Virtual Digital Assets

• The Finance Bill,2022 has defined virtual digital assets in the newly-
inserted clause (47A) under Section 2 of the Income
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• The Finance Bill authorises the government
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digital asset as a VDA or exclude Oany digital asset from the definition
of VDA.

• Government issued digital currencies, both Indian and foreign, have

been specifically excluded from the scope of virtual digital assets;
• A cryptocurrency, by whatever name called, would be considered a
virtual digital asset, taxable under the Income Tax Act, 1961 if it
meets the following criteria:
• It's in the form of information, code, numbers, or tokens;
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• It's generated through cryptographic means or
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• It acts as a digital representation ofOvalue;
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• It has some inherent value; and

• It allows for the storage and transfer of its units or tokens.

Crytpo-currency and NFTs
• Both cryptocurrencies and NFTs are based on blockchain or other
distributed ledger technologies. il.c
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• What is a blockchain?
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• Oversimplified, blockchain is a manner of storage of data in a decentralised
manner such that no one person (or group) can exercise absolute control over
the data.

• The term ‘blockchain' refers to the manner in which new packets of data
(called blocks) when added are linked to the last added block of data, thus
forming a chain of data blocks linked chronologically.
• A key feature of blockchain technology is the manner in which data blocks
are verified and added.

• This occurs through a network of computers working in parallel, without

any one computer regulating the blockchain or exercising
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• Data once added to a blockchain cannot be deleted, modified or
tampered with, thus a blockchain forms an accurate and reliable
chronologically arranged record of all data that has been added to the
blockchain.

• As a result, even if there is any human error in the data being added, the
added data cannot be edited to rectify the mistake; only a new block may
be added to acknowledge and address the error.

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• One application of the blockchain technology is cryptocurrencies
where a finite set of ‘currency' units, referred to as coins, are used as
an electronic cash system. This may be linked to an underlying asset
or have some inherent value.
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• What are NFTs? n tsin
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• NFTs are an application of blockchain where tokens, which are similar to
coins, can be bought and sold in a digital form. Unlike cryptocurrencies
where the coins are homogenous, NFTs are non-fungible, i.e., non-
interchangeable by nature such that each token is unique and has a value
that is distinct from other tokens.
• NFTs are linked to one or more underlying assets such as artwork or real
estate, which gives it its value.

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Taxation on VDA
• Income from the transfer of virtual digital assets will be taxable at a
flat rate of 30%, without the ability to offset it against any other
losses. co
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• Requirement for the tax to be deducted p
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payment to a resident on the transfer
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of virtual digital assets, above a
monetary threshold

• A gift of virtual digital assets will be taxable at the hands of the

recipient.
Issues
• Broad Definition- can include variety of digital assets based on government
discretion.

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by the investor. However,
for a miner, the digital asset will be a self-generated a s ha
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asset having no cost of
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acquisition, whether expenses incurred in n ly f setting up the mining equipment and
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other incidental expenses should be construed as “cost of acquisition”?

• The law suggests that withholding tax requirements will be applicable even
in a situation where cryptos are used to purchase a commodity or when
one crypto is traded for another. It will be on the buyer.
• where the buyer is a non-resident, how would the tax authorities trace and track
the buyer for non-compliance?
• In a case where an employer or start-up pays a portion of the
remuneration as VDA, whether the same shall be taxable as salaries?

• In the absence of regulation of these assets- om

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• Also, Defrauding and misselling of products
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Monetisation
• National Land Monetisation Corporation (NLMC) as a wholly-owned
government of India company to undertake monetisation of surplus
land and building assets of Central Public Sector . c o mEnterprises (CPSEs)
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and other government agencies. Hitherto with
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• Incorporated as a 100% Government of India owned entity, NLMC will
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have an initial authorized share capital of ₹5,000 crore and subscribed

share capital of ₹150 crore.

• NMP was for core assets- monetization(ambit of NITI aayog)

• Need-

• the desired skill set to take on the responsibility of management and

monetisation of non-core assets in government is limited.
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of the land and other non-
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• So far, CPSEs have referred 3,400 acres of land and other non-core assets for
monetisation.

• Monetisation of non-core assets of different CPSEs ie, MTNL, BSNL, BPCL,

B&R, BEML, HMT Ltd, Instrumentation Ltd etc. is at present under various
stages of the transaction
• What are core and non-core assets?

• The assets held by the government/public sector entities/statutory bodies

broadly include operational/under-construction projects, land, buildings,
investment in subsidiaries/joint ventures, etc. a il . co
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• From amongst these, assets which are central r a s ha
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such entities and are used for delivering
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public/users are considered as core assets. The core assets include asset
classes such as transport (roads, rail, ports, airports), power generation,
transmission networks, pipelines, warehouses etc.

• The other assets, which generally include land parcels and buildings, can be
categorised as non-core assets.
• Benefits-

• Resource mobilization through diversified alternatives providing long- term

capital for enhanced infrastructure investment.
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• Create greater financial leverage and value for g
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• Efficient operation and management of existing sub- optimally utilized

infrastructure. This is due to greater operational efficiencies of the private
sector. For example- Non-core assets like residential buildings and office
spaces with BSNL and MTNL.

• Other Benefits- Economic growth and livelihood and quality of living due to
better utilisation of resources.

