March & April – Economics & Development

  • The Private Final Consumption Expenditure (PFCE) is defined as the expenditure incurred on final consumption of goods and services by the resident households and non-profit institutions serving households (NPISH). The private final consumption expenditure (PFCE) and gross fixed capital formation (GFCF) — are key components of GDP. 

  • The Reserve Bank of India will create a “Central Payment Fraud Registry” to monitor digital payments related frauds on a real-time basis and provide customers with periodic aggregated data of risks associated with individual payments operators in a bid to improve customer confidence in these channels.       
       
  • According to the latest OECD “Interim Economic Outlook “Forecasts, India’s real GDP growth is expected at 5.1% during the fiscal year starting April 1, 2020 and improve to 5.6% in the following year. The National Statistical Office (NSO) estimates India’s GDP growth at 5% during 2019-20. OECD has projected the growth at 4.9% for the financial year ending March 2020.     

  • The Centre proposes to amend the Companies Act again, in a bid to decriminalise a number of offences and ease corporate social responsibility (CSR) requirements, especially for smaller companies. The amendment bill will also enable the listing of Indian companies on stock exchanges in foreign jurisdictions. This is expected to give Indian firms greater access to capital, a broader investor base and better valuations. The proposed amendments will also ensure that companies which have an obligation to spend Rs. 50 lakh per annum or less on Corporate Social Responsibility (CSR) are no longer required to have a CSR committee. Companies that spend more than the mandatory 2% on CSR in a particular year can carry it forward as credit for fulfilment of CSR obligations for the next few years as well.

  • The merger of public sector banks (PSBs) will become effective from April 1, 2020, with the Cabinet giving nod to the proposal. The consolidation of 10 PSBs into four includes the merger of Oriental Bank of Commerce and United Bank of India into Punjab National Bank, the amalgamation of Syndicate Bank into Canara Bank, the merger of Andhra Bank and Corporation Bank into Union Bank of India, and the amalgamation of Allahabad Bank into Indian Bank.   

  • The Supreme Court set aside an April 6, 2018, circular of the Reserve Bank of India (RBI) that prohibited banks and entities regulated by it from providing services in relation to virtual currencies (VCs). Besides, the court found that the RBI did not consider the availability of alternatives before issuing the circular.  Again, the April, 2018 circular was issued despite the fact that the central bank could not cite a single instance in which VC exchanges “actually impacted entities regulated by RBI”. VCs are digital currencies in which encryption techniques are used to regulate the generation of the currency units and verify the transfer of funds, operating independently of a central bank.   

  • Aimed at collating government data, scattered across multiple sources for consumption of policymakers, researchers, students and journalists, the Indian School of Business (ISB) has developed a one-stop open data portal, focusing on information related to agriculture. “In the age where the credibility of information is being questioned and scrutinised, often with good reason, a platform with credible data can be a game changer. India Data Portal (IDP) incubated at ISB’s Bharti Institute of Public Policy is a platform that has data from multiple disciplines, subjects and areas. In the first phase, the focus is on agriculture data, and in later phases the portal will diversify to include datasets on financial inclusion, rural development etc.,”.       

  • VIX aka Volatility index is an index used to measure the near term volatility expectations of the markets. Volatility index and Market index are completely different. While market index measures the direction of the market and calculated by the price movements of the underlying stocks, Volatility Index measures the volatility of the market and is calculated using the order book of the underlying index’s options. Another difference is that market index value is a number whereas the volatility index is an annualized percentage. The volatility index based on the order books of Nifty opinions is known as India VIX. India VIX is a volatility index based on the NIFTY Index Option prices. From the best bid-ask prices of NIFTY Options contracts, a volatility figure(%) is calculated which indicates the expected market volatility over the next 30 calendar days. India VIX or India Volatility Index was launched by the National Stock Exchange (NSE) in 2008 followed by NVIX Futures in 2014.
  • Agricultural and Processed Food Products Export Development Authority (APEDA) is an apex body under the Ministry of Commerce and Industry, Government of India, responsible for the export promotion of agricultural products.       

