1

Table of Contents
Small bank Licenses

Monetary Policy Committee 5

Digital India Initiative 7
Paris and Beirut attacks

SBI and ICICI declared as systematically important banks-What does it

mean? .....................................11
New GDP series - Does the figures reflect the ground
reality... 13
Slowdown in commodity
prices
15
Financial Inclusion in India

.17
What is MAT and controversy regarding MAT on FIIs/FPIs .
..20
Oil price fall - Reasons and views on the oil prices in
future22
SYRIAN
CRISIS
..25
Greece CrisisGrexit
.27
E-commerce: Boom or
Bust
30
Chinese slowdown and Yuan
devaluation32
FDI in multibrand retail.
35
Net Neutrality Pros and Cons.
..37
NPAs in the Banking Sector -Is the Indian corporate sector drowning in
debt? .....................................39
Payment
Banks
..41
Power and Coal Sector Reforms, MMDR bill, e-auctions in Rajasthan,
auctioning of coal mines.44

2
Latest FDI reforms - pros and
cons48
GST
BILL
53
NITI
AYOG
..56
Bankruptcy Law in India and Proposed
Changes.59
Rationalisation of
Taxes
61
Jam Trinity-Will it be a susbstitute for
PDS............................................................................................64
What is direct cash/benefit
transfer...................................................................................................
66
Indias bid for a permanent seat at UNSC-progress so far..
.69
Why labor reforms are
required..................................................................................................
.......71
Increase in the prices of pulses-reasons and steps taken by
govt..73
Land Acquisition Bill- current form and proposed
amendments.75
ISIS
..78
Fed rate
hike
...82
Gold bond
scheme
84
Is Swach Bharat cess
justified? ...................................................................................................
.......87
Why are short term borrowing rates increasing recently inspite of a huge
rate cut by RBI? ...............90
Paris climate summit and Indias
role.91

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IPOs
.94
Could the new H-1B visas hurt Indian IT
firms? ..................................................................................97
Bank of japan kept policy rates intact despite recession.
Why? .........................................................99

Small Bank Licenses

The Reserve Bank of India (RBI) on Wednesday granted 10 entities in-principle
licenses to open so-called small finance banksanother move towards expanding
access to financial services in rural and semi-urban areas.
Ujjivan Financial Services Pvt. Ltd, Janalakshmi Financial Services Pvt. Ltd and Equitas
Holdings Ltd are among the 10 entities. The others are Au Financiers (India) Ltd,
Capital Local Area Bank Ltd, Disha Microfin Pvt. Ltd, ESAF Microfinance and
Investments Pvt. Ltd, RGVN (North East) Microfinance Ltd, Suryoday Micro Finance
Pvt. Ltd, and Utkarsh Micro Finance Pvt. Ltd.
Small finance banks will offer basic banking services, accepting deposits and lending
to unserved and underserved sections including small business units, small and
marginal farmers, micro and small industries, and entities in the unorganized sector,
RBI said when it released guidelines for such banks in November.
These small banks cannot lend to big corporates and groups, cannot open branches
with prior RBI approval for first five years, other financial activities of the promoter
must not mingle with the bank, it cannot set up subsidiaries to undertake nonbanking financial services activities and it cannot be a business correspondent of any
bank
The licensing of small finance banks follows 11 payment bank licenses given out by
RBI last month to provide basic savings, and deposit, payment and remittance
services to people without access to the formal banking system. Payments banks will
not be in the business of lending.
Eight out of the 10 entities granted the in-principle approval, which is valid for 18
months, are microfinance institutions. The exceptions are Capital Local Area Bank
Ltd, which operates in five districts of Punjab, and Au Financiers. Local-area banks are
institutions that lend in contiguous districts, mobilizing rural savings and making
them available for local investments. Au Financiers is a non-banking financial
company. In total, 72 entities applied for a small finance bank license. The
applications were reviewed by a committee headed by former RBI deputy governor
Usha Thorat. A couple of prominent names that did not make it include UAE
Exchange, SKS Microfinance and Vaya Finserv, floated by Vikram Akula after he
exited SKS.
In a statement released on Wednesday, RBI said it had selected the 10 candidates to
start small finance banks after three different committees conducted a detailed case
study of each applicant.
Going forward, the Reserve Bank intends to use the learning from this licensing
round to appropriately revise the guidelines and move to giving licenses more
regularly, that is, virtually on tap.
One challenge will be the prudential norms they have to adhere to. Small finance
banks will be subject to most of the prudential norms that scheduled commercial
banks have to adhere to. For instance, they need to maintain a cash reserve ratio
(CRR), or portion of deposits to be set aside with the central bank, and statutory
liquidity ratio (SLR), or the portion of deposits to be invested in government
securities, as stipulated for commercial banks.

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Seventy-five percent of the credit advanced by small finance banks will need to go to
sectors that are considered part of the so-called priority sector, which includes
agriculture, small enterprises and low-income earners. Commercial banks have to
mandatorily lend 40% of their net bank credit to such sectors.
Small finance banks will also have to ensure that 50% of their loan portfolio
constitutes advances of up to Rs.25 lakh, said RBI.
Such banks can eventually apply to RBI to transit into universal banks once they have
established a satisfactory track record. Such a transition would be subject to due
diligence by the banking regulator.
The minimum paid-up equity capital for small finance banks was set at Rs.100 crore
and the minimum initial contribution from promoters fixed at 40% and this should be
brought down to 30% in 10 years. The Foreign shareholding is capped at 74% of paid
capital, FPIs cannot hold more than 24%

Monetary Policy Committee

A new draft of the Indian Financial Code put out by the government on Thursday
proposes to reduce the powers of the Reserve Bank of India (RBI) governor over
interest rate decisions by taking away the veto power that had been given to the
governor in an earlier version of the code. The code also continues to differ from
RBIs view on the structure of the monetary policy committee.
One crucial difference lies in the constitution of the committee. The RBIs internal
panel, the Urjit Patel committee, had recommended a five-member committee where
three members would be from the RBI and two external members would be
appointed by the RBI governor and the deputy governor in-charge. It was also
suggested that the governor would have a casting vote in case of a tie.
In contrast, the latest draft of the code is suggesting a seven-member committee
with four members being appointed by the government. The governor still gets a
casting vote if opinions are evenly divided but not the power to veto the committees
decision.
Globally, central banks follow different models. While some have governmentappointed members on these committees, the appointments are done in a manner to
avoid any political interference.
Urjit Patel committee recommendations
Based on some of the models followed by central banks all over the world, the RBIappointed Urjit Patel committee had also recommended a move towards a monetary
policy committee framework. According to those recommendations, the committee
would have five members including the RBI governor, deputy governor in-charge of
monetary policy and an executive director. The other two members would be external
appointees but would be picked by the RBI governor and deputy governor. They
would be given three-year terms each. Each would have a vote and the RBI governor
would have a casting vote in case of a situation where a member is absent and votes
are tied. The Patel committee did not actually recommend veto powers for the
governor, but the RBI was given almost complete control over the composition of the
committee
Indian Financial Code recommendations
What the latest draft of the Indian Financial Code is suggesting is different in two
ways. Firstly, it envisages a wider monetary policy committee with seven members.
Three members would be from the RBI, including the governor, an executive board
member and an RBI employee. The remaining four members would be appointed by
the government for a four-year term. The government will have the right to remove
these members mid-term under certain conditions. Each of these members would
have voting rights. A government nominee would also sit in on the meetings, but
would not have voting powers. Decisions will be taken by a majority vote, says the
code. In the event of a tie, the RBI governor would have a second and casting vote, it
adds, while removing the provision giving the RBI governor veto power of the
committee's decisions.
Decision

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After four months of debate and discussion, the Reserve Bank of India and the
Finance Ministry have overcome the stalemate on the proposed amendments to the
Reserve Bank of India Act to reset the responsibility of deciding Indias monetary
policy.
The Ministrys note for the Cabinets approval proposes a five-member Monetary
Policy Committee. The government will nominate two members and the RBI three
members. Each of the five members would have one vote and the RBI Governor,
chair of the committee, will have a casting vote in the event of a tie in situations such
as the absence of a member, a top official of the Finance Ministry told The Hindu.
However, it is still not clear whether the government will have the power to overrule
the decision of the governor. The inflation target for the RBI in each financial year will
be determined by the Government in consultation with the RBI itself.

Digital India Initiative

Digital India is an initiative by the Government of India to ensure that Government
services are made available to citizens electronically by improving online
infrastructure and by increasing Internet connectivity. It was launched on July 1, 2015
by Prime Minister Narendra Modi. The initiative includes plans to connect rural areas
with high-speed internet networks. Digital India has three core components. These
include:

The creation of digital infrastructure

Delivering services digitally
Digital literacy

The Digital India initiative seeks to lay emphasis on e-governance and transform
India into a digitally empowered society. The program is projected at Rs 1,13,000
crore which will prepare the country for knowledge-based transformation. The
Department of Electronics and Information Technology (deitY) anticipates that this
program will have a huge impact on the Ministry of Communication and IT. It is to
ensure that government services are available to citizens electronically. It will focus
on providing high speed internet services to its citizens and make services available
in real time for both online and mobile platform. Digital India also aims to transform
ease of doing business in the country. Modi's government is focusing on providing
broadband services in all villages of the country, tele-medicine and mobile healthcare
services and making the governance more participative.
Vision of Digital India initiative:
Here is what the government of India aims to achieve through Digital India initiative.
1. Infrastructure: The Digital India initiative has a vision to provide high speed
internet services to its citizens in all gram panchayats. Bank accounts will be given
priority at individual level. People will be provided with safe and secure cyber space
in the country.
2. Governance and services: Government services will be available online where
citizens will be ensured easy access to it. Transactions will be made easy through
electronic medium.
3. Digital empowerment of citizens: This is one of the most important factor of the
Digital India initiative to provide universal digital literacy and make digital sources
easily accessible. The services are also provided in Indian languages for active
participation.
9 major projects under the initiative:
1. Manufacturing of electronics: The government is focusing on zero imports of
electronics. In order to achieve this, the government aims to put up smart energy
meters, micro ATMs, mobile, consumer and medical electronics.

2. Provide public access to internet: The government aims to provide internet

services to 2.5 lakh villages which comprises of one in every panchayat by March
2017 and 1.5 lakh post offices in the next two years. These post offices will become
Multi-Service centres for the people.

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3. Highways to have broadband services: Government aims to lay national optical
fibre network in all 2.5 lakh gram panchayats. Broadband for the rural will be laid by
December 2016 and broadband for all urban will mandate communication
infrastructure in new urban development and buildings. By March 2017, the
government aims to provide nationwide information infrastructure.
4. Easy access to mobile connectivity: The government is taking steps to ensure that
by 2018 all villages are covered through mobile connectivity. The aim is to increase
network penetration and cover gaps in all 44,000 villages.
5. e-Governance: The government aims to improve processes and delivery of
services through e-Governance with UIDAI, payment gateway, EDI and mobile
platforms. School certificates, voter ID cards will be provided online. This aims for a
faster examination of data.
6. IT Training for Jobs: The government aims to train around 1 crore students from
small towns and villages for IT sector by 2020. Setting up of BPO sectors in North
eastern states is also part of the agenda
7. e-Kranti: This service aims to deliver electronic services to people which deals with
health, education, farmers, justice, security and financial inclusion.
8. Global Information: Hosting data online and engaging social media platforms for
governance is the aim of the government. Information is also easily available for the
citizens.
MyGov.in is a website launched by the government for a 2-way communication
between citizens and the government. People can send in their suggestions and
comment on various issues raised by the government, like net neutrality.
9. Early harvest programs: Government plans to set up Wi-fi facilities in all
universities across the country. Email will be made the primary mode of
communication. Aadhar Enabled Biometric Attendance System will be deployed in all
central government offices where recording of attendance will be made online.
Response to the Digital India initiative from global investors:
Global investors like Sundar Pichai, Satya Nadella, Elon Musk have supported Modi's
Digital India initiative.
Microsoft CEO, Satya Nadella intends to become India's partner in the Digital India
program. He said that his company will set up low cost broadband technology
services to 5 lakh villages across the country.
Sundar Pichai, CEO, Google said that India will play a big part in driving technology
forward in future which will improve people's lives in India.

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Paris and Beirut terrorist attacks

Beirut: A pair of suicide bombings struck southern Beirut on Thursday, killing 43
people and leaving shattered glass and blood on the streets, Lebanese authorities
said. At least 239 others were wounded, according to state-run National News
Agency.
A would-be suicide bomber who survived the attack told investigators he was an ISIS
recruit, a Lebanese security source said. The man, a Lebanese national from Tripoli,
Lebanon, was taken into custody after the blasts. He told authorities that he and
three other attackers arrived in Lebanon from Syria two days ago, the source said.
Lebanese intelligence believes the bombers could be part of a cell dispatched to
Beirut by ISIS leadership, the source said, but investigators are still working to verify
the surviving suspect's claim. The three other bombers were killed in the explosions.
In a purported ISIS statement circulated on social media, the terror group claimed
responsibility for the blasts. The explosions detonated within 150 meters (490 feet)
and five minutes of each other, Lebanon's state-run National News Agency said,
shaking an open-air market and other parts of the Bourj al-Barajneh district in
southern Beirut.
Paris: A series of coordinated terrorist attacks occurred in Paris and its northern
suburb, Saint-Denis, on the night of 13 November 2015. The attackers killed 130
people, including 89 at the Bataclan theatre, where they took hostages before
engaging in a stand-off with police. 368 people were injured, 8099 seriously. Seven
of the attackers also died, while authorities continued to search for accomplices.
Beginning at 21:20 CET, three suicide bombers struck near the Stade de France in
Saint-Denis, followed by suicide bombings and mass shootings at cafs, restaurants
and a music venue in Paris. The Islamic State of Iraq and the Levant (ISIL) claimed
responsibility for the attacks saying it was in retaliation for the French airstrikes on
ISIL targets in Syria and Iraq. The President of France, Franois Hollande, said the
attacks were an act of war by ISIL planned in Syria, organized in Belgium, and
perpetrated with French complicity.
In response, a state of emergency was declared, and temporary border checks were
introduced. On 15 November, France launched the biggest airstrike of Opration
Chammal, its contribution to the anti-ISIL bombing campaign, striking ISIL targets in
Al-Raqqah.On 18 November, the suspected lead operative of the attacks, Abdelhamid
Abaaoud, was killed in a police raid in Saint-Denis, along with at least two other
people.
France had been on high alert since the January 2015 attacks in Paris that killed 17
people, including civilians and police officers. The November attacks were the
deadliest on France since World War II, and the deadliest in the European Union since
the Madrid train bombings in 2004.
Around the crime scenes in south Beirut and central Paris alike, a sense of shock and
sadness lingered into the weekend, with cafes and markets quieter than usual. The
consecutive rampages, both claimed by the Islamic State, inspired feelings of shared,
even global vulnerability especially in Lebanon, where many expressed shock that
such chaos had reached France, a country they regarded as far safer than their own.

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But for some in Beirut, that solidarity was mixed with anguish over the fact that just
one of the stricken cities Paris received a global outpouring of sympathy akin to
the one lavished on the United States after the 9/11 attacks.
Monuments around the world lit up in the colors of the French flag; presidential
speeches touted the need to defend shared values; Facebook offered users a oneclick option to overlay their profile pictures with the French tricolor, a service not
offered for the Lebanese flag. On Friday the social media giant even activated Safety
Check, a feature usually reserved for natural disasters that lets people alert loved
ones that they are unhurt; they had not activated it the day before for Beirut. The
implication, numerous Lebanese commentators complained, was that Arab lives
mattered less. Either that, or that their country relatively calm despite the war
next door was perceived as a place where carnage is the norm, an undifferentiated
corner of a basket-case region. The disparity in reactions highlighted a sense in the
region of being left alone to bear the brunt of Syrias deadly four-year war, which has
sent more than four million refugees fleeing, mostly to neighboring countries like
Lebanon. For the Lebanese, the government has been little help, plagued as it is with
gridlock and corruption that have engendered electricity and water shortages and,
most recently, a collapse of garbage collection. Many in the region both supporters
and opponents of the Syrian government say they have long warned the
international powers that, if left unaddressed, the conflict would eventually spill into
the West.
To be sure, the attacks meant different things in Paris and Beirut. Paris saw it as a
bolt from the blue, the worst attack in the city in decades, while to Beirut the
bombing was the fulfillment of a never entirely absent fear that another outbreak of
violence may come. Some blamed news coverage for the perception that Beirut is
still an active war zone. They cited headlines including, briefly, a Times one that
was soon changed to be more precise that refer to the predominantly Shiite
neighborhood where the bombing took place as a stronghold of the militia and
political party Hezbollah.
The recent attacks in Paris and Beirut and the downing of a Russian airliner in Egypt
were the first results of a centrally planned terrorism campaign by a wing of the
Islamic State leadership that oversees "external" targets, according to US and
European intelligence officials.
The Islamic State's overseas operations planning cell offers strategic guidance,
training and funding for actions aimed at inflicting the maximum possible civilian
casualties, but leaves the task of picking the time, place and manner of the attacks
largely to trusted operatives on the ground, the officials said. Carrying out attacks far
from the Islamic State's base in Iraq and Syria represents an evolution of the group's
previous model of exhorting followers to take up arms wherever they live but
without significant help from the group. And it upends the view held by the United
States and its allies of the Islamic State as a regional threat, with a new assessment
that the group poses a whole new sets of risks. One possible motivation of the
change in strategy by the Islamic State, also called ISIS or ISIL, is to seize leadership
of the global jihad from al-Qaida from which the Islamic State broke away in 2013.
The attack on the Radisson Blu hotel in Mali on Friday was probably carried out by
two al-Qaida-linked groups, suggesting, as one senior European counterterrorism
official put it, "The race is on between ISIS and al-Qaida to see who can attack the
West the best."

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SBI and ICICI declared as systematically important

banks - what does it mean
The Reserve Bank of India (RBI) on 31st August 2015 designated State Bank of India
(SBI) and ICICI Bank Ltd, the countrys two largest lenders, as Domestic Systemically
Important Banks (D-SIBs), meaning their collapse could have a cascading impact on
the entire financial system and the economy.
The designation effectively means SBI and ICICI Bank, the nations biggest public
sector and private sector banks respectively, are deemed too big to fail, or so
integral to the national economy that their failure would have to be prevented at any
cost to prevent the calamitous effects it would otherwise have.
This is the first time the central bank has designated any banks as D-SIBs; this will
now be an annual practice every August. Originally, the plan had been to list four to
six banks in that category.
SBI and ICICI have been so designated on the basis of a systemic importance score,
arrived at after an analysis of the banks size as a percentage of annual gross
domestic product (GDP). Banks with assets that exceed 2% of GDP will be considered
to be part of this class of lenders.
As of 30 June, SBIs loan book was worth Rs.12.8 trillion and ICICIs loan book was
close to Rs.4 trillion. SBI accounts for 16.3% of the total market capital of all listed
banks, which was Rs.11.47 trillion at the close of trading on the BSE on Monday;
ICICIs share is 14.08%.
SBIs gross bad loans, at Rs.56,420.77 crore as of June-end, make up 18% of the
combined sticky assets in the banking system. ICICI Banks gross non-performing
assets (NPAs) make up 5% of the total industry bad loans of Rs.3.2 trillion.
Banks which are considered systemically important will have to maintain a
progressively higher share of risk weighted assets as Tier-I equity, which is a measure
of the banks core capital.
Out of four systemic importance buckets, SBI falls in bucket three while ICICI Bank is
in bucket one. The higher the bucket number, the more systemically important the
bank. So, among the two, SBI is more systemically important.
Under the framework, systematically important banks (SIBs) will fall under four
buckets initially. Banks which fall in the fourth and the highest bucket will need to
maintain an additional 0.8% of their risk weighted assets as common equity Tier-1a
measure of the banks core equity.
Banks in the third, second and first buckets will need to maintain an additional 0.6%,
0.4% and 0.2% of additional Tier-I capital respectively to maintain buffers they hold
to balance out the higher risk they pose to the financial system. The original plan was
to maintain additional capital in the range of 1-2.5% of the risk-weighted assets,
depending upon the order of the buckets. A theoretical empty fifth bucket will be
there at the top of the list, with an additional Tier-1 capital requirement of 1%, down
from 3.5% proposed earlier. As and when a bank moves to the fifth bucket in
importance, another bucket will be introduced, RBI said in its July 2014 framework for
dealing with such big banks. The two banks named will be subjected to

15
differentiated supervisory requirements and higher intensity of supervision based on
the risks they pose to the financial system, the framework said.
All banks have been given time until April 2019 to meet the additional requirements.
RBI intends to review the list of SIBs once every year from now on.
The heads of both banks said they have adequate capital.
RBI has named State Bank of India as Domestic Systemically Important Bank as
expected. However, the additional capital requirement of Tier I Capital has been
lowered by 20 bps (basis points) as compared to the draft guidelines. SBI currently
has a much higher level of Tier I at 9.62% as opposed to 7.00% required under the
current guidelines, said Arundhati Bhattacharya, chairperson of SBI, in an emailed
statement.
ICICI Banks capital adequacy is well in excess of regulatory requirements and the
bank is not expected to require fresh equity capital for the next couple of years, said
Chanda Kochhar, managing director and CEO. ICICIs Tier-I capital was 12.26% as on
30 June.
In November 2011, the Basel committee of the Bank for International Settlements
announced a framework for identifying global systemically important banks and the
additional buffers that such banks need to hold.
Following this, most countries have moved to institute similar frameworks. RBI
released its framework for dealing with domestic SIBs in July 2014.
SIBs are perceived as banks that are Too Big To Fail (TBTF). This perception of TBTF
creates an expectation of government support for these banks at the time of
distress, RBI said then.
Due to this perception, these banks enjoy certain advantages in the funding
markets. However, the perceived expectation of government support amplifies risktaking, reduces market discipline, creates competitive distortions, and increases the
probability of distress in the future, RBI said.
These considerations require that SIBs should be subjected to additional policy
measures to deal with the systemic risk and moral hazard posed by them, RBI said.
The chief financial officer (CFO) of a large public sector bank said he expects more
banks to figure in the list next year as aspects other than the size are considered for
making up the list.
Significant oversight does not mean that the central bank will check each and every
business decision of these banks. It simply means that the central bank will force
these banks to maintain a healthy net worth and keep bad debts under check, said
the CFO, who did not wish to be named.