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Ways and Means Advances
• RBI provides financial accommodation to States banking with it
through agreement, in the form of WMA, to help the States tide over
temporary mismatches in the cash flow of theiril.coreceipts m and
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payments. Such financial assistance is intended 9 80
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to aid the States in
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• WMA provided by Reserve Bank to the States is governed by Section

17(5) of the Reserve Bank of India (RBI) Act, 1934.
• Types-

• Normal WMA or clean advance, which was introduced in 1937; and

• Special WMA instituted in 1953, which is a secured advance provided
against the collateral of GoI securities. ma
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• As requested by State Governments in the SFS conference 9 80
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nomenclature of Special WMA was changed to a n tsiSpecial
ng Drawing Facility (SDF) since
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June 23, 2014, by amending the agreemento r prawith respective State Governments.
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• In addition to WMA, OD facility is also provided whenever financial
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accommodation to a State exceeds its SDF and WMA limits.

• Maximum amount of such advances by Reserve Bank and the interest

charged thereon are, however, not specified in the RBI Act but are
regulated by voluntary agreements with the State Governments as also
based on the economic environment and recommendations of various
Committees.

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• Since 1999, the limits are being fixed based on the recommendations
of Advisory Committees set up periodically by the Reserve Bank

• Advances granted to the State Governments by way m

of SDF, WMA and
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Standing Deposit Facility
• The idea of an SDF was first mooted in the Urjit Patel Monetary
Policy Committee report in 2014, which later received the
government’s nod following an amendment to the c o m
RBI Act in 2018,
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• The reverse repo rate was a collateralised facility and SDF is a non-
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collateralised facility.

• The SDF rate will be 25 bps below the policy rate (Repo rate), and it
will be applicable to overnight deposits at this stage.
• Fixed and Variable Rate Repo

• As of now, RBI pays 3.35 percent in the fixed-rate repo window, but
it takes only a maximum of Rs 2 lakh crore in that o m
window. It is for
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• The balance excess liquidity can be lent by banks to RBI at its
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variable rate reverse repo (VRRR) auctions. These may be 7-day, 14-
day or 28-day reverse repo auctions.
 Digital Banking Units
• What is Digital Banking?

• Digital Banking refers to present and future electronic il . co banking services

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through electronic devices / equipment over web sites (i.e online banking), mobile
phones (i.e mobile banking) or other digital channels as determined by the bank,

• which involve significant level of process automation and cross-institutional service

capabilities running under enhanced technical architecture and differentiated business
model / strategy.
• Digital Banking Unit (DBU):

• A specialised fixed point business unit / hub housing certain

minimum digital infrastructure for delivering digital banking products
& services as well as servicing existing financialmaiproducts l.co
m & services
digitally, in both self-service and assisted hmode, 98
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to enable customers
to have cost effective/ convenient access ha
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experience to/ of such products and ly for services in an efficient,
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paperless, secured and connected environment with most services
being available in self-service mode at any time, all year round.

• Context- This is part of the announcement made in the Union Budget

2022-23 to set up 75 DBUs in 75 districts to commemorate the 75
years of independence of our country (Azadi ka Amrit Mahotsav).
• Scheduled Commercial Banks (other than RRBs, PBs and LABs) with
past digital banking experience are permitted to open DBUs in Tier 1
to Tier 6 centres, unless otherwise specifically restricted, without
having the need to take permission from Reserve Bank of India in
each case. a il . co
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Neo-Bank
• A neobank is a kind of digital bank without any
branches. Rather than being physically present at a
specific location, neobanking is entirelyail.conline.
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• And, since there isn’t a physical
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location and that
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they’re completely online,O the customer fees are
slashed by a significant amount. Because Neobanks
are customer-centric, they provide personalized
services to their customers that are fired up via
technology.
• They work on a partner-bank model. Presently,
neobanks in India are addressing the regulatory
predicament by outsourcing their banking
responsibilities to those with licences, creating
strategic partnerships with traditional banks il . co
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• For the end customer, financial and banking services

are offered by the neobank, but from a regulatory
perspective, monetary transactions are managed by
their partner banks.
• For example-

• Partnered with RBL Bank, RazorPayX targets small and medium

enterprises by providing them features to help ease o m
their business
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operations. The current account provided by9@RazorPay g m allows its users
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to access features such as tax and vendor n tsi n gpayment
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business reporting, etc. The platformly for
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and instant loans with no collaterals to its users.
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• Benefits

• Customer experience: neobanks don’t offer novel banking

services. Their services are similar to those of traditional banks,
but with a hyper-enhanced and personalised customer
experience. m
• Neobanks have significantly leaner business models a
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technologies at their disposal compared to0traditional gm banks,
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creation, round-the-clock customer service nts supported by chatbots,
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near real-time cross-border payments, r pra
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and machine learning (ML)-enabled
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f o automated accounting, budgeting
and treasury services. O

• Automated services: Apart from providing primary banking

services, neobanks offer automated and near real-time
accounting and reconciliation services for bookkeeping, balance
sheets, profit and loss statements and taxation services such as
GST-compliant invoicing, tax payments record keeping and
reconciliation, on mobile platforms for affordable costs..

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• Transparency: Neobanks are transparent and strive to
provide real-time notifications and explanations of any
charges and penalties incurred by the customer.

• Easy-to-use APIs: Most neobanks provide l.easy-to-deploy

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and operate APIs to integrate banking into 9@
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• Deep insights: Most neobanks provide dashboard
solutions with highly enhanced interfaces and easy to
understand and valuable insights for services such as
payments, payables and receivables, and bank
statements. It’s beneficial for businesses with significant
expenditure and appropriate number of employees, to be
provided with such insights, reduce expenditure and
boost productivity and revenue.