  • Coal is among the top five commodities imported by India, the world’s largest consumer, importer and producer of the fuel. Imports of thermal coal — mainly used for power generation  — jumped 12.6% to 197.84 million tonnes in 2019. However, imports of coking coal — used mainly in the manufacturing of steel — fell marginally, following two straight years of increase, government data showed.

  • Indonesia accounted for nearly 60% of India’s thermal coal imports in the April-December period, government data showed, while South Africa accounted for 22% and Russia and Australia accounting for over 5% each.     

  • The “Sharing economy” or shared economy is an economic model defined as a peer-to-peer (P2P) based activity of acquiring, providing, or sharing access to goods and services that is often facilitated by a community-based on-line platform.  The shared economy in India is estimated to be an about $2 billion industry by the end of the current year, according to a recent report by Maple Capital Advisors. The ‘shared economy’ includes segments such as co-working (Awfis, WeWork India), co-living (Stanza Living, OYO Life, Oxford Caps), shared mobility (Uber, Ola, Shuttl) and furniture rental (Furlenco, Rentomojo).     

  • AT1 bonds, also known as Additional Tier 1 bonds, are unsecured perpetual bonds issued by banks to shore up their capital base to meet Basel III requirements. Basel III norms were a set of rules that banking regulators around the world came up with after the global financial crisis in 2008, to strengthen bank balance sheets. Requiring banks to have their own skin in the game in the form of permanent capital, before taking on deposits or loans, is one of the underlying principles of Basel III norms. The RBI’s version of Basel III norms requires Indian banks to hold a minimum capital amounting to 11.5% of their risk-weighted loans. Of this, about 9% is supposed to be the bank’s core capital (called Tier 1), with 5.5% in equity. AT1 bonds are issued by banks to supplement their permanent or Tier 1 capital which is mainly made up of equity shares.

ü The GST rate on maintenance, repair and overhaul (MRO) services in respect of aircraft has been reduced from 18% to 5% with a full input tax credit. GST on mobile phones hiked to 18%.        

ü The SDRF is the primary fund available with the State governments for responses to notified disasters to meet expenditure for providing immediate relief to the victims. The Centre contributes 75% of the SDRF allocation for general category States and Union Territories and 90% for special category States (northeast, Uttarakhand, Himachal Pradesh, Jammu and Kashmir).  

  • A “leaky pipeline” problem is a system designed to channel something from one place to another that is flawed in such a way that it loses some quantity of what it carries before it reaches the destination. Leaky pipeline is often used as a metaphorical reference to the way that members of certain demographics fail to continue progression towards particular careers, leading to underrepresentation in related industries. Women, for example, discontinue education and career paths in the STEM (science, technology, engineering and mathematics) fields at a much higher rate than men. As a result, there are many fewer women than men in STEM-related careers, especially in high-level positions. Leaky pipelines make it hard for organizations to promote workforce diversity and can create problems in recruitment, hiring and human resource management (HRM). Public relations (PR) can also be affected, as it may be assumed that fewer women or minorities at a company reflects hiring bias.  

  • Short selling refers to a strategy by which traders bet on a decline in prices and try to profit at a time when the markets are falling.  In market parlance, a fall of over 20% is looked upon as a sign of the markets entering a bear market.       

  • The RBI has decided to extend priority sector classification for bank loans to NBFCs for on-lending for FY2020-21. Existing loans disbursed under the on-lending model will continue to be classified under priority sector till the date of repayment or maturity. Bank loans to NBFCs for on-lending would be eligible for classification as priority sector up to March 31, 2020. “On-Lending”: When an organization lends money that they have borrowed from another organization or person.     
       
