February 2021: Current Affairs Economy Notes | EduRev

Indian Economy for UPSC CSE

UPSC : February 2021: Current Affairs Economy Notes | EduRev

The document February 2021: Current Affairs Economy Notes | EduRev is a part of the UPSC Course Indian Economy for UPSC CSE.
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Doubling Farmers Income

Recently, the Central Government admitted that no actual assessment of farm income has been carried out since 2013. 

  • The Government of India in its Annual Budget 2016­17 set a policy target of doubling farmers' income by 2022.

Key Points

About 

  • Agriculture sustains livelihood for more than half of India's total population. Doubling farmers' income in such a short period is an overwhelming task for decision-makers, scientists, and policy makers because of its continued role in employment, income, and, most importantly, national food security. 
  • Doubling farmers' income is possible through in­creasing total output and better price realization in the market, reducing production costs, di-versification of product, efficient post-harvest management, value addition, etc.

Data Related to Indian Farmers

Related Steps Taken by Government

Institutional Reforms

  • Pradhan Mantri Krishi Sinchai Yojana, Soil health card, and Prampragat Krishi Vikas Yojana: Aiming to raise output and reduce cost.
  • Pradhan Mantri Fasal Bima Yojana: To provide insurance against crop and income loss and encourage farming investment.
  • Interlinking of rivers - To raise output and farm incomes.
  • Operation Greens: To address price volatility of perishable commodities like Tomato, Onion and Potato (TOP).
  • PM Kisan Sampada Yojana: To promote food processing holistically.

Technological Reforms

  • Initiating E-NAM: The National Agriculture Market (eNAM) is a pan-India electronic trading portal that networks the existing Agricultural Produce Market Committees (APMCs) mandis to create a unified national market agricultural commodities.
  • Technology mission on cotton: It aims to increase the income of the cotton growers by reducing the cost of cultivation and increasing the yield per hectare through proper transfer of technology to the growers.
  • Technology Mission on Oilseeds, Pulses and Maize (TMOPM): Few schemes implemented under TMOPM are: Oilseeds Production Programme (OPP), National Pulses Development Project (NPDP), etc.
  • Mission for Integrated Development of Horticulture (MIDH): It is a scheme for the holistic growth of the horticulture sector covering fruits, vegetables, root & tuber crops, mushrooms, spices, flowers, aromatic plants, coconut, cashew, cocoa and bamboo.
  • Sugar Technology Mission: Aimed at reducing the cost of sugar production and improving sugar quality through steps for improvements in productivity, energy conservation and improvements in capital output ratio.
  • National Mission on Sustainable Agriculture: It aims at promoting sustainable agriculture through a series of adaptation measures focusing on ten key dimensions encompassing Indian agriculture namely; 'Improved crop seeds, livestock and fish cultures', 'Water Use Efficiency', 'Pest Management', 'Improved Farm Practices', 'Nutrient Management', 'Agricultural insurance', 'Credit support', 'Markets', 'Access to Information' and 'Livelihood diversification'.
  • Besides, schemes relating to tree plantation (Har Medh Par Ped), Bee Keeping, Dairy and Fisheries are also implemented.
  • Need and Challenges: To achieve the target of doubling farmers' income by 2022, the Economic Survey 2021 has highlighted few basic challenges which needs to be addressed:

Extension of Irrigation Facilities

  • The coverage of irrigation facilities needs to be extended while ensuring an effective water conservation mechanism.

 Improve Agricultural Credit

  • An inclusive approach to provision for agricultural credit has to be undertaken to address the issue of skewness in its regional distribution, it said.

 Land Reform

  • As the proportion of small and marginal holdings is significantly large, land reform measures like freeing up land markets can improve their Income.

 Boost to Allied Sectors

  • Allied sectors, such as animal husbandry, dairying and fisheries, need to be given a boost to provide an assured secondary source of employment and income, especially for small and marginal farmers.

 Farm Mechanisation

  • There is also a need to address the issue of lower farm mechanisation in India which is only about 40% as compared to about 60% in China and around 75 % in Brazil.

 Improving Food Processing Sector

  • More focussed attention" is required to be given to the sector due to its significant role in reducing post-harvest losses and creation of an additional market for farm outputs.
  • The food processing sector is growing at an average annual growth rate of more than 5% over the last six years ending 2017-18.

 Exploring Global Markets

  • There is a need to give increased focus on exploring global markets for agricultural commodities to give an additional source of market for the surplus of agricultural produce India currently has.

 Reallocation of Labour

  • There is also a need to reallocate labour resources to other sectors.
  • Though the structural transformations involved a falling share of the agriculture sector and rising share of services sector jobs, more needs to be done to create manufacturing jobs to absorb the large pool of workers.

 Other Issues

  • Issues such as investment in agriculture, insur­ance coverage, water conservation, improved yields through better farming practices, access to market, availability of institutional credit, increasing the linkages between agricultural and non-agricultural sectors need urgent attention.

Major Port Authorities Bill, 2020

Recently, the Parliament has passed the Major Port Authorities Bill, 2020. The Bill seeks to provide greater autonomy in decision-making to 12 major ports and professionalise their governance by setting up boards.

  • It also seeks to replace the Major Port Trusts Act, 1963. 
  • India has 12 major ports - Deendayal (erstwhile Kandla), Mumbai, JNPT, Marmugao, New Mangalore, Cochin, Chennai, Kamarajar (earlier Ennore), V O Chidambarnar, Visakhapatnam, Paradip and Kolkata (including Haldia).