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• In India, a neobank is catering its services and
solutions for SMEs and playing a leading role in aiding
small businesses in managing their finances
conveniently and comprehensively.
• The neobank provides a platform thatgmhelps a il . co
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businesses ing
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• send and receive payments, r p ras
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• automate their accountingO and reconciliation,
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• generate and track compliance of invoices with direct and

indirect tax laws, and
• access third-party banking and business applications from
its platform, a
• allowing multiple businesses to simultaneously manage all
their banking needs under a single platform.
• Future Concerns
• Management of vital impediments in terms of regulation and
compliance,
• Data and cyber security,
• Seamless API integration and
• Expansion of products and services a il . co
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• Trust and confidence of consumers h 9 80
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Development Financial Institution
• DFIsdo not operate withthe primary objective of maximising profits. They combine
profit- makingwith meeting development objectives. Their ability to look beyond
profit- and-lossconsiderations makes them unique to pursue c o m and deliver on broader
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societal goals. For instance- NHB- housing projects/NABARD-
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• Best policy instruments to mobilise long-term resources for socially desirable
projects with high social returns. For example- public goods and services (such as
mass transport systems) and promote climate-friendly infrastructure development.
• Need-
• Existence of massive infrastructure needs- provide long-term financing for
infrastructure.

• Infrastructure projects are complex, capital- intensive, and have long

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gestation periods that often pose risks to project financiers.
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• Difficulties in bank-led financing of infrastructure;
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(liability) base of Banks, vis-à-vis long ly fogestation
r period of projects (assets)
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makes an asset liability mismatch endemic in such bank finance.

• Corporate bond market, despite numerous initiatives is yet to attain

vibrancy.

• Lack of Project appraisal skills.

• Poor risk management at different stages of projects.

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• Range of Functions-
• The DFIs can channel resources to new industries, sectors, regions and
development initiatives that commercial banks cannot or be unwilling to
finance. For example- DFIs could be the natural partners in financing and
investing in the medical supply chains and logistics infrastructure.
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• DFIs can also provide counter-cyclical financing 9@
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Brazil, Poland, and Germany during the 2008 n tsin crisis, the DFIs stabilised credit
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flows by scaling up their lending operations
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curtained their lending activities. Only

• DFIs can provide medium- and long-term credit, supplementing the

commercial banks which usually offer short-term working capital financing.
Also, credit enhancement and improving debt flows.

• They also provide technical assistance like Project Report, Viability study,
and consultancy services.
Early Experience
• In the 1950s and 1960s, a series of such institutions were set up to cater to the
long-term finance needs of the industry.
• Industrial Finance Corporation of India (IFCI) in 1948,
• Industrial Development Bank of India (IDBI) in 1964 and il . co
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• Industrial Credit and Investment Corporation of India (ICICI)
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in 1955.
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• DFIs received subsidised credit from the government ha
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issued by DFIs qualified as SLR (statutoryly foliquidity
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ratio) investment by banks.
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• With the withdrawal of preferential access and the subsidised credit in the early
nineties, the DFIs were forced to borrow from the market. In the absence of a
strong debt market, the DFIs did not have access to cheap funds. This severely
curtailed their ability to lend to industry at competitive rates. Many of the DFIs
later had to be turned into commercial banks.
• After 1991, banks were permitted to extend large ticket long-term loans at
significantly lower interest rates. Credit Authorisation scheme was diluted.
• The ECB market was opened up for direct access by corporates.

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NaBFID
• NBFID will be set up as a corporate body with authorised share
capital of one lakh crore rupees.
• Shares of NBFID may be held by: om c
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multilateral institutions tsin
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• sovereign wealth funds p ras
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• pension funds On
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• Insurers
• financial institutions
• banks, and
• any other institution prescribed by the central government.
• Initially, the central government will own 100% shares of the
institution which may subsequently be reduced up to 26%.
Objectives-

• Financial objectives will be to directly or indirectly lend, invest, or attract

investments for infrastructure projects located entirely or partly in India.
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• Central government will prescribe the sectors to be covered under the infrastructure
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• Developmental objectives include facilitating the development of the market

for bonds, loans, and derivatives for infrastructure financing.
• Functions-

• Extending loans and advances for infrastructure projects

• Taking over or refinancing such existing loans. a il.c

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• Attracting investment from private sector a
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investors for infrastructure projectsOnly for

• Organizing and facilitating foreign participation in infrastructure projects

• Facilitating negotiations with various government authorities for dispute

resolution in the field of infrastructure financing, an
• Providing consultancy services in infrastructure financing.

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Source of Funds-

• NBFID may raise money in the form of loans or otherwise both in

Indian rupees and foreign currencies, or
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• secure money by the issue and sale of various financial instruments including
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bonds and debentures. sin
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• NBFID may borrow money from:
• central government
• Reserve Bank of India (RBI)
• scheduled commercial banks,
• mutual funds, and
• multilateral institutions such as World Bank and Asian Development Bank.
• Central Government Support-

• The central government will provide grants worth Rs 5,000 crore to NBFID by
the end of the first financial year.
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80
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0.1% for borrowing from multilateral institutions,
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• Costs towards insulation from fluctuations in foreign exchange (in

connection with borrowing in foreign currency) may be reimbursed by the
government in part or full.

• Upon request by NBFID, the government may guarantee the bonds,

debentures, and loans issued by NBFID.

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• Management Structure-

• The members of the Board include:

• the Chairperson appointed by the central government in consultation with RBI,
• a Managing Director, m
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• up to three Deputy Managing Directors, 9@
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• two directors nominated by the central government, t sing
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• up to three directors elected by shareholders, r pr a s and
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• a few independent directors (as specified).
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• A body constituted by the central government will recommend

candidates for the post of the Managing Director and Deputy
Managing Directors.
• Immunity-

• No investigation can be initiated against employees of NBFID without

the prior sanction of: m
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• the central government in case of the chairperson or other directors, and
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• the managing director in case of other employees.
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• Courts will also require prior sanction for taking cognisance of

offences in matters involving employees of NBFID.
• Other DFIs-

• Act provides for any person to set up a DFI by applying to RBI.

