its balance sheet
is among the highest.
▪ The analysis, which looked at the central banks of the BRICS countries, Fragile Five nations
and three developed economies, found that the RBI’s reserves — which is about Rs 10.5 lakh
crore — form 26.2% its balance sheet. Only two central banks — those of South Africa and
Russia — have a reserve ratio higher than this.
▪ The other two BRICS nations, China and Brazil, have reserve ratios of 1.7% and 0.2%,
respectively.
Revaluation of assets
▪ But the bulk of those reserves are arising out of the revaluation of its assets, i.e over the years
as the rupee depreciated against the U.S. dollar, Great Britain Pound, euro etc, gold and
foreign assets held by the RBI when translated into the current rupee value, leads to an
increase in its asset value.
▪ For example, 100 billion invested in 2010 at USD/INR of 45, valued today at USD/INR of 70,
will show a valuation gain when reported in INR terms.
▪ All such gains are non-cash, notional and are shown as higher asset values and as revaluation
reserves on the liabilities side.
▪ These gains from the currency exchange movement will be booked and the cash realised only
when the assets are sold. As such, the RBI does not have very high free cash reserves that it
can give back to the government.
Options with RBI
▪ The RBI has a few options in front of it if the government does insist on the transfer of
reserves. The first is for the central bank to sell its foreign bonds or government bonds.
▪ But, selling foreign bonds comes with the risk of this being viewed negatively by foreign
investors as the RBI’s remaining foreign exchange assets might not be enough to handle the
next financial crisis. Further, the domestic market is not big or deep enough to absorb such a
large amount of government bonds.
▪ The other option the RBI can opt for is that, instead of selling the government bonds, it could
simply waive its rights over those bonds, thus reducing its asset holdings and reducing the
government’s liabilities.
▪ This is a better way of doing it, markets don’t get disrupted and the government gets a fiscal
benefit of lower outstanding debt to that extent.


Debt restructuring norms

What is Debt restructuring?
▪ Debt restructuring refers to the reallocation of resources or change in the terms of loan
extension to enable the debtor to pay back the loan to the creditor.
▪ It is an adjustment made by both the debtor and the creditor to smooth out temporary
difficulties in the way of loan repayment.
Why in News?
▪ The RBI has allowed lenders to restructure loans of stressed micro, small and medium
enterprises (MSME), provided the total fund and non-fund-based exposure to such a
borrower does not exceed Rs 25 crore.
▪ The government has been asking for such a package for a long time for the MSME sector which
was severely hit due to demonetisation exercise and implementation of the GST.
Norms for restructuring
▪ To facilitate meaningful restructuring, the restructuring will be applicable to loans that are in
default but 'standard' as on January 1, 2019, without an asset classification downgrade.
▪ A provision of 5% of the total outstanding loan, in addition to the money already set aside to
cover potential losses, will have to be made for such borrowers.
▪ The restructuring has to be implemented by March 31, 2020.

RBI panel on digital payments

What’s in the news?
▪ The RBI has appointed a five-member panel headed by Nandan Nilekani, former Chairman of
Unique Identification Authority of India, to suggest ways to improve digital payments. The
committee will submit its report in 90 days from its first meeting.
▪ The panel would assess the current levels of digital payments in financial inclusion, suggest
measures to strengthen the safety and security of digital payments, provide a road map for
increasing customer confidence to use digital transactions, and suggest a medium-term
strategy for deepening of digital payments.
Significance of digital payments in India
▪ In 2017-18, card payments in India rose 43 percent from the previous year to 10.61 trillion
rupees ($151.21 billion), while payments through state-backed unified payments interface
rose 16 times year-on-year to 1.01 trillion rupees.
▪ According to Credit Suisse, India's digital payments are expected to grow five-fold to $1
trillion by 2023.

Vijay Mallya declared Fugitive economic offender

Fugitive Economic Offenders Act
▪ The act allows for a person to be declared as a fugitive economic offender (FEO) if: (i) an
arrest warrant has been issued against him for any specified offences where the value
involved is over Rs 100 crore, and (ii) he has left the country and refuses to return to face
prosecution.
 ▪ As per the law, a special court can order the confiscation of a FEO’s properties, including those
which are benami, and the proceeds of crime in and outside India. Once properties are
confiscated, the Union government has the right over them, and it can dispose them after 90
days.
▪ Further, the FEO or any company associated with him may be barred from filing or defending
civil claims.
Why in News?
▪ Absconding liquor baron Vijay Mallya became the first person to be declared a FEO by the
special court hearing cases under the Fugitive Economic Offenders Act.

Tokenisation
What’s in the news?
▪ The RBI has allowed tokenization of debit, credit and prepaid card transactions to enhance
the safety of the digital payments ecosystem in the country.
What is Tokenization?
▪ Tokenization will replace sensitive card details like card and CVV number with a code, called
a “token,” which will be specifically for the card, the token requestor and the device being
used to pay.
▪ Instead of the card’s details, the token will act as the card at point of sale (POS) terminals and
quick response (QR) code payment systems.
▪ The goal of the process is to improve the safety and security of payments.
How it works?
▪ The debit or credit card holder will create a code for a particular amount, say ₹500, through
an app in the form of a number. That number will have the amount that can be spent, the
merchant type where it can be spent as well as time within which the transaction needs to be
completed. Then the number can be shared with the merchant who will enter it in the mobile,
to get the payment for the items sold.
▪ Since there is no need to enter user’s card number, CVV, expiry date etc, there is no risk
involved in the digital payment.

RBI dividend issue

Jalan panel holds first meeting
▪ A high-level panel led by former RBI Governor Bimal Jalan held its first meeting to decide on
an appropriate size of reserves that the central bank should maintain and the dividend it
should give to the government.
▪ The six-member committee is likely to submit its report in April 2019.
▪ The panel has been entrusted with the task of reviewing the best practices followed by central
banks worldwide in making assessments and provisions for risks to which a central bank’s
balance sheet is subject to.

Capital conservation buffer
What’s in the news?
▪ The RBI has decided to defer the implementation of the last tranche of Capital Conservation
Buffer (CCB) by a year, a move that would leave about an estimated ₹37,000 crore capital in
the hands of banks.
▪ This would help banks increase lending by over Rs. 3.5 lakh crore by leveraging ten times the
capital (known as multiplier effect).
▪ The decision to defer the CCB was taken during a crucial meeting of the central bank’s board
of directors in November 2018.
What is Capital Conservation Buffer?
▪ The CCB is the capital buffer that banks have to accumulate in normal times to be used for
offsetting losses during periods of stress.
▪ It was introduced after the 2008 global financial crisis to improve the ability of banks to
withstand adverse economic conditions.
RBI norms
▪ Under the earlier RBI directive on Basel-III norms, CCB was to be implemented in a phased
manner over four years starting fiscal 2016 with an addition of 0.63% every year up to March
2019. As on September 30 2018, banks had to maintain Tier-I capital adequacy ratio (CAR)
including CCB of 8.8% (7% Tier-I CAR + 1.8% CCB).
▪ The CCB portion was to have been further increased by 0.63% of risk weighted assets (RWA)
by March 2019 which will now be deferred by a year.

CAPITAL MARKET
Share buyback
What is Buyback of shares?
▪ A buyback, also known as a share repurchase, allows companies to invest in themselves.
▪ It is when a company buys its own outstanding shares to reduce the number of shares
available on the open market.
▪ Companies buy back shares for a number of reasons, such as to increase the value of
remaining shares available by reducing the supply or to prevent other shareholders from
taking a controlling stake.
Why in News?
▪ The Finance Ministry has prepared a tentative list of 11 central public sector enterprises
(CPSEs) ranging from power production to aeronautics (including Coal India, NTPC, BHEL,
and Hindustan Aeronautics) that will conduct a share buyback during the ongoing financial
year.

Sandbox policy
What is ‘sandbox’ policy?
▪ The Sandbox policy allows companies to test products in a closed environment, a particular
geography or among a set of users, before they are allowed to roll out commercially, checking
whether the test product meets all regulations.
What is Capital market?
▪ Capital market is the market where instruments like bonds, equities, and other long-term
investments are traded.
▪ The buying/selling is undertaken by participants such as individuals and institutions.
Why in News?
▪ The Securities and Exchange Board of India has said it was planning a sandbox policy to
support technology developments in capital market.
▪ The regulator has also set up a committee to look into the concept of a regulatory sandbox in
the country. This will enable the tech companies to work on innovations without regulatory
changes.
▪ According to many technology experts, machine learning/artificial intelligence and
blockchain were two significant changes that would fundamentally alter the shape of capital
markets.
FDI & FPI

What is Foreign Direct Investment (FDI)? What is Foreign Portfolio Investment
● It is the investment made by a person or a (FPI)?
company in one country into businesses ● It is the similar to FDI but here, the investor
located in another country. holds only passive financial assets of a
● Generally, FDI takes place when an foreign company.
investor establishes foreign business ● The investor may simply hold equities or
operations or acquires foreign business securities of foreign-based companies.
assets.
A Key difference
 § FDI involves establishing a direct business interest in a foreign country, while FPI refers to
investing in financial assets such as stocks or bonds in a foreign country.
§ FDI aims to take control of the company in which investment is made whereas FPI aims to
reap profits by investing in shares and bonds of the invested entity without taking part in
management of the company.
§ FPI can enter the stock market easily and also withdraw from it easily. For this reason FPI is
also known as hot money, as the investors have the liberty to sell it and take it back. But FDI
cannot enter and exit that easily. This difference is what makes nations to prefer FDIs more
than FPIs.
Why in news?
§ FDI growth in India hits a 5 year low in 2017-18.
§ Overseas investors (FPIs) have pulled out nearly Rs. 48,000 crore from Indian capital
markets in the first six months of 2018, making it the steepest outflow in a decade.

FPI norms tightened
What’s in the news?
▪ In April 2018, Securities and Exchange Board of India (SEBI), the regulator for securities
market in India, issued guidelines that a company majority owned by Non-resident Indians
or Persons of Indian origin will not be allowed to invest as a foreign portfolio investor (FPI)
in the country.
▪ SEBI has directed that such funds should either be closed or the ownership structure
changed by the end of December.
▪ The move aims to check any possible re- routing of funds of Indians and NRIs through
overseas locations such as Mauritius, Singapore and Dubai.
Why are FPIs important for Indian markets?
▪ FPIs are among the major sources of liquidity for the Indian markets. These are the big
companies such as investment banks, mutual funds etc., who invest considerable amount
of money in the Indian markets.
▪ If FPIs are investing huge amounts in the Indian stock exchanges then it reflects their high
confidence and a healthy investor sentiment for our markets.

Mauritius at the top
India remains top FDI destination
§ According to the latest RBI data, India is now among the top 100 countries for foreign
investment and has received more FDI than China or USA.
§ Mauritius remained the top source of foreign direct investment (FDI) into India in 2017-18
followed by Singapore.
§ The total FDI stood at $37.36 billion in the financial year, a marginal rise over the $36.31
billion recorded in the previous fiscal.
How can a small island nation be the largest investor in India?
§ More than 90% of Investments from Mauritius, Singapore are actually routed through them
by companies from some other countries, by using methods like ‘treaty shopping’ and ‘round
tripping’, to avail favourable tax benefits that India offer to these countries.
How does ‘treaty shopping’ work?
§ Suppose there is an investor in country A, who wants to invest in country B. Instead of
investing directly from country A to B, the investor tries to look for a country C which has a
tax treaty with B.
§ The objective is to find a tax treaty that can be used to lower the tax payable on the income
arising from that investment. Then the investor would route the investment to B through this
third country C.
§ This process of routing investment/capital flows through a third country only to take the
benefits of tax treaties of that country is called treaty shopping.
How does ‘round tripping’ work?
§ An extreme case of treaty shopping arises when it is used by domestic investors.
 In these cases, which are referred to as round tripping, a domestic investor of country B
§
would first take his/her funds to country C and establish a shell company (company with no
active business created for the purpose of diverting money or for money laundering) there
so as to acquire the legal identity as a resident of country C.
§ Then the investor would bring the money back to country B disguised as foreign investment
and thus be able to take advantage of the benefits available to investors from country C.
Mauritius Route
§ By engaging in such practices, many investors and firms are able to escape paying their fair
share of taxes, which results in loss of valuable tax revenue for governments. The method
became so popular that it earned its own nomenclature as ‘Mauritius route’.

Catastrophe Bonds
What is a catastrophe bond?
§ A catastrophe bond (CAT) is a high-yield debt instrument that is usually insurance-linked
and meant to raise money in case of a catastrophe such as a hurricane or earthquake.
§ In the case of catastrophe bonds, the issuing entity is an insurance company. The investors
will allow the issuing company to hold their principal in return for interest paid by the
issuing company. In the event of a catastrophe, the issuing company may stop interest
payments, or they may not be responsible for paying back the principal at all (the principal
is forgiven).
Why in the news?
§ Such insurance covers have been present in USA for quite some time and cover for the
damages due to natural disasters.
§ Recently, Kerala was affected by the severe floods that resulted in enormous damages to
property and life.
§ Such bonds would cover the damages and give good returns to investors.

Preferential allotment of shares
What is it?
§ Generally, when a company decides to raise money through issuance of shares it invites
general public by way of an Initial Public Offering.
§ In preferential share the company allots securities to a few select persons based on
preference. (It is different from public issue- where the general public is invited for
subscribing the shares of a company)
Why in news?
§ Life Insurance Corporation (LIC) plans to increase its stake in state-run lender IDBI Bank to
51% via a preferential issue.

Total Expense Ratio
What is Total Expense Ratio (TER)?
§ Total expense ratio or TER is associated with the total costs involved in managed funds like
mutual funds (MF). These costs include fund management fees, operational expenses,
administrative expenses and distributor commission.
§ The aggregate of these costs as a proportion of the total assets under management of a fund
is what constitutes TER.
Why in News?
§ Securities and Exchange Board of India (SEBI) announced changes to total expense ratio
(TER) of mutual funds.
Background
§ Mutual funds are investments where an investor entrusts his/her money with an investment
manager (of an asset management company) to manage the money smartly and efficiently.
§ This money management comes at a cost, which is usually charged as a percentage of the
investment.
 SEBI which is the official regulator of mutual funds has laid down rules on how much an asset
§
management company can charge an investor to manage their funds.
What are the changes made by SEBI now to TER?
§ SEBI has, lowered the TER that a fund house can charge its investors. The reduction is higher
for larger funds and lower for smaller funds, larger and smaller being a measure of how much
money a fund manages.
§ In general, mutual fund investors should see a marginal reduction in the fee they were paying,
which would mean they would see an increase in the returns they were getting.

Window dressing & Stock Manipulation
What is window dressing?
§ This refers to the phenomenon wherein companies engage in accounting and other business
practices that help them hiding their true liabilities and projecting a better picture of their
financial performance during a period.
What is stock manipulation?
§ The practice of trying to influence the price of shares by buying or selling in order to give the
impression that the shares are widely traded. Manipulation can be used to both increase and
decrease prices, depending on the investor's needs. Manipulation is illegal under the
Securities Exchange Act of 1934.
What is in News?
§ Yes Bank has denied the charges of window-dressing and manipulation of stock prices in a
response to a query by the National Stock Exchange (NSE).

Bear phase
What is a Bear market?
▪ Bear market is an economic condition which exists when the financial market faces a rapid
decline in value.
▪ The bear market alarms a danger signal which causes a pessimistic attitude among the
investors. When a bear market is suspected, investors start selling their stocks. They start
making investments with ultimate care. When bear market continues in the economy, there
is a high chance of economic depression.
What’s in the news?
▪ Joseph Bernhard Mark Mobius, a financial market expert, said that Indian markets are
performing well compared to other emerging markets and are not in a bear phase.
▪ He noted that restrictions on capital from abroad are very severe in India. Usually, investors
have to wait for six months to get approval to enter the Indian market.
▪ The government should streamline the regulatory process to attract capital from abroad. For
example, China’s one-stop policy which helps investors to get all the regulatory licences in
one stop.

Real Estate Investment trust (REIT)
What is a REIT?
§ They are ‘mutual fund’-like institutions.
§ They enable investments into the real estate sector by pooling small sums of money
from many individual investors.
§ They money pooled in is used to invest directly in real estate properties.
§ They are regulated by Securities and Exchange Board of India.
Why in News?
§ ‘Embassy Group’, a private company has decided to roll out a REIT to raise capital to
monetize its rent yielding commercial assets.

Strategic disinvestment
What is strategic disinvestment?
 § Disinvestment is defined as the action of an organisation (or government) selling or
liquidating an asset or subsidiary.
§ In Strategic disinvestment, significant proportion of a Public Sector Unit’s (PSU) share and
the management control goes to a private sector which is considered as strategic partner.
§ It is different from the ordinary disinvestment in which management of PSU is retained with
Government.
Department of Investment and public Asset Management (DIPAM)
§ DIPAM is the nodal agency of Union Finance Ministry mandated to advise the Union
Government in the matters of financial restructuring of PSUs and also for attracting
investment through capital markets.
§ It will also deal with all matters relating to sale of Union Government’s equity in PSUs through
private placement or offer for sale.
Revised mechanism for strategic disinvestment
§ Setting up an Alternative Mechanism (AM): It will decide on the matters relating to terms and
conditions of the sale from the stage of inviting of Express of Interests (Eols) till inviting of
financial bid.
§ It will consist of the Finance Minister, Minister of Road Transport and Minister of
Administrative Department.
Why in news?
§ A ministerial panel cleared a proposal for strategic disinvestment of Air India(AI) subsidiary
company called AIATSL(Air India Air Transport Services Limited).

FISCAL POLICY+TAXATION
Direct tax base widens
What’s in the news?
§ The Central Board of Direct Taxes (CBDT) has released key statistics relating to direct tax
collections.
Highlights of the data
§ The tax-GDP ratio rose to reach a 10-year high mark of 5.98 percent.
§ The direct tax base has significantly widened in the last few years. The number of returns
filed has raised from 3.79 crore in FY 2013-14 to 6.85 crore in FY 2017-18, a growth of more
than 80%.
§ The number of salaried taxpayers has increased from 1.70 crore to 2.33 crore, a rise of 37
percent.
§ There has been continuous increase in the amount of income declared in the returns filed by
all categories of taxpayers over the last three assessment years (2014-15 to 2017-18).
§ The average income declared by the salaried taxpayers rose to Rs 6.84 lakh from Rs 5.76 lakh,
up 19 percent.
§ This can be considered as an indicative that India is moving steadily towards a more tax
compliant society, and reflects the impact of continuous leveraging of technology to
improve taxpayer service delivery.
The effect of demonetisation
§ The increase in the number of returns can be attributed to several factors like
○ Impact of demonetisation, which has increased the amount of digital information
collected and being used by the tax department
○ Enhanced persuasion and education of taxpayers
○ Provision of late fee which would be effective on late filing of returns
○ The ease of getting refund, majorly by small and medium taxpayers
○ Liberalised presumptive income scheme
Presumptive Income Scheme
§ As per the Income-tax Act, 1961, a person engaged in business is required to maintain
regular books of account under certain circumstances. To give relief to small taxpayers from
this tedious work, the Income-tax Act has framed the presumptive taxation scheme.
 § A person adopting the presumptive taxation scheme can declare income at a prescribed rate
and, in turn, is relieved from tedious job of maintenance of books of account.
§ In the Budget 2016, government had liberalised the presumptive income scheme for small
traders and entrepreneurs with annual turnover of less than Rs. 2 crore and introduced a
similar scheme for professionals with annual turnover of less than Rs. 50 lakhs.

DEMAT
What does DEMAT mean?
§ Dematerialization (DEMAT) is the move from physical certificates to electronic bookkeeping.
§ Within a demat account, certificates for electronic transactions of stocks and other securities
are held as means for seamless trades to be made.
What’s in the news?
§ To curb black money, the government proposes to make it mandatory for unlisted companies
to issue new shares only in the dematerialised (demat) form.
§ Such a move will also check benami transactions, shell firms, duplicity and is said to effective
from 1st October 2018.

Menace of Multiple PANs
PAN Card
§ Permanent Account Number (PAN) is a code that acts as an identification for individuals,
families and corporates (Indian and Foreign as well), especially those who pay Income Tax.
§ It is a unique, 10-character alpha-numeric identifier, issued to all judicial entities
identifiable under the Indian Income Tax Act, 1961. It is issued by the Indian Income Tax
Department under the supervision of the Central Board for Direct Taxes (CBDT) and it also
serves as an important proof of identification.
§ It is also issued to foreign nationals (such as investors) subject to a valid visa, and hence
that PAN is not acceptable as a proof of Indian citizenship.
Why in the news?
§ Since PAN card is used for financial transactions over INR 50000, it was found that many
individuals used multiple PAN cards to avail huge loans without the means to repay them
and hence were credit unworthy, leading to accumulated losses to banks.
§ This was also one of the main reasons for the increase in Non-Performing assets in banks.
§ To address the issue, it was suggested that a PAN Aadhaar linkage would eliminate credit
unworthy people from securing loans.
§ It could also prevent tax evasions due to usage of multiple PAN cards.

GST Council
What is GST
§ Goods and Services Tax (GST) is a single tax on the supply of goods and services, right from
the manufacturer to the end consumer.
§ It aims to remove the unpredictability and bring equality in the prices of products across the
country.
§ It eventually aspires to reduce the manufacturing cost of businesses and create a unified and
streamlined market where the cost of goods and services will be more even across the
country.
What is GST Council?
§ It is a constitutional body created by Article 279A (1), and a joint forum of the Centre and the
States with regards to GST.
§ GST council that makes recommendations to the Union and State Government on issues
related to the GST such as:
o The taxes, cesses and surcharges levied by the Union, the States and the local bodies
which may be subsumed in the goods and services tax
o Goods and services that may be subjected or exempted from GST
o Model GST Laws
o Principles that govern Place of Supply
 o Threshold limits of turnover below which goods and services may be exempted
from goods and services tax
o GST rates including the floor rates with bands
o Special rates for raising additional resources during natural calamities/disasters
special provisions for certain States, etc.
o Any special provisions with respect to the States of Arunachal Pradesh, Assam, Jammu
and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal
Pradesh and Uttarakhand
o Any other matter relating to the goods and services tax, as the Council may decide.
Composition of GST
§ Chairperson – Union Finance Minister
§ Member – Union Minister of State, in- charge of Revenue of Finance
§ Other Members - The Minister In-charge of finance or taxation/any other Minister
nominated by each State.
§ Ex-officio secretary - Secretary (Revenue)
§ Permanent invitee (non- voting) - Chairperson, Central Board of Excise and Customs (CBEC)
§ Additional Secretary to GST Council – Will be created (will be at the level of Additional
Secretary to the Government of India)
§ 4 Commissioners of GST Council - (at the level of Joint Secretary to the Government of India)
Voting
§ The state governments have a share of 2/3rd of the total votes and the centre has the
remaining 1/3rd.
§ Each state has one vote irrespective of their size.
§ Decisions of GST council are made by voting with a 3/4th majority.
Ambit of GST
§ GST applies under the tax slabs: 0%(Exempted), 5%, 12%, 18%, 28% (With/Without CESS)
§ Of all the items classified under GST, close to 43% of the goods and services fall under the
18% tax slab.
Reduction in GST
§ The GST council has reduced the GST for over 50 products and also simplified the returns
filing process.
§ GST on sanitary pads was cut from 12% to zero.
§ Small televisions, washing machines, fridges and kitchen appliances such as mixers and
juicers have their tax rates slashed from 28% to 18%.
Does the exemption for sanitary napkins help?
§ Experts say that import of sanitary pads may not benefit much from the exemption as the
manufacturers can no longer claim credits for taxes paid on inputs (ie. Input Tax Credit).
§ This means the price of sanitary pads may not reduce drastically because of its exemption
from GST.
GST collection
▪ Goods and services tax (GST) collections in the month of October crossed the Rs. 1 lakh crore
mark, with total collections for the month standing at Rs. 1,00,710 crores.
▪ GST collections had crossed the comfort level of Rs. 1 lakh crore for the first time in April this
year. The average GST revenue during 2017-18 was Rs. 89,885 crores.
What are the reasons behind it?
▪ The reduction in tax rates under GST in July seems to have helped improve compliance among
small businesses, leading to an increase in overall tax collection.
▪ It also helps to reduce the distortionary effect of indirect taxes.
▪ Current spurt may be due increased consumption and expenditure in the festival season.

31st meeting of the GST council
§ During its 31st meeting, the GST council has reduced tax rates on 23 goods and services,
including movie tickets, TV and monitor screens and power banks, and exempted frozen and
preserved vegetables from the levy. The reduced rates are likely to come into effect from
January 1, 2019.
 §Of the 23 goods and services on which rates have been slashed, the tax rate on seven items in
the 28 per cent slab has been brought down. With this, only 28 goods are left in the highest
28 per cent tax bracket.
§ The goods on which GST has been lowered to 18 per cent from 28 per cent at present include
pulleys, transmission shafts and cranks, gearboxes, rethreaded or used tyres, power banks of
lithium-ion batteries, digital cameras, video camera recorders and video game consoles.
§ The 28 per cent slab is now restricted to only luxury and sin goods apart from auto-parts and
cement.
§ Services supplied by banks to Basic Savings Bank Deposit account holders under the Jan Dhan
Yojana will not attract GST.
§ Air travel of pilgrims by non-scheduled/charter operations being facilitated by the
government under bilateral arrangements will attract a lower GST rate of 5 per cent.
97.5% of items are now in 18% or lower GST bracket: Arun Jaitley
§ Union Finance Minister Arun Jaitley has said that about 97.5% of the goods are already in the
18% or lower GST bracket.
§ He said that India will eventually have a standard tax rate, which can be created by merging
12% and 18% tax rates, for commonly used goods.
§ However, this does not mean a single GST rate. Essential items will continue to be taxed at
0% and 5%, while luxury, sin and demerit goods will attract a higher tax rate.