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New GDP series - Does the figures reflect the ground reality
GDP or Gross Domestic Product is the total value of all goods and services produced
in a countrys economy in a specific time period and is usually given in local currency.
GDP growth rate, denoted in percentage, is the growth in GDP as compared to that of
the previous year.
There are variations in the ways to calculate GDP and it is the introduction of these
new calculations that has caused a spike in Indias recent GDP growth rate, leading to
quite a lot confusion and debate. Earlier, Indias GDP growth rate for the year ending
in March 2014 was marked at 4.7%, but with the new calculation methods it has now
been revised to be 6.9%. And for the fiscal year ending in March 2015, the earlier
estimated GDP that was marked at 5.5% has now increased to 7.4%, a number that
closely rivals Chinas rate. Lets understand the mystery behind the new GDP
calculation:
How did they arrive at the new numbers?
The changes in the GDP calculation were devised by Indias statisticians working for
the Central Statistics Office (CSO) that is under the Ministry of Statistics &
Programme Implementation (MOSPI), who released the new figures earlier in
February. There are three important changes made in the calculation of the GDP:

Changing the base year

Replacing factor costs with market prices
Widening of the data pool

Does this reflect reality?

A sudden spike in GDP or GDP growth rate has to be understood without resorting to
extreme opinions. It doesnt mean that our economy has overtaken Chinas economy
in a fortnight and it also doesnt mean that these numbers are fully misleading. The
revisions are not abnormal or unusual practices and can be reasonably argued. One
can still question the timing of these revisions as the new government has just
completed nine months and the citizens are expecting some results without
obfuscation. Further, the new numbers pose a challenge to the Reserve Bank of India
(RBI) because the bank decides whether to increase or decrease the interest rates.
For example, until the now the economy seemed to be in a poor shape with the
earlier GDP numbers. So the central bank was expected to decrease the lending
rates. But the sudden spike in GDP numbers puts RBI in a dilemma. Also, one must
view at GDP and related numbers by keeping other numbers in mind, like
unemployment rate, population below poverty line (BPL), power consumption,
cement consumption, etc. and these numbers and the realities they represent wont
change overnight with the change in GDP calculation methods
One must also keep in mind that the revised calculation methods are welcomed by
both the earlier government and also the new government. The earlier government
was criticised for sinking the economy but the revised numbers make the earlier
governments economic track record look better than before. Also, the new
government also has far better GDP numbers to display than before. So it is expected
that political opposition to these new calculation methods will be almost nil. However
opposition can be found at the academic level where it is believed that the new
numbers put a Band-Aid on the harsh realities faced by the largely poor population of

18
the country. However, as informed citizens of a democratic country we must be
aware of the ground realities before judging the government, its numbers, and its
policies, and time will surely tell how accurately the new GDP numbers reflect the
condition of our country and its economy.
Issues
The divergence is staggering. Almost every data point points to a much lower growth
figure. Of all the 12 indicators, only one - power generation - grew faster in 2014 than
in earlier years. And, the growth for three other indicators - vehicle sales, freight
traffic and cement production - in 2014 could be said to be near those in the earlier
years. For all other indicators, a large gap exists.
Similar data for 40 other emerging markets indicates while India is ahead on every
metric, the margin isn't that large. This suggests that India is growing perhaps a few
percentage points higher than the emerging market universe, probably around five
per cent annually, nowhere near eight per cent. It is, thus, difficult to brush aside
skepticism over the reliability of the latest GDP numbers responding to this
skepticism over the new series, the Central Statistics Office (CSO), which provides
GDP estimates, has put out a detailed explanation for the changes under the revised
methodology.
Replies & queries
Part of the difference between the earlier and the new series could be attributed to
the inclusion of new data sources, which have a wider coverage, it says. However, if
one accepts this, using the same sources for previous years could lead to higher GDP
growth in the mid-2000s. The other, probably more critical change to the way the
new numbers have been calculated, is the way value added, especially in
manufacturing, has been estimated. The sharp turnaround in manufacturing under
the new series is because of the use of a new corporate data base, MCA 21, which
has had significant implication for value addition and growth. For large companies,
the difference between value addition under the earlier and new series is significant.
Enterprises, the CSO argues, provide post-manufacturing value added, through
marketing and other services. This component of value added was earlier being
excluded from GDP because it was not covered in the Annual Survey of Industries,
although the enterprise concerned belonged to the manufacturing segment.
As all the key economic indicators the report focuses on are essentially volume
indicators, this increase in value addition will not get reflected in those. Hence the
divergence between the indicators is bound to be present. But, despite clarifications
from CSO, doubts linger. International analysts, who until now did not question the
authenticity of India's economic data, are now raising questions, comparing it to
China. Which, they allege, tinkers with figures to show higher growth. To allay such
concerns, analysts are pressing for CSO to release the GDP numbers for the previous
years, which will allow them to get a better understanding of the underlying growth
dynamics.

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Slowdown in commodity prices

As recession fears grip economies, commodity prices in global markets have declined
by up to 61% since July due to slowing demand, firm dollar and robust production
estimates of farm produce. A rise in financial market volatility and Chinas economic
slowdown have raised risks to economic growth around the world, the International
Monetary Fund (IMF) warned, in a report on the state of the global economy.
Global growth in the first half of 2015 was lower than in the second half of 2014,
reflecting a further slowdown in emerging economies and a weaker recovery in
advanced economies, the IMF said, in the report. Near-term downside risks for
emerging economies have increased, given the combination of China's growth
transition, lower commodity prices and capital flow reversals and disruptive asset
price shifts.
Chinese shares, which hit a seven-year peak in June, have since shed nearly 40
percent of their value, despite attempts by the government and regulators to prop up
the market. The rapid deceleration in Chinese growth also pulled investors from other
emerging economies, clouding the outlook for Asian economies, currencies and
markets.
According to the IMF, Chinas economic slowdown, though long anticipated, appears
to have larger-than-previously-envisaged cross-border repercussions.
Brent crude oil prices have declined more than 60% to $53.24 (Rs2,646) a barrel in
November from $133.87 in July, as industrial activities in major economies slowed,
according to a report by National Commodity and Derivatives Exchange, or NCDEX.
Similarly, while crude oil (Dubai) saw a fall of about 61% to $51.38 a barrel last
month, the WTI crude oil fell 57% to $57.29 a barrel, it said. India imports 123 million
tonnes of crude oil a year, about 75% of its local consumption. Prices of crude oil
have dipped following lower demand due to slowdown in growth in developed
countries, better supplies and higher stocks in the US, the report said. The rise of
the dollar against the euro and the yen amid fears of inflation has caused the retreat
from raw materials, it added.
Investors, who viewed commodities as a hedge against inflation, are scrambling to
get out, the report observed. Investors had earlier parked their funds with
commodities to benefit out of the falling dollar, it added. Metals prices, too, came
under severe pressure and declined by up to 56%. Copper saw the maximum fall in
prices to Rs3,717 per tonne from Rs8,414 four months ago Steel (rebar) prices have
fallen by more than 30% to $683 a tonne from $980 during the period. Similarly, tin
prices have dipped by 41% to $1,364 a tonne from $2,341. The recessionary
tendencies that have led to a decline in the demand for metals as growth has slowed
down. China, a major user of metals, would also be demanding less of metals as the
completion of the Olympics implies relatively less expenditure on infrastructure, the
report said. Prices of palm oils dipped about 58%, the highest among agri-commodity
segment, to $479 a tonne from $1,128 during the period, the report said.
The industry has been demanding a levy of duty on edible oils to discourage cheap
imports and ensure remunerative returns for domestic farmers. According to an
industry estimate, palm oil accounts for about 85% of Indias total edible oil imports.
However, the government has imposed a 20% import duty last month only on crude
soya oil. Similarly, prices of the US wheat (HRW) have come down by more than 30%

21
to $226.8 from $328.2 a tonne in July. Prices of rice from Thailand, the largest
exporter, declined by more than 24% to $552 a tonne from $731.8 four months ago.
Maize prices have seen a 38% decline to $163.8 a tonne from $265.3 during the
period under review. Agricultural production is expected to be good throughout the
major growing regions, especially for wheat, maize and oilseeds, which have exerted
a downward pressure on prices, the report said.
The Recent Performance of Commodities
The S&P GSCI index tracks the investment performance of the worlds most liquid
commodity markets. The index can be used to show the marked decline in
commodity performance, as grouped according to respective product classes, over
recent years:

The Outlook for 2015

Concerns are mounting that China may enter a balance-sheet recession, whereby
the sizeable number of companies in debt in China show minimal appetite for
borrowing, despite lower interest rates, and instead focus on removing indebtedness.
The lack of responsiveness to monetary policy, therefore, implies that economic
stagnation is a potential threat.
In September, Chinas central bank attempted a monetary stimulus measure of
injecting $81 billion into the banking system. It seemed to be ineffective as the
overall level of bank lending remained relatively unchanged. The central bank then
followed this up with a surprise interest-rate cut in November to encourage lending
and prevent inflation from entering negative territoryit is currently 2 percent below
the central banks 3.5-percent target. If these measures have their desired effect and
spur growth, then commodity prices may stop their decline in 2015. However, it
seems as though most industry analysis is predicting a gloomy year for commodities,
given the supply gluts that are prevailing in numerous markets, both in China and the
rest of the world. A recovery in demand, therefore, may not ultimately be enough to
halt the downward spiral.

22

23

Financial Inclusion in India

The financial system in India has witnessed marked changes since the time of
liberalization. Banking has been one of the few sectors like IT, Telecom,
pharmaceuticals and automobiles that have been performed very well since 1991.
The success of banking and allied sectors can mainly be attributed to banking sector
reforms and technological change. There have been many changes at the
institutional and regulatory level that have led to changes on the ground level
functioning of banks. Some of the changes at the institutional and regulatory level
have included greater openness and transparency in banking operations and services
as well as various measures to induce competition within the sector. Among them, a
greater participation from the foreign sector, as well as the private sector, have been
game changers. The competition along with reforms has paved the way for a retail
banking revolution of sorts with the usage of ATM's (Automated Teller Machines)
becoming a household reality in India. Some of the poorest people live in India and
have remained outside the formal banking ambit. The prime minister's recent Jan
Dhan Yojana has been aimed at greater financial inclusion. However opening and
using the financial system for one's benefit are two different things. Nevertheless, a
beginning has been made for greater financial inclusion and it is a step in the right
direction.
The Reserve Bank of India has similarly granted an 'in-principle approval' to eleven
private parties for 'payments banks'. These include nine organizations and two
individuals. The nine organizations include- Aditya Birla Nuvo Limited, Airtel M
Commerce Services Limited, Cholamandalam Distribution Services Limited,
Department of Posts, Fino PayTech Limited, National Securities Depository Limited,
Reliance Industries Limited, Tech Mahindra Limited and Vodafone m-pesa Limited.
The two individuals include Dilip Shanghvi of Sun Pharmaceuticals and Vijay Shekhar
Sharma of one communication which operates Paytm. These entities, which are
required to have an initial capital of Rs. 100 crore each, will have to start operations
within 18 months. The promoter's minimum initial contribution to equity capital will
have to be at least 40% for the first 5 years.
A payments bank will perform all the functions of a normal bank except lending.
Thus, it will accept deposits, pay bills, accept cheques and drafts but will not lend.
They can hold a balance of up to Rs. 1 lakh and can open and operate branches and
ATM's. The payment banks are expected to target India's migrant labourers, lowincome households and small businesses, offering savings accounts and remittance
services with low transaction costs.
There are several benefits of payment banks that include:

Last mile connectivity in rural areas where physical access is difficult.

Costs of banking might fall with a greater range of services to consumers.
With greater mobile money transfers and payments the dream of a cashless
society can be realized as well as leakages in the system will reduce.

International experience shows that mobile money transactions and these financial
innovations have been a very successful in countries like Kenya. These banks thus
will add a much-needed financial inclusion dimension to the banking system. Over
the next decade or so their functioning has the potential to bring about another
revolution in the banking sector.

24
JAM TRINITY
The term JAM has become part of the Indias finance world since it found place in two
important documents recently The Economic Survey 2014-15 and the Union Budget
2015-16.
What is JAM?
JAM stands for three things the Jan Dhan Yojana, the Aadhaar initiative of UIDAI and
Mobile number. These three things are now often called the Trinity of reforms in India.
The JAM Trinity holds the key to one of the biggest pieces of reform ever attempted in
India, i.e., direct subsidy transfers. The NDA government is pinning its hopes on these
three modes of identification ((JAM) to deliver direct benefits to Indias poor.
Why JAM has become so important?
Money wasted in inefficient distribution of subsidies is money that is not available for
other developmental activities of the government. According to the Economic Survey,
about 3.78 lakh crore or 4.2 per cent of GDP, is currently spent on key subsidies.
The survey has some compelling numbers on why the current system of price
subsidies is a leaky bucket. In some cases, by simply selling goods below cost, the
government ends up delivering unintended benefits to the rich. Three-fourths of the
subsidised LPG cylinders, for instance, are used by the richer half of the population.
Corporation water is subsidised, but 60 per cent of the poor get their water from
public taps. Over 15 per cent of PDS rice, 54 per cent of wheat and 48 per cent of the
sugar is lost in leakages. Still thanks to subsidies, the government runs up big deficits
year after year, is perpetually short of cash to fund new projects and borrows big all
the time. But the poor dont see any material improvement in their quality of life.
Thanks to subsidies, the government runs up big deficits year after year, is
perpetually short of cash to fund new projects and borrows big all the time. But the
poor dont see any material improvement in their quality of life.
It is here that the government is quite confident that the three constituents of JAM
could be of immense help. With Aadhaar helping in direct biometric identification of
disadvantaged citizens and Jan Dhan bank accounts and mobile phones allowing
direct transfers of funds into their accounts, it may be possible to cut out all the
intermediaries. Thus JAM Trinity has become such an important part of Indian
economy that within launch of this terminology it has become immensely popular in
financial circles.
As of December 2014, over 720 million citizens had been allocated an Aadhaar card.
These enrolments are increasing at a rate of 20 million per month and by December
2015, the total number of Aadhaar enrolments inthe country is expected to exceed 1
billion. With the introduction of Jan Dhan Yojana, the number of bank accounts is
expected to increase further and offering greater opportunities to target and transfer
financial resources to the poor. Indeed, the government is already attempting this
transition in certain areas by paying cooking gas subsidies directly via Direct Benefit
Transfer into the bank accounts of 9.75 crore recipients. Two alternative financial
delivery mechanisms below:
Mobile Money
With over 900 million cell phone users and close to 600 million unique users, mobile
money offers a complementary mechanism of delivering direct benefits to a large
proportion of the population.16 Moreover, 370 million of these cell phone users are

25
based in rural areas, and this number is increasing at a rate of 2.82 million every
month. Mobile money therefore offers a very viable alternative to meet the challenge
of last mile connectivity. Given that Aadhaar registrations include the mobile number
of a customer, the operational bottlenecks required to connect mobile numbers with
unique identification codes is also small. With several cell phone operators reportedly
applying for a payment bank license in February 201517, mobile money platforms
offer tremendous opportunities to direct Aadhaar based transfers.
Post Offices
India has the largest Postal Network in the world with over 1,55,015 Post Offices of
which (89.76 percent) are in the rural areas. Similar to the mobile money framework,
the Post Office (either as payment transmitter or a regular Bank) can seamlessly fit
into the Aadhaar linked benefits-transfer architecture by applying for an IFSC code
which will allow post offices to start seeding Aadhaar linked accounts. The post office
network also enjoys a long-standing reputation of using its deep network to serve
many geographically isolated consumers in the country. If the JAM Number Trinity can
be seamlessly linked, and all subsidies rolled into one or a few monthly transfers, real
progress in terms of direct income support to the poor may finally be possible. The
heady prospect for the Indian economy is that, with strong investments in state
capacity, that Nirvana today seems within reach.
It will be a Nirvana for two reasons:

The poor will be protected and provided for;

And many prices in India will be liberated to perform their role of efficiently
allocating resources in the economy and boosting long run growth.

Even as it focuses on second generation and third generation reforms in factor

markets, India will then be able to complete the basic first generation of economic
reforms.
Small Banks License
The Reserve Bank of India (RBI) on Wednesday granted 10 entities in-principle
licenses to open so-called small finance banksanother move towards expanding
access to financial services in rural and semi-urban areas.
Small finance banks will offer basic banking services, accepting deposits and lending
to unserved and underserved sections including small business units, small and
marginal farmers, micro and small industries, and entities in the unorganized sector,
RBI said when it released guidelines for such banks in November.

26

27

What is MAT and controversy regarding MAT on FIIs/FPIs

MAT Debate
In April 2015, over 100 Foreign Portfolio Investors (FPI) were served tax notices
requiring them to pay the Minimum Alternative Tax (MAT) which traditionally has not
been applied to foreign funds.
The controversy over MAT is ongoing as it has already appeared in three major cases:
Vodafone (US$2.5 billion tax bill), Nokia (US$340 million), and Cairn Energy (US$1.6
billion). The most recent MAT related tax demands could be as high as US$8 billion.
Foreign investors have been crying foul over the 40,000 crore tax demand payable
by them as MAT for previous years. But whether foreign investors, investing in our
country under the aegis of double tax treaties, are liable to pay MAT is open to
debate. But it is not just the foreign investors who are impacted by such demands.
Domestic firms too have seen their tax payments shoot higher thanks to the levy of
MAT.
What is MAT?
The Minimum Alternate Tax (MAT) is a tax levied under Indias Income Tax Act of
1961 that targets companies that show profits on their books and declare dividends,
but pay minimal or no tax. It operates by preventing a companys total tax liability
from falling below a minimum threshold, calculated as a percentage of the
companys book profits. MAT was introduced to target domestic Indian companies
which were suppressing their profits and was not typically levied on foreign portfolio
investors (FPIs). However, as the underlying legislation does not specify the
extraterritorial scope of the tax, the question of whether or not it applies to foreign
companies has largely fallen on the Authority for Advance Rulings (AAR) for
determination.
MAT is then calculated at 18.5 percent of the book profit plus surcharge and cess. The
higher of the two amounts: tax computed on the income of the company at the
applicable income tax rate, or the MAT, is to be paid by the company.
Why is it important?
The IT department considers MAT to be an important tool with which it can prevent
tax avoidance. For instance it is common for companies to set up shell companies as
subsidiaries and show losses in such companies to reduce taxable profits. For the
MAT computation, losses in subsidiaries need to be added back. Revaluation of assets
is another common method for reducing taxable profits. This too is adjusted while
calculating MAT.
Whats next?
More recently, the Indian Government has announced the formation of a committee
which will examine ways to resolve the MAT disputes. At present, the remit of the
committee is limited in scope and appears to be focusing only on MAT demands on
foreign institutional investors involving income accrued prior to April 1, 2015.
Notably, a similar body formed to address the tax measure at issue in the Vodafone
dispute has had mixed success in assuaging the concerns of foreign investors, which
has prompted the launching of additional arbitration proceedings against India. In
respect of MAT, the Indian Government has indicated that the only way for legal
certainty regarding past transactions is likely to be intervention by Indian courts. The

28
Castleton case raises issues identical to the current matters facing FPIs, and a
Supreme Court decision would potentially set a clear precedent regarding the
applicability of MAT to foreign investors. Although the Supreme Court has given
investor-friendly judgments in the past (for instance in the above-mentioned
Vodafone case), there is no guarantee that a decision by the Indian Supreme Court
would be favourable to foreign investors or would fully clarify MAT liability in cases
where investors are not able to benefit from the provisions of a double taxation
treaty. For the time being, it remains the case that foreign investors in India are
without any clarity and certainty as to their tax liabilities stemming from past
transactions in relation to MAT.