Key Points

Salient Features

  • Board of Major Port Authority
    (i) About: The Bill provides a Board of Major Port Authority for each major port. These Boards will replace the existing Port Trusts.
    (ii) Under the 1963 Act, all major ports are managed by the respective Board of Port Trusts that have members appointed by the central government.

 Composition

  • Provision has been made to include representatives of State Government in which the Major Port is situated, Ministry of Railways, Ministry of Defence and Customs, Department of Revenue as Members in the Board.
  • It will also include a Government Nominee Member and a Member representing the Major Port Authority employees.

 Powers

  • The Bill allows the Board to use its property, assets, and funds as deemed fit for the major port development.
  • It will also have the powers to fix reference tariffs for various port services.
  • Further, PPP (Public Private Partnership) operators will be free to fix tariff- based on market conditions.
  • Provisions of Corporate Social Responsibility (CSR) & development of infrastructure by the Port Authority have been introduced.

 Adjudicatory Board

  • An Adjudicatory Board will be created to carry out the erstwhile TAMP's residual function (Tariff Authority for Major Ports) to look into disputes between ports and PPP concessionaires.
  • TAMP has been a multi-member statutory body with a mandate to fix tariffs levied by major port trusts under the center's control and private terminals.

 Penalties

  • Any person contravening any provision of the Bill or any rules or regulations will be punished with a fine of up to one lakh rupees.

 Aims

  • Decentralization: Decentralizing decision making and to infuse professionalism in governance of major ports.
  • Trade and Commerce: To promote port infrastructure expansion and facilitate trade and commerce.
  • Decision Making: It imparts faster and transparent decision-making, benefiting the stakeholders and better project execution capability.
  • Reorienting Models: Reorienting the governance model in central ports to landlord port model in line with the successful global practice.

 Significance:

  • Level-Playing Field
    (i) This Bill will create a level-playing field not just between major and private ports but also between major port terminals and PPP terminals.
    (ii) Within major ports, PPP terminal players, too, have had to take tariff approvals from the TAMP. The Bill, however, eliminates taking approval from the body.
    (iii) Due to this, investment in PPP is expected to go up at major ports in the coming years.

 In Line with Aatmanirbhar Bharat Abhiyan:

  • The move will certainly pave the way for driving the country's vision towards Aatmanirbhar Bharat and making India a global manufacturing hub.
  • In terms of volume, 70% of cargo movement is through ports while 90% in value terms.

 Criticism

  • It has been alleged that the Bill is aimed at privatising the ports and diluting the states' powers on land use.

Guidelines on Food Systems and Nutrition: CFS

The Committee on World Food Security (CFS) has endorsed the first-ever Voluntary Guidelines on Food Systems and Nutrition (VGFSyN) to support countries to eradicate hunger and malnutrition in all its forms utilizing a food systems approach.

  • The endorsement took place during the CFS 47th Session.

Key Points

About the Guidelines

  • Food Systems Approach
    (i) The Guidelines highlight the complex and multidimensional interlinkages between sustainable food systems and healthy diets.
    (ii) Food systems are a complex web of activities involving production, processing, handling, preparation, storage, distribution, marketing, access, purchase, consumption, food loss and waste, and the outputs of these activities, including social, economic and environmental outcomes.

Seven Policy Areas

  • Transparent, democratic and accountable governance.
  • Sustainable food supply chains to achieve healthy diets and in the context of climate change.
  • Equal and equitable access to healthy diets.
  • Food safety.
  • People-centred nutrition knowledge, education and information.
  • Gender equality and women's empowerment across food systems.
  • Resilient food systems in humanitarian contexts.

Significance

  • The guidelines are intended to build upon and complement the work and mandate of other international bodies, for example the UN Decade of Action on Nutrition (2016-2025) and Sustainable Development Goal (2) of 'Zero Hunger'.
  • They call for realisation of the right to adequate food in the context of national food security for all, particularly for the most vulnerable and affected groups.
  • They focus on policy planning and governance so that food systems can be made more resilient and responsive and follow the needs of consumers and producers, especially small and marginal farmers.

Committee on World Food Security (CFS)

  • It is the foremost inclusive international and intergovernmental platform for all stakeholders to work together to ensure food security and nutrition for all.
  • The Committee reports to the United Nations (UN) General Assembly through the Economic and Social Council (ECOSOC) and to the Food and Agriculture Organisation (FAO) Conference.
  • CFS holds an annual Plenary session every October in FAO, Rome.
  • CFS receives its core funding equally from the FAO, the International Fund for Agricultural Development (IFAD) and the World Food Programme (WFP).
  • India's Scenario

State of Hunger and Malnutrition:

  • According to FAO estimates in 'The State of Food Security and Nutrition in the World, 2020' Report:
  • 189.2 million people are undernourished in India i.e. 14% of the population is undernourished.
  • 51.4% of women in reproductive age between 15 to 49 years are anaemic.
  • 34.7% of the children aged under five are stunted (too short for their age) while 20% suffer from wasting (weight too low in proportion to height).
  • Besides, India ranked 94th among 107 countries in the Global Hunger Index 2020.

Initiatives Taken

  • POSHAN Abhiyaan, launched in 2017-18, aims to reduce stunting, under-nutrition, anemia and low birth weight babies through synergy and convergence among different programmes, better monitoring and improved community mobilisation. 
  • Antoydaya Anna Yojana (AAY) aims to provide food at subsidized prices to poor families.
  • The Integrated Child Development Scheme (ICDS) envisages comprehensive early childhood care and development by focussing on children in the age group of 0-6 years, pregnant women and adolescent girls.
  • The Mid-day Meal (MDM) scheme aims to improve nutritional levels among school children which also has a direct and positive impact on enrolment, retention and attendance in schools.
  • Under the Pradhan Mantri Matru Vandana Yojana (PMMVY), Rs. 6,000 is transferred directly to pregnant women's bank accounts for availing better facilities for their delivery.
  • The National Mission on Agriculture Extension and Technology enables delivery of appropriate technologies and improved agronomic practices for farmers.
  • The National Mission on Sustainable Agriculture aims to enhance agricultural productivity, and the Pradhan Mantri Krishi Sinchayee Yojana (PMKSY) aims to improve water-use efficiency.