GST eased for small businesses
What’s in the news?
▪ The GST Council in its 32nd meeting took a slew of decisions aimed at reducing the tax and
compliance burden on small and medium enterprises.
Key decisions
▪ The Council raised the annual turnover limit under which companies would be exempt from
GST to Rs. 20 lakhs for the North Eastern and hill states and Rs. 40 lakhs for other States, from
the earlier limit of Rs. 10 lakh and Rs. 20 lakhs, respectively.
▪ The council announced that the limit for eligibility for the Composition Scheme would be
raised to an annual turnover of Rs. 1.5 crore from April 1, 2019. The Council also provided
relaxation to composition scheme registrants to pay taxes quarterly and file a single annual
return.
▪ The Composition Scheme currently allows companies with an annual turnover of up to Rs. 1
crore to opt for it, and file returns on a quarterly basis at a nominal rate of 1%. So far, only
manufacturers and traders were eligible for this scheme.
▪ The Council had decided to extend the Composition Scheme to small service providers with
an annual turnover of up to Rs. 50 lakh, at a tax rate of 6%.
▪ The Council has allowed Kerala to levy a cess of up to 1% for up to two years on intra-State
supplies to help finance the disaster relief efforts following the recent floods in the state.
Significance
▪ The Confederation of All India Traders said that increasing the GST threshold limit would
allow about 10 lakh traders to be exempt from the compliance burden of GST, and increasing
the Composition Scheme limit would benefit about 20 lakh small businesses that fall between
the annual turnover brackets of Rs. 1 crore and Rs. 1.5 crore.

GST Appellate Tribunal
What’s in the news?
§ The Union Cabinet has approved the creation of National Bench of the Goods and Services
Tax Appellate Tribunal (GSTAT).
§ The National Bench of the Appellate Tribunal shall be situated at New Delhi. GSTAT shall be
presided over by its President and shall consist of one Technical Member (Centre) and one
Technical Member (State).
About GSTAT
 § GSTAT is the forum of second appeal in GST laws and the first common forum of dispute
resolution between Centre and States.
§ The appeals against the orders in first appeals issued by the Appellate Authorities under the
Central and State GST Acts lie before the GST Appellate Tribunal, which is common under the
Central as well as State GST Acts.
§ Being a common forum, GST Appellate Tribunal will ensure that there is uniformity in
redressal of disputes arising under GST, and therefore, in implementation of GST across the
country.
§ GSTAT will be created as per the CGST Act which empowers the Central Government to
constitute such appellate tribunal.

GSTN
Goods and Services Tax Network
§ The Goods and Services Tax Network (GSTN) is a non-government, non-profit, private
limited company created for providing the front end and back end IT and infrastructural
support for the working of GST.
§ The Centre and states together hold 49% stake (24.5% each) in GSTN. The remaining 51%
share is divided among five private financial institutions—LIC Housing Finance, ICICI Bank,
HDFC, HDFC Bank and NSE Strategic Investment Corporation Ltd.
§ Though the shareholding looks non-government, governments have more say in the
management of GSTN as they have more members in the GSTN board. This means that the
strategic control of the company lies with government.
Why in News?
§ The GSTN is developing an IT system such that businesses that have not filed returns for two
straight returns filing cycles, which is six months, would be barred from generating e-way
bills.
§ The e-way bill system was rolled out on April 1, 2018, for moving goods worth over Rs 50,000
from one State to another. The system for within the State movement was rolled out in a
phased manner from April 15, 2015.
§ Officials said the move would help check Goods and Services Tax evasion. Central tax officers
have detected 3,626 cases of GST evasion or violations cases, involving Rs 15,278.18 crore in
the April-December period.
§ To shore up revenue and raise compliance, strict anti-evasion measures must be adopted.
The revenue department is working towards integrating the e-way bill system with NHAI’s
FASTag mechanism beginning April to help track movement of goods.

Composition scheme
What is Composition scheme under GST?
§ The Composition scheme is an easy, low procedure and compliance friendly tax scheme for
small and medium enterprises.
§ Under the scheme, firms whose turnover is less than Rs. 1.5 crores can pay a fixed percentage
of their turnover as tax.
Advantages of Composition scheme
§ They need to file only four tax returns in a year (a normal taxpayer has to file 37 returns
under GST), thereby reducing the tax compliance burden and cost of small firms.
§ Firms need not keep detailed books of accounts on a daily basis and supporting documents.
§ Limited tax liability.
Disadvantages
§ The Composition scheme is for businesses dealing in goods. Services providers are can’t avail
the scheme (except restaurants).
§ A Composition scheme firm is not allowed to avail input tax credit of GST
Why in News?
§ The Finance Ministry announced that businesses opting for composition scheme need not file
details of purchases made from their vendors at the time of filing quarterly returns.

Input tax credit
What is Input tax credit?
▪ Under GST, Input tax credit means when a manufacturer pays the tax on his output, he can
deduct the tax he previously paid on the input he purchased.
▪ If the tax paid on inputs is higher than the tax on the output, the excess can be claimed as a
refund.
▪ ITC is a major benefit under the GST regime which eliminates double taxation on inputs used
to make other items (also known as Cascading effect of taxes).

Fiscal stress
What is Fiscal Stress?
§ Fiscal stress is caused by the gap between projected revenues and expenditures.
§ It can be short term, in the case of transitory economic shocks or long term, in the case of
structural budget imbalance.
Why in news?
§ In a report ‘State Finances: A Study of Budgets of 2017-18 and 2018-19,’ the central bank
noted that States’ consolidated gross fiscal deficit (GFD) overshot the budget estimates in
2017-18 due to shortfalls in own tax revenues and higher revenue expenditure.
Factors causing Fiscal Stress in States
§ Farm Loan waivers that have been announced since 2014. Apart from dampening the rural
credit institutions, such loan waivers impact credit discipline & dis-incentivize borrowers
to repay loans.
§ Pre-Election expenditure - Risks of possible higher pre-election expenditure in more than
10 States
§ 7th Pay Commission - Implementation of the balance pay commission awards, particularly
to the extent that they are not fully provided for under the budgeted expenditure
What is Fiscal Deficit?
§ A fiscal deficit occurs when a government's total expenditures exceed the revenue it
generates.
§ A deficit is usually financed through borrowing from either the central bank of the country
or raising money from capital markets by issuing different instruments like treasury bills
and bonds.
§ Fiscal deficit can either be ‘gross’ or ‘net’.
What are they?
§ Gross Fiscal Deficit is defined as the excess of total expenditure of the government over the
total non-debt creating receipts.
§ Net fiscal deficit can be arrived at by deducting net domestic lending from gross fiscal deficit.

Disinvestment
What is Disinvestment?
§ It is the action of an organization or government, of selling their asset(s).
§ It is aimed at reducing the financial burden on the government due to inefficient Public Sector
Undertakings (PSUs) and to improve public finances.
What is Strategic Disinvestment?
§ In strategic disinvestment, significant proportion of a PSU’s share and the management
control is give to a private sector company.
§ This private sector company is, a strategic partner to the government.
§ It is different from the ordinary disinvestment in which management of the PSU is retained
by the Government.
Why in news?
▪ The Cabinet Committee on Economic Affairs has approved strategic disinvestment of 100%
Government of India's shares in Dredging Corporation of India Limited (DCIL) to consortium
 of four ports namely, Visakhapatnam Port Trust, Paradip Port Trust, Jawaharlal Nehru Port
Trust and Kandla Port Trust.
▪ Presently the Government of India holds 73.44% shares in DCIL.
About DCIL
▪ DCIL is a public sector unit engaged in the business of dredging.
▪ It is headquartered at Visakhapatnam and reports to the Ministry of Shipping.
▪ Almost all the maintenance dredging in Indian seaports is carried out by DCIL.
▪ It is also involved in capital dredging, beach nourishment, and land reclamation.

Black Money in Swiss Bank
Why in News?
§ The recent data released by Swiss National Bank (SNB) shows that there is a sudden rise
in Indian deposits in Swiss bank following a 3 year downward trend.
§ This comes as a surprise after Government’s repeated clampdown on Black money &
money laundering.
Background
§ Swiss banks are well known for their secrecy in protecting account holders information.
§ However, Switzerland has decided to relax its secrecy laws in order to align with global
practices.
§ Henceforth, SNB releases the annual data on the deposits with their banks.
§ The data for this year shows a 3% increases in total foreign deposits.
§ The total money held by Indians in Swiss Banks was at a record high at 23,000 Cr in 2006.
Steps Taken
§ India and Switzerland has signed an information sharing agreement on black money
holders and money laundering.
§ Prevention of Money Laundering Act, 2002 has been used extensively to fight black money.
Other safe havens
§ Apart from Swiss, a number of other countries act as a safe haven due to their stricter
secrecy laws.
§ Australia, Singapore, Canada, Hong Kong, Luxembourg, Germany are hot financial hubs
used by people to stash their cash.

Merchant Discount Rate
What is Merchant Discount Rate (MDR)?
§ MDR is the fee that a merchant has to pay to a bank for every transaction that is split between
the bank which issued the card, the payment service providers, and payment gateways
(PayUbiz and PayUMoney).
What’s in News?
§ The Payments Council of India (PCI) has said that reimbursement of merchant discount rates
from banks to service providers is yet to be received.
Background
§ In December 2017, the Ministry of Electronics and Information Technology had said that
MDRs would be reimbursed by the government on transactions up to ₹2,000 made through
debit cards, BHIM UPI or Aadhar enabled payments systems. From banks even after nine
months.
What is PCI?
§ The Payments Council of India was formed under the aegis of Internet and Mobile Association
of India in the year 2013 catering to the needs of the digital payment industry.
§ The council works with all its members to promote national goal of ‘Cash to Less Cash Society’
and ‘Growth of Financial Inclusion’ which is also the Vision Shared by the RBI and
Government of India.

Defining a ‘shell company’
What are shell companies?
 ▪ Typically, shell companies include multiple layers of companies created for the purpose of
diverting money or for money laundering. These companies conduct almost no economic
activity.
▪ In India, shell companies are not yet illegal. There is no clear definition of what shell company
is in the Indian legal system.
▪ Till now, the government use the Companies Act, 2013 to take actions against companies
indulging in financial irregularities.
▪ The act allows the Registrar of Companies to deregister a company if it fails to commence its
business within one year of its incorporation or when it is not carrying on any business or
operation for a period of two years.
Why in News?
▪ The government has set up a committee to define a shell company for the purposes of
enforcing penal laws for various violations.

Interim Budget
What is an interim budget?
§ The interim budget includes a report card on the income and expenses made last year and
the proposed expenses likely to be made in the next few months until the new government
takes over.
§ An interim budget is presented by outgoing government. Usually, there is no proposal on the
income part of the budget through collection of taxes.
Other types
§ An annual budget has two parts-(1)part one is the summary of income and expenses made
by the government in the previous year.(2) Announcement of proposed ways to raise
money from taxes and spending them on welfare measures across the country in the various
segments.
§ ‘Vote on Account' by which the government obtains the vote of Parliament for a sum
sufficient to incur expenditure on various items for a part of the year. This enables the
government to fund its expenses for a short period of time or until a full Budget is passed.
Why in news?
§ Finance Minister Arun Jaitley presented the interim Budget for the financial year 2019-20 on
February 1, 2019.

Changing the calculation of GDP

About CSO
§ The Central Statistics Office, under the Ministry of Statistics and Programme Implementation
is responsible for coordination of statistical activities in India, and evolving and maintaining
statistical standards.
§ Its activities include National Income Accounting, conduct of Annual Survey of Industries,
Economic Censuses, compilation of Index of Industrial Production, as well as Consumer Price
Indices for Urban Non-Manual Employees, Human Development Statistics, Gender Statistics,
etc.
What happened in 2015?
§ In 2015, the government adopted a new method for the calculation of the GDP of the country.
What were the changes made?
§ Shift to the new base year 2011-12 from 2004-05
§ As per the new methodology, Central Statistics Office (CSO) calculates GDP by adding product
taxes to the GVA at basic prices and removing product subsidies
§ In addition to data from Index of Industrial Production (IIP) and Annual Survey of Industries
(ASI) CSO started using data from MCA-21 (an e-governance initiative of the Ministry of
Company Affairs which allows firms to electronically file their financial results)
GDP back series data
▪ In November 2018, the government released the GDP growth estimates for previous years
based on the new method of calculation and base year it had adopted in 2015. The new data
and the manner in which it was released led to criticism from various quarters.
What does the new data say?
▪ The new data release shows that GDP growth during the UPA regime averaged 6.7% during
both UPA-I and UPA-II, compared with the 8.1% and 7.46%, respectively, estimated using the
older method. In comparison, the current government has witnessed an average GDP growth
rate of 7.35% during the first four years of its term, based on the new method.
▪ The new data shows that, contrary to the earlier perception, the Indian economy never
graduated to a ‘high growth’ phase of more than 9% in the last decade or so.
▪ Experts also pointed out that the newer data, especially for the mining and manufacturing
sectors, shows that India did not recover from the global financial crisis as quickly as initially
thought.
What are the problems with the new data?
▪ The new back series data diverges quite sharply from the estimates made in a draft report
released by the National Statistical Commission earlier this year, which showed that growth
during the UPA regime, crossed 9% on at least four occasions, and even hit 10.78% in 2010-
11.
▪ The government, however, said that the data was just a draft report that used only one of the
many methods on offer to estimate the back series, and that it was not the final number.
▪ Former Chief Statistician of India Pronab Sen pointed out that the fact that the data was
released by Niti Aayog, though it was prepared exclusively by the CSO, has led to questions
over the credibility of the data.
Why in News?
▪ Finance Commission Chairman N.K. Singh has said that the Central Statistics Office is a
respected and credible organisation and its value and credibility should not be marred in any
way.

A $6 trillion opportunity
What’s in the news?
▪ According to a latest study by the World Economic Forum (WEF), Domestic private
consumption, that accounts for a major portion of India’s GDP, is expected to develop into a
$6 trillion growth opportunity that would make India the world’s third-largest economy by
2030. Currently it is at $1.5 trillion.
▪ With an annual GDP growth rate of 7.5%, India is currently the world’s sixth-largest economy.
Key challenges
▪ The report titled Future of Consumption in Fast-Growth Consumer Market – India by the
WEF, however, identified three critical societal challenges that need to be addressed.
○ With nearly 10-12 million working-age people expected to emerge in India over the
next decade, the country faces a huge challenge in providing the workforce with the
right skills. More than one-half of Indian workers will require reskilling by 2022 to meet
the talent demands of the future.
○ India will have to manage socio-economic inclusion of rural India as, by 2030, 40% of
Indians will be urban residents. Physical connectivity, digital connectivity and financial
inclusion income is constraining the spending and well-being of rural dwellers, and
these ‘access-barriers’ need to be addressed to ensure social and economic inclusion in
India over the next decade.
○ Business and policy-makers will have to take the initiative on improving health and
liveability for India’s citizens by providing them with access to affordable healthcare,
promoting sustainable development, and seeking solutions to urban congestion.

Processing I-T returns in a day

What’s in the news?
▪ The Union Cabinet has approved an integrated income-tax e-filing and centralised processing
centre (CPC) portal, which will reduce the return processing time from 63 days to just one
day. The new portal is also expected to process the refunds within one day of filing of tax
returns, in huge relief for taxpayers.
 ▪ The Integrated E-filing & CPC 2.0 is expected to take 18 months to develop and three months
to be tested before it is implemented. The portal will be operational for eight years, and the
project has been awarded to Infosys, which emerged as the lowest bidder.
▪ The broad objectives of the project are to provide faster and more accurate outcomes for the
taxpayer, enhance the user experience at all stages, improve taxpayer awareness and
education through continuous engagement, and promote voluntary tax compliance.

Debt-to-GDP ratio
FRBM Review committee
▪ Fiscal Responsibility and Budget Management (FRBM) Act was enacted in 2003 which set
targets for the government to reduce fiscal deficits. It was mandated that both states and
centre would wipe out revenue deficit and cut fiscal deficit to 3% by 2008-09. The targets
were put off several times.
▪ In 2016, the government set up a committee under NK Singh to review the FRBM Act.
▪ The committee recommended that the government should bring down the fiscal deficit to
3% of the GDP by 2020, cut it to 2.8% in 2020-21 and 2.5% by 2023.
▪ To deal with unforeseen events, the committee has specified deviation in fiscal deficit target
of not more than 0.5 percentage points.
▪ It also suggested that India should adopt debt-to-GDP ratio as a new anchor of fiscal policy
along with the fiscal deficit and gradually bring it down to 60 per cent — comprising of 40
per cent for the Centre and 20 per cent for the states. It is an essential parameter to attract a
better rating from the credit ratings agencies.
▪ (Fiscal deficit = Total Expenditure – Total Receipts except borrowings)
▪ (debt-to-GDP ratio indicates debt of the government as a percentage of GDP. It shows the level
of indebtedness of the government)
Why in News?
▪ Economic Affairs Secretary Subhash Chandra Garg said that even as the Indian economy is
moving towards an ideal fiscal deficit level of around 3% of GDP, the debt-to-GDP ratio should
be reduced as per the recommendations of the N.K. Singh committee from the existing 49.4%
for centre and 21% for states.
▪ As most credit rating agencies give more weightage to the debt to GDP ratio of a country, they
have raised concerns over the level of public debt of India and refrained from upgrading the
sovereign rating of the country.
▪ He added that with fiscal deficit under control and inflation moderate, India’s macroeconomic
parameters are among the best globally.

Widening of Current account deficit
What is CAD?
▪ Current account is the difference between the value of exports of goods and services and the
value of imports of goods and services. The current account also includes net income (such
as interest and dividends) and transfers from abroad (such as foreign aid), which are usually
a small fraction of the total.
▪ A current account deficit means the country is importing more goods and services than it is
exporting.
Why in News?
▪ According to the latest RBI data, CAD widened to 2.9% of GDP ($19.1 billion) for the second
quarter (July-September) of 2018 compared with 1.1% ($6.9 billion) during the same period
of the previous year.
Reasons for the widening CAD
▪ Rising trade deficit which is now at $50 billion compared with $32.5 billion a year ago.
▪ Sharp rise in oil prices. Being a major oil importer, rising oil prices meant more foreign
exchange leaving the country.

Fiscal deficit Breaches target
What’s in the News?
▪ According to the government data, India’s fiscal deficit has exceeded 114 per cent of the
Budget estimate over the first eight months of FY19.
▪ The fiscal deficit stood at Rs 7.16 lakh crore at the end of November 2018 compared to the
Budget estimate of Rs 6.24 lakh crore.
▪ It is mainly on account of lower revenue collection.
▪ However, some experts pointed out that, the expenditure begins from April 1, while revenue
picks up only during the second half of the fiscal. Once the revenue picks up, it helps close the
gap between earning and expenditure, in the remaining four months of the fiscal.
▪ The Finance Ministry is also confident in limiting the deficit to the Budget estimate, which is
about 3.3 % of the GDP (Rs 6.24 lakh crore).

MISC
Cryptocurrency
What is a cryptocurrency?
▪ A cryptocurrency is a digital or virtual currency designed to work as a medium of exchange.
▪ It uses cryptography to secure and verify transactions as well as to control the creation of
new units of a particular cryptocurrency.
▪ They use de-centralised control which works through distributed ledger technology,
typically a blockchain, that serves as a public financial transaction database.
Why in news?
▪ RBI has cautioned that dealing with cryptocurrencies will encourage illegal transactions.
▪ The Central bank said Cryptocurrencies are “a stateless digital currency” in which
encryption techniques are used for trading.
▪ These currencies operate independently of any Central bank like the RBI, thus rendering it
immune from government interference.


Sub-prime loans
What is a sub-prime loan?
§ Sub-prime refers to a loan given to a borrower who does not qualify for a regular home
loan because of a poor credit record, low income and lack of job security.
What’s in the News?
§ It has been ten years since the investment banking firm Lehman Brothers collapsed in
mid-September 2008. Shortly after, there was a meltdown in global financial markets,
including India.
What triggered the crisis?
§ From 2005 to 2007, at the height of the real estate bubble, mortgages were given to
many homebuyers who could not afford them, and then packaged into securities and
sold off. Lehman Brothers bought several mortgage brokerages and posted record
profits. But in mid-2007, defaults on sub-prime mortgages rose exponentially.
§ A credit crisis erupted in August 2007 with the failure of two Bear Stearns hedge funds
while payment defaults triggered massive declines in banks and real estate incomes. In
2008, Lehman Brothers declared bankruptcy.
If the customer has a poor credit record, why did banks offer a loan?
§ The main reason was banks expected the value of the underlying security or the property
to go up.
§ So, they increased the mortgage interest rate (higher than the conventional loan) and called
it a sub-prime mortgage. They could earn more with the higher mortgage interest rate and
if the borrowers discontinued repayment, they could sell the property for a higher
consideration due to appreciation in property prices.
Was India insulated?
 § The impact on the Indian economy was less severe due to lower dependence on exports
and the fact that a sizeable contribution to the GDP came from domestic sources.
§ Indian banks had limited exposure to the U.S. mortgage market, directly or through
derivatives, and also to the failed and financially-stressed global financial institutions.

Fake currency network intact
Why in news?
§ Recent probe by NIA team has reported that the fake currency notes seized so far are not
of a high quality.
§ Most arrests were made from Malda in West Bengal, and some cases registered in Kerala,
Karnataka and Gujarat.
About Fake currency
§ Counterfeit money is imitation currency produced without the legal sanction of the state or
government.
§ Producing or using counterfeit money is a form of fraud or forgery. In India, the circulation
of fake Indian currency notes (FICN) has been on the rise, according to the Reserve Bank of
India’s (RBI) annual reports.
How this networks works
§ Most counterfeit Indian currency notes are printed in Pakistan and then enter either directly
or through network of other countries like Bangladesh or Nepal.
§ India had accused Pakistan’s Inter-Services Intelligence (ISI) of printing high-quality fake
notes and channelling it into India.
§ Recently Malda district near Kolkata in West Bengal has emerged as a centre of Fake currency
distribution hub.
Steps taken to fight fake currency
§ The NIA and the Rapid Action Battalion (RAB), the anti-crime and anti-terror unit of
Bangladesh, signed a memorandum of understanding (MoU) in 2015, to share intelligence on
fake notes and other terrorist modules in real time.
§ Security features in new 500 and 2000 have been upgraded so that it becomes difficult to
counterfeit the legal currency
§ By norms, the UAPA can be invoked against the accused only if the notes are of high quality.
§ The government has formed a special Fake Notes Co-ordination (FCORD) Group in the Home
Ministry to share FICN information with security agencies of states and center.
§ A Terror Funding & Fake Currency Cell (TFFC) is also constituted in the National
Investigation Agency to investigate terror funding and fake currency cases.

Strategy for New India @ 75
What’s in the news?
§ Niti Aayog has unveiled its ‘Strategy for New India @ 75′ document with an aim to
accelerate growth to 9-10 per cent and make the country a $4-trillion economy by 2022-23.
Key recommendations
§ The annual growth rate of 9-10 per cent by 2022-23 would be essential for generating
sufficient growth and achieving prosperity for all.
§ This will raise the economy’s size in real terms from $2.7 trillion in 2017-18 to nearly $4
trillion by 2022-23. Besides having rapid growth, it is also necessary to ensure that growth is
inclusive, sustained, clean, and formalised.
§ Increase the investment rate as measured by gross fixed capital formation (GFCF) from the
present 29% to 36% of GDP by 2022.
§ In agriculture, shift the emphasis to converting farmers to ‘agripreneurs’ by further
expanding e-National Agriculture Markets (e-NAM) and replacing the Agricultural Produce
Marketing Committee Act with the Agricultural Produce and Livestock Marketing Act.
§ Give a strong push to ‘Zero Budget Natural Farming’ techniques that reduce costs, improve
land quality and increase farmers’ incomes.
§ Launch a mission “Explore in India” by revamping minerals exploration and licensing policy.
 § With the completion of the Bharat Net programme in 2019, all 2.5 lakh gram panchayats will
be digitally connected. Aim to deliver all government services at the state, district, and gram
panchayat level digitally by 2022-23.
§ Set up a new autonomous body, viz., the Arbitration Council of India to grade arbitral
institutions and accredit arbitrators to make the arbitration process cost effective and
speedy, and to pre-empt the need for court intervention.

Online sale of drugs, cosmetics
Draft rules to amend Drugs and Cosmetics Rules, 1945
§ The Drugs and Cosmetics Act, 1940 and the Drugs and Cosmetics Rules, 1945 regulates the
import, manufacture and distribution of medicines in the country.
§ While it regulates sales of drugs, it was not clear whether the existing rules under the Act
would be applicable to online sale of drugs.
§ It was in order to address this specific issue, that the Union Ministry of Health and Family
Welfare published draft rules in September 2016, seeking to amend the Drugs and Cosmetics
rules regarding the distribution or sale, stock, exhibit or offer for sale of drugs through e-
pharmacies.
What is an e-pharmacy?
§ The draft rules define e-pharmacy as a business of distribution or sale, stock, exhibit or offer
for sale of drugs through web portal or any other electronic mode.
Highlights of the Draft
§ Registration and Customer Support: The draft rules make it mandatory that no person
shall sell, stock, exhibit or offer for sale drugs through e-pharmacy portal unless registered.
Further an e-pharmacy registration holder shall have a facility for customer support and
grievance redressal for all stakeholders.
§ Data Localisation: Also as per the draft rules the e-pharmacy portals have to be established
in India through which they are conducting their business and shall keep the data generated
localised.
§ Periodic Inspection: The premise where the e-pharmacy business is conducted shall be
inspected every two years by the Central Licensing Authority.
§ Procedure for distribution of sale of drugs through e-Pharmacy: The registered
pharmacist must verify the details of the patients, registered medical practitioner and
arrange for dispense of the drugs.
Why in News?
§ The Madras high court has issued a blanket ban on online sale of medicines till the central
government notifies the draft rules regulating it. The court has also set January 31, 2019 as
deadline to issue the notification.
§ Earlier, the Delhi High Court had also banned the sale of drugs online.
§ The petitioners argued that the online sale of drugs listed in Schedule H, H1 and X of the
Drugs and Cosmetics Act of 1940 were rampant in the country though there was a specific
legal bar on selling such medicines without the prescription of medical practitioners.
§ The attraction of the online pharmacy, for many, is the fancy discounts that are available, up
to 60%, besides free home delivery and sometimes, other value-added services.

