December 2020: Current Affairs Economy | Indian Economy for State PSC Exams - BPSC (Bihar) PDF Download

Minimum Support Price for Crops

One of the significant demands of protesting farmers has been that the government guarantees in writing the Minimum Support Price system, which assures them of a fixed price for their crops, 1.5 times the cost of production.

• Farmer Unions are protesting against the newly enacted three farm laws and the Electricity Amendment Bill 2020.

Key Points

➤ Minimum Support Price

• MSP is a "minimum price" for any crop that the government considers remunerative for farmers and deserving “support". 
• It is also the price that government agencies pay whenever they procure the particular crop. 
• The Union Budget for 2018-19 had announced that MSP would be kept at levels of 1.5 the cost of production.

➤ MSP is given for the following crops

• The Commission for Agricultural Costs & Prices (CACP) recommends MSPs for 22 mandated crops and fair and remunerative price (FRP) for sugarcane. 
• CACP is an attached office of the Ministry of Agriculture and Farmers Welfare, Government of India.
• It came into existence in January 1965.
• It is an advisory body whose recommendations are not binding on the Government.
• The mandated crops include 14 crops of the kharif season, 6 rabi crops and 2 other commercial crops. 
• In addition, the MSPs of toria and de-husked coconut are fixed based on the MSPs of rapeseed/mustard and copra, respectively. 

➤ The list of crops are as follows

• Cereals (7): Paddy, wheat, barley, jowar, bajra, maize and ragi,
• Pulses (5): Gram, arhar/tur, moong, urad and lentil,
• Oilseeds (8): Groundnut, rapeseed/mustard, toria, soyabean, sunflower seed, sesamum, safflower seed and niger seed,
• Raw cotton, Raw jute, Copra, De-husked coconut, and Sugarcane (Fair and remunerative price).
• The CACP considered various factors while recommending the MSP for a commodity, including cost of cultivation.
• It also took into account the supply and demand situation for the commodity, market price trends (domestic and global) and parity vis-a-vis other crops, and implications for consumers (inflation), environment (soil and water use) and terms of trade between agriculture and non-agriculture sectors.

➤ Changes made by the 2018-19 budget

• Budget for 2018-19 announced that MSPs would henceforth be fixed at 1.5 times of the production costs for crops as a "predetermined principle". o CACP's job is to estimate production costs for a season and recommend the MSPs by applying the 1.5-times formula.

➤ Mechanism of arriving at Production Cost

• The CACP does not do any field-based cost estimates itself.
• It makes projections using state-wise, crop- specific production cost estimates provided by the Directorate of Economics & Statistics in the Agriculture Ministry.
• The latter are, however, generally available with a three-year lag.
• The CACP projects three kinds of production cost for every crop, both at state and all-India average levels.
• 'A₂'
• Covers all paid-out costs directly incurred by the farmer in cash and kind on seeds, fertilisers, pesticides, hired labour, leased-in land, fuel, irrigation, etc.
• 'A₂ + FL'
• Includes A₂ plus an imputed value of unpaid family labour.
• 'C₂'
• It is a more comprehensive cost that factors in rentals and interest forgone on owned land and fixed capital assets, on top of A₂+FL. 

➤ Issues with the Pricing

• In the 2018-19 Budget Speech, the government did not specify the cost on which the 1.5-times formula was to be computed.
• The CACP's 'Price Policy for Kharif Crops: The Marketing Season 2018-19' report stated that its MSP recommendation was based on 1.5 times the A2+FL costs.
• Farm activists demand that the 1.5-times MSP formula originally recommended by the National Commission for Farmers headed by agricultural scientist M S Swaminathan should be applied on the C₂ costs.

➤ Government's Stand

• CACP considers all costs in a comprehensive manner which is based on the methodology recommended by Expert Committees from time to time.
• CACP considers both A₂ + FL and C₂ costs while recommending MSP.
• CACP reckons only A₂ + FL cost for return. However, C₂ costs are used by CACP primarily as benchmark reference costs.

Monetary Policy: RBI

Recently, the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) has left the repo rate unchanged and maintained an accommodative policy stance as it prioritised support for the economy's recovery over inflation amid the Covid-19 pandemic.