Saksham Portal and Seaweed Mission: TIFAC

The Technology Information, Forecasting and Assessment Council (TIFAC) has launched two new initiatives - SAKSHAM (Shramik Shakti Manch) Job Portal and a Seaweed Mission.

  • TIFAC is an autonomous organization set up in 1988 under the Department of Science & Technology to look ahead in the technology domain, assess the technology trajectories, and support innovation by networked actions in select areas of national importance.

Key Points

SAKSHAM Portal

About

  • It is a dynamic portal for jobs/mapping the skills of Shramiks (workers) vis-a-vis requirements of Micro, Small and Medium Enterprises (MSMEs) and other industries all across the country. It is an all India Portal.
  • It will facilitate creation of 10 lakh blue collar jobs.

Features

  • High Technology Enabled: The portal with the demand and supply data uses algorithm and Artificial Intelligence (AI) tools, geo spatial information on demand and availability of Shramiks, and provides analysis on skill training programmes of Shramiks.
  • Automatic Updation: The data / information about the Shramiks and the industries (especially MSME) are being updated automatically through various whatsapp and other links.

Advantages

  • For Workers: This would empower Shramiks by projecting their candidature directly to the MSMEs & other employers and would also address aspects related to their skill proficiency levels.
  • It will minimise migration of Shramiks - provide job opportunity in proximate MSMEs.
  • For Industry: This would also eliminate the industry's dependence on the middlemen / labour contractor for their manpower requirements.

Other Related Initiatives

  • ShramShakti Portal (Ministry of Tribal Affairs).
  • ASEEM Portal (Ministry of Skill Development and Entrepreneurship).
  • NMIS Dashboard (National Disaster Management Authority).

Seaweeds Mission

Background

  • Out of the global seaweed production of 32 million tons fresh weight valued around 12 billion US dollars, China produces 57%, Indonesia 28% followed by South Korea. In contrast, India is having a mere share of 0.01-0.02%.
  • Despite several advantages, commercial seaweeds cultivation has not taken place in the country at an appropriate scale, as being practiced in South-East Asian countries.

About the Mission

  • It has been launched for commercial farming of seaweeds and its processing for value addition towards boosting the national economy.
  • It envisages following activities:
  • Establishing model demonstration farms over one hectare to cultivate economically important seaweeds in nearshore and onshore along the Indian coast.
  • Establishment of seaweed nurseries for supplying seed material for large scale farming of economically important seaweeds in the country.
  • Establishment and demonstration of processing technologies/recipes for edible seaweeds in line with consumer acceptability or cultural food habits.
  • An activity on seaweed cluster development includes value chain development, supply chain development, data collection on environmental, economic, and social impacts of seaweed projects in the country.
  • Advantages: By an estimate, if seaweed cultivation is done in 10 million hectares or 5% of the Exclusive Economic Zone (EEZ) area of India, it can
  • Employ 50 million people.
  • Set up a new seaweed industry.
  • Contribute to national Gross Domestic Product (GDP).
  • Enhance ocean productivity;.
  • Abate algal blooms.
  • Sequester millions of tons CO2.
  • Could produce bioethanol of 6.6 billion litres.

Seaweeds 

About

  • They are the primitive, marine non-flowering marine algae without root, stem and leaves, play a major role in marine ecosystems. 
  • Large seaweeds form dense underwater forests known as kelp forests, which act as underwater nurseries for fish, snails and sea urchins.
  • Some species of seaweeds viz. Gelidiella acerosa, Gracilaria edulis, Gracilaria crassa, Gracilaria verrucosa, Sargassum spp. and Turbinaria spp.

Location

  • Seaweeds, found mostly in the intertidal region, in shallow and deep waters of the sea and also in estuaries and backwaters.
  • The southern Gulf of Mannar's rocky intertidal and lower intertidal regions have rich populations of several seaweed species.

Ecological Importance

  • Bioindicator: When waste from agriculture, industries, aquaculture and households are let into the ocean, it causes nutrient imbalance leading to algal blooming, the sign of marine chemical damage. Seaweeds absorb the excess nutrients and balance out the ecosystem.
  • Iron Sequestrator: These aquatic organisms heavily rely on iron for photosynthesis. When the quantity of this mineral exceeds healthy levels and becomes dangerous to marine life, seaweeds trap it and prevent damage. Similarly, most heavy metals found in marine ecosystems are trapped and removed by seaweeds.
  • Oxygen and Nutrient Supplier: On their part, the seaweeds derive nutrition through photosynthesis of sunlight and nutrients present in seawater. They release oxygen through every part of their bodies. They also supply organic nutrients to other marine life forms.

Role in Climate Mitigation

  • Seaweed has a significant role in mitigating climate change. By afforesting 9% of the ocean with seaweed, it is possible to annually sequester 53 billion tons of carbon dioxide. Hence, there is a proposal termed as 'ocean afforestation' for farming seaweed to remove carbon.

Other Utilities

  • They can be used as fertilizers and to increase aquaculture production.
  • When livestock is fed with seaweed, cattle's methane emission may be reduced substantially.
  • They can be buried in beach dunes to combat beach erosion.
  • It is used as an ingredient in preparing toothpaste, cosmetics and paints.