Building and Other Construction Workers Welfare Cess
What’s in the news?
▪ Pursuant to the directions of Supreme Court, the Central Government has formulated a model
welfare scheme for Building and Other Construction (BOC) workers which envisages
maternity benefit, out of the BOCW welfare cess fund, for those BOC workers who are not
covered under Ayushman Bharat
▪ The model scheme provides
o Paid maternity leave to registered construction workers ranging from 90 days to 26
weeks for up to two deliveries.
 o Rs.6000/-per delivery for up to two deliveries to the wife of the registered
construction workers, which will be in addition to any other benefit received from
any Government Scheme in this regard.
Building and Other Construction Workers welfare cess fund
▪ The Building and Other Construction Workers Act, 1996, provides safety, health and welfare
measures for the building and other construction workers.
▪ For the purposes of the Act, a cess is levied and collected at the rate of 1% of the cost of
construction by the State Governments under the Building and Other Construction Workers’
Welfare Cess Act, 1996.
▪ The States and Union Territories have collected around Rs. 45473 Crore and have spent an
amount Rs. 17591 Crore upto 30.9.18.
▪ In January 2018, the Supreme Court pulled up the central government for not properly
implementing the law meant for the welfare of construction workers, questioning why nearly
Rs 30000 crore collected for the workers has not reached them.
What is cess?
▪ A cess is a tax that is levied by the government to raise funds for a specific purpose. Cess
collected for a particular reason has to go towards the purpose for which it was charged. It
cannot be used for, or diverted, to other purposes.
▪ Cesses are not supposed to be relied upon as a regular source of revenue. They are resorted
to only for a particular purpose and are to be discontinued after the objective is met.

Investment Models
Different Models for public–private partnership
The Build Operate and Transfer (BOT) Annuity Model
▪ Under BOT annuity, a developer builds the project, operates it for a specified duration and
transfers it back to the government. The government starts payment to the developer after
the launch of commercial operation of the project. Payment will be made on a six month basis.
Engineering, Procurement and Construction (EPC) Model
▪ Under this model, the cost is completely borne by the government. Government invites bids
for engineering knowledge from the private players. Procurement of raw material and
construction costs are met by the government.
▪ The private sector’s participation is minimum and is limited to the provision of engineering
expertise. A difficulty of the model is the high financial burden for the government
The Hybrid Annuity Model (HAM)
▪ HAM is a mix of BOT Annuity and EPC models. The government will contribute a portion of
the project cost through annual payments (annuity). The remaining payment will be made on
the basis of the assets created and the performance of the developer.
Why in News?
▪ Union Minister for Water Resources, River Development and Ganga Rejuvenation, Road
Transport & Highways Nitin Gadkari signed a Concessionaire Agreement for sewage
treatment plants (STP) in Kanpur under One-City-One-Operator concept and Hybrid
Annuity Model (HAM).
(One-City-One-Operator concept integrates building of new STPs & maintenance of existing
infrastructure under one operator for entire city)
▪ Under the HAM, 40% of the Capital cost would be paid by the govt on completion of
construction while the remaining 60% of the cost will be paid over the life of the project as
annuity along with operation and maintenance cost (O&M) expenses.
▪ One of the most important features of this model is that both the Annuity and O&M payments
are linked to the performance of the STP. This will ensure continued performance of the
assets created due to better accountability, ownership and optimal performance.
▪ Hybrid Annuity based PPP model has been adopted for the first time in the country in sewage
management sector. Such a model has earlier been adopted successfully in highway sector
only.

Air Cargo Policy
What’s in the News?
▪ The government has unveiled its much-awaited national air cargo policy during the two-day
Global Aviation Summit 2019.
Highlights of the policy
▪ It seeks to make India among the top five air freight markets by 2025, besides creating air
transport shipment hubs at all major airports over the next six years.
▪ The cargo policy encourage code sharing/interline agreements between foreign and Indian
carriers.
▪ It also aims to promote the development of a last mile/first mile connectivity program at
international/regional gateways.
▪ To increase process transparency while decreasing shipment delays, costs and dwell time, a
fully automated paperless trade environment with minimum face-to-face interactions will be
implemented.
▪ The policy covers all three categories of air cargo transport - domestic cargo to ensure
efficient flow of goods across India; international cargo facilitating all indigenous export and
import of goods; and transit international cargo by making India the transit cargo hub of
choice to and from other parts of the globe.

Universal labour guarantee
What’s in the news?
▪ The International Labour Organisation (ILO) has released the ‘Future of Work’ report to
mark its centenary.
Highlights of the report
▪ Around the world, 190 million people are unemployed, while 300 million workers live in
extreme poverty. Wage gaps are growing at a time of declining wage growth.
▪ Two-thirds of jobs in the developing world are susceptible to automation, and only 15% of
households in emerging countries have Internet access. Implementing the Paris Climate
Agenda could create 24 million new jobs, but it could still be brutal to the 6 million workers
expected to lose their jobs in the transition to a greener economy.
▪ In such a situation, the ILO asked all countries to place people at the centre of economic and
social policy, ensuring that final decisions are taken by human beings.
▪ It suggested that an international governance system be set up to police the gig economy,
and ensure that digital labour platforms such as Uber and Swiggy respect certain minimum
rights and protections.
▪ (gig economy is a labour market characterised by the prevalence of short-term contracts or
freelance work, as opposed to permanent jobs)
▪ To reduce inequalities, the ILO recommends that the development of the rural economy,
where the future of many the world’s workers lies, should become a priority.
▪ Urging a universal labour guarantee to ensure a living wage, the ILO sought limits on working
hours and work safety norms. In order to cope with change, it suggests that countries commit
to a universal entitlement to lifelong learning, which would help people reskill and upskill.

Bihar outgrew others
What’s in the news?
▪ Crisil, a global analytical company, has released its latest report named ‘States of growth
2.0’.
Highlights of the report
▪ Bihar and Andhra Pradesh led the pack among States in terms of GDP growth in financial
year 2017-18, clocking 11.3% and 11.2% growth, respectively, compared with the national
GDP growth of 6.7% for the year. Jharkhand, Kerala, and Punjab were at the bottom.
▪ 12 of the 17 non-special States considered in the analysis grew faster than the national
growth rate. However, the growth was not equitable, with the gap between the per capita
incomes in low-income and high-income States widening over the last five years.
 ▪ The analysis found that between the financial years 2012-13 and 2016-17, Gujarat, Madhya
Pradesh and Karnataka were the fastest growing states, on average.
▪ West Bengal, Jharkhand and Bihar had ranked at the bottom in the past five years. In financial
year 2017-18, however, Bihar rose to the top spot and West Bengal rose to the sixth rank,
with a growth of 9.1%, significantly stronger than the national GDP growth rate.
Fiscal deficit
▪ Rajasthan, Jharkhand and Uttar Pradesh topped the tally in proportion of Capital expenditure
in state spending in the past three years. But most states are not spending as they ought to,
in areas such as health, irrigation, and education.
▪ While the FRBM Act had helped states recover their fiscal health considerably, recent trends
show they are slipping. Debt-to-GDP ratio have risen in many States—with the assimilation
of Ujwal Discom Assurance Yojana (UDAY), farm loan waivers, and Pay Commission hikes.
▪ The combined fiscal deficit of States crossed the 3% of GSDP threshold, in both fiscals 2016
and 2017. This improved in fiscal 2018 to 3.1%, but this was still higher than the FRBM limit,
and also the 2.7% of GSDP budgeted for the year.

EXTERNAL SECTOR
India-China DTAA
What is DTAA?
▪ It stands for Double Taxation Avoidance Agreement. 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.
What is BEPS?
▪ Base erosion and profit shifting or BEPS refers to corporate tax planning strategies used by
multinationals to "shift" profits from higher–tax jurisdictions to lower–tax jurisdictions, thus
"eroding" the "tax–base" of the higher–tax jurisdictions.
Why in news?
▪ India and China recently amended the Double Taxation Avoidance Agreement (DTAA) for the
avoidance of double taxation and for the prevention of fiscal evasion with respect to taxes on
income, by signing a Protocol on 26 November 2018.
th

About the amendment

▪ Besides other changes, the Protocol updates the existing provisions for exchange of
information to the latest international standards.
▪ Further, the Protocol incorporates changes required to implement treaty related minimum
standards under the Action reports of Base Erosion & Profit shifting (BEPS) Project, in which
India had participated on an equal footing.
▪ Besides minimum standards, the Protocol brings in changes as per BEPS Action reports as
agreed upon by the two sides.

Fall of Indian Rupee
What is currency depreciation?
§ Currency Depreciation refers to a decrease in the value of the domestic currency in terms of
a foreign currency.
§ It makes the domestic currency less valuable as a result of which more of it is required to
buy the foreign currency.
Rupee hits new low
§ In 2018, the rupee breached the 72.50 a dollar mark for the first time, raising concerns
over worsening macroeconomic parameters.
§ The rupee has depreciated over 16% in 2018, making it the worst performing currency in
Asia.
Factors causing the Rupee to Weaken
§ Rising crude oil prices
§ Strengthening of the U.S. dollar
§ The outflow of foreign funds- foreign institutional investors (FIIs) have sold shares worth Rs.
1,805 crores
Turkish Lira- made things worse
§ Due to a diplomatic spat, USA had imposed economic sanctions on Turkey. This resulted in
the value of the Turkish Lira, the currency of Turkey to drop down drastically.
§ It also caused a cascading effect on emerging currencies including India which further
depreciated Indian Rupee.
Will it help our economy?
§ The weaker rupee will help India’s export sectors. Information technology and pharma
companies benefit from a weak rupee since most of their revenues come from foreign
countries.
§ The rupee slide will also help maintain global export competitiveness for Indian
companies.
§ Rajiv Kumar, vice-chairman of NITI Aayog, told in July 2018, “the Indian rupee was still
overvalued by 5-7% in REER terms, which affects country’s exports.” (Real Effective
Exchange Rates or REER is an indicator of the competitiveness of a country’s currency with
respect to a basket of currencies, adjusted for inflation effects)
But…
§ Exports of a country are not decided only by the value of currency. HSBC economists
estimated that exchange rate accounts for just around 20% of export growth.
Then what determines growth in exports?
§ Exports are mostly determined by factors like Infrastructure, Productivity and Quality of the
exported goods.
What about imports?
§ It will make imports costlier. Some imports cannot be cut down such as oil, which can
negatively affect India's current account deficit.
§ This could increase in fuel price. Such a rise, could have cascading effects on transportation
costs, which in turn would affect the prices of various commodities and trigger inflation.
§ The goods that use imported components such as computers, smartphones and cars also get
more expensive. All import-based industry and trade suffers.
Other impacts
§ Aside from these, weak rupee also makes education and holidays in foreign countries more
expensive, but influx of tourists to India may rise.
§ As a result of robust exports, more jobs may be created leading to an increase in employment.

Fall of Rupee
Govt. measures to stabilise rupee
§ Government has announced a set of five measures aimed at supporting the rupee, which
has been under pressure and ensuring that the current account deficit stays in control.
These includes:
○ Cutting down non-essential imports and boosting exports
○ Restrictions with respect to foreign portfolio investors (FPI) exposure limit to be
reviewed
○ Exemption from withholding tax for masala bonds (rupee- denominated instruments
issued abroad by Indian borrowers)
○ Permitting manufacturing entities to avail ECB facility with minimum maturity of one
year, instead of the earlier limit of three years
○ Mandatory hedging condition for infrastructure loans borrowed under the external
commercial borrowing (ECB) route to be reviewed. Presently there is no compulsion
on borrowers to hedge these loans.

Foreign Exchange Reserve
What is meant by "Foreign Exchange Reserve"?
§ Indicate the reserves held by RBI in the form foreign currency assets, gold, SDR and reserve
tranche.
1. Foreign Currency Assets-Currencies of foreign countries are held in foreign exchange
reserve. Apart from currency it also includes foreign currency deposit held by RBI with
foreign central banks, The BIS and Non-Resident Deposit-taking institutions. The
securities issued by non-residents and financial derivatives having underlying foreign
currency assets also form part of the foreign currency assets.
2. Gold Stock of RBI-The RBI has gold stock as a backup to issue currency and to meet
unexpected balance of payment problems.
3. SDR Holdings-Special Drawing Rights (also called “paper gold”) is reserve created by
IMF to help countries that have Balance of Payment problems. The member countries
have to contribute to this account. The contributions are in proportion of their IMF quota
(membership fee). The SDR basket consists of five major currencies of the world - US
dollar, Euro, British Pound, Chinese Renminbi and Yen (Japan).
4. Reserve Tranche-The reserve tranche is a portion of the required quota of currency
that each IMF member country must provide to the IMF. It can be accessed by the
member country at any time for its own purposes without a service fee.
Need for Forex reserve
§ It is a cushion against any potential supply crisis or balance of payment related issues
§ Often used to back liabilities on their own issued currency
§ It also influences the monetary policy
Why in News?
§ India’s foreign currency reserves have declined by $5.143 billion to $394.465 billion during
the week to October 12, 2018. This is one of the steepest falls that the forex has seen in recent
decades.
§ The fall is mainly due to the continuing fall of the rupee against US dollars. As the rupee was
depreciating, the RBI sold over $40 billion of its reserves to support the rupee since the
beginning of 2018. (When RBI sells dollars in exchange of rupees, the demand of rupee will
increase which will consequently increase the value of rupee against dollar)
§ At the current level, reserves are adequate to cover more than nine months of imports.

Trade deficit
What is Trade Deficit?
§ A trade deficit is an economic measure of international trade in which a country's imports
exceeds its exports.
§ It is also referred to as a negative balance of trade (BOT).
Why is it important?
§ When a country’s trade deficit increases, it contributes to a depletion of foreign currency
assets.
§ High imports result in higher demand for foreign currencies (mostly Dollars) causing
rupee to weaken (rupee depreciation).
§ A widening trade deficit also indicates that a country’s domestic producers are finding it
tough to compete effectively with their global counterparts, prompting consumers to
depend on imported products.
Depreciating rupee not helping exporters
§ The trade deficit shrunk to a five-month low of $13.98 billion in September 2018 as compared
to $17.4 billion in August despite high oil prices. The overall trade deficit stood at $94.32
billion in the first six months of the FY 2019.
§ This can be attributed to the government measures in September to cut down non-essential
imports.
§ However, India's exports declined 2.15 per cent in September 2018 compared to 2017. This
shows that the rupee depreciation against the US dollar has not, so far, improved the
 competitiveness of our export sector. (It is generally believed that depreciation of a country’s
currency will increase its exports as it become cheaper)
Reasons for the fall of exports
§ Higher input cost because of the current depreciated rupee value makes export costlier.
§ Tariff uncertainty due to uncertainty in GSP policy of USA.
§ No refund of IGST, usually the exporters are refunded with GST collected as input cost from
CGST and SGST but the exporters complain that they are not receiving the refund with IGST
when they operate on interstate.

NRIs deposits surge
Why in news?
▪ Non-resident Indian (NRI) deposits jumped to $5.7 billion in the first five months of FY 2019
compared to $0.5 billion in the same period in 2017.
Causes of rise of NRI deposit
§ The first reason is slide in the value of Indian rupee(depreciation), which makes the deposits
in the rupee attractive to NRIs. The reason is that since the value of rupee is down the cost of
investment will be less and return will be high for the investors.
§ Non-Resident (External) Rupee Account was the main contributor at $4.1 billion compared
to $1.7 billion during the same period of the previous year. These deposits are maintained by
converting the external currency to rupees and they have free repatriation and are tax free.
§ Also, when currency depreciates, interest rates for deposits in the country moves up. So,
prospective interest earnings also go up. This too incentivises NRIs to send more money
during the episodes of currency depreciation.
§ Another reason is rise in oil price. The rise in oil prices has benefitted the NRIs from UAE and
Middle East who has started investing in India.

Hiking Import Duty
What is import duty?
§ Import duty is a tax collected on imports and some exports by a country's customs
authorities.
§ It is usually based on the imported good's value.
§ Depending on the context, import duty may also be referred to as customs duty, tariff, import
tax or import tariff.
Why in News?
§ The government hiked the import duty on certain communication items, including a base
station and digital line systems, to 20%.
The rationale behind the move
§ Central Government has raised the import duty leviable on goods falling under Chapter 85 of
the First Schedule to the Customs Tariff Act, 1975 in order to check the widening Trade
Deficit.
§ Chapter 85 deals with electrical machinery and equipment, sound recorders, television image
recorders and their parts.

Safeguard duty
What is a Safeguard duty?
▪ Safeguard duties are temporary measures imposed on the import of goods to protect
domestic manufacturers who are not been able to compete with cheap imports.
▪ In July 2018, the government imposed 25% safeguard duty on solar panels imported from
China and Malaysia, which covers more than 90% of solar panels and modules used in Indian
solar projects.
Implications
▪ The safeguard duty recommended is both boon and bane for the solar value chain.
▪ The boon is the opportunity it provides the domestic module industry to flourish. India
has huge potential in solar power to meet its growing energy requirements.
 ▪ Countries such as China and Malaysia, also key countries that manufacture solar cells are
able to sell such equipment at prices below what Indian firms can offer. Hence, the
imposition of the tariff would protect India’s firms from such cheap imports.
Downside of introducing safeguard duty
▪ The bane is the duty could raise capital costs for solar projects based on imported modules
by 15-20%. In the absence of cheap imports, the pricing of energy harnessed due to this
will also increase, adding to costs.
▪ It would affect India’s quest to harness more clean energy resources and hence disrupt its
efforts to realize its global environmental commitments including Paris Goals.
Why in News?
▪ According to a report on the wind and solar sectors released by ICRA, a credit rating agency,
the imposition of safeguard duty on imported photovoltaic modules and the rupee
depreciation against the US dollar are estimated to increase the capital cost of solar power
projects by 20-25%.
▪ Further, the rising bank interest rates are putting pressure on the viability of the wind and
solar projects having tariffs less than Rs. 3 per unit.

Anti-dumping duty
What is dumping of goods?
▪ When goods are exported from a home country to another country at a price which is less
than what it is sold for, in the home country or when the export price is less than the cost
of production in the home country, then those goods are said to be dumped.
▪ To protect local businesses and markets, many countries impose stiff duties on products
they believe are being dumped in their national market.
Anti-dumping duty
▪ An anti-dumping duty is a tariff that a domestic government imposes on foreign imports
that it believes are priced below fair market value.
▪ Anti-dumping duty was introduced with the objective of curbing the ill effects caused by
dumping on domestic industries, as well as to promote and establish fair trade.
Customs Duty vs. Anti-Dumping Duty
▪ While anti-dumping measures are linked with the notion of fair trade, customs duties aim
at the overall development of the economy.
▪ Anti-dumping duties are imposed against exporter/country in as much as they are country
specific and exporter specific, in contrast to customs duties which are universally
applicable to all imports irrespective of the country of origin or the exporter.
▪ Customs duties fall under the ambit of trade and fiscal policies of the Government, whereas
anti-dumping is a remedial measure.
▪ Anti-dumping is implemented to offset the injurious effect of international price
discrimination, while customs duties have implications for the government revenue & the
overall development of the economy.
How Anti-dumping duties are levied in India?
▪ The Department of Commerce in the Commerce Ministry has an Anti-dumping Unit.
▪ This unit investigates cases where the domestic industry provides evidence that dumping
has taken place by producers from a foreign country.
▪ If the evidence of dumping is clear, the government of India will levy an anti- dumping duty
on that commodity for a period of five years and will review the need for continuation of
duty thereafter.
Why in news?
▪ Companies in India were found to side-step the anti-dumping measures imposed by the
government by deliberately misclassifying items imported from China as per the report of
the Parliamentary Standing Committee on Commerce.
▪ The Chinese non-alloy steel is being imported by being declared as alloy steel.
Current scenario
▪ This mis-declaration while importing the goods which otherwise have been put under anti-
dumping measures nullify the whole effort to protect the domestic industry from unfair
trade practices.
▪ The report also notes that the government has been reluctant to review the effectiveness of
its anti-dumping measures.
▪ The committee noted that though nearly 75-80% of Chinese steel imports are covered
under the anti-dumping duty, the import of such steel products has increased 8%.

U.S.-China Tariff war
What is a ‘tariff war’?
§ The scenario when a country raises the tax rate on products coming from another country
and that country, in retaliation raises the tax rate on products exported from the first
country, is called a tariff war.
§ It is the economic battle between the two countries and it ultimately results in raising the
total cost of those products
Escalating tariff war
§ The trade rivalry between the U.S. and China escalated to an unprecedented level with
both countries announcing new tariffs on imports from each other.
When did the Trade war start?
§ It all started in January 2018 when the U.S. imposed safeguard tariffs on washing machine
and solar cell imports targeting China and the subsequent retaliatory tariffs on U.S. imports.
Why the U.S. started trade war?
§ U.S. justifies duties on Chinese imports by accusing China’s unfair trade practices like
devaluing currency to push its exports.
§ It also accuses that the Chinese government deploys unfair, opaque and unwritten ways to
force U.S. firms to share technology with Chinese companies to gain access to China’s vast
market.
Opportunities for India?
§ The Confederation of Indian Industries (CII) has opined that the US-China trade war can
be positive for India.
§ As they exchange fire at the other in trade by imposing tariffs on the other’s products in
their countries, India may have an opportunity to boost its exports to these countries
simply for the reason of much lower tariffs for Indian products in these countries.
§ The focus is on industries such as apparels, pumps, footwear, toys, vehicle parts,
engineering goods, etc. where India has an edge in competitiveness.
Confederation of Indian Industry (CII)
§ CII is a non-government, not-for-profit, industry-led and industry-managed
organization, founded in 1895.
§ It has members from private as well as public sectors, including SMEs and MNCs.
§ It works with the government on policy issues and economic reforms.

Currency war
What is currency war?
§ It is a condition where countries seek to gain a trade advantage over other countries by
deliberately causing the exchange rate of their currency to fall in relation to other currencies
(devaluation).
§ As the exchange rate of a country's currency falls, exports become more competitive in other
countries, and imports into the country become more expensive.
§ Both the effects benefit the domestic industry, and thus employment, which receives a boost
in demand from both domestic and foreign markets.
§ Although currency depreciation or devaluation is a common occurrence in the foreign
exchange market, the hallmark of a currency war is the significant number of nations that
may be simultaneously engaged in attempts to devalue their currency at the same time.
 § The price increases for imported goods (as well as in the cost of foreign travel) are
unpopular among citizens as they harm the citizens' purchasing power, and when all
countries adopt a similar strategy, it can lead to a general decline in international trade,
harming all countries.
Why in the news?
§ Due to increased trade tensions in the international platform especially involving China and
the US, there is a fear that countries are resorting to this method to gain unfair advantage
over competitors.

China eyes Indian-manufactured drugs
Background
§ India dominates the world’s generic drugs market, exporting $17.3 billion of drugs in the
2017/18 (April-March) year, including to the U.S. and the EU.
§ But only 1% of that went to China, the world’s second-largest market for pharmaceuticals.
What are Generic Drugs?
§ Generic drugs are copies of brand-name drugs that have exactly the same dosage, intended
use, effects/side effects, route of administration, risks, safety, and strength as the original
drug.
§ In other words, their pharmacological effects are exactly the same as those of their brand-
name counterparts.
Scenario in China
§ China has been touting greater access to cancer drugs and pushing to lower prices in a bid
to soothe a major social issue in the country, where traditionally many patients with serious
illness have had to pay out of their pocket for cutting-edge drugs or have had to buy
medicines through unapproved grey market channels.
§ China also lags far behind in terms of drug approvals versus developed markets.
What’s in the news?
§ China is preparing to give swift regulatory approvals to India-manufactured drugs.
Implications for India
§ Swift regulatory approvals in China would allow Indian companies to boost revenue at a
time when pricing scrutiny and regulatory troubles have hurt U.S. sales.
§ China exempted import tariffs on 28 drugs, including all cancer drugs, a move that would
help India reduce its trade imbalance with China.

Indian Pharmacy Export
PHARMAEXCIL
▪ Pharmaceuticals Export Promotion Council (PHARMAEXCIL), is the facilitator for Indian
pharmaceutical exports set up by Ministry of Commerce and Industry.
▪ Pharma drugs export is a major contributor to India’s exports, the pharmaceutical business
is valued at $17.3 Billion.
▪ North America, especially the US is the biggest importer of drugs from India.
Why in the news?
▪ The import of Indian pharma drugs to the US is in the decline and Indian Drug exporters are
looking at other markets beyond US as potential targets for their exports.
▪ This comes at a backdrop when the US has tightened its norms through strict regulations,
tough policy approach and pricing issues.
▪ Emerging markets identified for exporting Indian made drugs are Commonwealth of
Independent States and Latin America.

