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INDEX
5.8 Digital Banking Units (DBUs).......................... 30

INDIAN ECONOMY................................... 4
5.9 Government’s Small Savings Rate .................... 31
1. National Income................................ 4 5.10 Digital Lending Norms ..................................... 32
1.1 Concepts of National Income ............................. 4 5.11 i-Banks .............................................................. 33
1.2 Baumol’s Cost Disease ....................................... 5 5.12 Central Fraud Registry ..................................... 33
2. Public Finance .................................. 5 5.13 Stocking up of Gold by Central Banks .............. 34
2.1 Summary of Economic Survey 2022-23 .............. 5 5.14 Loan Write-offs ................................................. 34
2.2 Analysis of Budget 2023 ..................................... 8 5.15 Sarfaesi Act of 2002.......................................... 36
2.3 Fiscal Deficit ...................................................... 9 5.16 The Insolvency and Bankruptcy Code .............. 37
2.4 Windfall Tax ..................................................... 10 5.17 Role of Microfinance in Financial Inclusion .... 39
2.5 Carbon Border Adjustment Mechanism (Carbon 6. Financial Market ............................. 40

Border Tax) ...................................................... 11
6.1 G-Sec Yields...................................................... 40
2.6 Tourist Tax ....................................................... 12
6.2 ASBA-like Payment System ............................... 41
2.7 Influencer Tax................................................... 12
6.3 Anchor Investor ................................................ 42
2.8 Interest Abeyance ............................................. 12
6.4 Accredited Investors ......................................... 42
2.9 GST Reforms .................................................... 12
6.5 Listing of Municipal Bonds............................... 43
3. Money ............................................. 13 6.6 Sovereign Green Bonds .................................... 43
3.1 Bharat Bill Payment System ............................. 13 6.7 Surety Bond Insurance...................................... 45
3.2 Share Buyback .................................................. 14 6.8 Rise in Bond Yields ........................................... 45
3.3 RBI’s e-Rupee ................................................... 15 6.9 Spur in Benchmark Stock Indices ..................... 46
3.4 Crypto Lending ................................................. 17 6.10 Global Bond Indices ......................................... 47
3.5 Markets in Crypto-Assets Law (MiCA) ............ 18 6.11 Financial Services Institutions Bureau ............. 48
3.6 Collapse of FTX Crypto Trading Firm ............. 19 6.12 Insider Trading ................................................. 48
6.13 Purchasing Managers Index ............................. 49
4. Inflation.......................................... 20
6.14 Masala Bonds ................................................... 49
4.1 RBI Monetary Policy Highlights ...................... 20
6.15 AT-1 Bonds ....................................................... 50
4.2 The US Fed’s Biggest Interest Rate Hike ......... 21
6.16 Index Funds ...................................................... 51
4.3 RBI’s Interest Rate Hike ................................... 22
6.17 Board of Trade ................................................. 51
4.4 Controlling Inflation......................................... 22
6.18 Payment Aggregator ......................................... 52
4.5 Stagflation ........................................................ 24
6.19 Dematerialisation of Insurance Policies .......... 52
4.6 Global Food Inflation ....................................... 25
6.20 Qualified Institutional Placements ................... 53
5. Banking .......................................... 25 6.21 Revoking the License of Brickwork Ratings ..... 53
5.1 RBI's Supervision over a Bank ......................... 25
6.22 Exchange-traded Commodity Derivatives ........ 55
5.2 Black Swan Event ............................................. 26 6.23 India International Bullion Exchange .............. 55
5.3 RBI's Financial Stability Report ....................... 27
5.4 RBI’s easing of Cooperative Banks’ Lending to
7. External Sector ............................... 56
Housing ............................................................ 28 7.1 India's Trade Data ............................................ 56
5.5 RBI's Tokenisation Norms ................................ 28 7.2 Remittances to India ......................................... 57
5.6 Boosting Neobanks ........................................... 29 7.3 Lessons to be learnt from UK on FTAs ............ 58
5.7 Significance of Digital banks............................ 30 7.4 India’s Emerging Twin Deficit Problem ........... 59
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7.5 Exchange Rate .................................................. 60 10.3 The Production Linked Incentive

Scheme (PLI) Scheme ....................................... 84
7.6 Euro-Dollar Parity ........................................... 62
10.4 REC is a ‘Maharatna’ Company ...................... 84
7.7 Extended Fund Facility .................................... 62
10.5 Disinvestment ................................................... 85
7.8 Role of RBI in Forex Reserves .......................... 63
10.6 Bringing MSMEs into Sustainable Global Value
7.9 FPIs’ Market Exit ............................................. 64
Chains ............................................................... 86
7.10 FCRA Amendment Rules 2022 ......................... 65
10.7 Global Lighthouse Network .............................. 87
7.11 Changes in Overseas Investment Rules ............ 66
7.12 Scope of Countertrade for India ....................... 66 11. Service Sector ................................. 87
7.13 US Currency Monitoring List ........................... 67 11.1 Moonlighting .................................................... 87
GENERAL ECONOMY ............................. 68 12. Social Sector ................................... 88

12.1 Need for an Urban Job Guarantee Scheme ...... 88
8. Planning ......................................... 68 12.2 Green Jobs ........................................................ 89
9. Agriculture...................................... 69 12.3 The Expenditure on Pension ............................. 89
9.1 Status of Agriculture in India ........................... 70 12.4 Niti Aayog’s Report on India’s Gig Economy .. 91
9.2 India’s Agricultural Exports............................. 70 12.5 Changes to Prevention of Money Laundering Act
2002 (PMLA) .................................................... 92
9.3 Price Support Policies ...................................... 71
12.6 Trends in Global Poverty ................................. 94
9.4 National Food Security Act 2013 ..................... 72
12.7 Protection of Migrant Workers ......................... 95
9.5 International Year of Millets, 2023 .................. 72
12.8 Emotional Labour ............................................. 95
9.6 Coffee Industry in India .................................... 73
12.9 Advantages of India’s Youth Bulge................... 96
9.7 Sugar Industry in India ..................................... 74
9.8 GEAC's Approval for GM-Mustard .................. 74 13. Infrastructure ................................. 97
9.9 11th Agriculture Census .................................... 76 13.1 Vande Bharat Trains ........................................ 97
9.10 Platform of Platforms - eNAM ......................... 76 13.2 The Sela Tunnel ................................................ 97
9.11 Equity Grant ..................................................... 77 13.3 Improving Cold Chain Systems ........................ 98
9.12 System of Rice Intensification ........................... 77 13.4 Infrastructure Investment Trusts....................... 98
9.13 Direct Seeded Rice Technique (DSR Method) .. 78 13.5 Pragati Maidan Integrated Transit Corridor Project
.......................................................................... 99
9.14 Nereguli Paddy ................................................. 78
13.6 Power Finance Corporation to be a DFI ....... 100
9.15 Paddy Straw Torrefaction ................................ 79
13.7 Partnership for Global Infrastructure and
9.16 Kasturi Cotton .................................................. 79 Investment (PGII) ........................................... 100
9.17 Fiji Virus .......................................................... 79
13.8 National Investment And Infrastructure Fund 101
9.18 Meslin Flour ..................................................... 79 13.9 Renewing the Chabahar Port ......................... 102
9.19 The One Nation One Fertilizer Scheme ............ 80 13.10 India’s Logistics Sector .................................. 102
9.20 Diammonium Phosphate .................................. 80
13.11 Boosting India’s Natural Gas Market ............ 104
9.21 Liquid Nano Urea ............................................. 80
13.12 India's Inland Waterways ............................... 105
9.22 Glyphosate ........................................................ 81
13.13 Great Nicobar Development Project .............. 106
9.23 Hunger Hotspots Outlook, 2022-23.................. 82 13.14 Financing BOT Roads .................................... 107
9.24 Organic Aadhaar .............................................. 82 13.15 Ram Setu and Sethusamudram Project........... 107
9.25 Krishi Decision Support System ....................... 83
14. Others .......................................... 108
10. Industry .......................................... 83 14.1 WTO Ministerial Conference 2022 ................. 108
10.1 Unicorn............................................................. 83
14.2 IMF’s World Economic Outlook (October 2022) .
10.2 Section 25 Company ......................................... 83 ........................................................................ 109
14.3 Circular Economy .......................................... 110

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14.4 Bio Economy .................................................. 111 14.9 Trademark ..................................... 114

14.5 Business Reforms Action Plan ........................ 111 14.10 End of Hyperglobalisation.............................. 114
14.6 Open Network for Digital Commerce ............. 112
15. Glossary ........................................ 115
14.7 Imposing Ex-ante Rules on Digital Platforms 113
14.8 Right to Repair ............................................... 113 16. Data Point..................................... 117

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INDIAN ECONOMY
1. NATIONAL INCOME
National Statistical Organisation (NSO)
 Formed by merging Central Statistics Organisation (CSO) and National Sample Survey Organisation (NSSO)
 Responsible for coordination of statistical activities and evolving statistical methodologies.
 Its activities mainly include
National Income accounting Statistical Year Book
Economic Census Energy &Gender Statistics
Annual Survey of Industries Environment Statistics
Compilation of Index of Industrial Production Revision of National Industrial Classification
Consumer Price Indices Annual Plans
1.1 Concepts of National Income
 Gross Domestic Product (GDP) - It can be defined as

the monetary value of all final goods and services produced
in a country in a year.
GDP = Private consumption + gross
investment + government investment +
government spending + (exports –
imports)
 Four Key Engines of GDP Growth
o Private Final Consumption Expenditure (PFCE)
o Government Final Consumption Expenditure
(GFCE)
o Gross Fixed Capital Expenditure
o Net Exports (NX)
 Gross Value Added (GVA) - It is the value of all goods
and services produced in a country sector-wise in a given
year after subtracting the value of intermediate
consumption.
 The GVA calculates the same national income from the
supply side (producer side).
GVA = GDP + subsidies on products – taxes on products

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Economic Survey 2022-23
 India is the 3rd largest economy in the world in PPP terms and the 5th largest in market exchange rates.
 GDP - The Indian economy is expected to expand 7% in real terms in 2022-23.
 It has been projected to be around 6.0 to 6.8% in 2023-24.
 Global growth is forecasted to slow to 2.7% in 2023 as per IMF’s World Economic Outlook, October 2022.
Gross Domestic Product Gross National Product
It considers the market value of all final It considers the market value of all final goods
goods and services produced within a and services produced by citizens of a country,
Definition country during the given time regardless of whether production takes place
internally or outside the country
Measurement Measures only domestic production Measures production by the nationals
It includes the production of goods and services

Includes
by its citizens outside of the country
It excludes the production of goods and It excludes the production of goods and services
Excludes
services by its citizens out of the country by foreigners within that country
To study the outlines of the domestic To learn how the residents are contributing to the
Widely used
economy economy
1.2 Baumol’s Cost Disease
 Economics theory states that wages rise when there is greater productivity.
 However, Baumol’s cost disease refers to the increase in the wages of certain labourers even though
their productivity or skill level has not risen commensurately.
 This happens because there is competition between various industries for the limited supply of labour.
 It should be noted that labour is often a kind of non-specific resource that can be used across various industries.
2. PUBLIC FINANCE
2.1 Summary of Economic Survey 2022-23
Highlights of Economic Survey

The Economic Survey 2022-23 prepared by a team of economists led by chief economic adviser Anantha Nageswaran
analyses developments in the economy in the past year and makes projections for the following year.
Growth
 India is the 3rd largest economy in the world in PPP terms and the 5th largest in market exchange rates.
 GDP - The Indian economy is expected to expand 7% in real terms in 2022-23.
 It has been projected to be around 6.0 to 6.8% in 2023-24 depending on the trajectory of economic and political
developments globally.
 Global growth is forecasted to slow to 2.7% in 2023 as per IMF’s World Economic Outlook, October 2022.

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 Private consumption - As a percentage of GDP, private consumption recovered to 58.4% in the

second quarter of 2022-23, due to rebound in contact-intensive services such as trade and transport.
Fiscal developments
 Inflation - India’s retail
inflation rate peaked at 7.8%
in April 2022, above the
Reserve Bank of India’s (RBI)
upper tolerance limit of 6%.
 Tax collection - The gross
tax revenue registered a year-
on-year growth of 15.5% from
April to November 2022
driven by robust growth in the
direct taxes and GST.
 Capital expenditure - The
Centre's capital expenditure
rose to 2.5% of GDP in 2021-
22.
Monetary management
 Non-performing assets -
The gross non-performing
assets ratio of scheduled
commercial banks fell to a
seven-year low of 5%.
 CRAR - The Capital-to-Risk
Weighted Assets Ratio
(CRAR) remains healthy at
16.0.
 Fiscal deficit - The survey
expressed confidence that the
Union government should be
able to meet the fiscal deficit target of 6.4% of GDP for this financial year.
 The government aims to lower the fiscal deficit to 4.5% of GDP by FY26 from a target of 6.4% of GDP in this
fiscal year.
Social infrastructure and employment
 Education - As a share of total GDP, the budgetary allocation for education was at 2.9%.
 Health - The out-of-pocket expenditure as a percentage of total health expenditure declined to 48.2 % in 2018-
19.
 Food security - Schemes like PM-Kisan and PM Garib Kalyan Yojana have helped in ensuring food security
and their impact was also endorsed by the United Nations Development Programme (UNDP).
 Inclusion - The JAM (Jan-Dhan, Aadhaar and mobile) trinity and direct benefit transfers has brought the
marginalised sections into the formal financial system.
 Employment - Labour markets recovered beyond pre-Covid levels, in both urban and rural areas,
with unemployment rates falling to 4.2% in 2020-21.
 Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) is indirectly creating
opportunities for rural households to diversify their sources of income generation.
Agriculture and food management
 Private investment - Private investment in agriculture rose to 9.3% in 2020-21.
 Institutional credit - Institutional credit to the agricultural sector continued to grow to Rs 18.6 lakh crore in
2021-22.
 MSP - The minimum support price for all mandated crops was fixed at 1.5 times of the all-India weighted
average cost of production from 2018.

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 Foodgrain production - Foodgrain production in India saw sustained increase and stood at 315.7
million tonnes in 2021-22.
 India stands at the forefront to promote millets through the International Year of Millets initiative.
Industry
 India became the second-largest mobile phone manufacturer globally.
 The production-linked incentive (PLI) schemes were introduced across 14 categories, with an estimated capex
of Rs 4 lakh crore over the next five years, to plug India into global supply chains.
Services
 The services sector is expected to grow at 9.1% in 2022-23.
 India was among the top ten services exporting countries in 2021.
 India’s e-commerce market is projected to grow at 18% annually through 2025.
External sector
 Exports - Merchandise exports were 332.8 billion dollars for April-December 2022 as India diversified its
markets to Brazil, South Africa and Saudi Arabia.
 India entered into a comprehensive economic partnership agreement with the United Arab Emirates and
an economic cooperation and trade agreement with Australia in 2022.
 Remittances - India continued to be the largest recipient of remittances in the world, netting 100 billion dollar
in 2022.
 Remittances are the 2nd largest major source of external financing after service exports.
 Forex reserves - As of end-November 2022, India was the 6th largest foreign exchange reserves holder in the
world.
Climate Change and Environment
 India declared the Net Zero Pledge to achieve net zero emissions goal by 2070.
 India achieved its target of 40% installed electric capacity from non-fossil fuels ahead of 2030.
 A mass movement LIFE– Life style for Environment was launched.
 Sovereign Green Bond Framework (SGrBs) were issued in 2022.
 National Green Hydrogen Mission enables India to be energy independent by 2047.
Infrastructure
 Physical Infrastructure- Projects that are currently active include
o National Infrastructure Pipeline
o National Monetisation Pipeline
o Gati Shakti
o National Logistics Policy
 Digital Public Infrastructure
o Unified Payment Interface (UPI)-based transactions grew in value (121%) and volume (115%) terms
between 2019-22.
o Rural internet subscriptions witnessed a 200% increase, between 2015 and 2021.
Challenges for the Global Economy
 The Survey narrates about six challenges faced by the global economy.
1. COVID-19 related disruptions in economies
2. Russian-Ukraine conflict and its adverse impact along with disruption in supply chain
3. Central Banks led by Federal Reserve responding with policy rate hikes to curb inflation, leading to
appreciation of US Dollar and widening of Current Account Deficits (CAD) in net importing economies
4. The prospects of global stagflation compelling the nations to protect their respective economic space,
thus slowing cross-border trade

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5. China’s slowdown induced by its policies

6. Loss of education and income-earning opportunities brought in by the pandemi
2.2 Analysis of Budget 2023
To read the summary of Union Budget 2023-24, click here or scan the QR code below.
State of Indian economy

 Wholesale inflation - It moderated to reach a level below 5% in December 2022 and January 2023.
 Net profit- to-sales ratio – Corporate profitability was strong with net profit- to-sales ratio at 7.3%.
 Gross capital formation to GDP ratio - The ratio of gross capital formation to GDP has also shown an
improvement post pandemic.
 Incremental capital-output ratio (ICOR) - Higher inflation and GDP deflator have brought ICOR to its
decadal low of 1.6 in 2021-22 and 2.1 in 2022-23.
 Institution wise, the
lowest ICOR is for the
household sector and
highest is for the non-
financial public sector.
 Capital
expenditure - Capital
expenditure of
Government (CE),
including assistance to
the States for capital
formation, has shown a
consistent increase in
the post-pandemic
period.
 It is slated to reach
4.54% to GDP in 2023-
24.
 Fiscal deficit - The
fiscal deficit has
declined from its peak
during the pandemic.
 During 2020-21, the incremental borrowings of Government were nearly 79.4% of the available household
savings.
 Private final consumption expenditure (PFCE) - After two years of stillness, PFCE is showing a buoyancy
greater than one, indicating revival of consumer spending.
 However, sluggish growth in rural areas were noted.
 Employment - Between 2017-18 and 2020-21, total employment increased by 18.5%, nearly three fourths of
which was in self-employment (PLFS data).
 The ratio of persons placed out of persons trained is still around 20%.

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 The net profit ratio compares after-tax profits to net sales. It reveals the remaining profit after all
costs have been deducted from sales.
 Gross capital formation (formerly gross domestic investment) consists of outlays on additions to the fixed
assets of the economy plus net changes in the level of inventories.
 ICOR basically refers to the additional unit of capital required to generate additional unit of output.
Weak spots in the Budget
2.3 Fiscal Deficit
In Union Budget (2023-24), Finance Minister chose the path of relative fiscal prudence and projected a decline in fiscal
deficit to 5.9% of gross domestic product (GDP) in FY24, compared with 6.4% in FY23.
 Fiscal deficit - Difference between a government's total revenue and expenses in a given fiscal year.
 Reflects the shortfall in government’s own money to meet with its expenditure requirements, resulting in a need
to borrow an amount equal to the fiscal deficit
Fiscal deficit = Total Expenditure – (Revenue Receipts + Non-debt Capital Receipts)
Impacts of higher fiscal deficit
 An out of control fiscal deficit might reduce the sovereign credit rating of the country.
 This is bound to adversely affect the interests of both the Government as well as Indian business.
 It will make difficult to raise funds abroad and attract investments to India.
 Higher government expenditure will push up demand and generate more money in the economy leading to
higher inflation.
 The government in order to repay its debt would likely to levy more taxes in the future.
 Higher fiscal deficit leaves little room for interest rate cuts which would affect private investments.
 Borrowing costs may remain high for consumers and companies thus stalling the economic growth.

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Quick Facts
RELATED TERMS
 Primary deficit = Fiscal Deficit – Interest Payments
 Reflects borrowing obligations in a year to deal with expenditure requirements for that year’s purposes alone
 Revenue deficit = Revenue Expenditure – Revenue Receipts
 Reflects the borrowing needed in a year towards unproductive expenditures
 Effective Revenue Deficit = Revenue Deficit – Grants to states for asset creation
 Reflects the borrowings in a year towards unproductive expenditures after accounting for grants given to
states used by them for asset creation
BUDGET ESTIMATES 2023-24

 Total receipts other than borrowings is estimated at Rs 27.2 lakh
crore
 Total expenditure is estimated at Rs 45 lakh crore
 Net tax receipts is estimated at Rs 23.3 lakh crore
 Fiscal deficit is estimated to be 5.9% of GDP
 The revenue deficit is estimated to be 2.9% of GDP
 The primary deficit is pegged at 2.3% of GDP
2.4 Windfall Tax
Against the backdrop of rising crude oil prices due to Russia’s invasion of Ukraine, there has been a buzz in markets
about a one-time windfall tax on oil and gas companies.
 Windfall tax - It is a tax that is designed to tax the profits of a company that is derived from an external or
unprecedented event.
 For example, the energy price-rise as a result of the Russia-Ukraine Conflict.
 Such profits cannot be attributed to the actions of the firm, like an investment strategy or an expansion of
business.
 India announced a windfall tax on domestic crude oil producers who it believed were reaping the benefits of the
high oil prices.
 It also imposed an additional excise levy on diesel, petrol and air turbine fuel (ATF) exports.
 Also, India’s case was different from other countries, as it was still importing discounted Russian oil.

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 Benefits
o Boosts government revenues
o Provide public services and other benefits to the citizens
o Windfall gains can repay interest-bearing consumer
 Drawbacks
o The one-off taxes, which by definition are imposed retrospectively, are seen as arbitrary, fueling
uncertainty among businesses about future taxes.
o These taxes may reduce the dividend payout to investors investing in oil-producing companies.
o The imposition of windfall tax is branded as anti-investment and anti-business.
2.5 Carbon Border Adjustment Mechanism (Carbon Border Tax)
The European Union has proposed a policy called the Carbon Border Adjustment Mechanism which BASIC countries
have opposed.
 The Carbon Border Adjustment Mechanism (CBAM) is an initiative of European Union (EU) to prevent
carbon leakage from extremely carbon intensive imports.
 Under CBAM, duties will be imposed on imported goods based on the carbon expended in producing them.
 The duty imposed is an equivalent cost on imports.
 From 2026, the chosen sectors of cement, fertiliser, iron and steel, electricity and aluminium, imports will face
an additional tariff.
 Opposition - Carbon
border taxes could result
in market distortion and
aggravate the trust deficit
amongst parties.
 The BASIC (Brazil, South
Africa, India and China)
countries calls for unfair
shifting of responsibilities
from developed to
Fit for 55 - EU's target of
developing countries.
reducing net greenhouse
 India’s concerns - gas emissions by atleast
CBAM will negatively 55% by 2030
impact Indian industry.

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2.6 Tourist Tax
Bhutan has reopened its borders to tourists, but with a catch: a $200-per-night tax.
 A tourist tax is any revenue-generating measure targeted at tourists.
 It is a means of combating over-tourism and a form of tax exporting.
 It is usually levied indirectly through accommodation providers or holiday companies, and typically aimed
at overnight visitors.
 It is separate from value-added tax and other taxes that tourists may pay, but are also paid by residents.
 Tourist taxes could limit tourist numbers, raise prices or reduce the pressure on public services.
2.7 Influencer Tax
 The Influencer Tax is a new tax on social media influencers.

 Introduced by the Central Board of Direct Taxes (CBDT), this tax took effect from July 1, 2022.
 Under the new rule, social media influencers will have to pay 10% tax deducted at source (TDS) on freebies
or any other form of payment made in kind, if the value of the product is above ₹20,000.
 This could include free air tickets, mobile phones, hotel stays, luxury products, and other free gifts or services,
as per Section 194R, a recent addition to the Income-tax Act, 1961.
 However, they will be exempted from the tax if they return the product to the respective brands.
 The influencer will have to pay 10% of the value of the benefit by way of advance tax and present the provider
with evidence of payment in the form of a challan and a declaration before receiving the benefit.
 Impacts - For micro influencers, this is a big deal as they get their remuneration in the form of products.
 For influencers, this means they’ll be paying tax for (brand) collaborations where they received no money.
 But, the tax could bring small creators, who often don’t see their work online as a job, within the tax net.
2.8 Interest Abeyance
The Mysuru City Corporation has announced a new interest abeyance scheme to collect pending water bills by keeping
the interest on outstanding dues in abeyance.
 As per this scheme, if the bills are paid in one go, the interest on the amount will be kept in abeyance for 6
months and compound interest and additional interest will not be levied on that amount.
 Abeyance is a condition of undetermined ownership, as of an interest in an estate that has not yet vested.
 It is a condition of being temporarily set aside.
 Abeyance orders are used in cases where parties are interested in temporarily settling litigation while still
holding the right to seek relief later if necessary.
 This allows an organization to ‘settle’ with the party without officially binding its actions in the future.
2.9 GST Reforms
The Centre said it has released States’ outstanding GST compensation dues of almost Rs. 87,000 crore.
Goods and Services Tax
 GST is an indirect tax for the whole nation, which will make India one unified common market.
 It is a single tax on the supply of goods and services, right from the manufacturer to the consumer.
 It is a destination based tax which will be collected at the state where the goods are sold instead of the
manufacturing states.
 The 101st Constitution Amendment Act, 2016, introduced GST in India which was implemented from
1st July 2017.
 In the case of intra-state sales, Central GST and State GST are charged.
 All the inter-state sales are chargeable to the Integrated GST.

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 Objectives of GST
o To achieve the ideology of ‘One Nation, One Tax’
o To subsume a majority of the indirect taxes in India
o To eliminate the cascading effect of taxes
o To curb tax evasion
o To increase the taxpayer base
o Online procedures for ease of doing business
o An improved logistics and distribution system
o To promote competitive pricing and increase consumption
 The GST council is devised in such a way that the
o Centre will have 1/3rd voting power
o States will have 2/3rd and
o The decisions were taken by 3/4th majority
 Exemptions - Petrol, diesel, and aviation turbine fuel are not under GST but come under Central excise and
State taxes.
 There is distrust between the States and the Centre on revenue sharing.
 GST Compensation Cess – It is levied by the GST (Compensation to States) Act 2017, to compensate the
states for the loss of revenue arising due to the implementation of GST for a period of 5 years or such period
as recommended by the GST Council.
New Compliances Under GST
 e-Way Bills - It was launched in 2018. Under the e-way bill system, manufacturers, traders and transporters
can generate e-way bills for the goods transported from the place of its origin to its destination on a common
portal with ease.
 E-invoicing - The e-invoicing system was applicable for businesses with an annual aggregate turnover of more
than Rs.100 crore.
 It is designed to pass the invoice information directly from the IRP to the GST portal and the e-way bill portal.
 The 48th GST Council meeting chaired by Finance Minister Nirmala Sitharaman recommended to decriminalise
certain offences under Section 132 of the Central Goods and Services Tax (CGST) Act, 2017.
3. MONEY
3.1 Bharat Bill Payment System
According to RBI, the scope of the Bharat Bill

Payment System (BBPS) will soon be
expanded to include all categories of
payments and collections, both recurring and
non-recurring in nature.
 Bharat Bill Payment System (BBPS) is
a Reserve Bank of India (RBI)
conceptualized ecosystem driven by
National Payments Corporation
of India’s (NPCI’s) NPCI Bharat
BillPay Ltd (NBBL).
 It is a one-stop ecosystem for all
recurring bills providing an
interoperable and accessible "anytime
anywhere" payment service to all
customers across India.

14
 It offers repetitive payments of all type like credit card, electricity, telecom, DTH, gas, water bills,
insurance, loan repayments, Cable, FASTag recharge, municipal taxes, etc. through a single window.
 It has multiple modes of payment and provides instant confirmation of payment via an SMS or receipt with a
Be-assured symbol.
 BBPS currently does not enable non-recurring payments or collection requirements of individuals even if they
are recurring in nature.
 Categories outside the ambit of BBPS - Professional service fee payments, education fees, tax payments,
rent collections, etc. So, RBI decided to expand the scope of BBPS.
National Payments Corporation of India (NPCI)
 It is an umbrella organisation for operating retail payments and settlement

systems in India.
 It is an initiative of Reserve Bank of India (RBI) and Indian Banks’ Association
(IBA) under the provisions of the Payment and Settlement Systems Act, 2007, for creating a robust Payment
& Settlement Infrastructure in India.
 It has been incorporated as a “Not for Profit” Company under the provisions of Section 25 of Companies Act
1956 (now Section 8 of Companies Act 2013).
 Aim - To provide infrastructure to the entire Banking system in India for physical as well as electronic
payment and settlement systems.
Initiatives of NPCI
 RuPay - Indigenously developed Payment System
 Immediate Payment Service (IMPS) - For real time payments in retail sector.
 National Automated Clearing House (NACH) -Offline web based system for bulk push and pull
transactions.
 Aadhaar Payment Bridge (APB) System - helps Government in making the Direct Benefit Transfers
 Aadhaar enabled Payment System (AePS) - To access these funds at door step & drive the financial
inclusion in India.
 National Financial Switch (NFS)- Largest network of shared Automated Teller Machines (ATMs) in
India facilitating interoperable cash withdrawal, card to card funds transfer and interoperable cash deposit
transactions.
 Unified Payments Interface (UPI)- A 24*7 payment system which allows instant money transfer money
to any bank account
 Bharat Bill Payment System (BBPS) - One-stop bill payment solution for all recurring payments
 National Electronic Toll Collection (NETC)- To meet the electronic tolling requirements of the Indian
market.
3.2 Share Buyback
The parent company of Paytm has decided on a proposal for buyback of its shares.
 Share buyback is when a listed company buys its own shares from the existing shareholders.
 Share buyback is also called as share
repurchase.
 The process reduces the number of
outstanding shares in the open market over a
period of time.
 A company can buy back its shares from
shareholders in 2 ways
1. Through a tender offer on a
proportionate basis or

15
2. From the open market via book-building process, stock exchanges, or from the odd-lot
holders.
 The maximum limit of any buy-back is 25% or less of the aggregate of paid-up capital and free reserves of a
company.
 Eligibility to participate in buyback
1. The share had to be held in the Demat form.
2. The shareholder needs to hold the shares of the company, (which has announced the buyback) before
the record date declared in the announcement.
 Reasons for buyback
1. A company reduces the number of shares in the market by share repurchase and increases the value of
the remaining shares.
2. Increases the promoter shareholding, which can act as a safeguard against any threat of hostile
corporate takeover.
 Benefits of Share buyback
1. The company pays the tax and shareholders are exempted from paying tax on the income generated in
the share buyback.
2. Acts as a gateway of exit for uninterested shareholders. When the company offers a higher price than
the market price, these shareholders can surrender their shares and exit.
3.3 RBI’s e-Rupee
The Reserve Bank of India (RBI) has indicated that it will soon commence limited pilot launches of e-rupee or Central
Bank Digital Currency (CBDC), for specific use cases.
Central Bank Digital Currency
e-Rupee
 The world’s first digital
 It is an electronic version of cash in the form of a digital token.
currency- Sand Dollar by Bahamas.
 It is the Central Bank Digital Currency (CBDC) issued by the
 China introduced the e-CNY, the
Reserve Bank of India (RBI).
digital form of the Chinese yuan, at
 It is a fungible legal tender, for which holders need not have a the Winter Olympics in Beijing.
bank account.
 The latest CBDC launch- JAM-
 E-rupee will be issued in the same denominations as paper DEX by Jamaica.
currency and coins, and will be distributed through banks.
 Transactions will be through a digital wallet offered by the participating banks, and stored on mobile phones
and devices.
 Transactions can be both person to person (P2P) and person to merchant (P2M).
 A user will be able to withdraw digital tokens from banks in the same way she can currently withdraw physical
cash.
 She will be able to keep her digital tokens in the wallet, and spend
them online or in person, or transfer them via an app.
 CBDC - A CBDC is a legal tender issued by a bank in a digital
format.
 Also known as digital base money or digital fiat currencies,
a CBDC is no different from hard cash, apart from the fact that they
are in a digital or virtual form.
 It is not meant to replace hard cash but coexist as an additional form
of payment method.
Versions of CBDC
 Retail CBDC- It will be potentially available for use by all — private sector, non-financial consumers and
businesses.
 It can provide access to safe money for payment and settlement as it is a direct liability of the central bank.

16
 Retail e-rupee can be potentially used by all — the private sector, non-financial consumers and
businesses and provide access to safe money for payment and settlements.
 Wholesale CBDC-
It is designed for
restricted access to
select financial
institutions.
 It has the potential to
transform the
interbank
settlements.
 Wholesale CBDC is
designed for
restricted access to
select financial
institutions.
Forms of CBDC
 Token-based
CBDC- It would be a
bearer instrument
like banknotes,
meaning whosoever
holds the tokens at a
given point in time
would be presumed to
own them.
 It is preferred for CBDC-R as it would be closer to physical cash.
 Account-based CBDC- It would require maintenance of record of balances and transactions of all holders of
the CBDC and indicate the ownership of the monetary balances.
 This system is to be considered for CBDC-W.
Model for issuance
 Direct model (single tier model) - The central bank will be responsible for managing all aspects of the
digital rupee system such as issuance, account-keeping and transaction verification.
 Indirect model (two-tier model)- The central bank will issue CBDC to consumers indirectly through
intermediaries and any claim by consumers will be managed by the intermediary.
e-rupee vs cryptocurrency
 CBDC is backed by the RBI whereas crypto currencies like Bitcoins have no issuer.
 In fact, the RBI wants the government to ban cryptocurrencies in India.
 Private virtual currencies are not commodities or claims on commodities as
they have no intrinsic value.
e-rupee vs UPI transacted digital money
 Intermediaries - For money transfer in UPI payment system, there’s a chain
of intermediaries who enable this transaction.
 e-rupee did not need any intermediaries at all and it requires transfer of digital
money from one’s wallet to another wallet.
 Transaction limit - UPI-based apps like Google Pay and Paytm have a daily and per-transaction spending
limit.
 But the RBI has not fixed any limit on holding digital rupees in wallets.