29

Oil price fall - Reasons and views on the oil prices in

future
1. Iran Returns
Despite heavy fines by the US authorities against anyone trading in any way with Iran
that country has still managed to continue oil production over the past few years.
Sanctions against Iran have existed in various forms since the eighties when religious
fundamentalists overthrew the West-friendly Shah of Iran and committed a series of
terrorist attacks against Western nationals. However, sanctions ramped up to the
point of shutting Iran out of the oil markets in January 2012, when the US insisted
that Iran cancel its program of tests of nuclear weapons.
At the beginning of April 2015 Iran signed an agreement to end its nuclear program
and let in international inspectors to prove its commitment. Confirmation of Iran's
compliance will remove the biting sanctions of 2012 and bring Iranian oil to
international markets. Despite being stymied by US and EU sanctions, Iran is still able
to produce 2.7 million barrels per day, of which 1 million is exported. The un-exported
1.7 million barrels meet domestic demand, but a large proportion is sent to storage.
The world currently has excess crude oil production of roughly 2 million barrels per
day, so a cash-strapped, and slightly embittered Iran could have immediate impact
on crude oil prices by putting its estimate 35 million barrels of stored oil on the
market the day sanctions are lifted. The impact of Iran's return to the market greatly
depends on how quickly they can ramp up production. Bijan Namdar Zangeneh, Iran's
oil minister, claims that the country could easily increase production by 1 million bpd
within months of the lifting of sanctions. That worrying figure would increase the
world's excess production by 50 per cent, which some analysts claim would push
crude oil prices down to $20 per barrel. However, other analysts are skeptical. Iran's
production levels were at 4 million barrels per day in 2011 before the latest round of
sanctions hit. Iran's isolation and denial of technology and investment capital means
its oil industry has become badly under-invested. Their ability to get back up to
former production levels could also be blocked by OPEC, of which Iran is a member.
Nevertheless, Iran's return will prevent the world's excess supply from being reduced
and so prices will fall.
2. Fracking is Not Going Away
Many believe that the 2014 fall in oil prices was specifically engineered by Saudi
Arabia to knock out US oil production through fracking. Industry analysts estimated
that heavy startup costs and financing requirements placed the break-even point of a
fracking rig at around a $70 per barrel price of crude oil. Many saw the slump in the
price of crude down to $60 and then to the $50 mark as a significant factor. Sure
enough, the rig count in the USA plummeted from 1,608 in October 2014 to 747 in
April 2015. Seemingly, the lower oil price had squeezed out US oil production in the
higher-cost fracking sector. However, the advancement of technology and the agility
of fracking producers resulted in higher output from fewer rigs. In October 2014, the
USA produced just under 9 million barrels per day. In April 2015, that output had
increased to just under 9.5 million barrels per day. Chinese oil production through
fracking has risen to the same extent as USA production, with companies in both
countries adopting and improving the same technology. In a world with an excess
production of 2 million barrels per day, America's increased production means that oil
prices are not about to rise. China's increases compound that situation.

30
3. OPEC is Idle
Previous oil price falls have been keenly countered by OPEC, the cartel of oil
producing nations, centered mainly on Middle Eastern producers. Whenever oil prices
fall, OPEC cuts quotas to its members, limiting their production and causing the price
to rise through reduced output. Saudi Arabia is by far the biggest producer in the
OPEC club and the opinion of its oil minister, pretty much rules the actions of OPEC. If
OPEC members decide to cut their production, but Saudi Arabia refuses to play ball,
the resolution to cut would have no impact on oil prices, and thus be a worthless
exercise. Fracking started to provide the USA with a means of achieving energy
independence. The country has already become a net exporter of gas, and similar
performance in oil production would remove the USA's dependence on the Middle
East for its oil supplies. Saudi Arabia's dominance of American oil supply enables
them to entice the USA to deploy its military in the Persian Gulf at the direction of
Saudi foreign policy. The Saudis want to return to the days of US dependence on
Arabian oil and so refuse to cut their production in the face of falling prices. Despite
the apparent failure of the Saudi production tactic, OPEC shows no signs of changing
its policy. The Saudis seem to be determined to continue forcing the price of crude
down to squeeze out US production, but as fracking gets cheaper, output will
continue to expand and the price of crude oil will continue to fall.
4. Russia Produces More
Political analyst point out that oil prices fell dramatically around the time that Russia
invaded the Ukraine and the EU dithered over imposing the sanctions that the USA
demanded. Although Europe did eventually go along with the policy of punishing
Russia through trade restrictions, their reluctance to really hit hard has undermined
US strategy. Eyeing the success of an embargo on oil sales in bringing Iran to the
negotiating table, the US administration, the theory goes, decided to depress the
price of oil in order to bankrupt Russia and force it to cancel plans to take over the
Ukraine. The Russian economy is overwhelmingly dependent on oil and gas exports,
because it has little successful industry and is unable to match the West in the
development of technology. Saudi Arabia also has a cause to complain about Vladimir
Putin's behavior. The Saudis loathe Bashar Assad, the President of Syria and want to
see him overthrown. American and European governments seemed willing to play
along with this policy until the Russians threw their support behind Assad and
European determination folded. Without any significant allies to share the burden, the
USA cancelled their planned invasion of Syria. The infuriated Saudis decided to take
matters into their own hands and collapsed the price of oil with the intention of
punishing Russia, not US frackers. Vladimir Putin and his administration have
complained loudly and frequently that the oil price fall was deliberately aimed at
attacking the Russian economy. However, the steadfast determination of unrealistic
quotas haunts the Russian mentality as an overhang of the Communist era. Putin
needs money to continue his glorious and domestically popular policy of
reassembling the Russian Empire. The Russians refuse to bend to market forces and
so have made up the shortfall in their budget caused by falling oil prices by pumping
out more oil. The Russian need for income means they are unlikely to make a tactical
cut in oil output. Increased production adds to the downward pressure on crude oil
prices.
5. No Demand

31
The excess supply in the oil market could easily be mopped up by increased demand.
However, there is no great leap in growth expected in the world for the next couple of
years. Energy efficiency and investment in renewable energy, such as solar, has
permanently reduced demand for oil in most of the developed world. Both the
Federal Reserve and the People's Bank of China have announced they are ending
their loose monetary policies. This free money pumped around the world inflated the
prices of property, stocks, bonds and commodities. Part of the reason the oil price
rose through 2013 and early 2014 was simply that the excessive amount of dollars in
circulation had to be invested in something. Now that money has to be paid back, the
asset price inflation of the past two years will be reversed. The BRIC economies have
failed to continue their stratospheric growth into 2015. In fact, some developing
nations, like Brazil, are now in recession, with tumbling currencies cutting their
populations' spending power. World trade is falling and demand for oil will fall with it.
With few prospects of increased demand for oil, the chance of its price rising is zero.
Conclusion
The major oil producers have done nothing to cut production since October 2014, and
they are unlikely to consider cutting output any time soon. The USA, Russia and Saudi
Arabia each have different reasons to continue high output, but all three are just
stockpiling oil because they cannot find enough immediate buyers. Add on the
inevitable return of Iran and Libya and the prospects of the 2 million bpd excess
production in the world reducing can be seen to be impossible.
Monetary tightening will reduce world growth and remove asset price inflation. Lower
growth, coupled with lower need for oil through efficiency and environmentalism,
means demand for oil is not going to exceed supply for a long time to come. The oil
price is not going to rise any time soon.

32

33

SYRIAN CRISIS
What began as peaceful protests against the regime inspired by the Arab spring has
now turned into the worst humanitarian crisis of our times. Pro-democracy protests
erupted in March 2011, after the arrest of some teenagers who painted revolutionary
slogans on school walls. The unrest triggered nationwide demonstrations demanding
the resignation of the president Bashar al Assasd. However, the use of force by the
government to crush the revolution in its nascent stages merely hardened protestors
resolve and escalated the conflict. The opposition eventually began taking up arms
and fight against the oppressive regime with hundreds of thousands of Syrian
civilians taking up the streets.
CIVIL WAR
Violence escalated throughout the country with the opposition fighting with the
government for the control of the cities and towns. By June 2013, around 90,000
people had been killed in the conflict according to a report by the UN. This figure now
stands at an astounding 250,000. The conflict has now acquired sectarian overtones,
placing the countrys Sunni majority against the minority Shias and has drawn in
neighbouring countries like Iraq, Jordan, Lebanon as well as the major world powers.
The rise of jihadist groups like the Islamic State has further added to the woes of the
country.

WAR CRIMES
A UN commission of inquiry, investigating alleged human rights violations since
March 2011, has evidence that those on both sides of the conflict have committed

34
war crimes - including murder, torture, rape and enforced disappearances.
Government and rebel forces have also been accused by investigators of using
civilian suffering - such as blocking access to food, water and health services - as a
method of war.
Islamic State has also been accused by the UN of waging a campaign of terror in
northern and eastern Syria. It has inflicted severe punishments on those who
transgress or refuse to accept its rule, including hundreds of public executions and
amputations. Its fighters have also carried out mass killings of rival armed groups,
members of the security forces and religious minorities, and beheaded hostages,
including several Westerners.
CHEMICAL WEAPONS
Western powers got outraged when hundreds of people were killed in August 2013
after rockets filled with nerve agent sarin were fired at several agricultural districts
around Damascus. Facing the prospect of US military intervention, President Assad
agreed to the complete removal or destruction of Syrias chemical weapon arsenal as
a part of a joint mission led by the UN and the Organisation for the Prohibition of
Chemical Weapons (OPCW). The destruction of chemical weapons was completed a
year later.
Islamic state has also been accused of using chemical weapons possibly against the
Kurdish army and civilians in northern Syria.
HUMANITARIAN CRISIS
More than four million people have fled Syria since the start of the conflict, most of
them women and children. It is one of the largest refugee exoduses in recent history.
Neighboring countries have borne the brunt of the refugee crisis, with Lebanon,
Jordan and Turkey struggling to accommodate the flood of new arrivals. The exodus
accelerated dramatically in 2013, as conditions in Syria deteriorated.
A report published by the UN in March 2015 estimated the total economic loss since
the start of the conflict was $202bn and that four in every five Syrians were now
living in poverty - 30% of them in abject poverty. Syria's education, health and social
welfare systems are also in a state of collapse.
REBELS AND THE RISE OF JIHADISTS
The armed rebellion has evolved significantly since its inception. Secular moderates
are now outnumbered by Islamists and jihadists, whose brutal tactics have caused
widespread concern and triggered rebel infighting.
Capitalizing on the chaos in the region, Islamic State - the extremist group that grew
out of al-Qaeda in Iraq - has taken control of huge swathes of territory across
northern and eastern Syria, as well as neighboring Iraq. Its many foreign fighters in
Syria are now involved in a "war within a war", battling rebels and jihadists from the
al-Qaeda-affiliated Nusra Front, who object to their tactics, as well as Kurdish and
government forces.
In September 2014, a US-led coalition launched air strikes inside Syria in an effort to
"degrade and ultimately destroy" IS, helping the Kurds repel a major assault on the
northern town of Kobane. But the coalition has avoided attacks that might benefit Mr
Assad's forces or intervening in battles between them and the rebels.

35
In September 2014, a US-led coalition launched air strikes inside Syria in an effort to
"degrade and ultimately destroy" IS, helping the Kurds repel a major assault on the
northern town of Kobane.

36

Greece Crisis-Grexit

Greece became the epicenter of Europes debt crisis after Wall Street imploded in
2008. With global financial markets still reeling, Greece announced in October 2009
that it had been understating its deficit figures for years, raising alarms about the
soundness of Greek finances.
Greece used the vague conditions of the Maastricht treaty with the hope that if it
becomes a part of a strong monetary union its weak macroeconomic fundamentals
will improve due to the strong Eurozone. Greece missed the bus to introduce
economic reforms when all the world markets were bullish from a period of 2004-08
and had to pay for it dearly when the global financial crisis hit the world markets.
Suddenly, Greece was shut out from borrowing in the financial markets. By the spring
of 2010, it was veering toward bankruptcy, which threatened to set off a new
financial crisis.
To avert calamity, the so-called troika the International Monetary Fund, the
European Central Bank and the European Commission issued the first of two
international bailouts for Greece, which would eventually total more than 240 billion
euros, or about $264 billion at todays exchange rates.
The bailouts came with conditions. Lenders imposed harsh austerity terms, requiring
deep budget cuts and steep tax increases. They also required Greece to overhaul its
economy by streamlining the government, ending tax evasion and making Greece an
easier place to do business.
What happened to the money received from bailouts?
The money was supposed to buy Greece time to stabilize its finances and quell
market fears that the euro union itself could break up. While it has helped, Greeces
economic problems havent gone away. The economy has shrunk by a quarter in five
years, and unemployment is above 25 percent.
The bailout money mainly goes toward paying off Greeces international loans, rather
than making its way into the economy. And the government still has a staggering
debt load that it cannot begin to pay down unless a recovery takes hold.
Current situation
After several months of discussion between Greece and its creditors, it received its
third bailout in the last five years. Terms of the bailout include commitments by the

37
country to implement austerity measures and economic reforms which include better
taxation (better tax compliance) which the Greek lawmakers recently approved.
he legislation covered some of the economic changes sought by the countrys
international creditors, which include raising the retirement age, cutting pensions,
liberalizing the energy market, opening up cosseted professions, expanding a
property tax that Greeks already revile and pushing forward a stalled program to
privatize state assets.
Passing that package paved the way for Greece to receive the first 2 billion euros, or
about $2.3 billion, from the bailout program.

How does the crisis affect the global financial system?

In the European Union, most real decision-making power, particularly on matters
involving politically delicate things like money and migrants, rests with 28 national
governments, each one beholden to its voters and taxpayers. This tension has grown
only more acute since the January 1999 introduction of the euro, which now binds 19
nations into a single currency zone watched over by the European Central Bank but
leaves budget and tax policy in the hands of each country, an arrangement that
some economists believe was doomed from the start.

38
Since Greeces debt crisis began in 2010, most international banks and foreign
investors have sold their Greek bonds and other holdings, so they are no longer
vulnerable to what happens in Greece. (Some private investors who subsequently
ploughed back into Greek bonds, betting on a comeback, regret that decision.)
And in the meantime, the other crisis countries in the eurozone, like Portugal, Ireland
and Spain, have taken steps to overhaul their economies and are much less
vulnerable to market contagion than they were a few years ago.
What if Grexit happens?
At the height of the debt crisis a few years ago, many experts worried that Greeces
problems would spill over to the rest of the world. If Greece defaulted on its debt and
exited the eurozone, they argued, it might create global financial shocks bigger than
the collapse of Lehman Brothers did.
Now, however, some people believe that if Greece were to leave the currency union,
in what is known as a Grexit, it wouldnt be such a catastrophe. Europe has put up
safeguards to limit the so-called financial contagion, in an effort to keep the problems
from spreading to other countries. Greece, just a tiny part of the eurozone economy,
could regain financial autonomy by leaving, these people contend and the
eurozone would actually be better off without a country that seems to constantly
need its neighbours support.

References:
1) http://www.nytimes.com/interactive/2015/business/international/greece-debtcrisis-euro.html?_r=0
2) http://www.nytimes.com/interactive/2015/business/international/greece-debtcrisis-euro.html?_r=0

39

E-commerce: Boom or Bust

India has emerged at the top of the Foreign Direct Investment (FDI) pile because of
the massive investments that have been made in India's consumption and ecommerce story, not because of the 'Make in India' story; on the other hand, red flags
are being raised on valuations and cash burn in the food tech and e-commerce space.
After almost a year of the Narendra Modi government, the euphoria and excitement
of investors which rallied the stock markets seems be finally in a correction mode.
The BSE Sensex has lost almost 10% decline in value in the last 60 days as the
investors get a hold of reality of a still stuttering economy and start-and-stop
reforms. However one sector which seems to have been immune to about all these
uncertainties is the E-commerce sector. According to a new report, in the last 15
months foreign hedge funds, asset managers and investment firms have invested
almost $4 billion in just 26 Indian technology and e-commerce start-ups. Can Indias
virtual economy sustain such a rally? There's plenty of reason to be optimistic, but an
equal number of reasons to be cautious.
Asias third largest economy is widely considered as the last big Internet market as
the explosive sales of smartphones have made the Internet accessible to hundreds of
millions of as-yet untapped shoppers. Tech investors in the US, Europe and Asia,
which either missed out on the record initial public offering (IPO) of Chinas Alibaba
Group or were enriched by it, are queuing up to invest in Indias e-commerce
companies. The most obvious attraction of the Indian market is its size and potential.
India has 150 million active Internet users less than Americas 250 million and
Chinas 550 million, but still one of the largest such blocs in the world. A combination
of demographics and technology should lead to an upsurge in these numbers in the
next decade. Two-thirds of Indias population is under 35 the demographic that
makes up the largest share of the country's Internet users. True, broadband
penetration remains low and isn't growing rapidly, especially among the vast rural
population. But the spread of cheap, Internet-enabled smartphones could help
bypass the need for an extensive broadband network.
REASONS TO BE CAUTIOUS
While greater connectivity is necessary for an e-commerce boom, though, it's hardly
sufficient. Ultimately, growth in the sector depends on Indians acquiring a lot more
purchasing power than they have now. At $1,500, Indias per capita income is less
than a quarter that of Chinas $6,800. At Indias current GDP growth trajectory of 7-8
percent per year, it'll take much more than a decade to reach where China is today.
Some investors may see hope in the fact that Indias economy is predicted to grow
faster than Chinas this year. But Indias latest GDP statistics are mired in confusion
and China was always bound to slow down after it reached middle-income status.
Investors need to be cautious about such comparisons.
Indias regulatory environment for e-commerce remains uncertain. There's no clarity
on whether the government will allow 100 percent foreign investment in the space
(something that's still not allowed in brick-and-mortar retail). Indias tax
administrators, notorious for their arbitrary actions, havent yet developed a clear
policy on e-commerce players, most of whom make losses; as valuations continue to
soar, companies may face unwelcome scrutiny. Importantly, the same constraints

40
which hobble growth of the real economy such as world-class infrastructure will
undercut e-commerce, too. Terrible roads make deliveries difficult, while warehouse
space can cost as much as in the developed world.

So far, the e-commerce industry in India is bleeding money. Between April 2013 and
March 2014, the total sales of Flipkart.com, Snapdeal.com and Amazon.co.in, the
three largest e-tailers in India, amounted to $85 million. Their combined losses were
$160 million. Unlike in China, Indias e-commerce industry is highly fractured. The
market leader Flipkart controls just 5 percent market share compared with Alibabas
80 percent market share in China. Not every firm that is receiving investment now
will be viable in the medium run. Some consolidation will take place, especially if
losses continue for a long period.
This time, experts say, since the so-called bubble is prevalent in privately held Indian
e-commerce companies and that the valuations here are also closely linked to the
soaring valuation of US tech start-ups, three kinds of events may lead to an investor
pullback. One, a macroeconomic event; two, declining valuations of US-based private
companies such as Uber and Dropbox; three, if a large Indian Internet company
struggles to raise cash.
India may yet get its own Alibaba or Amazon, and those investors who bet on the
right horse will make money. For the rest, though, this bubble is likely to burst.

REFERENCES:
1) http://www.businessoffashion.com/articles/news-analysis/indias-e-commerceboom-may-turn-to-bust-for-many
2) http://www.moneycontrol.com/news/features/e-commerce-boom-orbust_3757341.html
3) http://www.livemint.com/Companies/PKYPXSiOwle8hOkgUi8mpL/Indiasecommerce-frenzy.html

41

Chinese slowdown and Yuan devaluation

Stock markets are one of the indicators of a countrys economic development. The
Chinese stock markets before June 30, had witnessed a 150% growth year on year
basis. However, if the stock markets are an indicator of economic health of a country,
barring a few exception trading days here and there they must be in line with other
indicators as well.
The Chinese economy had slowed down to 7%, a 25 year low after almost averaging
a growth of 10% over the last decade. The public debt to GDP ratio also at a high of
14.8%, with the inflation also at a lowly 2.5%. In addition to this the current account
surplus continued to diminish at 1.5%, consumption declined with an annual variation
of 8.7% as compared to 10.2% the previous year and the saturation of real estate
and manufacturing sector leading to low demand by the country. Amid such
dwindling fundamentals the stock market appreciation due the influx of money by
retail investors, which was also as a matter of fact through borrowings created a
bubble which was waiting to be popped.
More importantly in a haste to move from a manufacturing based economy to a more
consumption based economy the Chinese government wanted more money in the
hands of its people and hence encouraged people to invest in the stock markets
which led to inflated prices of already over-valued stocks. To attract more retail
investors margin trading was made more liberalised.
As a result of margin trading borrowed money flowed into the Chinese stock markets.
However since most of the investors were individual retail investors, they didnt have
much know how of how the stock market governs and hence showed sort of a herd
mentality and making irrational choices. Thus looking at the margin trading
phenomenon, everyone in the country jumped into the bandwagon something which
wouldnt have happened if they had taken rational decisions. Realising this the
Chinese government put curbs on margin trading by increasing the minimum amount
of funds require to participate in margin trading. Further 12 brokerage firms were also
penalised.
Due to these actions, the buying of shares in the country slowed down. Since the
minimum amount of collateral was increased the brokerage firms started selling the
existing shares. This led to more selling of the shares as compared to buying. Now
since most of the investors followed a herd mentality, they also started selling since
the prices were falling and they didnt want to take more losses. This further led to
more selling by the brokerage firms thereby leading into a phenomenon of mass
selling which brought down the prices to a huge extent and led to the collapse.
Another reason that can be cited for the stock market crash is that in order to make
yuan a part of the special drawing rights (SDR) of the IMF, the authorities were trying
for phased reforms to move the yuan from a pegged currency to a more market
determined currency. Since IMF requires a currency in SDR to be freely traded in the
world market it became important for the Chinese authorities to let the market
determine the value of yuan.