India-Japan currency swap agreement
What is currency swap agreement?
§ A currency swap typically involves trade in local currency where countries pay for the
imports and exports at predetermined rate of exchange without involving a third currency
like US dollars.
§ It helps in fighting the short term liquidity mismatches.
 § The purpose of a currency swap is to protect the exposure to exchange rate risk or reduce the
cost of borrowing a foreign currency.
Benefits of Currency Swap Agreement:
§ The currency swap agreement is very important to bring the investor confidence in the
capital market in India, because even when rupee value falls down they can exchange
currency.
§ And it reduces the cost of capital for Indian companies while assessing the foreign capital
market.
§ The swap arrangement should aid in bringing greater stability to foreign exchange and capital
markets in India.
§ With this agreement in place the government can use the existing foreign exchange towards
the development needs of our country.
§ This swap arrangement particularly reflects the depth of mutual trust and understanding
between the two countries.
Why in news?
§ The Prime Ministers of India and Japan, building on great friendship between the two
countries and to further strengthen and widen the depth and diversity of economic
cooperation, agreed during Prime Minister Modi’s visit to Japan, to conclude a Bilateral
Currency Swap Agreement for an amount of $75 billion.

Asian premium
What is Asian Premium?
§ It refers to the extra charge (premium) collected by OPEC countries from Asian countries
when selling oil in comparison to western countries.
§ Western countries like U.S and European Union are supplied oil at a subsidized price.
§ Because of the premium, India ends up purchasing fuel at higher cost leading to inflation.
Why in news?
§ During an OPEC meeting held in 2018, the India and other Asian countries asked OPEC
countries to not discriminate Asian countries to imposing the ‘Asian Premium’ while
subsidizing the U.S. and the European countries.

Oil Prices
What’s in the News?
§ The prices of petrol and diesel touched a new high on Sept 16, 2018.
§ India imports about 80% of its crude oil, and the falling rupee will make the imports costlier
and lead to a rise in fuel prices.
Types of crude oil
§ There are different types of crude and some are more desirable than others. Buyers of crude
oil need an easy way to value the commodity based on its quality and location.
§ Benchmarks such as Brent, WTI and Dubai/Oman serve this important purpose. For
instance, When refiners purchase a Brent contract, they have a good idea of how good the
oil will be and where it will come from.
Taxes on fuel
§ Taxes on fuel include central excise duty levied by the central government, and Value
Added Tax (VAT) charged by the states (varies from state to state).
Double taxation
§ When an oil marketing company sells a litre of petrol to dealers, the dealer applies his
commission, while the Centre applies its excise duty, at a fixed rate of Rs 19.48 per litre.
§ On this landed price, the state applies its VAT (27 per cent in Delhi), which gets applied
on the excise duty, resulting in double taxation (Tax on already taxed product)

Impact of oil price cut on OMCs’
What is the Issue?
 § The government has decided to reduce the central excise duty levied on petrol and diesel by
Rs 1.50 in light of the skyrocketing fuel prices to ease the burden on the consumers.
§ In addition to this, the government had also asked the OMCs to cut the retail price of both
diesel and petrol by Rs. 1 per litre which is resulting in an effective fuel price cut of Rs 2.50.
Impact on OMC
§ The decision of the government to reduce petrol and diesel excise duties will have a negative
effect on Oil Marketing companies.
§ The OMCs cannot fully pass on higher crude oil prices to consumers and their earnings will
be negatively affected.
§ According to experts, the fuel price cut may lead to losses of about 3,500 crores.
About Oil Marketing Companies
§ In India, there are 3 big Oil Marketing Companies (OMCs): Indian Oil Corporation (IOCL),
Hindustan Petroleum Corporation Limited (HPCL), and Bharat Petroleum Corporation
Limited (BPCL).
§ In addition to pure marketing, these companies also refine and market oil that they buy from
upstream oil exploration and production companies including from ONGC, Oil India, Reliance
Industries, Cairn India etc. Their purchase price is directly related to international crude
price.
§ OMCs are not free to decide their selling price but instead, they are compelled to sell the
products (petrol, diesel etc) at discounted rates.
§ The difference between OMCs purchase price and the discounted rates i.e. actual selling price
realized (excluding taxes, dealer commission) represents ‘under-recoveries’ of OMCs. This
amount of under-recovery is paid to the OMCs by the Government of India.

Generalised System of Preferences (GSP)
What is it?
§ It is one of the oldest trade preference programmes in the world, under which developed
countries offer preferential treatment (such as zero or low duties on imports) to products
originating in developing countries.
Eligibility Review of India
§ The GSP programme of U.S. allows market access at nil or low duties for about 3,500 Indian
products.
§ In April, The United States Trade Representative (USTR) launched a GSP eligibility review of
India to assess whether India is providing equitable and reasonable market access to
products from the US.
§ The review is based on complaints from US’ dairy and medical device industries alleging that
India has implemented a wide array of trade barriers that affecting the US exports in those
sectors.
Why in news?
§ The US recently revoked the duty free concession under GSP of 90 products out of which 50
are from India.
§ Most of the products are from handloom and agriculture sectors reflecting Mr. Trump
administration’s tough stand on trade related issues.
More about the revocation:
§ The proclamation however is product specific and not country specific.
§ With India being the largest beneficiary of GSP, it has been the most hit by the US decision.
§ The volume of India’s export to the US impacted by the latest move of US is not known yet,
but it is likely that small and medium businesses would be impacted the most.

Gold imports rise
What’s in the news?
▪ India’s gold imports increased by about 4% to $17.63 billion in the first half of 2018-19.
How import of Gold affects our economy?
▪ India is the world's biggest gold importer. Import of gold increases the country’s CAD-
Current Account Deficit- which means the value of goods and services we import exceeds the
value of those we export. The recent surge in gold imports has widened CAD to 2.4% of the
GDP.
▪ Importing huge amounts of gold using foreign exchange reserves depreciate the value of the
rupee. This in turn makes key imports like crude oil more costly.
▪ Investment in gold does not add much value to the productive capacity of the economy. They
are either stored in bank lockers or get exchanged for making jewellery.
Government measures to increase productive use of Gold
▪ Gold Monetization Scheme to bring out the gold lying idle in homes into the Indian Economy
which would turn gold into a productive asset. Through this scheme, people can deposit their
gold and can earn interest on it.
▪ Sovereign Gold Bond scheme to reduce the demand for physical gold which offers the same
benefits as of physical gold. The value of gold bond increases with the market rate of gold.

Doha Development Agenda
Doha Development Agenda (DDA)
§ DDA is the trade-negotiation round of the WTO which commenced in November 2001.
§ Its objective was to lower trade barriers around the world and thus facilitates increased
global trade.
§ The most significant differences are between developed nations led by the European Union
(EU), the United States (US), Canada, and Japan and the major developing countries
represented by India, Brazil, China, and South Africa that are overseen by the Trade
Negotiations Committee (TNC).
What’s in the news?
§ Commerce Minister has approved the constitution of a high-level advisory group (HLAG) to
examine the prevailing international trade dynamics to facilitate future trade policies.
The terms of reference (ToR)
§ To examine the prevailing international trade dynamics, the rising protectionist tendencies
§ Non-engagement by some countries on commitments, including the Doha Development
Agenda.
What is a Protectionist Tendency?
§ It is the economic policy of restricting imports from other countries through methods such
as tariffs on imported goods, import quotas, and a variety of other government regulations
thereby limiting unfair competition from foreign industries

Fed rate hike
Fed rate hike
§ The U.S. Federal Reserve has raised its interest rates applicable to the overnight loans
between banks and credit institutions.
How the rate Hike affects US economy?
 §Whenever there is a rise in the interest rate, US dollar will appreciate. US imports would
become cheaper and exports expensive which in turn makes dollar more stronger leading to
the increase in the loan and deposit.
How does the federal rate hike impact India?
§ It would encourage foreign investors to pull out their investment from India and invest in the
US market as they can derive more interest.
§ This will increase pressure on Indian rupee to which RBI might use forex reserves to keep
the rupee from falling further.
§ As the dollar strengthens our import will increase that in turn would increase inflation and
corporates with external commercial borrowings will face pressure of repayment.

India to export fish meal & fish oil to China

Background
▪ India has a huge trade deficit of almost $51 billion in China’s favour.
▪ Both sides are trying to reduce the trade deficit by allowing agriculture and pharmaceuticals
products from India.
▪ China was often accused of using non-tariff barriers to restrict trade from other countries.
What ae non-tariff barriers?
▪ A nontariff barrier is a way to restrict trade using trade barriers in a form other than a tariff.
▪ Nontariff barriers include quotas, embargoes, sanctions, levies and other restrictions.
▪ Phytosanitary measure was used as a reason by China to prevent agricultural import from
India.
Why in news?
▪ India and China commerce secretaries led delegation signed a protocol on 28 Nov 2018 on
fish meal and oil export to China.
▪ The signing of Protocol formalises the consensus reached by both sides on hygiene and
inspection requirements of fish meal and fish oil to be exported from India to China, and will
enable India to commence export of fish meal and fish oil to China.
▪ Both the Indian and Chinese sides appreciated each other’s concerns and agreed to resolve
the market access issues expeditiously to achieve the vision of the leaders of both the
countries by promoting a more balanced trade.

Credit rating agencies and credibility
What are credit rating agencies?
§ Credit ratings agencies are the independent institutions which ‘’grades’’ after analyses and
assessments which help retail and institutional investors (like banks, financial institutions)
with information that assists them in determining whether issuers of bonds and other debt
instruments and fixed-income securities will be able to meet their obligations.
What are the problems of CRAs in India?
▪ Independence of the ratings committee without a standard regulator
▪ No standard fee structure for bond rating
▪ No standard procedure for quality of the analysis. Every CRA has its own procedure.
▪ Only 4 CRAs are given license by SEBI for credit rating but these companies employ other
smaller companies.
▪ Many clients put pressure to complete rating on these agencies.
Way-forward
▪ A central authority should be assigned to maintain the procedures and standards.
▪ Standard credentials to analysis the quality.
▪ Standardising the fee structure at least in the case of bond ratings.
LOCs
What are LOCs?
▪ Look-Out-Circular is issued to check a person travelling out of the country who is needed by
the police.
Why in News?
▪ Ministry of Home Affairs has added Public Sector Banks CEOs in the list of officials who can
request for the issuance of LOCs. This step was taken to curb the absconding nature of
defaulters who run away to other countries.

Local currency trade between India & China

What’s in the news?
§ China has not accepted India’s proposal to carry out bilateral trade in local currencies
(renminbi-rupee).
§ In local currencies trade, countries trade using their domestic currencies without completely
depending on a third currency (usually US Dollar).
Why it is important for India?
§ India’s proposal was aimed at boosting its exports and bridging the widening trade deficit
with china.
§ India’s exports to China stood at only $13.4 billion, imports aggregated to $76.4 billion in
2017-18, leaving a trade deficit of $63 billion. It was $51.11 billion in 2016-17.
§ India has also proposed trade in national currencies with some other countries, including
Russia, Iran and Venezuela. India has trade deficit with these three countries, too.
Rupee-Rial mechanism
§ Currently, India has a similar agreement with Iran known as ‘rupee-rial’ mechanism, under
which Iran could use some of its revenue from oil trade with India to procure India goods.

Easing global trade
About WCO
▪ The World Customs Organization (WCO), established in 1952 as the Customs Co-operation
Council (CCC) is an independent intergovernmental body.
▪ Its mission is to enhance the effectiveness and efficiency of Customs administrations and to
secure and facilitate international trade.
▪ Today, the WCO represents 182 Customs administrations across the globe that collectively
process approximately 98% of world trade.
Why in news?
▪ The 80th Session of Policy Commission of WCO was held in Mumbai.
▪ The event was organized by the WCO and hosted by the Central Board of Indirect Taxes and
Customs (CBIC), India.

Foreign fund outflows

Who are Foreign portfolio investors?
▪ FPIs are non-residents who invest in Indian securities including shares, government bonds,
corporate bonds, convertible securities, infrastructure securities etc.

Why in News?
▪ For the Indian equity markets, year 2018 end as the worst in terms of foreign money outflows
since 2008. Foreign investors have been net sellers at almost $4.8 billion or Rs 33,344 crore
during the calendar year 2018.
▪ 2018 is only the third such year in the last decade when FPIs would end a calendar year as
net sellers of Indian shares.
Why investors are moving out of India?
▪ The outflows were primarily on account of the weakness in the rupee. Rupee fluctuated
from around 64 level to 74 against the dollar during the year.
▪ Another major reason is the volatility of the stock markets that saw the benchmark Sensex
touching an all-time high of 38,989 in August only to lose more than 9% or more than 3,500
points since then.
▪ There was also heightened volatility globally due to the concerns related to the trade war
between U.S. and China that made investors stay away from the emerging market pack,
including India.
Domestic support
▪ Meanwhile, potential losses this year have been largely mitigated due to the strong buying
support from domestic institutional investors such as mutual funds and the Life Insurance
Corporation (LIC).
▪ Strong buying by domestic investors also helped the Indian stock markets overtake Germany
for the first time ever in terms of market capitalisation.

Merchandise Exports from India Scheme (MEIS)
Merchandise Exports from India Scheme (MEIS)
▪ The scheme was launched under Foreign Trade Policy of India (FTP) 2015-20 to offset
infrastructural inefficiencies and associated costs involved in export of goods and products,
which are produced and manufactured in India.
▪ It seeks to enhance India’s export competitiveness of these goods and products having high
export intensity, employment potential.
▪ Notified goods exported are given MEIS duty-free scrips which can be used while paying a
number of duties like customs, excise etc.
Why in News?
▪ The Centre has doubled the incentive granted for the export of onions under the MEIS to 10%
from 5% in a measure to stabilise the slumping price of the commodity.
▪ The recent fall in the price of onions has forced farmers to sell below cost. The incentive will
encourage exports of onions and result in a better price for onion in domestic markets.
 INDICATORS/REPORTS
Swaminathan Committee Report
What is Minimum Support Price?
▪ Minimum Support Price is an important part of India’s agricultural price policy. The policy
was started in 1966-67 in the wake of Green revolution.
▪ It is basically the price at which government purchases crops from the farmers, whatever
may be the market price for the crops.
▪ MSP prices for various crops are announced at the beginning of each sowing season.
Who declares and who prepares it?
▪ The Cabinet Committee on Economic Affairs (CCEA), of the union government, determines
the Minimum Support Prices (MSP) of various agricultural commodities in India based on
the recommendations of the Commission for Agricultural Cost and Prices (CACP).
How is the MSP calculated?
▪ The MSP is calculated using 3 different formulas. A2, A2+FL, C2
▪ A2 Cost – the price the farmer pays out of his pocket for various agricultural inputs such as
seeds, fertilisers, pesticides, land lease, hired labour, hired machinery, etc.
▪ A2+FL cost – The A2 cost + Imputed cost of unpaid Family Labour
▪ C2 cost – A2+FL cost + Rentals/Interest forgone on owned land + Fixed Capital Assets
▪ National Commission on Farmers headed by Dr. M. S. Swaminathan submitted its report
in 2006. It recommended an MSP of C2+ 50% above the C2 cost.
Why in news?
▪ In July 2018, the government increased the MSP by 50% for kharif crops based on A2+FL
cost.
▪ However, farmers across the country are protesting against using the A2+FL cost formula
instead of the C2 cost, as recommended by the Swaminathan Committee.
Other recommendations of Dr Swaminathan committee
▪ To distribute ceiling-surplus and waste land among farmers: The share of the bottom half of
the rural households in the total land ownership was only 3 per cent and the top 10 per cent
was as high as 54 per cent.
▪ To prevent diversion of prime agricultural land and forest to corporate sector for non-
agricultural purposes.
▪ To ensure grazing rights and seasonal access to forests to tribals and pastoralists, and access
to common property resources.
▪ To establish a National Land Use Advisory Service: This would have the capacity to link
land use decisions with ecological meteorological and marketing factors on a location and
season-specific basis.
▪ To set up a mechanism to regulate the sale of agricultural land, based on quantum of land,
nature of proposed use and category of buyer.

Index of Industrial Production (IIP)
About IIP
§ It is an index which details out the growth of various sectors in an economy such as mineral
mining, electricity and manufacturing.
§ Index of Industrial Production is compiled and published every month by Central Statistics
Office (CSO) of the Ministry of Statistics and Programme Implementation.
§ The Eight Core Industries comprise 40.27 per cent of the weight of items included in the Index
of Industrial Production (IIP). These include –
1. Coal production (weight: 10.33 per cent)
 2.Crude Oil production (weight: 8.98 per cent)
3.Natural Gas production (weight: 6.88 per cent)
4.Petroleum Refinery production (weight: 28.04 per cent)
5.Fertilizers production (weight: 2.63 per cent)
6.Steel production (weight: 17.92 per cent)
7.Cement production (weight: 5.37 per cent)
8.Electricity generation (weight: 19.85 per cent).
Why in the news?
§ Industrial production slowed to a 10-month low of 4.3% in August 2018, due in large part to
a drastic deceleration in the manufacturing, mining, and consumer durables sectors,
according to official data released recently.

Purchasing Managers Index (PMI)
What is PMI?
§ It is an economic indicator which indicates the business activity, & economic health of the
manufacturing and service sectors.
§ PMI of India is published by Japanese firm Nikkei but compiled and constructed by Markit
Economics.
§ Unlike the Index of Industrial Production (IIP) which indicates the changes in production
volume or output, the PMI is an investor sentiment tracking index and is more dynamic in
nature.
How is it calculated?
§ They are derived from monthly surveys of about 400 private sector companies.
§ Variables used for calculating the PMI are: Output, New Orders, Employment, Input Costs,
Output Prices, Backlogs of Work, Export Orders, Quantity of Purchases, Suppliers’ Delivery
Times, Stocks of Purchases and Stocks of Finished Goods.
How to read PMI?
§ PMI >50 implies expansion of business and economic activity. PMI <50 implies contraction
of business and economic activity.
Why in news?
§ According to the latest PMI data, manufacturing activity expanded in November 2018 and
registered a reading of 54, up from 53.1 in October.
§ It is the highest in 11 months, as new order flows encouraged companies to lift production
amid strong demand conditions.

Retail inflation
About CPI
▪ It is an index which measures the weighted average of prices of a basket of consumer goods
and services such as transportation, food and medical care.
▪ It is calculated by measuring price changes for each item in the predetermined basket of
goods & services and averaging them.
▪ It is released by the Central Statistical Organisation (CSO) under the Ministry of Statistics
and Program Implementation.
▪ The base year being used to calculate CPI in India is 2011-2012.
About WPI
▪ It measures and tracks the changes in the price of goods in the stages before the retail level.
It provides estimates of inflation at the wholesale transaction level for the economy as a
whole.
 ▪It is released by the Office of Economic Adviser, Department of Industrial Policy and
Promotion, Ministry of Commerce and Industry. The base year is 2011-2012.
▪ The index basket consist of commodities under 3 main categories in decreasing order of
weightage: Manufactured products, Primary Articles and Fuel and Power.
Why in News?
▪ Inflation in December 2018 eased at both the retail and wholesale levels with the CPI coming
in at an 18-month low and the WPI registering an eight-month low.
▪ Growth in the CPI stood at 2.19% in December, down from the 2.33% registered in
November.
▪ Inflation as measured by the WPI dropped to an eight-month low of 3.8% in December from
the 4.64% recorded in November.
▪ The fall is mainly due to falling food and fuel prices.

Base Year
What is a ‘base year’?
§ It is the year used as the beginning or the reference year for constructing an index.
§ For example, suppose the base year is 2001, and the initial value of an index is 100. If the
index is 150 in 2009, it means that the value of the index is 50% higher in 2009 than it was
in 2001. It is also called the reference year.
Why in news?
§ The Ministry of Statistics and Programme Implementation (MOSPI) will soon change the
base year to 2017-18 from the current 2011-12.
§ This is for GDP calculation and other national accounts (like IIP numbers).
§ The change aims to capture changes in the economy in a more accurate fashion.

GDP deflator
What is GDP Deflator?
▪ It is the measure of inflation. It is calculated by dividing nominal GDP by real GDP and then
multiplying the answer by 100.
▪ GDP deflator = (nominal GDP ÷ real GDP) x 100
▪ Nominal GDP is the GDP when measured at the current prices. It does not take into account
the inflation.
▪ Real GDP is the GDP when measured at constant prices. It is inflation-adjusted and is
calculated with a base year.
Advantages of GDP deflator
▪ The GDP deflator covers the entire range of goods and services produced in the economy
unlike the indices like WPI or CPI which covers only a limited part.
▪ It is a more comprehensive measure of the inflation.
 ▪ However, GDP deflator is available only on a quarterly basis along with GDP estimates,
whereas CPI and WPI data are released every month.

City-level GDP
Background
§ Indian population is increasingly moving to urban areas where there is a higher
concentration of economic activities in comparison with rural areas.
§ The urban areas also contribute to a higher percentage of the country’s GDP (projected to
be 75% of India’s GDP by 2020)
Need for city-based GDP Index
§ So far, parameters in the economy were based on the national level GDP.
§ However, the contributions of individual cities would be determined if there were a city-
based GDP Index.
§ Such an index would help in assessing the required infrastructure, investment and the
procuring the funds to address these issues.
§ This will achieve the core objectives of the Smart Cities Mission- better quality of life,
thriving economy and sustainable development.

FDI Confidence Index – AT Kearney
What is the FDI Confidence Index of AT Kearney?
▪ It is an annual survey which tracks the impact of likely political, economic, and regulatory
changes on the foreign direct investment intentions and preferences of CEOs, CFOs, and
other top executives of Global 1000 companies.
▪ The report includes detailed commentary on the markets and the impact a variety of global
trade issues have on their FDI attractiveness, as well as a ranking of the top 25 countries.
Why in news?
▪ India in 2018 has fallen out of the top 10 destinations for FDI in terms of its attractiveness,
according the recent AT Kearney report.
▪ This fall is being attributed to the government’s demonetisation and the implementation of
GST.
Silver lining
▪ The report also talks about the positive reforms that would encourage foreign investors to
invest in India such as:
o Abolition of Foreign Investment Promotion Board (FIPB)
o Liberalisation of foreign investment thresholds for the retail, aviation, and
biomedical industries

State of working in India 2018

What’s in the News?
§ A new study titled "State of Working India 2018" was released by Azim Premji University’s
Centre for Sustainable Employment.

Highlights
§ The divergence between growth and jobs had increased over time. During the 1970s and 80s,
when GDP growth was around 3-4%, employment growth was about 2% ; Currently, the ratio
of GDP growth to employment growth is less than 0.1, which implies that 10% increase
in GDP results in a less than 1% increase in employment.
§ The total employment actually shrank by seven million between 2013 and 2015 and an
absolute decline has continued in the years since.
§ Unemployment has risen to more than 5% overall. In geographic terms, the north Indian
States are the most severely affected, while in demographic terms; young people with higher
education levels suffer an unemployment rate as high as 16%.
§ In the organised manufacturing sector, though the number of jobs has grown, there has also
been an increase in the share of contract work, which offers lower wages and less job security.
§ Labour productivity in the organised manufacturing sector is six times higher than it
was 30 years ago; however, managerial and supervisory salaries have only tripled in the
same period, while production workers’ wages have grown 1.5 times.
§ Women’s participation in the paid workforce is still low, but the situation is unequal
across States. In Uttar Pradesh, only 20 women are in paid employment for every 100 men,
while that figure jumps to 50 in Tamil Nadu and 70 in Mizoram and Nagaland.
§ With regard to earnings, the caste gap is actually larger than the gender gap. Dalits and
Adivasis are over-represented in low-paying occupations and severely under-represented in
higher-paying ones. They earn only 55-56% of upper caste workers’ earnings.

Growth of India will accelerate: World Bank
What’s in the news?
§ A World Bank report on South Asia has stated that the growth in India is projected to
accelerate to 7.3 per cent in the 2018-19 fiscal year and 7.5 per cent in the next two years.
Highlights of the Report
§ Prompted by the introduction of GST and recapitalisation of banks following demonetisation,
the Indian economy is growing at a firm rate and will see further acceleration.
§ It also said that the Indian economy appears to have recovered from the temporary
disruptions caused by demonetisation and the introduction of the GST.
§ The report projects the growth to accelerate to 7.3 per cent in the 2018-19 fiscal year and 7.5
per cent in the next two years, with stronger private spending and export growth as the key
drivers.
§ The robust growth was led by the manufacturing sector and domestic consumption
Challenges Ahead
§ The worsening trade deficit has led the current account deficit to widen due to a strong
import demand, higher oil prices and exchange rate depreciation.
 § External headwind, such as monetary policy ‘normalisation’ in the US coupled with recent
stress in some Emerging Market and Developing Economies have triggered portfolio outflows
from April 2018.
§ According to the report elevated oil prices, a recent hike in agricultural support prices and
further exchange rate depreciation could keep the inflation outlook challenging, possibly
resulting in further monetary policy actions.

ADB report on Migrating Indians
What’s in the news?
§ Asian Development Bank (ADB) has released its ‘Asian Economic Integration Report 2018’
report.
Highlights of the report
§ India had the most outward migrants in 2017 (17 million), followed by China (10 million)
and Bangladesh (7.5 million).
§ Asia continued as the largest source of international migrants globally which rose 3.9 per cent
from 83.6 million in 2015 to 86.9 million in 2017. As many as one-third of international
migrants were from Asia in 2017.
§ Intraregional migrants to India largely come from neighbouring countries such as Bangladesh
(3.1 million), Pakistan (1.1 million) and Nepal (0.5 million).
Who are International migrants?
§ The United Nations (UN) defines international migrants as ‘the set of persons who have ever
changed their country of usual residence i.e. persons who have spent at least one year of their
lives in a country other than the one in which they live at the time the data are gathered.’
§ They cross borders for various reasons—for employment, family reunification, study, and
fleeing from conflicts and violence.
About ADB
§ The Asian Development Bank was founded in 1966, with its headquarters in Manila,
Philippines.
§ ADB's primary mission is to foster growth and cooperation among countries in the Asia-
Pacific Region. It has been responsible for a number of major projects in the region.
§ ADB is composed of 67 members (including India), 48 of which are from the Asia and Pacific
region.