17
e-RUPI
 It is a one-time pre-paid digital voucher which a beneficiary gets on his phone in the form of an SMS or QR
code.
 These electronic vouchers will have an associated value and an associated purpose.
 It cannot be encashed in any other way.
 The beneficiary can go and redeem it at any centre that accepts its.
 It helps users without a bank account, debit /credit card, digital payments app, smart phone or internet
banking access.
3.4 Crypto Lending
A U.S. cryptocurrency lending company Celsius Network froze withdrawals and transfers, citing “extreme” market
conditions, sparking a sell-off across crypto markets.
Cryptocurrency
 Satoshi Nakamoto is said to have

conceptualised an accounting system in the
aftermath of the 2008 financial crisis which has
mooted the idea of blockchain.
 A cryptocurrency is a medium of exchange, such
as the rupee or the US dollar, but is digital in
format and uses encryption techniques to
both control the creation of monetary units and
to verify the exchange of money.
 Bitcoin is the largest in the world according to
market capitalisation, followed by Ethereum.
 With cryptocurrencies,
a chain of private
computers (a network)
is constantly working
towards authenticating
the transactions by
solving complex
cryptographic puzzles.
 For solving the puzzles,
these systems are
rewarded with
cryptocurrencies and
this process is called
mining.
 A blockchain wallet is
used to store the crypto coins which facilitate smooth exchanges and secure transactions.
 Crypto lending is essentially banking for the crypto world.

 Just as customers at traditional banks earn interest on their savings in dollars or pounds, crypto users that
deposit their cryptocurrency (bitcoin or ether) at crypto lenders also earn money, usually in cryptocurrency.
 A cryptocurrency-backed loan uses digital currency as collateral, similar to a securities-based loan.
 Positives- Low interest rates, loan amount is based on asset value, choice of loan currency, no credit check,
fast funding, ability to lend crypto
 Negatives - Crypto lenders aren’t overseen by financial regulators, so there are few rules or transparency over
their reserves and also face risks ranging from volatilityto tech failures and hacks.

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 Crypto lending has boomed over the past two years, along as decentralised finance (DeFi)
platforms.
Decentralized finance (DeFi)
 Refers to an alternative finance ecosystem where consumers transfer, trade, borrow and lend cryptocurrency.
 Financial products become available on a public decentralized blockchain network, independently of traditional
financial institutions and the regulatory structures.
 Aim - To disintermediatefinance, using computer code to eliminate the need for trust and middlemen from
transactions.
 It’s a computer-controlled market that automatically executes transactions.
3.5 Markets in Crypto-Assets Law (MiCA)
Representatives from the European Parliament and the European Union (EU) states thrashed out a deal late on the
EU’s Markets in Crypto-assets (MiCA) law.
 MiCA was framed to tame a volatile “Wild West” market of crypto assets.
 It seeks to address concerns like money-laundering, protection of consumers and investors, accountability of
crypto firms, stablecoins and the environmental footprint of crypto mining.
 It excludes Non-fungible tokens (NFT).
 Features - Cryptocurrency companies will need a licence and
customer safeguards to issue and sell digital tokens in the EU
under the new rules.
 MiCA would mandate currencies like stablecoin issuers to
maintain minimum liquidity to provide for sudden large
withdrawals by users, and the reserves must also be protected
from insolvency.
 The European Banking Authority will supervise
stablecoins, and the law asks stablecoin issuers to provide
claims to investors free of charge.
 MiCA requires the European Banking Authority to maintain a public register of non-compliant crypto asset
service providers (CASPs).
 Under MiCA, crypto companies will be required to declare their environmental and climate footprint.
Non-fungible tokens (NFT)
 Anything that can be converted into a digital form can be an NFT.

 Everything from the drawings, photos,
videos, GIF, music, in-game items,
selfies, and even a tweet can be turned
into an NFT, which can then be traded
online using cryptocurrency.
 It is backed by Blockchain technology.
 Terra Nulius – 1st NFT on Ethereum
Blockchain
NFT vs cryptocurrency
 Similiarity- Both are built on
Blockchain.
 Difference- Cryptocurrency is a
currency and is fungible, meaning that
it is interchangeable.
 But NFTs are non-fungible, which means the value of one NFT is not equal to another.

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3.6 Collapse of FTX Crypto Trading Firm
FTX, the world’s second biggest crypto exchange, went bankrupt, affecting an estimated 10 lakh-plus people who were
barred from withdrawing funds.
 A cryptocurrency is a medium of exchange in digital format that uses encryption techniques to control the
creation of monetary units and to verify the exchange of money.
 Buying cryptocurrencies– It usually happens in two ways
o An exchange-facilitated transaction
o A peer-to-peer transaction
 Cryptocurrency exchanges are platforms that broker the trading of cryptocurrencies for other assets, including
digital and fiat currencies.
 They are
independent and
operate just like
stock exchanges do
globally.
 Cypto exchanges
operating in India
include WazirX,
CoinDCX,
CoinSwitch Kuber,
Zebpay, Bitbns,
Giottus, etc.
 Peer to peer (P2P)
trading is the act of
buying and selling
cryptocurrencies
directly between
users without a third
party or
intermediary.
 Mining new cryptocoins - Mining is a process of creating new crypto coins by solving complex mathematical
equations.
 This verification process requires miners to solve complex equations and those who do that first are paid a
fraction of the transaction as a fee for their effort.
 Sellingcryptocurrencies-The Indian exchanges allow sale of cryptocurrencies in exchange for INR as well.
 FTX - FTX is a cryptocurrency exchange that enable customers to trade digital currencies for other digital
currencies or traditional money, and vice versa.
 FTX is run by Sam Bankman-Fried and is headquartered in the Bahamas.
 FTX has a native cryptocurrency token called FTT, which traders use for operations like paying transaction fees.
 Reasons for the collapse - Alameda's balance sheet was reported to be heavily stacked with its sister
company FTX's native tokens instead of other cryptocurrencies, which led to a panic selling in FTT.
 The fear of insolvency in FTX Group over its financial positions started.
 When Binance,the world’s largest cryptocurrency exchange, started to liquidate their holdings in FTT tokens,
and later refused to bail out FTX, the situation worsened.
 FTX has also confirmed that there had been unauthorized access to its accounts.
Impact of FTX bankruptcy on crypto market
 Uncertainty - The FTX Group’s bankruptcy has sent shockwaves of fear, uncertainty and ambiguity across the
crypto market worldwide.
 The issue reminds about the previous case of the Terra tokens collapse that wiped out billions of dollars in
wealth.

20
 Effect on other cryptocurrencies - The collapse cast a shadow over the performance of bigger
cryptocurrencies such as Bitcoin and Ethereum.
 Bitcoin, the largest cryptocurrency, is trading at an almost two-year low around 16,600 dollars while Ethereum
dropped more than 8%.
 Impact on retail investors - There is a fear that lot of retail investors might go inactive for a while due to the
current volatility in the market.
 Impact on institutional investors - The institutional investors might like to capitalize on discounted assets
at the moment and hedge their investments.
 Stringent regulations - Structural changes in the crypto ecosystem and much stricter regulations are
expected after this episode.
 Positive impact - Other active exchanges could see a flurry of deposits coming in which depends on which
exchange is in its best shape at the moment.
4. INFLATION
4.1 RBI Monetary Policy Highlights
The Reserve Bank of India (RBI) has announced that its rate-setting panel, the Monetary Policy Committee (MPC),
will meet six times in the next financial year (FY24).
Monetary Policy Committee
 Under Section 45ZB of the amended RBI Act, 1934, the central
government is empowered to constitute a six-member Monetary
Policy Committee (MPC) of the Reserve Bank of India (RBI).
 The first such MPC was constituted in 2016.
 The MPC shall determine the Policy Interest Rate required to
achieve the inflation target and the decision of the Monetary Policy
Committee shall be binding on the Bank.
 The MPC fixes the benchmark interest rate - or the base or reference rate that is used to set other interest rates
- in India.
An accommodative stance of the RBI indicates the willingness on the part of the central bank to expand money
supply and cut interest rates.
 It usually meets once in 2
months and is mandated to
meet at least 4 times a
year and it publishes its
decisions after each such
meeting.
 The committee comprises
six members – Three
officials of the Reserve Bank
of India and three external
members nominated by the
Government of India.
 The Governor of RBI is
the ex-officio
chairperson of the
committee and has a casting
vote while taking decisions
that are tied.
Monetary Policy
 Objective- To maintain
price stability while keeping

21
in mind the objective of growth.

 In 2016, the RBI Act was amended to provide a legislative mandate to the central bank to operate the country’s
monetary policy framework.
 The framework aims at setting the policy (repo) rate based on
1. Assessment of the current and evolving macroeconomic situation
2. Modulation of liquidity conditions to anchor money market rates at or around the repo rate
 Other Monetary Policy instruments - Reverse Repo Rate, Liquidity Adjustment Facility, Marginal
Standing Facility, Corridor, Bank Rate, Cash Reserve Ratio, Statutory Liquidity Ratio, Open Market
Operations, Market Stabilisation Scheme.
4.2 The US Fed’s Biggest Interest Rate Hike
The U.S. Federal Reserve implemented its steepest interest rate increase in 28 years in an attempt to control inflation.
 The US Fed started to increase rates in early 2022, taking and the total interest rate up by 450 bps.
 The current FED rate is 4.75%.
 It was determined to continue raising interest rates till inflation slows towards its 2% goal.
Working of rate cycles
 Inflation control - When interest rates go up in an economy, it becomes expensive to borrow. So,
o Households are less inclined to buy goods and services
o Businesses have a disincentive to borrow funds to expand, buy equipment or to invest in new projects
 A subsequent lowering of demand for goods and services.
 This ends up depressing wages
and other costs, in turn bringing
runaway inflation under
control.
 Investing in foreign
countries- Emerging
economies such as India tend to
have higher inflation and,
therefore, higher interest rates
than in developed countries.
 So, investors, including Foreign
Portfolio Investors, tend to
borrow in the US at lower
interest rates in dollar terms,
and invest it in the bonds of
countries such as India in rupee
terms to earn higher rate of
interest.
Impact on global markets and India
 Less attractive markets- When the Fed raises its rates, the difference between the interest rates of the two
countries narrows, thus making India less attractive for the currency carry trade.
 There will be institutional outflow of capital from foreign investors as they abandon riskier assets like Indian
stocks and securities for US treasury bonds.
 Low global growth- It would also mean a lower impetus to growth in the US could be negative for global
growth, especially when China is reeling under the impact of a real estate crisis.
 Affect emerging market equities- Higher returns in the US debt markets could also agitate emerging
market equities, reducing the foreign investor enthusiasm.
 High cost for raising fund - Fed rate hikes will also make it costlier for the emerging economies, including
the Indian government to raise funds from the bond markets.
 Soar in gold prices- A rise in the short-term interest rates in the US and bond yields increase the opportunity
cost of holding gold, which yields no interest.

22
 As a result, gold prices could be on the rise as more people look to diversify their money and not park
their money in bank deposits.
 Pressure on the rupee- In the Indian economy, the rate hike could further weaken the domestic currency.
 Imported inflation- Inflation could gather steam in India through the currency route.
 The rupee has been on a downhill even though the RBI has been intervening in the forex market to reduce
volatility.
 The rising cost of imports is likely to widen the current account deficit (CAD).
4.3 RBI’s Interest Rate Hike
India's central bank has raised the benchmark interest rate for the first time in 2 years in an attempt to control high
consumer prices.
 Issue - For three consecutive quarters beginning January 2022, RBI has failed to keep the retail inflation rate
below 6%.
 The change in the price index over a period of time is referred to as CPI-based inflation, or retail inflation.
 Repo rate- The Reserve Bank of India (RBI) raised the repo rate at which it lends money to commercial banks.
 CRR- The RBI has announced a increase in CRR.
 Impact of Repo rate hike- The hike in repo rate means the cost of
funds for banks will go up thus prompting banks and NBFCs to raise
the lending and deposit rates in the coming days.
 SBI and many banks recently raised the MCLR (marginal cost of
funds-based lending rate) points anticipating a rate hike.
 MCLR (marginal cost of funds based lending rate) is the lowest
interest rate that a bank or lender can offer.
 Some analysts say that consumption and demand can be impacted by
the repo rate hike.
 Equated monthly instalments (EMIs) on home, vehicle and other personal and corporate loans are likely to go
up.
 Deposit rates are also set to rise after the repo rate hike that came after nearly four years.
 Impact of the CRR hike- The 50 bps hike in CRR will suck out Rs 87,000 crore from the banking system and
the lendable resources of banks will come down.
 It also means the cost of funds will go up and banks’ net interest margins could get adversely impacted.
4.4 Controlling Inflation
Inflation in India cannot be described just as ‘cost-push’ and an abundance of liquidity can also be an important factor.
 Inflation means persistent increase in general price level. It results in reduction in the value of money or
purchasing power over a period of time.
CausesofInflation
 Demand pull inflation
o Increased money supply results in increase in
aggregate demand.
o When the demand exceeds supply, the price level
increases and results in inflation.
 Cost- Push Inflation
o Increase in wage rates
o Increase in profit margin
 Structural inflation
o Due to structural imbalances and rigidities in the
economy such as

23
 Agricultural bottlenecks
 Government budget constraints
 Foreign exchange bottlenecks
 Physical infrastructure bottlenecks
Effects of Inflation
 Positive effects - In the initial stages, mild inflation may create an all-round expansion of business activity
and proves beneficial to the economy.
 Inflation helps the government meet debt obligations and its fiscal deficit targets.
 Negative effects - Rise in prices is not uniform throughout the economy and there may be distortions.
 It worsens the exchange rate. High inflation means the rupee is losing its power.
 Real income – Inflation erodes real income of the people. Real income indicates the purchasing power of
income and therefore their standard of living will fall.
 Creditors and debtors – Unanticipated inflation harms creditors and benefits debtors and redistributes
income in favour of the latter.
 Fixed income groups – The worst hit class during inflation will be the group having fixed income.
 Pensioners – They get pension in fixed nominal terms and hence are losers due to inflation.
 Businessmen – Entrepreneurs and traders gain by inflation as the price of goods produced by them rise
relatively faster than the cost of production.
 Wealth holders of cash, bonds and debentures – Inflation adversely affects wealth holders who hold
their wealth in the form of the cash, demand deposits, saving and fixed deposits and interest bearing bonds and
debentures.
 Effect on output – The effect of inflation on output depends on whether it has been caused by demand-pull
or cost-push factors.
 Social Consequence –It makes the rich richer and the poor poorer.
 Because of enormous rise in prices and scarcity of essential commodities, there is black-marketing, hoarding
and profiteering.
Measuring Inflation in India
 India calculates its inflation based on
two price indices i.e.
o Whole sale price index (WPI)
o Consumer price index (CPI)
 At present, an index called CPI
(Combined) is used to officially
measure and target inflation of the
economy.
Index Published by Base Year
Consumer Price Index for the Industrial Labour Bureau, Ministry of Labour 2016
Workers (CPI-IW)
Consumer Price Index for Rural Labour Bureau, Ministry of Labour 1986-87
Labourers (CPI-RL)
Consumer Price Index for Agricultural
Labourers (CPI-AL)
CPI (Urban) + CPI (Rural) = CPI National Statistical Office (NSO), Ministry of 2012
(Combined) Statistics and Programme Implementation (MoSPI)

24
Trend of inflation in India

 CPI index – 6.44% Jan 2023
 7.79% Apr 2022 (Highest)
 WPI index – 3.85% Jan 2023
 15.88% May 2022 (Highest)
 With increasing trends in inflation, the RBI has decided to raise the repo rate
and cash reserve ratio (CRR).
Basis of Comparison WPI CPI
Full-Form Wholesale Price Index Consumer Price Index
Application Used to understand inflation at the Used to understand inflation at the

producer level consumer level
Meaning Measure the average change in price in Measures the change in the price in
the sale of goods in bulk quantity by the the sale of goods or services in retail
wholesaler. or directly to the consumer.
Published By By the office of economic advisor of the By the Central Statistical Office of the
Ministry of Commerce and Industry. Ministry of Statistic and Programme
Implementation.
Measured Price By It is restricted to goods only. It is both for goods and services.
Measurement of Inflation WPI measures inflation in the first stage. WPI measures inflation in the final
stage.
Prices Bear By Prices are borne by the manufacturer and Prices are borne by the consumer.
wholesaler.
Goods and Services Covered Fuel, power and manufacturing CPI covers education, food,
products. transport, communication,
recreation, apparel, housing, and
medical care.
Base/ Reference Year The Financial Year The Calendar Year
Date of Release It releases on a weekly basis for primary It releases on a monthly basis.
articles, fuel, and power for rest items in
publishing monthly.
4.5 Stagflation
Authorities worldwide are trying to formulate the

appropriate set of policies to ensure that stagflation;
currently running at multi-decade highs in some
advanced economies is cooled without triggering a
recession.
 Stagflation- A situation in an economy when
inflation and unemployment both are at
higher levels.
 Stagflation is basically a combination of high
inflation and stagnant or low growth.
 Stagflation led to the emergence of the Misery
Index which is the simple sum of the inflation
rate and unemployment rate.

25
 Misery index measures the degree of economic distress felt by everyday people due to the risk of
joblessness combined with an increasing cost of living.
 The Phillips curve states that inflation and unemployment have an inverse relationship.
Related terms
 Disinflation - When there is a decrease in the rate of

inflation, it is called disinflation.
 During disinflation, prices continue to rise, but at a slower
pace.
 Deflation - When there is a decrease in general price level of
goods and services, it is called deflation.
 Reflation - Reflation is a situation often deliberately brought
by the government to reduce unemployment and increase
demand by going for higher levels of economic growth.
4.6 Global Food Inflation
The United Nations Food and Agriculture Organization’s (FAO) food price index hit an all-time high in March 2022.
 FAO Food Price Index - It is a part of the UN FAO Food Price Index (FFPI).
 It is a weighted average of world prices of a basket of food commodities over a base period value, taken at 100
for 2014-15.
 The FFPI is a monthly measure of change in
international prices of a basket of five major food Indonesia is the world’s largest producer and
commodities - Cereals, Sugar, Dairy, Vegetable oil and exporter of Palm oil followed by Malaysia.
Meat products.
Around 84% of global palm oil production
 It consists of the average of five commodity group comes from Indonesia and Malaysia.
price indices weighted by the average export shares of
each of the groups over 2014-2016.
 Sub-indices - FAO Cereal Price Index, FAO Vegetable Oil Price Index, FAO Dairy Price Index, FAO Meat Price
Index, FAO Sugar Price Index.
 Reasons for increase in edible oil price.
1. The 2020-21 droughts in Ukraine (the world’s biggest sunflower oil
producer)
2. Covid-induced migrant labour shortages in Malaysia’s oil palm
plantations
3. The Russian invasion of Ukraine
4. Indonesia’s restrictions on exports of palm oil in response to
domestic price increases
5. Drought in South America badly affecting the 2021-22 soyabean crop of the region
 Significance of Palm Oil - Being a ‘hard oil’ that is semi-solid at room temperature, the palm oil isn’t used
much in home kitchens for direct cooking or frying.
 Most of it goes to make hydrogenated fats (vanaspati, margarine and bakery shortening) or as key ingredient
in bread, biscuits, cookies, cakes, noodles, mithai, namkeen, frozen dessert, soap, and cosmetics.
5. BANKING
5.1 RBI's Supervision over a Bank
The Reserve Bank of India (RBI) has placed Dhanlaxmi Bank under tight monitoring with the bank’s financial position
coming under greater public scrutiny.

26
 Under Basel-III norms, banks are supposed to maintain their capital to risk weighted assets ratio
(CRAR) at 9% or above.
 Dhanlaxmi Bank’s capital adequacy has dropped below the stipulated standards in the past and it has even been
placed under the prompt corrective action framework (PCA) by the RBI.
 Under the PCA, the RBI places restrictions on lending by Prompt Corrective Action (PCA)
troubled banks and keeps a close eye on them until their
financial position improves sufficiently.  RBI initiated the Scheme of Prompt
 Reasons for placing the bank under tight scrutiny Corrective Action (PCA) in 2002.
o Inadequate financial disclosures  A framework under which financial
institutions with weak financial metrics
o Rising expenses are put under watch by the RBI.
o General mismanagement of the business  RBI had imposed PCA on both banks and
o Deteriorating capital adequacy situation of the bank NBFCs.
Significance of capital adequacy for a bank
 The riskier a type of asset held in a bank’s balance sheet, the higher the weightage given to the value of the asset
while calculating the bank’s capital adequacy ratio.
 This causes the capital adequacy ratio of the bank to drop, thus signaling a
higher risk of insolvency during crises.
 It is an indicator of the ability of a bank to survive as a going business entity in
case it suffers significant losses on its loan book.
 A bank cannot continue to operate if the total value of its assets drops below
the total value of its liabilities as it would wipe out its capital and render the
bank insolvent.
Basel-III Norms
 Basel III is an internationally agreed set of measures developed by the Basel Committee on Banking Supervision
(a consortium of central banks from 28 countries, based in Basel, Switzerland) in response to the financial crisis
of 2007-09.
 The measures aim to strengthen the regulation, supervision and risk management of banks.
 The guidelines aim to promote a more resilient banking system by focusing on 4 vital banking parameters
1. Capital
2. Leverage
3. Funding
4. Liquidity
 As of 2022, it is still in the process of implementation.
Tier 1 capital Tier 2 capital
 Tier 1 refers to a bank’s core capital, equity, and the  Tier 2 refers to a bank’s supplementary capital, such
disclosed reserves that appear on the bank’s financial as undisclosed reserves and unsecured
statements. subordinated debt instruments.
 If a bank experiences significant losses, Tier 1 capital  Tier 1 capital is more liquid and considered more
provides a cushion that can allow it to weather stress secure than Tier 2 capital.
and maintain a continuity of operations.
5.2 Black Swan Event
A study by the Reserve Bank of India (RBI) has spoken about the possibility of capital outflows to the tune of $100
billion from India in case of a major global risk scenario or a “black swan” event.

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 A ‘black swan’ event is a rare, unpredictable event that comes as a surprise and has a significant
impact on society or the world.
 These events are said to have 3 distinguishing characteristics
1. They are extremely rare and outside the realm of regular expectations;
2. They have a severe impact after they hit; and
3. They seem probable in hindsight when plausible explanations appear.
 Reliance on standard forecasting tools can both fail to predict and potentially increase vulnerability to black
swans by propagating risk and offering false security.
 Origin - The black swan theory was popularised by author Nassim Nicholas Taleb in his 2007 book ‘The Black
Swan’.
 In his book, Taleb does not try to lay out a method to predict such events, but instead stresses on building
“robustness” in systems and strategies to deal with black swan occurrences and withstand their impact.
 Link - The term itself is linked to the discovery of black swans.
 The Europeans believed all swans to be white until 1697, when a Dutch explorer spotted the first black swan in
Australia.
 The metaphor ‘black swan event’ is derived from this unprecedented spotting from the 17th century, and how it
upended the West’s understanding of swans.
 Black Swan Events in the past - The 2008 global financial crisis is a black swan event triggered by a sudden
crash in the booming housing market in the US.
 The fall of the Soviet Union, the terrorist attack in the US in 2001, also fall in the same category.
 Covid-19 pandemic is not a black swan event. In fact, it is a ‘white swan’ event, as it was
predictable.
5.3 RBI's Financial Stability Report
RBI released the 25th issue of the Financial Stability Report (FSR), which reflected the collective assessment on risks
to financial stability and the resilience of the financial system.
 Financial Stability Report (FSR) - It is published twice each year by the RBI.
 It presents an assessment of the health of the financial system.
 It details the current status of different financial institutions such as all the
different types of banks and non-banking lending institutions.
 It also maps the state of credit growth and the rate at which borrowers are
defaulting on paying back loans.
 The RBI looks at the state of both the global as well as domestic economy.
 The RBI conducts a Systemic Risk Survey (SRS) to assess the
financial system on five different types of risks — global, financial,
macroeconomic, institutional and general.
Key takeaways from the RBI’s FSR 2022
 Global growth- The outlook for the global economy is covered by uncertainty on account of the war in Ukraine,
elevated commodity prices, supply chain disruptions and darkening growth prospects.
 Stagflation risks are mounting for emerging and advanced economies alike as tightening financial conditions
threaten to prevent the pace of growth with inflationary pressures.
 Domestic economy and markets- In the Indian economy, high-frequency indicators point to a gradual but
unevenly strengthening recovery in the first quarter of 2022-23.
 Bank credit growth is showing signs of gradual recovery while Non-banking financial companies (NBFCs)
remain well capitalized.
 Financial Institutions- The Capital to Risk Weighted Assets Ratio (CRAR) and Common Equity Tier 1 Ratio
of Scheduled commercial banks (SCBs) are as high as 16.7% and 13.6%, respectively in March 2022 improving
returns on assets (RoA) and returns on equity (RoE).

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 SCBs’ gross non-performing assets (GNPA) ratio slipped to a six-year low of 5.9% and net non-
performing assets (NNPA) ratio fell to 1.7% in March 2022.
 The provisioning coverage ratio (PCR) increased to 70.9% in March 2022 from 67.6% in March 2021.
 The stress test results reveal that the SCBs are well-capitalised and capable of absorbing macroeconomic shocks
even in the absence of further capital infusion.
 Assessment of Systemic Risk- In the latest systemic risk survey (SRS) conducted by the RBI, global
spillovers and financial market volatility moved to the ‘high’ risk category.
 Macroeconomic, institutional and general risks were perceived as ‘medium’.
 Disconnect between real economy and India’s equity markets- Lifted by the bull run in equity markets
across the globe, the Indian equity market surged on strong rallies with intermittent corrections.
 Crypto and cyber risks- The report describes some emerging risks to financial stability emanate from
cryptocurrencies and cyber risks that requires special attention.
5.4 RBI’s easing of Cooperative Banks’ Lending to Housing
RBI has decided to increased the existing limits on individual housing loans provided by cooperative banks.
 RBI’s move - The RBI has revised upward the limits for individual housing loan extended by Urban Co-
operative Banks (UCBs).
 Along with this, the Rural Co-operative Banks (RCBs) will now be allowed to extend finance upto 5% of their
total assets to commercial real estate or residential housing projects.
 Co-operative banks - They are financial entities established on a co-operative basis and belonging to their
members (the customers of a co-operative bank are also its owners).
 Broadly, co-operative banks in India are divided into two categories - urban and rural.
 Rural cooperative banks (RCBs) - RCBs could either be short-
term or long-term in nature.
 Short-term cooperative credit institutions are further sub-divided into
o State Co-operative Banks
o District Central Co-operative Banks
o Primary Agricultural Credit Societies
 Long-term institutions are
o State Cooperative Agriculture and Rural Development Banks
(SCARDBs)
o Primary Cooperative Agriculture and Rural Development
Banks (PCARDBs)
 Urban Co-operative Banks (UCBs) - UCBs are either scheduled or non-scheduled.
 Scheduled and non-scheduled UCBs are again of two kinds
o Multi-state UCBs
o UCBs operating in single state
 Regulation- In India, co-operative banks are registered under the States Cooperative Societies Act.
 They also come under the regulatory ambit of the RBI under two laws
o The Banking Regulations Act, 1949
o The Banking Laws (Co-operative Societies) Act, 1955
5.5 RBI's Tokenisation Norms
The Reserve Bank of India’s card-on-file (CoF) tokenisation norms which will improve the safety and security of card
transactions has come into effect recently.
 Tokenisation - It refers to the replacement of actual card details with a unique alternate code called ‘token’.
 This token shall be unique for a combination of card, token requester and the device.

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 Process - A Debit or Credit cardholder can get the card tokenised by initiating a request on the app
provided by the token requestor.
 The token requestor will forward the request to the card network.
 The card network with the consent of the card issuer, will issue a token corresponding to the combination of the
card, the token requestor, and the device.
 Tokenisation can be performed only by the authorised card network and the list of authorised entities is
available on the RBI website.
 Benefits - A tokenised card transaction is considered safer as actual card details such as three-digit CVV and
expiry date are not shared with the merchant during transaction processing.
 Actual card data, token and other relevant details are stored in a secure mode by the authorised card networks.
 For any purchases done online or through mobile apps, merchants, payment aggregators and payment gateways
will not be able to save crucial customer credit and debit card details.
 The RBI prohibited merchants from storing customer card details on their servers and mandated the adoption
of card-on-file (CoF) tokenisation as an alternative.
 The customer need not pay any charges for availing of this service.
 The tokenisation has been allowed through mobile phones and/or tablets for all use cases/channels (e.g.,
contactless card transactions, payments through QR codes, apps etc.)
 Tokenisation is not mandatory for a customer and those who choose not to let his card tokenised can continue
to transact as before by entering card details manually at the time of undertaking the transaction.
 The token requestor cannot store Primary Account Number (PAN), or any other card details.
 Card networks are also mandated to get the token requester certified for safety and security that conform to
international best practices/globally accepted standards.
 In case of any data breach or hacking attempt at the merchant’s end, the customer’s card details will be
protected.
5.6 Boosting Neobanks
Bengaluru-based startup Open which is a neobank has recently become India's 100th unicorn.
 Neobank - A neobank is a digital bank that does not have any branches and is entirely online.
 A neobank is a fintech firm that provides digital and mobile-first services like payments, debit cards, money
transfers, lending, and more.
 In India, these firms don't have a bank licence of their own but rely on bank partners via corporate
collaborations to provide licensed core banking services and over-the-top financial services.
 Neobanks provide products that come under the regulatory framework of the three financial regulators
o Reserve Bank of India
o Securities & Exchange Board of India
o Insurance and Regulatory Development Authority of India
 Neobanks in India presently work on 2 main models
o Payment gateways
o Payment banks
 They also serve non-retail customers like MSMEs with white-label solutions.
Neobank vs traditional bank
 Neobanks bridge the gap between the services that traditional banks offer and the evolving expectations of new-
age customers.
 While traditional banks continue to struggle with bringing their legacy-based infrastructure into the digital age,
neobanks leverage its modern digital platforms modern digital platforms to analyse customer data and make
data-driven decisions.
 Neobanks can also afford to slash customer fees by a significant amount since they don’t have to bear the
expenses of running physical locations.

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 While neobanks don’t have the funds or customer base to overthrow traditional banks, they have
innovation to serve their customers much more quickly than traditional banks.
 Neobanks cater to retail customers, and small and medium businesses, which are generally underserved by
traditional banks.
Pros of neobanks
 Low costs-Fewer regulations and the absence of credit risk allows neobanks to keep their costs low. Products
are typically inexpensive, with no monthly maintenance fees.
 Convenience- These banks offer customers the majority (if not all) of banking services through an app.
 Speed- Neobanks allow customers to set up accounts quickly and process requests speedily.
Cons of neobanks
 Trust building- Neobanks are at a disadvantage in building trust with customers when compared to traditional
banks.
 Regulatory hurdles- Since the RBI doesn’t yet recognise neobanks as such, officially customers may not have
any legal recourse or a defined process in case of an issue.
 Impersonal- Since neobanks don’t have a physical branch, customers don’t have access to in-person
assistance.
 Limited services- Neobanks generally offer fewer services than traditional banks.
5.7 Significance of Digital banks
NITI Aayog published a discussion paper titled ‘Digital Banks: A Proposal for Licensing & Regulatory Regime for
India’ in November 2021 and the final report in July 2022.
 The NITI Aayog’s report explained the value proposition of full-stack digital banks and laid down an
implementation plan.
 The report also drew distinction between Digital Banks and Digital Banking Units.
 Digital banks – They are financial institutions that have no physical branches and offer banking services
entirely online through their website and mobile banking app.
 Digital banks will be completely independent banks to be licensed under the Banking Regulation Act,
1949 and they will follow the Reserve Bank norms on par with commercial banks.
 Significance of Digital Banks
 Full-stack digital banks is a potential solution for the persistent policy
challenge of credit deepening. Digital Banking Units
do not have legal
 Digital banks are seen as the next stage of financial inclusion. personality & are not
separately licensed
 Digital banks can solve the problem of lack of credit penetration among under the Act
MSMEs.
Factors to make digital banks a reality
 Connecting the infrastructure for digitising services allied to financial services will make full-stack digital
banking services available to customers.
 The infrastructure that are readily available for digital banks are:
 India Stack - It consists of identity rails, payment rails and data sharing rails and it widens the access to
financial services at lesser cost.
 Digital Document Execution Platform - National E-Governance Services Ltd. through this platform has
started digitalizing loan documents.
 Public Credit Registry - RBI is setting up a PCR to reduce information asymmetry, enabling the lender to
know the credit history and the current indebtedness of the borrower.
5.8 Digital Banking Units (DBUs)
In order to deepen the financial inclusion, Prime Minister Narendra Modi has inaugurated 75 Digital Banking Units
across 75 districts.