• It has also announced various other liquidity management measures and steps to improve the financial system's regulatory oversight.
• The MPC is a statutory and institutionalized framework under the RBI Act 1934, for maintaining price stability, while keeping in mind the objective of growth. It determines the policy interest rate (repo rate) required to achieve the inflation target (4%).

Key Points

➤ Repo Rate

• The MPC has kept the RBI's key lending rate, the repo rate, steady at 4% and reverse repo rate at 3.35%.
• The repo rate, also known as the policy rate, is the interest rate at which the RBI provides loans to banks.
• The reverse repo is the rate at which commercial banks park their money with the central bank.
• It has left key policy rates unchanged for the third time in a row in the wake of persistently high retail inflation, even as it pointed to the economy, which contracted in the last two quarters, showing signs of early recovery.
• The central bank has slashed the repo rate by 115 basis points (bps) since late March to cushion the economy from the fallout of the Covid-19 and the resultant lockdowns.
• Generally, a low repo rate translates into low cost loans for the general masses.

➤ GDP Projections

• The real Gross Domestic Product (GDP) for FY 2020-21 has been projected at -7.5%.
• Real GDP is an inflation-adjusted measure that reflects the value of all goods and services produced by an economy in a given year.
• However, with the country gradually opening up after the lockdown and the improvement in activity in the second quarter, GDP is expected to expand by 0.1% in the December quarter and 0.7% in the March quarter.
• GDP growth contracted by 23.9% in the Q1 of 2020 compared to the same period (April- June) in 2019.

➤ Inflation

• Inflation still remains a concern for policymakers as the supply-side bottlenecks had fuelled inflation and large margins were being charged to the consumer.
• Cost push pressure or cost push inflation impinge on core inflation, which has not changed much and could firm up as economic activity normalises and demand picks up.
• Cost-push Inflation: Spurt in production prices of certain commodities also causes inflation as the final product's price increases.
• Core Inflation: It excludes volatile goods from the basket of commodities tracking Headline Inflation. These volatile commodities mainly comprise food and beverages (including vegetables) and fuel and light (crude oil).
• RBI projected retail inflation to average 6.8% in Q3, before moderating to 5.8% in Q4 and 5.2% to 4.6% in the first half of the fiscal year 2021-22, with risks broadly balanced.
• This constrains monetary policy at the current juncture from using the space available to act in support of growth. Simultaneously, the signs of recovery are far from being broad-based and are dependent on sustained policy support.
• Consumer Price Inflation (CPI) at a six-year high of 7.6% in October, which is well above its medium target level of 4% within a plus/minus 2% band.

➤ Accommodative Stance

• The MPC had decided to continue with the accommodative stance as long as necessary, at least during the current financial year and into the next financial year, to revive growth on a durable basis and mitigate the impact of Covid-19 on the economy.

➤ Risk-based Internal Audit Norms

• RBI has announced the introduction of risk-based internal audit norms for large Urban Cooperative Banks (UCBs) and Non-Banking Financial Companies (NBFCs) to improve governance and assurance functions at supervised entities.
• The RBI also moved to harmonise the guidelines on the appointment of statutory auditors for commercial banks, UCBs and NBFCs in order to improve the quality of financial reporting.
• It had been decided to put transparent criteria for the declaration of dividends by different categories of NBFCs.
• To deepen financial markets, regional rural banks would be allowed to access the Liquidity Adjustment Facility (LAF) and Marginal Standing Facility (MSF) of the RBI and the call/ notice money market.
• LAF is a tool used in monetary policy by the RBI, that allows banks to borrow money through repurchase agreements (repos) or for banks to make loans to the RBI through reverse repo agreements.
• MSF is a window for scheduled banks to borrow overnight from the RBI in an emergency situation when interbank liquidity dries up completely. Under interbank lending, banks lend funds to one another for a specified term.

➤ Digital Payment Security Controls Directions

• To significantly improve digital payment channels' ecosystem with robust security and convenience for users, the RBI has proposed to issue Digital Payment Security Controls directions for the regulated entities.
• These directions will contain requirements for robust governance, implementation and monitoring of certain minimum standards on common security controls for channels like Internet and mobile banking and card payments.