World Bank-Ease of Doing Business
About World Bank Ease of Doing Business Report
§ The ease of doing business index is an index created by the World Bank Group. Economies
are ranked on their ease of doing business, from 1–190.
§ A top rank means the regulatory environment of the country is more conducive to the starting
and operation of a local firm.
§ A nation's ranking on the index is based on the average of 10 sub-indices: Starting a business,
Dealing with construction permits, Getting electricity, Registering property, Getting credit,
Protecting investors, Paying taxes, Trading across borders, Enforcing contracts, Resolving
insolvency, Distance to frontier, Entrepreneurship, Good practices and Transparency in
Business Practices.
§ In India, these rankings are based on the business environment in Mumbai and Delhi.

Why in news?
§ India jumped 23 ranks in the World Bank’s Ease of Doing Business Index 2018 to 77. In the
2017 report, the country was ranked 100.
The important features of India's performance this year are:
§ The World Bank has recognized India as one of the top improvers for the year.
§ This is the second consecutive year for which India has been recognized as one of the top
improvers.
§ India is the first BRICS and South Asian country to be recognized as top improvers in
consecutive years.
§ India has recorded the highest improvement in two years by any large country since 2011 in
the Doing business assessment by improving its rank by 53 positions.
§ As a result of continued performance, India is now placed at first position among South Asian
countries as against 6th in 2014.
§ There is a large improvement in areas such as ‘dealing with construction permits’, ‘trading
across borders’, ‘getting electricity’, ‘getting credit’ and ‘starting a business’.
§ However, compared to last year, India saw its ranking dip on various other parameters, such
as “registering property”, “protecting minority investors”, “paying taxes” and “resolving
insolvency”.

Exim Bank Study
Why in News?
§ A recent Export-Import Bank of India (Exim Bank) bank study has showed that in the last ten
years, India’s total trade with the Latin America and Caribbean (LAC) region had more than
doubled from $ 17.5 billion in 2008 to $ 36 billion in 2017.
§ The study has stressed on the need to grow trade and investment between India and LAC
region which will be mutually beneficial as it provides huge opportunity for both the regions.
§ It also advocated that India should grab the opportunity by setting ambitious targets of
increasing bilateral trade to $100 billion by 2025 [including targeted exports of $50 billion]
About EXIM Bank
§ EXIM Bank is a specialized financial institution established in 1982 under Export-Import
Bank of India Act 1981. It is wholly owned by Government of India.
§ Its main function is to finance, facilitate and promote foreign trade of India.

Growth of Credit
Why in News?
§ According to the latest RBI data, loan growth of commercial banks is at a five-year high.
 § The year-on-year credit growth was 14.6% as on October, the highest in five years. In October
2013, credit growth was 16.6%.

Reasons for the pickup

§ Strong loan demand from large corporates, for road projects, and also non-banking finance
companies.
§ Credit to major sectors like infrastructure, textiles, chemical and chemical products and
engineering has accelerated. Retail credit is also growing at a healthy pace, particularly
housing loans.
§ The rise in credit growth is usually seen as an indication of a pick-up in private investment.
Lagging deposit growth
§ However, Deposit growth was still lagging credit growth, with the gap between deposit and
credit growth widening.
§ According to the RBI data, deposit growth was 9% as on October 2018.

Moody’s Global Emerging Market Outlook 2019
Why in news?
§ Moody’s has released the Global Emerging Market Outlook report for 2019.
Findings of the report
§ In 2019, the emerging markets are likely to face challenges from slower global growth, rising
interest rates, trade protectionism and geopolitical tensions.
§ The outlook is stable as the emerging markets are likely to be resilient to challenges because
of strong balance sheets, domestic growth and supportive policy.
India-specific findings
§ It has forecasted that the Indian economy will grow by 7.3% in 2019.
§ Enormous foreign exchange reserves and very low external debt levels provide greater
resilience to external shocks like high oil prices.
§ Banks face a risk in the aftermath of IL&FS crisis and the subsequent liquidity stress in the
capital market.
§ The asset quality cycle is recycling following the recognition of problem loans and their
gradual resolution and provisioning.
 INSTITUTIONS
OECD
What is Organisation for Economic Cooperation and Development (OECD)?
§ A 36-member intergovernmental economic organisation founded to stimulate economic
progress and world trade.
§ It consists of countries describing themselves as democracies which support market
economy.
§ Most of the OECD members are developed countries.
§ India is not a member of OECD.
Why in news?
§ Researchers at the OECD and the Indian think tank Indian Council for Research on
International Economic Relations (ICRIER) analysed policies that affected the Indian
agricultural sector between 2014-2016 and arrived at the conclusion that government
interventions were more consumer-centric than producer-centric.
Findings of the ‘Agriculture Policies in India’ report
§ Due to the government interventions during 2014 to 2016, the annual farm revenue
dropped 6% and the farm prices have been depressed by 14 per cent every year, as
compared to global commodity prices.
§ However, consumers pay on average 25% less across all commodities as the result of policy
interventions. (These interventions include fertilizer subsidy, free electricity, irrigation etc).
§ Despite these market interventions, Indian farmers face regulations and restrictions in the
domestic as well as in export market which together often lead to producer prices that are
below comparable international market levels.
§ Also, in spite of the government’s efforts to keep prices low, food insecurity and malnutrition
persist, in part because the public food distribution system is poorly targeted, too costly and
subject to large inefficiencies and waste.
Suggestions from the report
For policy makers
§ Reform of market regulations
§ Strengthen initiatives such as eNAM, which helps in better price realisations for the farmers
§ Allow private players to play a larger role in the sector
For regulatory system
§ Strengthen of the regulatory environment governing land issues
§ Strengthen the access to credit (especially long-term loans)
§ Developing collective-action groundwater and watershed management and correcting
measures including electricity pricing (which incentivise the overuse of water)
For PDS
§ Gradual reduction in PDS operations and a move towards cash transfers
§ To allow private sector to manage remaining stock operations
For trade
§ Reduction in import tariffs
§ Reduce export restrictions
§ Create a more stable and predictable market environment.

NPCC - a Miniratna
About NPCC:
 § National Projects Company Corporation incorporated on 9th January 1957 under erstwhile
Ministry of Irrigation (Currently Ministry of Water Resources) to undertake Irrigation and
Hydel Projects.
§ Giant infrastructure projects which neither the private sector nor the State Government
Construction Departments are ready to take is taken up by NPCC.
What are the types of status given to CPSE?
§ The Department of Public Enterprises, Ministry of Heavy industry and Public Enterprise is
the nodal department for all the Central Public Sector Enterprises (CPSEs).
§ DPE makes policies and guidelines for the performance evaluation and improvement of the
PSUs/ CPSEs.
§ The Central Government has set eligibility criteria for granting Maharatna, Navaratna and
Miniratna status to Central Public Sector Enterprises (CPSEs).
What is Maharatna status?
§ The CPSEs fulfilling the following criteria are eligible to be considered for grant of Maharatna
status:
1. The CPSE should already be a Navratna company.
2. The CPSE should have average annual turnover of more than Rs. 25,000 crore, during
the last 3 years.
3. The CPSE's average annual net profit after tax should be more than Rs. 5,000 crore,
during the last 3 years.
4. The CPSE should be listed on Indian Stock exchange with minimum prescribed public
shareholding under SEBI regulations.
5. The CPSE should have average annual net worth of more than Rs. 15,000 crore, during
the last 3 years.
6. The CPSE should have significant presence globally.
What is Navratna status?
§ A CPSE which falls under the Miniratna (Category – I and Schedule ‘A’ CPSEs), has obtained
rating of ‘very good’ or ‘excellent’ in 3 of the last 5 years.
§ A CPSE which has composite score of 60 or above in the 6 selected performance parameters,
namely.
What is Miniratna status?
▪ The CPSEs which have following criteria fulfilled are given Miniratna status:
1. The CPSEs which have made profits in the last 3 years continuously
2. The CPSEs which have positive net worth.
Benefits of getting Miniratna status:
▪ Accordingly these categories of CPSEs have been given some financial autonomy i.e. they can
invest some money without the explicit government approval.
▪ These benefits are given to them so that they can compete in the global market and support
them to become global giants.
▪ The empowerment of Miniratna Status to NPCC will help the company in taking speedy
decisions by enhancing the delegation of powers to the Board.
▪ It will be a big boost to the infrastructure industry in India.
Why in news?
▪ National Projects Construction Corporation Limited (NPCC) has been conferred with the
status of Miniratna by the Government of India.


OPEC-Plus Deal
What is OPEC?
 § The Organization of the Petroleum Exporting Countries is an intergovernmental
organization of 15 nations, founded in 1960 in Baghdad.
§ Its headquarters is in Vienna, Austria.
What is OPEC-Plus?
§ OPEC-Plus refers to OPEC’s cooperation with non-OPEC oil producers to affect production
cuts.
Why in news?
§ As a result of an agreement reached by OPEC and Non-OPEC major oil producers coupled
with ongoing trade dispute between the USA and China, Oil prices rose to USD 76 per barrel.
§ A deal between OPEC and Non-OPEC members were reached to cut oil production available
in global markets.


Financial Stability and Development Council
About FSDC
§ Financial Stability and Development Council (FSDC) is an apex-level body constituted by the
government of India.
§ It is an autonomous body dealing with macro financial regularities in the entire financial
sector of India. It is not a statutory body.
§ The FSDC is headed by the Finance Minister and comprises the RBI Governor, the SEBI
Chairman, and heads of regulators such as PFRDA, IRDAI and the Chairman of the Insolvency
and Bankruptcy Board.
Why in news?
§ Recently, the FSDC met under finance minister Arun Jaitley to discuss on the current
economic and liquidity situation of our country.

NPCI & UPI
What is NPCI?
§ National Payments Corporation of India (NPCI) is the umbrella organisation for all retail
payment systems in India, which aims to allow all Indian citizens to have unrestricted access
to e-payment services.
§ Founded in 2008, NPCI is a not-for-profit organisation registered under section 8 of the
Companies Act 2013.
§ The organisation is owned by a consortium of major banks, and has been promoted by the
country’s central bank, the Reserve Bank of India.
§ Its recent work of developing Unified Payments Interface aims to move India to a cashless
society with only digital transactions.
What is UPI?
§ Unified Payments Interface (UPI) is an instant real-time payment system developed by
National Payments Corporation of India facilitating inter-bank transactions.
§ The interface is regulated by the RBI and works by instantly transferring funds between two
bank accounts on a mobile platform.
§ It uses Virtual Payment Address (a unique ID provided by the bank), Account Number with
IFS Code, Mobile Number with MMID (Mobile Money Identifier), Aadhaar Number, or a one-
time use Virtual ID.
§ A UPI-PIN (UPI Personal Identification number that one creates on the UPI app of the bank)
is required to confirm each payment.
Why in the news?
§ NPCI has introduced UPI 2.0 with advanced security and overdraft features.
 § The features in the system are comparable with global standards.

RBI report on remittances
What are remittances?
§ A remittance is the funds an expatriate sends to his or her country of origin via wire, mail,
or online transfer. These peer-to-peer transfers of funds across borders are economically
significant for many of the countries that receive them.
§ India is the world's leading receiver of remittances, claiming more than 12% of the
world's remittances in 2015
§ As of 2017, India is still the largest receiver of remittances amounting to $69 Billion.
Why in the news?
§ UAE is the largest source of inward foreign remittances to India in 2016-17.
§ UAE, US, Saudi Arabia, Qatar and Kuwait were the principle source of remittances into India.
§ Kerala is the top receiver of foreign remittances, followed by Maharashtra, Karnataka, Tamil
Nadu and Delhi.
§ Private banks received the majority of remittances, followed by public banks and foreign
banks.
How is the money used?
§ The money was mainly used for consumption expenditure, bank deposits and
share/property investments.

Directorate General of Civil Aviation (DGCA)
What is DGCA?
§ The Directorate General of Civil Aviation is the regulatory body governing the safety aspects
of civil aviation in India.
§ Headquartered in New Delhi, it investigates aviation accidents and incidents.
Why in news?
§ The aviation regulator of USA, Federal Aviation Administration (FAA), is auditing DGCA.
§ The audit covers 3 areas: Operations, Airworthiness, Pilots’ licensing mechanism
Why is the FAA auditing DGCA?
§ This is the 3rd audit by FAA after the safety oversight by International Civil Aviation
Organisation last year.
§ Earlier in 2013, the FAA had downgraded the safety ranking of the Indian aviation sector
for failure to meet international norms as it found deficiencies in 33 areas, including severe
shortage of skilled manpower and lack of regulations and procedures on safety surveillance
§ However, the ranking was restored in 2015.

National Financial Reporting Authority
Why in news?
§ The Committee of Experts has submitted its report on Regulating audit firms and the
Networks to the Government of India through the Secretary, Ministry of Corporate Affairs.
§ The Committee was constituted on April, 2018 pursuant to the directions of the Supreme
Court in the issues arising out of corporate scams due to chartered accountants.
Committee Recommendations:
§ The report addresses the issues raised by the Supreme Court with a focus to strengthen the
legal regime of auditors and promote development of the audit profession in the country.
 § The global trend indicates a clear shift from self-regulation to independent regulatory
structure in the domain of audit regulation due to the failure of self-regulatory model in
regulating the professionals.
§ In this light , the committee found the establishment of National Financial Reporting
Authority(NFRA) as necessary reform and it has to be further strengthen to regulate auditory
reforms.
§ Since it is important to facilitate a business friendly environment for corporate and
professionals in India, Indian laws and regulations on professional services needs to keep
pace with changing market dynamics.
About NFRA:
§ National Financial Reporting Authority (NFRA) is a body proposed in Companies Act 2013
for the establishment and enforcement of accounting and auditing standards and oversight
of the work of auditors.
§ After the Satyam scandal took place in 2009, the Standing Committee on Finance proposed
the concept of the National Financial Reporting Authority (NFRA) for the first time in its 21st
report.
§ The establishment of NFRA as an independent regulator for the auditing profession will
improve the transparency and reliability of financial statements and information presented
by listed companies and large unlisted companies in India.

India in WTO
What is World Trade Organisation (WTO)?
§ The only intergovernmental organization that regulates international trade.
§ The goal of WTO is to ensure that trade flows as smoothly, predictably and freely as possible.
§ Officially commenced on 1 January 1995 under the Marrakesh Agreement,
§ It replaced the General Agreement on Tariffs and Trade (GATT) which was active since 1948.
§ Currently, there are 164 member-nations accounting for 98% of world trade.
Why in news?
§ Earlier, India had filed a dispute resolution application in WTO against USA’s imposition of
duties on the import of Aluminium and Steel from India.
§ USA too had filed a dispute resolution application in WTO against India challenging almost
all export subsidy programmes of India.
India’s key export subsidy programmes
§ Merchandise Exports from India Scheme
§ Export Oriented Units Scheme
§ Sector specific schemes, including Electronics Hardware Technology Parks Scheme
§ Special Economic Zones
§ Export Promotion Capital Goods Scheme
§ Duty-free imports for exporters programme
America’s claims
§ They claim that these apparent export subsidies provide financial benefits to Indian
exporters that allow them to sell their goods more cheaply to the detriment of American
workers and manufacturers.
§ Therefore, these export subsidy programmes seriously harm American workers by creating
an uneven playing field.
Recent developments
§ There is a possibility that India may lose the dispute to USA with regards to the export
subsidy programmes.
 § This is because India has already breached the income threshold stipulated by the
multilateral body to end such sops.
What is that income threshold?
§ According to the special and differential provisions in the WTO’s Agreement on Subsidies
and Countervailing Measures, when a member’s per capita gross national income (GNI)
exceeds $1,000 per annum (at the 1990 exchange rate) for a third straight year, it has to
phase out its export subsidies.
§ However, there is no clarity over the time- frame of ending such subsidies.

Confederation of Indian Industry (CII)
What is CII?
§ CII is a non-government, not-for-profit, industry-led and industry-managed organization,
founded in 1895.
§ It has members from private as well as public sectors, including SMEs and MNCs.
§ It works with the government on policy issues and economic reforms.
§ CII played a role in the 1991 liberalisation of the Indian Economy.
Why in news?
§ According to a CII report on the transition to the Goods and Services Tax (GST), its
implementation led to increased efficiency for businesses by reducing their transportation
time, on account of absence of state-level barriers.

Financial Action Task Force (FATF)
What is FATF?
§ An inter-governmental ‘policy-making’ body that designs and promotes policies & standards
to combat financial crimes such as money laundering or terror financing.
§ It has no investigative authority.
§ Established during the 1989 G7 meet, it has 37 members, with headquarters at Paris.
§ India is a member.
FATF Blacklist
§ FATF releases a list of ‘Non-Cooperative Countries or Territories’ (NCCTs), also known as
‘FATF Blacklist’.
§ These are countries FATF considers as non-cooperative in the global fight against money
laundering and terror financing.
Why in news?
§ Pakistan has been put in FATF ‘Grey-List’ recently for failing to check terrorism financing in
its territory.
§ To avoid being blacklisted, Pakistan has submitted a plan to curb terror financing to FATF.
§ If Pakistan does not implement, it will move from ‘grey list’ to the ‘black list’.
What are the implications?
§ Black listing implies adverse economic implications for Pakistan as well as affecting its
international standing.
§ Borrowing or raising money from international donors or markets will become more difficult
for Pakistani businesses as well as the government.
§ Currently Iran and North Korea are in the Black List

Export Credit Guarantee Corporation (ECGC)
What is ECGC?
§ ECGC is essentially an export promotion organization.
 § It seeks to improve the competitiveness of the Indian exporters by providing them with
credit insurance covers.
Need for Export credit insurance
§ Risks have assumed large proportions today due to the far-reaching political and economic
changes sweeping the world today.
§ An outbreak of war or civil war may block or delay payment for goods exported
§ Economic difficulties or balance of payment problems may lead a country to delay
payments for goods imported.
How does ECGC help exporters?
§ Export credit insurance is designed to protect exporters from the consequences of the
payment risks, both political and commercial, and to enable them to expand their overseas
business without fear of loss.
Why in news?
§ Cabinet Committee on Economic Affairs has approved the capital infusion of Rs.2000 crore
for strengthening of Export Credit Guarantee Corporation (ECGC).
§ The infusion would enhance insurance coverage to MSME exports and strengthen India’s
exports to emerging and challenging markets like Africa and Latin American countries.

NIIF & AIIB
What is Asian Infrastructure Investment Bank (AIIB)?
§ AIIB is multilateral development bank initiated by China
§ Established in December 2015 and headquartered at Beijing, china
§ Provides finance to infrastructure development & regional connectivity projects in Asia-
Pacific region
§ Has 84 members including India.
§ Has an authorised capital of US $100 billion
§ China is largest shareholder of AIIB with 26.06% voting shares.
§ India with 7.5% vote share is second largest shareholder followed by Russia, Germany and
South Korea.
§ It prioritises investment in energy, power generation, transport, rural infrastructure,
environmental protection and logistics in Asia
What is the National Investment and Infrastructure Fund (NIIF)?
§ A fund created by the Government of India in 2015 to enhance infrastructure financing in the
country.
§ It is jointly owned by government 49% and private 51%.
§ NIIF got registered with SEBI as Category II Alternative Investment Fund (AIF)
§ A primary objective of NIIF is to invest in Greenfield and Brownfield, as well as stalled
projects.
What is an Alternative Investment Fund (AIF)?
§ Anything alternative to traditional form of investments gets categorized as alternative
investments.
§ Generally, investments in stocks or bonds or fixed deposits or real estate are considered as
traditional investments.
§ AIFs are private funds which are otherwise not coming under the jurisdiction of any
regulatory agency in India.
Why in news?
§ AIIB approved an equity investment of $100 million in India’s National Investment and
Infrastructure Fund (NIIF).

Securities Appellate Tribunal
Securities Appellate Tribunal (SAT)
§ Securities Appellate Tribunal is a statutory body established under the provisions of the
Securities and Exchange Board of India Act, 1992 to hear and to dispose of appeals against
orders passed by the Securities and Exchange Board of India or by an adjudicating officer
under the Act.
§ SAT also hears and disposes of appeals against orders passed by the Pension Fund Regulatory
and Development Authority (PFRDA) under the PFRDA Act, 2013 , Insurance Regulatory
Development Authority of India (IRDAI) under the Insurance Act, 1938, the General
Insurance Business (Nationalization) Act, 1972 and the Insurance Regulatory and
Development Authority Act, 1999.
Composition of SAT
1. A Presiding Officer &
2. Two other members
Appointment
§ The Presiding officer of SAT shall be appointed by the Central Government in consultation
with the Chief Justice of India or his nominee.
§ The two members of SAT shall be appointed by the Central Government.
Why in News?
§ The Supreme Court wants the government to quickly fill the vacancies at the Securities
Appellate Tribunal (SAT).

Report on unemployment data
Unemployment rate at four-decade high: NSSO
§ A newspaper report cited the NSSO’s periodic labour force survey — that is yet to be released
— said the unemployment rate was 6.1% in 2017-18. The only year of comparable data when
the unemployment rate was higher was in 1972-73. It was at 2.2% in 2011-12.
§ The data showed that joblessness was higher in urban India (7.8%) than in rural India (5.3%).
Within this, it stood at 17.4% for rural males and 13.6% for rural females. In urban India,
joblessness was at 18.7% among males and a huge 27.2% among females.
§ Importantly, the data reportedly showed that the labour force participation rate (LFPR), the
measure of people working or looking for jobs, declined from 39.5% in 2011-12 to 36.9% in
2017-18.
Report confirms crisis
§ The NSSO report is a matter of much controversy, with the two members of the National
Statistical Commission have resigned citing the delay in its release.
§ According to labour economists, job-seekers and workers’ representatives, the NSSO data is
a validation of trends seen on the ground. They said the government’s failure to release the
NSSO report was the latest sign of a complete lack of transparency regarding jobs data.
§ This phenomenon of unemployment rising while the LFPR dipped is a cause for serious
worry, explaining that it probably shows that people are simply giving up on finding jobs and
have stopped seeking work.
‘Unemployment data based on draft report’
▪ However, NITI Aayog vice-chairman Rajiv Kumar said the leaked unemployment report was
only a draft and not approved by the government.
▪ NITI Aayog CEO Amitabh Kant said India is creating adequate number of jobs for new
entrants, but probably not creating high quality jobs.

IEA’s Report: The Future of Rail
About International Energy Agency
▪ The IEA is an inter-governmental organisation that works to ensure reliable, affordable and
clean energy for its 30-member countries and 8 association countries. India is an associate
country in IEA.
▪ Its mission is guided by four main areas of focus: energy security, economic development,
environmental awareness and engagement worldwide.
▪ India has been the focus of many recent IEA analyses and reports for instance through the
special focus chapter on the Indian Power sector of the Energy Technology Perspectives
(ETP) publication and the World Energy Outlook (WEO).
Why in News?
▪ Minister of Railways & Coal, Piyush Goyal has launched the report “The Future of Rail” of
International Energy Agency.
▪ “The Future of Rail” the first-of-a-kind report analyses the current and future importance of
rail around the world through the perspective of its energy and environmental implications.
The report reviews the impact of existing plans and regulations on the future of rail, and
explores the key policies that could help to realise an enhanced future rail.
▪ This first ever global report has a focus on India, elaborating on the unique social and
economic role of rail in India, together with its great enduring potential, to show how India
can extend and update its networks to harness rail at a scope and scale that is unparalleled.

World Economic Outlook Report
World Economic Outlook
§ The 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.
What is IMF?
§ An international organization headquartered in Washington, D.C., consisting of 189-
member nations.
§ Formed in 1945 at the Bretton Woods Conference.
§ Its primary purpose is to ensure the stability of the international monetary system—the
system of exchange rates and international payments that enables countries to transact
with each other.
§ India is a member of IMF.
Why in News?
§ According to the IMF World Economic Outlook Report, India is projected to grow at 7.3% in
2018 and 7.4% in 2019.
Highlights of the WEO report
§ India will regain the tag of the world’s fastest-growing major economy this year, surpassing
China with more than 0.7 percentage points.
§ In India, important reforms have been implemented in the recent years, including the Goods
and Services Tax (GST), the inflation-targeting framework, the Insolvency and Bankruptcy
Code, and steps to liberalise foreign investment and make it easier to do business.
‘In 2019, India to beat U.K. in economy size’
§ The IMF report comes days after the global consultancy firm PwC’s Global Economy Watch
said that India is likely to surpass the United Kingdom in the world’s largest economy
rankings in 2019.
 § While the U.K. and France have regularly switched places owing to similar levels of
development and roughly equal populations, India’s climb up the rankings is likely to be
permanent.
§ As per the report, India and France are likely to surpass the U.K. in world’s largest economy
rankings in 2019, knocking it from the fifth to seventh place.
§ It projects real GDP growth of 1.6% for the U.K., 1.7% for France and 7.6% for India in 2019.