Impact of Crude Oil Price Hike

Recently, Brent crude price crossed the USD 60 per barrel mark after over a year. The rise in prices is because of production cuts by oil-producing countries and expectations of global demand improvements as the Covid-19 vaccine is rolled out across the world.

  • In April 2020, the West Texas Intermediate (WTI) crude slipped below zero for the first time in history, to a negative USD 40.32 per barrel.
  • Two crude oils that are either traded themselves or whose prices are reflected in other crude oil types include West Texas Intermediate (WTI) and Brent.

Key Points

Oil Pricing

  • Generally, the Petroleum Exporting Countries (OPEC) Organization used to work as a cartel and fix prices in a favourable band.
  • OPEC is led by Saudi Arabia, the largest exporter of crude oil globally (single-handedly exporting 10% of the global demand).
  • OPEC has a total of 13 Member Countries viz. Iran, Iraq, Kuwait, United Arab Emirates (UAE), Saudi Arabia, Algeria, Libya, Nigeria, Gabon, Equatorial Guinea, Republic of Congo, Angola, and Venezuela.
  • OPEC could bring down prices by increasing oil production and raise prices by cutting production. 
  • The global oil pricing mainly depends upon the partnership between the global oil exporters instead of a well-functioning competition. 
  • Cutting oil production or completely shutting down an oil well is difficult because restarting it is immensely costly and complicated.
  • Moreover, if a country cuts production, it risks losing market share if other countries do not follow the suit.
  • Recently, OPEC has been working with Russia, as OPEC+ to fix the global prices and supply.
  • In 2016, OPEC allied with other top non-OPEC oil-exporting nations to form an even more powerful entity named OPEC+ or OPEC Plus.

Reasons for Present Price Hike

Limited Supply

  • Major oil-producing countries had cut oil production last year amid a sharp fall in demand due to the Covid-19 pandemic.
  • Saudi Arabia pledged extra supply cuts in February and March 2020 following reductions by other Organization of the Petroleum Exporting Countries (OPEC) and its allies.
  • In early January 2021, the OPEC and Russia (as OPEC+) agreed to cut back on oil production to increase prices.

Rising Demand

  • The production and rollout of vaccines for Covid-19 and the rising consumption post the Covid lockdowns last year have both led to a revival in international crude oil prices.

Impact on India

  • Current Account Deficit: The increase in oil prices will increase the country's import bill, and further disturb its current account deficit (excess of imports of goods and services over exports).
  • According to estimates, a one-dollar increase in crude oil price increases the oil bill by around USD 1.6 billion per year.
  • India imports 80% of its crude oil requirements and the average price of Indian basket of crude oil has already risen to USD 54.8 barrel for January 2021.
  • Inflation: The increase in crude prices could also also further increase inflationary pressures that have been building up over the past few months.
  • This will decrease the monetary policy committee's space to ease policy rates further.
  • The government had hiked central taxes on petrol and diesel by Rs. 13 per litre and Rs. 11 per litre in 2020 to boost revenues amid lower economic activity.
  • Fiscal Health: If oil prices continue to increase, the government shall be forced to cut taxes on petroleum and diesel which may cause loss of revenue and deteriorate its fiscal balance.
  • In the last two years, the growth slowdown has already resulted in a precarious fiscal situation because of tax revenue shortfalls. 
  • The revenue lost will erode the government's ability to spend or meet its fiscal commitments in the form of budgetary transfers to states, payment of dues and compensation for revenue shortfalls to state governments under the goods and services tax (GST) framework.
  • Positive Outcomes: However, there could be a positive side for India too from the oil price hike.
  • The value of Indian oil and gas companies could be positively impacted. The government could get greater value from disinvestment in Bharat Petroleum Corporation Limited.
  • Remittances from the Persian Gulf could increase.

Difference between Brent and WTI

Origin

  • Brent crude oil originates from oil fields in the North Sea between the Shetland Islands and Norway.
  • West Texas Intermediate (WTI) is sourced from US oil fields, primarily in Texas, Louisiana, and North Dakota.

 Light and Sweet

  • Both oils are relatively light, but Brent has a slightly higher API gravity, making WTI the lighter of the two.
  • American Petroleum Institute (API) gravity is an indicator of crude oil or refined products' density.
  • WTI with a lower sulphur content (0.24%) than Brent (0.37%), is considered “sweeter".

Benchmark Prices

  • Brent crude price is the OPEC's international benchmark price while WTI crude price is a benchmark for US oil prices.
  • Since India imports primarily from OPEC countries, Brent is the benchmark for oil prices in India.

Cost of Shipping

  • Cost of shipping for Brent crude is typically lower, since it is produced near the sea and it can be put on ships immediately.
  • Shipping of WTI is priced higher since it is produced in landlocked areas like Cushing, Oklahoma where the storage facilities are limited.

Privatization of Banks

The Union Budget 2021 has announced the privati­sation of two public sector banks and one general insur­ance company in the upcoming fiscal 2021-22.

  • The move, coming after 51 years of nationalisation of government-owned banks in 1969, will give the private sector a key role in the banking sector.
  • Presently, India has 22 private banks and 10 small finance banks.

Key Points

Background

  • The government decided to nationalise the 14 largest private banks in 1969. The idea was to align the banking sector with the then government's socialistic approach.
  • State Bank of India (SBI) had been nationalised in 1955 itself, and the insurance sector in 1956.
  • Various governments in the last 20 years were for and against privatisation of Public Sector Undertaking (PSU) banks. In 2015, the government had suggested privatisation but the then Reserve Bank of India (RBI) Governor did not favour the idea. 
  • The current steps of privatisation and setting up an Asset Reconstruction Company (Bad Bank) entirely owned by banks underline an approach of finding market-led solutions to challenges in the financial sector.