➤ Targeted Long-Term Repo Operations

• RBI has decided to bring the 26 stressed sectors identified by the Kamath Committee within the ambit of sectors eligible under on tap Targeted Long-Term Repo Operations (TLTRO), providing more liquidity to the slowdown-hit economy.
• The RBI had announced the TLTRO on Tap scheme in October 2020, which will be available up to 31st March 2021.
• Accordingly, it was decided to conduct on tap TLTRO with tenors of up to three years for a total amount of up to Rs. 1 lakh crore at a floating rate linked to the policy repo rate with flexibility to enhance the amount and period after a review of the response to the scheme.
• Under TLTRO, banks can invest in specific sectors through debt instruments like corporate bonds, commercial papers, and non-convertible debentures (NCDs) to push the economy's credit flow.
• As part of the Aatmanirbhar Bharat Package 3.0, the Centre launched the Emergency Credit Line Guarantee Scheme 2.0 (ECLGS 2.0).
• Under it, the corpus of Rs. 3 lakh crore of existing ECLGS 1.0 was extended to provide 100% guaranteed collateral-free additional credit to entities in 26 stressed sectors identified by the Kamath panel.
• According to the RBI, banks are encouraged to synergise the two schemes by availing funds from RBI under on tap TLTRO and seek guarantee under ECLGS 2.0 to provide credit support to stressed sectors.

Fall in Manufacturing PMI

The Purchasing Managers' Index (PMI) for India's manufacturing shows that the sector's expansion as well as the pace of new orders slowed down while employment declined further as business optimism faded during November.

• PMI is an indicator of business activity in the manufacturing and services sectors.

Key Points

➤ Data Analysis

• India's Purchasing Managers' Index (PMI) fell to a three-month low of 56.3 in November from an over 12-year high of 58.9 in October.
• In PMI parlance, a print above 50 means expan­sion, while a score below denotes contraction.
• Although India's PMI is in the expansion zone, the ongoing rise in Covid cases in some states and uncertainty about regional lockdowns is denting confidence.
• There were slower increases in factory orders, exports, buying levels and output.
• Indian manufacturers are refraining from hiring. Employment fell in November as companies observed social distancing guidelines.

➤ Calculation of PMI

• It is a survey-based measure that asks the respondents about changes in their perception about key business variables as compared with the previous month.
• The purpose of the PMI is to provide information about current and future business conditions to company decision-makers, analysts, and investors.
• It is calculated separately for the manufacturing and services sectors and then a composite index is also constructed.
• The PMI is a number from 0 to 100.
• PMI above 50 represents an expansion when compared to the previous month;
• PMI under 50 represents a contraction, and
• A reading at 50 indicates no change.
• If PMI of the previous month is higher than the PMI of the current month (as is the case mentioned above), it represents that the economy is contracting.
• It is usually released at the start of every month. It is, therefore, considered a good leading indicator of economic activity.
• PMI is compiled by IHS Markit for more than 40 economies worldwide. IHS Markit is a global leader in information, analytics and solutions for the major industries and markets that drive economies worldwide.
• As the official data on industrial output, manufacturing and GDP growth comes much later, PMI helps make informed decisions at an earlier stage.
• It is different from the Index of Industrial Production (IIP), which also gauges the economy level.

Municipal Bonds

Recently, Rs. 200-crore worth Lucknow Municipal Corporation (LMC) bonds have been listed on the Bombay Stock Exchange (BSE).

• Lucknow becomes ninth city to raise municipal bonds, incentivised by the Ministry of Housing and Urban Affairs (Mohua) under Mission Amrut.
• BSE is the oldest stock exchange in India as well as Asia.

Key Points

➤ Municipal Bonds

• A municipal bond (muni) is a debt security issued by a state, municipality or county to finance its capital expenditures, including highways, bridges or schools.
• Through muni bonds, a municipal corporation raises money from individuals or institutions. It promises to pay a specified amount of interest and returns the principal amount on a specific maturity date.
• These are mostly exempt from federal taxes and from most state and local taxes, making them especially attractive to people in high income tax brackets.

Mission Amrut

➤ Atal Mission for Rejuvenation and Urban Transfor­mation (Amrut) was launched in 2015 to:

• Ensure that every household has access to a tap with the assured supply of water and a sewerage connection.
• The Priority zone of the Mission is water supply followed by sewerage. 
• Increase the amenity value of cities by developing greenery and well maintained open spaces (e.g. parks).
•  Reduce pollution by switching to public transport or constructing non-motorized transport facilities (e.g. walking and cycling).
• It is a centrally sponsored scheme with 80% budgetary support from the Centre.