AGRI & ALLIED, INDUSTRY, SERVICE
Minimum Support Price (MSP)
What is Minimum Support Price?
§ Minimum Support Price is an important part of India’s agricultural price policy. The policy
was started in 1966-67 in the wake of Green revolution.
§ It is basically the price at which government purchases crops from the farmers, whatever
may be the market price for the crops.
§ MSP prices for various crops are announced at the beginning of each sowing season.
Who declares and who prepares it?
§ The Cabinet Committee on Economic Affairs (CCEA), of the union government, determines
the Minimum Support Prices (MSP) of various agricultural commodities in India based on
the recommendations of the Commission for Agricultural Cost and Prices (CACP).
How is the MSP calculated?
§ The MSP is calculated using 3 different formulas. A2, A2+FL, C2
§ A2 Cost – the price the farmer pays out of his pocket for various agricultural inputs such as
seeds, fertilisers, pesticides, land lease, hired labour, hired machinery, etc.
§ A2+FL cost – The A2 cost + Imputed cost of unpaid Family Labour
§ C2 cost – A2+FL cost + Rentals/Interest forgone on owned land + Fixed Capital Assets
§ M.S. Swaminathan Committee report (2004-06) recommends an MSP of C2+ 50% above the
C2 cost.
Why in news?
§ The government has increased the MSP by 50% for kharif crops based on A2+FL cost.
§ Farmers across the country are protesting against using the A2+FL cost formula instead of
the C2 cost, as recommended by the Swaminathan Committee

Pradhan MantriAnnadata Aay Sanrakshan Abhiyan
PM-AASHA
§ The Cabinet Committee on Economic Affairs has approved the new crop procurement policy-
Pradhan Mantri Annadata Aay Sanrakshan Abhiyan (PM-AASHA) to ensure that farmers
growing oilseeds, pulses and copra actually get the minimum support prices (MSP) they are
promised for their crops every year.
§ The new mechanism is likely to cost the exchequer nearly Rs 40,000 crore and come into
effect for the upcoming harvest of the Kharif season.
About the new procurement policy
§ The new scheme is envisaged to be a mix of sub-schemes, which will involve direct
procurement from farmers (price support scheme or PSS), paying them for losses incurred
when wholesale market prices are lower than announced MSPs (price deficiency payment
scheme or PDPS), and procurement by private traders at MSP as a pilot.
§ Direct procurement or PSS scheme will kick in when prices of pulses, oilseeds and copra fall
below MSP, up to a maximum limit of 25% of the total harvest.
 §The PDP scheme, which has been framed on the lines of Madhya Pradesh government’s
Bhavantar Bhugtan Yojana, will be available only for oilseeds with registered farmers
directly receiving payments in their bank accounts when they sell at prices lower than MSP.
The government will not undertake physical procurement of crops under this scheme.
Significance of the scheme
§ The government announces minimum support prices for 23 crops every year. However, as
the government procurement process primarily focused only on rice and wheat, most of the
21 other crops are sold at market prices, often below the MSP.
§ The new scheme will be crucial for farmers growing pulses, oilseeds and copra as the
wholesale prices of these crops fell sharply over the past two years, driven by higher
production, forcing farmers to sell at a loss.

Hiking of ethanol prices
What’s in News?
§ The Cabinet Committee on Economic Affairs headed by Prime Minister has hiked ethanol
prices with dual objective to reduce both surplus sugar production and the fuel import
bill.
§ The price of ethanol derived from 100% sugarcane juice is raised from Rs 47.13 to Rs 59.13.
The rate for ethanol produced from B-heavy molasses (also called as intermediary
molasses) has been raised to Rs 52.43. However, the rate of ethanol produced from C-heavy
molasses (which has no sugar left) has been marginally reduced to Rs 43.46 from Rs 43.70.
FRP and its effects
§ Fair and Remunerative Price is an arrangement for the price to be paid to sugarcane
farmers by the Sugar Mills and is announced each year by the Centre, on the advice of
Commission for Agricultural Costs and Prices (CACP) and after consultation with State
Governments and other stakeholders.
§ High FRP of sugarcane results in the surplus sugar production which is more than 31
million tonnes in 2018 against the domestic consumption rates of 25 million tonnes,
which in turn causes sugar prices to fall below cost levels. As a result, the sugar mills
incur losses, leading to defaults in payments of farmers which is now more than Rs.
13,000 crores.
How the recent price rise will help sugar mills & farmers?
§ By increasing the price difference between ethanol with no sugar left and that of fully
made up of sugar to almost 35%, the Centre has given sugar mills a clear incentive to
increase ethanol production from sugar, which will reduce excess sugar in the country
and increase liquidity with the sugar mills for settling cane farmer's dues.
How it will help Ethanol Blended Petrol programme?
§ The price rise will also help in increasing the availability of ethanol for Ethanol Blended
Petrol (EBP) Programme, which aims at reducing our oil import bill and cutting down
the emissions of harmful gases. Under EBP, the centre is targeting to implement 10
percent ethanol blending in petrol by 2022, which is now hovering around 4-5 percent.


Operation Greens
Operation Greens
§ It is an initiative announced in the Budget speech of 2018-19 to stabilise the supply of tomato,
onion and potato crops (TOP) and to ensure their availability through the year without price
volatility.
 § The programme also aims to promote Farmer Producer Organizations (FPO), agri-logistics,
processing facilities and professional management.
Why in News?
§ The Ministry of Food Processing Industries has issued operational guidelines for the
programme.
§ National Agricultural Cooperative Marketing Federation of India (NAFED) will be the Nodal
Agency to implement price stabilisation measures.
§ Short term price stabilisation measures
1. MoFPI will provide 50% of the subsidy on transportation costs of TOP Crops from
production to storage
2. 50% subsidy for hiring of appropriate storage facilities for these crops
§ Long-term integrated value chain development projects which aim at
1. Capacity building of FPOs and their consortia
2. Ensuring quality production
3. Post-harvest processing facilities
4. Developing agri-logistics
5. Creation of marketing and consumption points
6. Creation of an e-platform for demand and supply management of TOP crops
▪ The government has also identified various tomato, onion and potato clusters in the country
for the initiative.

NABARD study on farm indebtedness
NABARD
§ National Bank for Agriculture and Rural Development (NABARD) is an apex development
financial institution in India, headquartered at Mumbai with regional offices all over India.
§ The Bank has been entrusted with matters concerning policy, planning and operations in
the field of credit for agriculture and other economic activities in rural areas in India.
NABARD is active in developing financial inclusion policy.
Why in the news?
§ NABARD has released its first All India Financial Inclusion Survey (NAFIS), which mapped
rural households’ income, debt, saving, investment, insurance, pension and financial
aptitude. The survey was commissioned in 2016.
 Key findings:

§ The average agriculture household income was a mere Rs 8,931 per month in 2016-17. The
income of a farm household has increased by just Rs 2,505/month when compared to NSSO
assessment in 2012-13 that estimated the average monthly income of farm household at Rs
6,426.
§ Farm households register higher income (Rs 1,07,172) than the families solely dependent on
non-farm livelihood activities (Rs 87,228) during 2015-16 in rural areas.
§ Agricultural households accounted for 48% of rural households. They earned 34% of their
income from cultivation. Wage earnings contributed the same proportion to the income
followed by salaries (16%), livestock (8%) and non-farm sector (6%).
§ For Non-agricultural households, wages contributed 54% of their income followed by
salaries (32%) and non-farm sector activities (12%).
§ Incidence of Indebtedness (IOI), which is a proportion of households having outstanding
debt, was 52.5 percent and 42.8 percent for agricultural and non-agricultural households
respectively. Average amount of outstanding debt (AOD) taking all rural households
combined is Rs 91,407.
§ Around 88 per cent of the households reported having a bank account. About one-third of
Agricultural households depend only on money lenders and other non-financial
institutions for borrowing.
§ The coverage under any type of pension was reported to be about 18.9 % for non-
agricultural households as against 20.1 % for agricultural households. Only one-fourth of the
total rural households have any kind of insurance such as life insurance, vehicle, accident or
health insurance.
§ Only 20 per cent rural households reported to be associated with Self Help Groups.

Shrimp production
India’s new target
§ Having overtaken Ecuador in 2017 as the top farmed shrimp exporter, India is aiming
to extend its success to become world’s largest shrimp producer by surpassing China.
 § While India’s shrimp production was 6 lakh tonnes in 2017, the target for the current
year stands at 7 lakh tonnes.
§ Unlike China and some Southeast Asian nations where farms were affected by the
outbreak of the Early Mortality Syndrome (EMS) disease, India has been able to
sustain its production through supply of good broodstock and better farm management
practices.
Stats on Shrimp exports:
§ Cultured shrimps, primarily the Vannamei variety, accounted for nearly 70% of the India’s
seafood exports worth Rs 37,871 crore in 2016-17. Most of the output increase has come
from Andhra Pradesh, Odisha, West Bengal and Gujarat.

Jhum Cultivation
What is Jhum Cultivation?

§ Jhum cultivation (also referred to as ‘Shifting cultivation’ or ‘slash and burn cultivation’) is
a primitive practice of cultivation in States of North Eastern Hill Region of India and people
involved in such cultivation are called Jhumia.
§ The practice involves clearing vegetative/forest cover on land/slopes of hills, drying and
burning it before onset of monsoon and cropping on it thereafter.
§ After harvest, this land is left fallow and vegetative regeneration is allowed on it till the plot
becomes reusable for same purpose in a cycle.
§ Meanwhile, the process is repeated in a new plot designated for Jhum cultivation during
next year.
How did this cultivation affect ecology?
§ Though implemented in a sustainable way for generations, this system of subsistence
agriculture is now facing many challenges.
§ Earlier the cultivators returned to fallows after 10-12 years, now with increase in human
population and increasing pressure on land they are returning in three to five years. This
allows less time for the soil to rejuvenate, impacting the quality of the soil.
§ While the practice ensures food security it does not provide adequate cash for the
families and thus they are shifting to regular agriculture, particularly to horticulture.
The MGNREGA has also had an impact on reducing dependency of people on shifting
cultivation.
Need policy coherence on shifting cultivation
§ A recent NITI Aayog report titled, “Mission on shifting cultivation: towards a
transformational approach”, recommended that the Ministry of Agriculture should take
up a mission on shifting cultivation to ensure inter- ministerial convergence.
 § Central as well as State government departments of forests and environment, agriculture
and allied departments often have divergent approaches towards shifting cultivation. This
creates confusion among grass-roots level workers and jhum farmers.
§ Shifting cultivation fallows must be legally perceived and categorised as ‘regenerating
fallows’ and that credit facilities be extended to those who practise shifting cultivation.

Amul model
What is the Amul alternative economic model?
§ The Anand Milk Union Limited (Amul) co-operative was started in 1946 in Anand, a town in
Gujarat, to stop the exploitation of middlemen.
§ It follows a three-tier structure with the dairy cooperative societies at the village level,
which functions under a milk union at the district level and a federation of members union
at the state level.
§ It established a direct linkage between milk producers and consumers by eliminating
middlemen.
§ Following the success of the Amul model, the National Dairy Development Board (NDDB)
was set up with the objective of replicating the Amul model.
§ In 1970, the NDDB launched the White Revolution, known as Operation Flood which
transformed India from a milk deficient nation into the world's largest milk producer.
Why in news?
§ Prime Minister Narendra Modi inaugurated a new chocolate-making factory set-up by the
dairy giant Amul in Gujarat.
§ He said cooperative like Amul is a viable economic alternative to capitalist and socialist
models, which is controlled neither by government nor capitalists. Instead, it was created
with the cooperation of farmers and people and everybody was a part of it.

Blue Economy
What is ‘Blue Economy’?
§ The ‘Blue Economy’ is a concept which encourages better stewardship of our ocean or ‘blue’
resources.
§ It essentially means the use of the sea and its resources to promote smart, sustainable and
inclusive growth and employment opportunities and economic development.
Significance of the Blue Economy
§ It has the potential to address many of our pressing concerns such as generating
employment, food security, poverty alleviation and ensuring sustainability in business and
economic models etc.
Examples of Blue Economy Projects
§ Fisheries & Aquaculture
§ Renewable Ocean Energy
§ Seaports & Shipping
§ Offshore Hydrocarbons & Seabed Minerals
§ Marine Biotechnology Research & Development
§ Tourism
Why in news?
§ The President of India addressed the Convocation of Goa University and urges the coastal
state to become a Fulcrum of India’s Blue Economy Knowledge Enterprise.

SEZ Policy Review
What is a Special Economic Zone(SEZ)?
§ SEZ is a specifically delineated duty-free enclave and deemed to be foreign territory for the
purposes of trade operations and duties and tariffs.
§ SEZs’ economic laws are more liberal than a country's typical economic laws. India’s SEZ
policy offers various fiscal and regulatory incentives to the developers within the zone like
exemption from customs duties, central excise duties.
§ The idea was to create a level playing field to the domestic enterprises and manufacturers to
be competitive globally.
Objectives of SEZs
§ The major objectives of setting up a SEZ are
○ To attract FDI
○ Earn foreign exchange and contribute to exchange rate stability
○ Boost the export sector especially non traditional exports
○ To create employment opportunities
○ Introduce new technology
○ Develop backward regions etc.
Statutory provisions
▪ THE SPECIAL ECONOMIC ZONE ACT 2005 provides for the establishment, development and
management of the SEZs for the promotion of exports and for the matters connected
therewith.
Why in News?
▪ In June 2018 the government had constituted a group of eminent persons under the
chairmanship of Baba Kalyani to study the Special Economic Zone (SEZ) Policy of India.
▪ The Group has submitted its report to the Government..
Key recommendations
▪ Framework shift from export growth to broad-based Employment and Economic Growth
(Employment and Economic Enclaves-3Es).
▪ Formulation of separate rules and procedures for manufacturing and service SEZs.
▪ Shift from supply driven to demand driven approach for 3Es development to improve
efficiency of investment-based on certain industries, current level of existing inventory in the
region.
▪ Enabling framework for Ease of Doing Business (EoDB) in 3Es in sync with State EoDB
initiatives. One integrated online portal for new investments, operational requirements and
exits related matters.
▪ Enhance competitiveness by enabling ecosystem development by funding high speed multi
modal connectivity, business services and utility infrastructure. Critical to provide support
to create high quality infrastructure either within or linked to the zones eg. High Speed Rail,
Express roadways, Passenger/Cargo airports, shipping ports, warehouses etc.
▪ Promote integrated industrial and urban development- walk to work zones, States and
center to coordinate on the framework development to bring linkages between all initiatives.
▪ Procedural relaxations for developers and tenants to improve operational and exit issues.
▪ Export duty should not be levied on goods supplied to developers and used in manufacture
of goods exported.
▪ Infrastructure status to improve access to finance and enable long term borrowing.
▪ Promote MSME participation in 3Es and enable manufacturing enabling service players to
locate in 3E.
▪ Dispute resolution through arbitration and commercial courts.

Core industries
What are the Core Industries?
▪ Core industries are considered as the key movers of industrial growth in India.
▪ It consists of 8 sectors:
▪ Electricity
▪ Coal
▪ Cement
▪ Crude oil
▪ Natural Gas
▪ Fertilizers
▪ Steel
▪ Petroleum refinery products

Why in the news?
§ Core industrial growth accelerated in June 2018 to 6.7% due to increase in growth of the
petroleum products and steel sectors at 12.06% and 4.42% respectively.

MSME credit growth
Background
§ Due to note ban, compounded by GST issues, the MSME sector, which provides major
employment to people has been negatively impacted.
Why in news?
§ An RBI study on the credit issues with MSME sector in this context has been released.
What are the findings?
§ The credit (loans given to enterprises by banks/NBFCs) availed by the MSME sector for
various economic activities seems to have recovered with the micro and small enterprises
doing extremely well.
§ Credit to MSME was at 8.5% growth rate, similar to the growth rate before the note ban and
GST implementations.
§ The MSME sector is particularly vulnerable to various economic shocks as most of them deal
with liquid cash to provide wages to labourers, mostly in the informal sector and due to the
small size of the enterprise, hence a cash crunch has direct impact on this sector, affecting
all economic activities.

Increasing Agri-Export
Agriculture Export Policy 2018
▪ In order to provide an impetus to agricultural exports, the Union Cabinet has recently
approved the Agriculture Export Policy 2018.
Key objectives
§ To double agricultural exports from present US$ 30 Billion to US$ 60 Billion by 2022 and
reach US$ 100 Billion in the next few years thereafter, with a stable trade policy regime.
§ To diversify exports by products and destination with focus on high value-added farm
produce and perishables. At present, rice, wheat and marine products account for about 52%
of the total farm exports.
§ To promote novel, indigenous, organic, ethnic, traditional and non-traditional Agri products
exports.
§ To provide an institutional mechanism for pursuing market access, tackling barriers and
deal with sanitary and phytosanitary issues.
 § To strive to double India’s share in world agri exports by integrating with global value chain
at the earliest.
§ To set up specialised clusters in different states for different produce to push exports.
§ The policy also envisages removing all restrictions on export of organic and processed foods,
paving way for the growth of the sector. For other agriculture products, govt will remove the
restrictions depending on the situation.
Other Exports promotion schemes
§ Trade Infrastructure for Export Scheme (TIES)
o To enhance export competitiveness by bridging gaps in export infrastructure,
creating focused export infrastructure and first-mile and last-mile connectivity
o It would focus on projects like customs checkpoints, last mile connectivity, border
haats and integrated check posts
o The Central and State Agencies, including Export Promotion Councils, Commodities
Boards, SEZ Authorities and Apex Trade Bodies recognised under the EXIM policy are
eligible for financial support under this scheme
§ Market Access Initiatives (MAI) Scheme
o formulated on focus product-focus country approach to evolve specific market and
specific product
o assistance would be provided to Export Promotion Organizations/ Trade Promotion
Organizations/ National Level Institutions/ Research Institutions/ Universities/
Laboratories, Exporters, etc., for enhancement of export through accessing new
markets or through increasing the share in the existing markets
§ Merchandise Exports from India Scheme (MEIS)
o launched under Foreign Trade Policy of India (FTP) 2015-20 to offset infrastructural
inefficiencies and associated costs involved in export of goods and products, which
are produced and manufactured in India
o It seeks to enhance India’s export competitiveness of these goods and products
having high export intensity, employment potential
o Notified goods exported are given MEIS duty-free scrips which can be used while
paying a number of duties like customs, excise etc.

Inter-state trade through e-NAM
About e-NAM
§ The e-NAM platform is a pan-India electronic trading portal to network the existing physical
regulated wholesale market (known as APMC market) through a virtual platform to create a
unified national market for agricultural commodities.
§ Launched in 2016 in 21 Mandis across 8 States, the e-NAM portal has integrated 585
Regulated Markets on the common e-market platform in 16 States and 2 Union Territories
with trading in 124 commodities.
§ e-NAM platform promotes better marketing opportunities for the farmers to sell their
produce through online, competitive and transparent price discovery system and online
payment facility.
§ Already 2.29 crore MT trade with value of more than Rs.60,000 crore has been recorded on
e-NAM platform. The Government plans to integrate another 415 mandis by March 2020
with the e-NAM portal.
Why in News?
§ The first inter-State trade on e-NAM portal between Andhra Pradesh and Telangana has been
carried out on 19.01.2019.
 § Now inter-mandi trade within e-NAM States is happening in 10 States. More States are
planning to start inter-State trade on e-NAM platform.

Credit flows to agri sector
Prime Minister’s Economic Advisory Council (EAC-PM)
§ It is a non-constitutional, non-permanent and independent body constituted to give
economic advice to the Government of India, specifically the Prime Minister.
§ The council serves to highlight key economic issues facing the country to the government of
India from a neutral viewpoint.
§ It advises the Prime Minister on a whole host of economic issues like inflation, microfinance,
industrial output, etc.
§ The PMEAC is chaired by a Chairperson and consists of eminent economists as members.
Why in News?
§ EAC-PM has recommended that the agriculture sector should be bolstered through increased
credit flows and schemes such as the Mahatma Gandhi National Rural Employment
Guarantee Scheme.
§ The prospects for world economic growth does not look very promising, particularly in the
advanced economics. Nevertheless, India’s growth is expected to be in the 7-7.5% range in
the next few years; one of the fastest in the world.
§ However, it added that with reforms designed to address the structural problems, growth
rates can easily be enhanced by at least 1%.
§ Among the challenges that need to be addressed are reforms in the agricultural sector, the
MSME sector, skill development, credit issues, digital payments and the banking sector
reforms.

FMCG sector: Double-digit growth
What’s in the news?
§ According to the latest study by market research firm Nielsen, the fast-moving consumer
goods (FMCG) industry is expected to clock double digit growth in the current year.
§ It is expected to grow between 11% and 12% in 2019, which is a tad lower than the 13.8%
growth in 2018.
§ The growth in the current year will be primarily on the back of conducive macroeconomic
environment, rural consumption, sustained benefits of GST regime and election impact.
§ The market research firm, however, added that crude prices in global markets and exchange
rates would be the factors to watch out for.
Significance of FMCG sector
§ The FMCG sector is the 4th largest sector in the Indian economy with Household and Personal
Care accounting for 50% of FMCG sales in India.
§ The FMCG sector has grown from US$ 31.6 billion in 2011 to US$ 52.75 billion in 2017-18
and is further expected to reach US$ 103.7 billion by 2020.
§ Growing awareness, easier access and changing lifestyles have been the key growth drivers
for the sector.

Price controls in Pharma
What’s in News?
§ Pharma major Pfizer expressed concerns that the pharma industry may have to face
challenges from price controls, ad-hoc regulatory changes and new policies that may impact
sustainable growth.
How price regulation for pharma products done in India?
§ Currently, the health ministry prepares the list of drugs eligible for price regulation.
§ Then, the department of pharmaceuticals, which comes under the ministry of chemicals and
fertilizers, incorporates them into Schedule 1 of Drug Price Control Orders (DPCO).
§ Following this, the National Pharmaceutical Pricing Authority (NPPA) fixes the prices of
drugs in this schedule.
§ NPPA revises the prices for Schedule 1 drugs annually based on the wholesale price index
(WPI).
§ For all other medicines, companies are allowed to raise prices by no more than 10% in a
year.
Concerns with price regulation
§ Government’s move in last year to impose a cap on the prices of medical implants —
coronary stents and knee implants has led to some foreign manufacturers of implants
seeking to withdraw some products from the Indian market.
§ MNC stent manufacturers are not introducing the latest version of the stents fearing
excessively rigorous regulations.
§ Advances in medical research are of inestimable value to human society, where high-
quality drugs and interventions are a key factor in improving the quality and longevity of
human life.
§ One-size-fits-all price-control mechanism can disincentive new innovations in pharma
industry.

Minimum Indicative Export Quotas
Issues plaguing sugar mills
§ The consistent increase in FRP of sugarcane results in over-production of cane and sugar,
which in turn causes sugar prices to fall below cost levels. The mills incur losses, leading to
defaults in payments of farmers.
§ (Fair and Remunerative Price (FRP) is an arrangement for the price to be paid to sugarcane
farmers by the Sugar Mills and is announced each year by the Centre, on the advice of
Commission for Agricultural Costs and Prices (CACP) and after consultation with State
Governments and other stakeholders)
§ According to the Indian Sugar Mills Association, India’s sugar production is estimated to rise
by 10% to touch a new record of 35.5 million tonnes in the next marketing year. It poses a
serious risk of causing a glut in sugar production which will further drive down sugar prices.
§ Sugar mills are already facing issues from depressed sugar prices with arrears still at
alarming Rs 19,000 crore as of June 2018.
What is Minimum Indicative Export Quotas?
§ Govt. use MIEQ to clear surplus stocks of sugar and to improve cash flow to millers for making
payment to sugarcane farmers.
§ Under MIEQ, mills are allowed to export a fixed quantity of sugar within a specified period.
§ It is mandatory to export the fixed quota, failing which the mills shall be deemed to be
violating the directives of the government.
Why in News?
§ The Central Government has fixed export targets by allocating mill-wise MIEQ of 50 lakh
metric tonnes (LMT) of sugar for export in current sugar season 2018-19.
§ However, it has been observed that the sugar mills are not undertaking export of sugar at the
desired pace.
 § The Central Government directed all the sugar mills to undertake export of sugar as per their
allocated quantity of MIEQ failing which appropriate action would be initiated against the
defaulting sugar mills

SCHEMES, BILLS
AirSewa 2.0
About
AirSewa is a web portal and mobile app introduced in November 2016 to resolve issues
§
like flight delays, problem in refunds, long queues, inadequate facilities at airports and
complaints of lost baggage.
Why in News?
§ Ministry of Civil Aviation unveiled an upgraded version of AirSewa, called AirSewa 2.0,
which has the following features:
1. Secure signup and login with social media
2. Chatbot for travellers support
3. Improved grievance management, including social media grievances
4. Real-time flight status and details of flight schedule.
§ The app will be further upgraded would include Digi Yatra registration, airport maps,
BHIM payment integration and grievance escalation and transfer.

Global Mobility Summit- MOVE
What’s in the news?
▪ The first Global Mobility Summit called MOVE organised by the government think- tank
Niti Aayog was held in September 2018.
▪ The summit aimed at bringing together stakeholders from across the sectors of mobility
and transportation to co-create a public interest framework to revolutionize transport.
Highlights of the summit
▪ Prime Minister Narendra Modi who inaugurated summit unveiled a mobility road map
that seeks investments in manufacturing electric vehicles and increased use of public
transport for travel.
▪ Prime Minister also stated his vision for future of mobility in India, which is based on 7
C's: Common, Connected, Convenient, Congestion-free, Charged, Clean and Cutting-
edge.
▪ At the summit, Prime Minister released a report on Transforming India's Mobility: A
Perspective prepared by the NITI Aayog and Boston Consulting Group.
○ As per the report, the number of motor vehicles in India has grown 40-fold in 44
years, from 1981 to 2015 mainly because of the absence of proper public transport
system.
○ The four big metros in the country lose over $22 billion annually because of
congestion, the report said.
○ The report recommended “Safe, Adequate, Holistic Infrastructure or SAHI” as
the future of mobility for India.