  • The Centre has approved a Rs.1,340-crore recapitalisation plan for regional rural banks (RRBs) to improve their capital-to-risk weighted assets ratio (CRAR), strengthening these institutions that are critical to the provision of credit in rural areas. RRBs are to maintain the minimum CRAR of 9%. The RRBs are required to provide 75% of their total credit as priority sector lending with primary focus on agricultural credit, including small and marginal farmers, as well as micro entrepreneurs and rural artisans. The area of operation of RRBs is limited to the area as notified by Government of India covering one or more districts in the State. RRBs also perform a variety of different functions. The Regional Rural Banks were owned by the Central Government, the State Government and the Sponsor Bank (Any commercial bank can sponsor the regional rural banks) who held shares in the ratios as follows Central Government – 50%, State Government – 15% and Sponsor Banks – 35%. RRB are recognized by the law and they have legal significance under the Regional Rural Banks Act, 1976.   

  • The Reserve Bank of India (RBI) responded to the coronavirus-induced crisis with a whopping 75 basis points cut in the repo rate, bringing it down to 4.4 per cent.  The central bank also cut the cash reserve ratio or CRR by 100 basis points to 3 per cent with effect from March 28, unlocking Rs 1.37 lakh crore primary liquidity in the banking system. The reverse repo rate, too, was lowered to 3.75 %.  

  • The Reserve Bank of India (RBI) has introduced a separate channel, namely ‘Fully Accessible Route’ (FAR), to enable non-residents to invest in specified government bonds with effect from April 1. The move follows the Union Budget announcement that certain specified categories of government bonds would be opened fully for non-resident investors without any restrictions. “Eligible investors can invest in specified government securities without being subject to any investment ceilings. This scheme shall operate along with the two existing routes, viz., the Medium Term Framework (MTF) and the Voluntary Retention Route (VRR),” the RBI said.
  • The Reserve Bank of India (RBI) gives temporary loan facilities to the central and state governments. This loan facility is called Ways and Means Advances (WMA). The ‘Ways and Means Advances’ is a scheme that helps meet mismatches in receipts and payments of the government. The government can avail of immediate cash from the RBI, if required. But it has to return the amount within 90 days. Interest is charged at the existing repo rate. If the WMA exceeds 90 days, it would be treated as an overdraft (interest rate on overdrafts is 2 percentage points more than the repo rate). The limits for Ways and Means Advances are decided by the government and RBI mutually and revised periodically.There are two types of Ways and Means Advances — normal and special. Special WMA or Special Drawing Facility is provided against the collateral of the government securities held by the state. After the state has exhausted the limit of SDF, it gets normal WMA. The interest rate for SDF is one percentage point less than the repo rate.  

  • Counter Cyclical Capital buffer is the capital to be kept by a bank to meet business cycle related risks. It is aimed to protect the banking sector against losses from changes in economic conditions. Banks may face difficulties in phases like recession when the loan amount doesn’t return. The central bank has DEFERRED the implementation of counter cyclical capital buffer (CCyB) for banks.   

  • As per IMF 2019 estimates, China is the country with highest GDP (PPP), India is 3rd.  Purchasing power parity (PPP) is a term that measures prices in different areas using a specific good/goods to contrast the absolute purchasing power between currencies. In many cases, PPP produces an inflation rate that is equal to the price of the basket of goods at one location divided by the price of the basket of goods at a different location. The PPP inflation and exchange rate may differ from the market exchange rate because of poverty, tariffs and other frictions. PPP exchange rates are widely used when comparing the GDP of different countries.  

  • The Monetised Deficit is the extent to which the RBI helps the central government in its borrowing programme. In other words, monetised deficit means the increase in the net RBI credit to the central government, such that the monetary needs of the government could be met easily.    

  • The generalized entropy index has been proposed as a measure of income inequality in a population.  It is derived from information theory as a measure of redundancy in data. In information theory a measure of redundancy can be interpreted as non-randomness or data compression; thus this interpretation also applies to this index. In additional interpretation of the index is as biodiversity as entropy has also been proposed as a measure of diversity.  