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• RBI may grant a licence for DFI in consultation with the central government.
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• RBI will also prescribe regulations for these
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RAMP Programme
• Raising and Accelerating MSME Performance” (RAMP) is a World
Bank assisted Central Sector Scheme, supporting various Corona
Virus Disease 2019 (COVID) Resilience and Recovery o m
Interventions of
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the Ministry of Micro, Small and Medium Enterprises
09
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• The total outlay for the scheme is Rs.6,062.45 crore or USD 808
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Million, out of which Rs.3750 crore or USD 500 Million would be a

loan from the World Bank and the remaining Rs.2312.45 crore or
USD 308 Million would be funded by the Government of India (GoI).
• Objectives-

• The programme aims at improving access to market and credit, strengthening

institutions and governance at the Centre and State, improving Centre-State
linkages and partnerships, addressing issues of delayed m
payments and
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• In addition to building the MoMSME’s capacity
a
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RAMP program will seek to scale upOnimplementation
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capacity and MSME
coverage in States.

• It will address the generic and COVID related challenges in the MSME sector
by way of impact enhancement of existing MSME schemes, especially, on the
competitiveness front. Further, the programme will bolster the inadequately
addressed blocks of capacity building, handholding, skill development,
quality enrichment, technological upgradation, digitization, outreach and
marketing promotion, amongst other things.

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• RAMP programme, through enhanced collaboration with States, will be a job-
enabler, market promoter, finance facilitator, and will support vulnerable
sections and greening initiatives.

• In States where the presence of MSMEs is on the lower m

side, the programme
o
will usher in larger formalization resulting from the g mail. higher impact of the
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schemes covered under RAMP. The palns developed n g h9
8 0 by these States would act
i
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as a roadmap for the development of anrasimproved MSME sector.
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• RAMP will complement the Atma Nirbhar Bharat mission by fostering

innovation and enhancement in industry standards, practices and provide
the necessary technological inputs to the MSMEs to make them competitive
and self reliant, enhancing exports, substituting imports, and promoting
domestic manufacturing.
• RAMP would thus be a:
• ‘’Policy Provider’’ through the enhanced capacity for evidence-based policy and
program design, to enable the delivery of more effective and cost-efficient MSME
interventions to improve competitiveness and business sustainability.

m
• “Knowledge Provider” through bench-marking, sharing and demonstrating best
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practices/success stories by leveraging international 9@

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• “Technology Provider” providing access On lyto
fo high-end technology resulting in the

digital and technological transformation of MSMEs through state of art Artificial

Intelligence, Data Analytics, Internet of things (IoT), Machine Learning etc.

• A total of 5,55,000 MSMEs are specifically targeted for enhanced

performance and, in addition, expansion of target market to include
service sectors and increase of about 70,500 women MSMEs is envisaged.
•

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• The programme has identified two results areas after the preliminary
missions and studies viz:
• Strengthening Institutions and Governance of the MSME Program, and
• Support to Market Access, Firm Capabilities and Access to Finance.
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• Funds would flow through RAMP into the gh
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Ministry’s budget against
ha
Disbursement Linked Indicators (DLIs)
ly for
p r as
to support ongoing MoMSME
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programmes, focusing on improving market access and
competitiveness.
• The disbursement of funds from World Bank towards RAMP would be
made on fulfilling the following Disbursement Linked Indicators:

• Implementing the National MSME Reform Agenda

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• Accelerating MSME Sector Centre-State collaboration
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• Enhancing effectiveness of Technology
On
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ly f Upgradation Scheme (CLCS-TUS)

• Strengthening Receivable Financing Market for MSMEs

• Enhancing Effectiveness of Credit Guarantee Trust for Micro and Small

Enterprises (CGTMSE) and “Greening and Gender” delivery
• Reducing the incidence of delayed payments

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• Important component of RAMP is preparation of Strategic
Investment Plans (SIPs), in which all states/UTs, will be invited.

• The SIPs would include an outreach plan for identification o m

and
c
mobilisation of MSMEs under RAMP, identify 9 @
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ail. constraints and
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gaps, set milestones and project the required n tsin
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budgets for
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interventions in priority sectors including
y for
p r as
renewable energy, rural &
l
non-farm business, wholesale andOnretail trade, village and cottage
industries, women enterprises etc.

• All States/UTs will be invited to prepare SIPs and the proposals

placed under SIPs will be funded based on these appraisals.

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Multi-Modal Parks

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• Need-

• Logistics costs in India are a higher proportion of the total value of goods as
compared to developed nations –13-14% in 20151, compared to other developed
economies (7-8%)
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• The average speed of freight vehicles on Indian roads 98
0 is about 25 - 30
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km/hr(3), which is 50 – 60% lower as compared ng USA, adding to the freight cost.
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• Variability and unpredictability of time required for freight movement adds
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to the logistics problem.

• There is a ~50% variability in average speed across Indian states(with average

speeds ranging from 37 – 40 km/hr in states like Gujarat and Rajasthan to 18 - 20
km/hr in states like Orissa and West Bengal), driven by differences in infrastructure
and documentation complexity. This results in a need for higher inventory holding
across the supply chain, in turn further increasing the logistics costs.
• Reasons for high costs-

• Unfavorable inter-modal mix- adoption of rail for freight movement has been
limited, primarily driven by:
• Adverse pricing and rake booking policies adopted by the railways m
il . co
• Lack of intermodal facilities to enable easy freight transfer 9@
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between rail
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and road, needed to ensure seamless first mile andi n g h9 last mile connectivity.
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• Inefficient fleet mix-India’s fleet mix is characterized by smaller, inefficient
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trucks.