➤ History of Municipal Bonds Issuance in India

• Municipal bonds were first issued in India in 1997, five years after the 74th Constitutional Amendment decentralized urban local bodies, gave them autonomy; made them accountable to citizens, and reformed their finances, enabling them to access capital markets financial institutions.
• Between 1997 and 2010, the city corporations of Bengaluru, Ahmedabad and Nashik experimented with bond issues but barely managed to raise Rs. 1,400 crore.
• The poor investor response was because these bonds were not tradable and lacked regulatory clarity.
• Securities and Exchange Board of India (SEBI)'s detailed guidelines for the issue and listing of municipal bonds in March 2015, clarified their regulatory status and rendered them safer for investors.
• In 2017, Pune Municipal Corporation had raised Rs. 200 crore through muni bonds at an interest of 7.59% to finance its 24x7 water supply project.
• The plan was to raise Rs. 2,264 crore in five years in what was then the biggest municipal bonds programme in the country.

➤ Significance of Municipal Bonds Market

• Municipal Bonds can help the Urban Local Bodies (ULBs) to garner revenue to complete budgetary projects as property tax is the only major source of municipal revenue.
• Growth of the municipal bond market is critical for India's large cities and towns to upgrade their creaking infrastructure.
• The ability of municipal bodies to be self-sustaining is also critical to the success of the Centre's pet projects such as Smart Cities and Amrut.

Benefits of Municipal Bonds for Investors

➤ Transparency

• Municipal bonds issued to the public are rated by renowned agencies such as CRISIL, which allows investors transparency regarding the credibility of the investment option.

➤ Tax benefits

• In India, municipal bonds are exempted from taxation if the investor conforms to certain stipulated rules. In addition to such conformation, interest rates generated on such investment tools are also exempt from taxation policy.

➤ Minimal risk

• Municipal bonds are issued by municipal authorities, implying minimal risk with these securities.
• Government bonds are usually viewed as low- risk investments, because the likelihood of a government defaulting on its loan payment tends to be low.

➤ Challenges

• Reduced investor trust and confidence: Weak financial position and poor governance and management of city agencies have limited their ability to issue bonds, and reduced investor trust and confidence.     
• No authentic financial data available: Investors doubt local bodies as there is no authentic financial data available.
• Other Issues: Low accountability and autonomy of city agencies followed by lack of an enabling environment.

➤ Suggestions

• With the plight of the Covid-19, revenue generation and state finances have come to a virtual standstill, hampering the funding of ULBs. However, under the Atmanirbhar Bharat Abhiyan package, states are offered an increase in borrowing capacity, based on potential reform of the urban property tax regimen.
• Still, most urban local bodies do not have the institutional agency to raise funds, systemise accounting, and put up bankable projects. To address this, the reforms enlisted in the 15th Finance Commission (which makes it mandatory for urban local bodies to submit audited accounts by linking them to grant disbursement) must be implemented.

Database of Migrants

The Government has decided to create a database of migrant workers, including workers in the informal economy.

• Migration is the movement of people away from their usual place of residence, across either internal (within country) or international (across countries) borders. The latest government data on migration comes from the 2011 Census.
• As per the Census, India had 45.6 crore migrants in 2011 (38% of the population) compared to 31.5 crore migrants in 2001 (31% of the population).

Key Points

➤ Background

• o The Inter-State Migrant Workmen Act, 1979, required all establishments who hired inter-state migrants to be registered, as well as all contractors who recruited these workers to be licensed. o Proper implementation of this law would have ensured information on inter-state migrants to aid the state machinery in its relief efforts.
• • However, no such detailed records were maintained, and information on the number of migrants was unavailable to both central and state governments.
•  o A comprehensive database for migrant and other unorganised sector workers is seen as necessary in the wake of the Covid-19 pandemic.