42

The government wanted to devalue the yuan for two reasons. Firstly, to make yuan
determined by the market and make it freely tradeable in the world. Secondly, to
push its dwindling exports and regain the supremacy in the trade market to boost its
slowing economy. This potential devaluation led to a speculation that the Chinese
central bank might devalue the yuan to match its market determined price which
further added fuel to the already huge fire in the stock markets and contributed to
the collapse.

Current situation of Chinese economy

Chinas short term economic outlook is mediocre at the best and the pace of downfall
or deceleration is unavoidable. The annual GDP growth rate has fallen down from
above 10% to 7% and is expected to breach the 7% support barrier in the next
couple of years.

In addition to this, the industrial index of the country or the export performance has
been deteriorating at an alarming pace, which prompted the Chinese authorities to
devalue the yuan twice within a single week. The internal demand for oil, gold, raw

43
materials and other precious metals of which China has been the largest importer has
been falling at a swift rate, which clearly indicates a negative trend for the economy.

The real estate sector in the country which accounted for almost 15% of the GDP is
also facing some serious problems. This could have serious implications for the
economy as highlighted by IMF: In China, exposures to real estate (excluding
mortgages) are almost 20 % of GDP, and financial stress among real estate firms
could lead to direct cross-border spill overs.
Three decades of massive growth have left China with a massive economy where
marginal growth will become difficult as the time passes. In this case the present
slowdown can be considered to be inevitable. This may also have ramifications for
the huge middle-class population that lives in the country. Slow GDP growth means
fewer new jobs, wages, etc. This could mean further increase in risks that the citizens
begin questioning the leading party.
How Beijing handles this crisis will not only affect it but also other emerging markets
who are dependent on it and have adapted to satisfy the demands of its neighbour
for oil and other raw materials. China now needs to restore the faith of investors and
avoid the crisis from becoming an epidemic. The real problem is not the stock market
crash but the slowdown of the Chinese economy as whole which was masked by the
high bullish period in the stock market.

44

FDI in multibrand retail:

Majority of the countries of the world which boarded the road to economic growth
had to depend on foreign investment to some extent. Until the early 1990s, Indias
approach towards foreign wealth as an apparatus of development in was rigid,
restrictive and selective.
The government changed this outlook by introducing the budget and the industrial
policy of 1991. Coming on the heels of the macroeconomic and balance of payment
crisis of late 1980s, it ushered in a paradigm shift in the Indian economy and over
bent to cajole foreign capital to come to India.
The beginning made by the Industrial Policy 1991 in the direction of inviting foreign
capital has increasingly been gaining momentum with new sectors especially retailwhich directly affects the majority of the Indian population, being made eligible, with
almost each subsequent year, for foreign direct investment.
Foreign capital flows into the country is felicitated by Foreign Direct Investment (FDI).
FDI as defined in Dictionary of Economics (Graham Bannock et.al) is investment in a
foreign country through the acquisition of a local company or the establishment there
of an operation on a new (Greenfield) site. International Monetary Fund (IMF) and
Organization for Economic Cooperation and Development (OECD) define FDI as a
category of cross border investment made by a resident in one economy (the direct
investor) with the objective of establishing a lasting interest in an enterprise (the
direct investment enterprise) that is resident in an economy other than that of the
direct investor. The reason that it is so popular is that it is non-volatile, non-debt
creating as well as results in economic development, rejuvenation and jobs in the
economy.
In Retailing, presently, 51% FDI is allowed in single brand retail through the
Government Approval while 100 per cent FDI is allowed in the cash-and-carry
(wholesale) formats under the Automatic route.
In India too, retailing is divided into organized and unorganized retailing. Organized
retailing denotes to trade activities undertaken by the registered retailers.
Unorganized retailing, on the other hand, refers to traditional format of low cost
retailing.Like the corner store (kirana shops),owner manned general stores, pan
shops, convenience store, hand cart, pavement dealers which indicates it lacks
necessary infrastructure. Unorganized retailing is in abundance in India, while the
organized retailing constitutes only 3-4%.
As the Indian retail is unsteady, there are anxieties that the flow of organized foreign
capital with its accompanying package of enormous infrastructure, extended financial
power, professional staffs would kill this unorganised sector.Not only it would be
having huge turnover compared to this Indian sector, it is feared that the
international retailing giants will route to voracious pricing to acquire monopolies,
wiping competition. Directly affecting the livelihood of over 40 million people.
Even though the stakeholders between the farmer and the consumer would decrease
with the advent of these large enterprises resulting into higher cost for the farmers,
initially, later when the market is monopolised, they farmers would be at the mercy of
the big retailers.

45
FDI in retailing may also widen the rural-urban divide.With stores being set up in the
cities, rural population would migrate largely to urban areas for labour which would
create deeper imbalance in already burdened cities.
Even though much of these theories had deferred the FDI in multibrand retail, the
reality may be a bit different.
FDI which is now allowed in the front end retailing, with the arrival of the capital of
the intercontinental retailing giants, a world class back end infrastructure would be
built, which may take the government years to make. Benefitting farmers as India
lacks a lot of cold storage. In fact, it is estimated that this would lead to less wastage
better productivity and hence can considerably increase exports from the country.
It not only would induce better competition in the market- benefiting both producers
and consumers; it would also bring in global practices and professionalism in the
Indian retail industry. Small and medium enterprises will have a bigger market, along
with better technology and branding.
Ultimately, bringing in FDI is relatively more beneficial to the economy. A growing and
swelling retail sector means that its influence to GDP would grow. It would thus help
in upgrading the economy; generate employment, resulting in more tax income and
increased trust and ratings in the world market.
There might be an initial slack in monthly sales turnover from kirana stores in the
short term, especially in the vicinity of these stores, but over the long term this will
be compensated by alterations in stocking patterns, population growth, service
improvements, and cost advantages of the kirana setup. The Kirana Format anyhow
would be in no danger of extinction, given its range of services, width of distribution
especially in the rural India.
India already has experimented with domestic supermarkets like Reliance, Big Bazar
to name a few and it hasnt hurt the economy or the jobs but instead has brought
some of the above benefits.
Imposing boundaries doesn't seem like a 21st century thing to do, especially to
capital and infrastructure. In a world that is flattened and democratized by the
internet, where information barriers are almost non-existent, it is primordial, to say
the least.

46

Net Neutrality Pros and Cons:

Net neutrality is the premise that no specific Internet application or applications will
be unduly restricted compared to other applications. In essence, an ISP (Internet
Service Provider) should treat all Internet traffic equally without to regards of the
payload within the traffic. But some ISPs wish to control certain types of data (e.g.,
video streaming) while not controlling others (e.g., email). This is seen as noncompetitive when you have ISPs (namely firms like phone companies) that also want
to sell consumers the same type of services that they are restricting.
Net Neutrality is the concept that the companies that provide you with Internet
access should not shape the way you use the Internet. For instance, BSNL or Airtel
should not be allowed to block you from reaching a website (ndtv.com), stop you
from using an application (Skype/Amazon), or make certain websites/services work
faster than others: because NDTV is paying more to BSNL to slow down the Hindu
website.
In general, the way the Internet currently functions is what Net Neutrality seeks to
preserve.
In general, companies that provide Internet access are against Net Neutrality, while
companies that do business on the Internet are in favor of it.
Several prominent web pioneers, including Tim Berners-Lee and Vint Cerf, are in favor
of Net Neutrality. It appears fewer web pioneers are against it, but there are some,
including Bob Kahn and David Farber.
The debate on net neutrality, in India has turned into yet another fight between
ordinary folks and a large corporation.
The large corporations are trying its best to block access to the net, which is an
attack on civil liberty. The offenders have been Bharti Airtel, the country's largest
telecom operator, and the issue in question is its plan called Airtel Zero, under which
a subscriber can surf websites for free, along with Reliance which with Facebook is
working to bring in internet.org.
Even though, a first look at it might seem a noble cause that it allows poor and those
not connected to the internet to connect to it for free. But, that comes with a
condition-the user can access only those websites which the ISP wants it to access.
Facebooks internet.org would obviously not allow its users to access the competitors
website. Reliance, on the other hand is also supporting this would not allow the users
to access other telephonic serveries. Now, this is actually just the tip of the iceberg.
The real thing would start when lets say one e-commerce site pays this free ISP to
allow only its site to be allowed to access faster and the rest would be slowed down.
The user would have no option but to shop on that site only.
The central idea to this is that companies have not decided to give net access free - it
is the websites that pay for the air time while you surf. This is really at the heart of
the issue.

47
Detractors and activists at large have said that this discriminates against websites
that don't pay telephonic companies. And, therefore, it impacts the freedom of
choice.
For telephonic companies, it is just an accounting issue: money that was to come
from subscribers will now come from the website. The subscriber gets a reduced bill.
Of course, the website that uses the plan sees an increase in expenses, but it comes
with the promise of more traffic - it is an investment. This would hurt the small time
internet business doers.
Thats not it, in case you want to access the banned services and sites, for each of
those, youll have to shell out some more money.

48

NPAs in the Banking Sector, Loans to 6 out of 10

companies in huge risk-is the Indian corporate sector
drowning in debt?
NPA:A classification used by financial institutions that refer to loans that are in
jeopardy of default. Once the borrower has failed to make interest or
principal payments for 90 days the loan is considered to be a non-performing asset.
Non-performing assets are problematic for financial institutions since they depend on
interest payments for income. Troublesome pressure from the economy can lead to a
sharp increase in non-performing loans and often results in massive write-downs.
NPAs in Indian banking sector
The Indian banking system has undergone significant transformation following
financial sector reforms. It is adopting international best practices with a vision to
strengthen the banking sector. Several prudential and provisioning norms have been
introduced, and these are pressurizing banks to improve efficiency and trim down
NPAs to improve the financial health in the banking system.
The banking sector's asset quality woes further worsened in the last one year, with
gross non-performing asset (GNPA) ratio inching to 4.45 per cent as on March 15 this
year, as compared to 4.1 per cent in March 2014, according to the latest data
released by the Reserve Bank of India (RBI).
However, there are some indications that asset quality might have stabilised in the
last six months of 2014-15, GNPA was 4.5 per cent as on September-end. Stressed
assets ratio, which is GNPA plus restructured standard advances for the system,
stood at 10.9 per cent, as at the end of March, 2015 as compared to 10 per cent in
March, 2014 and 10.7 per cent in September 2014. GNPAs for public sector banks as
on March 2015 stood at 5.17 per cent, while the stressed assets ratio stood at 13.2
per cent, which is nearly 230 bps more than that for the system.

The central bank has taken various steps in the last one year to tackle the problem of
rising bad loans. For early recognition of stress in the system, banks have been asked
to form joint lenders' forum (JLF) to initiate the resolution mechanism. The deputy

49
governor admitted that the implementation of JLF framework needs further
improvement on the ground level. The rise in NPAs has impacted the margins, as the
bank had to reverse part of the interest income booked for loans which turned into
these. The net interest margin fell to 2.6 per cent for FY15, from 2.7 per cent in FY14
and three per cent in FY13.
Why are NPAs increasing?
Growing NPAs is the biggest challenge for the banking industry. A slowing economy is
bound to see an increase in NPAs. Notwithstanding the economic weakness, the NPAs
of banks have registered increases since FY 2012 which is a cause of concern for us.
The NPA increases have been more pronounced in case of the public sector banks.
There are various factors affecting the asset quality of SCBs adversely, such as the
current slowdown- global and domestic, persistent policy logjams, delayed clearances
of various projects, aggressive expansion by corporate during the high growth phase
etc. However, it is the shortcomings in the credit appraisal, disbursal and recovery
mechanism of the banks, besides the economic slowdown that can in large part be
held responsible for their high levels of NPAs. Lack of robust verification and
screening of application, absence of supervision following credit disbursal and
shortfalls in the recovery mechanism have led to the deterioration of asset quality of
these banks. In addition to this stalled projects and corruption also play an important
role when it comes to increasing NPAs in the banking system.
Is the Indian corporate sector drowning in debt?
YES, the above mentioned facts and statistics indicate that the debt of Indian
companies has been rising at a steady rate with many of them turning into bad
debts. Also,High debt in some Indian companies may pose a risk to the countrys
economic stability, the International Monetary Fund (IMF).One-third of corporate debt
in India has a debt-to-equity ratio of more than 3, the highest degree of leverage in
Asia Pacific, IMF says.

REFERENCES:
1) http://taxguru.in/rbi/reason-increase-npa-credit-ratings-asset-quality.html
2) http://www.livemint.com/Companies/z4M2jlVmUwrLMTegUZE2wM/Concentratio
n-of-high-debt-among-some-Indian-firms-may-pose.html
3) http://www.business-standard.com/article/finance/banks-gross-npa-ratio-risesto-4-45-from-4-1-in-1-year-rbi-115050601332_1.html

50

Payment Banks
Payment Bank in India as a type of bank which is a non-full service niche bank. A
bank licensed as a Payments Bank can only receive deposits and provide
remittances. It cannot carry out lending activities. Thus, Payment Banks can issue
ATM/debit cards, but cannot issue credit cards as they are not empowered to carry
out lending activities.

Background to Payments Bank in India

The term Payment Banks is new and seems to have been invented in Indian
context. In September 2013, a Committee on Comprehensive Financial Services for
Small Businesses and Low Income Households, headed by NachiketMor, was formed
by the RBI. By January 2014, the NachiketMor committee submitted its final report
and one of its recommendations was the formation of a new category of bank called
payments banks.
The above was followed by announcement in Union Budget 2014-2015 (presented on
July 10, 2014) wherein it was decided that After making suitable changes to current
framework, a structure will be put in place for continuous authorization of universal
banks in the private sector in the current financial year. RBI will create a framework
for licensing small banks and other differentiated banks. Differentiated banks
serving niche interests, local area banks, payment banks etc. are contemplated to
meet credit and remittance needs of small businesses, unorganized sector, low
income households, farmers and migrant work force.
Taking cues from the Budget, RBI issued the draft guidelines in July 2014 itself on
payments banks and small banks as differentiated or restricted banks. Based on the
feedback RBI came out with final guidelines for Payment Banks in November 2014,
and called the applications from entities which are interested to start such banks.
Regulations for Payment Banks
The minimum capital requirement is 100 crore. For the first five years, the stake of
the promoter should be 40% minimum. Foreign shareholding will be allowed in these
banks as per the rules for FDI in private banks in India. The voting rights will be
regulated by the Banking Regulation Act, 1949. The voting right of any shareholder is
capped at 10%, which can be raised to 26% by Reserve Bank of India (RBI). Any
acquisition of over than 5% will require approval of the RBI. The majority of the
bank's board of director should consist of independent directors, appointed according
to RBI guidelines.[1]
The bank should be fully networked from the beginning. The bank can accept utility
bills. It cannot form subsidiaries to undertake non-banking activities. Initially, the
deposits will be capped at 1, 00,000 per customer, but it may be raised by the RBI
based on the performance of the bank. The bank cannot undertake lending activities.
25% of its branches must be in the unbanked rural area. The bank must use the term
"payments bank" in its to differentiate it from other types of bank. The Banks must
maintain CRR, minimum 75% of demand deposits in government bonds of up to one

51
year and maximum 25% in current and fixed deposits with other scheduled
commercial banks for operational purposes and liquidity management.
The banks will be licensed as payments banks under Section 22 of the Banking
Regulation Act, 1949 and will be registered as public limited company under
the Companies Act, 2013.

RBIs in-principle licenses to 11 entities

In response to RBIs call for applications for new Payment Bank licenses, 41
applicants were in the race.
On 19 August 2015, RBI gave "in-principle" licenses to following eleven entities to
launch payments banks:-

Aditya Birla Nuvo

Airtel M Commerce Services

Cholamandalam Distribution Services

Department of Posts

FINO PayTech

National Securities Depository

Reliance Industries

Dilip Shanghvi, (founder of Sun Pharmaceuticals)

Vijay Shekhar Sharma, (CEO of Paytm)

10

Tech Mahindra

11

Vodafone M-Pesa

The "in-principle" license is valid for 18 months within which the entities must fulfill
the requirements. They are not allowed to engage in banking activities within the
period. The RBI will consider grant full licenses under Section 22 of the Banking
Regulation Act, 1949, after it is satisfied that the conditions have been fulfilled.
How will payment Banks survive without lending?

52
This is also an interesting question. The questions are being raised as to how these
new banks will be able to survive in absence of income from lending. However, we
are forgetting that most of the new players are already well established in their
fields. These payments banks are expected to play on volumes as they are likely to
romp in to their fold millions of customers who are currently not within the fold of the
formal financial system. This would lead to large volumes of transactions fetching
the payments banks fees - a charge of even 1 or 2 per cent on a large volume can be
lucrative on normal cash transfers, which will include governments direct benefits
transfer programs. Moreover, new payments banks can also earn 7.0% or so on their
investments in government securities. The mobile companies will have limited
additional costs and thus they may even offer payment of more than 4% interest,
which is the norm among banks as they pay mere 4% on savings banks. With no
need for any provisions for losses on NPAs for these payment banks, they may
become fitter banks than existing banks.
Challenges
Apart from competition and keeping a tight check on cost in order to remain
profitable, there are other challenges payments banks will face. "There are structural
challenges such as infrastructure that need to be tackled by the payments banks.
Since they will have to reach far-flung areas, infrastructure becomes key," says PwC
India Leader (banking and capital markets) Shinjini Kumar.
Kumar believes that it may take new players a minimum of five years to break even.
"If there are going to be players that will disrupt the market like we have seen in ecommerce, then it will take higher time to breakeven."
Another change that is likely to happen with these new entrants is that there will be
increased liquidity in the bond market. This is because payments banks need to
invest 75 per cent of the demand deposit balances in government securities and
treasury bills with maturity of up to one year. With an additional category of buyers
coming into the bond market, there will be an incremental demand for bonds. This
may play a role in bringing down the yields and thereby impact their earnings.
Though it is too early to identify who may be the winners but banking analysts and
experts believe that India Post and the telecom companies will definitely have an
edge over the rest of the players. In fact, even the NachiketMor Committee on
payments banks had pointed out that telecom companies that already deal with the
unbanked segments can offer deposit services with little incremental costs.

53

54

Power and Coal Sector Reforms, MMDR bill, e-auctions

in Rajasthan, auctioning of coal mines
REFORMS

Pooling of domestic and international coal to arrive at a balanced coal price

could lead to an across-the-board increase in power prices by around INR
0.50/kWh
The e-auction process for the cancelled coal blocks, might be the first step
towards privatization of coal mining
Given Indias huge power deficit and social-cum-environmental imperatives,
increase in coal and thermal power output is unlikely to affect growth
prospects for solar power

Let us first look at the proposal for cost pooling of Indian and international coal.
Currently, most existing power plants secure their fuel supply from cheaper domestic
coal but supply of domestic coal is very limited. Imported coal fired power is around
50% more expensive, affecting investment interest in new thermal power capacity in
the country. Pooling of domestic and international coal to arrive at a balanced coal
price could lead to an across-the-board increase in power prices by around INR
0.50/kWh. The impact on commercial and industrial customers will likely be
disproportionately higher. This, of course is good news for parity-driven solar projects
under private PPAs.
The government has also announced that it would soon start e-auction process for
the cancelled coal blocks. This might be the first step towards a privatization of coal
mining. In addition, the government is working on improving infrastructure required
to remove transportation bottlenecks between mines and power plants. These are
both very significant and far reaching measures. While the impact may not be felt in
the short term, it will make coal more easily available in the mid-to-long term. India
has the fourth largest coal reserves globally. Most experts feel that these measures
will boost power output and bring stability to power costs which have been increasing
at double digit rates over the past few years.
The proposed measures would help bring much needed transparency and
predictability to the Indian power market. BRIDGE TO INDIA believes that this will
lead to higher economic growth, more spending power and even greater demand for
power. Given Indias huge power deficit and social-cum-environmental imperatives,
increase in coal and thermal power output is unlikely to affect growth prospects for
solar power. India needs more power both thermal and renewable and the new
government is rightly pressing on all fronts.