• Lack of Aggregation- Absence of logistics hubs to act as zones for freight

consolidation and disaggregation results in higher point to point freight
movement on lower sized vehicles, compared to more efficient line haul
freight.
• Under-developed material handling infrastructure-Warehousing
landscape in India is characterized by the presence of large number
of private/ unorganized warehouses. Unorganized and fragmented nature
of the industry has resulted in smaller sized warehouses with very low
investment in this sector.
• Smaller sized unorganized warehouses with limited mechanization results in higher
storage and handling losses, thereby increasing the supply
a il . co chain costs.
m
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• Under-developed road infrastructure-Limited tsin
s ha
g
n presence of 4 / 6 lane
national highways adds to the freightlytransit
for
pr a
times and hence the freight
cost. In addition, inconsistent infrastructure
On along key routes
adds to congestion on Indian roads.

• Procedural complexities-Documentation and procedural complexities

related to toll collections, inter-state freight movement and EXIM impact
the time taken for freight movement in India, leading to a time loss of 15%
of the trip time on key freight routes, hence adversely impacting the freight
cost.
• Outdated/inefficient service model- Efficiency is also
compromised as many firms try to compete through the factor
advantage of low wages which have led to hiring poorly skilled
personnel thereby eschewing investments in information
technology and equipment technology, and consequently
m
sacrificing productivity gains and service quality.
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• Fragmented institutional and governance
n
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o structure- Different parts
of the logistics value chain currently
O
are being managed by different
ministries including Road Transport and Highways, Shipping, Railways,
Civil Aviation, Commerce and Industry, Finance, Home Affairs, and
Department of Posts.
• In addition, a large number of government agencies including Central Drug
Standard Control Organization, Food Safety and Standards Authority of India,
and Plant and Animal Quarantine Certification Service provide relevant trade
clearances and impact the value chain.

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• MMLPs are expected to serve five key functions:

• freight aggregation and distribution,

• Multimodal freight transport, om

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• integrated storage and warehousing, rp
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• information technology support, and

• value-added services
 • The MMLPs to be set up under the Logistics Efficiency Enhancement
Program.
• LEEP was proposed in 2015 under the Ministry of Road Transport and
Highways (MoRTH) to improve India’s logistics efficiency
om
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• The MoRTH and the National Highways Authority 80
of India (NHAI) are planning
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to establish a total of 35 MMLPs across the
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n t country
sing over the next few years.
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• The government has invited Asian Development Bank (ADB) to
provide the necessary support as a lead partner.
• The first MMLP would be constructed in Assam, a project of US$ 407
million.
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• The MMLPs can provide:
• infrastructure for enabling seamless multimodal freight transfer;

• mechanized warehouses and specialized storage solutions such as cold storage;

• mechanized material handling and intermodal transfer container

o m terminals, and
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bulk and break-bulk cargo terminals; gm
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• value-added services such as customs clearance, ha
n
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tsin bonded storage yards, quarantine
as
zones, testing facilities, and warehousing fomanagement
r p r services; and
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• late-stage manufacturing activities such as kitting and final assembly, grading,
sorting, labeling, and packaging activities, reworking, and returns management.

• Furthermore, MMLPs could improve the utilization and performance of

inland container depots (ICDs) and container freight stations where they
exist.
 om
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Challenges-
• Land Acquisition cost

• Costs involved in development of storage area il.c

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• Development of infrastructure allied infrastructure
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• Regulatory changes

• Administration of the park

• Competent service delivery players

Sagarmala
• The Standing Committee on Transport, Tourism and Culture (Chair:
Mr. T.G. Venkatesh) presented its report on ‘Progress
a il . co
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Implementation of Sagarmala Projects’ on 9March
80
9 @ 28, 2022.
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• The vision of Sagarmala is to
• reduce logistics cost for both domestic and EXIM cargo by
building synergies between various agencies of the
Government and
• improve multi- modal connectivity and linkages o m
with
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minimal infrastructure investment. ail
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• The project intends to n t sing
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• enhance the capacity of majorforand s
pra non-major ports,
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• modernize them, On

• strengthen port connectivity and evacuation infrastructure,

• simplify procedures adopted in ports,
• Promote usage of electronic channels for information exchange
leading to hassle-free and
• Seamless cargo movement.
• The Major interventions through Sagarmala are:

• Adopting PPP landlord model for feasible projects

• Upgrading & Unlocking Capacity at Major & Non-Major
Ports il . co
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• Development of Coastal Infrastructure809across @
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• Urban water transportation through s ha
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RORO/ ROPAX services
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• Island Development in A&N,
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oLakshadweep, Tamil Nadu,
Maharashtra & Others
• Upgradation of Fishing Harbour for welfare of coastal
community
• Water Aerodromes for Seaplane Services
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• Delay in implementation:
• The Committee noted that in the past year, only one more
port modernisation project had been completed leading to a
total of 77 completed projects while 36 projects at Major
Ports and 15 projects at Non-Major Ports are under
implementation. No new projects appear to have been
implemented. a il . co
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• The Committee was concerned to know hthat 98
09
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no progress had
been made on the all-weather all-cargo ha
n tsin Vadhavan port.
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• Further, the Committee noted nthat
ly f
or
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port modernisation
projects under Sagarmala have
O seen a cost escalation of Rs

20,000 crore.