Boosting Eco-friendly transport
Why go for eco-friendly transport?
§ Being the third largest energy user, India is aiming to cut its oil products imports to zero
as it turns to alternative fuels such as ethanol, methanol in its transport sector.
 § It will go a long way in helping mitigate India’s dependence on petroleum imports and to
counter problems associated with global warming.
National policy on Biofuels
§ In 2018, the Union Cabinet approved the National policy on biofuels that seeks to help
farmers dispose of their surplus stock in an economic manner and to reduce India’s oil-
import dependence.
Ethanol blending programme
§ Under the Ethanol Blending Program, Govt has set an ambitious target to cut the import
dependence by 10 per cent by 2022.
§ To achieve this, the centre plans to implement 10 percent ethanol blending in petrol by
2022.
§ When Ethanol is combined with petrol, it helps in cutting the emission of harmful gases.
§ Being one of the biggest polluters in the world - and a signatory of the Paris Climate deal -
India's ethanol dependence can certainly help it reduce the pollution problem.
Methanol production
§ The other alternative fuel technology being explored is methanol production from coal
and biomass. China is successfully blending 15-20 percent of its fuel with methane.
§ Methanol has all the qualities of ethanol, but without the limitation of supply that ethanol
faces since the latter is produced from food crops.
§ One of the biggest advantages is that methanol can be produced from any biomass,
including municipal solid waste, of which India produces enormous quantities.
FAME India
§ The FAME India (Faster Adoption and Manufacture of (Hybrid and) Electric Vehicles)
Scheme was launched in 2015 to incentivize the production and promotion of eco-friendly
vehicles including electric vehicles and hybrid vehicles.
§ The main thrust of FAME is to encourage electric vehicles by providing subsidies. Vehicles
in most segments – two wheelers, three wheelers, electric and hybrid cars and electric
buses obtained the subsidy benefit of the scheme.
Why in News?
§ In a move to push eco-friendly transportation in the country, the government has
decided to exempt electric vehicles and vehicles run on alternative fuel like ethanol,
biodiesel, CNG, methanol and biofuel, from permit requirements.
§ The move will save owners time as well as money and boost demand for such vehicles
in the country.
§ However, this exemption would not extend to mild hybrids or hybrid vehicles.

Paisa – Portal
National Urban Livelihoods Mission (Day-NULM)
§ NULM was introduced in 2013 and is being implemented by the Ministry of Housing and
Urban Affairs.
§ It aims to reduce poverty and vulnerability of the urban poor households by enabling them
to access gainful self-employment and skilled wage employment opportunities.
§ The mission would also address livelihood concerns of the urban street vendors by
facilitating access to suitable spaces, institutional credit, social security and skills to the urban
street vendors for accessing emerging market opportunities.
§ It also helps in setting up of individual and group micro-enterprises, formation of Self-Help
Groups, innovative support to rag pickers, differently abled etc.
Why in news?
 § “Paisa – Portal for Affordable Credit & Interest Subvention Access” has been launched under
the Deendayal Antyodaya Yojana – National Urban Livelihoods Mission (Day-NULM).
§ It is a centralized electronic platform for processing interest subvention on bank loans to
beneficiaries under DAY-NULM.
§ The web platform has been designed and developed by Allahabad Bank which is the Nodal
bank.
§ The portal would directly connect the government and the beneficiaries so that transparency
and efficiency in delivery of services can be ensured.

Logix India
Logistics sector in India
§ Logistics is the management of the flow of things between the point of origin and the point of
consumption in order to meet requirements of customers or corporations.
§ India ranked 44 in the World Bank Logistics Performance Index 2018.
§ This sector provides employment to more than 22 million people and is expected to grow at
the rate of 10.5 per cent over the next 5 years.
§ The need for integrated Logistics sector development has been felt for quite some time in
view of the fact that the logistics cost in India is very high compared to developed countries.
§ High logistics cost reduces the competitiveness of Indian goods both in domestic as well as
export market.
Logix India
§ Logix India is a mega logistics event that is scheduled to take place from 31 Jan 2019- 2nd Feb
2019.
§ The mega logistics event is being organized by the Federation of Indian Export Organisations
(FIEO) as a major initiative to improve logistics cost effectiveness and operational efficiencies
for India’s global trade.
§ Over 20 countries are sending delegations to explore logistics partnerships with India and
FIEO is focusing on logistical solutions for difficult to reach markets.
§ Over 100 international delegates are expected to attend Logix India 2019.
§ FIEO will also focus on investment opportunities in infrastructure development, warehouse
consolidation, technology integration and IT enablement and skilling of manpower at the
three-day meet.
Why in news?
§ Union Minister of Commerce & Industry and Civil Aviation, Suresh Prabhu launched the logo
and brochure of Logix India 2019 in New Delhi on Nov 27, 2018.

‘Mission Raksha Gyan Shakti’
Background of Innovation of India’s defence sector
§ India is one of the largest arms importers in the world as the indigenous production is where
India continues to be in backstage.
§ Huge dependence on foreign arms and technology affects India in certain sovereign decision
making and a huge import bill.
§ India needs to migrate from the culture of seeking Transfer of Technology (ToT) from foreign
sources to generating Intellectual Property in India, to achieve the goal of self-reliance in
Defence sector.
Why in news?
● The minister of defence launched ‘Mission Raksha Gyan Shakti’ which aims to provide a boost
to the IPR culture in indigenous defence industry.
About Mission Raksha Gyan Shakthi
 § ‘Mission Raksha Gyan Shakti’ aims to provide a boost to the IPR culture in indigenous defence
industry.
§ It is an event which tried to showcase the invention and innovation by DRDO and Defence
Public Sector Undertakings (DPSUs) and Ordnance Factories (OFs) which have resulted in
successful filing of Intellectual Property Right (IPR) applications.
§ The event felicitated some of the scientists, who invented and innovated useful products for
the nation.

Northeast & Bamboo cultivation
What’s in the news?
§ Addressing the meeting of NITI Aayog Forum for Northeast, Union Minister of State
Development of North Eastern Region (DoNER) Jitendra Singh said the Northeast should
focus on the bamboo industry in a big way, as this is a sector which has not received attention
in spite of the fact that over 60 per cent of the country’s bamboo is grown here.
§ He said the priority should be the marketing of high-value products like bamboo shoots,
candy, and bamboo charcoal fibre in the fashion industry.
Govt’s initiatives to spur Bamboo industry
§ National Bamboo Mission (NBM)- a Centrally Sponsored Scheme started in 2006-07. It was
subsumed under Mission for Integrated Development of Horticulture (MIDH). It aims to
promote growth of bamboo sector through area based regionally differentiated strategy.
§ In April 2018, the govt launched restructured National Bamboo Mission with an outlay of
Rs. 1290 crore. The restructured mission aims to ensure holistic development of bamboo
sector by addressing value chain and establish effective linkage of producers with industry.
§ In 2017, Parliament passed the Indian Forest (Amendment) Bill which exempted bamboo
grown in non-forest areas from the requirement of felling and transit permit for its economic
use.
NITI Forum for North East
§ It was constituted in February 2018 with an aim to ensure sustainable economic growth of
North Eastern Region (NER) and periodically review the development status in NER.
§ The forum is co-chaired by Vice-Chairman of NITI Aayog and Minister of DoNER. It includes
representation from all NER States, their Chief Secretaries and Secretaries of relevant Central
Ministries and Departments, Directors of reputed institutions, experts and journalists are
included as members.
§ The forum is tasked to identify various constraints on way of accelerated, inclusive and
sustainable economic growth in NER of country. It will recommend suitable interventions for
addressing identified constraints. It will also review development status in the NER.

GeM
About GeM
§ The Government e-Marketplace (GeM) was launched in 2016 as a one-stop portal to facilitate
online procurement of common use goods and services required by various government
departments, organisations and public sector undertakings.
§ In 2017, the government made it mandatory for all the departments and ministries to source
goods and services from the GeM.
Objectives of the GeM
§ To bring more transparency and to streamline the government procurement process.
§ Achieve cashless, contactless and paperless transaction, in line with Digital India objectives.
§ Increase overall efficiency leading to significant cost saving on government expenditure in
procurement.
GeM to soon onboard start-ups
§ The government is planning to onboard start-ups on the GeM platform which will allow them
to access government market and give them a chance to sell on the GeM platform.
§ GeM is also working in a mission mode to onboard maximum number of Micro Small and
Medium Enterprises (MSMEs). This is GeM’s initiative for the MSME support and outreach
programme which is running for 100 days covering 100 districts. This programme was
launched by Prime Minister, Narendra Modi, in November 2018 as a national mission to
support MSMEs.
§ Of the 1 lakh crore CPSE procurement being done by the 170 CPSEs that are procuring their
requirements through GeM 25% is from MSMEs.
Womaniya on GeM
▪ GeM has launched “Womaniya on GeM”, an initiative to enable women entrepreneurs and
women self-help groups to sell handicrafts and handloom, accessories, jute and coir products,
home décor and office furnishings, directly to various Government ministries, departments
and institutions.
▪ The initiative seeks to develop women entrepreneurship on the margins of society to achieve
gender-inclusive economic growth.
▪ Womaniya on GeM will spur hyper-local economic opportunities for women entrepreneurs
and address goals and objectives under United Nations Sustainable Development Goal 5:
Achieve gender equality and empower all women and girls.

e-Pharmacy
Draft rules to amend Drugs and Cosmetics Rules, 1945
▪ In August 2018, the Ministry of Health and Family Welfare released a draft to amend the
Drugs and Cosmetics Rules,1945.
▪ The draft rules make provisions for sale of drugs by e-pharmacy.
What is an e-pharmacy?
▪ The draft rules define e-pharmacy as a business of distribution or sale, stock, exhibit or offer
for sale of drugs through web portal or any other electronic mode.
Highlights of the Draft
▪ Registration and Customer Support: The draft rules make it mandatory that no person
shall sell, stock, exhibit or offer for sale drugs through e-pharmacy portal unless registered.
Further an e-pharmacy registration holder shall have a facility for customer support and
grievance redressal for all stakeholders.
▪ Data Localisation: Also as per the draft rules the e-pharmacy portals have to be established
in India through which they are conducting their business and shall keep the data generated
localised.
▪ Periodic Inspection: The premise where the e-pharmacy business is conducted shall be
inspected every two years by the Central Licensing Authority.
▪ Procedure for distribution of sale of drugs through e-Pharmacy: The registered
pharmacist must verify the details of the patients, registered medical practitioner and
arrange for dispense of the drugs.
Why in News?
▪ Minister of State for Chemicals and Fertilizers, Mansukh L. Mandaviya while addressing
concerns on sale of medicines online said that the draft rules has separate guidelines to
regulate distribution or sale, stock, exhibit or offer for sale of drugs through e-pharmacy.

PMRPY Achieves one crore Milestone

About PMRPY
 ▪ Pradhan Mantri Rozgar Protsahan Yojana (PMRPY) is the flagship scheme of the Central
Government for employment generation.
▪ It was announced in 2016 and is being implemented by Ministry of Labour and Employment
through the Employees’ Provident Fund Organization (EPFO).
▪ Under the scheme, Government is paying full employers’ contribution of 12% (towards
Employees’ Provident Fund and Employees’ Pension Scheme both), for a period of 3 years in
respect of new employees, with salary up to Rs. 15,000 per month.
▪ The entire system is online and AADHAR based with no human interface in the
implementation of the scheme.
Significance of the scheme
▪ PMRPY has a dual benefit i.e. on the one hand, the employer is incentivised for increasing the
employee base in the establishment through payment of EPF contribution of 12% of wage,
which otherwise would have been borne by the employer and on the other hand, a large
number of workers find jobs in such establishments.
▪ A direct benefit is that these workers have access to social security benefit through Provident
Fund, Pension and Death Linked Insurance.
Why in News?
▪ PMRPY has crossed the milestone of one crore beneficiaries as on January 14, 2019.
▪ The number of establishments who have benefited during the implementation of the scheme
is 1.24 lakh.

Prime Minister's Employment Generation Programme
About PMEGP
§ Prime Minister's Employment Generation Programme (PMEGP) is a flagship credit-linked
subsidy programme of Government of India being administered by the Ministry of Micro,
Small and Medium Enterprises (MoMSME).
§ The Scheme is aimed at generating self-employment opportunities through establishment of
micro-enterprises in the non-farm sector by helping traditional artisans and unemployed
youth in rural as well as urban areas.
§ At the national level, the Scheme is being implemented by Khadi and Village Industries
Commission (KVIC), a statutory organization under the administrative control of the
Ministry of MSME as the single nodal agency.
§ At the State level, the Scheme will be implemented through State KVIC Directorates, State
Khadi and Village Industries Boards (KVIBs) and District Industries Centres (DICs) and
banks.
Why in News?
§ Minister of State for Micro, Small and Medium Enterprises informed in Rajya Sabha that
5,02,085 beneficiaries assisted under the PMEGP since its inception in 2008-09.

Pradhan Mantri Fasal Bima Yojana

About PMFBY
§ The Pradhan Mantri Fasal Bima Yojana was launched in 2016.
§ It replaced earlier insurance schemes- National Agricultural Insurance Scheme, Weather-
based Crop Insurance scheme and the Modified NAIS.
Objectives
§ To provide insurance coverage and financial support to the farmers in the event of failure of
any of the notified crop as a result of natural calamities, pests & diseases.
§ To stabilise the income of farmers to ensure their continuance in farming.
§ To encourage farmers to adopt innovative and modern agricultural practices.
 § To ensure flow of credit to the agriculture sector.
Highlights of the scheme
§ There will be a uniform premium of only 2% to be paid by farmers for all Kharif crops and
1.5% for all Rabi crops. In case of annual commercial and horticultural crops, the premium
to be paid by farmers will be only 5%. The balance premium will be paid by the Government
to provide full insured amount to the farmers against crop loss on account of natural
calamities.
§ There is no upper limit on Government subsidy. Even if balance premium is 90%, it will be
borne by the Government.
§ The use of technology will be encouraged to a great extent. Smartphones will be used to
capture and upload data of crop cutting to reduce the delays in claim payment to farmers.
Remote sensing will be used to reduce the number of crop cutting experiments.
§ All farmers growing notified crops in a notified area during the season who have insurable
interest in the crop are eligible.
§ The scheme is mandatory for farmers who have taken institutional loans from banks. It’s
optional for farmers who have not taken institutional credit.
Risks covered under the scheme
§ Yield Losses
§ Post-harvest losses
§ Localised Calamities
Exclusions
§ However, this scheme excludes risks and losses arising out of War and kindred perils, nuclear
risks, riots, malicious damage, theft, act of enemy, grazed and/or destroyed by domestic
and/or wild animals. In case of post-harvest losses the harvested crop bundled and heaped
at a place before threshing, other preventable risks.
Why in News?
§ Minister of State for Ministry of Agriculture & Farmers Welfare said that claims of Rs.
16279.25 crore have been paid to farmers in 2016-17 as against the premium collected from
farmers amounting to Rs.4216.04 crore.

Pradhan Mantri Kaushal Vikas Yojana

About Pradhan Mantri Kaushal Vikas Yojana
§ This is the flagship scheme for skill training of youth being implemented by the Ministry of
Skill Development and Entrepreneurship through the National Skill Development
Corporation (NSDC).
§ It provides short term employable skill training to youth, including class 10 and 12 drop outs,
based on the National Skill Qualification Framework (NSQF) and industry led standards.
§ The scheme aims to cover 10 million youth during the period 2016 -2020.
§ The skill training will involve soft skills, good work ethics, personal grooming, behavioural
change for cleanliness etc.
§ Individuals with prior learning experience or skills will be assessed and certified under the
Recognition of Prior Learning (RPL) component of the Scheme.
Why in News?
§ Minister of State for Skill Development and Entrepreneurship announced in Rajya Sabha that
15.94 lakh people were provided short term training under PMKVY during 2017-18.
§ Out of these candidates, 9.99 lakh candidates have been placed in various sectors across the
country.
FASTags
What are FASTags?
§ A FASTag is a reloadable tag that automatically deducts toll charges and allows a vehicle to
pass through a toll gate without stopping for the payment.
§ It uses radio frequency identification (RFID) technology to make cashless payments
through a prepaid account linked to it.
How does it work?
§ The tag is fixed to the windscreen of a vehicle and an RFID antenna in the canopy of the toll
gate scans the QR code and the tag identification number, following which the boom barrier
lifts to allow a vehicle to pass through.
§ The tag, which is valid for five years, comes in seven different colours — violet, orange,
yellow, green, pink, blue, black. Each color is assigned to a particular category of vehicles.
§ These are issued by banks that have an understanding with the National Highways
Authority of India (NHAI) or can be obtained from toll plaza kiosks.
Advantages
§ Quick, reliable and efficient road transport solution that can be used across the country thus
reducing travel time for goods, services, people, thus bringing down logistics costs.
§ Such tags are aimed at providing Non-stop seamless accessibility by roads across the length
and breadth of the country.
Issues
§ Lack of dedicated lanes to serve FASTag vehicles, thus there is no improvement to saving
time and costs at toll booths.

E-Mobility Programme
Energy Efficiency Services Limited (EESL)
▪ EESL was set up under Union Ministry of Power to facilitate implementation of energy
efficiency projects.
▪ It is a joint venture of four national Public-Sector Undertakings – NTPC Limited, Power
Finance Corporation Limited, Rural Electrification Corporation Limited and POWERGRID
Corporation of India Limited.
▪ It also leads market-related actions of the National Mission for Enhanced Energy Efficiency
(NMEEE).
▪ It also acts as the resource centre for capacity building of State DISCOMs.
Why in News?
▪ Marking the adoption of e-mobility, the Department of Economic Affairs has signed an
agreement with EESL for deployment of 15 Electric Vehicles for their offices.

Know India Programme
Know India Programme (KIP)
▪ It is an initiative of the Ministry of External Affairs with an aim to engage the students and
young professionals of Indian diaspora in the age group of 18 to 30 to connect with their
motherland.
▪ The main objective is to motivate and inspire young minds and to give them an exposure to
various aspects of India’s art, heritage and culture and to promote awareness about different
facets of life in the country and the progress made by India in various fields.
Why in News?
▪ Union Minister of Textiles, Smriti Zubin Irani has met the participants of 51st edition of KIP in
New Delhi.
 ▪ Interacting with the participants of the KIP, the Textiles Minister said that the textiles sector
is the second largest employer in the country after agriculture and the 70% of total workforce
are women.

Indus Food 2019
What’s in the news?
▪ Following the success of the first edition of INDUS FOOD in 2018, INDUS FOOD-II with the
theme of ‘World Food Supermarket’ was held on 14th and 15th January, 2019.
About INDUS FOOD
▪ The event is exclusively devoted to enhancing Indian exports in Food and Beverage sector.
▪ It is a global platform where top exporters from F&B Industry of India and buyers from across
the world participated.
▪ With more than 700 buyers from 70 countries visiting INDUS FOOD-II and more than 500
food suppliers, the event will lead to greater interaction of Indian exporters with global
customers leading to enhanced product development and better price realization in
international markets.

Defence manufacturing in India

Defense Procurement Procedure 2016
▪ The Defence Procurement Procedure (DPP-2016) was brought which replaced the DPP-2013.
▪ DPP, 2016 focuses to boost the Make-in-India initiative by promoting indigenous design,
development, and manufacturing of defense equipment, platforms, and systems.
▪ The government has introduced a newly incorporated procurement class called “Buy Indian
(IDDM)”, where IDDM stands for Indigenous Designed Developed and Manufactured. This
would have the first preference in all acquisitions once the DPP comes into effect.
▪ Besides this, preference has been accorded to ‘Buy (Indian)’ and ‘Buy and Make (Indian)’
categories of capital acquisition over ‘Buy (Global)’ & ‘Buy & Make (Global)’ categories.
Special Partnership Model
▪ Ministry of Defence formulated the Strategic Partnership (SP) model under the Defence
Procurement Procedure (DPP), covering four specific areas to promote the role of the private
sector in defense manufacturing.
▪ The policy is intended to institutionalise a transparent, objective and functional mechanism
to encourage broader participation of the private sector in the manufacture of defence
platforms and equipments.
▪ The following four segments have been identified for acquisition under SP route:
○ Fighter Aircraft
○ Helicopters
○ Submarines
○ Armoured Fighting Vehicles (AFVs) / Main Battle Tanks (MBTs).
Why in News?
▪ The government has issued a notification simplifying the process for approval of
manufacturing of a range of defence and aerospace equipment and components by private
industry, by bringing them under the licensing authority of the Department of Industrial
Policy and Promotion (DIPP), Ministry of Commerce and Industry.
▪ Items are listed in three categories — defence aircraft, warships of all kinds, and allied items
of defence equipment.
▪ The move will provide a boost to the small and medium enterprises.
▪ This move is also expected to help foreign Original Equipment Manufacturers (OEM) looking
for partnerships with the private sector.

Defence India Startup Challenge
Defence Innovation Organisation
▪ Defence Innovation Organisation (under the aegis of the Ministry of Defence) is a ‘not for
profit’ company under section 8 of the Companies Act.
▪ It is funded by two Defence Public Sector Undertakings namely Hindustan Aeronautics
Limited (HAL) and Bharat Electronics Limited (BEL).
Atal Innovation Mission (AIM)
▪ It is the Government of India’s flagship initiative to promote a culture of innovation and
entrepreneurship in the country.
▪ AIM aims to create an umbrella structure to oversee innovation ecosystem of the country and
revolutionize the innovation eco-system by touching upon the entire innovation life cycle
through various programs.
About Defence India Startup Challenge
▪ The Defence India Startup Challenge is an initiative by Defence Innovation Organization, in
partnership with Atal Innovation Mission.
▪ It is aimed at supporting innovators to create prototypes and/or commercialize
products/solutions based on advanced technologies in area of national security through an
equity linked grant-based mechanism.
Why in News?
▪ The Defence Innovation Organization has received applications from over 500 competitors
and the evaluation of the applications is in process.

Pradhan Mantri Khetriya Khanij Kalyan Yojna
About PMKKKY
▪ The programme is meant to provide for the welfare of areas and people affected by mining
related operations.
▪ It is being implemented by the District Mineral Foundations (DMFs) of the respective districts
using the funds accruing to the DMF.
▪ The Mines and Minerals (Development & Regulation) Amendment Act, 2015, mandated the
setting up of DMFs in all districts in the country affected by mining related operations. The
Central Government has notified the rates of contribution payable by miners to the DMFs.
Objectives of PMKKKY
▪ To implement various developmental and welfare programs in mining affected areas.
▪ To minimize/mitigate the adverse impacts, during and after mining, on the environment,
health and socio-economics of people in mining districts.
▪ To ensure long-term sustainable livelihoods for the affected people in mining areas.
Why in News?
▪ Ministry of Mines has organized the 1st National level workshop on District Mineral
Foundation (DMF)/ Pradhan Mantri Khetriya Khanij Kalyan Yojna in New Delhi.
▪ The main objective of the workshop was to discuss various issues to expedite implementation
of DMF and developing strategies to address the challenges in DMF implementation, audit
and reconciliation, improving PMKKKY guidelines, criteria for identification of affected
people and areas, etc.
▪ With the accrual of Rs 23,606 crores, DMF has ushered a positive perception about mining
industry. Estimated accrual of more than 2.5 lakh crore in next 25 years in DMF and its
optimum utilisation in implementation of PMKKKY has the potential of changing the
landscape of area affected by mining and also change in the life of people affected by mining.


UDAN-III
UDAN scheme
▪ In 2017, the Ministry of Civil Aviation launched the Regional Connectivity Scheme “ UDAN”
(Ude Desh Ka Aam Naagrik) which aims at providing connectivity to un-served and under-
served airports of the country through revival of existing air-strips and airports to make
flying affordable to the common man.
▪ UDAN has a unique market-based model. Airline routes are allocated to operators selected
through a competitive bidding mechanism.
▪ Airlines have to set aside 50% of the total aircraft capacity for cheaper fares to be offered at
the rate of Rs 2,500 per hour of flight, in return for which airlines are given a subsidy by the
Centre and the State government concerned.
UDAN-III
▪ Following the third round of bidding under UDAN, the union Minister for Civil Aviation and
Commerce Suresh Prabhu has handed over the letters of award to successful Airlines.
▪ The proposals identified to be awarded would add another 69.30 lakh seats annually across
the UDAN Routes. This is in addition to the number of seats created under UDAN 1 (13 lakh)
and UDAN 2 (29 lakh).
▪ Out of 46 Unserved Airports and 16 Underserved Airports awarded in UDAN 1 and UDAN 2,
operations have commenced on 23 Unserved Airports and 15 Underserved Airports
respectively.
Key Features of UDAN 3
▪ Inclusion of Tourism Routes under UDAN 3 in coordination with the Ministry of Tourism
▪ Inclusion of Seaplanes for connecting Water Aerodromes, and
▪ Bringing in a number of routes in the North-East Region under the ambit of UDAN
Global UDAN
▪ The Government is planning to expand UDAN scheme to cover select overseas destination.
▪ For this, Airports Authority of India, the implementing agency of UDAN, has invited proposals
from interested air operators for the international version of the scheme.

India Post Payments Bank
What is a Payment Bank?
▪ Payment banks are the new age banks with limited facility. These banks mostly operate
through the small vendors and shopkeepers. They exist in between the mobile wallet and
regular banks.
▪ A payment bank provides following services to its customers.
o Accept deposits(currently restricted upto Rs.1 lakh)
o Remittance services
o Mobile payments
o Fund transfers
o Debit card and associated services
o Net Banking services
○ Sell third-party financial products like insurance and mutual funds
▪ The RBI expects payment banks to target India’s migrant labourers, low-income households
and small businesses, offering savings accounts and remittance services with a low
transaction cost.

How is it different from regular banks?
▪ As per RBI guidelines, payments banks can’t accept fixed or recurring deposits.
▪ Payment banks cannot offer loans.
Why in News?
▪ Speaking at a special function organized to mark the completion of two years of India Post
Payments Bank (IPPB) since its pilot launch, Union Minister of Finance Piyush Goyal
congratulated the Department of Posts and IPPB for their tremendous efforts in spreading
the activities of the bank.
▪ He said that by leveraging all 1.55 lakh Post offices across the country, IPPB would be able to
provide banking services to the last man in the rural and remote areas.
▪ Launched on 1st September, 2018 across 650 districts, the IPPB has rolled out 1.25 lakhs
access points across the country. Significantly approximate 1.10 lakh of these Access Points
are located in the rural areas. The number of Access Points of IPPB is nearly twice the number
of bank branches in rural India.