55

PACKAGE UDAY
Key features:
In a bid to rescue almost bankrupt state electricity retailers (discoms), the
PM Narendra Modi Cabinet on Thursday approved a scheme called UDAY (Ujwal
Discom Assurance Yojna). Here are top 10 points to know about the power sector
reforms rescue package that is set to impact discoms:
1. UDAY will rejig Rs 4.3 lakh crore debt of the utilities besides introduce measures to
cut power thefts and align consumer tariff with cost of generating electricity.
2. The Union Cabinet, headed by Prime Minister Narendra Modi, approved a scheme
to ease the financial crunch facing power distribution companies, or discoms, that
has impaired their ability to buy electricity.
3. Power Minister Piyush Goyal said state governments, which own the discoms, can
take over 75 per cent of their debt as of September 30 and pay back lenders by
selling bonds. For the remaining 25 per cent, discoms will issue bonds.
4. The central government will ease rules to allow the states participating in the
scheme to borrow more and help with the additional burden.
5. The rescue plan UDAY, provides a permanent resolution of past as well as potential
future issues of the sector and empowers the utilities to break-even in next 2-3 years.
6. This will be implemented through 4 initiatives improving operational efficiencies
of discoms, reduction of cost of power, reduction in interest cost of discoms and
enforcing financial discipline on discoms through alignment with state finances.
7. Operational efficiency improvements is proposed to be brought in by compulsory
smart metering, upgradation of transformers and meters to reduce electricity lost
during transmission and distribution (or theft) from around 22 per cent to 15 per cent
by 2018-19.
8. By 2018-19, the gap between average revenue realised (or user charges) and
average cost of supply (or cost at which electricity is procured) will also be
eliminated.
9. People will not bear the cost of inefficiency of discom. It is states responsibility to
ensure that discoms become financially viable.
10. The scheme, which is optional, will be operationalised through signing of MoU

56
MMDR Bill
The bill proposes fixed percentage of revenue generated from mining on the
development of the local area. Also included in the bill is non-renewal of mining
concessions, and extension of licence period to 50 years from the current 30 years.
The government has already gone ahead with the course of action on MMDR bill, and
has identified 199 mines for auction. The passing of the Mines and Minerals Bill in the
Rajya Sabha will provide transparency in the system which will foster industrial
growth and development in the country in the coming times. The bill will facilitate
auctions of mines that supply minerals like iron ore and bauxite which will bring down
the costs of raw materials and boost business sentiments. The bill was already
passed in the Lok Sabha and with two amendments it has later on been also passed
by the Rajya Sabha.

E-auction in Rajasthan for coal mines

Rajasthan government will be conducting e-auction of major minerals, becoming the
first state in the country to do so. The auction will be completed in 45-60 days from
the day bidding starts.
E-bidding was chosen to have transparency in the allocation process in the wake of
the recent cancellation of allocated mines after irregularities were found in the
auctioning process under former principal secretary Ashok Singhvi.
In the first phase, 10-11 mines will be auctioned.Among these, one is of lead, copper
and zinc, while rest other are of limestone (steel and cement). The area of each mine
is around 10 square kilometres, mostly located in Jaisalmer, Bhilwara, Nagaur and
Pratapgarh.

Auctioning of coal mines

Since coming to power, the government has over the past one year held three rounds
of coal block auctioning.
Under the coalgate scam a total of coal blocks were cancelled, while auction of just
32 of them have yielded Rs. 2.07 lakh crore already, including about Rs. 11,000 crore
from two mines on Monday.
Coal Minister Piyush Goyal said that the e-auction of 32 coal blocks, out of 204
cancelled coal blocks, "has already yielded potential e-auction revenues, royalties
and upfront payments of Rs. 2.07 lakh crores, which is far in excess of CAG loss
estimate of Rs. 1.86 lakh crore."Mr Goyal said that the auctions would result in lower
cost of power, while coal-bearing states like Odisha, West Bengal, Jharkhand,
Chhattisgarh, Madhya Pradesh and Maharashtra will "earn lakhs of crores of
additional revenue". The power fuel cost would come down by Rs. 96,971 crores,
resulting in power tariff savings for consumers.
In the second tranche, with 13 out of the 15 blocks having been put on the block, the
cumulative proceeds have already touched Rs 2 lakh crore. Among the gainer are two
major firms that have managed to reclaim the coal blocks that they had prior to the
auctions Jindal Steel and Power Limited (JSPL) and Sunflag Iron and Steel. While

57
JSPL retained Gare Palma II & III in Chhattisgarh, Sunflag retained Belgaon mine in
Maharashtra. In all, the government plans to auction nearly 110 coal mines (with
reserves of 265 million tonne), of which it has already auctioned 19 operational
blocks in the first tranche last month. In the current tranche it has already offered 13
out of 15 ready-to-operate coal blocks, which despite having evacuation
infrastructure constraints, has seen enthusiastic participation from the bidders. A
total of 45 mines have been earmarked for allocation to state-run companies and the
remaining for auction.
The third round of auctioning is also expected to bring in a lot of money for the
government.
The ministry is also considering extending the linkages for existing holders by a year
till June 30, 2016. After that, the existing linkage holders will also have to bid.
Among the mines being auctioned, MarkiMangli-I mine in Maharashtra and ParbatpurCentral in Jharkhand are in production. The eight ready-to-produce mines are Dongri
Tal-II in Madhya Pradesh, KosarDongergaon, MarkiMangli-IV and Majra in Maharashtra,
Chitarpur in Jharkhand, Bhaskarpara and Sondiha in Chhattisgarh as well as Jamkhani
in Odisha.
REFERENCES:
1) http://indianexpress.com/article/business/business-others/coal-auction-totalproceeds-to-cross-rs2l-cr/
2) http://www.bridgetoindia.com/blog/weekly-updatewhat-do-the-latest-coal-andpower-sector-reforms-mean-for-solar-in-india/
3) http://www.indiainfoline.com/article/news-top-story/rajya-sabha-passes-mmdrbill-115032000339_1.html
4) http://indiatoday.intoday.in/story/coal-block-auction-governmentmines/1/428585.html
5) http://www.financialexpress.com/article/economy/power-sector-reforms-discoms-debtrs-4-30l-cr-discoms-rescue-package-uday-top-10-things-to-know/162633/

58

59

Latest FDI reforms - pros and cons

Foreign Investment in India or more precisely Foreign Direct Investment (FDI) in India
is one of the most talked about issues in the entire world economy in recent times.
Rated among the top emerging nations, India's liberalization policies are paying rich
dividends to the economy as a whole.
Foreign Direct Investment (FDI) is defined as "investment made to acquire lasting
interest in enterprises operating outside of the economy of the investor." The FDI
relationship, consists of a parent enterprise and a foreign affiliate which together
form a Trans-National Corporation (TNC).

India, post liberalization, has not only opened it's doors to foreign investors but also
made investing easier for them by implementing the following measures:
Foreign exchange controls have been eased on the account of trade.
Companies can raise funds from overseas securities markets and now have
considerable freedom to invest abroad for expanding global operations.
Foreign investors can remit earnings from Indian operations.
Foreign trade is largely free from regulations, and tariff levels have come down
sharply in the last two years.
While most Foreign Investments in India (up to 51 %) are allowed in most
industries, foreign equity up to 100 % is encouraged in export-oriented units,
depending on the merit of the proposal. In certain specified industries reserved for
the small scale sector, foreign equity up to 24 % is being permitted now.
As the industry progresses, opportunities abound in India, which has the world's
largest middle class population of over 300 million, is attracting foreign
investors by assuring them good returns. The scope for foreign investment in
India is unlimited.
Main sectoral changes in the FDI regime
Construction sector: The struggling construction sector will be a major beneficiary
as radical changes in FDI norms have been brought in to boost demand for steel,
cement and spur economic activity, ultimately with an aim to help build 50 million
affordable houses for the poor.
Several conditions have been removed including the area restriction of floor area of
20,000 sq.m. in construction development projects and minimum capitalisation of $5
million which needed to be brought in within six months of the commencement of
business. Also, foreign investors have been allowed to exit and repatriate their
investment under automatic route before the completion of the project provided they
complete a lock-in period of three years.
Defence: Foreign investment up to 49% has been allowed under automatic route
from the earlier government approved route. Proposals for foreign investment in
excess of 49% will be considered by FIPB.
Portfolio investment and foreign venture capital investment, which were restricted to
24%, have now been hiked to 49% and that too through the automatic route. To
ensure that ownership and control remain in Indian hands, Government approval, of
course, will be required in case of infusion of fresh foreign investment within the

60
permitted automatic route level, resulting in change in the ownership pattern or
transfer of stake by existing investor to new foreign investor.
Just this Monday, in a big boost for the Centre's Make In India initiative, Boeing and
Tata Advanced Systems had announced their JV "to make aerostructures for the AH64
Apache helicopters and to compete for additional manufacturing work across Boeing
platforms, commercial and defence." The latest FDI reforms are expected to result in
more such JVs in defence.
Foreign investment above 49% was permitted earlier too, subject to approval of
Cabinet Committee on Security on case to case basis, of course only if the
investment was to result in access to state-of-art technology in the country.
Broadcasting: In terrestrial Broadcasting FM (FM Radio), and in up-linking of News
& Government route Current Affairs TV Channels FDI upto 49% is allowed through
the FIPB route (from the earlier 26%), while 100% FDI is allowed through the
automatic route in up-linking of Non-News & Current Affairs TV Channels. 100% FDI
is also allowed (upto 49% automatic route and beyond that through government
route) in teleports, direct to home, cable networks, mobile TV, headend in the sky
broadcasting service and cable networks.
Banking: In private sector banking, the government has brought in a composite cap
by removing the sub-limits for FDI and FII, thereby allowing FIIs/FPIs/QFIs to invest
upto the sectoral limit of 74% provided there is no change of control and
management of the investee company. The existing foreign portfolio limit of 49% was
coming in the way of fund raising plans of private sector banks such as Yes Bank,
Kotak Mahindra Bank and Axis Bank. The new rule will give the banks and investors
considerable flexibility in raising funds and investing respectively.
Plantation: The government also decided to plantation activities namely; coffee,
rubber, cardamom , palm oil tree and olive oil tree plantations also for 100% foreign
investment under automatic route. As of now, only tea plantation was open to foreign
investment.
NRIs: Investment by companies/trusts/partnerships owned & controlled by NRIs on
non-repatriation basis will now be treated as domestic investment.
E-Commerce: Manufacturers have been allowed to sell their product through
wholesale and/or retail, including through e-commerce without Government approval.
Retail: Though the BJP-led government stayed away from any mention of multibrand retail so as to protect the interests of their key vote bank of small traders, it
has announced easing of several conditionalities for single brand retail trade (SBRT)
and e-commerce. It has now been decided that in case of state of art and cutting
edge technology, sourcing norms (that 30% of value of goods will have to be
purchased from India) can be relaxed subject to Government approval, a move that
will benefit companies such as Ikea. The government also permitted entities who
have been granted permission to undertake SBRT, to do e-commerce. The
government has eased FDI policy conditionalities for Single Brand Retail Trading,
besides permitting 100% FDI in duty free shops.

61
Also, a single entity will be permitted to undertake both the activities of single brand
retail trading (SBRT) and wholesale with the condition that conditions of FDI policy on
wholesale/ cash & carry and SBRT have to be complied by both the business arms
separately. Currently, wholesale/cash & carry trader cannot open retail shops to sell
to the consumer directly.
LLP: 100% FDI in limited liability partnerships (LLPs) has been permitted under
automatic route.
Aviation: Regional Air Transport Service will be eligible for foreign investment up to
49% under automatic route. Under the present FDI policy, foreign investment up to
49% is allowed only in Scheduled Air Transport Service/ Domestic Scheduled
Passenger Airline.
Foreign equity caps of certain sectors -- Non-Scheduled Air Transport Service, Ground
Handling Services, Satellites-establishment and operation and Credit Information
Companies have now been increased from 74% to 100%. Further, sectors other than
Satellites- establishment and operation have been placed under the automatic route.
Other changes in rules: No government approval is required for investment in
automatic route by way of swap of shares.
For infusion of foreign investment into an Indian company which does not have any
operations and also does not have any downstream investments, Government
approval will not be required for activities under the automatic route and without FDIlinked performance conditions.

POINTS IN FAVOUR:
Economic growth: A remarkable inflow of FDI in various industrial units in India
boosts the economic life of country. It provides an opportunity for cash-deficient
domestic retailers to bridge the gap between capital required and raised. In fact FDI
is one of the major sources of investments for a developing country like India wherein
it expects investments from Multinational companies to improve the countries growth
rate, create jobs, share their expertise, back-end infrastructure and research and
development in the host country. It has also been noted that foreign direct
investment has helped several countries when they faced economic hardship. An
example of this can be seen in some countries in the East Asian region (Indonesia
and Thailand). It was observed during the 1997 Asian financial crisis that the amount
of foreign direct investment made in these countries was held steady while other
forms of cash inflows suffered major setbacks. Similar observations have also been
made in Latin America in the 1980s and in Mexico in 1994-95.
Improvement in Supply Chain: Improvement of supply chain/ distribution
efficiencies, coupled with capacity building and introduction of modern technology
helps arrest wastage. In the present situation improper storage facilities and lack of
investment in logistics have been creating inefficiencies in food supply chain, leading
to significant wastages. We have to accept that India is BAD at supply chain
management, be it PDS or private and foreign expertise only helps to improve it for

62
good.
Benefits for the Farmers: Though India is the second largest producer of fruits and
vegetables, it has a very limited integrated cold-chain infrastructure. Lack of
adequate storage facilities causes heavy losses to farmers, in terms of wastage in
quality and quantity of produce in general, and of fruits and vegetables in particular.
With FDI, there could be a complete overhaul of the currently fragmented supply
chain infrastructure. Extensive backward integration by multinational retailers,
coupled with their technical and operational expertise, can hopefully remedy such
structural flaws.
Improvement in Customer Satisfaction: Consumers in the organized retail have
the opportunity to choose between a numbers of internationally famous brands with
pleasant shopping environment, huge space for product display, maintenance of
hygiene and better customer care. There is a large segment of the population which
feels that there is a difference in the quality of the products sold to foreign retailers
and the same products sold in the Indian market. With increasing spending power in
an emerging country, there is an increasing tendency to pay for quality and ease and
access to a one -stop shop which has a wide range of different products. FDI
definitely challenges the monopoly of certain domestic Indian companies and the
ultimate benefit goes to the end-consumer.
Boost Healthy Competition and check inflation: The entry of the many
multinational corporations obviously promises intensive competition between the
different companies offering their brands in a particular product market (including
domestic companies), thereby resulting in availability of many varieties, reduced
prices, and convenient distribution of the marketing offers. Products of superior
quality are manufactured by various industries in India due to greater amount of FDI
inflows in the country. Some may argue because of FDI, big businesses will destroy
local economies by displacing many people affiliated with small businesses, including
shopkeepers, hawkers, vendors, and workers. But retail in India is $450 billion
industry - 90% controlled by unorganized small and medium traders. For a country
with size and plural cultural, ethnic and linguistic population fragmentation of retail
business will always be present.
Improved technology and logistics:Improved technology in the sphere of
processing, grading, handling and packaging of goods and further technical
developments in areas like electronic weighing, billing, bar-code scanning etc. is a
direct consequence of foreign companies opening retail shops in India. Further,
transportation facilities get a boost, in the form of increased number of refrigerated
vans and pre-cooling chambers which can help bring down wastage of goods.
More and Better Employment Opportunities: Several studies have pointed out
the benefits of allowing global retail chains in the multi-brand retail sector. The
overall impact of modern retail on the economy is immense. A report by the Boston
Consulting Group and the Confederation of Indian Industry showed that nearly three
to four million direct jobs will be created while another four to six million indirect jobs
would be available in the logistics sector, contract labour in the distribution and
repackaging centres, housekeeping and security staff in the stores. Government
estimates show that nearly one crore jobs would be created in the sector. The entry
of foreign companies into Indian Retailing not only creates employment opportunities

63
but also ensures quality in them. This helps the Indian human resource to find better
quality jobs and to improve their standard of living and life styles on par with that of
the citizens of developed nations.
POINTS AGAINST:
Domination of Organized Retailers: FDI in retail definitely strengthens organized
retail in the country. These organized retailers will tend to dominate the entire
consumer market. It leads to unfair competition and ultimately results in large-scale
exit of domestic retailers, especially the small family managed outlets. When FDI hit
Thailand, 60000 small shops closed. It may all look good on paper now but
eventually, big businesses will monopolize their respective markets in India by
destroying all small competitors, and then they will be in complete control of prices,
so it will ultimately come at a cost. Also, after monopolizing, product quality will stop
mattering, since all small businesses whose products competed in quality would be
destroyed. Also, vegetables and fruits that will be imported from outside India will be
not fresh and stale due to long distance transportation and constant refrigeration.
Loss of jobs: Retail in India has tremendous growth potential and it is the second
largest employer in India. Any changes by bringing major foreign retailers who will be
directly procuring from the main supplier will not only create unemployment on the
front end retail but also the middleman who have been working in this industry will
be thrown out of their jobs. Jobs in the manufacturing sector will be lost because
foreign giants will purchase their goods from the international market and not from
domestic sources. This has been the experience of most countries which have
allowed FDI in retail. Although, our country had made a condition that they must
source a minimum of 30% of their goods from Indian micro and small industries, we
cant stop them from purchasing goods from international markets as per WTO law.
So after coming to India, they can reduce this 30% by litigating at the WTO. Another
argument is that is 30% enough?
Loss of Self Competitive Strength: The Indian retail sector, particularly organized
retail, is still underdeveloped and in a nascent stage and that, therefore the
companies may not be able to compete with big global giants. If the existing firms
collaborate with the global biggies they might have to give up at the global front by
losing their self-competitive strength. We have never heard of an Indian counterpart
of Walmart and by asking Walmart to invest in India, we never will.
Distortion of Culture: Though FDI in Indian retail will indirectly or directly
contribute for the enhancement of Tourism, Hospitality and few other Industries, the
culture of the people in India will slowly be changed. The youth will easily imbibe
certain negative aspects of foreign culture and lifestyles and develop inappropriate
consumption patterns, not suited to our cultural environment.
Farmers woes: Because of FDI, there is a negative impact on farming, since large
corporations will push farmers to work for them and get involved in single-crop
farming and the use of artificial means of farming. Due to monopolization, farmers
will have to sell their products to corporations at the offered price, whatever it may
be. The farmers will have to bear the cost of reduced MRPs eventually.
Rise in unethical practises: Due to lack of transparency and proper regulation
norms in our country, FDI would act as another source of increasing corruption and

64
red tape in the country. In fact, Unethical behaviours like corruption, red-tapism and
selfishness is increasing day by day because of huge potential of money making,
which is their ultimate aim and not quality or providing jobs or reviving the economy.
Example include Walmart, which in October 2013 had to break the alliance with
Bharati due to continuing US investigation of fraud in Mexico, Brazil, China and India.
Even the Indian government is investigating whether a loan made by Walmart to
Bharti broke foreign investment rules. This is a very good example how substandard
law and regulation mechanism in India can be exploited by the foreign players,
negating all good things that FDI provide.

65

GST BILL

The concept of a Goods and Services Tax (GST) as a single tax on any supply of
goods or services or both is known and administered in most other jurisdictions.
What do we have right now?
The scheme of indirect taxation in India (as opposed to direct taxation, such as
income tax) provides for the division of the powers to tax between the Centre and the
states.
That does sound complicated.
Yes. Imagine a toothpaste manufacturer who receives some services from India and
others from overseas. These services are used in relation to the manufacture of
toothpaste in India. While the Indian service provider charges our manufacturer
service tax, the toothpaste manufacturer has to reverse charge the tax in respect of
services received from overseas.
Further, our manufacturer will receive various components and ingredients, all of
which would (subject to concessions or exemptions) be subject to central excise duty.
And should you want tax credit (set-off), you need to ensure the proper (prescribed)
documents are available in the required format but, taxes levied by the Centre and
states cannot be set off against each other for credit purposes
That explains why business tax returns are always so complicated. How can
GST help?
The proposed GST regime, intended to be introduced from 1 April 2016, also
emphasised in this years Union budget, is said to be a watershed reform in Indias
tax landscape. In the words of finance minister Arun Jaitley in December 2014, it is
the single most important tax reform after 1947.
GST will basically leave behind only three types of GST (central, state and
integrated GST) .
So what would happen to our toothpaste manufacturer above, after GST?

66
There is lot of streamlining and simplicity: imports and inter-state movement of goods
or services will be subject to IGST (integrated GST), while all local supplies will
suffer CGST (central GST) + SGST (state GST) or IGST (which is effectively the total of
CGST and SGST).
But, for the time being, the Bill has kept certain goods out of the purview of GST,
which have been a point of contention between state governments and the centre.
These include:

Petroleum crude

High speed diesel

Petrol

Natural gas

Aviation turbine fuel

Alcohol for human consumption.

Why on earth is it taking so long?

The states expressed their disapproval over various issues: one major worry is the
abolition of the CST, levied on inter-state sales, which is a major source of
revenue for states.
In an effort to assuage states concerns and to bring them on board the proposed
introduction of GST, the Constitutional Bill, 2014 proposes to levy an additional 1%
tax on the inter-state supply of goods, which would be paid to states where
goods originate, as compensation for the lost CST revenue in the first few
years of the change to GST.
So how will all these grand plans likely be implemented?
The Constitutional (122nd Amendment) Bill, 2014 will have to be passed by a
majority of the total membership of each house, and by a majority of at least twothirds of the members of that house who are voting.
Is this likely to happen any time soon?
Given that introduction of GST features fairly high on the pronounced agenda of the
Narendra Modi government its not impossible that they will hit their 2016 target.