• To ensure speedy modernisation of ports, the Committee

recommended the Ministry of Ports, Shipping and Waterways
to enumerate the port-wise reasons for delays and steps
being taken to address these delays.
• Need for Modernisation- immediate
• The Committee also noted that the Ministry of Ports,
Shipping and Waterways had informed that as compared to
the full capacity of the major ports of 2,500 million metric
tonnes, the total volume of cargo that was moved m
on all
o
our major ports was g mail.
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about 1,248 million metric tonnes.ingh98 0

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• The Committee was informedr pthat ra s ha this was due to the fact
o
that most of India‟s portsOwere
nly
f
pretty old with less draft
and old berths due to which
big ships can not come in. The Indian Ports therefore have
adequate capacity but there
is a need to modernize them so that they are able to
handle cargo in a larger scale.
• Enhancing port productivity: during 2020-21, the average
turnaround time of ships at major ports was 56 hours,
while the pre-berthing waiting period was 26
hours. Internationally, the turnaround time of a ship is
less than 24 hours, and there is nearly no pre-berthing
detention. a il . co
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• The number of moves handled per hour h 9 80
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ing
vessel at Indian ports (50-200) was a s ha
n also lower compared
t s

to other international ports n(200-300).

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pr
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• To improve port productivity, the Committee

recommended:
• mechanisation and adoption of technology,
• development of ancillary services within port premises, and
• increasing the depth of the navigation channels, and
modernising berthing for better capacity utilisation.
• Improving port connectivity:
• Out of the 208 port connectivity projects under
Sagarmala, 56 have been completed and 69 are under
implementation.
• Further, only Rs 19,488 crore of the allocated o m
Rs 1.36 lakh
. c
crore have been utilised. ail
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• Further, the Committee noted that n t singthere were relatively
h 9

ha
few connectivity projects forfor pminor
r a s
ports.
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• The Committee also observed
On that in some cases,
Sagarmala projects are undertaken only up to major cross
roads on the route
• Port-led industrialisation:

• SMART INDUSTRIAL PORT CITY (SIPC)

• The Ministry further informed that Deendayal Port Trust (DPT) is
developing SIPC in two green field sites of Kandla, o m Gandhidham
. c
& Adipur Complex. gm
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• The SIPC at Gandhidham&Adipur measuring h 9 80 580 acres, is being
ing
developed for residential, commercial, s ha
n t s
institutional, recreational
pr a
purposes. ly f or
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• The SIPC at Kandla measuring 850 acres is being
developed as industrial park.

• Another SIPC with over 700 Acres of land has been planned at
Paradip and will include Multi Modal Logistics Park (MMLP),
Woodpark, Food Processing, and Pellet Plant.
The MMLP is being planned to be over 100 acres at the cost of
Rs. 200 Crores Project is being implemented by CONCOR for
which Land has been handed over to CONCOR on
04.12.2017.

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• SPECIAL ECONOMIC ZONE AT JNPT IN
MAHARASHTRA- A one-of-a-kind 277 hectares multi-
sector SEZ project is located next to Jawaharlal Nehru
Port, India's leading container port.
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• The SEZ has investment opportunity gh
980
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for MSME sector
ha
like Food processing, Engineering,
ly for
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Cosmetics, Auto components, Pharmaceuticals,
warehousing, cold storage amongst others.
There is also a Free Trade Warehousing Zone (FTWZ)
being developed which will further
accentuate this value of this project.
• The Sagarmala programme, intends to develop
Coastal Employment Units in
proximity to major ports.
• These industrial developments are envisaged to be
large-scale integrated multi-product industrial gm
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zone
catering to both domestic and export-oriented ing
h 9 80
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manufacturing. pr a s ha
n

f or
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• The Feasibility report for one such CEU at
On

V.O.Chidambaranar Port Trust (VoCPT) was prepared

in 2018.
• COASTAL ECONOMIC ZONE (CEZ)- The Coastal
Economic Zone (CEZ) has been envisaged to facilitate
port led industrialization and/ or Export Import
(EXIM)/ coastal trade of goods & commodities.
• It has a dual focus – direct contribution gm
a il . cof
om
port traffic
coupled with employment ing
h 9 80
9@

t s
generation and reduction ofr plogistics
r a s ha
n
costs.
o
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• Such a zone is envisaged to On
comprise industrial
areas/ estates, housing & urban infrastructure, and
logistics/ transport infrastructure within
itself to be a self-contained region with a direct or a
strong port linkage.
• The aim is to achieve the following objectives:
• Creating large-scale employment opportunities in the
coastal regions across identified sectors to promote
development in coastal regions.
• Increasing competitiveness of India's EXIMotrade m
by
. c
reducing logistics costs through proximity ail
gm and connectivity
9@
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to ports. t sing
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n
• Increasing freight traffic through
f or
pr a s ha
the ports in proximity to
ly
the industries, on accountOnof trade generated by these
manufacturing capacities
• Provide an impetus to coastal shipping by creating supply
and demand centers close to the coastline for domestic
movement of goods and passengers
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• The Committee noted that industries which are transportation
intensive can be structurally competitive, if developed near
coast/waterways. The Committee noted that only nine of the
33 port-led industrialisation projects have been completed,
while 21 of them are under implementation.
• The Committee further observed that only eight of the 12
Major Ports have initiated industrialisation on a il . cothe earmarked
m

land, and only two of the eight ports (Vishakhapatnam

09
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Paradip) have fully utilised the earmarked
tsi n gh
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land.
n
sha
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or
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• Only 2 SIPCs at Kandla and Gandhidham, one SEZ at JNPT and
On
one
CEU at VoCPT are under implementation and even major ports
like Chennai and Mumbai ports have no industrialization
projects under them. No Coastal Employment Zone projects
have been developed at any of the ports.
• The Committee recommends expediting implementation of
port-led industrialisation projects by:
• establishing globally benchmarked targets, and
• integrating land acquisition and port connectivity projects

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• COASTAL COMMUNITY DEVELOPMENT-

• SKILL DEVELOPMENT-
• Ministry of Rural Development (MoRD) and m
co
MoPS&W have entered an MoU during gm
a May 2017 to
il .
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enable skilling of coastal population sing
h 9 80under DDU-GKY
t
Sagarmala Convergence Programme. r pr a s ha
n
1978 candidates
have been trained out of Owhom1143
nly
fo
have been
placed.