Electric Vehicle Transformation
National Electric Mobility Mission Plan (NEMMP) 2020
§ It aims to achieve national fuel security by promoting hybrid and electric vehicles in the
country.
§ It has set an ambitious target of 6-7 million sales of hybrid and electric vehicles year on
year from 2020 onwards.
Why in News?
§ According to a recent report, a transformational shift is expected with the deployment of
electric vehicles (EV) in India.
Effect of EV transformation on auto-parts manufacturers
§ EV is relatively simpler to build with only 20 moving parts against around 2,000 in an ICE
(internal combustion engine) vehicle.
§ This would have a significant impact on the automakers while also disrupting the supplier
ecosystem. They need to take necessary transformations to adopt to the changes.

Focus Product Scheme

What is Focus Product Scheme (FPS) scheme?
§ FPS launched in 2003 with an objective to work as a catalyst to promote India’s exports on
a sustained basis, based upon ‘Focus Product’ and ‘Focus Market’ concept.
 § As per the Focus Product Scheme policy, exports of notified products to all countries
shall be entitled for duty credit scrip equivalent to 2 -5 % of the value of exports for each
licensing year.
Why in news?
§ The Department of Commerce has commissioned a study on “Enhancing Indian Exports of
Pharmaceutical products to China” under FPS.
§ India is the largest exporter of generic medicines in the world.
What is generic medicine?
§ A generic drug is a pharmaceutical drug that is equivalent to a branded product in
dosage, strength, route of administration, quality, performance, and intended use, but
does not carry the brand name.
§ The generic drug has the same active pharmaceutical ingredient (API) as the original,
but may differ in characteristics such as manufacturing process, formulation, excipients,
colour, taste, and packaging.
What is Active Pharmaceutical Ingredient (API)?
§ The Active Pharmaceutical Ingredient (API) is the part of any drug that produces its
effects.

SHAKTI Scheme
What does Sakthi Scheme entail?
§ Scheme to Harness and Allocate Koyla (Coal) Transparently in India (SHAKTI), will give
long-term contracts to power companies.
§ The policy would provide coal linkages to power plants which lacks fuel supply agreements
(FSAs) through coal auctions.
Why the new policy?
§ The policy initiative followed e-auctioning of coal mines after the cancellation of allocation
of the 204 coal blocks in 2014 by the apex court.
§ Thus the government brought out a transparent mechanism to auction coal.
§ The new coal linkage policy for power plants will help producers ensure fuel supplies in an
organised manner.
Why in news?
§ Coal India Ltd. recently announced the commencement of the fourth tranche of auction of
coal linkages for non-regulated sectors such as cement, steel/sponge iron, aluminium and
others.
Coal India Limited (CIL)
§ CIL is an Indian state-controlled coal mining company headquartered in Kolkata, West
Bengal.
§ It is a maharatna company and the largest coal producer company in the world.

Bullet train project

What is a bullet train?
§ Bullet train or a high speed rail is a type of rail transport that operates at significantly high
speeds (greater than 250 kmph), using an integrated system of specialized rolling stock
and dedicated tracks.
Why in news?
§ India set to miss a key target of acquiring land for the Japan backed bullet train project
by December 2018.
Bullet train in India
§ It is being laid between Ahmedabad and Mumbai (508 km) with technology from Japan.
 § It will be India’s 1st high speed rail and is expected to be completed by 2022.
§ Japan International Cooperation Agency(JICA) will fund 81% of the cost of the project,
which is estimated to be Rs. 1.1 lakh crore
§ Currently it takes 7 hours by train. Once the bullet train is operational, it will take only 2
hours.

Growth of Metro Rail

What’s in the news?
§ Union Housing and Urban Affairs Minister Hardeep Singh Puri said that over 664 km of metro
rail projects in 15 cities are currently under various stages of implementation, while more
than 515 km are already operational.
Metro Rail Policy, 2017
§ In order to create an ecosystem for metro rail, the Ministry of Housing and Urban Affairs has
notified the Metro Rail Policy, 2017.
§ The policy bridges the gap for ascertaining and enhancing the feasibility of metro rail projects
from economic, social and environmental perspective.
§ This aims to focus on systematic planning and implementation of metro rail systems and act
as a guide to state governments for preparing comprehensive proposals for metro rail
projects.
§ The policy also enables greater private participation and innovative financing through
Transit Oriented Development (TOD) and Value Capture Finance (VCF).
What is Transit Oriented Development (TOD)?
§ In urban planning, a transit-oriented development (TOD) is a type of urban development that
maximizes the amount of residential, business and leisure space within walking distance of
public transport.
What is Value Capture Finance (VCF)?
§ Value capture is a type of public financing that recovers some or all of the value that public
infrastructure generates for private landowners.

India’s largest Dry Dock
Why in news?
§ The Union Minister for Shipping, Road Transport laid the foundation for India’s largest Dry
Dock at Cochin Shipyard in Kerala.
What is dry dockyard?
§ A dry dock is a narrow basin or vessel that can be flooded to allow a load to be floated in, and
then drained to allow that load to come to rest on a dry platform.
§ Dry docks are used for the construction, maintenance, and repair of ships, boats, and other
watercraft.

Invest India, Start-up India Hub
About Invest India
§ ‘Invest India’ is India’s official agency dedicated to investment promotion and facilitation.
§ Operationalized in early 2010, Invest India is set up as a joint venture company between the
Department of Industrial Policy & Promotion (DIPP), Ministry of Commerce & Industry,
Federation of Indian Chambers of Commerce and Industry (FICCI), and State Governments of
India.
About Startup India Hub
 § Startup India is a flagship initiative of the Government of India, intended to build a strong
eco-system for nurturing innovation and Startups in the country that will drive sustainable
economic growth and generate large scale employment opportunities.
§ The Government through this initiative aims to empower Startups to grow through
innovation and design.
Why in news?
§ In an effort to fuel the growth of India’s entrepreneurial and small business community,
Invest India through its flagship initiative Start-up India Hub has partnered with WhatsApp
on a program that focuses on the proliferation of start-ups, promoting economic growth and
generating employment opportunities in India.

5G networks in India
About 5G networks
§ 5G is the next generation of mobile Internet connectivity that would offer much faster and
more reliable networks, which would form the backbone for the emerging era of Internet of
Things (IoT). The 5G standards envisage high speed links with peak rates of 2 to 20 Gbps
for various services.
§ Previous generations of mobile networks addressed consumers predominantly for voice
and SMS in 2G, web browsing in 3G and higher speed data and video streaming in 4G. The
transition from 4G to 5G will serve both consumers and multiple industries.
Significance
§ Once commercialised, 5G is expected to see use beyond delivery of services just on personal
phone platforms. It will also connect new devices including machines, sensors, actuators,
vehicles, robots and drones, to support a much larger range of applications and services.
§ The next generation network will also see usage in key government projects such as
smart cities and Digital India, besides other business-to-business applications. The
government expects the cumulative economic impact of 5G on India to be about $1
trillion by 2035.
What’s in the News?
§ The Indian government is aiming to commercially introduce 5G services in the country
by the end of 2020, almost in line with rest of the world.
Pricing Issues
§ 5G require large chunks of spectrum. The reserve price for proposed spectrum band for
5G services in 3300-3600 MHz frequency had been fixed at ₹492 crore per MHz for a
pan-India minimum block of 20 MHz, meaning operators would have to shell out about
₹10,000 crore.
§ Going by global standards, the price of ₹492 crore per MHz for 5G spectrum is on the
higher side as the South Korean auctions that happened recently had the price at ₹130
crore per MHz. Industrial players are requesting a new way of spectrum pricing.
Lagging behind
§ Globally, over 150 pre-commercial 5G trials are underway around the world, including
South Korea, China and the U.S. However, a recent report by a top panel set up by the
Centre pointed out that so far, 5G trials are yet to begin in India.
§ The panel has recommended that the 5G spectrum allocation policy should be
announced by the 2018.

New telecom policy
What is in News?
 § Union Cabinet approved the National Digital Communications Policy-2018 replacing the
existing National Telecom Policy-2012.
Features of the policy
§ Provide universal broadband connectivity at 50 Mbps to every citizen, 1 Gbps connectivity to
all Gram Panchayats by 2020 and 10 Gbps by 2022.
§ Attract investments in the Digital Communications Sector.
§ Train manpower for building New Age Skill.
§ Expand Internet of things (IoT) ecosystem.
§ Establish a comprehensive data protection regime.
Impact
§ The ‘Customer focused’ and ‘application driven’ NDCP-2018 shall lead to new ideas and
innovations, such as 5G, IOT, Machine-to-machine (M2M), etc. which shall govern the telecom
sector of India.
The policy advocates
§ Establishment a National Fibre Authority;
§ Establishing utility corridors in all new city and highway road projects;
§ Creating a collaborative institutional mechanism between Centre, States and Local Bodies for
Common Rights and standardization of costs and timelines;
§ Facilitating development of Open Access Next Generation Networks.
What is the meaning of IoT?
§ A thing, in the Internet of Things, can be a farm animal with a biochip transponder, an
automobile with built-in sensors to alert the driver when tire pressure is low or any other
natural or man-made object that can be assigned an IP address with the ability to transfer
data over a network.
§ IoT has evolved from the convergence of wireless technologies, micro-electromechanical
systems (MEMS) and the widespread use of internet.
Government of India and IoT
§ The Union government is coming up with a regulatory framework for IoT to promote the
sector with roadmap, to put regulators and develop standards for users and manufacturers
on the same page.

Single electricity grid
What’s in the news?
§ Prime Minister Narendra Modi urged world leaders in First General Assembly of
International Solar alliance (ISA), to move towards a future of ‘one world, one sun, one grid’.
What is ISA?
§ The International Solar Alliance is a common platform for cooperation among sun-rich
countries lying fully or partially between the Tropics of Cancer and Capricorn.
§ It was launched at the UN Climate Change Conference in Paris on 2015 by the French
President & Indian PM to reduce the Global Greenhouse Gases Emission
§ The alliance includes around 80 countries that support a common declaration & it was
Headquarters was National Institute of Solar Energy (NISE), Gurgaon, INDIA.
Key points in the speech
§ He emphasized to expand the ISA to include all member countries of the United Nations.
§ He believed that the ISA will top the list of climate change organizations in the 21st Century
Comparing with the OPEC & replace it in Future.
§ For India he had set a target of 40% of electricity generation capacity from non-fossil fuels by
2030 (20% from non-hydro renewable).

National Mineral Exploration Policy (NMEP)
Background
§ The Ministry of Mines has, in the recent past, taken a series of measures for the growth of the
mineral sector, including allowing 100% FDI.
§ However, these initiatives have fetched only limited success. This prompted the Government
to carry out a comprehensive review of its exploration policy and strategy.
§ The amendments brought in to the Mines and Minerals (Development and Regulation) Act,
(MMDR Act) in 2015 is a step in this direction.
§ The most important feature of this amendment is that mining leases (ML) and prospecting
license-cum-mining lease (PL-cum-ML) will be granted only through an auction process.
§ This is expected to bring in transparency, expeditiousness and simplification in procedures
in the grant of mineral concessions.
National Mineral Exploration Policy (NMEP)
§ The NMEP primarily aims at accelerating the exploration activity in the country through
enhanced participation of the private sector.
Salient Features
§ The Ministry of Mines will carry out auctioning of identified exploration blocks for
exploration by private sector on revenue sharing basis in case their exploration leads to
auctionable resources.
§ If the explorer agencies do not discover any auctionable resources, their exploration
expenditure will be reimbursed.
§ The policy emphasizes on making available baseline geoscientific data of world standards in
the public domain.
§ The government will carry out a National Aero-geophysical Program for acquiring state-of-
the-art baseline data for targeting concealed mineral deposits.
§ A National Geoscientific Data Repository is proposed to be set up to collate all baseline and
mineral exploration information generated by various central & state government agencies.
Why in News?
§ Having secured Rs.1.81 lakh crore from e-auction of 50 mineral blocks, the government is
looking to put on block another 100 mines in the next six months.

Data localisation policy
What is Data localisation?
▪ Data localisation is an act of storing data on any device that is physically present within the
borders of a particular country where the data was generated.
Towards a Data protection regime
▪ In April 2018, RBI directed all payment system operators including Visa, MasterCard, Google
and WhatsApp, to ensure that data related to payment systems operated by them are stored
only within India within a period of six months.
▪ The Draft Data protection law, recommended by the Justice Srikrishna committee, suggests
that every data processing entity in India shall ensure the storage of at least one serving copy
of personal data on a server located in India.
▪ The Draft e-commerce policy also calls for local storage of personally sensitive data.
Why in News?
▪ The European Union has expressed concerns over data localisation stipulations and certain
other provisions of India’s draft Data Protection law.

Ease of Doing Business Grand Challenge
Why in News?
§ PM Modi has launched this challenge with an objective to attract latest innovative ideas based
on Artificial Intelligence, Internet of Things, Big Data Analytics, Blockchain and other cutting
edge technology to reform Government processes.
§ In the World Bank's Doing Business Report released on October 31, 2018, India secured a 77
position in 2018, among a total of 190 countries.
Key Highlights
§ The EODB grand challenge is open to all young Indians, start-ups and private enterprises. The
main purpose is to provide solutions to complex problems using current technology.
§ The platform for the grand challenge will be the Start-up India portal. The top 3 teams for
each problem statement would be awarded cash prizes worth Rs 1 lakh, Rs 2 lakh and Rs 3
lakh respectively.
§ The government would be working with all the winners for solution development and
implementation.

Interoperability among Payment Instruments
What is Interoperability among Payment systems?
▪ Interoperability allows compatibility between payment systems which means a user can
transfer funds between mobile wallets and also from their wallets to bank accounts.
▪ Currently, a mobile wallet does not allow customers to send or receive money from a wallet
run by another company.
What’s in the news?
▪ The Reserve Bank has released the guidelines for interoperability between prepaid payment
instruments (PPIs) such as wallets and cards.
▪ It aimed at allowing users of popular payment wallets such as Paytm, Freecharge, Mobikwik,
and PhonePe to transfer money from one wallet to another.
▪ Interoperability shall be achieved in 3 phases
1. Through Unified Payments Interface (UPI)
2. Between wallets & bank accounts through UPI
3. Interoperability for PPIs issued in the form of cards through card networks such
as Mastercard, Visa or Rupay.
About UPI
▪ UPI is a payment system launched by the National Payments Corporation of India in 2016.
▪ It allows a customer to pay directly from a bank account to different merchants, both online
and offline, without the hassle of typing credit card details, IFSC code, or net banking/wallet
passwords.

Indian Strategic Petroleum Reserves
What are Strategic Petroleum Reserves (SPR)?
▪ They are huge stockpiles of crude oil established to tackle emergency situations. SPRs
significantly help India's energy security and will insulate the country from external price and
supply shocks.
▪ Currently, India has constructed three strategic petroleum reserves in huge underground
rock caverns at Visakhapatnam (1.33 Million Metric Tonnes) on the East Coast, and at
Mangaluru (1.5 MMT) and Padur (2.5 MMT) on the West Coast.
▪ These facilities can meet about 10 days of India’s crude oil requirements.
Phase-II reserves
▪ In June, the union cabinet approved Phase-II of SPR programme, which involves creation of
additional 6.5 MMT of storage at Chandikhol, Odisha (4.0 MMT) and Padur-II, Karnataka (2.5
MMT).
▪ Combined with an existing storage capacity of 5.3 MMT, the new strategic petroleum reserve
facilities will help support 22 days of India’s crude oil requirements.

Why in News?
§ The Union Cabinet has approved the filling of SPR at Padur (Karnataka) by foreign National
Oil Companies.
§ The filling of the SPR is being undertaken under PPP model to reduce budgetary support of
the government.
International Energy Agency (IEA) requirements
§ A Paris-based autonomous intergovernmental organization.
§ Established within the framework of the OECD in 1974 in the wake of the 1973 oil crisis.
§ IEA requires its member nations (30) to hold 90 days worth oil reserves.

Duty Drawback Scheme
Duty Drawback Scheme
§ The Duty Drawback scheme compensates exporters for the duties paid on inputs used to
manufacture exported products.
What’s in the news?
§ Government made it clear that it would not be refunding IGST duties that exporters paid on
exports since it has already compensated them through the duty drawback scheme.
§ However, exporters say that the drawback amount paid back is only a fraction of the total
amount they have paid and most of it is locked in IGST.
§ They also argue that the current system creates an unfair advantage for exporters operating
in a single state, as opposed to those who have operations that cross State lines. An exporter
who operates in, say, Delhi and has all her suppliers in Delhi, pays CGST and SGST and gets a
refund for that and also gets the drawback. But an exporter operating across State lines does
not get the IGST refund and only gets the drawback.
Refund mechanism under GST
§ Under GST all exports are deemed as inter-state transactions and only IGST is applicable.
Exporters are eligible to claim refund of IGST paid on exports and such refund should be paid
within 60 days.

Fisheries & Aquaculture Infrastructure Development Fund
What’s in the news?
§ The Cabinet Committee on Economic Affairs has given its approval for creation of special
Fisheries and Aquaculture Infrastructure Development Fund (FIDF) which would provide
concessional loans to state governments, entrepreneurs, fishermen, cooperatives etc., for
taking up of the investment activities of fisheries development.
§ National Bank for Agriculture and Rural Development (Nabard), National Cooperatives
Development Corporation (NCDC) and all scheduled banks are the designated Nodal Loaning
Entities in disbursal of the fund.
Benefits of the fund
§ Under FIDF, loan lending will be over a period of five years from 2018-19 to 2022-23 and
maximum repayment will be over a period of 12 years inclusive of moratorium of two years
on repayment of principal.
§ The credit facilities will help in creation of fisheries infrastructure facilities both in marine
and inland fisheries sectors to help boost annual fish production to 20 million tonnes by
2022-23 and generate over 9.40 lakh employment opportunities in fishing and allied
activities.
§ To augment fish production to achieve its target of 15 million tonne by 2020 set under the
Blue Revolution.


MSME loans in 59 minutes
Why in news?
§ The Union Minister of Finance and Corporate Affairs, Arun Jaitley has launched a web portal
www.psbloansin59minutes.com transformative initiative in MSME credit space.
About the portal
§ The web portal www.psbloansin59minutes.com will enable in principle approval for MSME
loans up to Rs. 1 crore within 59 minutes from SIDBI and 5 Public Sector Banks (PSBs).
§ It is a strategic initiative of SIBDI led PSB consortium incubated under the aegis of
Department of Financial Services (DFS), Ministry of Finance.
§ The Portal sets a new benchmark in loan processing and reduces the turnaround time from
20-25 days to 59 minutes.
§ Subsequent to this in principle approval, the loan will be disbursed in 7-8 working days.
Advantages of the portal
§ A first in MSME banking credit space, the portal is one of its kind platforms in MSME segment
which integrates advanced fin-tech to ensure seamless loan approval and management.
§ The loans are undertaken without human intervention till sanction and or disbursement
stage.
§ A User Friendly Platform has been built where MSME borrower is not required to submit any
physical document for in-principle approval.
§ The solution uses sophisticated algorithms to read and analyse data points from various
sources such as IT returns, GST data, bank statements, MCA21 etc. in less than an hour while
capturing the applicant’s basic details using Smart analytics from available documents.
§ The system simplifies the decision making process for a loan officer as the final output
provides a summary of credit, valuation and verification on a user-friendly dashboard in real
time.

Electoral bonds
Why in news?
§ The fifth tranche of sale of electoral bonds by SBI saw purchase of bonds worth more than Rs.
400 crore.
§ This was the largest sale of bonds since the launch of the scheme in 2018.
What are electoral bonds?
§ Electoral Bond is a financial instrument for making donations to political parties.
§ Electoral Bonds may be purchased by a person, who is a citizen of India or incorporated or
established in India.
§ The purchaser would be allowed to buy Electoral Bonds only on due fulfilment of all the
extant KYC norms and by making payment from a bank account. It will not carry the name of
payee.
§ The Electoral Bonds shall be encashed by an eligible Political Party only through a Bank
account with the Authorized Bank.
§ Electoral Bonds would be issued/purchased for any value, in multiples of Rs.1,000, Rs.10,000,
Rs.1,00,000, Rs.10,00,000 and Rs.1,00,00,000 from the Specified Branches of the State Bank
of India (SBI).
§ Only the Political Parties registered under Section 29A of the Representation of the People
Act, 1951 and which secured not less than one per cent of the votes polled in the last General
Election to the House of the People or the Legislative Assembly of the State shall be eligible
to receive the Electoral Bonds.

Regulation of E-Commerce
Multiple regulations
§ The E-commerce sector in the country faces multiple regulations touching different aspects
of the sector.
§ Information Technology Act 2000 provides legal recognition for the transactions carried out
by means of electronic data interchange and other means of electronic communication.
§ E-commerce companies have to comply with the Companies Act, 2013 and other applicable
laws of the country.
§ Such companies with FDI can operate only in activities which are specifically permitted. Any
violation of FDI regulations is covered by the penal provisions of the Foreign Exchange
Management Act, 1999(FEMA). RBI administers the FEMA and Directorate of Enforcement
under the Ministry of Finance is the authority for the enforcement of FEMA.
§ Further, activities of e-commerce companies also involve compliance of Shops and
Establishments Act of the State concerned.
Draft e-commerce policy
§ In July 2018, the govt released the Draft e-commerce policy to achieve harmonisation of laws
and regulations covering the e-commerce ecosystem.
§ The policy aimed to look into matters of predatory pricing, discounts, data localisation,
promotions of Indian entrepreneurship, among other aspects of ecommerce and online-
aided retail.
Highlights of the draft policy
§ Online retail firms have to store user data exclusively in India (data localisation) in view of
security and privacy concerns.
§ Any group company of an online retailer or marketplace may not be allowed to directly or
indirectly influence the price or sale of products and services on its platform, a move that
could completely restrict e-tailers from giving deep discounts.
 § The draft has also suggested introduction of a pre-set timeframe for offering differential
pricing or deep discounts by e-commerce players to customers.
§ The draft recommended permitting 49% FDI in inventory-based business-to-customer e-
commerce model. Currently, FDI in such businesses is prohibited and it is allowed only in the
marketplace model.
Negative responses
§ Many experts have cautioned that the suggestion of introducing a sunset clause for offering
deep discounts to customers will impact both customers and e-commerce players.
§ NITI Aayog CEO Amitabh Kant said that the government should not get into the market by
looking at micro issues of discounts and pricing.
§ Domestic e-commerce players have raised objections to the proposal allowing FDI in
inventory based model.
§ Industry bodies also objected to data localisation proposals which would increase their cost
of operations.
Why in News?
§ With concerns being raised on some proposals of the draft e-commerce policy, the
government has set up a group of secretaries to look into the issues.
§ The group will be chaired by the secretary in the department of industrial policy and
promotion (DIPP). The other members of the group include secretaries of the ministry of
electronics and information technology and department of commerce. Representatives of
Niti Aayog and department of economic affairs are also members of the group.

E-Commerce Regulation
Introduction
§ In December 2018, the Department of Industrial Policy & Promotion has issued a clarification
to the existing rules pertaining to Foreign Direct Investment in e-commerce companies.
○ From February 1, 2019, Vendors that have any stake owned by an e-commerce
company cannot sell their products on that e-commerce company’s portal.
○ Any vendor who purchases 25% or more of its inventory from an e-commerce group
company will be considered to be controlled by that e-commerce company, and
thereby barred from selling on its portal.
○ The e-commerce firm will not be allowed to influence the price of a product sold on
its portal by giving incentives to particular vendors.
○ No seller can sell its products exclusively on any marketplace platform, and all
vendors on the e-commerce platform should be provided services in a fair and non-
discriminatory manner. Services include fulfilment, logistics, warehousing,
advertisement, payments, and financing among others.
Context for these changes
§ E-commerce companies can operate under two different models in India.
○ Marketplace based model where the e-commerce firm simply acts as a platform that
connects buyers and sellers. FDI is allowed in e-commerce companies in this model.
○ Inventory based model where the inventory of goods sold on the portal is owned or
controlled by the e-commerce company and is sold to the consumers directly. FDI is
not allowed under this model.
§ (Note: As for retail policy governing brick-and-mortar stores, while 100% FDI is allowed in
single-brand retailing through the automatic route, in multi-brand retailing, up to 51% of FDI
is permitted, subject to government approval.
Only in the trading — including through e-commerce — of locally produced food products, is
up to 100% FDI allowed with government permission)
 § What has been happening is that large e-commerce companies such as Amazon and Flipkart,
while not owning inventory themselves, have been providing a platform for their group
companies such as CloudTail and WS Retail respectively.
§ Some see this as skewing the playing field, especially if these vendors enjoyed special
incentives from the e-commerce firm, over others. These controlled or owned vendors may
then be able to offer discounts to customers that competitors may not be able to match.
Who benefits?
§ The thrust of the DIPP policy is directed at protecting small vendors on e-commerce websites.
It seeks to ensure small players selling on the portals are not discriminated against in favour
of vendors in which e-commerce companies have a stake.
§ The Confederation of All India Traders welcomed this move as it feels the new set up will
ensure a level playing field for all vendors looking to sell on the e-commerce portals.
§ Traders running traditional brick-and-mortar stores, who now find it difficult to compete
with the large e-commerce retailers with deep pockets, could gain.
Who will be affected?
§ These clarifications will have a major impact on the major e-commerce players like Amazon
and Flipkart since most of them primarily source goods from sellers who are primarily
relevant to such e-commerce players. Now, they will not be able to sell them on their
platforms if they hold equity in the company manufacturing them.
§ The provision may hurt start-ups as well since many of these will be barred from selling due
to minor equity stakes being held by the e-commerce companies.
Why in News?
§ The new rules came into effect on Feb 1 2019.