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 Budget- In the Budget 2022-23, Finance Minister Nirmala Sitharaman had proposed to set up 75
DBUs in 75 districts to commemorate 75 years of India's independence.
 RBI- In April 2022, the Reserve Bank of India (RBI) announced the guidelines for DBUs, following the report
of a working group of the Indian Banks Association (IBA).
 Banking Units (DBUs) - DBUs will be brick-and-mortar outlets set up by scheduled commercial banks,
housing a certain minimum digital infrastructure for
o Delivering digital banking products and services
o Servicing existing financial products and services digitally
Fintech
 Fintech (financial technology) is an economic industry comprising of companies that aim to compete with
the traditional financial methods to shape the future of banking.
 It revolutionizes financial services through the use of innovative new technologies.
Digital Lending
 Digital Lending is a remote and automated lending process, largely by use of seamless digital technologies for
customer acquisition, credit assessment, loan approval, disbursement, recovery, and associated customer
service.
 It facilitates speedy disbursal of loans and helps lower costs.
 Criteria for opening DBUs- The criteria for opening DBUs in tier 1 to tier 6 centres, without having the need
to take permission from the RBI in each case include
o Commercial banks (other than regional rural banks, payment banks and local area banks)
o Past digital banking experience
 Services provided- Saving bank accounts, current accounts, fixed and recurring deposit accounts, digital kits,
mobile and Internet banking, debit and credit cards, mass transit system cards, UPI QR codes, BHIM Aadhaar
and point of sale (PoS).
 Other services include making applications for and onboarding customers for identified retail, MSME or
schematic loans.
 Mode of provision- In DBU, the products and services will be offered to customers in 2 modes.
 Self Service Mode
 Digital Assistance Mode
DBUs vsTraditional banks
 DBUs will provide banking services including cash deposit & withdrawal 24
x 7.
 Services shall be provided digitally.
 People not having connectivity or computing devices can do banking transactions from DBU in a paperless
mode.
 Bank staff will be available to help and guide users for banking transactions in assisted mode.
 It will help in providing digital financial literacy and create awareness for adopting digital banking.
 Neo-banks- Neo-banks exist solely online without any physical branches independently or in partnership with
traditional banks.
5.9 Government’s Small Savings Rate
The Central Government kept interest rates on small savings schemes, unchanged for the July to September quarter
of FY23.
 Small Savings Schemes - They are a set of savings instruments managed by the central government
with an aim to encourage citizens to save regularly irrespective of their age.

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 These schemes are launched by the government, banks, and public sector financial institutions.
 Since 2016, the Finance Ministry has been reviewing the interest rates on small savings schemes on a
quarterly basis.
 All deposits received under various small savings schemes are pooled in the National Small Savings
Fund (NSSF) which is used by the central government to finance its fiscal deficit.
o Classification- The schemes can be grouped under three heads
o Post Office Deposits- It includes savings deposit, recurring deposit and time deposits with 1, 2, 3 and
5 year maturities and the monthly income account.
o Savings Certificates- It includes National Savings Certificate and the Kisan Vikas Patra.
o Social security schemes- It includes Public Provident Fund, Sukanya Samriddhi Account and Senior
Citizens Savings Scheme.
 Benefits
o Provide returns that are generally higher than bank
fixed deposits
o Has a sovereign guarantee and tax benefits
o Highly reliable as they are backed by the government
o Not subject to stock market movement
o Inculcate the saving habit among individuals
 Determination of small savings rate- Small savings rates
are linked to yields on benchmark government bonds.
 But despite the movement in G-Sec (government securities) yields, the government has not reduced the interest
rates in the last two years.
 Current decision- The government has decided to keep interest rates on small savings instruments
unchanged.
 As per the recent decision, schemes like Public Provident Fund (PPF) and the National Savings Certificate (NSC)
will continue to carry an annual interest rate of 7.1% and 6.8%, respectively.
 Term deposits of 1-5 years will fetch a rate in the range of 5.5-6.7% while five-year recurring deposits will earn
a higher interest of 5.8%.
 Negative real rate of return- The decision comes at a time when the inflation is ruling over 7% and bond
yields have risen over 7.4%.
 The decision may result in negative real rate of return after adjusting for inflation for savers and pensioners.
 Technically, negative real rates discourage savings and boost consumption which in turn may fuel more inflation
and lead to even more negative real rates.
 Slow down the deposit rate hike- Banks are now unlikely to go for a major hike in deposit rates.
5.10 Digital Lending Norms
The Reserve Bank of India (RBI) unveiled a regulatory framework to make digital lending safe in the backdrop of its
gaining traction.
 The framework is focused on the digital lending ecosystem comprising RBI Regulated Entities (REs) and the
Lending Service Providers (LSPs).
 LSPs are engaged by Regulated Entities to extend various permissible credit facilitation services.
 Norms - All loan disbursals and repayments are required to be executed only between the borrower’s bank
accounts and the RE, without any intervention from LSP or any third party.
 Any fees or charges, payable to LSPs in the credit intermediation process shall be paid directly by RE and not
by the borrower.
 A standardized Key Fact Statement (KFS) must be provided to the borrower before executing the loan contract.
 Annual Percentage Rate (APR), an all-inclusive cost of digital loans is required to be disclosed to the borrowers.
It should also form part of KFS.

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 It prohibits automatic increases in credit limits without the explicit consent of the borrower.
 It prescribes a cooling-off period during which the borrowers can exit digital loans by paying the principal and
the proportionate APR without any penalty, which shall be provided as
part of the loan contract.
 Grievance Redressal - LSPs engaged by Res should have a suitable
nodal grievance redressal officer to deal with FinTech/digital lending-
related complaints.
 Such a grievance redressal officer should also deal with complaints against
their respective Digital Lending Applications (DLAs).
 Data Privacy – Data collected by DLAs should be need-based, should
have clear audit trails, and should be only done with the prior explicit
consent of the borrower.
 Borrowers could be provided an option to accept or deny the consent for the use of specific data, including an
option to revoke previously granted consent, and an option to delete the data collected from borrowers by the
DLAs/LSPs.
 Any lending sourced through DLAs is required to be reported to Credit Information Companies (CICs) by REs
irrespective of its nature or tenor.
 All new digital lending products extended by REs over merchant platforms involving short-term credit or
deferred payments are required to be reported to CICs by the REs.
5.11 i-Banks
Large i-banks are getting picky about initial public offerings (IPOs). So, smaller i-banks join the big-fat IPO party.
 Investment bank (i-bank) is a financial services company that acts as an intermediary in large and
complex financial transactions.
 This bank is usually involved,
1. When a startup company prepares for its launch of an IPO and
2. When a corporation merges with a competitor.
 It offers storefront community banking and also caters to the investment
needs of high-net-worth individuals.
 Global investment banks include JPMorgan Chase, Goldman Sachs, Morgan
Stanley, Citigroup, Bank of America, Credit Suisse, and Deutsche Bank.
 Working - Advisory division of an i-bank is paid a fee for its services.
 Trading division earns commissions based on its market performance.
 Retail banking divisions make money by loaning money to consumers and
businesses.
 Professionals who work for investment banks may have careers as financial
advisors, traders, or salespeople.
 Investment banks are best known for their work as intermediaries
between a corporation and the financial markets.
 That is, they help corporations issue shares of stock in an IPO or an additional
stock offering.
 They also arrange debt financing for corporations by finding large-scale investors for corporate bonds.
5.12 Central Fraud Registry
The Reserve Bank of India (RBI) is considering setting up a fraud registry under the “One Nation One Ombudsman”
strategy.
 The RBI’s fraud registry aims to create a database of fraudulent websites and phone numbers with locations.
 Such a database shall help prevent fraudsters from repeating the fraud because such websites or phone numbers
will be blacklisted.

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 It is part of RBI’s efforts to strengthen customer protection and check digital frauds.
 Payment system participants will be provided access to this registry for near-real-time fraud monitoring.
 The aggregated fraud data will be published to educate customers on emerging risks.
Integrated Banking Ombudsman Scheme
 Under a “One Nation One Ombudsman” strategy, the Reserve Bank of India (RBI) launched the
integrated banking ombudsman scheme and streamlined its grievance redressal process.
 Due to this, time taken by the banking Ombudsman offices for disposal of complaints (turnaround time or TAT)
regarding banking frauds faced by customers has declined from 95 days in FY20 to 38 days at present.
 The scheme was launched for resolving customer grievances in relation to services provided by entities regulated
by RBI in an expeditious and cost-effective manner.
5.13 Stocking up of Gold by Central Banks
According to the World Gold Council (WGC), the demand for gold has risen by 28% this year.
 Gold has always been a critical component of a country’s reserves.
 Central banks bought 399.3 tonnes of the yellow metal compared to 90.6 tonnes in the same quarter of 2021.
 The Reserve Bank of India (RBI) was the 3rd largest buyers in Q3 of 2022.
Reasons for stocking up of gold by Central Banks
 Economic uncertainty
 Safety factor
 Gold’s durability, scarcity and finite supply are some features that provide
central banks with surety and trust during times of uncertainty.
 Dollar rebalancing - Since the dollar has rallied significantly, the weight of it in the overall reserves would have
gone up.
 Fluctuation in the rupee-dollar exchange rate
 Trade deficit concerns
 Geopolitical uncertainties
 Diversification of assets
5.14 Loan Write-offs
As per the government, during the last five years (2017-18 to 2021-22), scheduled commercial banks wrote off non-
performing assets (NPAs) worth Rs 9,91,640 lakh crore.
 According to RBI data, banks have written off Rs 10,09,510 crore over the last five years.
 Public Sector Banks (PSBs) accounted for most of these write-offs.
 Banks were able to recover only 13 % of this amount subsequently despite lending funds against assets or
collaterals.

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 Causes for losses in banking / financial sector

o Economic downturn
o Technological disruption
NPA is a loan or advance for which the principal or interest payment
o Change in government remained overdue for a period of 90 days.
policies
Banks are required to classify NPAs further into the following assets
o Regulatory hurdles
o Increased competition
o Fraud or malfeasance
Substandard assets - Assets which has remained NPA
o Banker’s error of for a period less than or equal to 12 months.
judgement in advancing
funds
 Loan write-offs - Writing off a Doubtful assets - An asset would be classified as
loan essentially means it will no doubtful if it has remained in the substandard category
longer be counted as an asset. for a period of 12 months.
 Significance - By writing off
loans, a bank can reduce the level
of non-performing assets (NPAs) Loss assets - Loss asset is considered uncollectible and
on its books. of such little value that its continuance as a bankable
 The amount so written off
asset is not warranted, although there may be some
salvage or recovery value.
reduces the bank’s tax liability.
 Reason - The bank writes off a loan after the borrower has
defaulted on the loan repayment and there is a very low
chance of recovery.
 It may be important to realise that all loan write-offs are not
lost money.
 Many write-off cases continue to be on birth register of
banks/financial institutions.
 Write-off is resorted to even in cases where the bank has not
exhausted all avenues for recovery of dues.
 Such write-offs do not affect the right of the bank to proceed
against the borrowers to collect the dues.
 Any recovery made against the borrower is considered as a
profit for the bank in that financial year.
Loan Waive-Off Loan Write-Off
Complete cancellation of a loan account Loans are no longer counted as an asset by the bank but
loan accounts are not completely cancelled
The objective is to support people at distressed times The objective is to clean up a bank’s balance sheet and to
minimize tax liabilities
Banks are not allowed to recover the loan and take any Banks are still entitled to recover the loan through legal
legal action against the borrower procedure
Collateral submitted if any will be returned to the Any collateral will either be confiscated until repayment
borrower or auctioned off to recover the loan
Haircut
 Haircut refers to the reduction in loan amount.

 When a bank takes haircut, it means, it is accepting a loan amount from a borrower which is less than what was
due in a particular loan account.

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 It is the difference between the actual dues from a borrower and the amount he settles with the bank.
 It act as a last resort when there is absolutely no hope of a recovery.
5.15 Sarfaesi Act of 2002
Banks have invoked the SARFAESI Act against telecom infrastructure provider GTL to recover their pending dues.
 The Sarfaesi Act of 2002 is the abbreviation for the Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002.
 This Act was brought in to guard financial institutions against loan defaulters.
 To recover their bad debts, the banks under this law can take control of securities pledged against the loan,
manage or sell them to recover dues without court intervention.
 Objectives - Efficient or rapid recovery of non-performing assets (NPAs) of the banks and financial institutions
(FIs).
 Applicability - The law is applicable throughout the country and covers all assets, movable or immovable,
promised as security to the lender.
 Under this Act, “bank”
means
1. A banking
company; or
2. A
corresponding
new bank; or
3. The State Bank
of India; or
4. A subsidiary
bank; or 4 [(iva)
a multi-State
co-operative
bank; or]
5. Such other bank
which the
Central
Government
may, by
notification,
specify for the
purposes of this
Act.
 According to a 2020 Supreme Court judgment, co-operative banks can also invoke the Act.
 According to the Finance Ministry, the non-banking financial companies (NBFCs) can initiate recovery in Rs
20 lakh loan default cases.
 Powers - The Act comes into play if a borrower defaults on his or her payments for more than 6 months.
 The lender then can send a notice to the borrower to clear the dues within 60 days.
 If the borrower fails to comply with the notice, the bank may take recourse to the following measures
1. Take possession of the security for the loan
2. Sale or lease or assign the right over the security
3. Manage the same or appoint any person to manage the same
 The Act also provides for the establishment of Asset Reconstruction Companies regulated by RBI to
acquire assets from banks and financial institutions.
 The defaulter has a recourse to move an appellate authority set up under the law within 30 days of receiving a
notice from the lender.

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Asset Reconstruction Company
 An ARC is a special type of financial institution that buys the debtors of the bank at a mutually agreed value and
attempts to recover the debts or associated securities by itself.
 The ARCs are registered under the RBI and regulated under SARFAESI Act, 2002.
 The ARCs take over a portion of the debts of the bank that qualify to be recognised as NPAs thus engaging in the
business of asset reconstruction or securitisation or both.
 Typically, they charge management fees for the securities they manage on behalf of a bank.
 ARCs are also permitted to sell these securities in the secondary market to qualified buyers.
Bad Banks
 Technically, a bad bank is an ARC or an asset management company that takes over the bad loans of commercial
banks, manages them and finally recovers the money over a period of time.
 The bad bank is not involved in lending and taking deposits.
 It just helps commercial banks clean up their balance sheets and resolve bad loans.
 The takeover of bad loans is normally below the book value of the loan and the bad bank tries to recover as much
as possible subsequently.
 National Asset Reconstruction Company Limited (NARCL) is India’s first-ever bad bank.
 It will pay 15% of the agreed price in cash and the remaining 85% will be in the form of Security Receipts
5.16 The Insolvency and Bankruptcy Code
Speaking at the 6th anniversary of the Insolvency and Bankruptcy Board of India (IBBI), Finance Minister urged IBBI
to be watchful in tackling insolvency related issues of companies facing stress.
Insolvency and Bankruptcy Code (IBC)?
 Insolvency is a situation where individuals or companies are unable to
repay their outstanding debt.
 The Insolvency and Bankruptcy Code, 2016 (IBC) was enacted in 2016,
against the backdrop of mounting non-performing loans.
 The poor performance of older loan recovery mechanisms such as the
Securitisation and Reconstruction of Financial Assets and Enforcement of
Security Interest Act (SARFAESI), Lok Adalats, and Debt Recovery Tribunals
prompted the enactment of IBC.
 Objectives
o To save a business as a going concern, through restructuring, change in ownership, mergers and other
methods (resolution)
o To maximize the value of assets of the corporate debtor
o To promote entrepreneurship, availability of credit, and balancing the interests
 IBC aims to establish a consolidated framework for insolvency resolution of corporations, partnership firms and
individuals in a time-bound manner.
 Under IBC, the insolvency regime shifted from ‘debtor-in-possession’ to ‘creditor-in-control’ thus ensuring
business continuance.
Four pillars of institutional infrastructure
 First pillar – Insolvency Professionals

o Insolvency Professionals (IPs) are class of regulated persons who play a key role in the efficient
working of the bankruptcy process. They are regulated by Insolvency Professional Agencies (IPAs).
 Second pillar – Information Utilities

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o The Information Utilities (IUs) store facts about lenders and terms of lending in electronic databases,
thus eliminating delays and disputes in the event of a default.
 Third pillar – Adjudicating Authorities:

o National Company Law Tribunal along with its appellate body, for firms, and Debt Recovery Tribunal
along with its appellate body, for individuals, are the forums where insolvency claims would be heard.
 Fourth pillar – Regulator (IBBI):

o Insolvency and Bankruptcy Board of India (IBBI) has regulatory oversight over IPs, IPAs and IUs.
Process followed under IBC

 Application- When a corporate debtor, or a company which has taken loans, defaults on its loan repayment,
either the creditor or the debtor can apply for the initiation of a Corporate Insolvency Resolution Process (CIRP)
under Section 6 of the IBC.
 The minimum amount of default after which the creditor or debtor could apply for insolvency is Rs. 1 crore.
 The IBC was amended to complete the resolution process by 330 days from the earlier 180+90 days deadline.
 Adjudicating authority- To apply for insolvency, one has to approach a stipulated adjudicating authority
(various benches of National Company Law Tribunal (NCLT)).
 The Tribunal has 14 days to admit or reject the application or has to provide a reason if the admission is delayed.
 The amended mandatory deadline for the completion of the resolution process is 330 days.
 Interim resolution professional-
Once the application is admitted, the
adjudicating authority appoints an
interim resolution professional (IRP).
 The IRP takes control of the defaulter’s
assets, collects information about the
company from Information Utilities
(repositories) and coordinates the
constitution of a Committee of Creditors
(CoC).
 Committee of Creditors (CoC)- A
CoC comprises all financial creditors of a
defaulting company and is the most
important decision-making body in every
CIRP.
 It decides whether the defaulting
company is viable enough to be
restructured and given a fresh start, or
liquidated.
 Insolvency professional- The CoC appoints an insolvency professional (IP), who looks after the operations
of the company during the CIRP.
 The IP invites and examines proposals for a resolution plan for a company, which could include restructuring
of debt, merger or demerger of the company.
 Resolution plan- It submits eligible plans to the CoC,
which can approve a plan if it receives 66% of the voting
share of committee members. Corporate Insolvency Resolution
Process (CIRP)
 If the CoC fails to approve any resolution plan, the
company goes for liquidation. A corporate debtor (CD) or the creditor (a
bank or an entity that has lent money for
 If a plan is approved, the CoC submits it to the Tribunal operational purposes) can apply for the
(before the maximum 330-day deadline), which then initiation of a CIRP.
approves the plan which the debtor is bound to
Minimum amount - ₹1 crore
implement.
 The adjudicating authority can also reject a plan.

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Challenges for the IBC

 Liquidation- Among the 3,400 cases admitted under the IBC in the last 6 years, more than 50% of the cases
ended in liquidation, and only 14% could find a proper resolution.
 Time taken- In FY22, it took 772 days to resolve cases involving companies that owed more than Rs. 1,000
crore.
 Realisation of value- The gap between the realizable
values during resolution and liquidation has been
narrowing over the years.
 Haircut- A haircut is the debt foregone by the lender as a
share of the outstanding claim.
 The Parliamentary Standing Committee on Finance in 2021
pointed out that, creditors on an average had to bear an 80%
haircut in more than 70% of the cases.
 Conduct of the CoCs- The Standing Committee stated
that the committee of creditors has significant discretion in
accepting resolution plans and appointing IPs.
 Issue with IPs- The IBBI took disciplinary action on 61% of the 203 professionals inspected since 2016, adding
that there should be a single regulator for them to ensure best practices and transparency.
5.17 Role of Microfinance in Financial Inclusion
Despite the efforts taken to promote financial inclusion, the All India Debt & Investment survey of 1992 revealed wide
gaps in credit availability, especially at the bottom of the pyramid.
 Microfinance - Microfinance is a
form of financial service which
provides small loans and other
financial services to poor and low-
income households.
 Microfinance includes a number of
services, such as savings accounts,
checking accounts, fund transfers,
micro insurance, and microcredit.
 Goal - To provide financial services
to help encourage entrepreneurs in impoverished nations to act on their ideas.
 In India, all loans that are below Rs. 1 lakh are considered as microloans.
 1970s - Muhammad Yunus, professor of economics,
began to hand out small loans in his home country
Bangladesh.
 He founded the Grameen Bank in 1983 which today is
active in over 70,000 villages in Bangladesh.
 1980s - Taking inspiration from the micro-financing
reforms in Bangladesh, National Bank for Agriculture
and Rural Development (NABARD) was established in
India in 1982.
 Micro-financing was developed for rural and women
development through Self-Employed Women’s
Association (SEWA) in Gujarat.
 Post 1991 - Coinciding with the financial sector reforms,
self-help group (SHG) and joint liability group (JLG)
lending models were two innovations which have enabled
a rapid spread of microfinance.
 Current scenario - Microfinance meets the credit
needs of nearly 12 crore families.

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 A study by NCAER (National Council of Applied Economic Research) in 2021 estimated the
contribution of microfinance to gross value added (GVA) at more than 2% while generating nearly 12 million
jobs.
 Today, microfinance is available in nearly 85% districts of India.
 The RBI regulations for microfinance provide an effective framework for customer protection.
Micro Insurance
 Micro-insurance products offer coverage to low-income households or to individuals who have little savings. It is
tailored specifically for lower valued assets and compensation for illness, injury, or death.
 The IRDA Micro-insurance Regulations, 2005 defines and enables micro-insurance policy as a general or
life.
 There is flexibility in the regulations for insurers to offer composite covers or package products that include life
and general insurance covers together
 Micro-insurance business is done through the NGOs, Self-Help Groups, Micro-Finance Institutions, etc.,
 Insurance policy with a sum assured of Rs 50,000 or less.
A general micro-insurance product is any A life micro-insurance product is
 Health insurance contract  A term insurance contract with or without return of

premium
 Any contract covering belongings such as hut,
livestock, tools or instruments or any personal  Any endowment insurance contract or a health
accident contract insurance contract
 They can be on an individual or group basis  They can be with or without an accident benefit rider and
 Either on an individual or group basis
6. FINANCIAL MARKET
6.1 G-Sec Yields
The government said that it had decided to keep interest rates on small savings instruments unchanged for the July-
September quarter given the sharp rise in government security (G-sec) yields over the last three months.
 G-secs- Government Securities or government bonds, are instruments that governments (Central Government
or the State Governments) use to borrow money.
 Governments routinely keep running into deficits thereby spending more
than they earn via taxes.
 Investors in government securities will either hold them to maturity or sell
them to other investors on the secondary bond market.
 Classification of G-secs - Government Securities are
o Short term (usually called treasury bills, with original maturities of
less than one year)
o Long term (usually called Government bonds or dated securities
with original maturity of one year or more)
 In India,
o Central Government issues both, treasury bills and bonds or dated securities
o State Governments issue only bonds or dated securities, which are called the State Development
Loans (SDLs).
 Risk-free gilt-edged instruments- G-secs carry the lowest risk of all investments as the chances of the
government not paying back your money are almost zero.
 Lower interest rate- The tradeoff of buying risk-free securities is that they tend to pay a lower rate of interest
than corporate bonds.

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 Calculation of G-sec yields- Every G-sec has a face value, a coupon payment and price.
 The price of the bond may or may not be equal to the face value of the bond.
 At this point, the face value of this G-sec is equal to its price, and its yield (or the effective interest rate).
G-sec yields
 If the government floats just one G-sec, and two people want to buy it, competitive bidding will ensue, and the
price of the bond may rise.
 However, the coupon payment on the G-sec is still the same.
 If the price of the bond goes up, then the yield will fall.
o For instance, if a bond is bought at Rs 100 and the yield is 5%, but if the price of the bond goes up to Rs
105 then the yield will fall to 4.76%.
 Demand from private- If G-sec yields are going up, it would imply that lenders are demanding even more
from private sector firms or
individuals because anyone
else is riskier when
compared to the
government.
 Risk-As such, if G-sec yields
start going up, it means
lending to the government is
becoming riskier.
 The G-sec yields are going
up, it suggests that the bond
prices are falling because
fewer people want to lend to
the government.
 Ability of the
government to pay back-
And that in turn happens
when people are worried
about the government’s finances.
 The government’s finances may be in trouble because the economy is faltering and it is unlikely that the
government will meet its expenses.
6.2 ASBA-like Payment System
The Securities and Exchange Board of India (SEBI) is developing a ASBA-like payment system for the secondary
market, which could prevent brokers from accessing their client funds.
 This payment system for the secondary market will be on the lines of the
ASBA process used for subscribing to IPOs.
 In ASBA, the funds move out of an investor’s bank account only after the
trade is confirmed.
 Pros - The money will never leave the account until the settlement is done.
 This, coupled with the new T+1 settlement mechanism, would lead to
efficient use of capital and help further develop India’s capital markets.
 Cons - Could upend the broking industry as several players earn a float on
the funds parked.
 It could even push up the cost of trading, as brokerages could look for
alternative sources of income.
 Extending ASBA to the secondary market could pose more complex challenges - more so for brokers not backed
by banks.
 For bank-backed brokers, money moves in and out seamlessly
 There will be far more transparency in the system, but operationally it will be difficult, as unlike the IPO market
where there is one-time payment, the secondary market is more active.

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6.3 Anchor Investor
The Securities and Exchange Board of India (SEBI) has relaxed norms for anchor investors by keeping the 30 days
lock-in period till June 30 for issues exceeding ₹10,000 crore.
 Anchor investors are high-profile institutional investors that are allotted shares before the subscription
opens for retail and other investors, and have to commit to holding their shares for a certain period after listing.
 An anchor investor in an IPO is a qualified institutional buyer (QIB) like a foreign portfolio investor or mutual
fund or insurance company which invests before the IPO is made available to public as per SEBI regulations.
 As initial investors, they make the IPO process more attractive for investors, and instil confidence in them.
 Anchor investors also aid in price discovery of the IPO.
 Anchor investors who get guaranteed allotment a day before the IPO opens to the public are normally allocated
60% of the QIB quota.
 Companies with a profitable track record can allocate 50% of the IPO to QIBs. Demand in the anchor category
is an indication of the success of the IPO.
Basis Qualified Institutional Buyer (QIB) Anchor Investor
It is a SEBI-registered financial institution that is

It is a subset of Qualified Institutional Buyer
eligible and knowledgeable to buy bulk securities
(QIB)
Overview in capital markets.
They are invited to subscribe the shares before
Example -Banks, Mutual fund house, Venture
the Initial Public Offers (IPOs) open
capital fund, Foreign investor, etc.,
Investment - Minimum of $100 million in

Qualification securities Minimum investment of Rs. 10 crores
Net worth - $25 million or more
It is liable to receive 30% of the total IPO issue

Allocation
A QIB is liable to avail 50% of a book-build IPO’s in a book-building process (or)
Percentage
overall issue. 60% of the shares allocated for the QIBs from
the total issue size.
Exit A QIB can exit at any time by selling its They cannot sell off their stocks after 30 days
shareholdings from the allotment date.
Share
Holdings A QIB may enjoy a major stakeholding in the It doesn’t provide major shareholding rights to
company the investor
6.4 Accredited Investors
The Securities and Exchange Board of India (SEBI) relaxed the regulatory framework for Alternative Investment
Funds (AIFs) targeting ‘accredited investors’.
 Accredited investoris also called qualified investor or professional
investor.
 They are a class of investors who have an understanding of various financial
products and the risks- returns associated with them and so, are able to take
informed decisions regarding their investments.
 They can be an individual or a business entity that is allowed to trade
unregistered securities with financial authorities.
 They are entitled to this privileged access by satisfying at least one requirement
regarding their income, net worth, asset size, governance status, or professional
experience.

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 In India, the ‘accredited investors’ are those investors with annual income of over Rs
2 crore or networth of at least Rs 7.5 crore.
 They are recognised by many securities and financial market regulators globally.
 Sellers of unregistered securities are only allowed to sell to accredited investors, who are deemed financially
sophisticated enough to bear the risks.
 Accredited Investors are considered to be capable of dealing in relatively riskier investment products due to
their financial capacity and ability to absorb possible financial losses.
 Relaxation - AIFs that are ‘large value funds for accredited investors’ have been exempted from filing their
placement memorandum by the SEBI.
 But these accredited investors have to intimate the regulator about the launch of their scheme.
6.5 Listing of Municipal Bonds
According to the RBI’s maiden report on municipal finances, listing of municipal bonds in the stock exchanges can
pave the way for developing the much-needed secondary market for municipal bonds in India.
 Municipal bonds – Also known as ‘muni bonds’, it is a debt instrument that municipal corporations and
other associated bodies in India issue them.
 Whenever the local government body
wants to raise funds, they issue these
bonds.
 These bonds come with a fixed
maturity period and investors earn a
fixed interest rate on them.
 The municipal corporations provide
returns on these bonds either from
property tax or professional tax collected
or other specific projects’ revenues.
 In 2015, the Securities and Exchange
Board of India (SEBI) circulated
guidelines for urban local bodies or local
government bodies to raise funds by
issuing these bonds.
6.6 Sovereign Green Bonds
The Government and the RBI decided to issue sovereign green bonds (SGrB) during 4th quarter (Q4) of FY23.
 Sovereign green bond - A sovereign green bond is a debt instrument issued by the central or state
government to borrow money from investors.
 It is based on the commitment that the mobilised fund will be spent on climate or eco-system related activities.

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 The proceeds from the Sovereign Green bonds will be deposited to the Consolidated Fund of
India (CFI) in line with the regular treasury policy.
 The funds from the CFI will be made available for eligible green projects.
 Classification - A project is classified “green” on the basis of four key principles
which include
o Encouraging energy efficiency in resource utilisation
o Reducing carbon emissions and greenhouse gases
o Promoting climate resilience
 It will have a tenor and interest rate.
 Money raised through
SGrB is part of overall
government
borrowing.
 SRgB may
carry lower interest
rate than that for
regular government
borrowings.
 Buyers- Both
domestic and
international
investors are expected
to be interested in
SGrB.
 Green projects - It
includes renewable
energy, energy
efficiency, clean
transportation,
climate change
adaptation, green
building, sustainable water and waste management, pollution prevention and control, terrestrial and aquatic
biodiversity conservation projects, etc.
 No go areas - The framework also lists no-go areas for SGrb such as nuclear power generation, direct waste
incineration, alcohol, weapons, tobacco, gaming, palm oil industries
etc. Sovereign bonds
 Green Finance Working Committee - For evaluating and
They are specific debt instrument issued
selecting a particular project, the framework talks about a Green
by the Government.
Finance Working Committee (GFWC).
It is issued to finance the fiscal deficit
 Allocation - The allocation and utilisation of green bonds will be
and manage the temporary cash
under the purview of the Comptroller and Auditor General.
mismatches of the government
 SOP - A second opinion provider (SOP) of green bond frameworks,
has reviewed India’s green bond framework and approved its alignment with the ICMA Green Bond Principles.
Conventional government bonds
 Government bonds or government securities (G-Secs) are
normally categorised into two types.
 Treasury Bills - Treasury Bills have a maturity of less than one
year and they do not carry coupon rates.
 These are issued at a discount, while redeemed at face value.
 Dated or long-term securities - They are issued for a period
above 1 year and up to 40 years.
 These bonds carry coupon rates and are tradable in the securities
market.

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6.7 Surety Bond Insurance
The Union Minister of Road Transport and Highways launched the country's first-ever surety bond insurance
product.
 The Union Budget 2022-23 accepted the use of surety bonds as a substitute for bank guarantees in government
procurements.
 Surety bonds are guarantees of payment issued by general insurance companies on behalf of the contractor to
the project awarding entity.
 The surety bond gives the principal a contract of guarantee in a mutually agreed terms.
 The bond protects the principal from losses in case the contractor fails to meet its obligations under the contract.
 In such case, the harmed party can raise a claim on the surety bond and recover the losses they have incurred.
 Collateral - Unlike a bank guarantee, the Surety Bond Insurance does not require large collateral from
the contractor.
 Bank guarantees require a certain percentage of project funds to be locked in as collateral, thus eating into the
working capital of the contractor.
 Advantages - As a risk transfer tool for the Principal, it shields the Principal from the losses.
 The less collateral of surety bond insurance frees up significant funds for the contractor, which can be utilized
for the growth of the business.
 The product reduces the contractors’ debts to a large extent.
 The product facilitates the growth of upcoming infrastructure projects in the country.
6.8 Rise in Bond Yields
With the Reserve Bank of India hiking rates to rein in inflation, bond yields have risen to their highest levels in three
years.
 Bond - A bond is an instrument to borrow money that could be floated/issued by a country’s government or by
a company to raise funds.
 Since government bonds (referred to as G-secs in India, Treasury in the US, and Gilts in the UK) come with the
sovereign’s guarantee, they are considered one of the safest investments.
 As a result, they also give the lowest returns on investment (or yield).
 Investments in corporate bonds tend to be riskier because the chances of failure (and, therefore, the chances of
the company not repaying the loan) are higher.
 Bonds yields - The yield of a bond is the effective rate of return that it
earns.
 However, the rate of return is not fixed — it changes with the price of the
bond.
 Every bond has a face value and a coupon payment.
 There is also the price of the bond, which may or may not be equal to the
face value of the bond.
 Rise in bond yields- The rise in bond yields hints at the possibility of overnight rates rising to 6%-plus over
the medium term.
 The rise indicates that the cost of funds in the financial system is rising and so are interest rates.
 For the government- It means the government will have to pay more as yield (or return to the investors),
leading to a rise in cost of borrowings.
 This will put upward pressure on general interest rates in the banking system.
 Expectations of higher inflation and the possibility of a rate hike can trigger a flight of capital from bank fixed
deposits to RBI sovereign guaranteed bonds.
 For debt investors- The rise in yields means investors expect higher interest rates and are selling their bonds
which will affect the debt investors.