• Multi Skill Development Centers (MSDC) for training

are already operational at
Jawaharlal Nehru Port Trust (JNPT) and Chennai Port
Trust (ChPT). More than 1200 candidates have been
trained in these centers

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• R&D in Ports and Marine Sectors –
• Centre of Excellence in Maritime and Shipbuilding (CEMS),
a first of its kind in Asia with two campuses at Vizag and
Mumbai provides 56 courses for engineering, polytechnic,
and graduate students. m
co
• National Technology Centre for Ports, @Waterways gm
a il .
and
0 9
Coasts (NTCPWC), at IIT Madras tosinprovide g h 98 innovative and
n t
applied research-based engineering pr a s ha solutions to various
o r
issues related to ports, waterways,
On ly f and coasts in the
country.
• Centre for Inland and Coastal Maritime Technology
(CICMT) at IIT Kharagpur has been set up to serve as the
technology arm of the Ministry to provide research, testing
and experimentation facility to IWAI, CSL, and major ports.
• Coastal Tourism-
• Proposed to develop National Maritime Heritage Complex
(NMHC) at Lothal, Gujarat.
• NMHC will be first of its kind in the country comprising of
maritime museum, light house museum, maritime o m
theme
. c
park, amusement parks centers, etc., which ail will leverage
gm
9@
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modern technology to showcase maritime sing
h 9 history and will
n t
be an national/ international tourist
pr a s ha destination
or
ly f
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• The Committee notes that out of the 88 projects
identified under the pillar of Coastal Community
Development with funding of Rs. 8,174 lakh Crores,
only 18 projects amounting to Rs. 1,423 lakh Crores
have been completed and 22 more amounting il . co
m to Rs.
a
1,362 lakh Crores are under implementation.
98
09
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ing
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• The Committee observes that, not even one third of
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the projects under this head have been completed

and less than half have been completed/ under
implementation.
• Only about one-third of the funding under this head
has been utilized which points to poor financial
planning on part of the Ministry.

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• COASTAL SHIPPING AND INLAND WATER TRANSPORT

• The Committee notes that the share of Coastal

Shipping and IWT in freight movement is presently
very less due to limited infrastructure gavailability, ma
il . co
m
lack
of adequate depth of waterways for ing
h 9 80 commercial
9@

t s
movement of cargo and shortage r pr a s ha
n
of inland vessels
o
ly f
etc. On

• Infact, Inland Waterways is the most effective and

economical mode of transport which is least
exploited in India.
• More than 90% of Indian EXIM cargo and 40% coastal
cargos are being carried by foreign ships with
approximate freight bill exceeding US$ 52 billion in FY-19.
• Committee observes that the net annual forex outgo of
India by way of huge freight bill endangers India's
commercial security and therefore needs to l.co
m be revised.
ai
gm
9@
980
gh
• The Committee therefore recommends s ha
n tsin that the Ministry
while amending the Merchant f or Shipping Act, 1948 must
pr a
nly
establish a comprehensive Oand vibrant legal framework
to
reverse the trend of Indian cargos on foreign flag vessels
and make proper safeguards and develop suitable
frameworks to ensure that India has a healthy Indian
flag fleet large enough to carry at least 50% of its EXIM
and coastal cargos with special emphasis
on coastal cargos.
• Improving port competitiveness: The Committee noted
that dredging (clearing the harbour of silt and sediments)
constitutes a major portion of total project cost, as well as
operating cost. The Committee further observed that
inclusion of dredging cost in tariff computation makes
Indian ports more costly and hence, less ail.com
competitive. The Committee recommended 8 0 9 @
gm treating
channels as national asset, and funding n tsi n gh
9
the entire cost of
ha
dredging. The Committee noted for
p ras that the US Federal

Government funds 50-90% Oof n these costs.

ly

• Infrastructure financing: The Committee noted that to be

globally competitive, the cost of financing for Indian
companies has to be at par with the global rate. To
achieve this, the Committee recommended the Ministry
to take an expedited decision on creating a Maritime
Development Fund.

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Credit Ratings
• A credit rating agency is an entity which assesses the ability and
willingness of the issuer company for timely payment of interest and
principal on a debt instrument. il.c
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a
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gh
n tsin
• Credit rating is an assessment of thefor pprobability
a
ras
h
of default on
ly
payment of interest and principal on a debt instrument. It is not a
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recommendation to buy, sell or hold a debt instrument.

• Rating only provides an additional input to the investor and the

investor is required to make his own independent and objective
analysis before arriving at an investment decision.
• The ratings are used in structured finance transactions such as asset-
backed securities, mortgage-backed securities, and collateralized debt
obligations. Rating agencies focus on the type of pool underlying the
security and the proposed capital structure to rate structured financial
products. The issuers of the structured products pay rating agencies to
not only rate them, but also to advise them on how to structure the
tranches. ma
il . co
m
g
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h9
ing
nts
• Rating agencies also give ratings to sovereign p ras
ha borrowers. Sovereign
borrowers include national governments,
On ly f
o r
state governments,
municipalities, and other sovereign-supported institutions. The sovereign
ratings given by a rating agency shows a sovereign’s ability to repay its
debt.