67
What will the GST rate be?
Based on present trends it could be anything from 24% to 27%. However the Indian
rates are much higher than other countries. Interestingly, a recent study by the Tax
Force has estimated that the GST will provide gains to Indias GDP from 0.9% to
1.7%.
SOURCES:

http://www.livemint.com/Politics/b0EOSdr9ScDIGOn37TgnmK/Nearlyeverything-you-wanted-to-know-about-GST-but-were-af.html
http://www.hindustantimes.com/business/gst-bill-passed-in-lok-sabha-here-sall-you-need-to-know/story-UbyQAX6h3ddLqgZke5qUgN.html
http://qz.com/317108/the-complete-guide-to-understanding-indias-biggest-taxreform-the-gst/

68

NITI AYOG
What is it?
For starters, NITI Aayog is a catchy acronym in keeping with the Centres penchant
for alphabet soups pregnant with symbolism. NITI is short for National Institution for
Transforming India
This new economic think-tank, manned by domain experts, has been constituted to
provide strategic and technical advice to the Centre and the State governments on
key policy matters. The Planning Commission also did this but allegedly in a heavily
centralised, big-brother way suited to a command economy. With the Indian economy
becoming more market-driven and individual States requiring a nuanced policy
framework, the NITI Aayog has the mandate to give individual States much more say
in their planning and development process. The governing council of the NITI Aayog
has on board the chief ministers of all the States and lieutenant governors of the
Union Territories. This council, in its first meeting, decided to undertake a review of
centrally sponsored schemes.
Why is it important?
A distinguished think-tank with strategic vision and expertise and the courage to offer
objective advice to the government is imperative in any democratic setup. This is

69
especially so for India given its mind-boggling complexity and diversity

Planning
Commission

Position

1950, March
15th

died in 2014,
August after Modi
became PM.

Born

Chairman

Prime minister

2015, January 1st

Same

NITI Aayog

70

Vice Chairman

Last Dy.Chairman was

Montek Singh
Ahluwalia (Cabinet
minister rank).

MemberSecretary (IAS)

Sindhushree
Khullar (IAS)

Free market economist Arvind Panagriya. He was the C

and the the brain behind Rajasthans land-labour reform.

A secretary level bureaucrat with fixed tenure.

Same Ms. Sindhushree Khullar is the first CEO.

CEO

PM can nominate four-Union ministers. Modi has nominated f

Ex-officio
members

Full time members

1.

Home

2.

Finance

3.

Railway

4.

Agriculture

Bibek Debroy (Free market economist)

Dr. V.K. Saraswat (technocrat, missile scientist and Ex-

Finance Minister
Planning
minister

4-7 full time members,

who enjoy Minister of
State rank.

Union ministers for

Special Invitees

1.

Transport

2.

HRD

3.

Social Justice

+PM can invite other experts as and when needed.

part-time
members

Governing Council

ad hoc Regional

Tech experts from research institutes. Currently none declare

Chairman: Prime minister

Chief ministers of all states

Lieutenant governors of all Union territories.

Will have CMs of states that fall in the region. Theyll be deal

71
Councils

states for example irrigation, naxal-problem, infrastructure e

SOURCES: http://mrunal.org/2015/01/economy-niti-ayog-planning-commission-evolutionstructure-members-function-criticism.html
http://www.business-standard.com/article/economy-policy/five-things-thatdifferentiate-niti-aayog-from-planning-commission-115010600722_1.html
http://www.thehindubusinessline.com/opinion/columns/all-you-wanted-to-knowabout-niti-aayog/article6902292.ece
http://currentaffairs.gktoday.in/current-affairs/niti-aayog
http://indiatoday.intoday.in/story/13-things-to-know-about-pm-narendra-modisnew-niti-aayog-planning-commission/1/410877.html

72

BANKRUPTCY LAW IN INDIA AND PROPOSED CHANGES

India currently has no consistent framework for dealing with bankruptcies.
Companies in different industries face varying degrees of legal and government
supervision in the liquidation process. In many instances, supervised debt
restructuring occurs only when companies face imminent crisis. Further
compounding this problem is the fact that court delays in India can cause bankruptcy
proceedings to take years. According to a well-publicized report written by current
RBI governor Raghuram Rajan, the average time taken to close a business in India is
10 years, compared with 1.7 years in China. This report also highlights abysmally
low asset recovery rates in India12% at the end of a bankruptcy process compared
with Chinas 36%.
Theres no doubt that the Indian government recognizes that bad debt can impair the
countrys long term growth. What remains to be seen is whether the Modi
administration will undertake initiatives to create an organized bankruptcy code, one
that does not fall victim to Indias judicial backlog. The signs are encouraging. The
Bankruptcy Law Reform Committee, a committee recently constituted by the Finance
Ministry, released report recommending drastic changes to current laws and laying
out a clear roadmap for implementation. The report uses definitive language to
describe the limitations and inconsistencies of the current bankruptcy framework,
and its recommendations borrow heavily from best practices in the US, Sweden, and
the UK. The reports proposals, if implemented, could herald a new era in how Indias
economy resolves bad debts.

Why does India need a bankruptcy law?

The failure of businesses impacts employees, shareholders, lenders, and the broader
economy. In a country like India particularly because of delays in making decisions
on the viability of businesses, tactics employed by company promoters to delay
reorganization or attempts to sell off assets, changes of management or litigation
that goes on and on the drag on new business units, jobs, income generation and
economic growth can be significant. India does have some laws including one on
Securitisation and Enforcement of Security and other mechanisms, like
Corporate Debt Restructuring or CDR, to address the problem of insolvency
of firms. But the fact is some of these laws, such as the Sick Industrial Companies
Act or SICA, have not worked because of inefficient enforcement and court delays.
So how can a modern law help?
Like in the West, a modern law with a focus on speedy closure will help firms on the
brink to be either restructured or sold off with limited pain for all involved. In some
cases, if this is done swiftly, assets can be put to good use and the firm can be
revived. Delaying a decision on whether to shutter a firm or to try to revive it causes
destruction of value for all involved. Indian policymakers have recognized this. For
banks or lenders, the money recovered can be lent again, promoting efficient
allocation of resources, besides development of financial markets such as a bond
market with clarity on repayment for debtors. An efficient and swift insolvency

73
regime ensures greater availability of credit or funds for businesses by freeing up
capital, and is thought to boost innovation and productivity.
What is the international experience?
The US has a Bankruptcy Code that provides for fairly quick liquidation or
reorganisation of business with what is popularly known as Chapter 7, with cases
being filed in bankruptcy courts; Chapter 11, which deals with reorganisation of
businesses; and Chapter 15, on cross-border insolvencies. Individual bankruptcies are
dealt with separately. In the UK, once cases are filed for bankruptcies, after 12
months, there is either discharge with part of the assets being used to pay off debts,
or, in situations where companies can be turned around, court-appointed
administrators handle cases. The German insolvency law is applicable to both
individuals and firms, with independent court-appointed insolvency practitioners
helping in realising assets or reorganising the business.
What is India planning?
A committee headed by former law secretary T K Viswanathan has suggested a
timeline of 180 days extendable by 90 days to deal with applications for
resolving cases of insolvency or bankruptcy. During this period, the management of
the distressed firm or debtor could be placed in the hands of a resolution professional
a new class of professionals equipped to deal with such cases, which would be
supervised by a proposed new regulator. The proposal also envisages them getting
into talks to revive firms, and work out a repayment plan. A Debt Recovery Tribunal
will be the adjudicating authority over both individuals and unlimited liability
partnership firms. The National Company Law Tribunal will be the adjudicating
authority with jurisdiction over companies with limited liability. The law will have to
be approved by Parliament.
What about financial sector insolvencies?
The Financial Sector Legislative Reforms Commission (FSLRC) has recommended the
creation of a resolution corporation to monitor financial firms, and intervene before
they go bust. The aim is to either close firms that cant be revived, or change their
management to protect investors or depositors. This is important because the failure
of large banks or institutions imposes costs on taxpayers in the form of bailouts or
capital infusion. The proposal is to promote the Deposit Insurance and Credit
Guarantee Corporaton (DICGC) as resolution corporation.

Cases such as the protracted collapse of liquor tycoon Vijay Mallya's Kingfisher Airline
empire have burnt investors. The airline was grounded in 2012 with some $1.5 billion
in debt and its shares are now worthless, but creditor banks seized his former
Mumbai headquarters only this year. The fate of his Goan villa is stuck in a prolonged
court tussle.
India ranks 130 out of 189 in the World Bank's Ease of Doing Business report, below
Lesotho and Cameroon, not least because of its poor performance in resolving
insolvency.

74

SOURCES:

http://articles.economictimes.indiatimes.com/2015-0211/news/59043779_1_doing-business-report-insolvency-regimeresolving-insolvency
http://indiatoday.intoday.in/story/india-eyes-bankruptcy-reform-to-easedecades-of-gridlock/1/511406.html
http://www.globalpolicywatch.com/2015/05/revamping-indiasbankruptcy-laws-a-way-out-of-indias-bad-debt-problem/
http://indianexpress.com/article/explained/simply-put-bankruptcy-lawand-the-need-to-have-one/

75

RATIONALISATION OF TAXES
The government will soon forge ahead with plans to cut through the clutter of
exemptions that litter the corporate tax code. Finance Minister Arun Jaitley has
promised a rational tax rate for individuals and bringing down of corporate tax to
25 per cent flat in four years beginning next fiscal along with removal of
exemptions except those that encourage individual savings.
He said along with a rational rate of taxation, more banking transactions and making
PAN card compulsory for payments over a threshold limit will go a long way in
tackling the problem of domestic black money.
He also said that once the corporate taxes go down, the exemptions.
Referring to the problem of black money, the Finance Minister said, "The first step is
you rationalise your rates and have rational rate of taxation which helps you in
making sure that people comply.
"The second factor is that the nature of the economy is itself changing so more and
more banking transactions, payment getaways are a reality, all this is going to
incentivize and a lot of economy is going to go through the banking transaction as a
result of this."
"As far as corporate taxes are concerned, once corporate tax rates go down the
exemptions will have to be phased out," he said.
"These are those corporate exemptions which people get. Bulk of the litigation and
discretion is around those exemptions," he added.
He is also looking to put most of the exemptions, except those which encourage
individual savings, to an end. Starting with 2016-17 year, the corporate tax
rate will be brought down to a 25 per cent flat corporate tax.
"Over the next four years this entire rate would come down to 25 per cent. And I will
be removing each one of those exemptions one by one. I am shortly going to notify
all the exemptions which are going to be rationalised this very year itself," he said.
Jaitley said that one of the main problems is of credibility related to taxation issues.
"As far as the taxation issues are concerned, a lot needed to be done at our end and
therefore in terms of direct taxes, we'd lost credibility with the world," he said.

76
He, however, expressed satisfaction that one by one each of those issues related to
direct taxes is now being put to rest. Jaitley said the government is "keeping all
options open" to resolve the taxation issues either by judicial or executive process.
"One of the great shoulders the world was relying on (was) China. The world now
needs some other additional shoulders to give a push to the growth rates.
"It is a great opportunity and if we continue to move in the direction in which we are,
I see over the next few years with a more friendly environment in the world as far as
the economic scenario is concerned, probably our growth rates will move up, our
ability to grow will move up and our ability to fight poverty at least will also improve,"
he said.

In FY15, the government is estimated to have had to forego Rs 62,400 crore in

corporate taxes on account of various incentives, up from Rs 57,800 crore a year ago.
Accelerated depreciation, an incentive given to companies to encourage them to
invest more, alone added up to a tax loss of Rs 37,000 crore.
EXPERTS ENDORSE GOVT PLAN
Experts endorsed the government's plan, saying this will clean up the tax system.
"The phasing-out of corporate tax exemptions will certainly reduce litigation," said
Suresh Surana, founder, RSM Astute Consulting Group. But he also called for the
abolition of minimum alternate tax (MAT) and a reduction in dividend distribution tax.
MAT is levied on companies that make book profits but do not pay tax because of

77
various exemptions. Experts said companies should be given enough time to prepare.
"Phasing out tax exemption with adequate notice is a rational proposition as
taxpayers will be able to factor tax costs into their long-term business projections,"
said Pranay Bhatia, partner, BDO India LLP.
The move to phase out exemptions is also in line with global thinking that seeks to
put an end to tax practices that erode the tax base.
SOURCES:

http://economictimes.indiatimes.com/news/economy/policy/modi-govts-freshapproach-sezs-set-to-lose-tax-incentives-inrationalisation/articleshow/49295356.cms
http://www.rediff.com/business/report/jaitley-says-keen-to-rationalise-personalcorporate-taxes-in-4-years/20151006.htm
http://profit.ndtv.com/news/budget/article-opinion-budget-2014-an-attempt-atrationalisation-of-indirect-taxes-586940
http://www.business-standard.com/article/companies/fmcg-firms-seek-taxrationalisation-103111901077_1.html
http://www.freepressjournal.in/rationalisation-of-tax-structure-and-system-canboost-real-estate-market/

78

JAM trinity - will it be a substitute for PDS??

Sixty-eight years after Independence, poverty remains a pressing problem. No

nation can become great when the life chances of so many of its citizens are
benighted by poor nutrition, limited by poor learning opportunities, and
shrivelled by gender discrimination. Any government must have an agenda on
how to help those left behind. This chapter lays out some simple facts and
analysis on the current mechanisms employed to help the poor, the efficacy of
those mechanisms, and prospective reforms going forward. Economic growth
has historically been good for the poor, both directly because it raises
incomes, and indirectly, because it gives the state resources to provide public
services and social safety nets that the poor need (more than anyone else).
The estimated direct fiscal cost of this illustrative subset of subsidies is about `
378,000 crore or about 4.24 percent of GDP.
Leakages seriously undermine the effectiveness of product subsidies.
Recent academic research on the subject of PDS leakages (kerosene, rice,
wheat etc.) has found that leakages are falling through still unacceptably high.
Items
Kerosene
Rice
Wheat

PDS LEAKAGES
Rs. (In crores)
10000
5800
12600

Leakages seriously undermine the effectiveness of product subsidies The Prime

Minister recently stated that leakages in subsidies must be eliminated without
reducing the subsidies themselves. Leakages not only have the direct costs of
wastage, but also the opportunity cost of how the government could otherwise have
deployed those fiscal resources. Converting all subsidies into direct benefit transfers
is therefore a laudable goal of government policy
THE POSSIBILITIES OFFERED BY CASH TRANSFERS Technology is increasingly
affording better means for the government to improve the economic lives of the poor.
In particular, technologies that enable the state to better target and transfer financial
resources to households expand the set of antipoverty tools the government has in
its armoury.
THE JAM NUMBER TRINITY SOLUTION
Eliminating or phasing down subsidies is neither feasible nor desirable unless
accompanied by other forms of support to cushion the poor and vulnerable and
enable them to achieve their economic aspirations. The JAM Number Trinity Jan
Dhan Yojana, Aadhaar and Mobile numbers allows the state to offer this support to
poor households in a targeted and less distortive way. As of December 2014, over
720 million citizens had been allocated an Aadhaar card. These enrolments are
increasing at a rate of 20 million per month and by December 2015, the total number
of Aadhaar enrolments in the country is expected to exceed 1 billion. Linking the
Aadhaar number to an active bank account is key to implementing income transfers.
To this effect, the government had seeded over 100 million bank accounts with
registered Aadhaar numbers by December 2014. With the introduction of Jan Dhan

79
Yojana, the number of bank accounts is expected to increase further and offering
greater opportunities to target and transfer financial resources to the poor.
Two alternative financial delivery mechanisms below:
Mobile Money

With over 900 million cell phone users and close to 600
million unique users, mobile money offers a complementary
mechanism of delivering direct benefits to a large proportion of
the population. And this number is increasing at a rate of 2.82
million per month.
Post Offices

India has the largest Postal Network in the world with over
1,55,015 Post Offices of which (89.76 percent) are in the rural
areas.

Similar to the mobile money framework, the Post Office can

seamlessly fit into the Aadhaar linked benefits-transfer
architecture by applying for an IFSC code which will allow post
offices to start seeding Aadhaar linked accounts.
If the JAM Number Trinity can be seamlessly linked, and all subsidies rolled into one or
a few monthly transfers, real progress in terms of direct income support to the poor
may finally be possible.
Reinforcement of PDS?
As shown by recent comparative studies, states enacting proper PDS reforms have
experienced significant improvements of systems functioning, and substantial
reductions of the poverty gap index. Empirical data suggests that PDS reform can be
a viable alternative to deconstruction, especially when the problem of leakage is
tackled from its root causes. And yet, in the debate on PDS reform versus substitution
with direct transfers, the tools of the JAM trinity tend to be perceived as a means to
the latter, as if that was the only suitable purpose of their usage.
Through the cases recounted here, it illustrates a different perspective, in which the
same technologies are recombined to serve exactly the opposite aim. We therefore
submit that the JAM trinity should not be classified as a means to dismantle the PDS,
as commentators have too quickly framed it. Technology acquires its purpose in the
hands of policymakers, and the very same JAM tools can be paramount in the fight to
the diversion that largely causes leakage: they can therefore serve as a means for
strengthening the PDS, rather than dismantling it. What route shall be taken, and
how it shall be adjusted to the needs of the millions of Indian poor entitled to the
PDS, will be crucial choices in this historical phase. But whatever policy decision is
made, the role of JAM technologies in fighting leakage from the PDS should
be recognised in its full potential.
SOURCES:

http://www.epw.in/commentary/will-jam-trinity-dismantle-pds.html
http://indiabudget.nic.in/es2014-15/echapvol1-03.pdf

80

http://www.dailypioneer.com/columnists/oped/uncertain-future-of-jamtrinity.html

81

What is direct cash/Benefit Transfer

and how will it help?
Subsidy is one expenditure that the governments in India find difficult to cut. It is
understandable, considering 33 percent of the world's poor live in India.
Prime Minister Narendra Modi has time and again said that his government is for the
poor in the country. The government did not even bat an eyelid while vetoing the
global trade talks.India's action had antagonised the rich nations, but Modi held his
ground.
However, the government's stance in the subsidy issue has been against the free
market principles, which advocate drastic cuts in such expenditure. The key
ingredients in India's subsidy are fuel, fertiliser and food

Over the last 10 years, subsidy pay out of the government has witnessed a steady
increase from Rs 48,000 crore in FY06 to Rs 2.61 lakh crore (budget estimate) in
2014-15 - an annual increase of about 22 percent on an average. Subsidy as a
percent of GDP also increased almost steadily from just 1.29 percent to 2 percent.
But the figure is scarier when taken as a percent of total expenditure. In FY06,
subsidies accounted for 9.4 percent of total government spending. This rose to a high

82
of 18.2 percent in FY13. As per the revised estimates, this has declined to 16.09
percent in FY14.
The only way out for the government will be widening the coverage of direct
benefit transfer or DBT. The scheme rolled out by the erstwhile United Progressive
Government aims to directly transfer the cash benefits into the beneficiary accounts
linked to Aadhaar, thus plugging the leakages.
The universalization of DBT scheme is expected to better reach beneficiaries and
check leakages.
The success of the Jan Dhan, which has made banking available to most households
in the country, has given the government room to step up its direct cash
transfer schemes.
Over 12 crore new accounts have been opened under this scheme in nearly seven
months. Over a third of these accounts are Aadhar seeded.
What are its benefits?
It can help the government reach out to identified beneficiaries and can plug
leakages. Currently, ration shop owners divert subsidised PDS grains or kerosene to
open market and make fast buck. Such Leakages could stop. The scheme will also
enhance efficiency of welfare schemes.
How is it implemented?
The money is directly transferred into bank accounts of beneficiaries. LPG and
kerosene subsidies, pension payments, scholarships and employment guarantee
scheme payments as well as benefits under other government welfare programmes
will be made directly to beneficiaries. The money can then be used to buy services
from the market. For eg. if subsidy on LPG or kerosene is abolished and the
government still wants to give the subsidy to the poor, the subsidy portion will be
transferred as cash into the banks of the intended beneficiaries.
What are the scheme's disadvantages?
It is feared that the money may not be used for the intended purpose and men may
squander it.
Has it already been implemented in India?
Electronic Benefit Transfer (EBT) has already begun on a pilot basis in Andhra
Pradesh, Chhattisgarh, Punjab, Rajasthan, Tamil Nadu, West Bengal, Karnataka,
Pondicherry and Sikkim. The government claims the results are encouraging.
Are there any other drawbacks?