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 When yields rise and bond prices fall, net asset values of debt funds, which hold a sizeable chunk of
government securities in their portfolios, will also decline.
 It will also impact corporate bonds, which are priced higher than government bonds.
 For equity investors- Rising bond yields are generally not good news for equity investors as they raise the
cost of funds for companies and start hurting their earnings.
 It thus leads to outflow of funds from equities towards a less risky debt instrument.
 Bond yield curve inversion - There are times when this bond yield curve becomes inverted.
 For instance, bonds with a tenure of 2 years end up paying out higher yields (returns/ interest rate) than bonds
with a 10 year tenure.
 Such an inversion of the yield curve essentially suggests that investors expect future growth to be weak.
 This corresponds that, when investors feel buoyant about the economy they pull the money out from long-term
bonds and put it in short-term riskier assets such as stock markets.
 In the bond market, the prices of long-term bonds fall, and their yield (effective interest rate) rises.
 This happens because bond prices and bond yields are inversely related.
 This causes the prices of the long-term bonds to rise and their yields to fall.
 Over the years, inversion of the bond yield curve has become a strong predictor of recessions.
 Soft-landing - When a central bank is successful in slowing down the economy without bringing about a
recession, it is called a soft-landing — that is, no one gets hurt.
 But when the actions of the central bank bring about a recession, it is called a hard-landing.
 Reverse Currency War - A flip side of the US Fed’s action of aggressively raising interest rates is that more
and more investors are rushing to invest money in the US.
 This, in turn, has made the dollar become stronger than all the other currencies.
 That’s because the dollar is more in demand than yen, euro, yuan etc.
 On the face of it, this should make all other countries happier because a relative weakness of their local currency
against the dollar makes their exports more competitive.
 This used to be called the currency war.
 However, today, every central bank is trying to figure out ways to counter the US Fed and raise interest rates
themselves in order to ensure their currency doesn’t lose too much value against the dollar.
6.9 Spur in Benchmark Stock Indices
The benchmark stock indices (S&P BSE Sensex and NSE Nifty-50 index) rose almost 2% spurred by sliding commodity
prices and the absence of fresh selling triggers in the domestic and global economy.
 S&P BSE Sensex - The term ‘Sensex’ is a portmanteau of the words ‘sensitive’ and ‘index’ coined by stock
market analyst Deepak Mohoni.
 It is benchmark stock index of India’s Bombay Stock Exchange (BSE).
 It represents 30 of India's largest and most well-capitalized stocks listed on the BSE.
 It was launched in 1986 and is operated by Standard & Poor's (S&P).
 The index is calculated in Indian rupees and U.S. dollars.
 It is float-adjusted and market capitalization-weighted. The Sensex is reviewed semi-annually each year in June
and December.
 The Sensex has grown since India opened up its economy in 1991.
 Nifty-50 - It refers to the 50 most popular large-cap stocks that traded at high valuations in the 1960s
and 1970s.
 They included household names such as Xerox (XRX), IBM, Polaroid and Coca-Cola (KO).
 Due to their proven growth records and continual increases in dividends, the Nifty-50 were viewed as "one-
decision" picks: investors were told to buy and never sell.

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NSE Nifty-50 Index NIFTY Next 50 Index
 The NSE NIFTY 50 is a diversified 50 stock  The NIFTY Next 50 Index represents 50 companies
index accounting for 13 sectors of the economy. from NIFTY 100 after excluding the NIFTY 50
companies.
 NIFTY 50 is owned and managed by NSE Indices
Limited (formerly known as India Index Services &  This index represents about 10% of the free float
Products Limited). market capitalization of the stocks listed on NSE.
 It is used for a variety of purposes such as  Since 2009, NIFTY Next 50 is computed based on
benchmarking fund portfolios, index based free float methodology.
derivatives and index funds.
 NIFTY 50 is ideal for derivatives trading.
 Since 2009, NIFTY 50 is computed based on free
float methodology
6.10 Global Bond Indices
The Indian government has been trying hard to include the government debt in the large global bond indices.
Global bond indice
 It include the emerging debt markets that closely monitor local currency bonds that are issued by governments
of various developing nations.
 JP Morgan and Bloomberg–Barclay’s are the popular global bond market indices.
 Significance- Help investors track the movement in bonds in multiple jurisdictions and aid in relative
comparisons.
 Indices are benchmark or guides to investments by mutual funds, pension funds and other large investors that
typically prefer to hold onto investments for longer periods.
 In the bond market, there are indices that track high-yield risky bonds, emerging market bonds and government
bonds.
 Basic criteria required for index inclusion - Conditions that enable
easy flow of money into the country is predominant.
 The countries must meet parameters on liquidity, safety, and returns.
 The main parameters include
o The size of the market
o The country rating
o Ease of access
 Country-level criteria for index inclusion includes
o Absence of restrictive laws on movement of capital
o Availability of forex
o Adequate hedging mechanism
o Tax laws
o Settlement of trade
 India’s case - Despite being the second largest bond market within emerging markets, India is not a part of
the global index. This is because of the following reasons.
 Taxation laws- At present, long-term capital gains is taxed at 20% (excluding surcharge), while short-term
capital gains is subject to 15%.
 India is unwilling to discriminate between domestic and foreign investors and place foreign investors
advantageously.
 Settlement mechanism- At present, all bonds, whether G-secs or otherwise, if listed as part of the index, are
to be settled in Euro clear.

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 But, India is batting for local settlement of its government securities, as in the case of China.
 Even if settlement is allowed in domestic clearing houses, the process is cumbersome for foreign investors.
Benefits of being included in global bond indices
 Reduced pressure on commercial banks- The inclusion in the global bond index will reduce the pressure
felt by commercial banks to absorb the majority of
government bonds. Passive fund
 Strengthen the investor base- Inclusion in global
 A passive fund is an investment vehicle that
indices would strengthen a key investor base -foreign
tracks a market index, or a specific market
institutional investors.
segment, to determine what to invest in.
 Surge in investment- If India is included in the global
 Example- Tracker funds, such as ETFs
bond index, it will attract passive inflows, which in turn will
(exchange traded funds) and index funds.
result in the surge of active foreign fund inflows.
 Confidence in Indian rupee- It will benefit the Indian rupee as there will be increased confidence, resulting
in further strength and stability.
 Equity inflows- With a stronger rupee, equity inflows are also likely to rise.
 Stable exchange rate- A steady flow of dollars keeps the exchange rate from depreciating too much.
6.11 Financial Services Institutions Bureau
The Financial Services Institutions Bureau (FSIB), which will replace the Banks Board Bureau (BBB), will be more
than a headhunter to fill in critical posts at state-run banks, insurers, and other financial institutions (FIs).
 Financial Services Institutions Bureau (FSIB) – It is a government body set up under the Department
of Financial Services.
 The board will be entrusted with making recommendations for the appointment of full-time directors and non-
executive chairman of state-run financial services institutions.
 Mandate - It would issue guidelines for selecting general managers and directors of public sector general
insurance companies.
 While its main task is to play the role of head-hunter for the state-owned financial services entities, the board
will also be involved in formulating and developing business strategies for state-run banks and help them in
their fund-raising plans.
 It has replaced Banks Board Bureau (BBB).
 The primary role of FSIB is to identify manpower capabilities and ensure the proper selection of talent for senior
positions at financial institutions owned by the government.
 However, when BBB was brought into force in April 2016, it was envisaged as a body that would efficiently
corporatize and make government entities function like private players, but it didn’t make much headway on
that front.
 It would also monitor and assess the performance of public sector banks, government-owned financial
institutions, and insurance companies.
 Composition - FSIB would be headed by a chairman, a central government nominee. It would comprise the
Secretaries of the DFS, the chairman of IRDAI, and a deputy governor of the RBI.
 It will have three part-time members who are experts in banking and three more from the insurance sector.
 Promotions and recruitments of BBB happened at the will and mercy of the government.
6.12 Insider Trading
 Insider trading refers to the buying, selling or trading of shares or other securities such as bonds or stock options
of a listed company using Unpublished Price-Sensitive Information (UPSI) that can affect the stock price that
has not been disclosed yet.
 SEBI regulations define an ‘insider’ as someone who is a connected person or has access to UPSI.

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Unpublished Price-Sensitive Information (UPSI) refers to a piece of exclusive information related to a firm’s stock
prices, quarterly results, acquisition deals, or any kind of sensitive activities that have not been shared with the
public at large
 Insider trading is the malpractice of selling or buying

securities by the insiders of a company, which
includes the employees, directors, executives and
promoters.
 To prevent such acts, the Securities and Exchange
Board of India (SEBI) has prohibited the firms to
purchase their own shares from the secondary
market.
 In India, insider trading is regulated by SEBI under
the Insider Trading Regulations, 2015.
 Recent Developments - The SEBI has recently
brought mutual funds under the ambit of its insider
trading regulations.
 Insider Trading Vs Front Running
 In front running, the information possessed by an individual is misused for personal purposes and there exists
a breach of duty on the part of the person who was responsible for keeping honest trade.
 However, in insider trading, the unpublished price sensitive information (UPSI) is exploited for personal gains.
6.13 Purchasing Managers Index
India’s services firms saw growth in new business and output accelerate to a 11-year high in June, as per the survey-
based S&P Global India Services Purchasing Managers Index (PMI).
 The Purchasing Managers Index (PMI) is a measure of the prevailing direction of economic trends in
manufacturing.
 It was started in 1948 by the US-based Institute of Supply Management.
 It is an indicator of business activity -- both in the manufacturing and services sectors.
 The PMI is based on a monthly survey of supply chain managers across 19 industries, covering both
upstream and downstream activity.
 It is calculated separately for the manufacturing and services sectors and then a composite index is constructed.
 PMI is based on 5 individual indexes with the following weights,
1. New Orders (30%)
2. Output (25%)
3. Employment (20%)
4. Suppliers’ Delivery Times (15%)
5. Stock of Items Purchased (10%)
 Reading - The value and movements in the PMI and its components can provide useful insight to business
decision makers, market analysts, and investors.
1. A figure above 50 denotes expansion in business activity.
2. Anything below 50 denotes contraction.
 If the figure is higher than the previous month’s then the economy is expanding at a faster rate. If it is lower
than the previous month then it is growing at a lower rate.
 The PMI is usually released at the start of the month.
6.14 Masala Bonds
Kerala Infrastructure Investment Fund Board’s ‘masala bonds’ won’t be impacted due to the depreciation of the rupee
against the US dollar this year, as they are rupee-denominated bonds. However, Kerala will have to bear higher costs
for those loans it has taken from global multilateral agencies in foreign currency.

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 Masala Bonds are rupee-denominated bonds issued outside India by Indian entities or
companies.
 In India, the International Finance Corporation (IFC) first introduced the masala bonds in 2014 for funding
the infrastructure projects.
 Masala Bonds, like any other off-shore bonds, are debt instruments that
help to raise money in local currency from foreign investors.
 Both the government and private entities can issue these bonds.
 Criteria - Masala bonds can be subscribed by any resident of that
country, which is member of the Financial Action Task Force
(FATF).
 The investors who subscribe should be whose securities market
regulator is a member of the International Organisation of
Securities Commission.
 Maturity Period - According to RBI, the maturity period is 3 years for
the bonds raised to the rupee equivalent of 50 million dollars in a
financial year.
 The maturity period is 5 years for the bonds raised above the rupee equivalent of 50 million dollars in a financial
year.
 The conversion of these bonds happens at market rate on the date of settlement of transactions undertaken for
issue and servicing of interest of the bonds.
 Impacts - As the ‘masala bonds’ are rupee-denominated bonds, the foreign exchange fluctuations would not
affect these bonds. Thus, if the rupee rate falls, the investor will bear the loss.
Bonds Features
Masala Bonds Rupee-denominated bonds issued outside India by Indian entities or companies
Maharaja Bonds In 2014, International Finance Corporation, an arm of the World Bank, issued rupee-
denominated borrowing in international markets.
Panda Bonds Issued by foreign issuers denominated in Chinese yuan renminbi (CNY) and placed on the
domestic market of mainland China.
Dimsum bonds
Bonds denominated in Chinese renminbi and issued in Hong Kong
Kangaroo Bonds Bonds issued by non-Australian issuers in Australian dollars (AUD) in Australia, in compliance
with the local laws and regulations.
Yankee Bonds A debt obligation denominated in U.S. dollars that is publicly issued in the U.S. by foreign banks
and corporation, and sometimes even governments.
Bulldog Bonds A type of foreign bond issued by non-British corporations seeking to raise capital in pound-
sterling from British investors.
Samurai Bonds Samurai Bonds are issued in Japan by foreign companies, denominated in yen, and subject to
Japanese regulations.
Shogun bonds
Shogun bonds are bonds issued in Japan by foreign firms, but unlike Samurai bonds are
denominated in non-yen currencies.
Dragon Bonds Dragon bonds are Asian corporate bonds, ex-Japan, but denominated in a foreign currency that
deemed to be more stable than the home currency.
6.15 AT-1 Bonds
Two years after the YES Bank fiasco, Additional tier-1 (AT1) bonds are once again gaining popularity.
 Additional Tier-1 bonds (AT-1 bonds) are a type of unsecured perpetual debt instrument.

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 They are used by the banks to augment their core equity base and thus comply with Basel III
norms.
 AT-1 includes perpetual non-cumulative preference shares and perpetual bonds.
 AT-1 bonds were introduced by the Basel accord after the global financial crisis to protect depositors.
 Features of the AT1 bonds - AT-1 bonds are perpetual in nature - they do not carry any maturity date.
 They offer higher returns to investors but compared with other vanilla debt products, these instruments carry
a higher risk as well.
 If the capital ratios of the issuer fall below a certain percentage or in the event of an institutional failure, the
rules of the RBI allow the issuer to stop paying interest or even write down these bonds.
 These bonds are subordinate to all other debt and senior only to equity.
 Quasi-equity feature - To lend more, banks need to shore up their equity capital. However, issuing additional
equity would dilute the bank’s return on equity.
 Instead, the banks issue AT1 bonds, which they can treat as equity for calculating their tier 1 capital.
Risks involved with AT1 Bonds
 Loss absorption Feature - When a bank is being restructured or liquidated, the order of repayment is as
follows: FD holders, secured debt, unsecured or subordinate debt, and perpetual debt (AT1 bond) holders.
 The AT1 bonds rank last in repayment - just before equity - that makes them the riskiest among fixed-income
securities.
 Coupon Discretion - In the case of AT1 bonds, the payment of the coupon depends on whether the bank has
profits. It can also dip into its reserves to pay coupons.
 Call option Risk - As AT1 bonds do not have a maturity date, the banks have a call option that permits them
to redeem these bonds after a certain period.
 If the bank exercises its call option when interest rates are going down, that subjects the investor to reinvestment
risk.
6.16 Index Funds
 An index fund is a type of mutual fund or exchange-traded fund (ETF) with a portfolio constructed to
match or track the components of a financial market index, such as the S&P’s 500 Index.
 An index fund is a portfolio of stocks or bonds designed to mimic the
composition, returns, and performance of a financial market index.
 For example, a Nifty 50 Index Fund will replicate the Nifty50 index.
 Benefits - Provide broad market exposure, low operating expenses, and low
portfolio turnover.
 Follow their benchmark index regardless of the state of the markets.
 Follow a passive investment strategy.
 Measuring Market index - A market index measures the performance of a “basket” of securities (like stocks
or bonds), which is meant to represent a sector of a stock market, or of an economy.
 You cannot invest directly in a market index, but because index funds track a market index they provide
an indirect investment option.
6.17 Board of Trade
The Union Minister of Commerce & Industry chairs the first meeting of the newly reconstituted Board of Trade.
 The Board of Trade (BOT) meeting was focused on
1. Export target setting
2. The New Foreign Trade Policy (FTP) (2022-27)
3. The strategies and measures to be taken in order to take forward domestic manufacturing and exports.
 The Board of Trade been reconstituted by merging Council for Trade Development and Promotion with Board
of Trade in 2019.

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 This Board advises the Government on policy measures connected with the Foreign Trade Policy in
order to achieve the objectives of boosting India’s trade.
 It provides a platform to state governments and UTs for articulating state-oriented perspectives on Trade Policy
to boost manufacturing and exports.
 It also acts as a platform to Government of India for appraising State Governments and UTs about international
developments affecting India’s trade.
 It is an important mechanism for deliberations on trade related issues with industry bodies, associations, export
promotion councils, and state and UT governments.
6.18 Payment Aggregator
Mswipe Technologies has received in-principle approval from

the Reserve Bank of India (RBI) for a payment aggregator (PA)
licence.
 Also known as a merchant aggregator, it is a third-
party payment solutions provider that offers
merchant onboarding services.
 With a payment aggregator, merchants can accept
multiple modes of payment – something that would
otherwise require a great amount of logistical
acrobatics.
 Through this, a person doesn’t require a separate
merchant account as the payment aggregator takes care
of everything while levying a moderate fee.
 Under the payment aggregator model, merchants can
process transactions through the aggregator’s Merchant
Identification Number (MID).
6.19 Dematerialisation of Insurance Policies
The Insurance Regulatory Development Authority of India (IRDAI) has mandated dematerialisation of new insurance
policies by December 2022.
 IRDAI circular - By December 2022, all the new insurance policies will
have to be compulsorily issued in a dematerialized form.
 By December 2023, all the old or existing policies will have to be brought on
demat platform.
 From November 2022, the eKYC is becoming mandatory.
 The insurance company will pay for all the costs associated with the
conversion in the online form and policyholders will not have to pay any fees
for the e-insurance policy.
 Dematerialization – It entails the conversion of physical policies into modifiable digital documents.
 The policies will be issued
digitally and will be kept in
an e-insurance account
(eIA) of the customer.
 The regulator is keen on
developing a digital platform
called “Bima Sugam”.
 Insurance policies could be
dematerialized with insurance
repositories that maintain the
data of insurance policies in
electronic form on behalf of
insurers.

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Bima Sugam
 Bima Sugam will be a one-stop platform for all insurance needs, right from buying the policy to claim settlement
and much more.
 Under Bima Sugam, there will be E-BIMA or E-IA account for policyholders in a Demat format.
 It shall allow the following insurance services:
o Buy insurance policy
o Claim Settlement
o Agent Portability
o Policy Portability
 It will be accessible by insurers, agents, intermediaries and customers.
 Bima Sugam shall have linkages with UIDAI, NSDL, CDSL, etc.
Insurance Regulatory and Development Authority of India (IRDAI)
 IRDAI is an autonomous and statutory body responsible for

managing and regulating insurance and re-insurance industry in
India.
 It is a 10-member body (a chairman, five full-time members
and four part-time members) appointed by the Government of
India.
 It was constituted under IRDAI Act, 1999.
 The agency’s headquarters is in Hyderabad.
6.20 Qualified Institutional Placements
Equity fund-raising through qualified institutional placements (QIPs) and rights issues slumped to the lowest since
2016.
 Qualified Institutional Placement (QIP) is a mechanism used by publicly traded corporations to raise capital by
selling stocks or other equity-convertible instruments to qualified institutional buyers (QIBs).
 Conditions - Qualified institutional buyers (QIBs) are the only entities allowed to purchase QIPs.
 For a QIP to take place, the company must already have its shares listed on a stock exchange.
 With this private placement technique, the firm avoids dilution of its management stake.
 Reasons to prefer QIP – It is a secure and effective method of obtaining capital.
 It lessens the reliance on foreign resources for fund raising.
 It is less time-consuming since they are subject to fewer legal requirements and constraints.
 Rights Issue - A rights issue is a mechanism to raise money by offering existing shareholders, new equity
shares typically offered at a discount by listed firms.
 If an existing investor does not intend to participate in the rights offering, there is an option to renounce the
shares in favour of others.
 Rights issues are often used by firms when the promoter group intends to maintain its shareholding.
6.21 Revoking the License of Brickwork Ratings
Securities Exchange Board of India (SEBI) has revoked the licence held by Brickwork Ratings and asked it to wind
down its credit rating operations within six months.
 Credit Rating Agencies (CRA) – They are agencies that assess the creditworthiness of organisation,
individual or entity and assign ratings to it.

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 They take into consideration several factors like

the financial statements, level and type of debt,
lending and borrowing history, ability to repay
the debt, and the past debts of the entity.
 The entities that are rated by credit rating
agencies comprise companies, state
governments, non-profit organisations,
countries, securities, special purpose entities,
and local governmental bodies.
 In India, CRAs are regulated by SEBI (Credit
Rating Agencies) Regulations, 1999 of the
Securities and Exchange Board of India Act,
1992.
 Brickwork ratings- Brickwork is one of the
SEBI-registered credit rating agencies in India.
 It is also a Reserve Bank of India (RBI)
accredited credit rating agency.
Significance of the rating
 Informed decisions- It provides
additional inputs to the investor
following which the investor analyses
and takes a sound decision.
 Serves as benchmark- Serve as a
benchmark for financial market
regulations.
 Determination of borrowing
rate - A higher rating means that the
company is deemed worthy of credit.
So, investors will be lending money
at a lower interest rate.
 Approval of loans- It helps banks
and investors decide about
approving loan applications and the
rate of interest offered.

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6.22 Exchange-traded Commodity Derivatives
The SEBI's board allowed the Foreign Portfolio Investors (FPIs) to trade in exchange-traded commodity derivatives.
The move will enhance liquidity and market depth, as well as promote efficient price discovery.
 Derivative Contracts are financial instruments whose value is based upon the value of an underlying asset
like equities, currency or other financial assets or commodities.
 Commodity derivatives contract is a derivative contract, which has a commodity as its underlying asset.
 In India, commodity derivative contract is decided under the Securities Contracts (Regulation) Act, 1956
(SCRA).
 The players in the commodity derivatives market are risk givers (hedgers) and risk takers (investors and
arbitrageurs).
 Exchange-traded Commodity
Derivatives are financial contract
that is listed and traded on a
regulated exchange.
 These are derivatives that are traded
in a regulated environment.
 Generally, the commodities traded in
commodity derivatives market are,
1. Agricultural Commodities
(perishables and processed)
and
2. Non-Agricultural
Commodities (natural
resources that are mined or
processed) - Bullion and
Gems, Energy commodities,
and Metal commodities.
6.23 India International Bullion Exchange
Prime Minister launched India’s first bullion exchange - India

International Bullion Exchange (IIBX) - at Gujarat’s GIFT City
(Gujarat International Finance Tec-City).
Bullion refers to physical gold and
 Announced in the Union Budget 2020, the India International silver of high purity that is often kept
Bullion Exchange (IIBX) is India’s first bullion exchange. The in the form of bars, ingots, or coins.
exchange shall work as a standard-setting tool for the quality
of the bullion. Bullion can sometimes be
considered legal tender, and is often
 The IIBX allows the eligible qualified jewelers to, held as reserves by central banks or
1. Trade gold and silver on the exchange, held by institutional investors.
2. Set up necessary infrastructure to store physical gold

and silver, and
3. Import gold (for the first time, since the liberalisation of gold imports through nominated banks and
agencies in 1990s).
 Structure - The bullion exchange will be operated by an entity known as the India International Bullion
Holding IFSC (International Financial Services Centre) Limited (IIBH), a joint collaboration involving the
1. Central Despository Services (India) Limited,
2. India INX International Exchange Limited (India INX),
3. Multi Commodity Exchange of India Ltd (MCX),
4. National Securities Depository Limited (NSDL) and
5. National Stock Exchange of India Ltd (NSE).
 Membership - To become qualified jewelers of the IIBX, entities require a

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1. Minimum net worth of Rs 25 crore

2. 90% of the average annual turnover in the last 3 financial years through deals in precious metals.
 To become a trading member, a qualified jeweller may establish a branch or a subsidiary in IFSC and apply to
the International Financial Services Centres Authority (IFSCA).
 Apart from qualified jewellers, non-resident Indians and institutions will also be able to participate on the IIBX
after registering with the IFSCA.
 In the medium term, institutions such as Funds for Gold ETF are also expected to participate.
 Trading - Registered jewelers will have to become a trading partner or a client of an existing trading member
to trade in the exchange.
 A branch or a subsidiary needs to be opened with IFSC for the same.
 A qualified jeweller based in India and not having physical presence in the IFSC may apply for a limited-purpose
trading membership.
 [Limited-purpose trading membership is where the entity can only trade on its own account and no client
onboarding shall be permitted.]
 Products for trading - In the early stage, gold 1 kg with 995 purity and gold 100 g with 999 purity will be
traded with a T+0 settlement (100% upfront margin).
 Later on, the products will be extended for T+2 (contracts with margin payments).
 A separate segment for UAE gold or gold with large bars (12.5 kg) may trade in future on the IIBX.
 Silver products will also be made available in later phases.
7. EXTERNAL SECTOR
7.1 India's Trade Data
The latest trade data released by the Ministry of Commerce and Industry show a small increase in exports growth (32
billion dollars) and a fall in imports growth (56 billion dollars) in November 2022.
 Exports - Exports grew by 0.6% over November 2021.
 Reason for decline in exports Retail inflation
stood at 6.8% in
o High inflation in developed regions, October 2022.
o Falling demand in China, Consumer inflation
eased to 5.88% for
o Slowdown in the EU and the U.S., and
November 2022.
o The Russia-Ukraine war.
 Imports - Imports grew by 5.4% over November 2021.
 The decline in imports growth has been more a balanced effect of declines in volume and prices.
 Fall in imports growth - It suggests that India’s domestic demand is weakening as the effect of a tighter
monetary policy (Higher interest rates and their drag on overall consumption and investment demand)
 Trade deficit – A trade deficit occurs when a country's imports exceed its exports during a given time period.
 It is also referred to as a negative balance of trade (BOT).
 India’s trade deficit during April to November stood at 196 billion dollars.
 Impact of trade deficit - A trade deficit implies that Indians need dollars China is India’s second
more than the rest of the world needs rupees for the trades to settle. biggest trading partner
after the United States.
 As such, a trade deficit puts pressure on the rupee’s exchange rate against the
dollar (presuming that all imports require payment in US dollars).
 Persistently high trade deficits tend to weaken the rupee’s exchange rate.
 Higher trade deficit will push up India’s current account deficit (which includes the trade in goods as well as
services).

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7.2 Remittances to India
In its Migration and Development Brief, the World Bank has said that India is expected to receive a record 100 billion
dollar in remittance in 2022.
 Remittance - The World Bank defines remittance as the sum of worker’s
remittances, compensation of employees, and migrants’ transfers as
recorded in the IMF Balance of Payments. According to a World
Health Organisation
 Workers remittances are current transfers by migrant who are considered
report, India is the top
residents in the source.
remittance recipient,
 Remittances are a vital source of household income for low- and middle- with around 87 billion
income countries. dollars received in 2021
Findings of the World Bank report
 India - The World Bank has said India’s remittance will grow 12% from 7.5% last year, resulting in 100-billion-
dollar flow.
 Reason - Large share of Indian migrants earning relatively high salaries in the United States, United Kingdom
and East Asia.
 Despite reaching 100 billion dollar and retaining its position as the top recipient of remittances globally, India’s
remittance flows are expected to account for only 3% of its GDP in 2022.
 Reasons for High remittance in India - There has been a gradual
shift in destinations for Indian migrants aided by a structural shift in The RBI Remittances Survey,
qualifications that helped them move into the highest-income-earner-
2021 shows that the US, the
category, especially in services.
UAE, the UK and Singapore
 During the Covid-19 pandemic, Indian migrants in high-income account for as much as 54% of
countries benefited from work-from-home and large fiscal stimulus India’s remittance inflows.
packages.
 Price support policies - Despite Indian migrants in the GCC returning to India during the pandemic, price
support policies kept inflation at bay and demand for labour increased with higher oil prices, which in turn
increased remittances for Indian labourers.
 Wage hikes - Remittances to India were enhanced by wage hikes and a strong labour market in the United
States and other OECD (Organisation for Economic Co-Operation and Development] countries.
 Inflation targeting - In the GCC destination countries, governments ensured low inflation through direct
support measures that protected migrants’ ability to remit.
 Depreciation of Indian rupee - Depreciation of Indian rupee to the US dollar may have proven to be
advantageous for Indian migrants and increased remittance flows.
 Post pandemic improvements - The vaccinations and the resumption of travel helped migrants resume
work, increasing remittance to the country.

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7.3 Lessons to be learnt from UK on FTAs
To achieve the export target of 2 trillion dollars by 2030, India is seriously negotiating on Free Trade Agreements
(FTAs), but most FTAs happen behind closed doors with very little information available.
 Free Trade Agreements (FTAs) - FTAs are arrangements between two or more countries or trading blocs
that primarily agree to reduce or eliminate customs tariff and non-tariff barriers on substantial trade between
them.
 FTAs, normally cover trade in goods or trade in services.
 FTAs also cover other areas such as intellectual property rights (IPRs), investment, government procurement
and competition policy, etc.
 India is negotiating FTAs with countries such as the
European Union, Canada, the U.K., and Israel.
 Types of FTA
o PTA (Preferential Trade Agreement)
o CECA (Comprehensive Economic Cooperation
Agreement)
o CEPA (Comprehensive Economic Partnership
Agreement)
o Customs Union
o Common Market and Economic Union
To know more about FTAs, click here
Significance of FTAs
 Market access - By eliminating tariffs and some non-tariff barriers, FTA partners get easier market access into
one another's markets.
 Preferential treatment - Exporters prefer FTAs to multilateral trade liberalization because they get
preferential treatment over non-FTA competitors.
 Protection of local exporters - FTAs protect local exporters from losing out to
foreign companies that might receive preferential treatment under other FTAs.
 Increased foreign investment - There is also possibility of increased foreign
investment from outside the FTA.
Major FTAs / PTAs/CEPAs of India
 India has PTA, CECA, CEPA and FTA with about 54 individual countries.
 However, India didn’t sign RCEP, a mega-regional Free Trade Agreement (FTA) between 16 Asia-Pacific
countries.
Groupings FTAs/PTAs
India ASEAN Trade in Goods Agreement (India ASEAN TIG) FTA
Bangladesh, India, Myanmar, Sri Lanka, Thailand Economic Cooperation

Under Negotiations
(BIMSTEC)
Global System of Trade Preferences (GSTP) PTA
India Brazil and South Africa (IBSA) Under Negotiations
South Asia Free Trade Agreement (SAFTA) FTA
Indo Sri Lanka FTA (ISLFTA) FTA
Indo Malaysia CECA (IMCECA) CECA

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India Singapore CECA (ISCECA) CECA
Japan India CEPA (JICEPA) CEPA
India Korea CEPA (IKCEPA) CEPA
7.4 India’s Emerging Twin Deficit Problem
The Finance Ministry report highlights two key areas of concern for the Indian economy - the fiscal deficit and the
current account deficit.
Fiscal Deficit
 The fiscal deficit is essentially the amount of money that the government has to borrow in any year to fill the
gap between its expenditures and revenues.
 The fiscal deficit calculations are based on two components — income and expenditure.
 As per the CGA report, fiscal deficit for 2021-22 was pegged at 6.71 % of the GDP.
 Impact- Higher levels of fiscal deficit imply the government eats into the pool of investible funds in the market
which could have been used by the private sector for its own investment needs.
 The report states that as government revenues take a hit following cuts in excise duties on diesel and petrol, a
risk to the budgeted level of gross fiscal deficit has emerged.
 Recommendations
o Trim revenue expenditure (or the money government spends just to meet its daily needs)
o Rationalize non-capex expenditure
Current account deficit
 The current account essentially refers to two specific sub-parts.
o Import and Export of goods (Trade account)
o Import and export of services (Invisibles account)
 If a country imports more goods than it exports, it is said to have a trade account deficit whereas it earns a
surplus on exporting more services than importing.
 If the net effect of a trade account and the invisibles account is a deficit, then it is called a current account deficit
or CAD.
 Impact- A widening CAD tends to weaken the domestic currency because a CAD implies more dollars or foreign
currencies are being demanded than rupees.