• The ratings help governments from emerging and developing countries to

issue bonds to domestic and international investors. Governments sell
bonds to obtain financing from other governments and Bretton Woods
institutions such as the World Bank and the International Monetary
Fund.

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• What are investment and speculative grade ratings?

• An investment grade rating signifies the rating agency’s belief that the
rated instrument is likely to meet its payment obligations. In the
Indian context, debt instruments rated 'BBB-'gmanda il . co
m
above are
classified as investment grade ratings. ingh9809@
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han
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• Instruments that are rated ‘BB‘ and below are classified as speculative
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grade category ratings in which case the ability to meet the payment
obligations is considered to be “speculative”. Instruments rated in
the speculative grade are considered to carry materially higher risk
and a higher probability of default compared to instruments rated in
the investment grade.
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Benefits
• At the consumer level, the agency’s ratings are used by banks to determine the risk
premium to be charged on loans and bonds.

• At the corporate level, companies planning to issue a security must m

find a rating agency
to rate their debt. Rating agencies such as Moody’s, Standards mail. and Poor’s, and Fitch
c o
perform the rating service for a fee. Investors rely on the09@ratings
g to decide on whether
to buy or not to buy a company’s securities. si n gh
9 8
t
han
p ras
for
• At the country level, investors rely on the ratings given by the credit rating agencies to
On
ly

make investment decisions. Many countries sell their securities in the international
market, and a good credit rating can help them access high-value investors.

• A favorable rating may also attract other forms of investments like foreign direct investments to a
country.

• In addition, a low credit rating or relegation of a country from a high rating to a low rating can
discourage investors from purchasing the country’s bonds or making direct investments in the
country. For example, the downgrading of Greece, Portugal, and Ireland by S&P in 2010 worsened
the European sovereign debt crisis.

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• Credit ratings also help in the development of financial markets.
Rating agencies provide risk measures for various entities, and this
allows investors to understand the credit risk of various borrowers.

om
• The ratings provided by rating agencies also serve as a benchmark for
9@
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a il.c

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financial market regulations. Some lawsntsinow ng
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Issue with Sovereign Credit Rating Agencies

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• Impact of Poor Rating

• Reduced Investors’ confidence: Poor rating acts as a deterrence against

investment in emerging and developing economies like India.
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• Financial Market Instability: Often, rating agencies do rating upgrades after

market rallies and downgrades after downturns. It carries risk to trigger
market jitters as many institutional investors can hold only investment-grade
instruments.
• Isolation from Capital Markets: Poor ratings for commercial
banks and corporate debt to sub-investment grade makes it-

• Costly for banks to issue internationally recognized letters of credit for

domestic exporters and importers. l.co
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• Policy Implications: Poor rating carries risk of country’s policy
being beholden by SCR rather than considerations of growth
and development.
• Regulation of Credit Agencies in India-

• Credit rating agencies are regulated by SEBI.

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process, avoidance of conflict of interest and inspection of rating agencies by
SEBI, amongst other things.
General Issues with Credit Rating Agencies
• Subjective Criteria for evaluation- also it is not transparent(threat of
getting copied)
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• Rating Shopping- pay more and get favourable rating from the agency.

• Data Veracity issues- sharing company data and its verifying its
authenticy(it is difficult as companies have Non-disclosure agreements)
SWIFT
• The Society for Worldwide Interbank Financial Telecommunication, or
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its messaging services in 1977, replacing the Telex technology that was
then widely used by banks to communicate instructions related to cross-
border transfers.

• SWIFT is a cooperative society under Belgian law and is owned and

controlled by its shareholders, representing approximately 3,500 financial
institutions across the world.
• Through SWIFT, banks, custodians, investment institutions, central
banks, market infrastructures and corporate clients can connect with
one another to exchange structured electronic messages for
common business processes like making payments or settling
trades.
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mitigation.

• SWIFT is only a messaging service provider. It has no control over the

underlying financial transactions that are mentioned by its financial
institutional customers in their messages.
How does it work?
• SWIFT assigns each financial organization a unique code that has
either eight characters or 11 characters. The code is interchangeably
called the bank identifier code (BIC), SWIFT code, SWIFT ID, or ISO
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• Let's assume a X branch customer ninrp
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to their friend who banks at the YO branch in Venice. The New York
customer can walk into their Bank X branch with their friend’s
account number and Y’s unique SWIFT code for its Venice branch.
• X will send a payment transfer SWIFT message to the Y over the
secure SWIFT network. When Y receives the SWIFT message about
the incoming payment, it will clear and credit the money to the Italian
friend’s account.
• Benefits-
• Global coverage: The wide coverage of SWIFT – covering over 11,000 institutions in
more than 200 countries around the world – makes it an almost-universally accepted
system.

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• Neutral: SWIFT is overseen by the G- 10 central banks (Belgium, Canada, France,
Germany, Italy, Japan, The Netherlands, United Kingdom, United States, Switzerland,
and Sweden), as well as the European Central Bank, with its lead overseer being the
National Bank of Belgium.

• Range of service: The SWIFT system offers many services that assist businesses and
individuals to complete seamless and accurate business transactions. Some of them
are
• Applications for processing clearing and settlement instructions for payments, securities,
 forex, and derivatives transactions.
• Business Intelligence and compliance services.
• Messaging, Connectivity, and Software Solutions.

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• In 2014, Russia developed its own alternative to SWIFT. It is called the
System for Transfer of Financial Messages, or SPFS. But this system
has struggled to establish itself in international transactions.

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• Similarly, China launched the Cross-Border Interbank Payment
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