➤ Recent Government Initiatives to help returning migrants find livelihood

• The Ministry of Skill Development and Entre­preneurship (MSDE) has launched 'Atma Nirbhar Skilled Employee Employer Mapping (ASEEM)' portal to help skilled people find sustainable livelihood opportunities.
• Database of labour migrants in Indian states and overseas citizens, who returned to India under the Vande Bharat Mission and filled SWADES Skill Card, has been integrated with the ASEEM portal.
• The National Disaster Management Authority (NDMA) has developed an online dashboard called 'National Migrant Information System (NMIS)'
• The online portal (NMIS) would maintain a central repository of migrant workers and help in speedy inter-state communication to facilitate the smooth movement of migrant workers to their native places.
• The Maharashtra Government has launched a portal named 'Mahajobs' for job seekers and employers, owing to the economic situation caused by Covid-19 pandemic.

➤ Atma Nirbhar Uttar Pradesh Rozgar Abhiyan

• The scheme seeks to promote local entrepre­neurship and create partnership with industrial associations to provide employment opportu­nities to 1.25 crore migrant workers who lost their jobs during the Covid-19 pandemic. The state government has already mapped the workers' skill so that they can be provided employment as per their expertise.
• The migrant commission announced by the Uttar Pradesh government will map skills of workers who have returned to the state, providing data to employment exchanges.

➤ Causes for Migration

• Migration is a global phenomenon caused not only by economic factors but many other factors like social, political, cultural, environmental, health, education are included under the broader classification of Push and Pull factors of migration.
• Push Factor: Push factors compel a person, due to different reasons, to leave a place of origin (out-migration) and migrate to some other place.
• Pull Factor: Pull factors indicate the factors which attract migrants (in-migration) to an area (destination).

➤ Patterns of Migration

• Internal migrant flows can be classified based on origin and destination:
• Rural-rural, rural-urban, urban-rural and urban-urban.
• Another way to classify migration is Intra-state, and inter-state.
• As of 2011, Uttar Pradesh and Bihar were the largest source of inter-state migrants while Maharashtra and Delhi were the largest receiver states. Around 83 lakh residents of Uttar Pradesh and 63 lakh residents of Bihar had moved either temporarily or permanently to other states.

➤ Plan for the Database

• The plan aims to get data from existing databases of government schemes such as MGNREGA, and the one nation-one ration card to create a unique registration of migrant workers. o Details of those working in unorganised sectors not covered by such schemes, are likely to be added separately.
• Aadhaar platform would be used to address duplicity and ghost cards.

Issues

➤ No collection of data of intra-state migrants

• The scope of the database needs to be expanded to include both sets of migrants.

➤ Discrepancy in definition of employed

• The extent of migration in the country depends on the definition of employed. For example, the definitions used by the National Sample Survey and the Census are different.
• A comprehensive definition needs to be worked out for employment.

➤ Technological Constraints

• Merging the existing databases at the state level may be problematic as the softwares and data storage structures may be different.
• Aadhaar-linked databases may have security concerns.

➤ Lack of clarity over registration of workers

• No registration procedure yet mentioned, whether the process to register will be voluntary or by a government agency.
• Track over migration flows etc has not been discussed.

➤ Portability Issue

• Governments will also have to examine the portability of benefits across states.
• Inter-State Migrant Workmen Act, 1979
• The Act seeks to regulate the employment of inter­State migrants and their conditions of service.
• It applies to every establishment that employs five or more migrant workmen from other States; or if it had employed five or more such workmen on any day in the preceding 12 months.
• It is also applicable to contractors who employed a similar number of inter-State workmen.
• It envisages a system of registration of such establishments. The principal employer is prohibited from employing inter-State workmen without a certificate of registration from the relevant authority.
• The law also lays down that every contractor who recruits workmen from one State for deployment in another State should obtain a licence to do so.

RBI Working Paper on Asset Quality and Credit Channel

Recently, a Reserve Bank of India (RBI) working paper on 'Asset quality and credit channel of monetary policy transmission in India' has been released.

• RBI introduced the RBI Working Papers series in March 2011.

Key Points

➤ Credit Channel

• The credit channel of monetary policy transmission is robust in India and operates through lending changes.
• There are two ways the credit channel can work: affecting overall bank lending (the bank lending channel) and affecting the allocation of loans (the balance sheet channel).