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 The report stated that costlier imports such as crude oil and other commodities will not only widen
the CAD but also put downward pressure on the rupee.
 A weaker rupee will, in turn, make future imports costlier.
 FPI continuously pulling out money from the Indian markets due to higher interest rates in the western
economies will also hurt the rupee and further increase CAD.
Other deficits
 Budgetary deficit- It is the excess of total expenditure (both revenue and capital) over total receipts (both
revenue and capital).
 Revenue deficit- It is excess of total revenue expenditure of the government over its total revenue receipts.
o Revenue deficit = Total revenue expenditure – Total revenue receipts
 Fiscal deficit - It is defined as excess of total budget expenditure over total budget receipts excluding borrowings
during a fiscal year.
o Fiscal deficit = Total expenditure – Total receipts excluding borrowings
 Primary Deficit- It is defined as fiscal deficit of current year minus interest payments on previous borrowings.
o Primary deficit = Fiscal deficit-Interest payments
7.5 Exchange Rate
Recently, the Indian rupee hit an all-time low exchange rate of 77.6 against the US dollar.
 Exchange rate - An exchange rate is the value of one nation's currency versus the currency of another nation
or economic zone.
 A free-floating exchange rate - Rises and
falls due to changes in the foreign exchange
market.
 A fixed exchange rate - Pegged to the value of
another currency.
 Depreciation – It is a fall in the value of a
currency in terms of its exchange rate versus
other currencies.
 The following factors as the major drivers of the
rupee’s depreciation
o Russia-Ukraine conflict,
o Soaring crude oil prices, and
o Foreign Portfolio Investors Were Selling Off Assets and fleeing to safe haven in the wake of global
monetary policy tightening.
Impact of a weaker rupee
Negative impacts Positive impacts
 Inflation- The biggest impact of a weakening rupee is on  Exports- Exports become cheaper, more
inflation, given India imports more than 80% of its crude oil, competitive to foreign buyers providing a
which is India’s biggest import. boost for domestic demand.
 Imports- A depreciation of the domestic currency results in  Local industry- Travel to India gets cheaper
higher import costs for the country. and local industry may benefit.
 Forex reserves- India’s foreign exchange reserves have  Remittance- Those working abroad can gain
fallen below $600 billion for the first time in a year as the more on remitting money to their homeland.
RBI intervened in the forex market to defend the rupee.

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 Foreign education- Foreign travel and overseas  Current account deficit-It assists in
education becomes costlier. reducing the current account deficit.
 Interest- The interest burden would increase on foreign
currency denominated debt.
The rupee’s real effective exchange rate
 Widening deficit- It will widen the deficit between its (REER) provides a weighted average
imports and exports. value in relation to a basket of
currencies of its major trading
 FPI pullouts- Foreign Portfolio Investor (FPI) pullouts
partners.
further increases the domestic demand for dollars.
Determination of exchange rate

 Supply and demand of the currency- In a free-market economy, the exchange rate is decided by the supply
and demand for rupees and dollars.
 For instance, if the Indians demand more dollars in comparison to
Americans demanding the rupee, the exchange rate will fall or
weaken for rupee and rise or strengthen for dollar.
 Central bank intervention-In India, the exchange rate is not
fully determined by the market.
 From time to time, the RBI intervenes in the foreign exchange
market to ensure that the rupee price does not fluctuate too much
or that it doesn’t rise or fall too much all at once.
RBI’s role
 RBI plays a crucial role in balancing the massive fluctuations.
 Interest rate hikes- The RBI can put through sharp interest rate hikes in India, to make domestic bonds and
gilts more attractive to foreign investors, so that they rethink their pullouts.
 Usage of forex reserves- RBI can use its large foreign exchange reserves, built up precisely for such
contingencies, to intervene directly in the currency market.
 It has also been taking sell positions in the dollar in the futures and forward markets.
 Settlement in rupee - The RBI has permitted Indian importers and exporters to settle their transactions in
the rupee.
 Indian banks have been allowed to open special rupee vostro accounts of banks of the partner trading country.
 All payments made by Indian importers and receivables of Indian exporters will be channelled through these
vostro accounts.
 This process has already been tested while paying for crude oil imports from Iran in rupee.
Nostro and Vostro Accounts
 Nostro – ours; Vostro – yours

 If an Indian bank maintains an account with an overseas bank in the US in dollars, such an account,
maintained in a foreign currency at a foreign centre, would be called a Nostro account by the concerned
Indian bank.
 The American bank concerned will refer to the same account as a Vostro Account.
 Vostro accounts are maintained in the domestic currency whereas, nostro accounts in foreign currency.
 No interest will be paid on the vostro account maintained.
 Special Vostro Accounts - Normal Vostro accounts acts only as transit accounts whereas in Special Vostro
Accounts INR (Indian Rupee) balances can be held.
 This enables payments in rupee for the export and import of goods in the case of trade with Russia.
 This payment in rupee will go into these Vostro accounts and the banks will keep the record of money
transferred.

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 The RBI has allowed these special Vostro accounts to invest the surplus balance in Indian government
securities to help popularise the new arrangement.
Click here to know more about it
7.6 Euro-Dollar Parity
The euro and the U.S. dollar reached parity, meaning one dollar could buy one euro in the foreign exchange market.
 For over two decades, it took more than one U.S. dollar to purchase one euro.
 Since the beginning of the year the euro has lost about 12%
against the U.S. dollar and it is expected to lose more value
going forward.
 Reasons for euro to fall against the U.S. dollar -
Divergence in the monetary policies of the U.S. Federal
Reserve and the European Central Bank.
 In response to the economic crisis caused by lockdowns imposed to fight the coronavirus pandemic, both the
Federal Reserve and the ECB expanded their balance sheets to boost spending.
 Inflation in the U.S. hit a four-decade high of 9.1% in June while inflation in the Eurozone reached its highest-
ever level of 8.6% during the same month.
 The U.S. Federal Reserve responded to the rising prices by raising the interest but the ECB has been far less
aggressive in tightening policy.
 The euro, however, is not the only currency that is depreciating at the moment.
 The Japanese yen is another currency that has lost about 20% of its value against the U.S. dollar this year.
7.7 Extended Fund Facility
The United States has agreed to help cash-strapped Pakistan negotiate a deal with the International Monetary Fund
(IMF) for the revival of the country's Extended Fund Facility (an economic bailout program) with the IMF.
 Established in 1974, the Extended Fund Facility (EFF) is lending facility of
the Fund of the International Monetary Fund (IMF).
 It is prescribed for a country who is suffering from medium- and longer-
term balance of payments problems, which are caused by structural
weaknesses and who need fundamental economic reforms.
 Repayment - As structural reforms to correct deep-rooted weaknesses
often take time to implement and bear fruit, EFF engagement and repayment
cover longer periods than most Fund arrangements.
 Extended arrangements are typically approved for periods of 3 years, but may be approved for periods as long
as 4 years to implement deep and sustained structural reforms.
 Amounts drawn under an EFF are to be repaid over 4½–10 years in 12 equal semiannual installments.
 By contrast, credits under a Stand-By
Arrangement (SBA) are repaid over 3¼–5
years.
 Borrowing Limit - As with other IMF
lending, the size of borrowing under an EFF is
guided by a country’s financing needs, capacity
to repay, and track record with past use of IMF
resources.
 The EFF is one of several lending facilities
under the IMF’s General Resource Account
(GRA).
 Recently, Sri Lanka, in the midst of a crisis
over deterioration of the balance of payments
(BOP) position, has received $ 1.5 billion from
the IMF through a 3-year-long Extended Fund
Facility (EFF).

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IMF’s Lending Instruments

 The IMF’s various lending instruments are tailored to
1. Different types of balance of payments need as well as
2. The specific circumstances of its diverse membership.
 All IMF members are eligible to access the Fund’s resources in the General Resources Account (GRA) on
non-concessional terms.
 But the IMF also provides concessional financial support (at zero interest rates) through the Poverty Reduction
and Growth Trust (PRGT), which is better tailored
to the diversity and needs of low-income countries.
 The instruments include,
1. Stand-By Arrangements (SBAs) and
Standby Credit Facility (SCF)
2. Extended Fund Facility (EFF) and
Extended Credit Facility (ECF)
3. Precautionary and Liquidity Line (PLL)
4. Flexible Credit Line (FCL)
5. Policy Coordination Instrument (PCI)
6. Policy Support Instrument (PSI)
7. The Resilience and Sustainability Facility
(RSF)
7.8 Role of RBI in Forex Reserves
There is a widespread misconception that the Reserve Bank of India (RBI) has been depleting India’s foreign exchange
(forex) reserves to defend the rupee.
 Foreign exchange (forex) reserves - Forex reserves are assets maintained by monetary authorities to check
the balance of payments, deal with the foreign exchange rate of currency and to maintain financial market
stability.
 The RBI Act, 1934 and the Foreign Exchange Management Act, 1999 govern the foreign exchange
reserves.
 Composition- India’s forex reserves can be broken into four categories.
o Foreign currency assets
o Gold
o Special drawing rights
o Reserve Tranche Position
 Purpose- The main purposes of maintaining forex reserves are
o To ensure that the RBI has backup funds if the rupee rapidly devalues or becomes altogether insolvent
o To check the rupee depreciation by selling the dollar in the Indian money market
o To support our imports since all international transactions are settled in US dollars
o To limit any vulnerability because of a sudden disruption in foreign capital flows, which could happen
during a crisis
o To establish a good image for the country at the international level thus helping in attracting foreign
trade
 Current status of reserves- India's foreign exchange reserves saw a dip of $2.397 billion, dragging the
position to a three-month low of $560 billion as on March 10, 2023.
 Reason for decline
o Fall in foreign currency assets (FCAs)
o Appreciation of the US dollar

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o Capital outflows by foreign portfolio investors (FPIs)

o Decline in gold prices
 Boosting Forex Inflows - The RBI has announced a slew of temporary measures aimed at boosting foreign
exchange inflows. It includes
o Doubling the overseas borrowing limit for corporate under External Commercial Borrowing route
o Removal of interest rate ceilings for the foreign currency deposits of the NRIs.
7.9 FPIs’ Market Exit
With the rising inflation and monetary policy tightening in the US, the capital outflows are likely to continue, putting
pressure on the Indian currency.
 Capital flight – It is a phenomenon characterized by large outflows of assets/ capital from a country due to
political or economic instability, resulting in negative economic consequences to that country.
 Foreign portfolio investors (FPIs), which own around 19.5% of the market capitalisation, have pulled out Rs
42,000 crore in June so far.
 Reasons for capital flight
1. The tightening of monetary policy by the US Fed
2. Rate hiking by other central banks, including in Britain and the Eurozone
3. An appreciating dollar
4. Concerns regarding the possibility of a recession in the US
5. Rising inflation
 Status of FPIs in India - FPI involves an investor buying foreign financial assets that involves fixed deposits,
stocks, and mutual funds.
 FPIs are the largest non-promoter shareholders in the Indian market and their investment decisions have a
huge bearing on the stock prices and overall direction of the market.
 The US accounts for a major chunk of FPI investments as of May 2022, followed by Mauritius and Singapore,
according to data available from the National Securities Depository Ltd (NSDL).
 Securities and Exchange Board of India (SEBI) operates the FPIs.
 Recently, SEBI has introduced the Foreign Portfolio Investors Regulations, 2019.

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 FPIs also need to follow the Income-tax Act, 1961 and Foreign Exchange Management Act, 1999.
 Foreign Portfolios increase the volatility thus leading to increased risk.
Impact of capital flight
 Capital market- The pullout is dampening sentiment in equity and forex markets.
 The impact of FPI selling on markets is visible with increase in volatility and declining equity prices.
 Forex- India’s foreign exchange reserves have fallen $596.45 billion as on June 10, 2022, mainly due to the
dollar appreciation and FPI withdrawals.
 Depreciation- The rupee has plunged 7.3% to an all-time low of 78.30/32 against the dollar.
 If the rupee does not strengthen, FPI outflows will continue, which is another negative.
 Inflation- Lower rupee against the dollar keeps import bills higher, pushing inflation even higher than it is
now.
 Indians abroad- Travellers and students studying abroad will have to shell out more rupees to buy dollars
from banks.
 Fuel price- People are directly impacted by the rupee fall as fuel prices shoot up.
 DII inflow- The retail flow and domestic institutional investors (DIIs) inflow is weakening now, and the
markets could weaken further if the FPI outflows continue.
7.10 FCRA Amendment Rules 2022
The Central government has made seven amendments to existing rules of the Foreign Contribution (Regulation) Act
(FCRA) rules 2011.
 The Foreign Contribution (Regulation) Act 2010 aims at prohibiting acceptance and utilization of foreign
contribution or foreign hospitality for any activities detrimental to the national interest.
 The Act extends across India and also applies to the citizens of India outside India.
 In exercise of the powers conferred by section 48 of the FCRA Act, 2010, the Central Government hereby makes
the following rules further to amend the Foreign Contribution (Regulation) Rules, 2011.
 The 2011 Rules were subsequently amended in 2012, 2015, 2019, 2020, 2021 and 2022. The following are the
Rules amended in 2022.
Impacts of FCRA Amendments
 Indian NGOs need an FCRA
clearance for using foreign
funds for developmental
work.
 The FCRA amended in 2010
gave discretionary powers
to the state to deal with
NGOs. NGOs now needed to
renew their licenses
every 5 years.
 However, the current
government has cancelled
an unprecedented number
of FCRA licences using the
2010 law.
 After the FCRA amendment
in 2020, NGOs could spend
less on administrative costs.
 Finally, all the NGOs were required to operate their foreign accounts through the SBI’s branch located at
Parliament Street in New Delhi.
 The period after the 2020 amendment was characterised by the demonstration effect of punishing a few
significant players that worked either for the minority rights or the poor.

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7.11 Changes in Overseas Investment Rules
The Finance Ministry has released the Foreign Exchange Management (Overseas Investment) Rules, 2022.
 Overseas Direct Investment - The investment by a person resident in India in the equity capital of a foreign
entity is classified as ODI.
 Currently, the overseas investment by a person resident in India is governed by
o The Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations, 2004
o The Foreign Exchange Management (Acquisition and Transfer of Immovable Property Outside India)
Regulations, 2015
Amendments under the overseas investment rule
 ODI- ODI investment will continue to be treated as ODI even if the investment falls to a level below 10% of the
paid-up equity capital or such person loses control in the foreign entity.
 Ceiling for aggregate outflows- RBI if necessary may in consultation with the central government, stipulate
the ceiling for the aggregate outflows during a financial year on account of financial commitment or Overseas
Portfolio Investment (OPI).
 RBI can stipulate the ceiling beyond which the amount of financial commitment by a person resident in India
in a financial year shall require its prior approval.
 Requirement of NOC- Any Indian resident whose account is classified as non-performing assets or a wilful
defaulter or is under investigation by a financial service regulator will have to obtain a 'No Objection Certificate'
before making any financial commitment or disinvestment.
 Annual Performance Report- Any resident in India acquiring equity capital in a foreign entity or ODI, will
have to submit an Annual Performance Report (APR) for each
foreign entity.
 Liberalised Remittance Scheme- Any resident individual can
make ODI by way of investment in equity capital or OPI subject to
overall ceiling under Liberalised Remittance Scheme.
 Prohibitions- The new rules prohibit Indian residents from
making investments into foreign entities that are engaged in real
estate, gambling, dealing with financial products linked to Indian
rupee without specific approval of the RBI.
 Arm’s length pricing- The amendment states that the pricing
will be on an arm’s length basis after taking into consideration the
valuation as per any internationally accepted pricing methodology
for valuation.
 Transferring equity capital- Any Indian resident may transfer equity capital by way of sale to a person
resident in India, who is eligible to make such investment or to a person resident outside India.
 Acquiring immovable property- An Indian entity having an overseas office may acquire immovable
property outside India for the business and residential purposes of its staff.
7.12 Scope of Countertrade for India
Countertrade has the potential for India to secure critical raw materials, while supporting the borrower countries in
infrastructure creation.
 Countertrade – It is a reciprocal form of international trade in which
goods or services are exchanged for other goods or services rather than
for hard currency.
 It is a modernized form of barter system that explicitly links import and
export transactions.
 It generally takes place when the countries are facing foreign exchange
crisis.
 Examples- India has entered into a barter trade agreement with Iraq under the ‘oil-for-food’ programme.

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 A rupee payment mechanism was established between India and Iran in 2012 under which the rupee
accumulated from payments for imports by India was utilised for payment for exports of products, projects and
services to Iran.
Types of Countertrades
 Barter- Barter is the direct exchange of goods and/or
services between two parties without a cash transaction.
 Counter purchase- It is a reciprocal buying agreement as
it involves simultaneous separate transactions between two
parties.
 It occurs when a firm agrees to purchase a certain amount of materials back from a country to which a sale is
made.
 Offset- The importer makes partial payment in hard currency, besides promising to source inputs from the
importing country and also makes investment to facilitate production of such goods.
 Switch or swap trading- It is a trade practice in which one company sells to another its obligation to purchase
something in a foreign country.
 Compensation trade or
buyback- A Buyback
occurs when a firm builds a
plant or supplies
technology, equipments, or
other services to the country
and agrees to accept a
certain percentage of the
plant's future output as a
partial payment for the
contract.
Models that can be adopted
 RFI model- Under resource-backed financing for infrastructure model, the borrowing country commits future
revenues to be earned from exports of natural resources to pay for loans secured for infrastructure projects.
 G2G deals- Countries are increasingly entering into government to government (G2G) deals for alleviating
concerns over supply of important commodities.
 For example, countertrade for exports of wheat from India to Indonesia in exchange for uninterrupted supply.
7.13 US Currency Monitoring List
The United States’ Department of Treasury removes India along with 4 other countries from its Currency Monitoring
List.
 The US Department of Treasury delivers a biannual report to the Congress.
 The report reviews the policies of the US’ trading partners and also the treasury’s ‘Currency Monitoring List’.
 This report is prepared based on the criteria provided under the US’s Trade Facilitation and Trade
Enforcement Act of 2015.
Criteria under the US’s Trade Facilitation and Trade Enforcement Act of 2015
 A significant bilateral trade surplus with the United States is a goods and services trade surplus that is at least $15
billion.
 A material current account surplus is one that is at least 3% of GDP, or a surplus for which Treasury estimates
there is a material current account “gap” using Treasury’s Global Exchange Rate Assessment Framework
(GERAF).
 Persistent, one-sided intervention occurs when net purchases of foreign currency are conducted repeatedly, in at
least 8 out of 12 months, and these net purchases total at least 2% of an economy’s GDP over a 12-month period.
 The economies that meet 2 of above 3 criteria are placed on the Monitoring list.
 If a country meets all three criteria, it gets termed as ‘currency manipulator’.

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 Once on the list, an economy will remain there for at least two consecutive reports.
 The list closely monitors the currency practices and policies of some of the US’ major trade partners.
 Current Scenario - India along with Italy, Mexico, Thailand and Vietnam have been removed from the
Currency Monitoring List
 The report said that the countries that have been removed from the list have met only 1 out of 3 criteria for two
consecutive reports.
 Countries in the current List - China, Japan, Korea, Germany, Malaysia, Singapore, and Taiwan are the 7
economies in the current List.
 India was placed on the list the first time in 2018 and has been on the list for last 2 years.
GENERAL ECONOMY
8. PLANNING
Time
Plan Focus
Period
Agriculture, irrigation & power projects

1 1951-56
(Based on Harrod-Domar model)
Industrial development
2 1956-61
(Based on Feldman - Mahalanobis model)
To make a self-reliant India

3 1961-66
(Based on John Sandy, Sukhmay Chakraborty model)
Annual Plans 1966-69 Emphasized on agriculture (Green Revolution and Bank Nationalization)
4 1969-74 Growth with stability and progress towards self-reliance
5 1974-79 Removal of poverty (Garibi Hatao)
Rolling Plan 1978-80
6 1980-85 Strengthening the infrastructure for both agriculture and industry
7 1985-90 Rapid growth in food grains production & increased employment opportunities
Annual Plans 1990-92
8 1992-97 Rapid economic growth & fiscal consolidation
9 1997-02 Growth with social justice and equity
10 2002-07 Accelerated GDP growth rate & job opportunities
11 2007-12 Faster and more inclusive growth
12 2012-17 Faster, more inclusive and sustainable growth

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9. AGRICULTURE
Description Kharif Crops Rabi Crops Zaid Crops
Monsoon crops Winter crops

Summer crops
They are sown when the
rainy season begins (April- They are sown when winter
They are grown in the short
Season May) season ends (Sep-Oct)
duration between Rabi and
Kharif crop season (March to
Harvesting is done in Harvesting is done in
June)
September-October June-July
Warm dry weather for major

growth period
Require wet and hot Require cold and relatively
Conditions
conditions to grow dry conditions to grow
Longer day length for
flowering
Not dependent on rain water Grown on irrigated lands that

Requirements Dependent on rainwater as too much water can be do not have to wait for
harmful for these crops monsoons
Rice, Maize, Groundnut, Wheat, Mustard, oats,

Cucumber, watermelon,
cotton, Soybean, Pigeon barley, Sunflower,
Muskmelon, bitter gourd,
Examples Pea(arhar), Mung bean, Coriander, Onion, Potato,
pumpkin, ridged gourd,
Millets like Ragi, Jowar, Tomato,
sunflower
Bajra, etc. mustard, fenugreek, etc.
Temperat
Crops Producing States Soil Type Rainfall
ure
West Bengal, Uttar Pradesh, Tamil Nadu, Chhattisgarh, Deep clayey & 150-300
Rice 22 -32 0c
Andhra Pradesh, Haryana, Punjab, Orissa, Assam loamy soil cm
10-15 0c
(Sowing
Uttar Pradesh, Punjab, West Bengal, Haryana, Gujarat, Well-drained
time) 75-100
Wheat Uttarakhand, Rajasthan, Madhya Pradesh, fertile loamy and
21-26 0c cm
Maharashtra clayey loamy
(Ripening &
Harvesting)
Grown in 21 states but the major impetus is in Andhra Can be grown in
Pradesh, Karnataka, Tamil Nadu, Kerala, Telangana, an inferior 27-32 0c 50-100
Millets
Uttarakhand, Jharkhand, Madhya Pradesh and alluvial/loamy cm
Haryana soil
Andhra Pradesh, Gujarat, Punjab, Uttar Pradesh, Tamil

Sugar Deep rich loamy 21-27 0c 75-150
Nadu, Uttarakhand, Haryana, Maharashtra, Bihar,
Cane soil cm
Karnataka
Well drained,
Assam, Darjeeling (West Bengal), Meghalaya, Kerala, 20-30 0c 150-300
Tea deep friable
Himachal Pradesh, Tamil Nadu, Karnataka cm
loamy soil
Assam, Meghalaya, Kerala, Arunachal Pradesh, Andhra Well drained,

150-250
Coffee Pradesh, Manipur, Nagaland, Karnataka, Tamil Nadu, deep friable 15-28 0c
cm
Telangana, Odisha loamy soil

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Black soil of
Deccan and
Malwa Plateau.
Andhra Pradesh, Odisha, Haryana, Madhya Pradesh, 21-30 0c 50-100
Cotton
Karnataka, Tamil Nadu, Maharashtra, Gujarat, Punjab cm
Also grows in
red, laterite and
alluvial soils
9.1 Status of Agriculture in India
Excerpts from the Economic Survey 2022-23
Despite Covid-19 shock agriculture and

allied sector shows resilient growth.
Agriculture’s Contribution
 Contribution to India’s GVA -
18.3% (2022-23)
 Population involved - 54.6%
of the total workforce (Census
2011)
 Growth - 3% in 2021-22
compared to 3.3% in 2020-21
Growth of Indian Agriculture
 In recent years, India has also
rapidly emerged as the net exporter of agricultural products.
 During 2021-22, agricultural exports reached an all-time high of US$ 50.2 billion.
Largest Producing States (based on 2021-22)

Crops
Top Producing state 2nd top producing state 3rd top producing state
Rice West Bengal Uttar Pradesh Punjab
Wheat Uttar Pradesh Madhya Pradesh Punjab
Maize Karnataka Madhya Pradesh Maharashtra
Pulses Madhya Pradesh Maharashtra Rajasthan
Oilseeds Rajasthan Madhya Pradesh Gujarat
Sugarcane Uttar Pradesh Maharashtra Karnataka
Cotton Gujarat Maharashtra Telangana
Jute & Mesta West Bengal Assam Bihar
Source | Economic Survey 2022-23
9.2 India’s Agricultural Exports
Agricultural and Processed Food Products Export Development Authority (APEDA) is the apex body responsible for
export trade promotion.
APEDA
 The Agricultural and Processed Food Products Export Development Authority (APEDA) was established by the
Government of India under the APEDA Act 1985.

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 It works under the aegis of Ministry of Commerce & Industry.

 It replaced the Processed Food Export Promotion Council (PFEPC).
 APEDA is responsible for monitoring the import of sugar.
 It also functions as the Secretariat to the National Accreditation Board (NAB) for implementation of
accreditation of the Certification Bodies under National Programme for Organic Production (NPOP) for
organic exports.
 It also monitors fruits, vegetables, meat, poultry and dairy products, confectionaries, alcoholic and non-
alcoholic beverages, floriculture , herbal and medicinal plants, etc.
9.3 Price Support Policies
 Price Support Instruments

1. MSPs for 22 mandated crops
2. Fair and Remunerative Prices (FRP) for
sugarcane
Minimum Support Price (MSP)
 It is the floor price at which the government promises
to procure agricultural produce from farmers.
 Objective - It assures that prices of commodities
would not be allowed to fall below the level fixed by the
Government, even in the case of a bumper crop.
 It seeks to encourage higher investment and production
and to safeguard the interest of consumers by making
available supplies at reasonable prices.
 MSPs are announced by the government at the
beginning of the sowing season
 Based on - Recommendations of the Commission for
Agricultural Costs & Prices (CACP).
 Approved by - MSP is then approved by Cabinet
Committee on Economic Affairs (CCEA)
 At present there is no legal compulsion for the
government to procure the crops at MSP.
Fair and Remunerative Price
The pricing of sugarcane is governed by the statutory
provisions of the Sugarcane (Control) Order, 1966 issued under the Essential Commodities Act (ECA), 1955.
 FRP - The Fair and Remunerative Price is the minimum price that sugar mills have to pay to sugarcane farmers.

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 Based on - Recommendations of Commission for Agricultural Costs and Prices (CACP).

 Approved by - It is approved by the Cabinet Committee on Economic Affairs (CCEA).
Procurement Prices
 It is the price of kharif and rabi cereals at which the grain was to be domestically procured by public agencies,
like the Food Corporation of India (FCI), for release through PDS.
 It was announced soon after harvest began.
 Normally procurement price was lower than the open market price and higher than the MSP.
Central Issue Price
 It is the price at which the government makes available foodgrains for beneficiaries of the National Food Security
Act, 2013 and other welfare schemes to the states from the central pool through FCI.
 Any difference in the economic cost of foodgrains and their respective CIPs is reimbursed to the FCI by the
Central Government.
9.4 National Food Security Act 2013
 Aim - It aims to provide for food and nutritional security in the human life cycle approach, by ensuring access
to adequate quantities of quality food at affordable prices to people to live a life with dignity.
 Now, Public Distribution System (PDS) is governed by the NFSA, 2013.
 NFSA provides subsidized food grains under Targeted PDS (TPDS).
 Eligibility - Priority Households (PHH) to be covered under TPDS, according to guidelines by the State
government.
 Existing Antyodaya Anna Yojana (AAY) Households.
 Eldest woman of the beneficiary household (18 years or above) is considered as 'Head of Family' for issuing
ration cards.
 Provisions -The Act entitles 35 kg of foodgrains per AAY Household per month, whereas 5 Kg of foodgrain per
PHH Person per month.
 These 5 Kgs of food grains per person per month will be given at Rs. 3/2/1 per Kg for rice/wheat/coarse grains.
 Meal and maternity benefit of not less than Rs. 6,000 to pregnant women and lactating mothers during
pregnancy and 6 months after the child birth.
 Meals for children up to 14 years of age.
 Food security allowance to beneficiaries in case of non-supply of entitled foodgrains or meals.
 Setting up of grievance redressal mechanisms at the district and state level.
 Coverage - NFSA provides coverage for nearly 2/3rd of the country's total population, based on Census 2011
population estimates.
 75% of Rural and 50% of urban population is entitled to receive highly subsidised foodgrains under these two
categories of beneficiaries – PHH and AAY Households.
9.5 International Year of Millets, 2023
As proposed by India, the United Nations General Assembly (UNGA) has declared 2023 as International Year of
Millets (IYM).
 Millets are a group of cereal grains that belong to the Poaceae family (grass family).
 India is the world’s leading producer of millets, producing around 41% of total production in 2020.
 Top producers - Rajasthan, Maharashtra, Uttar Pradesh, Karnataka
 India has led the global conversation on reviving millet production at the United Nations General Assembly,
where it appealed to declare 2023 as the International Year of Millets.

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 To enhance the area, production and productivity of millets, the government is implementing a Sub-
Mission on Nutri-Cereals (Millets) as a part of the National Food Security Mission.
 In 2018, the government had rebranded millets as “Nutri Cereals” and declared 2018 as the National Year of
Millets.
 The Prime Minister of India aims to make IYM 2023 a ‘People’s Major millets Minor millets
Movement’ and also to position India as the ‘Global Hub for
Millets’. Kodo millet
 Union Finance Minister described millets as 'Shree Anna' – Pearl millet (Bajra) Barnyard millet
the mother of all grains in the Union Budget, 2023-24.
Finger millet (Ragi) Little millet
 Prime Minister inaugurated the Global Millets (Shree Anna)
Conference at IARI Campus, PUSA New Delhi. Sorghum (Jowar) Foxtail millet
Proso millet
 The Indian Institute of Millets Research (Hyderabad) of
ICAR was declared as a Global Centre of Excellence.
Advantages of Millets Health benefits of Millets
 Climate smart Crops  Millets are anti acidic

 Are drought-resistant  Millets are gluten free
 Are hardier than other cereals  Helps to prevent type 2 diabetes
 Are more resilient to changes in climate  Effective in reducing blood pressure
 Grow in infertile soil  High protein, fiber, and antioxidant contents.
 Require less water to cultivate (as much as 70%  Reduces risk of gastrointestinal conditions like
less than rice) gastric ulcers or colon cancer
 Require less energy to process (around 40% less  Eliminate problems like constipation, excess gas,
than wheat) bloating and cramping
 Require fewer inputs  Millet act as a probiotic feeding micro flora in our
inner ecosystem
 Can revive soil health
9.6 Coffee Industry in India
Drastic changes in climate patterns over the last few years have adversely impacted India’s coffee production and the
quality of the crop.
 Coffee is a tropical plantation crop.
 Top Producer – Brazil
 India exports about 70% of the produce
 Varieties cultivated in India -
Arabica and Robusta based on their aromatic
properties
 Top producers in India – Karnataka, Kerala,
Tamil Nadu
 Coffee cultivation is also being expanding in the non-
traditional areas of Andhra Pradesh and Odisha as
well as in the North East states.
 Coffee is a tropical plantation crop.
Coffee Board of India
 Coffee Board of India was established under the
Coffee Act of 1942 in 1942 and it is headquartered in Bangalore.
 The organization is managed by the Ministry of Commerce and Industry to promote coffee production in
India.

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Factors Arabica Robusta
Deep, fertile, rich in organic matter, well drained

Soils Same as Arabica
and slightly acidic (Ph6.0-6.5)
Slopes Gentle to moderate slopes Gentle slopes to fairly level fields
Elevation 1000-1500m 500-1000m
Temperature 150 C – 250 C; cool, equable 200 C – 300 C; hot, humid
Annual rainfall 1600-2500 mm 1000-2000 mm
9.7 Sugar Industry in India
In Sugar Season (Oct-Sep) 2021-22, India emerged as the world’s largest producer and consumer of sugar and world’s
2nd largest exporter of sugar. India’s sugar production also hit an all-time high of 355 lakh tonnes this year.
Sugarcane
 Scientific name - The genus Saccharum
has five important species viz
o Saccharum officinarum,
o Saccharum Sinense
o Saccharum barberi
o Saccharum robustum (wild species)
o Saccharum spontanuem (wild
species)
 S. officinarum species is widely cultivated in
India because of high sucrose content.
 Sugarcane is a highly water intensive crop
cultivated of tropical and subtropical areas.
 Climatic conditions - It grows well in hot
and humid climate with a temperature of
21°C to 27°C and an annual rainfall between
75cm and 100cm.
 Sugarcane can be grown on variety of soils
and the main source of sugar, jaggary,
khandsari and molasses (raw material for
ethanol production).
 Top Producers - Maharashtra, Uttar
Pradesh, Karnataka.
 Under the Ethanol Blending with Petrol (EBP) Programme, India targets for 20% ethanol blending by
2025.
9.8 GEAC's Approval for GM-Mustard
The Genetic Engineering Appraisal Committee (GEAC) has again cleared the
proposal for commercial cultivation of genetically modified (GM) mustard.
What is the case with GM mustard?
 The GEAC had earlier cleared the proposal in 2017 but the Union Ministry of
Environment, Forest and Climate Change had vetoed it.
 The Ministry suggested GEAC to hold more studies on the GM crop.