Reason for Privatisation

Degrading Financial Position of Public Sector Banks

  • Years of capital injections and governance reforms have not significantly improved the financial position of public sector banks.
  • Many of them have higher levels of stressed assets than private banks and lag the latter on profitability, market capitalisation, and dividend payment records.

Part of a Long-Term Project

  • Privatisation of two public sector banks will set the ball rolling for a long-term project that envisages only a handful of state-owned banks, with the rest either consolidated with strong banks or privatised.
  • The initial plan of the government was to privatise four. Depending on the first two's success, the government is likely to go for divestment in another two or three banks in the next financial year.
  • This will free up the government, the majority owner, from continuing to provide equity support to the banks year after year.
  • Through a series of moves over the last few years, the government is now left with 12 state-owned banks, from 28 earlier.

Strengthening Banks

  • The government is trying to strengthen the strong banks and minimise their numbers through privatisation to reduce its support burden.

Recommendations of Different Committees

  • Many committees had proposed bringing down the government stake in public banks below 51%:
  • The Narasimham Committee proposed 33%.
  • The PJ Nayak Committee suggested below 50%.
  • An RBI Working Group recently suggested the entry of business houses into the banking sector.

Selection of Banks

  • The two banks that will be privatised will be selected through a process in which NITI Aayog will make recommendations, which will be considered by a core group of secretaries on disinvestment and then the Alternative Mechanism (or Group of Ministers).

Issues with PSU Banks

High Non-Performing Assets (NPAs)

  • After a series of mergers and equity injections by the government, public sector banks' performance has shown improvement over the last couple of years. However, compared with private banks, they continue to have high NPAs and stressed assets although this has started declining.

Impact of Covid

  • After the Covid-related regulatory relaxations are lifted, banks are expected to report higher NPAs and loan losses.
  • As per the RBI's recent Financial Stability Report, all commercial banks' gross NPA ratio may increase from 7.5% in September 2020 to 13.5% by September 2021.
  • This would mean the government would again need to inject equity into weak public sector banks.

Performance of Private Banks

Rising Market Share

  • Private banks' market share in loans has risen to 36% in 2020 from 21.26% in 2015, while public sector banks' share has fallen to 59.8% from 74.28%.

Better Products and Services

  • Competition heated up allowed more private banks since the 1990s. They have expanded the market share through new products, technology, and better services and attracted better valuations in stock markets.
  • HDFC Bank (set up in 1994) has a market capitalisation of Rs. 8.80 lakh crore while SBI commands just Rs. 3.50 lakh crore.

Issues with Private Banks

 Governance Issues

  • Industrial Credit and Investment Corporation of India (ICICI) Bank MD and CEO was sacked to extend dubious loans.
  • Yes Bank CEO was not given extension by the RBI and now faces investigations by various agencies.
  • Lakshmi Vilas Bank faced operational issues and was recently merged with DBS Bank of Singapore.

Under-reported NPAs

  • When the RBI ordered an asset quality review of banks in 2015, many private sector banks, including Yes Bank, were found under-reporting NPAs.

Direct Access to G-Sec Market for Retail Investors: RBI

Recently, the Reserve Bank of India has proposed to allow retail investors to open gilt accounts with the central bank to invest in Government securities (G-secs) directly and without the help of intermediaries.

  • Retail Investor is a non-professional investor who buys and sells securities or funds that contain a basket of protection such as mutual funds and Exchange Traded Funds (ETFs).
  • Government Security
  • A G-Sec is a tradable instrument issued by the Central Government or the State Governments.
  • It acknowledges the Government's debt obligation. Such securities are short term (usually called treasury bills, with original maturities of less than one year- presently issued in three tenors, namely, 91 day, 182 day and 364 day) or long term (usually called Government bonds or dated securities with original maturity of one year or more).
  • In India, the Central Government issues both treasury bills and bonds or dated securities while the State Governments issue only bonds or dated securities called the State Development Loans (SDLs).
  • G-Secs carry practically no risk of default and, hence, are called risk-free gilt-edged instruments. 
  • Gilt-edged securities are high-grade investment offered by governments and large corporations as a means of borrowing funds.

Key Points

Background

  • The g-sec market is dominated by institutional investors such as banks, mutual funds, and insurance companies. These entities trade in lot sizes of Rs. 5 crore or more.
  • So, there is no liquidity in the secondary market for small investors who would want to trade in smaller lot sizes.

About the Proposal

  • Retail investors will get online access to the government securities market - both primary and secondary - directly through the Reserve Bank.
  • The primary market is where securities are created, while the secondary market is where investors trade those securities.
  • Retail investors will be allowed to open gilt investment accounts directly with RBI. The account will be called RBI retail direct.
  • Gilt Account can be compared with a bank account, except that the account is debited or credited with treasury bills or government securities instead of money.
  • The direct participation of retail investors in the bidding process will be enabled through the core banking solution of Reserve Bank of India- E-kuber.

Significance

Broaden Investor Base

  • Allowing direct retail investment in G-secs will broaden the investor base and provide retail investors with enhanced access to participate in the government securities market.

Pioneer in Asia

  • This structural reform will place India in the select league of nations such as the USA and Brazil which have such facilities.
  • India will possibly be the first in Asia to allow direct retail investment in G-secs to open up an additional investment avenue.

Facilitate Government Borrowings

  • This measure together with relaxation in mandatory Hold To Maturity (securities that are purchased to be owned until maturity) provisions will facilitate smooth completion of the government borrowing programme in 2021-22.