➤ Credit Deceleration

• Credit growth deceleration in India since 2013 is explained by asset quality stress in the banking system, slowdown in economic activity and moderation in bank deposits. 
• The growth rate in credit offtake has steeply declined to 5.8% in November 2020, as against 14.2% in 2013.
• A wide divergence has also been observed in credit growth of public and private sector banks.

Potential Determinants of Credit Growth

➤ Asset Quality Stress

• Since the early 2010s, banks' asset quality in India has worsened gradually, impacting their profitability.
• Asset quality of Scheduled Commercial Banks (SCBs) is measured as a ratio of gross non­performing assets (GNPAs) to gross advances.

➤ Nominal GDP Growth

• Higher growth in nominal Gross Domestic Product (GDP) increases credit demand.
• The decline in credit growth post 2013 was mainly due to a surge in bad loans, accentuated by a slowdown in GDP.
• Nominal GDP is an economic production assessment in an economy that includes current prices in its calculation.
• Nominal differs from real GDP in that it includes changes in prices due to inflation, which reflects the rate of price increases in an economy.

➤ Deposit Growth

• Deposit growth has remained highly volatile, especially from the second half of 2015.
• It needs to be noted that a financial institution with a greater availability of funds will be better positioned to provide more credit to borrowers.

➤ Investment Growth

• The surge in investment growth has also added to the slowdown in credit growth.
• Banks invest in securities, lower resources would be available for extending as credit.
• In India, investments by banks include both investment in government securities as prescribed under the statutory obligations (statutory liquidity ratio or SLR) and voluntary investments held in government securities and bonds/debentures/shares of corporate bodies.

➤ Interest Rates

• Higher the interest rates, higher will be the cost of borrowing and hence, lower would be the demand for credit.

➤ Other Bank-specific Characteristics

• Such as the size of the bank and capitalisation (an estimation of a business's value).

➤ Measures Taken

• The accommodative stance of monetary policy and reduction in the policy repo rate (starting from 2019) helped cushion the credit deceleration.
• An accommodative stance means a central bank will cut rates to inject money into the financial system whenever needed.
• Repo Rate, or repurchase rate, is the key monetary policy rate of interest at which the central bank or the Reserve Bank of India (RBI) lends short term money to banks.
• Everything from interest rates on loans to returns on deposits is influenced by this crucial rate.
• The central bank has slashed policy repo rate by 350 basis points to 4% now from 7.50% in March 2013.
• After the Asset Quality Review (AQR), since 2015, many hidden bad loans had surfaced, forcing the government to enact the Insolvency and Bankruptcy Code (IBC) for resolution of bad loans.
• Despite the lockdown, layoffs and closure of many units in the wake of the Covid-19 pandemic, gross NPAs of 31 banks witnessed a decline of 5.25% in absolute terms as the RBI allowed relaxation in the computation of bad loans and announced a loan restructuring scheme.

Fraud Cases in Public Sector Banks

Public Sector Banks (PSBs) have been reviewing loan accounts and are expected to report more fraud cases in accounts which have earlier been put under their Early Warning Signals (EWS) system.

• The Reserve Bank of India (RBI) developed the EWS framework as it noticed a delay in the detection and reporting of banking frauds.
• The EWS framework's objective is to prevent and detect these offences, provide timely reporting to regulators, and initiate staff accountability proceedings thereby ensuring that the operations and risk-taking ability of the banks is not impacted.

Key Points

➤ Data Analysis

• The total cases of frauds (involving '1 lakh and above) reported by banks and financial institutions shot up by 28% by volume and 159% by value during 2019-20 despite the Reserve Bank of India (RBI) tightening the supervision and vigilance.
• While there were 6,799 frauds involving '71,543 crore as of March 2019, the number of frauds jumped to 8,707 involving Rs.1,85,644 crore, says the RBI's Annual Report 2020.
• PSBs topped the fraud table with 4,413 cases involving '1,48,400 crore.
• Private banks reported 3,066 frauds involving '34,211 crore.