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 The Supreme Court also stayed the clearance saying public opinion should be sought on the issue.
 Recently, GEAC recommended the environmental release of transgenic hybrid mustard DMH-11 (Dhara
Mustard Hybrid-11) for seed production and conduct of field demonstration studies with respect to its
effects.
 This is the first GM food crop that India has permitted for commercial
release.
 After 2006 when the Centre permitted the commercial release
of Bollgard II cotton (Bt-Cotton), this is the first crop that has
overcome regulatory and political hurdles to be allowed for release.
 Though attempts were made to introduce field trials of GM brinjal, it met
with stiff resistance.
Process of GM Mustard Production
 GM mustard is developed by the Centre for
Genetic Manipulation of Crop Plants
(CGMCP) in Delhi University.
 The scientists have deployed the barnase-
barstar GM technology to develop DMH-11,
containing two alien genes isolated from a soil
bacterium called Bacillus amyloliquefaciens.
o The barnase gene codes for a protein that
impairs pollen production and renders the
plant into which it is incorporated male-
sterile.
 This plant is then crossed with a fertile parental
line containing the barstar gene that blocks the
action of the barnase gene.
 The resultant F1 progeny is both high-yielding and
also capable of producing seed/ grain.
 DMH-11 was developed by crossing the Indian
mustard variety ‘Varuna’ (barnase line) with an
East European ‘Early Heera-2’ mutant (barstar).
Clearance
 The Indian Council of Agricultural Research (ICAR) will be the authorised agency to accord necessary
permissions for the development of any other mustard hybrids.
 All hybrids released using this technology shall also be regulated under Seed Act 1966.
 GEAC nod is not the final approval for commercial release but a step forward and the approval is valid for the
next 4 years.
Mustard Genetic Engineering Appraisal Committee

(GEAC)
 Family - Brassicaceae
 Types
 GEAC is established under Ministry of
1. White or Yellow mustard (Sinapis alba) - Environment, Forests and Climate
Mediterranean origin
Change.
2. Brown or Indian mustard (Brassica juncea) -
Himalayan origin  It is the apex body for approval of activities
involving large scale use of hazardous
 The seeds contain about 30-40% vegetable oil, a slightly microorganisms and recombinants.
smaller proportion of protein, and a strong enzyme
called myrosin.  It is responsible for approval of proposals
relating to release of genetically engineered
 Largest producer - Rajasthan organisms and products including experimental
 Other states- Gujarat, Uttar Pradesh, West Bengal, field trials.
Haryana, Punjab, and Madhya Pradesh

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9.9 11th Agriculture Census
The Union Minister for Agriculture and Farmers Welfare has launched the 11 th Agricultural Census (2021-22) in the
country.
 For the first time, in the 11th Agricultural Census, the data will be collected through smart phones and tablets.
 The agricultural census is the main source of information on a variety of parameters, such as the number and
area of operational holdings, their size, class-wise distribution, land use, tenancy and cropping pattern, etc.
 The basic unit of data collection in Agriculture Census is the operational holding.
 The Agriculture Census is conducted every 5 years by the Department of Agriculture, Cooperation and
Farmers Welfare under the Ministry of Agriculture and Farmers Welfare.
 The first edition of the census was conducted in 1970-71.
 The tenth edition of the census was conducted with the reference year 2015-16.
9.10 Platform of Platforms - eNAM
The Ministry of Agriculture and Farmers Welfare launched the Platform of Platforms (POP) under the National
Agriculture Market (e-NAM).
 e-NAM integrates the platform of Service Providers as ‘Platform of Platforms’ (POP).
 PoP will create a digital ecosystem that will benefit from the expertise of different platforms in different
segments of the agricultural value chain.
 With the introduction of POP, farmers will be facilitated to sell the produce outside their state borders.
 This will increase farmers’ digital access to multiple markets, buyers and service providers and bring
transparency in business transactions.

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 This will improve the price search mechanism and quality commensurate price realisation.
e-NAM
 National Agriculture Market (eNAM) is a pan-India electronic trading portal launched in 2016.
 It is a central sector scheme, which is completely funded by the Central Government.
 This portal networks the existing Agriculture Produce Marketing Committee (APMC) / Regulated Marketing
Committee (RMC) market yards, sub-market yards, private markets and other unregulated markets to create a
unified national market for agricultural commodities.
 eNAM facilitate pan-India trade in agriculture commodities in order to provide better price discovery through
transparent auction process based on quality of produce along with timely online payment.
 The lead agency for implementing eNAM is the Small Farmers Agribusiness Consortium (SFAC) under
the aegis of Union Ministry of Agriculture and Farmers’ Welfare.
 Criteria for APMCs to join e-NAM - The state APMC Act must have a specific provision for e-auction / e-
trading as mode of price discovery.
 There must be one single trading license to be valid across the state / UT
 A single point levy of market fee across the State / UT
 Related Links - New Features to eNAM, Gramin Agricultural Markets
9.11 Equity Grant
Equity grant of over Rs 37 crore was released to 1,018 Farmer Producer Organizations (FPOs) under the eNAM.
 The Equity Grant Scheme (EGS) extends support to the equity base of Farmer Producer Companies
(FPCs) by providing matching equity grants.
 The EGS has been set up with the primary objectives of
1. Enhancing viability and sustainability, credit worthiness of FPCs,
2. Enhancing the shareholding of members to increase their ownership and participation in their FPCs.
 It shall be operated by Small Farmers' Agri Business Consortium (SFAC).
 It enables eligible FPCs to receive a grant equivalent in amount to the equity contribution of their shareholder
members in the FPC subject to a maximum of Rs.15 lakh per FPC in two tranche within 3 years.
 It shall address nascent and emerging FPCs, which have paid up capital not exceeding Rs. 30 lakhs.
9.12 System of Rice Intensification
Experts said that the ‘System of Rice Intensification’ method is beneficial for the soil, environment and farmers.
 System of Rice Intensification (SRI) was first developed in Madagascar in the 1980s.
 It involves cultivating rice with as much organic manure as possible, starting with
1. Young seedlings planted singly at wider spacing in a square pattern; and
2. Intermittent irrigation that keeps the soil moist but not inundated, and
3. Frequent inter cultivation with weeder that actively aerates the soil.
 It is a water and environment saving technique. It promises to save 15 to 20% ground water, and improves
rice productivity.
 It gives equal or more produce than the conventional rice cultivation, with less water, less seed and less
chemicals.
 In SRI, the weeds are incorporated into the soil by operating a cono-weeder between rows
 The net effect is a substantial reduction in the investments on external inputs.

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9.13 Direct Seeded Rice Technique (DSR Method)
 In traditional rice cultivation methods, 40% of the world’s irrigation water is applied for rice production.
 Direct seeded rice is one of the most efficient, sustainable, and economically-viable rice production system.
 Compared to the conventional puddled transplanted rice (PTR) method, DSR delivers faster planting and
maturing.
Advantages of direct seeding
 No significant reduction of yield under optimal conditions
 Savings on irrigation water by 12-35% under efficient water management practices
 Reduces labor and drudgery by eliminating seedling uprooting and transplanting
 Reduces cultivation time, energy, and cost
 No plant stress from transplanting
 Faster maturation of crops
 Lower GHG emissions
 Mechanized DSR provides employment opportunities for youth
 Increases total income by reducing cost of cultivation
Current constraints
 Higher seed rates
 Seeds exposed to birds and pests
 Weed management
 Higher risk of lodging
 Risk of poor or non-uniform crop establishment
DSR SRI
 Direct Seedling of Rice (DSR) technique is  SRI is suitable for all types of soil including less
suitable only for mid to heavy textured soils fertile soils
 Requires more seed than the SRI Method  Requires less seed than the traditional method as
well as DSR Method
 DSR and traditional method requires continuous
flooding  SRI needs only intermittent irrigation
 When the weeds are major problem and  In SRI, the weeds are incorporated into the soil
weedicides are sprayed simultaneously at the by cono-weeder thus adding nutrients to the crop
time of sowing like green manures.
9.14 Nereguli Paddy
Farmers in Karnataka grow a flood-resistant traditional variety of paddy named “Nereguli”.

 It is liked for its strength, taste and health quotient.
 Though the yield is less compared to other varieties, it is highly tolerant to flooding.
 The grass blades rot and what remains are the stalks, which sprout once the water level recedes.
 Similar varieties in Bangladesh and Andhra Pradesh can withstand floods and grow tall but will collapse once
the water recedes.
 Threats - Extensive use of chemical fertilizers reduces its ability to withstand flood.
 This variety is grown using traditional methods and is highly nutritious and in great demand, in Kerala and Goa.

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9.15 Paddy Straw Torrefaction
The Union Environment Ministry announced a ₹50 crore scheme to incentivize industrialists and entrepreneurs to set
up paddy straw pelletisation and torrefaction plants.
 Paddy stubble burning is practiced mainly in the Indo-Gangetic plains of
Punjab, Haryana, and Uttar Pradesh.
 The farmers clear their fields for sowing the winter crop, burns straw stubble
after harvesting paddy.
 The emissions from stubble burning add to the air pollution crisis in Delhi.
 Some alternative methods followed are,
1. Encourage using bio-decomposer (a chemical that decomposes the straw into mulch),
2. Feed to cattle as fodder, and
3. Paddy straw torrefaction and pelletisation used for in thermal power plants.
 Scheme - The Central Pollution Control Boards (CPCB) released guidelines for an incentive scheme for
promoting establishment of paddy straw based pelletisation and torrefaction plants.
 Under the scheme, one-time financial assistance will be given to individuals and companies to set up
torrefaction and pelletisation plants.
 This financial assistance can be availed for setting up new plants and units using only paddy straw generated in
Delhi, Punjab and Haryana, and NCR districts of Rajasthan and Uttar Pradesh.
9.16 Kasturi Cotton
A Memorandum of Understanding was signed to promote Kasturi cotton, an indigenous branded cotton.
 The Kasturi cotton was launched in 2020 as a
brand with a logo. Quick Facts
 The brand represents Whiteness, Brightness,
Softness, Purity, Luster, Uniqueness and  Cotton Textiles Export Promotion
Indianness. Council (TEXPROCIL) is the apex body to
promote exports of Indian Cotton textile products
 Agency - The Kasturi brand owned by the
including raw cotton across the world.
Ministry of Textiles is solely managed by
TEXPROCIL on behalf of the trade and industry.
 Cotton Corporation of India Limited is a public
 The other major cotton brands are the US PIMA sector organisation in the sector to facilitate cotton
and Egyptian Giza. production and supply.
9.17 Fiji Virus
The Fijivirus has caused a disease that had dwarfed some non-basmati and basmati plants in Haryana and Punjab.
 The Fiji Virus is the other name for the Southern Rice Black-Streaked Dwarf Virus (SRBSDV).
 It was first reported in southern China in 2001 and causes a striking disease on rice and maize.
 It spreads by the white-backed plant hopper Sogatella furcifera, which injects it while sucking the sap from
mostly young plants.
 The virus is specific to the phloem and is not transmitted by seed or grain.
 Symptoms - The affected plants showed severely stunted appearance.
 The roots were poorly developed and turned brownish. The infected tillers can be pulled out easily.
9.18 Meslin Flour
The Cabinet Committee on Economic Affairs, has approved the proposal for amendment of policy of exemption for
Wheat or Meslin Flour (HS Code 1101) from export restrictions/ ban.

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 Meslin is a mixture of wheat and rye that is sown and harvested together and in trade terms, it is
usually classified with wheat.
 It was grown on farms before World War II, but only a few ecological farmers sow it now.
 Meslin flour contains relatively low quantity of wet gluten.
 In 2020, the top exporters of meslin flour were Turkey, Kazakhstan, and Germany.
 In 2020, the top importers of meslin flour were Afghanistan, Iraq, and Netherlands.
9.19 The One Nation One Fertilizer Scheme
The Prime Minister launched "One Nation One Fertilizer" and Indian Edge, an e-magazine on fertilizers, during the
event of PM Kisan Samman Sammelan 2022.
 "One Nation One Fertiliser” is also known as Pradhan Mantri
Bharatiya Jan Urvarak Pariyojana (PMBJUP).
 Under this scheme companies must market all subsidised fertilisers under
a single brand 'Bharat' across the nation.
 This scheme ensures affordable quality fertilizer of ‘Bharat’ brand to the
farmers.
 With the launch of this scheme, India will have a common bag design across
the country like Bharat urea, Bharat NPK, and so on.
 Benefits - The One Nation One Fertiliser scheme will prevent the criss-
cross movement of fertilisers and reduce high freight subsidies.
 There is no product differentiation among different brands for each type of fertilizer as they are marketed as
single brand.
 It will help farmers overcome their confusion over brand-specific choices.
9.20 Diammonium Phosphate
As part of the Atma Nirbhar Bharat initiative, the Government of India has been supporting the Indian fertiliser
companies including those producing Diammonium Phosphate to strengthen their backend supply chain.
 Di-ammonium Phosphate (DAP) [(NH4)2HPO4] is the world’s most widely used phosphorus fertilizers.
 It is a preferred fertilizer in India as it contains both Nitrogen (18% N) and Phosphorus [46% P2O5 (20%
P)] that are primary macronutrients and part of 18 essential plant nutrients.
 DAP is manufactured by reacting Ammonia with Phosphoric acid under controlled conditions in fertilizer
plants.
 Uses - DAP is an excellent source of P and N for plant nutrition.
 It is highly soluble and thus dissolves quickly in soil to release plant-available
phosphate and ammonium.
 To prevent the possibility of seedling damage, care should be taken to avoid
placing high concentrations of DAP near germinating seeds.
 DAP is used in many applications as a fire retardant to prevent a forest from
burning. It then becomes a nutrient source after the danger of fire has passed.
 DAP is used in various industrial processes, such as metal finishing.
 It is commonly added to wine to sustain yeast fermentation and to cheese to support cheese cultures
9.21 Liquid Nano Urea
Recently, Prime Minister Narendra Modi officially inaugurated the country’s first liquid nano urea plant at Kalol.
 Urea is a chemical nitrogen fertiliser, white in colour, which artificially provides nitrogen, a major nutrient
required by plants.

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 Liquid nano urea is essentially urea in the form of a nanoparticle.

 The product has been developed at IFFCO’s Nano Biotechnology Research Centre (NBRC) at Kalol.
 Liquid nano urea is sprayed directly on the leaves and gets absorbed by
the plant.
 Liquid nano urea has a shelf life of a year, and farmers need not be
worried about caking when it comes in contact with moisture.
 According to IFFCO, liquid nano urea contains 4% total nitrogen
evenly dispersed in water.
 Size of a nano nitrogen particle varies from 20-50 nm.
To know more about liquid nano urea, click here
Advantages of liquid nano urea over imported urea
 Subsidy reduction- Liquid nano urea reduces the country’s subsidy bill.
 Reduced usage- It reduces the unbalanced and indiscriminate use of conventional urea.
 Crop production- It also aims to increase crop productivity, and reduce soil, water, and air pollution.
 Efficacy- While conventional urea has an efficiency of about 25%, the efficiency of liquid nano urea can be as
high as 85-90 %.
 Loss- Loss of nitrogen is high in conventional urea when compared to liquid nano urea.
 Targeted use- Fertilisers in nano form provide a targeted supply of nutrients to crops, as they are absorbed by
the stomata.
 Cost- The liquid nano urea produced by IFFCO comes in a half-litre bottle priced at Rs 240 while a farmer pays
around Rs 300 for a 50-kg bag of heavily subsidised urea.
 The government’s fertiliser subsidy payout this financial year will be Rs 2 lakh crore, up 25% from the Rs 1.6
lakh crore it paid last year.
 IFFCO commissioned the Kalol liquid nano urea plant, the country’s first in 2021.
9.22 Glyphosate
The Centre has restricted the use of glyphosate in agriculture by mandating only authorised Pest Control Operators
(PCOs) to apply in the field.
 Glyphosate is an herbicide and weedicide.
 It is applied to the leaves of plants to kill both broadleaf plants and grasses.
 The sodium salt form of glyphosate is used to regulate plant growth and ripen
specific crops.
 Properties of Glyphosate - It binds the soil very tightly and therefore it is
generally not available for uptake by roots of nearby plants.
 For the same reason, its residues are not likely to leach into groundwater and only limited amounts of glyphosate
are found in runoff surface water.
 Usage - Glyphosate is a widely used herbicide due to the above properties.
 Glyphosate has been majorly used in tea plantations in India.
 It is used in farms, orchards, vineyards and agro-forestry for non-selective vegetation control.
 The chemical is also used on non-crop areas to control unwanted growth.
 Threats - The use of glyphosate rose manifold once HT BT cotton started getting
illegally cultivated in India.
 The use of Glyphosate involves health hazards and risk to human beings and
animals.
 Glyphosate has been found to be carcinogenic in a study by the World Health
Organization (WHO).

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 Restriction on Glyphosate - The chemical is already banned in Kerala, Andhra Pradesh,

Telangana, Maharashtra, and Punjab.
 Earlier, for manufacture or sale of glyphosate, companies have to get certificate of registration.
 To implement the new order, all certificates of registration for the chemical have to be returned within 3 months.
 Appropriate action will be taken under the Insecticides Act of 1968 on failure of return within the stipulated
time.
9.23 Hunger Hotspots Outlook, 2022-23
The Hunger Hotspots Outlook (2022-23) that was released recently has issued
warnings on acute food insecurity.
 The report is released by the Food and Agriculture Organization of the United
Nations (FAO) and the World Food Programme (WFP).
 Hunger Hotspots are areas likely to see acute food insecurity increasing during
the outlook period.
 They are selected through a consensus-based process involving WFP and FAO field
and technical teams, alongside specialized analysts.
 The report is part of a series of analytical products produced under the Global
Network against Food Crises.
 One in every 10 people in the world are suffering from chronic hunger.
 The report has warned that acute food insecurity is likely to deteriorate further in 19
countries (hunger hotspots) from October 2022 to January 2023.
The Global Report on Food Crises
 It is the flagship publication of the Global Network and is facilitated by the Food Security Information Network
(FSIN).
 The Report is the result of a consensus-based analytical process involving 17 international humanitarian and
development partners
The Global Network
 It was founded by the European Union, FAO and WFP in 2016.

 It is an alliance of humanitarian and development actors working together to prevent, prepare for and respond
to food crises and support the Sustainable Development Goal to End Hunger (SDG 2).
9.24 Organic Aadhaar
Agricultural and Processed Food Products Export Development Authority (APEDA) may roll out “Organic Aadhaar”
for the farmers engaged in organic farming under the National Programme for Organic Production (NPOP).
 Organic Aadhaar is an identity for the farmer for the organic certification process based on Personal
Aadhar number and Unique Land Parcel Identification Number (ULPIN).
 [Under the ULPIN scheme, every plot of land in the country has been assigned a 14-digit
identification number by the government.]
 Linking with the ULPIN could also become a useful tool for identifying organic land.
 Organic Aadhaar combined with Tracenet will create a robust system for effectively planning and monitoring
policy measures.
 [Tracenet system, which was launched in 2009, provides information on products exported from the country]
 Organic Aadhaar will provide the farmer in a growers group with exclusive protection of organic status and
income.

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 If implemented, its impact will be felt in the coming years, as it will elevate NPOP to a higher organic
standard on the global map.
 Related Links - Unique Land Parcel Identification Number
9.25 Krishi Decision Support System
The Union Ministry of Agriculture and Department of Space signed a MoU to develop a Krishi-Decision Support
System (Krishi-DSS).
 Krishi–DSS is a Decision Support developed by the Union Agricultural Ministry on the lines of Gati Shakti.
 The Krishi-DSS will be developed using geospatial technologies and related databases such as RISAT-1A and
VEDAS.
 The Krishi-DSS integrates systems of ICAR with MOSDAC and BHUVAN (Geo-platform) of ISRO.
 This will enhance evidence based decision making capability of all the stakeholders in the agriculture sector.
 With this technological intervention the agricultural production, productivity, quality of production and
including export opportunities will increase.
10. INDUSTRY
10.1 Unicorn
India has reached a landmark figure of 100 unicorn startups with a valuation of more than $300 billion.
 The term “Unicorn” was coined by American venture capitalist Aileen Lee in 2013.
 The Unicorns are privately held, venture-capital backed startups that have reached a value of $1
billion.
 The valuation of unicorns is not expressly linked to their current financial
performance.
 But the valuation is largely based on their growth potential as perceived
by investors and venture capitalists who have taken part in various
funding rounds.
10.2 Section 25 Company
A trial court order that allowed the Income Tax Department to probe the affairs of the National Herald newspaper -
owned by AJL - and conduct a tax assessment of Sonia Gandhi and Rahul Gandhi.
 Section 25 company under the Companies Act, 1956 is similar to what is defined under Section 8 under
Companies Act, 2013.
 It is a not-for-profit charitable company formed with the sole object of promoting commerce, art, science,
religion, charity, or any other useful object.
 It intends to apply its profits, if any, or other income in promoting its objects, and to prohibit the payment of
any dividend to its members.
 Section 8 of the Companies Act, 2013 includes other objects such as sports, education, research, social welfare
and protection of environment among others.
 While it could be a public or a private company, a Section 25 company is prohibited from payment of any
dividend to its members.
 Section 25 states that by its constitution the company is required/ intends to apply its profits, if any or other
income in promoting its objects and is prohibited from paying any dividend to its members.
 Trust structure - Most people looking to form a charitable entity go for forming a company under Section 25,
now Section 8, rather than a Trust structure.
 This is because most foreign donors like to contribute to a company rather than Trust because they are more
transparent and provide more disclosures.

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 If a company has to be converted into a not for profit company, they can’t be converted into a Trust,
however, they can be converted into a Section 25/ Section 8 company.
10.3 The Production Linked Incentive Scheme (PLI) Scheme
Production Linked Incentive Scheme (PLI) have been floated by the government to encourage capital investment for
a higher output but the capital formation rate has moved rather sluggishly.
 PLI Scheme - For target segments, the scheme provides incentive of 4% to 6% on incremental sales over the
base year for goods manufactured in India.
 The incentive is a kind of subsidy provided to the sector based on the disadvantage or disability faced by the
sector.
 In the Union Budget 2021-22,
the government has committed
nearly Rs.1.97 lakh crore to
create manufacturing global
champions for an Atma Nirbhar
Bharat.
 Aim- To create national
manufacturing champions and
to create 60 lakh new jobs and
an additional production of 30
lakh crore during next 5 years.
 Objectives
o Make domestic
manufacturing competitive and efficient
o Create economies of scale
o Make India part of global supply chain
o Attract investment in core manufacturing and cutting-edge technology
o Competitive manufacturing would in turn lift the exports
10.4 REC is a ‘Maharatna’ Company
The REC Limited has been accorded with the status of a ‘Maharatna’ Central Public Sector Enterprise.
 The Rural Electrification Corporation Ltd (REC) – It is a state-owned company that comes under
the Ministry of Power.
 It takes the role of public Infrastructure Finance Company in India’s power sector and promotes rural
electrification projects across India.
 Incorporated in 1969, the REC is a Non-banking Financial
Institution (NBFC) focusing on Power Sector Financing and
Development across India.
 Maharatna Status - An order to the effect of the ‘Maharatna’
status would be issued by the Department of Public
Enterprises, under the Ministry of Finance.
 The grant of ‘Maharatna’ status will impart enhanced powers to
the company’s Board while taking operational and financial
decisions.
 The Board of a ‘Maharatna’ CPSE can make equity investments to
undertake financial joint ventures and wholly-owned
subsidiaries.
 It can also undertake mergers and acquisitions in India and
abroad, subject to a ceiling of 15% of the Net Worth of the
concerned CPSE, limited to Rs. 5,000 crores in one project.
 The Board can also structure and implement schemes relating to
personnel and Human Resource Management and Training.

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10.5 Disinvestment
In the Union Budget 2023-24, a disinvestment target of Rs 51,000 crore, has been set, which is nearly 21% less from
the budget estimate for the current year.
To know about the key highlights of the Budget 2023-24, click here
 Divestment or disinvestment - It means selling a stake in a company, subsidiary or other investments.
 Governments often sell stakes in
public sector companies to raise
revenues.
 Approaches
o Minority
Disinvestment - The
government retains a
majority in the company,
typically greater than
51%, thus ensuring
management control.
o Majority
Disinvestment - The
government hands over
control to the acquiring
entity but retains some
stake.
o Complete
Privatisation - 100% control of the company is passed on to the buyer.
 Department of Investment and Public Asset Management (DIPAM) deals with all matters relating to
management of Central Government investments in equity including disinvestment of equity in Central Public
Sector Undertakings.
Central Government’s performance been on disinvestment
 Industrial Policy Statement of 1991 – It provided for a complete review of public sector investments to
focus on strategic and essential infrastructure undertakings and new methods.
 In the latter half of the 90s, the range of disinvestment
was gradually increased to bring about a clear
distinction between strategic and non-strategic
enterprises.
 In the 1998-99 Budget, the government announced
that it would lower its shareholding in public sector
firms to 26% while continuing to hold the majority
shares.
 The UPA manifesto in 2004 said it would take up
privatization selectively there would be no
disinvestment just to raise funds to meet short-term
targets.
 Proceeds of disinvestment would be used for designated
social welfare programs.
 Incidentally, the disinvestments of Bharat Petroleum
Corporation Limited, SCI, and ConCor had been
approved by the government in 2019 but have not gone
through yet.
 The divestment of major holdings of the IDBI bank is
also in the pipeline and is likely to be concluded by mid-
FY24.
 Budget 2023-24 - The Centre is not going to add new
companies in 2023-24 and will stick to the already-announced and planned privatisation of State-owned
companies.

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Concerns with disinvestment

 Tool for revenue generation - Of late, the government’s reliance on disinvestment proceeds to bridge the
gap in the Budget has been increasing.
 Unachievable Targets - The Centre’s reliance on disinvestment proceeds to bridge the gap in its Budget
receipts had been increased sharply over 10% of the fiscal deficit.
 Disinvesting profitable units - The profitable oil refining and marketing company BPCL, which was put up
for divestment, had been paying healthy dividends.
10.6 Bringing MSMEs into Sustainable Global Value Chains
MSMEs contribute to job creation and sustainable development yet they are the ones that have faced the harshest of
environments over the last few years.
Significance of MSMEs
 Classification- MSMEs are classified based on the investment in plant & machinery/equipment and annual
turnover.
 It includes both manufacturing enterprises and enterprises rendering services.
 Significance of MSMEs
o Contributes ~ 30% to India’s GDP
o Employs ~ 11 crore people
o Constitutes ~ 40% of total exports
o More than half of them located in rural
India
o Huge potential to boost self-reliance
(Atmanirbhar Bharat)
Issues in MSMEs
 Informal- There is a greater degree of informality in the sector, with many enterprises unregistered.
 Global value chains- Because of the informality, they cannot access formal MSME support and financing nor
participate in global value chains.
 COVID19- The disruption of the pandemic severely impacted MSMEs, especially those in the services sector.
 Access to resources- The small size and lack of access to resources is a major challenge.
 Global phenomena- The renewed war, supply shocks and soaring fuel, food and fertilizer prices presented a
host of new threats.
 Digitalisation- With few exceptions, digitalisation into smart manufacturing operations is still in its infancy.
 Climate crisis- The ongoing climate crisis is the greatest disruption multiplier of all.
Efforts taken to unleash the potential of MSMEs
 Manufacturing- India’s ambitious “Make in India” campaign aims to propel the country’s manufacturing
value chain to position itself as a global manufacturing hub.
 Initiatives such as the production linked incentives (PLI) schemes and the recently launched zero effect zero
defect (ZED) certification are helping to promote and boost the sector.
 Supports of agencies- Agencies such as the United Nations Industrial Development Organization (UNIDO),
International Labour Organization (ILO), United Nations Development Programme (UNDP), UN Women,
IFAD, etc. are working with MSMEs in the changing post-pandemic economic landscape.
 Environment- The Bureau of Energy Efficiency (BEE) and UNIDO provided energy efficiency advisory
services to 695 MSMEs in 23 clusters covering brass, ceramic, dairy, foundry and hand tool sectors.
 Under the Partnership for Action on Green Economy, UNIDO and ILO work on inclusive and green
transformation strategies for key manufacturing sectors, together with UNDP, UNEP and the United Nations
Institute for Training and Applied Research (UNITAR).
 ILO works to formalise municipal solid waste management for clean food, textile and garment value chains in
Odisha and Andhra Pradesh.

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 Employment- ILO, together with FICCI and corporates, is supporting MSMEs in creating and
retaining jobs.
 The Start and Improve Your Business programme is helping over a lakh young people across five States launch
enterprises.
 Initiatives such as the Digital Saksham and the interlinking of Udyam, e-Shram, National Career Service (NCS),
Atmanirbhar Skilled Employee-Employer Mapping (ASEEM) portals show the promise of targeted
digitalisation schemes.
10.7 Global Lighthouse Network
The World Economic Forum announced the addition of 11 factories and industrial sites, including three from India, to
its Global Lighthouse Network.
 The Global Lighthouse Network (GLN) was pioneered by the World Economic Forum in 2018.
 The need for the Global Lighthouse Network was identified under the Forum’s Platform for Shaping the Future
of Advanced Manufacturing and Value Chains.
 The GLN is a community of manufacturers that are applying Fourth Industrial Revolution (4IR)
technologies to increase efficiency and productivity, along with environmental stewardship.
 The GLN is a platform to develop, replicate and scale innovations, creating opportunities for cross-company
learning and collaboration.
 It sets new benchmarks for the global manufacturing community.
 Under this network, so far, 103 manufacturing Lighthouses have been identified
from different industry sectors, including 6 Sustainability Lighthouses.
 Lighthouses - They are industries which use Industry 4.0 or 4IR technologies
to transform factories, value chains and business models, for compelling
financial and operational returns.
 The 3 recently added Lighthouses from India are
1. Cipla - Indore facility,
2. Dr Reddy's Laboratories - Hyderabad facility and
3. The Mondelez – Sri City facility.
 Sustainability Lighthouse - This is an additional designation given to the lighthouse members who have an
outstanding environmental footprint reductions.
 Unilever's Dapada facility in India is a ‘Sustainabilty Lighthouse’.
11. SERVICE SECTOR

11.1 Moonlighting
After Wipro sacked its 300 employees who were moonlighting, the Nasscom said that its time for companies to
reimagine employee engagement models.
 Moonlighting means taking up a second job or multiple jobs apart from one’s full-time job,
without informing their current employer about it.
 As the other job would usually be at night, hence the "moon" reference.
 People with low salaries would usually take it up for additional income as a means of sustenance.
 Moonlighting is not defined in any of the statutes in India.
 However, there are enactments that deal with double employment.
 Section 60 of Factories Act- No adult worker shall be allowed to work in
any factory on any day on which he has already been working in any other
factory, save in such circumstances as may be prescribed.
 This enactment is applicable only to employees working in factories.

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 There are State enactments which deal with employment of persons working in offices, banks, shops,
etc. but there is no provision dealing with dual employment.
 SC observation- In Glaxo Laboratories (I) Limited vs Labour Court, Meerut & others, the court held that the
power to regulate the behaviour of the workmen outside the duty hours by the employer amounts to the contract
of service being reduced to contract of slavery.
Issues with Moonlighting
 Productivity- Companies have opposed the practice, saying that employees doing multiple jobs can impact
their productivity.
 Violation of integrity- The current
employees working for rival firms is
considered as a complete violation of integrity.
 Conflict of interest- Moonlighting also
leads to conflict of interest when current
employees work for rival firms.
 Breaches- The companies also fear of data
and confidentiality breaches.
 Increase in operating
expense- Employees may use company
resources for their second job which increases
operating expenses.
 Tax complexities- If moonlighting income
is received as salary, both the employers will consider standard deduction to calculate the tax liability.
 Additionally, both the employers will take into account the basic exemption limit and consider the tax slab as
per the respective salaries.
 This could lead to the TDS being deducted by each employer to be lower than the taxpayer’s aggregate tax
liability.
12. SOCIAL SECTOR

12.1 Need for an Urban Job Guarantee Scheme
A study commissioned by the Prime Minister’s Economic Advisory Council has recommended an urban job guarantee
scheme.
History of urban employment schemes in India
 India has had a history of urban employment schemes such as the Swarna Jayanti Shahari Rozgar
Yojana (SJSRY), which was launched in 1997.
 It provided employment to the unemployed and underemployed urban poor through self-employment and wage
employment.
 In 2013, the SJSRY was replaced by the National Urban Livelihoods Mission (NULM).
 But none of them were employment guarantee schemes.
 More and more Indian state governments are looking favourably towards an urban version of MGNREGA.
These include
o Kerala - Ayyankali Urban Employment Guarantee Scheme
o Odisha- Unnati or Urban Wage Employment Initiative
o Himachal Pradesh- Mukhya Mantri Shahri Ajeevika Guarantee
Yojna or MMSAGY
o Madhya Pradesh- Mukhyamantri Yuva Swabhiman Yojana
o Jharkhand- Mukhyamantri Shramik Yojana
o Rajasthan- Indira Gandhi Shahari Rozgar Yojana
o Tamil Nadu- Tamil Nadu Wage Urban Employment Guarantee
Scheme for Urban Poor

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12.2 Green Jobs
During his speech at an event to mark World Environment Day, Prime Minister mentioned India’s efforts to create
‘green jobs’.
 ‘Green jobs’ refer to a class of jobs that directly have a positive impact on the planet, and contribute to
the overall environmental welfare.
 These include jobs involving renewable energy, conservation of resources, ensuring energy efficient means.
 In all, they’re aimed at reducing the negative environmental impact of economic sectors and ultimately lead to
environmentally, economically and socially sustainable enterprises and economies.
 It furthers the process of creating a low-carbon economy or decarbonisation.
 Green jobs are decent jobs that
1. Reduce consumption of energy and raw materials;
2. Limit greenhouse gas emissions;
3. Minimize waste and pollution; and
4. Protect and restore ecosystems.
 Green jobs can be created in all sectors and types of enterprises, in urban and rural settings, and in sub-national
regions at all levels of economic development.
Skill Council for Green Jobs
 The Skill Council for Green Jobs (SCGJ) was launched by the Union government in 2015 under the Societies
Registration Act XXI, 1860.
 Aligned to the National Skill Development Missions, it was set up to be a not-for-profit, independent, industry-
led initiative.
 It is promoted by the Ministry of New and Renewable Energy (MNRE) and the Confederation of Indian
Industry (CII).
 It aims to help manufacturers and other service providers in India’s ‘green business’ sector to implement
industry-led, collaborative skills push the country on the path to realising the potential of ‘green jobs’.
Green Jobs Initiative
 This initiative was launched collectively in 2008 by
1. The International Labour Organization (ILO)
2. The United Nations Environment Programme (UNEP)
3. The International Organization of Employers (IOE)
4. The International Trade Union Confederation (ITUC)
 The Green Jobs Initiative aimed at bettering placements, training and
creating opportunities for individuals to work in ‘green jobs’.
 It promotes opportunity, equity and a just transition towards green
economy and solutions to defining challenges such as sustainable development and climate change.
 It encourages governments, employers and workers to collaborate on coherent policies and programmes to
realize a sustainable and just transition with green jobs and decent work for all.
 The project aims to support its constituents, namely government, enterprises, and workers, to move towards a
socially fair transition to low carbon and green economy at national and local level.
12.3 The Expenditure on Pension
Expenditure on pension has emerged as one of the major components of the Committed Expenditure of the Centre and
states in recent years.
Picture of pension expenditure
 Centre - According to data available with the Comptroller and Auditor General of India (CAG), the Centre’s
total committed expenditure accounted for 37% of its total revenue expenditure in 2019-20.