Financialise Domestic Savings

  • Allowing direct retail participation in the G-Sec market will promote financialisation of a vast pool of domestic savings and could be a game-changer in India's investment market.
  • Other Measures Taken to Increase Retail Investment in Government Securities:
  • Introduction of non-competitive bidding in primary auctions.
  • Non-competitive bidding means the bidder would be able to participate in the auctions of dated government securities without having to quote the yield or price in the bid. 
  • Stock exchanges to act as aggregators and facilitators of retail bids.
  • Allowing a specific retail segment in the secondary market.

Increased Fiscal Deficit

The government's fiscal deficit has increased to Rs. 11.58 lakh crore or 145.5% of the Budget Estimate (BE) at the end of December 2020 (accounting for the first nine months of the year 2020-21) mainly on account of lower revenue realisation.

Key Points

  • Fiscal Deficit Target Fixed for 2020-21: The Centre had pegged the fiscal deficit at Rs. 7.96 lakh crore or 3.5% of the Gross Domestic Product (GDP).
  • Fiscal Deficit in 2019-2020: According to the Controller General of Accounts (CGA) data, the fiscal deficit at the end of December in the previous fiscal year was 132.4% of the BE of 2019-20.

Reasons for High Fiscal Deficit 

Lower Revenue Realisation

  • Because of disruptions in normal business activity following the coronavirus pandemic and lockdowns.

Higher Expenditure

  • There has been a notable increase in revenue expenditure in food and public distribution and rural development which could be attributed to the government's pandemic relief programs.

Fiscal Deficit

  • The government describes fiscal deficit of India as "the excess of total disbursements from the Consolidated Fund of India, excluding repayment of the debt, over total receipts into the Fund (excluding the debt receipts) during a financial year".
  • In simple words, it is a shortfall in a government's income compared with its spending.
  • The government that has a fiscal deficit is spending beyond its means.
  • It is calculated as a percentage of Gross Domestic Product (GDP), or simply as total money spent more than income.
  • In either case, the income figure includes only taxes and other revenues and excludes money borrowed to make up the shortfall.

Formula

  • Fiscal Deficit = Total government expenditure (capital and revenue expenditure) - Total income of the government (Revenue receipts + recovery of loans + other receipts).
  • Expenditure component: The government in its Budget allocates funds for several works, including payments of salaries, pensions, etc. (revenue expenditure) and creation of assets such as infrastructure, development, etc. (capital expenditure).
  • Income component: The income component is made of two variables, revenue generated from taxes levied by the Centre and the income generated from non-tax variables.
  • The taxable income consists of the amount generated from corporation tax, income tax, Customs duties, excise duties, and GST.
  • Meanwhile, the non-taxable income comes from external grants, interest receipts, dividends and profits, receipts from Union Territories.
  • It is different from revenue deficit which is only related to revenue expenditure and revenue receipts of the government. 
  • The government meets the fiscal deficit by borrowing money. In a way, the government's total borrowing requirements in a financial year are equal to the fiscal deficit in that year. 
  • A high fiscal deficit can also be good for the economy if the money spent goes into creating productive assets like highways, roads, ports and airports that boost economic growth and result in job creation.
  • The Fiscal Responsibility and Budget Management Act, 2003 provides that the Centre should take appropriate measures to limit the fiscal deficit upto 3% of the GDP by 31st March, 2021. 
  • The NK Singh committee (set up in 2016) rec­ommended that the government should target a fiscal deficit of 3% of the GDP in years up to 31st March, 2020, cut it to 2.8% in 2020-21 and to 2.5% by 2023.

Controller General of Accounts

  • It comes under the Department of Expenditure, Ministry of Finance.
  • It is the Principal Accounting Adviser to India's Government and is responsible for establishing and maintaining a technically sound Management Accounting System.
  • The Office of CGA prepares monthly and annual analysis of expenditure, revenues, borrowings and various fiscal indicators for the Union Government.

Unified Portal of Gobardhan

Recently, a Unified Portal of Gobardhan has been launched to ensure smooth implementation of Biogas schemes/initiatives and real-time tracking.

Key Points

Objectives

  • Ensure close coordination with various Departments/ Ministries for smooth implementation of Biogas schemes/initiatives and its real time tracking.

Coordinated by

  • The Department of Drinking Water and Sanitation under the Swachh Bharat Mission - Grameen (SBMG).

Benefits

  • Economy: Strengthen the rural economy through a convergent approach for various Biogas projects/ models and initiatives.
  • ODF Plus Goals: The ODF Plus goals (solid waste management in villages, along with the collection and transportation of biodegradable and non- biodegradable waste) outlined in the Phase 2 of SBMG will depend on the performance of Gobardhan scheme to a great extent.
  • Synchronisation with other Schemes: The portal will further help in achieving objectives of SATAT (Sustainable Alternative towards Affordable Transportation) aimed at setting up of Compressed Biogas (CBG) production plants and ensuring market linkage for use of biofuel in automotive fuels.
  • Better Environment & Public Health: Rural India generates enormous quantities of bio-waste which can be efficiently utilized and lead to better environment and public health. 
  • Employment Generation & Savings: Bio-waste processing, especially cattle dung into Biogas & organic manure, leads to generation of employment and household savings opportunities.

GOBAR-DHAN Scheme

Launched By

  • The ministry of Jal Shakti has launched the GOBAR (Galvanizing Organic Bio-Agro Resources) - DHAN scheme.

Implementation

  • The scheme is being implemented as part of the Swachh Bharat Mission (Gramin).