➤ Current Scenario

• Banks are going through their accounts which were put on alert earlier. They will report fraud wherever such instances are found in large accounts, and make 100% provision against them.
• These are being reviewed thoroughly to ensure that banks have adequately provisioned balance sheets.
• The RBI also indicated that the frauds registered during 2019-20 actually occurred in the loans sanctioned during 2010-2014.
• The average lag between the date of occurrence of frauds and their detection by banks and financial institutions was 24 months during 2019-20.
• In large frauds, of '100 crore and above, the average lag was 63 months.
• After forensic audit and investigation into these accounts, diversions and other issues were found.
• RBI defines diversion of funds as utilisation of short-term working capital funds for long-term purposes not in conformity with the terms of sanction; deploying borrowed funds for purposes/activities other than those for which the loan was sanctioned; and transferring borrowed funds to subsidiaries/group companies or other corporates by whatever modalities.

➤ Reasons

• Weak implementation of EWS by banks.
• Non-detection of EWS during internal audits.
• Internal audits evaluate a company's internal controls, including its corporate governance and accounting processes.
• They ensure compliance with laws and regulations, help maintain accurate and timely financial reporting and data collection.
• Non-cooperation of borrowers during forensic audits.
• Forensic audit is an examination and evaluation of a firm's or individual's financial records to derive evidence that can be used in a court of law or legal proceeding. 
• Inconclusive audit reports. 
• Lack of decision making in Joint Lenders' meetings account.

➤ Overcoming Measures

• The EWS mechanism is getting revamped alongside the strengthening of the concurrent audit function, with timely and conclusive forensic audits of borrower accounts under scrutiny.
• RBI is engaged in interlinking various databases and information systems to improve fraud monitoring and detection. o Online reporting of frauds by the Non-Banking Financial Companies (NBFC) and the Central Fraud Registry (CFR) portal of Scheduled Commercial Banks (SCBs) augmented with new features, are likely to be operational by January 2021.
• RBI has put in place CFR, a searchable database to help banks detect instances of fraud by borrowers early on.

India to Become Fifth Largest Economy in 2025

A recent report published by the Centre for Economics and Business Research (CBER) has predicted that India will again overtake the UK to become the fifth largest economy in 2025 and race to the third spot by 2030.

• CBER is a UK based company that gives independent economic forecasts for public and private firms.

Key Points

➤ Findings

• The Indian economy will expand by 9% in 2021 and by 7% in 2022.
• This growth trajectory will see India become the world's third largest economy by 2030, overtaking the UK in 2025, Germany in 2027 and Japan in 2030.
• China in 2028 will overtake the USA to become the world's biggest economy, five years earlier than previously estimated due to the contrasting recoveries of the two countries from the Covid-19 pandemic.
• Japan would remain the world's third-biggest economy, until the early 2030s when it would be overtaken by India, pushing Germany down from fourth to fifth.

➤ Current Scenario

• Previously, India had overtaken the UK in 2019 to become the fifth largest economy globally but has been relegated to 6th spot in 2020.
• The five economies ahead are the United States, China, Japan, Germany and the United Kingdom respectively.
• India's economy had been losing momentum even ahead of the shock delivered by the Covid-19 crisis.
• The rate of Gross Domestic Product (GDP) growth sank to a more than ten-year low of 4.2% in 2019.
• Slowing growth has been a consequence of a confluence of factors including fragility in the banking system, adjustment to reforms (Demonetisation, GST) and a deceleration of global trade.
• GDP in Q2 (April-June) 2020 was 23.9% below its 2019 level, indicating that nearly a quarter of the country's economic activity was wiped out by the drying up of global demand and the collapse of domestic demand that accompanied the series of strict national lockdowns.

➤ Suggestions

• The pace of the economic recovery will be indistinguishably linked to the development of the Covid-19 pandemic, both domestically and internationally.
• As the manufacturer of the majority of the world's vaccines and with a 42-year-old vaccination programme (Universal Immunisation Programme) that targets 55 million people each year, India is better placed than many other developing countries to roll out the vaccines successfully and efficiently next year.
• In the medium to long term, reforms such as the 2016 demonetisation and more recently the controversial efforts to liberalise the agricultural sector can deliver economic benefits.
• However, with most of the Indian workforce employed in the agricultural sector, the reform process requires a delicate and gradual approach that balances the need for longer-term efficiency gains with the need to support incomes in the short-term.
• The infrastructure bottlenecks that exist in India mean that investment in this area has the potential to unlock significant productivity gains.
• Therefore, the outlook for the economy going forwards will be closely related to the government's approach to infrastructure spending.