  • The Theil index is a statistic primarily used to measure economic inequality and other economic phenomena, though it has also been used to measure racial segregation. The Theil index TT is the same as redundancy in information theory which is the maximum possible entropy of the data minus the observed entropy. It is a special case of the generalized entropy index. It can be viewed as a measure of redundancy, lack of diversity, isolation, segregation, inequality, non-randomness, and compressibility.

  • In economics, the Gini coefficient, sometimes called the Gini index or Gini ratio, is a measure of statistical dispersion intended to represent the income or wealth distribution of a nation’s residents, and is the most commonly used measurement of inequality. The Gini coefficient measures the inequality among values of a frequency distribution (for example, levels of income). A Gini coefficient of zero expresses perfect equality, where all values are the same (for example, where everyone has the same income). A Gini coefficient of one (or 100%) expresses maximal inequality among values (e.g., for a large number of people, where only one person has all the income or consumption, and all others have none, the Gini coefficient will be very nearly one). 

  • The Atkinson index (also known as the Atkinson measure or Atkinson inequality measure) is a measure of income inequality developed by British economist Anthony Barnes Atkinson. The measure is useful in determining which end of the distribution contributed most to the observed inequality.

  • The Life Insurance Council of India has announced that all life insurance companies, both public and private, will process all coronavirus-related death claims, at the earliest. The Council also confirmed that the clause of ‘Force Majeure’ will NOT apply in case of COVID-19 death claims.  Typically, force majeure events include an Act of God or natural disasters, war or war-like situations, labour unrest or strikes, epidemics, pandemics, etc. Force majeure clause is basically a clause for unforeseen circumstances that makes the contract null or invalid, for the situations like natural disasters, war or war like situations, etc., that life insurance companies can’t plan for. Recently, the Life Insurance council issued a statement for both state-run and private life insurance players that the “force majeure” clause will not be applicable in any of COVID-19 death claims.        

  • In order to provide greater flexibility to the State governments to tide over their cash flow mismatches due to the lockdown, the Reserve Bank of India (RBI) has decided to increase the number of days for which a State or a union territory can be in overdraft continuously to 21 working days from the current stipulation of 14 working days. The RBI has also increased the number of days for which a State / UT can be in overdraft in a quarter to 50 working days from the current stipulation of 36 working days.

  • The Centre’s decision to remove the tariff ceiling from renewable energy tenders will give the beleaguered industry a much-needed leg-up.   

  • Bancassurance is an arrangement between a bank and an insurance company allowing the insurance company to sell its products to the bank’s client base. This partnership arrangement can be profitable for both companies.

  • The Reserve Bank of India (RBI) has announced a host of measures to provide liquidity support to non-banking financial companies (NBFCs), apart from giving them certain benefits for loans extended to the commercial real estate sector. To begin with, banks have to invest the funds availed under targeted long-term repo operation (TLTRO), in investment grade bonds, commercial paper, and non-convertible debentures of NBFCs. RBI stipulated that small and mid-sized NBFCs and micro-finance institutions (MFIs) should receive at least 50% of these funds.

  • The RBI has also decided to provide special refinance facility of ₹50,000 crore to NABARD, SIDBI and NHB to enable them to meet sectoral credit needs. This would comprise ₹25,000 crore to NABARD for refinancing regional rural banks (RRBs), cooperative banks and micro finance institutions (MFIs); ₹15,000 crore to SIDBI for on-lending/refinancing; and ₹10,000 crore to NHB for supporting housing finance companies (HFCs).

  • Special drawing rights (SDRs) are supplementary foreign exchange reserve assets defined and maintained by the International Monetary Fund (IMF). SDRs are units of account for the IMF, and not a currency per se. They represent a claim to currency held by IMF member countries for which they may be exchanged. India joined U.S.  in opposing a new SDR allocation, which would provide all 189 members with new foreign exchange reserves with no conditions.   