83
Yes, because only Aadhar card holders will get cash transfer. As of today, only 21
crore of the 120 crore people have Aadhar cards. Two other drawbacks are that most
BPL families don't have bank accounts and several villages don't have any bank
branches. These factors can limit the reach of cash transfer.
What about elsewhere in the world?
Many Latin American countries have conditional cash transfer schemes in which
money is transferred to poor families through women. The money is given, subject to
them ensuring that their children attend school regularly, take preventive healthcare
measures and provide better nutrition to their children. The Indian scheme is
unconditional.
What are the scheme's political implications?
It was found beneficiaries express a stronger preference for the ruling party that
implements and expands cash transfers.
SOURCES: http://articles.economictimes.indiatimes.com/2015-0218/news/59269068_1_cash-transfer-benefit-transfer-dbtprogramme
http://dbtmis.planningcommission.nic.in/dbtentry/homepage.aspx
http://www.business-standard.com/article/economy-policy/directbenefits-transfer-how-the-game-has-changed113013100068_1.html
http://indiatoday.intoday.in/story/what-is-direct-cashtransfer/1/235028.html
http://www.firstpost.com/business/budget-2015-direct-benefittransfer-only-way-to-cut-govts-subsidy-burden-2118289.html

84

85

India's Bid for Permanent seat at UNSC - How

will it help, progress so far
The expansion of the UN Security Council (UNSC) has been under discussion since the
end of the Cold War. The vast majority of UN members acknowledge that the UNSC
needs restructuring as it no longer reflects the changes in global power since 1945.
The size of expansion and countries to be included as new permanent members
remains a contentious issue, primarily because of resistance from US, China and
Russia and the 25 member Uniting for Consensus (UFC) group comprising of
countries like Pakistan, Italy, Mexico, Egypt, South Korea and so on.
US President Barack Obama, in New Delhi, has reconfirmed his countrys support for
Indias nomination for a permanent seat in an expanded UN Security Council.
Pakistans Foreign Office spokesman has politely opposed the endorsement , saying
it will complicate the process of expanding the UN Security Council and increasing
the number of its permanent members.
It is not clear to many why the Security Council should be reformed and how. It was
squeezed after the Second World War after learning some bitter lessons from the
failure of the League of Nations where the Council had an unlimited number of
members and all of them had the power of veto. Such was the dominance of the
idea of state sovereignty that the League could take no action during most crises.
The UN was based on the realist principle of preferred sovereignty of a few
states.
Under former UN General Secretary Kofi Annan, a document called the Razali Plan
(2004) proposed enlarging the Security Council by a further nine seats and
presented two alternative models (A and B) outlining how this could be done. Model
A responded to Africas demand for a region-based increase; Model B was more
complex and soon lost support. The new 22-member Security Council will have to
be endorsed by a two-thirds majority from over 190 members of the UN. After that,
the veto-bearing current permanent members of the Security Council will have to
pass the plan.

86
If the US wants to set up India as a rival of China in Asia, the Chinese veto will block
the expansion plan and Indias entry. If India moves to counter China and looks at
Chinas cooperation with Pakistan as a hostile act, the realpolitik of this expansion
will go haywire. India has a good international image and has a lot of support even
from countries that Pakistan habitually considers its friends in 2003, Pakistans
big Arab friends wanted India in the OIC. India has secured the backing of three
serious regional contenders for the Security Council Japan, Germany
and Brazil. Among the five permanent members it had France, Britain and Russia
already backing it. Now the US is on board too.
India has a democratic system that most Pakistanis now openly envy. Its economic
reform under Manmohan Singh since 1991 has succeeded and its variation on the
free market doctrines has saved it from the more lethal fallout from the 2008 global
crisis. Expanding the Security Council means making the UN less able to act in
crises needing immediate collective response. It will be like going back to the
League of Nations and its incapacities. It will be an acceptance of a multi-polar
world, going ideally horizontal but losing the realistic vertical system that delivered.
This expansion will take long in realisation because our multi-polar world, with its
proliferation of regional rivalries, will not be able to agree readily on a region-based
new permanent membership.
If India-China rivalry grows in the region if that is what America wants then the
expansion plan will be further delayed. But if India and China handle their
contradictions well and that also means Pakistan sorting out its non-state actor
problems with a more pliable India then a new 22-member Security Council will
become feasible.
SOURCES:

http://tribune.com.pk/story/74621/a-permanent-un-sc-seat-for-india/

http://www.thehindubusinessline.com/economy/russia-supports-indias-bid-forpermanent-seat-in-unsc/article3941621.ece

http://www.dawn.com/news/1163163

http://www.firstpost.com/world/despite-modis-pitch-indias-permanent-unscmembership-will-only-be-possible-in-2020-25-2446222.html

87

http://www.catchnews.com/international-news/unsc-expansion-india-still-faraway-from-a-permanent-seat-1442383022.html

88

WHY LABOUR REFORMS ARE REQUIRED?

WHAT IS WRONG WITH THE CURRENT
SYSTEM?
'Labor reforms' is a catchword presented by successive governments and sections of
the media as the elusive magic wand that will instantly fix the Indian economy.
Corporates, too, have lobbied for this, asserting that if they could hire and fire with
more ease, they would draw more workers into the formal sector.
In its bid to spur the economy and create more jobs, the Narendra Modi government
has embarked on a major overhaul of labour laws.
Unified law
The plan is to unify three major labour laws - the Trade Unions Act, the Industrial
Disputes Act and the Industrial Employment (Standing Orders) Act - into a single code
for industrial relations.
Besides, a new labour law will be enacted for micro, small and medium industrial
units.This will have far-reaching impacts.The government claims these changes will
make hiring flexible and include more workers under labour legislation.
The trade unions disagree. They claim the changes will make it easier for large
companies - those employing 300 employees or more - to fire workers; reduce the
size of the organised sector; and clip the wings of trade unions.
Nationwide protests have already been planned for September, in a bid to force the
Modi government to scale down the changes.
The need for reform: - Less than 10% of people work in the organised sector
covered by labour laws. This means 10-12 million youth each year are forced to join
the informal sector, with no labour protection. There are four painful defects in Indias
labor market: 12% manufacturing employment (the same as the post-industrial U.S.),
50% agricultural employment (240 million Indian produce less food than four million
Americans), 50% self-employment (the poor cannot afford to be unemployed, so they

89
are subsistence self-employed), and 90% informal employment (100% of net job
creation since 1991 has happened informally.)
The Industrial Disputes Act
This Act is the principal legislation to deal with core labour issues such as industrial
disputes, regulation of strikes, lock-outs, lay-offs, retrenchments and other related
issues.Currently, 85% of manufacturing firms have less than 50 employees and 58%
factories employ up to 30 workers.The present Industrial Disputes Act allows
companies employing up to 100 workers to retrench employees without seeking the
permission of the government.The amendments will allow companies employing up
to 300 workers to fire or hire employees without seeking any government permission,
leaving only a tiny percentage of large companies under the radar of the Government
when it comes to retrenchment.
The Factories Act
This is a social legislation aimed at ensuring occupational safety, health and welfare
of workers at the workplace.
This law currently applies to firms with more than 10 workers with a power supply
and 20 workers, if the work process requires no power supply.
The amendments proposed raise these numbers to 20 and 40, respectively.
In effect, this reduces the number of workers who will get the right to safer
workspaces, provision of drinking water, proper toilets, an eight-hour work day, paid
holidays and higher remuneration for overtime.
Most Indian employers are not against the labor laws but they make the same case
that renaissance physician Paracelsus did: The dose makes the poison. Anything
powerful enough to help has the power to hurt. Todays labor laws hurt the very
people they pretend to protect. Few disagree that we should have non-negotiable
laws around minimum wages, social security, safety and leave. Yet our labor laws

90
have reached way beyond this base. The changes to the Factories Act, Apprentices
Act, and Returns and Registers Act are useful, targeted and specific.

91

Increase in the prices of pulses - Reasons and steps taken

by government to combat it
The problem of soaring prices of pulses is not new. Pulses have been in short supply
and the per capita availability now is lower than at the time of Independence.

Government officials attributed the price rise to the reduction in domestic

production. The estimated production of all pulses in 2014-15 is 17.2 million tones
against the total production of 19.25 million tones in 2013-14. During 2013-14 the
production was below the target of 19.5 million tonnes. Therefore, the imports rose
from 3.18 million tonnes in 2013-14 to 4.58 million tonnes in 2014-15.

"Globally there is shortage in availability of arhar. So, there is no quick relief

until the domestic production is available in the market.

The prices of all pulses will fall significantly from November onwards when new crop
will arrive. People may have to change the consumption pattern. They can consume
other dals than arhar since its availability is less. It's even difficult for government to
import arhar dal since even the major growing nations don't have enough stock," said
Pravin Dongre, chairman of India Pulses and Grain Association.

However, there is some hope of the domestic production increasing in future as the
over all kharif sown area has increased from 97.56 lakh hectares in 2014-15 to
108.37 lakh hectares.

In fact, giving a call to grow more pulses, Prime Minister Narendra Modi had said,
"Grow pulses in one-fifth of your land to overcome the shortage. I want to see India
self-sufficient in the pulses sector by 2022."
MEASURES TAKEN:With pulses spiking to a record of up to Rs 190 per kg, the government swung into
action with a number of measures including use of price stabilisation fund and
imports to cool prices and create a buffer stock.
An inter-ministerial group headed by finance minister Arun Jaitley reviewed the price

92
situation as rates peaked to Rs 187-190 a kilogram in retail markets across the
country.
Jaitley said the government has decided to invoke the Rs 500-crore Price Stabilisation
Fund that will be used to pay for transportation, handling, milling and processing -aimed at reducing the cost of imported pulses.
This would help in increasing supplies and making pulses available in the retail
markets at lower rates.
Also, states have been asked to lift stock of pulses lying at ports like Jawaharlal Nehru
Port near Mumbai.
To deal with supply crunch, the government has also decided to create a buffer stock
of lentils mainly through imports, Jaitley said.
"Keeping in mind that some amount of stock is available with JNPT, the group decided
that we build up a buffer stock preferably by imports to take care of the problem in
future," he told reporters.
All States have been advised to intensify anti-hoarding operations and keep in check
black-marketing and profiteering by traders. 500 tonnes of Tur dal have been allotted
to Kendriya Bhandar and 200 tonnes to SAFAL for distribution through over 400
outlets. Distribution has already started from 16th of October in New Delhi through
these outlets

SOURCES:

http://timesofindia.indiatimes.com/business/india-business/Governmentannounces-measures-to-bring-down-prices-ofpulses/articleshow/49357908.cms
http://articles.economictimes.indiatimes.com/2015-1009/news/67935460_1_tur-dal-pulses-prices-essential-commodities
http://www.dnaindia.com/money/report-government-takes-measures-to-curbalarming-pulse-prices-2136116
http://www.business-standard.com/article/economy-policy/govt-to-import-5000-tonnes-more-of-pulses-to-control-prices-115091100838_1.html

93

94

LAND ACQUISITON BILL - THE CURRENT FORM,

PROPOSED AMENDMENTS, WHY IT IS SO
ESSENTIAL FOR GROWTH?
What is the controversy about?
Until 2013, the land acquisition in India was governed by The Land Acquisition
Act 1984. In 2013, the UPA government passed the Right to Fair Compensation
and Transparency in Land Acquisition, Resettlement and Rehabilitation Act to
repeal the 19th century act. The UPA Act was aimed at ensuring the land is
acquired strictly for public welfare projects and land owners are adequately
compensated and rehabilitated.
Here are the six important facts you need to know.
1

The Right to Fair Compensation and Transparency in

Land Acquisition, Rehabilitation and Resettlement
(Amendment) Bill, 2015 seeks to Amend the Act of
2013 (LARR Act, 2013).

The Bill creates five special categories of land use:

1. defence, 2. rural infrastructure, 3. affordable
housing, 4. industrial corridors, and 5. infrastructure
projects including Public Private Partnership (PPP)
projects where the central government owns the
land

The Bill exempts the five categories from provisions

of the LARR Act, 2013 which requires the consent of
80 per cent of land owners to be obtained for
private projects and that of 70 per cent of land
owners for PPP projects.

The Bill allows exemption for projects in these five

categories from requiring Social Impact Assessment
be done to identify those affected and from the
restrictions on the acquisition of irrigated multicropped land imposed by LARR Act 2013.

The Bill brings provisions for compensation,

rehabilitation, and resettlement under other related
Acts such as the National Highways Act and the
Railways Act in consonance with the LARR Act.

The Bill changes acquisition of land for private

companies mentioned in LARR Act, 2013 to
acquisition for private entities. A private entity
could include companies, corporations and nonprofit
organizations.

Why NDA brought the

95
amendments
Politics over the bill
Ever since this government
came to power, Prime Minister
The Congress-led opposition parties are training
Narendra Modi has been
vigorously campaigning for the their guns to corner the government when the bill
Make in India vision which aims comes for consideration in the parliament. Creating
more trouble to the government, some of the NDA
to boost the domestic
allies have also come against the bill.
manufacturing.
Though Modi is wooing the
foreign companies to invest in
India, land acquisition is a major
problem for
these firms with many of them
dropping their investment plan
over
the past few years.

Even though Parliamentary affairs minister Venkaiha

Naidu expressed hope to garner the support of Shiv
Sena, Akali Dal, Lok Jansakthi Party in the house, the
Maharashtra ally has made it clear that it will
strongly oppose the bill. The BJD has come up with a
suggestion that it would support the bill if land
owners whose land was sought to be acquired for
commercial enterprises, public as well as private,
were given a share in the profit.

The current position:Since the Modi Govt was not receiving any support from the houses to pass the
bill in the Parliament, they issued an ordinance in support of the Bill in
December 2014 and the ordinance has been repromulgated thrice since then.
However the Bill was receiving lot of protests from the people of the country
especially the farmers. Hence Mr.Modi announced it during his Man ki Baat
speech in August that the ordinance which were to expire on 31 st August 2015
would be allowed to expire.

96

The 13 points or Acts for which exemptions would be made in Land Acquisition
include atomic energy, railways, mines, ancient monuments and so on.
The PM said his government is ready to accept changes to land bill. "I have
said this several times before as well that the government has an open mind
on the Land Acquisition Act, on which there is a lot of controversy. I am ready
to accept any suggestion for the well-being of farmers," he said.
SOURCES: http://articles.economictimes.indiatimes.com/2015-0830/news/66032944_1_land-acquisition-act-land-ordinance-pm-narendramodi
http://indiafacts.co.in/understanding-the-land-acquisition-bill-politicschanges-and-impact/
http://www.newindianexpress.com/nation/Controversy-Over-LandAcquisition-Bill-All-You-Need-to-Know/2015/03/07/article2701536.ece
http://www.prsindia.org/pages/land-acquisition-debate-139/

97

ISIS
What is ISIS?
Full Name: Islamic state of Iraq and Syria, ISIS, ISIL, Daesh
Mission: To create an idealistic Islamic caliphate (Islamist kingdom that follows
the sharia law and is ruled by the calipha, or supreme leader)
Friends: none
Enemies: all nations and all people who do not meet its standards as "true"
Muslims.
They follow the principle of Salafism, i.e the belief that the period of the
Prophet Muhammad's stay in Medina was the ideal of Muslim society (the "best
of times"), to which all Muslims should aspire to emulate.
Origins
Important historical events:
1. US-led invasion of Iraq in 2003
2. The outbreak of the Syrian civil war in 2011.

Timeline:
a. 1936-17: Syria fights for independence from France.
The ensuing events pawed the seeds of sectarianism
as Shia muslims sided with French troops agains the
majority sunni muslim regime.
b. 1976-82- Hama massacre: Shiaites possessed most
of the power in a sunni backed country. The protests
and unrest were curbed in a brutal fashion by ruler
Hafez al-Assad, which ended the 6 year civil war
c. 1979: USSR attacks afganistan to prop up a pro
soviet regime. Rebels from rest of the world joins
with jihadists in afganistan, and are backed by Saudi
and the US.
d. 1988-90: Soviet union backs off from afganistan,
Some of the fighters, hardened by their ideology
forms al-Qaeda to continue the fight
e. 2001: Al Qaeda attacks US, US launcjes attack on
Iraq as retaliation
f.

The gap left by a war torn Iraq and absence of a

powerful leader pawed way for the emergence of
various extremist groups in Iraq, first fighting

The Islamic State

awaits the army of
Rome, whose
defeat at Dabiq,
Syria, will initiate
the countdown to
the apocalypse.

Countries
attacked
by ISIS:
Iraq and Syria
France
Leabnon
Egypt
Turkey
Australia
Yemen
Tunisia
Saudi Arabia

98
Americans, and then ensuing a civil war between jihadist minority sunnis
and shia majority in Iraq.
g. A majorly weakened Iraq army failed to repress an emerging ISIS. AlQuieda Iraq formarly led by leader Abu Musab al-Zarqawi, now rebranded
itself as ISIS.
h. 2011 Syrian unrest: They came on the heels of huge, successful Arab
Spring uprisings in Tunisia and Egypt. Al-Bagdadi seized the void in Syria,
and launched Jabhat al-Nusra, an al-quaidian branch which was later
declared as part of ISIS.
i.

Bagdadi seizes power and declares AQI and Jabhat al-Nusra independent
of parent organization Al-Quieda. It established control over a huge part

of eastern Syria and

used Syria as a

staging

area
to launch a full invasion of Iraq.

Sources of Funds:

99
A. Fundraising via social media- Affiliates of ISIS raise funds via social media,
through international pre-paid cards and fund the users via transfer of card
number for use abroad.
B. crowdfunding techniques: The users setup websites etc where donations can be

Source: The
Economic Times

collected avoiding regular financial authorities.

C. Fake currency/fake money

In the states it dominates, the ISIS collects funds through the following:
1)

Oil smuggling

100
2)

Donations from private jihadi networks in the Gulf.

3)

Kidnapping and racketeering

4)

Taxes from the provinces it seized

5)
Looting banks- their half a million dollar bank heist in mosul made it the richest
terrorist organisation in the world.

How to conquer the menace of ISIS?

1. Strengthening the political system of middle east.
2. Societal and religious reformation.
3. Conflicts in the middle east including the rift between Saudi and Iran must be
solved
4. Changing the radical ideology by providing better lifestyle and living conditions
to the people affected by years of war in Iraq and Syria
5. Unifying the global strength to contain the reign of ISIS.

Sources:
http://www.economist.com/blogs/graphicdetail/2015/04/daily-chart-0?
fsrc=scn/fb/te/bl/ed/themiddleeasternmesh
http://www.huffingtonpost.com/alastair-crooke/isis-wahhabism-saudiarabia_b_5717157.html?ir=India&adsSiteOverride=in
http://www.theatlantic.com/magazine/archive/2015/03/what-isis-really-wants/384980/
http://www.vox.com/2015/11/23/9779188/isis-syria-iraq-9-questions
http://nationalinterest.org/feature/the-master-plan-how-stop-isis-11112?page=3
http://epaperbeta.timesofindia.com//Article.aspx?eid=31818&articlexml=MULTIPRONGED-FUNDRAISING-TACTICS-IS-Raises-Funds-Via-18112015004030#
http://economictimes.indiatimes.com/news/defence/crushing-isis-envisioning-howglobal-powers-can-smash-a-brutal-enemy/articleshow/49828497.cms

101

FED RATE HIKE

The Case For Fed Rate Hike
Experts believe the case for an imminent rate hike in December, a first after 2006, is
in the offing.
Source: Bloomberg
1) Strong economic indicators including a 42 week low unemployment rate in
October 2015 in the US.

Car sales are rising at the quickest pace in a decade

real estate going through the roof

The reason for the

US fed not
increasing interest
rates in September
was because of
China devaluing
Yuan, which
automatically
strengthened the
dollar.

2) Positive remarks from the fed regarding growth indicating a

low slope rate hike by around 25 basis points.
3) The fed has indicated that the rate hike will be gradual, with a hike of around 25
basis points anticipated this December.
Why shouldn't the fed raise rates?

Wage growth still sluggish: This questions the ability of the

taxpayers to afford the rate hike.

Inflation still below target indicating low consumption.

Recent turmoil in Chinese markets will be made worse by a

fed hike: This can create funding issues for the US as China

UK is deemed to be
the next country to
rise interests. Its
interest rate goes
in tandem with the
US

102
may witness accelerated capital outflows, reducing the amount of US treasury
bonds it holds.

Case for an asset bubble due to years of QE.

US has a whopping 4 trillion debt which matures in the next 5 years. An interest
rate hike would likely increase corporate defaults, with energy sector being
particularly vulnerable.

However many economists including RBI Governor Raghuram Rajan argue that
uncertainty is worse than a rate hike and call on the US to increase the rates
marginally.

federal funds rate the rate banks

charge each other
for short-term
loans

What would be the impact of rate hike on Economy ?

The rate adjustment has a trickle down effect on the economy,
impacting long term rates such as corporate bonds and
mortgages. Long term rate changes will impact asset prices on
equity market. During the crisis the Fed also purchased longerterm mortgage backed securities and Treasury bonds to lower
the level of long-term rates.

Impact on emerging markets

1) A stronger dollar will trigger a gross inflow of funds to the US from the emerging
markets. Currently, emerging markets together saw an inflow of 4.5 trillion dollars
during 2009-13. This could lead to businesses startving for investment.
2) The debt accrued by emerging market denominated in dollar terms owing to the
low interest rates in the US can now become unsustainable.
The impact
The fed rake is coming at a time when emerging market economies are weak and
their currencies have already slumped. The EM turmoil can precipitate a full-blown
crisis.

Sources:
http://ig.ft.com/sites/when-rates-rise/#what-is-happening
http://www.ft.com/intl/cms/s/2/f4330f9a-921e-11e5-bd82c1fb87bef7af.html#axzz3sRRTVggt
http://www.ibtimes.com/how-do-us-interest-rate-hikes-affect-emergingmarkets-2102118
http://www.cnbc.com/2015/11/23/us-feds-williams-sees-strong-case-fordecember-interest-rate-hike.html
http://www.bloomberg.com/news/articles/2015-11-06/bond-traders-see-70chance-of-fed-rate-increase-in-december

103

GOLD BOND SCHEME

Gold Related Schemes
On November 5th, Prime Minister launched three gold related schemes viz. Gold
Monetisation Scheme, Sovereign Gold Bond Scheme and India Gold Coins, to fully tap
the unutilized gold reserves accumulated at temples and households in India. At the
launch, the Prime Minister said that gold can be a great tool for women
empowerment and that they would be the biggest beneficiaries of the new schemes.
Finance Minister Shri Jaitley said the import of gold will come down with the launch of
these gold related three schemes.