Components

  • The Swachh Bharat Mission (Gramin) comprises two main components for creating clean villages - creating open defecation free (ODF) villages and managing solid and liquid waste in villages.

Aim

  • Keeping villages clean, increasing the income of rural households, and generating energy from cattle waste.
  • The scheme also aims to create new rural livelihood opportunities and enhance income for farmers and other rural people.

Consumer Welfare Fund

During the ongoing session, the Union Minister of State for Consumer Affairs, Food and Public Distribution, informed the parliament about Consumer Welfare Fund (CWF).

Key Points

About

  • It was set up under the Central Goods and Services Tax (CGST) Act, 2017. The consumer welfare fund rules of 1992 have been subsumed under the CGST rules, 2017.
  • The Fund has been set up by the Department of Revenue (Ministry of Finance) and is being operated by the Department of Consumer Affairs (Ministry of Consumer Affairs, Food & Public Distribution).
  • Objective: To promote and protect the welfare of the consumers. 

Few Examples

  • Creation of Consumer Law Chairs/ Centres of Excellence in Institutions/Universities of repute to foster research and training on consumer related issues.
  • Projects for spreading consumer literacy and awareness.

Other Related Inititatives

  • A pan-India consumer awareness campaign 'JagoGrahakJago' through print, electronic, outdoor and social media platforms.
  • Celebration of World Consumer Rights Day/ National Consumer Day.
  • The Consumer Protection Act, 2019 has been implemented.
  • The new Act covers e-commerce transactions, it allows electronic filing of complaints, hearing and/or examining parties through video­conferencing for procedural ease and reduces inconvenience.
  • Government has set up a National Consumer Helpline (NCH) to handle the consumer grievances.
  • Consumer awareness programmes are being organized through the Bureau of Indian Standards (BIS) network across the country for promoting the concept of standardization, certification, and quality consciousness among consumers and manufacturers.

Asset Reconstruction Company

In the Budget 2021-22, Asset Reconstruction Company (ARC) has been proposed to be set up by state- owned and private sector banks, and there will be no equity contribution from the government.

  • The ARC, which will have an Asset Management Company (AMC) to manage and sell bad assets, will resolve Rs' stressed assets. 2-2.5 lakh crore that remain unresolved in around 70 large accounts.
  • This is being considered as the government's version of a bad bank.

Key Points

About the Asset Reconstruction Company (ARC)

Objective

  • It is a specialized financial institution that buys the Non Performing Assets (NPAs) from banks and financial institutions to clean up their balance sheets.
  • This helps banks to concentrate in normal banking activities. Banks rather than going after the defaulters by wasting their time and effort, can sell the bad assets to the ARCs at a mutually agreed value.

Legal Basis

  • The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 provides the legal basis for the setting up of ARCs in India.
  • The SARFAESI Act helps reconstruction of bad assets without the intervention of courts. Since then, many ARCs were formed and were registered with the Reserve Bank of India (RBI) which has got the power to regulate the ARCs.

Capital Needs for ARCs

  • As per amendment made in the SARFAESI Act in 2016, an ARC should have a minimum net owned fund of Rs. 2 crore.
  • The RBI raised this amount to Rs. 100 crore in 2017. The ARCs also have to maintain a capital adequacy ratio of 15% of its risk weighted assets. 
  • Risk-weighted assets are used to determine the minimum amount of capital that banks and other financial institutions must hold to reduce insolvency risk.

About the New ARC 

  • Need: Of the existing ARCs, only 3-4 are adequately capitalised, while the more-than-dozen remaining are thinly capitalised — necessitating the need to set up a new structure to resolve stressed assets urgently.
  • In a report released by Reserve Bank of India (RBI), it was said that banks' gross non-performing assets may rise to 13.5% by September 2021, from 7.5% in September 2020 under the baseline scenario. 

Functioning

  • The transfer of stressed assets to the ARC will happen at net book value, which is the value of assets minus provisioning done by banks against these assets. This could enable the banks to alleviate its losses from NPAs - a part of stressed assets.
  • The bank will get 15% cash and 85% security receipts against bad debt sold to the ARC.
  • Security Receipts (SR) are issued by ARCs, when the ARCs acquire Non-Performing Assets (NPAs) of commercial banks (CB) or financial institutions (FI) for the purpose of recovery.
  • As per extant instructions, investment in SRs is restricted to the Qualified Institutional Buyers (QIBs), as defined by SARFAESI Act 2002.

Support by Central Government

  • While the government will not provide any direct equity support to the ARC, it may provide sovereign guarantee that could be needed to meet regulatory requirements.

Expected Benefits

  • This structure will reduce the load of stressed assets on the bank balance sheet and look to resolve these bad debt in a market-led way.
  • With most banks expected to be on board this company, the resolution is expected to be faster.

Other Proposed Reforms

Development Financial Institution

  • The government could subsume India Infrastructure Finance Company Limited (IIFCL) into the proposed Development Financial institution (DFI), which is being set up to enable long-term infra funding worth Rs. 5 lakh crore in 3 years.
  • The National Bank for Financing Infrastructure and Development (NaBFID), the proposed DFI, will anchor the National Infrastructure Pipeline (NIP).
  • The Reserve Bank of India will regulate the proposed DFI, which the government will fully own in initial years.

Privatisation

  • About the privatisation of two state- owned banks and one insurer, the companies will be identified by a government-defined process.
  • NITI Aayog will do the first round for selecting, then it will go to the core group of secretaries on disinvestment and, thereafter, the alternate mechanism will examine it.

Taxing Interest Incomes on EPF

The Union Budget 2021-22 proposed to tax the interest income on Provident Fund (PF) contributions by employees exceeding Rs. 2.5 lakh a year.