  • In a move that will restrict Chinese investments, the Centre has made prior government approval mandatory for foreign direct investments “from countries which share a land border with India.” Previously, only investments from Pakistan and Bangladesh faced such restrictions. The revised FDI policy is aimed at “curbing opportunistic takeovers/acquisitions of Indian companies due to the current COVID-19 pandemic”. “However, an entity of a country, which shares land border with India or where the beneficial owner of an investment into India is situated in or is a citizen of any such country, can invest only under the Government route.” Pakistani investors face further restrictions in requiring government approval for FDI in defence, space and atomic energy sectors as well. India shares land borders with Pakistan, Afghanistan, China, Nepal, Bhutan, Bangladesh and Myanmar. Investors from countries not covered by the new policy only have to inform the RBI after a transaction rather than asking for prior permission from the relevant government department. Last week, housing finance company HDFC informed the stock exchanges that the People’s Bank of China now holds a 1.01% stake in the company. This was an instance of portfolio investment through the stock market and not FDI.     

  • Indian Strategic Petroleum Reserves Limited (ISPRL) is an Indian company responsible for maintaining the country’s strategic petroleum reserves. ISPRL is a wholly owned subsidiary of the Oil Industry Development Board (OIDB), which functions under the administrative control of the Ministry of Petroleum and Natural Gas.  Strategic crude oil storages are at three underground locations in Mangalore, Visakhapatnam and Padur (Udupi, Karnataka). All these are located on the east and west coasts of India which are readily accessible to the refineries. In the 2017-18 budget speech by the Indian finance minister Arun Jaitley, it was announced that two more such caverns will be set up Chandikhole, Odisha and Bikaner in Rajasthan as part of the second phase.

  • The Centre does not plan to provide an exemption from paying Goods and Services Tax (GST) for key medical items such as ventilators, sanitisers, COVID-19 diagnostic test kits, masks and other protective equipment. Exempting GST would increase manufacturing costs without helping the consumer much, and would also incentivise import of such items from China, official sources said. Currently, sanitisers are taxed at 18%, while ventilators and test kits are taxed at 12%. Masks attract 5% GST. As GST is a value added tax collected on net basis at each stage of the supply chain, an exemption would lead to blocked input tax credit, thus increasing the cost and compliance burden for manufacturers, without reducing the cost for consumers.       

  • The borrowing space of States is limited by the fiscal responsibility and budget management limit of 3% of Gross State Domestic Product (GSDP).  Therefore, it is important for the Central government to provide additional borrowing space by 2% of GSDP from the prevailing 3% of GSDP.   

  • Sectors such as forestry, fishing, heavy machinery, machine tools, finance, insurance, business services and consultancy, telecommunications, IT, electricity, gas and water supply are of relatively lower contact intensity.  Sectors such as education, banking, while being mid-to-high contact intensive, can be remodelled to a work-from-environment and therefore can be operated with a low contact intensity.      

  • The Centre has cut the subsidy for non-urea fertilizers this year to ₹22,186 crore. That is about 3% lower than the ₹22,875 crore which was the estimated expenditure on the nutrient based subsidies in 2019-20.  The CCEA also approved the inclusion of a complex fertilizer, ammonium phosphate, under the nutrient-based subsidy scheme (NBS). The scheme was set up in 2010 to ensure the availability of phosphatic and potassic fertilizers to farmers at an affordable price, as the retail prices of such non-urea fertilisers are decontrolled and set by manufacturers.       

  • While presenting the Union Budget in February, the Finance Minister had invoked the Fiscal Responsibility and Budget Management Act’s escape clause to relax the fiscal deficit target for 2020-21 by 0.5% percentage points to 3.5% of the GDP. If the government wishes to increase spending further in light of the current crisis, as many economists have recommended, it may need to amend the Act.

  • The State governments have been demanding that their own 3% fiscal deficit targets be relaxed to 4% or even 5%, to give them elbow room in dealing with the impact of the lockdown.

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