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 The committed expenditure of the Union Government consists of 67% on interest payment and
servicing of debt.
 The remaining 19% and 14% expenditure constituted the expenditure on pensions and salary and wages
respectively.
 This shows that the expenditure on pensions is more than the expenditure on salaries and wages.
 States - The pension bill exceeded the salary and wages expenditure across three states – Gujarat, Karnataka
and West Bengal in 2019-20.
 The data shows that the combined pension bill of 30 states and Union Territories was 61.82% of their combined
expenditure on salary and wages.
 States such as Rajasthan and Chhattisgarh have already reverted to the Old Pension Scheme.
 Committed expenditure – It means expenditure for which firm
purchase orders/ work orders have been placed and includes the bills
pending for payment. CAG report states that
 Key components of the government’s committed expenditure Centre’s pension bill was
132% of its expenditure on
o Expenditure on pension
salary & wages in 2019-20
o Expenditure on salary and wages and interest payment
o Servicing of debt
 If the committed expenditure is higher, it means that the government has lesser flexibility to determine the
purpose for which revenue expenditure is to be incurred.
Old Pension Scheme
 Pension to government employees at the Centre as well as states was fixed at 50% of the last drawn basic
pay.
 The Old Pension Scheme promises an assured or defined benefit to the retiree and was hence described as
a ‘Defined Benefit Scheme’.
 Short-term gains
o For state governments – They save money since they will not have to put the 10% matching
contribution towards employee pension funds.
o For employees - It will result in higher take-home salaries, since they too will not set aside 10% of
their basic pay and dearness allowance towards pension funds.
 Concerns with the OPS
o Pension liability remained unfunded - There was no corpus specifically for pension, which would
grow continuously and could be dipped into for payments.
o Inter-generational equity
issues – In the ‘pay-as-you-go’
scheme, the present generation
had to bear the continuously
rising burden of pensioners.
o Unsustainable – The pension
liabilities would keep climbing
since pensioners’ benefits
increased every year.
o Limitation on States’ tax
revenue - Overall, pension
payments by states eat away a
quarter of their own tax
revenues.
National Pension System (NPS)
 In 1998, the government set up an
expert committee named Project Old
Age and Income Security
(OASIS) led by Surendra Dave.

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 Its primary objective was targeted at unorganised sector workers who had no old age income security.
 Taking the 1991 Census numbers, the committee noted that less than 11% of the estimated total working
population, had some post-retirement income security.
 The New Pension Scheme (National Pension System) is a pension cum investment scheme that was
notified in 2003 based on the proposal of the Project OASIS report.
 It is being administered and regulated by Pension Fund Regulatory and Development Authority (PFRDA).
 NPS can be broadly classified into two categories - Government Sector and Private Sector.
 All the employees of Central Autonomous Bodies (except for armed forces) who have joined on or after January
1, 2004 are mandatorily covered under Government sector of NPS. For others, it is customised and voluntary.
 Tier 1 (Mandatory contributions) - The defined contribution comprised 10% of the basic salary and
dearness allowance by the employee and a matching contribution by the government.
 In 2019, the government increased its contribution to 14% of the basic salary and dearness allowance.
Old Pension Scheme (OPS) National Pension System (NPS)
Organised sector employees through EPS, and government Available to all subscribers, in
Coverage
employees unorganized sector
Eligibility Requirement Minimum term of employment (typically 10-20 years) None
Portability across job None for government employees. Limited portability for
Portable
changes those covered under EPS.
Type of account
Pooled Individual pension account (IPA)
Type of pension
Defined benefit Defined Contribution
The government pays 50% of the average of last 10 months Government and the employee will
For government pay. There is no contribution by the employee or the each pay into the scheme.
employees government into a fund but this is paid out of the
Consolidated Fund of India.
No contribution from the employer.

For those not employed For those covered by EPS, the employer pays 8.33% of
The employee selects a particular
by the government Basic-DA to the EPS and the government pays 1.16%.
scheme.
Fund management Provident Fund Trust Six fund managers
Regulation None PFRDA
12.4 Niti Aayog’s Report on India’s Gig Economy
The Niti Aayog has released the report titled “India's Booming Gig and Platform Economy”.
 Gig economy - In a gig economy, temporary, flexible jobs are commonplace and companies tend to hire
independent contractors and freelancers instead of full-time employees.
 The gig economy can benefit workers, businesses, and consumers by making work more adaptable to the needs
of the moment and the demand for flexible lifestyles.

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 Gig workers engage in livelihoods outside the

traditional employer-employee arrangement.
 Classification of gig workers
o Platform workers are those whose work is
based on online software apps or digital
platforms such as food aggregator platforms
Zomato, Swiggy, Ola, and others.
o Non-platform workers are generally
casual wage and own-account workers in
conventional sectors, engaged part-time or
full-time.
 Platform workers are termed as “independent
contractors”.
Niti Aayog study

 Gig workforce- According to the report of NITI
Aayog, the Indian gig workforce is expected to expand
to 23.5 million workers by 2029-30, a near 200%
jump from 7.7 million now.
 Skills- The report stated that gig work is expanding in all sectors, but 47% of the jobs are medium-skilled, about
22% are high-skilled, and about 31%
are low-skilled.
 Female labour force
participation- The Niti Aayog
noted that female labour force
participation in India has remained
low, oscillating between 16% to 23%
in the last few years.
 Persons with disabilities- PwD
who make up for 2.11 to 10% of
India’s population, have a labour
force participation rate of 36%.
12.5 Changes to Prevention of Money Laundering Act 2002 (PMLA)
Recently finance ministry placed all transactions involving virtual digital assets (VDA) under the purview of PMLA.
 Money laundering refers to the process through which the proceeds from criminal activity are masked with a
view to concealing their illegitimate source.
Prevention of Money Laundering Act (PMLA)
 Aim – The main focus of the PMLA is
Enforcement Directorate (ED)
1. To prevent money-laundering – It is responsible for investigating
2. To provide for confiscation of property derived from offences under the PMLA.
or involved in money-laundering Financial Intelligence Unit-
 Under the Act, the burden of proof lies with the accused. India (FIU-IND) – It is the
national agency that receives,
 Confiscation of property - The PMLA deals with the processes, analyses and
confiscation of both movable and immovable property. disseminates information related to
suspect financial transactions.
 Intermediaries - The Act provides that every banking
company, financial institution and intermediaries should
maintain a record of transaction.
 Appellate Tribunal - The Appellate Tribunal was established by Central Government to hear appeals against
the dealers of Adjudicating Authority and authorities under this Act.
 Special Courts - The Central Government shall constitute the Special Courts in consultation of the Chief
Justice of India to try the offence of Money Laundering.

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 Location of an entity - The third party of any entity in the country shall not be located in any
country classified as ‘high risk’ by the Financial Action Task Force (FATF)
Recent changes in the PMLA
 The government issued a notification bringing transactions involving crypto assets under the PMLA.
 It laid out the nature of transactions to be covered under PMLA. These are as follows:
o Exchange between virtual digital assets and fiat currencies.
o Exchange between
one or more forms of
virtual digital assets.
o Transfer of virtual
digital assets.
o Safekeeping of
virtual digital assets.
o Provision of financial services related to an issuer’s offer.
o Sale of a virtual digital asset.
Changes in the Prevention of Money-laundering (Maintenance of Records) Rules, 2005
 Defining the term - politically exposed person( PEP)
 Every banking company or financial institution must shall register the details of clients on the DARPAN Portal
of Niti Aayog.
 The rules broadens the definition of a non-profit organization to now also include organizations that function
for charitable purposes including relief to the poor, education or medical relief etc.
 The new rules add more data retention requirements to NGOs
‘Politically exposed persons’ (PEPs) - Individuals entrusted with prominent public functions by a foreign country,
including heads of states or governments, senior politicians, senior government or judicial or military officers, senior
executives of state-owned corporations, and important political party officials.
Legal status of crypto in India
 Even though the government brought in a tax for cryptocurrencies, it did not proceed with framing regulations.
 Ban – The Reserve Bank of India had proposed a ban on cryptocurrencies, this was set aside by a court order.
 Taxation – In 2022, India introduced a 30% income tax on gains made from cryptocurrencies and the rules
regarding 1% tax deducted at source on cryptocurrency came into effect.
Financial Action Task Force (FATF)
 Commonly referred to as the world’s terrorism financing watchdog, FATF is an inter-governmental decision-
making body.
 It was established in 1989 during the G7 Summit in Paris to develop policies against money laundering.
 Its Secretariat is located in Paris.
 It set standards and promotes effective implementation of:
o Legal, regulatory and operational measures for combating money laundering.
o Identify national-level vulnerabilities with the aim of protecting the international financial system
from misuse.
 In 2010, India became the 34th member country of FATF.
 FATF maintains two types of lists.
o Black List - Countries knowns as Non-Cooperative Countries or Territories (NCCTs) are put in the
blacklist.
o The FATF revises the blacklist regularly, adding or deleting entries.
o Grey List - Countries that are considered safe haven for supporting terror funding and money
laundering are put in the FATF grey list.

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12.6 Trends in Global Poverty
The World Bank has released a report, titled “Poverty and Shared Prosperity 2022: Correcting Course” that provides
latest estimates and trends in global poverty and shared prosperity.
 Poverty and Shared Prosperity is a biennial series that explores a central challenge to poverty reduction and
boosting shared prosperity.
Global estimates
 Global poverty - The report states that global poverty reduction has been slowing down since 2015 but the
Covid pandemic and the war in Ukraine have reversed the outcomes.
 The world is unlikely to meet the goal of ending extreme poverty by
2030.
 According to the World Bank report, global extreme poverty increased
to an estimated 9.3% in 2020, up from 8.4% in 2019.
 Global inequality - Global inequality rose for the first time in
decades.
 The poorest people bore the steepest costs of the pandemic - income losses averaged 4% for the poorest 40%,
double the losses of the wealthiest 20% of the income distribution.
 Global median income- Global median income declined by 4% in 2020 - the first decline since measurements
of median income began in 1990.
India’s poverty levels
 Official data- The World Bank flagged that the lack of official data on poverty from India had become a
hindrance in drawing up global estimates.
 The most recent official data on poverty in India dates back to 2011-12 by the National Sample Survey Office of
India.
 The report uses data from Centre for Monitoring Indian Economy’s (CMIE) Consumer Pyramids Household
Survey (CPHS).
 India’s case- According to the World Bank, Indians account for 80% of those who became poor globally in
2020 due to COVID-19.
 The CPHS data for 2020 noted that 5.6 crore Indians slipped into poverty in 2020.
 The World Bank estimated that 2.3 crore Indians additionally slipped into poverty in 2020.
 The World Bank, however, observed that overall poverty in India was on a downward slide, largely due to a
reduction in poverty in rural areas between 2011 and 2020.

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12.7 Protection of Migrant Workers
The stories of exploitation and labour violations faced by Indian workers in the Gulf countries should be looked at by
remembering the five-decade history of migration to the region.
Picture of migration in India
 Globally, India ranks first in terms of international migrants and remittances.
 6 countries in the Gulf alone account for close to 50% of Indian migrants.
 As per the latest Kerala Migration Survey (2018), close to 2 million Keralites reside in the Gulf.
Accusation on GCC countries
 Gulf Cooperation Council (GCC) countries have been accused of not
providing healthcare services, employment and social protection for
workers during Covid-19.
 This led to large-scale repatriation during the pandemic.
 The Return Migration Survey conducted among 2,000 Vande Bharat
returnees to Kerala revealed that among 47% who lost their jobs, 39%
have reported non-payment of wages and reduction in wages.
 During the Dubai Expo 2020, there were several reports of non-payment
of wages, contract violations and intimidation of workers.
 There are concerns over the rights violations and deaths of migrant workers during the construction of stadiums
for the football World Cup to be held in Qatar.
 The countries are also implementing nationalization policies, which could lead to forceful job termination.
 Efforts taken - Due to the massive reporting of labour rights violations and criticism of the Kafala system,
GCC countries are trying to reform labour laws.
 The Abu Dhabi Dialogue, a regional forum, is keen on developing information orientation programmes for
workers, promoting technology platforms, and reforms in domestic workers’ laws.
 The Government of India’s portal “Madad” has enabled migrant workers from the country to file their
grievances.
Kafala System
 The Kafala or sponsorship system in the Gulf enables employers to wield significant power over the lives of
migrant workers.
 Under the Kafala system a migrant worker’s immigration status is legally bound to an individual
employer or sponsor (kafeel) for their contract period.
 The migrant worker cannot enter the country, transfer employment nor leave the country for any reason
without first obtaining explicit written permission from the kafeel.
 Often the kafeel exerts further control over the migrant worker by confiscating their passport and travel
documents, despite legislation in some destination countries that declares this practice illegal.
 The exploitation of migrants led Parliament to enact the Emigration Act of 1983.
12.8 Emotional Labour
A survey shows emotional labour falls to women in the workplace and at home than men.
 The process of managing, modulating and suppressing one’s emotions to fulfil expectations from others or to
achieve professional goals is called ‘Emotional labour’.
 The marginalised people have to deal with this extra invisible work while living within systems that oppress
them.
 Emotional labour was never intended to be a gendered term, but it falls disproportionately on women.
 Women are fearful of being seen as difficult and more likely to agree to take on the invisible and unpaid labour
that detracts from their other responsibilities.

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 In academia, Black and brown women may have to perform more emotional labour than men and
white women.
 American sociologist Arlie Hochschild first introduced the concept of emotional labour in 1983 in her book ‘The
Managed Heart’.
 In her book, she refers emotional labour as the need to induce or suppress feeling in order to sustain the outward
countenance that produces the proper state of mind in others.
12.9 Advantages of India’s Youth Bulge
As global economic growth goes down well below 2% in 2023, India’s economic growth is expected to remain at 5%.
 Global downturn - A combination of transitory shocks and secular forces has created a highly uncertain
future, with the potential for a medium-term global stagnation.
 Global population is getting older rapidly across the group of countries that make up more than 75% of global
GDP.
 India as a bright spot - India’s high growth is a reflection of its structural strengths and growth drivers.
 India is a success story on the
export of services and services
tend to shrink less compared to
manufacturing during global
economic downturns.
 Global exports of digitally
delivered services have more
than tripled during the last two
decades and India stands out as
a winner.
Status of India’s youth bulge
 India’s demographic profile is
well positioned to withstand
adverse macroeconomic shocks.
 India’s growth will continue to
benefit from demographic
dividend and youth bulge.
 There is space to borrow from
residents and build public
private partnerships to finance
additional spending on
infrastructure.
 India’s domestic savings are
rising.
Advantages of India’s youth bulge
 Wage-price spiral - Since the labour force is expanding, young population will avoid the risks of wage-price
spiralling upwards.
 Women workforce - The rise in women’s workforce
activity naturally accompanies a decline in fertility.
 Savings - Working ages happen to be the prime years for
savings, which is key to capital accumulation, creation of
infrastructure and technological innovation.
 Retirement - It boosts the savings that occurs as the
incentive to save for longer periods of retirement.
 Emergence of middle class - Surveys show a massive
shift towards a middle-class society which
o Is a source of entrepreneurship
o Is a major contributor to savings and human capital Wage-Price
Spiral
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o Strengthen the links with education.

o Relates to consumption
• Demographic dividend refers to the growth in an economy that is the

Demographic dividend result of a change in the age structure of a country’s population.
• The wage-price spiral is an economic term that describes the phenomenon

Wage-price spiral of price increases as a result of higher wages.
13. INFRASTRUCTURE
13.1 Vande Bharat Trains
In the latest Budget, there was an announcement of 400 new-generation Vande Bharat trains to be built in three years.
 Vande Bharat – It is a semi-high speed (maximum speed of 160 kmph), indigenously designed
and manufactured train each of 16 coaches.
 The train is self-propelled as they do not require an engine.
 Also dubbed as Train 18, they operate without a locomotive and are based on a propulsion system called
distributed traction power technology.
 The first Vande Bharat was manufactured by the Integral Coach Factory (ICF), Chennai, in about 18 months as
part of the ‘Make in India’ programme, at a cost of about ₹100 crore.
 It has an intelligent braking system with power regeneration for better energy efficiency thereby making it cost,
energy and environment efficient.
 The current Vande Bharat trains have seating only in two classes — chair car and executive chair car.
 It incorporate passenger amenities including on-board WiFi entertainment, GPS-based passenger information
system, CCTVs, automatic doors, rotating chairs and bio-vacuum type toilets.
13.2 The Sela Tunnel
The strategically-significant Sela Tunnel project in Arunachal Pradesh is nearing completion.

 Sela tunnel – The project was announced in 2018.
 It is a part of the Balipara-Charduar-Tawang road,
one of the key strategic projects near the Chinese
border.
 It is located in the West Kameng district of
Arunachal Pradesh.
 The project is being executed by the Border
Roads Organisation.
 This will be the longest twin-lane tunnel above
13,000 feet in the world.
 The project includes two tunnels and a link road.
 The total length of the project, including the tunnels, the approach and the link roads, will be around 12 km.
 Significance - It will cut down travel time to from Tezpur to Tawang by at least one hour as well as provide
all-weather connectivity.
 At the moment, Sela pass stays closed for a few winter months due to winter and heavy snowfall.
 This poses serious logistics challenge for both military and civil vehicles.
 Faster deployment of weapons and soldiers to the Line of Actual Control and forward areas in the Tawang sector
can be made.
 Once the tunnel is ready, the road will remain open for 12 months of the year.

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13.3 Improving Cold Chain Systems
Robust cold chain systems are an investment in India’s future pandemic preparedness.
 India accounts for the second highest caseload of COVID-19 globally.
 The nation had to take on the task of rolling out one of the largest vaccination drives in the world which is not
new to India.
 India’s Universal Immunisation Programme (UIP), launched in 1985 to deliver routine immunisation,
showcased its strengths in managing large-scale vaccine delivery.
 But the pandemic reminded us that vaccines alone do not save lives, vaccination does.
 While we have set up a strong service delivery network, the pandemic showed us that there were weak links in
the chain, especially in the cold chain.
Need for a cold chain system
 Cold chain system augments the immunisation landscape.
 It will be the only way to ensure access to the last mile with
life-saving vaccines.
 It reduces vaccine wastage thus reducing the cost
implications.
 It also aids in achieving the immunisation targets.
 Robust cold chain systems are an investment in India’s future
pandemic preparedness.
Cold chain management in India
 Nearly half the vaccines distributed around the world go to waste, in large part due to a failure to properly
control storage temperatures.
 In India, close to 20% of temperature-sensitive healthcare products arrive damaged or degraded because of
broken or insufficient cold chains, including a quarter of vaccines.
 India’s UIP comprises upwards of 27,000 functional cold chain points of which 3% are located at the district
level and above while the remaining 95% are located below the district level.
 The Health Ministry has been digitising the vaccine supply chain network in recent years through the use of
cloud technology, such as with the Electronic Vaccine Intelligence Network (eVIN).
 The role played by supportive infrastructure for cold chain such as a regular supply of electricity is essential for
which the potential of solar-driven technology must be explored.
13.4 Infrastructure Investment Trusts
 Regulated by the Securities and Exchange Board of India (SEBI), the Infrastructure Investment Trusts
(InvITs) are investment instruments that work like mutual funds.
 InvITs can be treated as the modified version of Real Estate Investment Trusts (REITs) designed to suit the
infrastructure sector.
 It is a vehicle that is designed to pool money (small sums) from several investors to be invested in income-
generating assets.
 They are mostly structured as trusts, and an independent trustee holds assets on behalf of unit holders.
 An InvIT consists of four elements: Trustee, Sponsor(s), Investment Manager and Project Manager.
 Sectors - InvITs could be set up for sectors defined under the infrastructure as per RBI guidelines.
 So far, developers engaged in the road, power transmission, gas pipelines and tower transmission have formed
InvIT.
 REITs and InvITs - REITs and InvITs are conceptually like mutual funds, where a sponsor raises capital and
invests it in infrastructure or real estate projects.
 Working - A REIT/InvIT is established as a trust settled by the sponsor under the Indian Trusts Act, 1882 and
the trust deed registered in India under the Registration Act, 1908.

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 Also, a Certificate of Registration as REITs and InvITs needs to be obtained from the SEBI.
 Distributions by REITs and InvITs are based on Net distributable cash flows (NDCF), unlike companies where
dividends are based on profits.
 These distributions are declared and made at least,
1. Once every 6 months for publicly offered REITs and InvITs and
2. Once a year for privately placed InvITs.
 Related Links - Marquee Institutional Investors
13.5 Pragati Maidan Integrated Transit Corridor Project
The Prime Minister inaugurated the main tunnel and underpasses of Pragati Maidan Integrated Transit Corridor
Project.
 The Pragati Maidan Integrated Transit Corridor project is a part of the ITPO-Pragati Maidan Redevelopment
Project.
 Started in 2017, the project has been entirely funded by the Central Government.
 But, it was executed by the Delhi government's Public Works Department (PWD).
 The key aims of this project are
o To de-congest traffic around the Pragati Maidan Trade Centre and
o To remove bottlenecks on Bhairon Marg, Ring Road, ITO-W point and Mathura Road and make it signal
free.
 The main Tunnel connects Ring Road with India Gate via Purana Qila Road passing through Pragati Maidan.
 It will serve as an alternative route to Bhairon Marg.
 Along with the tunnel, there will be 6 underpasses - 4 on Mathura Road, one on Bhairon Marg and one on the
intersection of Ring Road and Bhairon Marg.

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13.6 Power Finance Corporation to be a DFI
The Union Ministry of Power has sought the status of Development Financial Institution (DFI) for the Power Finance
Corporation (PFC) and Rural Electrification Corporation (subsidiary of PFC).
 The Power Ministry has sought the DFI status for PFC from the Reserve Bank of India (RBI) under the National
Bank for Financing Infrastructure and Development (NaBFID) Act, 2021.
 The DFI status helps a financial institution (FI) access foreign funding, grants and loans easily and in higher
quantum, as compared to a public financial institution (PFI), which PFC already is.
 The objective behind this move is to enable PFC to steer global climate funding and net zero investment in the
country.
 If the proposal is taken to its logical conclusion, PFC would be the first DFI for climate and energy transition in
India.
 Related Links - Revamped Distribution Sector Scheme, India’s 1st Euro Green Bond
NaBFID Act on DFIs
 NaBFID Act 2021 seeks to establish DFIs for providing long-term finance for such segments of the economy
where the risks involved are beyond acceptable limits of commercial banks and other ordinary FIs.
 Unlike banks, DFIs do not accept deposits from people.
 They source funds from the market, government, as well as multilateral institutions, and are often supported
through government guarantees, according to the Act.
 Related Links - National Bank for Financing Infrastructure and Development
Power Finance Corporation
 New Delhi-based Power Finance Corporation (PFC) is a financial institution under the Union Ministry of
Power.
 Incorporated in 1986, the PFC is a leading Non-Banking Financial Corporation in the Country.
 Vision - To be the leading institutional partner for the power and allied infrastructure sectors in India and
overseas across the value chain.
 In 2021, the PFC was conferred the title of a Schedule-A Maharatna CPSE.
 In 2010, it was classified as an Infrastructure Finance Company by the Reserve Bank of India.
13.7 Partnership for Global Infrastructure and Investment (PGII)
The G-7 grouping launched a U.S.-led $600 billion Partnership for Global Infrastructure and Investment (PGII) at
their summit in Germany’s Schloss Elmau.
 Partnership for Global Infrastructure and Investment
(PGII) - It is a joint initiative to fund infrastructure projects in
developing countries.
 The PGII was first announced in G7 Summit in the UK in 2021.
 Back then, the US President Joe Biden had called it the Build
Back Better World (B3W) framework.
 Collectively, the PGII aims to mobilise nearly $600 billion from
the G7 by 2027 to invest in critical infrastructure that improves
lives and delivers real gains for all of our people.
 The project is being seen as the G7 bloc’s counter to China’s ‘Belt
and Road Initiative.
 Objectives
o To meet the enormous infrastructure needs of low and middle-income countries and
o To support the United States’ and its allies’ economic and national security interests.
 The PGII will finance the projects from both the government and the private sector.
 The fund is not “charity or aid”, but loans.

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 Priority Pillars
o Tackling climate crisis and ensuring global energy security through clean energy supply chains
o Bolstering digital Information and Communications Technology (ICT) networks facilitating
technologies like 5G & 6G internet connectivity and cybersecurity
o Advancing gender equality and equity
o Upgrading global health infrastructure
 India’s response - India was not privy to PGII consultations, nor was the infrastructure plan part of the
documents that were signed by the G-7 outreach invitees to the summit.
 It also came as a surprise that India hadn’t endorsed the PGII plan given that the U.S. billed it as a rival to
China’s BRI, with much more sensitivity to sustainable debt burdens and environmental concerns.
 Role for India- The PGII factsheet includes a specific plan for investment in an Agritech and Climate
sustainability fund that would invest in companies that increase food security and promote both climate
resilience and climate adaptation in India.
 According to the documents, the India fund would target $65 million by September 2022, and a target
capitalisation of $130 million in 2023.
 Lack of clarity- The PGII is one of the U.S.-led economic initiatives announced globally and in the Indo-
Pacific, without much clarity on whether they would overlap, or run concurrently with each other.
 Inconsistent funding- The PGII announcement for $600 billion also comes a year after the U.S. led a G-7
initiative to counter China’s strategic competition and to narrow the infrastructure gap in the developing world.
 In 2021, the Biden administration also revived a Trump administration project for the Blue Dot Network
Initiative to certify infrastructure projects, but had stopped short of funding them.
13.8 National Investment And Infrastructure Fund
Indian government-promoted National Investment and Infrastructure Fund (NIIF) has made its single largest
investment of USD 300 million or Rs 2,250 crore for a 22.5% stake in Hindustan Ports, a local arm of UAE's DP World.
 The National Investment and Infrastructure Fund (NIIF) is India’s first-ever Sovereign Wealth Fund
(SWF).
 It is a state-owned fund set up by the Department of Economic Affairs, Government of India in 2015.
 The NIIF is an alternative
for providing long-term
capital for the infra-related
projects.
 It is registered under the
Securities and Exchange
Board of India (SEBI) under
Category II Alternative
Investment Fund.
 It is a collaborative
investment platform for
both international and
Indian investors.
 The NIIF manages over USD
4.3 billion assets under
management through its
three funds.
Sovereign Wealth Fund
 A sovereign wealth fund (SWF) is a state-owned fund. It is mostly formed from the country’s reserves.
 It is used to invest in capital assets such as real estate, metals, stocks, and bonds.
 The main objective of the SWFs is to allocate funds for the betterment of the country’s economy.
 SWFs also invest in alternative investments such as private equity funds and hedge funds. Some SWFs invests
in the global avenues.

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13.9 Renewing the Chabahar Port
The Union government has geared up its interest in using Iran’s Chabahar port to connect to Afghanistan and Central
Asia for trade.
 Chabahar Port - It is a seaport in Sistan-Balochistan province of Iran, on the Gulf of Oman.
 It serves as Iran's only oceanic port, and consists of two separate ports
named Shahid Kalantari and Shahid Beheshti.
 Its geographic proximity to Afghanistan, Pakistan, India and International
North-South Transport Corridor (INSTC) gives it the potential to develop into
one of the most important commercial hubs.
 Chabahar is one of the few places in Iran that is exempt from U.S. sanctions.
 India’s Collaboration- Chabahar is a gateway for Indian trade with
Europe, Russia and CIS [Commonwealth of Independent States] countries.
 Indo-Iranian collaboration on Chabahar port dates back to 2003.
 In 2016, India announced that it would invest 500 million dollars into the
development of Chabahar port.
 A major catalyst for their renewed cooperation stemmed from 2013
announcement that China would commence its massive Belt and Road Initiative (BRI) infrastructure project.
 India, Iran and Afghanistan signed a trilateral agreement providing for transport of goods among the three
countries through the port.
India’s strategic vision for Chabahar
 Objectives during 2003
o To build India’s first offshore port and to project Indian infrastructure prowess in the Gulf
o To circumvent trade through Pakistan and build a long term, sustainable sea trade route
o To find an alternative land route to Afghanistan
 Later, India constructed the Zaranj -Delaram Highway in Afghanistan’s South, which would help connect
the trade route from the border of Iran to the main trade routes to Herat and Kabul.
 2016- India signed an agreement to develop Chabahar port and a trilateral agreement for trade through
Chabahar with Afghanistan.
 In the last few years, a fourth strategic objective for the Chabahar route has appeared.
o To provide Central Asia with an alternate route to the China-Pakistan Economic Corridor (CPEC)
through Iran for future trade
13.10 India’s Logistics Sector
India’s logistics and connectivity infrastructure struggles to keep pace with the country’s needs, creating a drag on
competitiveness and growth prospects.
Status of India’s logistics
sector
 Logistics broadly includes
facilities crucial to trade -
transport services, storage
facilities and services that
facilitate trade such as
licensing and customs.
 India’s logistics are estimated to account for about 14.4% of GDP and more than 22 million people rely on it
for their income.
 The Department of Commerce's logistics division for India is given the responsibility for the Integrated
Development of Logistics Sector.
 The Special Secretary to the Government of India is responsible for the development of an action plan to
facilitate the overall development of the logistics sector.

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Government’s role towards the development of the logistics sector

 National Logistics Policy – The objective of the policy is to boost the nation's economy and corporate
competitiveness by establishing an integrated, sustainable and cost-efficient logistics network.
 The policy aims to reduce the logistics cost, which stands at 14% of
GDP to 9-10%.
 National Logistics Law – The law's provisions will make it possible According to the Logistics
to assign a distinct logistics account number in place of cumbersome Performance Index (LPI)
registration processes. 2018 of World Bank, India is
ranked 44th in logistics cost.
 Logistics Master Plan – An Inter-Ministerial Committee will be
used to supervise the master plan's execution.
 State wise local logistics strategies will be created in coordination and cooperation with the federal plans.
 National Multimodal Facilities and Warehousing – The standards for the National Logistics Platform
(iLOG) are currently being finalised in conjunction with the Ministry of Electronics and Information Technology
(MEiTY).
 The iLOG will work to integrate a single platform for the various IT solutions that have been developed by
various stakeholders, including logistics service providers.
 National Logistics Workforce Strategy – The approaches include introduction of a Certified Logistics
Professional (CLP) scheme, and to incentivise the engagement of such professionals.
 The Driver Employment and Empowerment Programme is one of the
strategies, and it aims to lower logistics costs by making truck driving a
desired career due to the severe scarcity of truck drivers.
 PM Gati Shakti National Master Plan – The Union Budget 2023
doubled the funding of the plan and has announced an outlay of ₹2.4
lakh crore for the Indian Railways.
 Railways offer an economic mode of logistics movement given their
pan-India network, which can play an important role in enabling a
coordinated and integrated logistics system.
 The Gati Shakti Programme- To implement infrastructure
connectivity, including roadways and railways projects across the
nation, in a coordinated manner.
 The Sagarmala - Envisions using the potential of the coastline and
waterways to reduce the amount of infrastructure needed to reach their targets.
 The Bharatmala - Focuses on reducing critical infrastructure gaps to increase the effectiveness of road traffic
circulation across the nation.
 Comprehensive Logistics Action Plan (CLAP) - Aims to put India among the top 25 countries by 2030 in
the Logistics Performance Index (LPI).
 e-sanchit- Paperless export-import trade operations have been made possible by the e-sanchit portal, and
faceless evaluation in customs has been implemented.
 FASTags- E-way bills and FASTag are also frequently used on roads to boost the effectiveness of the logistics
industry.
 GST- A unified tax system like Goods and Services Tax (GST) enables ease in issues related to the logistics
sector.
National Logistics Policy
Objectives
 The policy seeks to
o Reduce the cost of logistics in India to be comparable to global benchmarks by 2030
o Improve India's ranking in the Logistics Performance Index within the top 25 by 2030
o Create a data-driven decision support mechanism for an efficient logistics ecosystem

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 The government aims to reduce the logistics cost in India from about 13% of the gross domestic product
(GDP) to 7.5-8%.
Key features
 Integration of Digital System (IDS) - There will be digital integration of different systems of 7 various
departments (like road transport, railways, aviation, commerce ministries and foreign trade).
 Unified Logistics Interface Platform (ULIP) - This ensures shorter and smoother cargo movement and
enables the exchange of information confidentially on a real-time basis.
 The National Industrial Corridor Development Corporation (NICDC) Logistics Data Bank Project has been
leveraged.
 Ease of Logistics (ELOG) - It will enable and ensure the ease of logistics business through transparency
and accessibility.
 System Improvement Group (SIG) - It will monitor all logistics-related projects regularly.
13.11 Boosting India’s Natural Gas Market
India aims to increase the share of Natural Gas in its energy basket from the current 6.7% to 15% by 2030.
Status of gas sector in India
 Gas demand is directly
linked to availability of
the fuel.
 The total volume
consumed in the
country is 170 million
standard cubic metre
per day.
 Almost 50% of the gas
consumption in India is
imported.
 India’s gas pricing
system is mainly
composed of
o APM (Administrative Price Mechanism)
o Non-APM (Free market gas)
 Petroleum Planning and Analysis Cell (PPAC), attached to the Ministry of Petroleum and Natural Gas
declares the APM gas price.
 The non-APM gas is of two types
o Domestically produced gas from JV (Joint Venture) fields
India has set the
o Imported gas
target to raise
 Kirit Parikh Committee was constituted to share of natural
o Review the current domestic natural gas pricing regime gas in energy mix
to 15% by 2030.
o Examine issues related to ensuring fair price to the end-consumer
o Suggest market-oriented, transparent and reliable pricing
Government schemes in the gas sector
 Pradhan Mantri Urja Ganga - This is the national gas grid project which aims to provide piped natural gas
(PNG) connection in the eastern part of the country by developing additional 15,000 km of gas pipeline network.
 City Gas Distribution Network (CGD) - It aims to distribute natural gas to domestic, industrial and
commercial customers as Piped Natural Gas (PNG) and to the automotive segment as Compressed Natural Gas
(CNG).
 Promotion of CNG/LNG in transportation - The Government is promoting the usages of environment
friendly transportation fuel CNG.