  • The Ministry of Finance expressed concerns over investments as much as Rs. 1 crore each month into PF and suggested it was unfair that they get tax concessions as well as an assured return.
  • The Employees' Provident Fund (EPF) Scheme is managed under the aegis of the Employees' Provident Fund Organisation (EPFO).
  • EPFO is a government organization that manages provident fund and pension accounts for the workforce engaged in India's organized sector.

Key Points

About the Employees' Provident Fund (EPF) Scheme

  • The Employee Provident Fund is open for both the Public and Private Sectors employees. Additionally, any organisation that employs at least 20 individuals is mandatorily liable to extend benefits of EPF to its employees.
  • Both employer and employee contribute 12% of an employee's monthly salary (basic wages plus dearness allowance) to the EPF scheme.
  • Of the employer's share of 12%, 8.33% is diverted towards the Employees Pension Scheme (EPS).
  • EPF scheme is mandatory for employees who draw Rs' basic wage. 15,000 per month. o The EPF interest rate is declared every year by the EPFO.
  • EPFO implements the Employees' Provident Fund and Miscellaneous Provisions Act, 1952.
  • The EPF Act, 1952 provides for the institution of provident funds for employees in factories and other establishments.
  • This savings scheme offers tax exemption under Section 80C of the Income Tax Act.

Proposed Tax on Income

  • The annual contribution to EPF and Gratuity - and also voluntary contributions to EPF - will be added. If the aggregate contribution exceeds Rs 2.5 lakh, the interest income on that will be taxed at the marginal tax rate in which the income of the individual falls.
  • Importantly, only the contribution linked to the employees' component will be calculated for taxation purposes. The employer's contribution towards the EPF will not be considered for the calculation.
  • The interest income on the additional contribution of a year will get taxed every year.
  • This means that if an individual's annual contribution to PF in FY22 is Rs. 10 lakh, the interest income on Rs 7.5 lakh will get taxed not only for FY22 but also for all subsequent years.
  • The average normal EPF contributor would not be affected by this new proposal.

Reasons for Taxing Interest Income on PF Contributions

Preventing Misuse of the Scheme

  • The government has found instances where some employees are contributing huge amounts to these funds and are getting the benefit of tax exemption at all stages - contribution, interest accumulation and withdrawal.
  • Since any tax exemption is provided through taxpayers' money, it was unfair to allow High Networth Individuals (HNIs) depositing large sums in EPF to earn an ascontributeunder EPFO) and tax-free income together.
  • HNIs: Those people with investable assets above a certain figure.
  • Earlier, the government had capped employers' contributions into employee welfare schemes like the EPF or the National Pension Scheme or a superannuation plan, at Rs. 7.5 lakh a year.
  • However, government as well as private sector employees are allowed to make voluntary contributions over and above the statutory deductions into the general provident fund (available only for government employees) or EPF (available for government as well as private sector employees). 

Promoting Equity among PF Contributors

  • Of an estimated 4.5 crore EPF accounts, about 0.27% members had an average corpus of Rs. 5.92 crore and were earning over Rs. 50 lakh a year as "tax-free assured interest".
  • This is a misuse of the welfare scheme to promote savings and provide social security to lower and middle income groups of employees.

Increased Farm Exports

According to the Ministry of Commerce and Industry, farm exports have registered 9.8% growth for the period of April-December 2020.

  • Previously, the government of India launched the Remission of Duties or Taxes on Export Product (RoDTEP) scheme replacing Merchandise Exports from India Scheme (MEIS) to further improve exports.

Key Points

Data for April-December 2020

  • Overall merchandise exports: Registered 15.5% fall. o Farm exports: Registered 9.8% growth.
  • Overall merchandise exports include all the goods manufactured in India while Farm exports include only the agricultural products.

Reasons for Growth in Farm Exports

Rising International Prices

Normalisation of Demands

  • Due to steady normalisation of demand with most countries unlocking their economies after May 2020 and, at the same time, restoration of supply chains post-Covid not keeping pace has made exports of many farm products from India competitive.
  • That includes non-basmati rice, sugar, oilseed meals, cotton and even wheat and other cereals (mainly maize).
  • Earlier, the United Nations (UN) Food and Agricultural Organization (FAO), released its latest Food Price Index (FPI) for January 2021, which showed that the FPI has increased from a 48-month-low to a 78-month-high.

Chinese Stockpiling

  • Global prices have also been increased by Chinese stockpiling.
  • It had stepped up imports of everything - from maize, wheat, soyabean and barely to sugar and milk powder - to build strategic food reserves amid geopolitical tensions.

Dry Weather of Different Countries

  • The current export revival is a result of dry weather conditions in major producing countries such as Argentina, Brazil, Ukraine, Thailand and Vietnam.
  • Russia (world's largest wheat exporter) and Argentina (No. 1 in soybean meal and No. 3 in maize) have even announced temporary suspension or taxes on grain shipments in response to high domestic food inflation.

India's Surplus Monsoon

  • India, on the other hand, hasn't faced serious weather issues; both 2019 and 2020 recorded surplus monsoon rainfall along with timely onset of winter.

Agriculture Exempted from Lockdown

  • Farmers harvested a bumper rabi crop during April-June, enabled by the government exempting agriculture-related activities from lockdown restrictions.

Significance of Rising Exports

  • If it sustains, it can help increase crop prices when the next rabi harvest is due from March 2021. This may be politically useful in a context of farm unrest.
  • It will help in achieving the USD 5-trillion economy goal by India.
  • It will help achieve an ambitious target of doubling farmers' income by 2022.
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