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 Pradhan Mantri Ujjwala Yojana – It is a scheme of the Ministry of Petroleum & Natural Gas for
providing LPG connections to women from Below Poverty Line (BPL) households.
 One Nation One Gas Grid - India targets increasing the pipeline coverage by 60% by 34,500 km by 2024-
25.
 All states are intended to be connected by a trunk national pipeline network by 2027.
 FDI - 100% FDI is allowed in exploration activities of oil and natural gas fields under automatic route.
Major issues in the sector
 Pricing - Most of the gas produced in India is priced today on the basis of the weighted average of gas price
consumed in USA & Mexico (Henry Hub), Canada (Alberta Hub), Europe (National Balancing Point) and
Russia.
 However, the pricing environment prevailing in these locations is entirely different to that in India.
 Allocation and marketing - The current government guidelines for the allocation of gas produced in the
nomination blocks of ONGC and Oil India Ltd. allow freedom for its marketing but affix an artificial ceiling price
for the same.
 This distorts the market and creates a risk of manipulation in the government’s royalty revenue.
 GST - Natural gas is currently outside the ambit of GST, and existing legacy taxes.
13.12 India's Inland Waterways
The Uttar Pradesh government’s decision to leverage inland waterways to move export-bound cargo to international
seaports seems a welcome step towards developing a multimodal transport system in the country.
India’s potential in inland waterways sector
 India has a huge inland waterways network spanning nearly 15,000 km.
 These inland waterways
network is in the form of
rivers, rivulets, canals,
backwaters, creeks, and
other kinds of water
bodies, which can be
used for the movement
of goods and
passengers.
 The National
Waterways Act,
2016, has identified as
many as 111 navigable
water courses and
declared them “national
inland waterways”.
 Only about 25 of them
have so far been
developed into operable
water channels and
merely 13 are being
used fully or partially
for this purpose.
 With the passing of the
Inland Vessels Act
in India in 2021, the
situation might begin to
look up.
 This is because this
statute is aimed specifically at making the inland waterways of India a viable, convenient, and thriving mode of
transportation for both freight and passengers.

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 Significance - Inland water transportation is a relatively cost-effective, hassle-free, and

environment-friendly mode of ferrying goods, especially bulk cargo such as coal, fly-ash, iron, and odd-sized
consignments.
 A World Bank study has found that water transportation is about 30% cheaper than railways and 60% less
expensive than roadways.
 Besides, the carbon emission is merely 32-36 g per tonne-km in the case of container vessels, against 51-91 g by
road transport vehicles.
13.13 Great Nicobar Development Project
The Ministry of Environment, Forest and Climate Change gave environmental clearance for the ambitious Rs.72000-
crore development project on the Great Nicobar Island.
 A “greenfield city” has been proposed, including
1. An International Container Transshipment
Terminal (ICTT),
2. A greenfield international airport,
3. A power plant, and
4. A township for the personnel who will
implement the project.
 A total 166.1 sq km along the island’s southeastern and
southern coasts have been identified for project along
a coastal strip of width between 2 km and 4 km.
 Some 130 sq km of forests have been sanctioned for
diversion, and 9.64 lakh trees are likely to be felled.
 The port will be controlled by the Indian Navy, while
the airport will have dual military-civilian functions
and will cater to tourism as well.
 Roads, public transport, water supply and waste
management facilities, and several hotels have been
planned to cater to tourists.
 The NITI Aayog has said in a report that the proposed
port will allow Great Nicobar to participate in the
regional and global maritime economy by becoming a major player in cargo transshipment.
Great Nicobar Island
 Great Nicobar Island is the southernmost of the

Andaman and Nicobar Islands.
 It is the largest of the Nicobar group of islands, spanning
921 km.
 Indira Point on the southern tip of this Island is India’s
southernmost point.
 The Great Nicobar Island has tropical wet evergreen
forests, mountain ranges reaching almost 650 m above
sea level, and coastal plains.
 Fourteen species of mammals, 71 species of birds,
26 species of reptiles, 10 species of amphibians, and
113 species of fish are found on the island, some of
which are endangered.
 The leatherback sea turtle is the island’s flagship
species.
 Great Nicobar is home to
1. Two national parks,

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2. A biosphere reserve
3. The Shompen and Nicobarese tribal peoples
4. Ex-servicemen from Punjab, Maharashtra, and Andhra Pradesh who were settled on the island in the
1970s.
 The approximately 8,000 settlers who live on the island are engaged in agriculture, horticulture, and fishing.
13.14 Financing BOT Roads
The National Highway Authority of India (NHAI) has planned to award at least 8% of the targeted road development
for the current fiscal through Build-Operate-Transfer (BOT) route.
 Build-operate-transfer (BOT) – It is a Public Private Partnership (PPP) model used to finance large
projects, typically infrastructure projects developed through public-private partnerships.
 BOT projects are normally large-scale, Greenfield infrastructure projects that would otherwise be financed,
built, and operated solely by the government.
 Under a build-operate-transfer (BOT) contract, an entity (usually a government) grants a concession to a private
company to finance, build, and operate a project for certain period.
 After that period, the project is returned to the public entity that originally granted the concession.
Engineering, Procurement and Construction (EPC) Hybrid-Annuity Model (HAM)

model
 This is a PPP model for the development of infrastructure  HAM is a mix of the Engineering,
projects especially highways. Procurement and Construction (EPC) and
Build, Operate, Transfer (BOT) models.
 Under this model, the cost is completely borne by the
government.  HAM combines 40% EPC and 60% BOT-
Annuity.
 Procurement of raw material and construction costs are met
by the government.  It was introduced in 2016 to recover
investments in road infrastructure projects.
 The private sector’s participation is minimum and is limited
to the provision of engineering expertise.
 Issue - High financial burden for the government.
13.15 Ram Setu and Sethusamudram Project
Recently, the Supreme Court gave the Centre four weeks’ time to file a response clarifying its stand on a plea by former
Rajya Sabha MP Subramanian Swamy seeking national heritage status for the ‘Ram Setu’.
 Ram Setu or Adam’s Bridge – It is a linear coral ridge that separates the shallow sea consisting of the Gulf
of Mannar in the south and Palk Bay in the north.
 It runs between Rameswaram in Tamil Nadu and Thalaimannar
in Sri Lanka.
 Like the Great Barrier Reef, the Ram Setu is also a continuous
stretch of limestone shoals.
 In 2003, space-based investigations using satellite remote
sensing imagery, by the Space Applications Centre in
Ahmedabad, concluded that Ram Setu is not man-made.
 But the Ram Setu comprises 103 small patch reefs lying in a linear
pattern with reef crest, sand cays and intermittent deep channels.
 Cays or keys refer to low-elevation islands situated on surfaces made of coral reef.
 Thus, it is reasonable to assume that Ram Setu is a linear ridge made of coral reefs and forms a shallow
part of the ocean that is being constantly impacted by sedimentation processes.
 During a global glaciation period that began around 2.6 million years ago and ended 11,700 years ago, the Indian
coast, including parts of the Sethusamudram, may have been raised above water.

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 The coral polyps could once again have grown higher on the newly submerged platforms. And in time,
the platforms may have been used by migrants to cross oceans.
 Sethusamudram Ship Channel Project - The story of the Sethusamudram Ship Channel Project (SSCP)
can be traced back to the British, who proposed creating a channel to link the Palk Strait with the Gulf of Mannar.
 But it was only in 2005 that the project was inaugurated.
 Under the project, an 83-km-long deep water channel was to be created, linking Mannar with Palk Strait.
 It will be created by extensive dredging and removal of limestone shoals.
 If completed, the SSCP is expected to reduce the navigation time between the east and west coasts of India.
 Concerns about the project - Computer models suggest that
the central, eastern and north-eastern parts of the Palk Bay may The coral reef platforms
be impacted by waves of higher energy. between Thoothukudi and
 The area is also vulnerable to cyclonic storms. Cyclonic storms Rameswaram in the Gulf of
can cause the local sedimentary dynamics to go haywire. Mannar were notified as a
marine biosphere reserve in
 Emissions from ships traversing the narrow channel will pollute 1989
the air and water.
 And if a ship carrying oil or coal is grounded or strays from its course within the canal, it could cause an
ecological disaster.
 Other than the environmental groups, religious groups have been opposing it as they believe that the structure,
which is mentioned in the Ramayana, is of religious significance.
 It is also important to consider this feature from a ‘geoheritage’ perspective.
14. OTHERS
14.1 WTO Ministerial Conference 2022
The recently held 12th Ministerial Conference of the WTO has yielded a package of deliverables together called as
Geneva Package.
 WTO - The World Trade Organization is the only international organization that deals with the rules of trade
between countries.
 Establishment- It was created in 1995 superseding the 1947 General Agreement on Tariffs and Trade (GATT).
 Members- The WTO is run by its 164 members representing 98% of world trade.
 Decision making- Unlike other organisations, such as the IMF or World Bank, WTO does not delegate power
to a board of directors or an organisational chief.
 All decisions are taken through consensus and any member can exercise a veto.
 Aim- to promote free trade, which is done through trade agreements that are discussed and signed by the
member states.
 The WTO also provides a forum for countries to negotiate trade rules and settle economic disputes between
them.
 Headquarters- Geneva, Switzerland
 Ministerial Conference- It is the topmost decision-making body of WTO which usually meets every two
years.
 General Council - It is the WTO’s highest-level decision-making body that has representatives from all
member governments and meets regularly to carry out the functions of the WTO
 The General Council also meets under different rules as the Dispute Settlement Body and as the Trade Policy
Review Body.
Key takeaways from the meeting
 Curtailing harmful fishing subsidies- The WTO passed a multilateral agreement that would curb harmful
subsidies on illegal, unreported and unregulated fishing for the next 4 years to better protect global fish stocks.

109
 The current agreement, which establishes new trading rules, is the second multilateral agreement in
WTO’s history.
 Global food security- It provides exemption for food purchased by
the UN’s World Food Programme (WFP) for humanitarian purposes,
from any export restrictions.
 However, countries would be allowed to restrict food supplies to ensure
domestic food security needs.
 E-commerce transactions- Member countries agreed to extend the
current moratorium on not imposing customs duties on electronic
transmission (ET) until MC13 to maintain certainty and predictability
for businesses and consumers.
 Covid-19 vaccine production- WTO members agreed to
temporarily waive intellectual property patents on Covid-19 vaccines without the consent of the patent holder
for 5 years.
14.2 IMF’s World Economic Outlook (October 2022)
IMF’s latest World Economic Outlook (WEO) has warned that the worst is yet to come for the global economy.
Findings of the latest report
 Outlook on growth- The
IMF has sharply cut the
forecast for global growth
from 6.0% in 2021 to 3.2% in
2022 and 2.7% in 2023.
 The global economy continues
to face steep challenges
shaped by the Russian
invasion of Ukraine, cost-of-
living crisis caused by
persistent and broadening
inflation pressures and the
slowdown in China.
 More than a third of the global
economy will contract in
2023, while the three largest
economies—the US, the
European Union, and China,
will continue to stall.
 On inflation- Global inflation is now expected to peak at 9.5% in late 2022 and is likely to decrease to 4.1%
only by 2024.
 Global core inflation is expected to be worrisome, reflecting the pass-through of energy prices, supply chain cost
pressure, and tight labour markets.
India’s case
 The IMF sharply lowered India’s
economic growth forecast to 6.8% for
2022 and 6.1% for 2023.
 India appears to be better placed in
growth and inflation.
 However, India is barely out of the
contraction suffered in 2020, that it was
home to 5.6 crore, according to World
Bank and several are unemployed.
 Threats to India
o Higher crude oil and fertiliser prices will spike domestic inflation.
o Global slowdown will hurt exports, reduce the domestic growth and worsen the trade deficit.

110
o A strong dollar will put pressure on the rupee’s exchange rate, which will reduce the forex
reserves and the capacity to import goods.
o Given the low demand among Indians, the government might be forced to spend more in the form of
food and fertiliser subsidies.
Core Inflation
 Core inflation is the change in the costs of goods and services but does not include those from the food and energy
sectors as they are too volatile or fluctuate wildly.
 Core inflation is used to determine the impact of rising prices on consumer income.
14.3 Circular Economy
The COP27 meet brought to fore a circular economy’s

relevance in mitigating carbon emissions by ensuring
responsible consumption and sustainable resource
management.
 Circular economy - According to the World
Economic Forum, a circular economy is “an industrial
system that is restorative or regenerative by intention
and design.”
 It is a model of production and consumption, which
involves sharing, leasing, reusing, repairing,
refurbishing and recycling existing materials and
products as long as possible.
 In practice, it implies reducing waste to a minimum.
 Working of a circular economy - Circular
economy designs out economic activities that
negatively impact human health and natural systems.

111
 Circular economy favors designing products for durability, reuse, remanufacturing, and recycling to
keep materials circulating for as long as possible.
 Circular economy avoids the use of fossil fuels and non-renewable energy.
 Picture in India - In sync with a circular economy, the government formulated
o Battery Waste Management Rules 2022
o Plastic Waste Management Rules as amended in 2022
o e-Waste Management Rules 2022
 Budget - The Budget recognises the action plans formulated across 10 sectors including electronic waste,
lithium-ion batteries, end-of-life vehicles, scrap metal, municipal solid waste, etc.
14.4 Bio Economy
Prime Minister said that India's 'bio-economy' has grown eight times in the last 8 years and has reached USD 80
billion from USD 10 billion.
 The ‘BioEconomy’ as a concept acquired prominence when European Union announced BioEconomy strategy
in 2012.
 The BioEconomy covers all sectors and systems that rely on biological resources (such as animals,
plants, micro-organisms and derived biomass, including organic waste), their functions and principles.
 It includes and interlinks
1. Land and marine ecosystems and the services they provide;
2. All primary production sectors that use and produce biological resources (agriculture, forestry, fisheries
and aquaculture); and
3. All economic and industrial sectors that use biological resources and processes to produce food, feed,
bio-based products, energy and services.
 It encompasses the sustainable production of renewable resources from land, fisheries and aquaculture
environments.
 It also encompasses the conversion of these
renewable resources into food, feed, bio-
based products and bio-energy, as well as the
related public goods.
 The ultimate aim is to
1. Protect the environment
2. Avoid overexploitation of natural
resources
3. Enhance biodiversity
Circular Bioeconomy
 The bioeconomy aims to drive both
sustainable development and circularity.
 In particular, the principles of the circular economy - reuse, repair and recycle - are a fundamental part of
the bioeconomy.
 Through reuse, repair and recycling, the total amount of waste and its impact is reduced.
 It also saves energy, minimises pollution of soil, air and water, thus helping to prevent damage to the
environment, climate and biodiversity.
 A circular bioeconomy allows for using renewable natural capital to transform and manage our land, food,
health and industrial systems, with the goal of achieving sustainable wellbeing in harmony with nature.
14.5 Business Reforms Action Plan
Assessment of States/UTs based on implementation of Business Reforms Action Plan (BRAP) 2020 was declared by
the the Department of Industrial Promotion and Internal Trade (DPIIT), Ministry of Commerce & Industry.

112
 The BRAP 2020 includes 301 reform points covering 15 business regulatory areas such as Labour,
Environment, Single Window System, Land Administration & Transfer of Land and Property and others.
 118 new reforms were included to further augment the reform process.
 Unlike previous years, where States/UTs were ranked, this year they have been placed under the four
categories viz. Top Achievers, Achievers, Aspirers and Emerging Business Ecosystems.
 Top Achievers are Andhra Pradesh, Gujarat, Haryana, Karnataka, Punjab, Tamil Nadu and Telangana.
 Since 2014, the DPIIT has been assessing States/UTs based on their performance in implementation of
prescribed reforms in BRAP exercise.
 The broader aim of the assessment is to boost investor confidence, foster business friendly climate and augment
Ease of Doing Business across the country by introducing an element of healthy competition.
14.6 Open Network for Digital Commerce
Microsoft has become the first big tech company to join the government-backed Open Network for Digital Commerce.
 Open Network for Digital Commerce (ONDC) - It is an initiative aimed at promoting open networks for
all aspects of exchange of goods and services over digital or electronic networks.
 ONDC is to be based on open-sourced
methodology, using open specifications and
open network protocols independent of any
specific platform.
 It is being developed as a counter to the current
duopoly in the Indian e-commerce market
which is largely dictated by Amazon and
Walmart-owned Flipkart.
 It aims in “democratising” digital commerce,
taking it away from the clutches of a handful of
deep-pocketed companies.
 So far, the buyer side interface is being hosted
by Paytm, whereas the seller side interface is
being hosted by other players like GoFrugal, etc
 On ONDC, there will be several other backend
partners such as logistics service providers,
enterprise resource planners, e-commerce store hosting service providers, etc.
Significance
 Choice - Providers and consumers would be able to use any compatible application of their choice for exchange
of information and carrying out transactions over ONDC.
 Beyond the traditional system- ONDC goes beyond the current platform-centric digital commerce model
where the buyer and seller have to use the same platform or application to be digitally visible and do a business
transaction.
 Standardisation of
operation- ONDC protocols
would standardize operations
like inventory management,
order management and order
fulfilment.
 Digitalization- It would
encourage easy adoption of
digital means by those currently
not on digital commerce
networks.
 Inclusive- ONDC is expected
to make e-Commerce more
inclusive and accessible for consumers.
 Demand supply match- It will enable the consumers to match demand with the nearest available supply.

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 Decentralized e-commerce- It aims to accelerate the e-commerce industry by enabling all kinds
of buyers and sellers to leverage the digitisation of commerce through its network, as it is based on the concepts
of decentralisation, openness, and user utility.
14.7 Imposing Ex-ante Rules on Digital Platforms
Recently, the European Union adopted the Digital Markets Act (DMA), which seeks to impose ex-ante structural
limitations on the practices of large technology platforms.
 Ex-ante regulation - The Latin word “ex-ante,” means “before the event”.
 It aim at identifying issues in the market beforehand and shape
stakeholder behaviour and responses through regulatory
intervention.
 Ex ante regimes tell business precisely how to behave, or what to do.
 In Ex ante, the regulator predict such events beforehand and
therefore prone to any bias harboured by the regulators.
 Traditionally, ex-ante regulation has been deployed in utility
markets, such as electricity distribution.
 Ex-ante obligations in utilities aims for non-discriminatory treatment, interconnection and price regulation.
 India’s case - The Competition Commission of India (CCI) is studying the relevance and feasibility of
introducing ex-ante regulations to deal with digital markets in the Indian context.
 Standing Committee on Finance headed by Jayant Sinha has already identified anti-competitive practices by
big tech and is likely to recommend an ex-ante framework for digital markets.
 The Digital Markets Act of EU - Aims to ensure that these platforms behave in a fair way online.
 Together with the Digital Services Act, the Digital Markets Act is one of the centrepieces of the European digital
strategy.
 Under the DMA, the European Commission will designate certain providers of core platform services as
"gatekeepers" that fulfil a number of criteria.
 After the specific gatekeepers are designated, they will have 6 months to comply with the DMA obligations.
Problems with ex ante regulations on digital services
 Digital services as utility - Treating the content and application layer of the internet as a utility (as opposed
to the infrastructure layer) is an inappropriate comparison.
 Lack of evidence - The imposition of ex-ante regulations Competition Commission of India
without any evidence of anti-competitive effects represents
a return to a structure-based antitrust approach.
 Established with effect from 14th October
 Solely depending on this form can be counterproductive to 2003.
innovation and consumer welfare.
 Statutory body responsible for enforcing
 Effect on regulators - Ex-ante frameworks tend to The Competition Act.
confine regulators and reduce their regulatory agility.
 Consists of a Chairperson and 6 Members
 One-size-fits-all approach - Operational models for appointed by the Central Government.
technology platforms vary significantly and the risks
associated with such models also differ.
 A one-size-fits-all approach may benefit certain players at the cost of others.
14.8 Right to Repair
The Union Food and Consumer Affairs Minister unveiled the ‘right to repair’ portal.
 Generally, manufacturers retain proprietary control over spare parts, including their design, and this kind of
monopoly on repair processes infringes the customer's ‘right to choose’.
 Right to Repair - When customers buy a product, they should be able to repair and modify the product with
ease and at reasonable cost, without being captive to the whims of manufacturers for repairs.
 The ‘Right to Repair’ movement started all over the world to have an effective 'right to repair' laws.

114
 Framework - In July, 2022, the Department of Consumer Affairs has set up a committee to develop
a comprehensive framework on 'Right to Repair'.
 The objective of the framework is to empower consumers, harmonise trade between the original equipment
manufacturers and the third-party buyers and sellers, and reduction in e-waste.
 Portal - The Ministry of Consume Affairs launched the ‘right to repair’ portal.
 On the portal, manufacturers would share the manual of product details with customers.
 This makes the customer either repair by self, by third parties, rather than depend on original manufacturers.
 Initially, mobile phones, electronics, consumer durables, automobile and farming equipments would be
covered.
14.9 Trademark
The Delhi High Court restrained Sadar Laboratories from manufacturing and selling beverages under the impugned
trademark ‘Dil Afza’.
 A trademark is a distinctive sign or indicator used by a business organisation to distinguish its products or
services from those of other entities.
 It serves as a badge of origin exclusively identifying a particular business as a source of goods or services.
 The term of a trademark is 10 years but can be renewed in India from time to time.
 Trademark infringement - The unauthorised usage of a sign that is identical or deceptively similar to a
registered trademark.
 Strong Trademark - A mark is said to be strong when it is well-known and has acquired a high degree of
goodwill.
 The degree of the protection of any trademark changes with the strength of the mark.
 Trademarks confer exclusive rights to use and are protected by intellectual property rights
Trade Marks Registry
 The Trade Marks Registry was established in India in 1940.

 It administers the Trade Marks Act of 1999 and the rules thereunder.
 Its main function is to register trademarks which qualifies for registration under the Act and Rules.
 It provides for better protection of trade mark for goods and services and prevents fraudulent use of the mark.
14.10 End of Hyperglobalisation
Two wars raging in 2022 have upended the assumption of “doux commerce”, and ended the age of hyper-
globalization.
 Hyperglobalisation - The term ‘Hyper-globalisation’ is used to
describe the dramatic increase in international trade witnessed for about
a decade and a half from the early 1990s. Doux commerce is the
idea that trade makes men
 It led to an unprecedented movement of capital and of people. Capital
and labour flowed across the world. less prone to violence or
irrational behavior.
 This concept believes that globalisation is happening and there is an
emergence of a homogenous global culture.
 Past - The World War-I that broke out in 1914 ended the first “golden age” of globalisation between 1870 and
1914, when world trade in goods surged from 9% to 16% of GDP.
 This was a period of internationalization of economic and social life.
 By the time World War-II began in 1939, the share of merchandise trade in global GDP had collapsed to 5.5%.
 It recovered gradually thereafter to reach the pre-World War-I levels only towards the late-1970s.

115
 Present - In 1996, journalist Thomas L Friedman said that “no two countries that both have a
McDonald’s have ever fought a war against each other”.
 He propounded this “thesis” just when the world had entered a new era of what Arvind Subramanian - who
became Chief Economic Adviser to the Indian government - termed “hyperglobalisation”.
 Between 1990 and 2008, global trade in goods soared from 15.3% to 25.2% of world GDP.
 That era formally ended in 2022, which has seen two wars.
1. Russia’s invasion of Ukraine
2. Geopolitical confrontation between two superpowers
 Both have upended the assumption of “doux commerce”.
 End of hyperglobalisation - Global trade peaked in 2008, just before the financial crisis and the economic
slump that ensued.
 By 2020, world merchandise trade had dipped to 20.8% of GDP, and to 26.9% for both goods and services.
 But it had never come to a situation where Russia would actually wage war and prompt countermeasures by the
West.
Globalization Hyper-globalisation
 Globalization means that world trade and financial  Hyper-globalisation is used to describe the dramatic
markets are becoming more integrated. increase in international trade witnessed for about a
decade and a half from the early 1990s.
 Period between 1870 and 1914 the Golden Age of

globalization in which world trade in terms of gross  However, in the current age of hyper-globalization,
domestic product went from a 9% to 16% share. which includes both goods and services, the gross
domestic product share has reached 33%.
15. GLOSSARY
Glossary
 Inflation - The rate of increase in prices of goods and services over a given period of time.
 Imported inflation – Inflation due to an increase in costs of imported products.

 Currency depreciation- Currency depreciation is a fall in the value of a currency in terms of its exchange
rate versus other currencies.
 Depreciation - Wear and tear or depletion which capital stock undergoes over a period of time.
 Devaluation - The decrease in the price of domestic currency under pegged exchange rates through official
action.
 Foreign direct investment (FDI) - It involves an investor or company buying a significant, lasting
interest in a company in another country.
 Current account deficit (CAD) – The deficit that occurs when the inflow of foreign currencies from
exports of goods and services is less than the outflow of foreign currencies from imports of goods and services.
 Fiscal deficit – It is the difference between total revenue and total expenditure of the government.
 Repo rate- Repo rate is the interest charged by the RBI when commercial banks borrow from them by selling
their securities to the central bank.
 Reverse repo rate- It is a rate at which RBI borrows money from the commercial banks of the country.

116
 Cash Reserve Ratio- It is a percentage of the banks' deposits maintained in cash form with the RBI.
 Statutory Liquidity Ratio- It is an obligatory reserve of commercial banks' net demand and time
liabilities, maintained as approved securities by the commercial banks themselves.
 Global systemically important banks (G-Sib) - It is a bank whose systemic risk profile is deemed to be
of such importance that the bank’s failure would trigger a wider financial crisis and threaten the global
economy.
 Credit default swap (CDS) - It is a financial derivative that allows an investor to swap or offset their credit
risk with that of another investor.
 Liquidity coverage ratio- It is the portion of cash and other assets that can be quickly accessed in a crisis.
 Core equity capital ratio- It is the portion of capital made up of core assets which is calculated against the
risk-weighted assets or loans of a bank.
 Capital Adequacy Ratio (CAR) - It is the ratio of a bank's capital in relation to its risk weighted assets
and current liabilities.
 Balance of payments - A set of accounts that summarise a country’s transactions with the rest of the world.
 Bank rate - The rate of interest payable by commercial banks to RBI if they borrow money from the latter
in case of a shortage of reserves.
 Currency deposit ratio - The ratio of money held by the public in currency to that held as deposits in
commercial banks.
 Reserve deposit ratio - The fraction of their total deposits which commercial banks keep as reserves.
 Fiat money - Money with no intrinsic value
 Legal tender - Money issued by the monetary authority or the government which cannot be refused by
anyone.
 Fiscal policy - The policy of the government regarding the level of government spending and transfers and
the tax structure.
 Foreign exchange - Foreign currency, all currencies other than the domestic currency of a given country.
 GDP Deflator - Ratio of nominal to real GDP.

 Money multiplier - The ratio of total money supply to the stock of high powered money in an economy.
 High powered money - Money injected by the monetary authority in the economy. Consists mainly of
currency
 Narrow money - Currency notes, coins and demand deposits held by the public in commercial banks
 Broad money - Narrow money + time deposits held by commercial banks and post office savings
organisation.
 Nominal (GDP) - GDP evaluated at current market prices
 Real GDP - GDP evaluated at a set of constant prices.
 Unemployment rate - This may be defined as the number of people who were unable to find a job (though
they were looking for jobs), as a ratio of total number of people who were looking for jobs
 Consumer Price Index (CPI) - Percentage change in the weighted average price level. We take the prices
of a given basket of consumption goods.
 Wholesale Price Index (WPI) - Percentage change in the weighted average price level. We take the prices
of a given basket of goods which is traded in bulk.

117
16. DATA POINT
DATA POINT
Unemployment Rate in India (Mar 2023) Inflation (As of Feb 2023)

Source – CMIE Source - Ministry of Statistics and Programme
Implementation
Unemployment Rate (%)  CPI - 6.44%
o Rural – 6.72%
India Urban Rural
o Urban – 6.10%
7.80 8.51 7.47  WPI - 3.85%
 Core inflation - 6.10%
Central Revenue Central Expenditure

Source – PIB Source – PIB
Trends in deficit Trends in tax receipts

Source – PIB Source – PIB

118
Foreign Trade Forex Reserve

Source – Economic Survey 2022-23 Source – Economic Survey 2022-23
April-December 2022 562.72 billion USD (Dec, 2022)
• Merchandise exports - US$ 332.8 billion
• Merchandise imports - US$ 551.7 billion
Non Performing Assets (NPA) (As of Sep 2022) Policy Rates & Reserve Ratios (March 2023)
Source - RBI Financial Stability Report Source – RBI
December 2022
Policy Rates
 Policy Repo Rate - 6.50%
 Standing Deposit Facility Rate - 6.25%
 Marginal Standing Facility Rate - 6.75%
 Bank Rate - 6.75%
 Fixed Reverse Repo Rate - 3.35%
Reserve Ratios
 Cash Reserve Ratio (CRR) - 4.50%
 Statutory Liquidity Ratio (SLR) - 18.00%

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5.8 Digital Banking Units (DBUs).......................... 30

2. Public Finance .................................. 5 5.13 Stocking up of Gold by Central Banks .............. 34

2.2 Analysis of Budget 2023 ..................................... 8 5.15 Sarfaesi Act of 2002.......................................... 36

2.5 Carbon Border Adjustment Mechanism (Carbon 6. Financial Market ............................. 40

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7.5 Exchange Rate .................................................. 60 10.3 The Production Linked Incentive

7.13 US Currency Monitoring List ........................... 67 11.1 Moonlighting .................................................... 87

GENERAL ECONOMY ............................. 68 12. Social Sector ................................... 88

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14.4 Bio Economy .................................................. 111 14.9 Trademark ..................................... 114

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National Statistical Organisation (NSO)

National Income accounting Statistical Year Book

Economic Census Energy &Gender Statistics

Annual Survey of Industries Environment Statistics

Compilation of Index of Industrial Production Revision of National Industrial Classification

Consumer Price Indices Annual Plans

1.1 Concepts of National Income

 Gross Domestic Product (GDP) - It can be defined as

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Economic Survey 2022-23

Gross Domestic Product Gross National Product

Measurement Measures only domestic production Measures production by the nationals

It includes the production of goods and services

1.2 Baumol’s Cost Disease

2.1 Summary of Economic Survey 2022-23

Highlights of Economic Survey

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 Private consumption - As a percentage of GDP, private consumption recovered to 58.4% in the

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5. China’s slowdown induced by its policies

2.2 Analysis of Budget 2023

State of Indian economy

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2.3 Fiscal Deficit

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BUDGET ESTIMATES 2023-24

2.4 Windfall Tax

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2.5 Carbon Border Adjustment Mechanism (Carbon Border Tax)

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2.6 Tourist Tax

2.7 Influencer Tax

 The Influencer Tax is a new tax on social media influencers.

2.8 Interest Abeyance

2.9 GST Reforms

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According to RBI, the scope of the Bharat Bill

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National Payments Corporation of India (NPCI)

 It is an umbrella organisation for operating retail payments and settlement

3.2 Share Buyback

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3.3 RBI’s e-Rupee

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