Gold Monetisation Scheme

No locker charges for deposited gold
A gold savings account with regular interest/dividend on
deposited gold
Interest based on appreciation value and weight of gold
Can be deposited in any physical form- jewellery, coins or bars
Return in the equivalent of 995 fineness gold or Indian rupees
as desired at the time of deposit.
Earnings are exempt from capital gains tax, wealth tax and
income tax. There will be no capital gains tax on the
appreciation in the value of gold deposited, or on the interest
made from it.
TERM INVOLVED
The designated banks will accept gold deposits under the Short
Term (1-3 years) Bank Deposit as well as Medium (5-7 years) and
Long (12-15 years) Term Government Deposit Schemes.
VERIFY THE PURITY OF GOLD
Collection and Purity Testing Centres to test purity of gold which
will provide a certificate on purity and gold content.

Only around 400

grams
were
collected from the
gold
deposit
scheme
compared
with
around
20,000
tonnes
lying
around in Indian
households
and
temples. One of
the reasons is that
there are around
35-40
collection
centres, which is a
small
number
given the size of
the
country,
leading
to
a
concentration
effect mostly in
the
Tamil
Nadu
and Kerala belt

WHAT WILL THE BANKS DO WITH THE GOLD

The designated banks may sell or lend the gold accepted under the short-term bank
deposit to MMTC for minting India Gold Coins and to jewellers, or sell it to other
designated banks participating in the scheme.

Gold Sovereign Bond Scheme

Launch date: November 30th

104
As investors will get returns that are linked to gold price, the
scheme is expected to offer the same benefits as physical gold.
They can be used as collateral for loans and can be sold or traded
on stock exchanges. (Interest-2.75%)
BENEFITS
The Sovereign Gold Bonds will be available both in demat and
paper form.
The tenor of the bond is for a minimum of 8 years with option
to exit in 5th, 6th and 7th years.
They will carry sovereign guarantee both on the capital
invested and the interest.
Bonds can be used as collateral for loans.
Bonds would be allowed to be traded on exchanges to allow
early exits for investors who may so desire.
Further, bonds would be allowed to be traded on exchanges to
allow early exits for investors who may so desire.
In Sovereign Gold Bonds, capital gains tax treatment will be the
same as for physical gold for an 'individual' investor. The
department of revenue has said that they will consider
indexation benefit if bond is transferred before maturity and
complete capital gains tax exemption at the time of
redemption)

The bonds were

open
for
subscription
between
5
November and 20
November and the
initial
response
from
investors
was lukewarm.
The
Bankers
blamed the lack of
time given to them
to
market
the
product for the
low interest, and
said that the fall
in the price of
physical gold also
kept away most
investors
The price of gold
was
fixed
at
Rs.2,684
per
gram. The price of
gold
has
fallen
further since then.
MCX gold prices
have fallen nearly
5%
so
far
in
November.

WHO IS ISSUING THE BONDS?

The Bonds are issued by the Reserve Bank of India on behalf of the Government of
India. The bonds are distributed through banks and designated post offices. This
should make subscribing to the bonds an easy affair. During redemption, "the price of
gold may be taken from the reference rate, as decided, and the Rupee equivalent
amount may be converted at the RBI Reference rate on issue and redemption".
India Gold Coins
The coin will be the first ever national gold coin will have the national emblem of

Investors have flocked to financial assets such as

equities as the world became more stable and the
geo-political risks subsided because of the risk on
trade
-LAKSHMI IYER, KOTAK ASSET MANAGEMENT

Ashok Chakra engraved on one side and the face of Mahatma Gandhi on the other
side. Initially, the coins will be available in denominations of 5 and 10 grams. A 20
grams bar/bullion will also be available. The Indian Gold Coin is unique in many

105
respects and will carry advanced anti-counterfeit features and tamper-proof
packaging that will aid easy recycling.

Response So Far
The market has so far given a lukewarm response to gold monetisation scheme due
to Investors postponing their investment-based purchases in the yellow metal
because of lower yields.
The government has launched the scheme at a wrong time with the following factors
working against the gold scheme:
Dollar becoming stronger day by day owing to anticipation of a Fed rate hike in
December. Historically, when dollar strengthens, gold weakens.
The bond issue price was fixed at a higher rate than that of market price, making
it more profitable to buy gold than invest in gold bonds.
Moreover, high inflation was the reason financial savers turned to gold and this is
no longer the caseinflation has eased and real returns have turned positive in
India.
Sources:
http://www.ndtv.com/cheat-sheet/pm-narendra-modi-on-gold-monetizationscheme-highlights-1240289
http://pib.nic.in/newsite/PrintRelease.aspx?relid=130260
http://www.livemint.com/Politics/HuspMC8OEYwLrZRtd84CHL/Gold-bondsscheme-fails-to-glitter.html
http://www.livemint.com/Money/n2gNqnG7KT2LHRQYURawVJ/Govtssovereign-gold-bond-receives-deposits-worth-Rs150-cro.html
http://www.livemint.com/Money/P8X8iJEAI1QZIXyUuAVI3M/Why-thegovernments-gold-scheme-did-not-work.html
http://www.livemint.com/Politics/1zv9T0etRBsGxIYXBmarML/RBI-to-issuesovereign-gold-bonds-on-30-November.html
http://finmin.nic.in/swarnabharat/

IS SWATCH BHARAT CESS JUSTIFIED?

Background
The government has imposed a 0.5% swath Bharat cess on all
services effective November 15th. This come under the purview
of Service tax resulting in an additional 50 paisa tax on every
hundred rupees. Finance Minister Arun Jaitley had in Budget
2015-16 proposed to levy a Swachh Bharat cess of up to 2 per
cent on all or certain services, if need arises. This is over and
above the 2 lakh crore tax to be collected via service tax.
The government hopes to reduces expenditure on health by
curbing diseases like malaria, dengue etc in a swatch Bharat.

The cess is
expected to raise
an additional Rs
400 crore during
this financial year.

Spending patterns:

The clean India mission has cost thrown up an ad bill of nearly Rs. 100 crore, according to information revea

It is to be
noted that
of the 29
states
allowed
swatch
Bharat
funds, 13
states have
not even
spent their
allotted
funds on the

government's flagship sanitation program in rural areas.

According to Ministry of Drinking water and sanitation (MoWS), Rs 5,233.22 crore has
already been spent in rural India for the program, as compared to the Rs 2,240.58
crore released for Swatch Bharat Mission.
A majority of this amount (around 90%) has gone for construction purposes, such as
toilets. Information, education and communication (IEC) activities constituted around
5% of the expenditure. Other areas such as solid waste management seems to be
ignored. There are no plans outlined for sewage treatment plants or waste
management.
The major critique for the swatch Bharat mission is that even as toilets are being
constructed, they lack proper drainage or water facilities, effectively rendering them
ineffective and unusable.

The swath Bharat Cess-Justified or not?

The Swachh Bharat cess has been justified on the count that it is not another tax,
but a step towards involving each and every citizen in making a contribution to
Swachh Bharat.
However, the complications in the cess structure questions the idea whether taxation
is the right way to achieve a greater civic sense and voluntary contribution to the
initiative.
First, The Swachh Bharat cess is applicable to all services including restaurants and
excludes manufacturing. This means that those paying taxes are the poorer strata of
the society just as day to day services become expensive.
Secondly, with the introduction of additional cess, the government seems to have
backtracked from its resolution to simplify the taxation structure. The argument goes
that public spending programs like sanitation, education etc should be funded
through main budgetary resources. The messes levy directly into the cost of doing
business in the country and the Economic Survey of 2014 has administered removing
bad taxes such as cess from the system. Moreover, the messes seldom accomplishes
its purpose, and there is no guarantee that the select
sum will be utilised in full.

The cess will

go to the
urban
development
ministry and
the ministry
of drinking
water and
sanitation".
-JAYANT SINHA

Last but not the least, the funds already allocated under
the swath Bharat mission has largely been unutilized in
most of the states, and the situation is still chaotic to say
the least. The pertinent question is whether additional
funding in the form of cess is needed for the mission.
Given that it imposes an additional burden, a levy should
need a powerful reason. A public cause like sanitation do
not seem to justify the imposition of an additional burden
to the Indian taxpayers.
Sources:

http://www.thehindubusinessline.com/opinion/editorial/in-praise-ofcessation/article7869839.ece
http://articles.economictimes.indiatimes.com/2015-1119/news/68412699_1_taxable-services-service-tax-swachh-bharat-cess
http://www.financialexpress.com/article/economy/govt-to-impose-0-5-pctswachh-bharat-cess-on-services-from-nov-15/162451/
http://www.financialexpress.com/article/economy/0-5-swachh-bharat-cesson-services-from-november-2015/162546/
http://www.ndtv.com/delhi-news/swachh-bharat-a-year-on-a-reality-checkfrom-a-delhi-neighbourhood-1225386
http://www.business-standard.com/article/economy-policy/swachh-bharatfund-13-states-spend-below-50-on-rural-sanitation-115112000040_1.html

http://www.business-standard.com/article/opinion/govindraj-ethirajdesigning-swachh-bharat-differently-115112301201_1.html
http://www.ndtv.com/india-news/nearly-100-crore-bill-for-swachch-bharatads-reveals-rti-780220
http://www.business-standard.com/article/economy-policy/swachh-bharatmission-toilet-building-frenzy-takes-focus-off-waste-management115111900938_1.html
http://blogs.timesofindia.indiatimes.com/toi-editorials/roll-it-back-swachhbharat-cess-exemplifies-how-the-indian-tax-payer-is-taken-for-granted/

WHY ARE SHORT TERM BORROWING RATES INCREASING

RECENTLY INSPITE OF A HUGE RATE CUT BY RBI?
Short-term borrowing rates have risen despite the Reserve Bank of India's sharperthan-expected rate cut in September, thanks to the tight liquidity conditions, raising
concerns that this could act as a speed breaker for growth.
Short-term rates are about 35-45 basis points higher than the benchmark repo rate of
6.75 per cent. These include the inter-bank call money market, collateralised
borrowing and lending and treasury bills.
"The efficacy of monetary policy transmission is facing a challenge due to
sustained tight banking system liquidity,
-SOUMYAJIT NIYOGI, SENIOR INTEREST RATE STRATEGIST , SBI DFHI
PRIMARY DEALERS

REASON FOR TIGHT LIQIDITY

During Diwali, higher cash circulation in the system led to tight liquidity conditions,
which was further aggravated by higher spending during the recent Bihar elections,
leading to tight liquidity. The banks have been lending from RBI and the system is
now at a deficit of around 100 crore.
"The liquidity deficit is attributable to higher government cash balance with RBI and
rise in currency in circulation," said Suyash Choudhary, head of
fixed income, IDFC Mutual Funds. "Going forward, liquidity
management is a key factor for short-term rates.
The next monetary
policy
announcement is
scheduled on
December 1.

IMPACT OF HIGHER SHORT TERM RATE

According to Soumyajit Niyogi, senior interest rate strategist at
SBI DFHI Primary Dealers, "Continuous elevated short-term rates
are driving corporate borrowing costs higher and providing
downward rigidity to banking rate specific instruments... That would negate the very
purpose of spurring growth via rate cuts. RBI is now expected to harmonize the
policy stance and short-term rates through open-market operations to ease the
situation, dealers said. The scene could worsen without much expectation of foreign
fund flows in the near future, particularly ahead of the US Federal Reserve's expected
rate increase in December.
Sources :
http://articles.economictimes.indiatimes.com/2015-1118/news/68382394_1_repo-liquidity-short-term-borrowing-rates
http://articles.economictimes.indiatimes.com/2015-1118/news/68382284_1_repo-rate-rate-cuts-liquidity

PARIS CLIMATE SUMMIT AND

INDIAS ROLE
What is happening in Paris this
December?
The governments of more than 190 nations
will gather in Paris to discuss a possible new
global agreement on climate change, aimed
at reducing global greenhouse gas emissions
and thus avoiding the threat of dangerous
climate change. Global negotiations on
climate change have been carrying on for
more than 20 years.
Schedule: 2015,
November 30 to
India is at number
December 11 - PARIS
4 among the top
polluters in the
world, the top 3
polluters -- China
(29%), US (16%)
and EU (10%)
together are
responsible for
55% of the world's

Why now?
Current commitments on
greenhouse gas
emissions run out in
2020, so at Paris
governments are expected to produce an
agreement on what happens for the decade
after that at least, and potentially beyond.

Why is this important?

Scientists have warned that if greenhouse
gas emissions continue to rise, we will pass
the threshold beyond which global warming
becomes catastrophic and irreversible. That
threshold is estimated as a temperature rise
of 2C above pre-industrial levels, and on current emissions trajectories we are
heading for a rise of about 5C. That may not sound like much, but the temperature
difference between todays world and the last ice age was about 5C, so seemingly
small changes in temperature can mean big differences for the Earth.

A timeline of climate talks in the world:

United Nations Framework Convention on Climate Change(1992)

The agreement, still in force, bound governments to take action to avoid
dangerous climate change, but did not specify what actions.
Kyoto protocol(1997)
That pact required worldwide cuts in emissions of about 5% by 2012, and each
developed country was allotted a target on emissions reductions. But
developing countries, including China, South Korea, Mexico and other rapidly
emerging economies, were given no targets and allowed to increase their
emissions at will. The US then the worlds biggest emitter was against the
pact.
At Bali in 2007, an action plan was formulated that set the world on the course to a
new agreement that would take over from Kyoto, mainly to bring US in, an control
CHila, now the biggest emitter.
Copenhagen conference(2009)
All of the worlds developed countries and the biggest developing countries
agreed for the first time to limits on their greenhouse gas emissions. This
was a landmark, as it meant the worlds biggest emitters were united towards
a single goal. However, a fully articulated and legally binding treaty was not
formed.
Paris(2015)
Likely truces: the EU will cut its emissions by 40%, compared with 1990 levels,
by 2030. The US will cut its emissions by 26% to 28%, compared with 2005
levels, by 2025. China will agree that its emissions will peak by 2030. Nations
responsible for more than 90% of global emissions have now come up with
their targets known in the UN jargon as Indended Nationally Determined
Contributions or INDCs .

INDIA INCs PROPOSALS

India and the G77 nations have sent a clear signal to developed
nations that the Paris meet will fail unless the discussion is
firmly centered on climate justice. India plans to raise the issue
of lack of commitment by developed countries on the finance
and technology front.
Industrialised nations will be under pressure to compensate for
the past decades of emissions.
The India-led solar alliance may be a highlight of the upcoming
Paris conference. The Prime minister is all set to launch a global
solar alliance in Paris. Considering India's notable policy reforms
in the renewable energy sector, Bloomberg New Energy Finance
has ranked the country at fifth place on a list of 30 countries on
ease of doing business in the renewable energy space.
In its Intended Nationally Determined Contributions (INDCs) to
the UN Framework Convention on Climate Change (UNFCCC),
India committed to cut the emissions intensity of GDP by 33-35
per cent by 2030 from 2005 levels.
The INDCs, which lay out the blueprint for tackling climate
change, emphasized eight key goals sustainable lifestyles,
cleaner economic development, reducing emission intensity of
GDP, increasing the share of non-fossil fuel based electricity,
enhancing carbon sink, adaptation and mobilizing finance,
technology transfer and capacity building.

The Bonn text is

the basis for
negotiations at
the UN climate
summit, which is
officially called the
21st session of the
Conference of
Parties (CoP) to
the UN Framework
Convention on
Climate Change.

India had rejected

a large portion of
the Bonn text and
raised its
objections at the
final pre-CoP
meeting in Paris.

sources:
http://www.deccanherald.com/content/513090/indiahopes-success-paris-climate.html
http://www.theguardian.com/environment/2015/jun/02/everything-youneed-to-know-about-the-paris-climate-summit-and-un-talks
http://indianexpress.com/article/india/india-news-india/narendra-modibarack-obama-to-meet-on-sidelines-of-paris-climate-conference/
http://articles.economictimes.indiatimes.com/2015-0704/news/64091027_1_nationally-determined-contributions-indcs-parisclimate
http://indianexpress.com/article/india/india-news-india/paris-conferenceindias-role-pivotal-in-climate-talks-france/
http://www.thehindubusinessline.com/news/world/paris-climate-meetindialed-global-solar-alliance-to-counter-developednations/article7916353.ece
http://www.thehindu.com/news/national/india-sets-ambitious-goals-totackle-climate-change/article7715679.ece

IPOS
Indigo
IndiGo, the only domestic airline to be consistently profitable since 2009, has fixed a
price band of Rs.700-765 for the IPO. Date October 27th-29th
1) IndiGo's Rs 3,018 IPO is deemed to be the biggest in nearly three years. The
largest share sale in the country since 2012 values InterGlobe at around $4 billion.
2) The price band for the offer has been fixed at Rs 700 - 765 per
share.
3) The offer comprises fresh issue of shares worth Rs 1,272.2
crore and the revised Offer for Sale (OFS) size that would be
about Rs 1,746 crore. Together, the share sale can rake in up to
Rs 3,018.2 crore.
4) The airliner is expected to retire nearly one-third of its total
debt of Rs 3,912 crore from the share sale proceeds. It will retire
Rs 1,166 crore from the IPO proceeds. The entire debt is related
to aircraft purchases. IndiGo says that it doesn't have a single
penny in working capital or non-aircraft purchase-related debt.
5) Barclays Bank Plc, Kotak mahindra Capital Company Limited
and UBS Securities India managed the issue.

India has the

fastest growing
domestic aviation
market in the
world, ahead of
China and the US.
The number of
passengers
increased 20.2% in
the eight months
ended 31 August
from a year ago,
owing to more
flights, fare cuts
and faster
economic growth,
according to the
International Air
Travel Association.

6) IndiGo's parent company InterGlobe Aviation has raised Rs 832

crore from anchor investors by allotting shares at the upper price
band of Rs 765 a piece. A little over 1.08 crore shares were
allotted to over 40 anchor investors.
Market Reaction
Shares of IndiGo's parent InterGlobe Aviation surged nearly 15

India is also one of

the most underpenetrated
aviation markets
in the world, with
around 350

per cent, over the issue price of Rs. 765 per share. It is now quoting at Rs. 1,086, a
steep rise of 41.96 per cent. The hike in share price is attributed to goodwill
associated with InterGlobe, which has a good dividend yield and have consistently
paid dividends to its shareholders. The firm also has the largest market share in the
sector.

I think it is a wonderful company, though its coming from the airline industry. It is
an oasis in sort of a bankrupt sector. The oil price decline has given disproportionate

gains to earnings, said Raamdeo Agrawal, joint managing director of Motilal Oswal
Financial Services Ltd.

Coffee Day
Coffee Day, which runs the Cafe Coffee Day chain and faces strong competition from
a Starbucks (SBUX.O) joint venture, raised 11.5 billion rupees ($175.75 million) in an
initial public offering that was twice subscribed, valuing the company at around $1
billion. The companys Rs1,150-crore IPO was the second biggest in nearly three
years.
Coffee Day Enterprises had fixed the issue price at Rs.328 per share for investors.
The IPO, which was opened for subscription during 14-16 October, was subscribed
1.64 times at price band of Rs.316-328 a share.
Axis Bank, Citigroup Global Markets, Edelweiss Capital, Kotak Mahindra Capital,
Morgan Stanley India and YES Bank are lead managers of the IPO.
It attracted cornerstone investors including Blackrock who bought their shares at 322
rupees each, betting on tea-drinking India's growing taste for coffee. That compares
to an IPO price of 328 rupees. However, concerns over a lofty valuation were
dampening market enthusiasm, along with the fact that Coffee Day is using IPO
proceeds to pay down debt.
"It's being sold at a huge premium," said a fund manager who was not authorised to
talk to the media about the IPO. "If you are a long-term investor there's no great
hurry to buy," he added.
Market Reaction
Coffee Day Enterprises witnessed a cold listing at the bourses and is trading 18 per
cent below its issue price.
Analysis
Interestingly, retail investors stayed away from bot the IPOs. Interestingly, while both
issues generated similar interest from retail investors, the difference was created by
foreign institutional investors. Retail investors stayed away from both the IPOs. While
the Rs 1,150-crore Coffee Day IPO saw its retail portion subscribed 0.9 times, its
qualified institutional buyers portion got subscribed 4.4 times. On the other hand,
while the retail portion of the Rs 3,018-crore IPO of InterGlobe Aviation, that runs
Indigo Airlines, was subscribed 0.92 times, the QIB portion received subscription of
17.8 times with overall subscription of 6.15 times.

As a result, InterGlobe Aviation emerged as the most actively traded stock at BSE on
the day of its listing and it witnessed 1,12,386 trades with a turnover of Rs 445.86
crore during the day and saw its share price rise above the issue price. On the same
day, the shares of SpiceJet and Jet Airways fell by 5.1 per cent and 4.3 per cent,
respectively.

Sources
http://indianexpress.com/article/business/business-others/initial-publicofferings-not-all-on-the-list-is-worth-a-tick/#sthash.7zQwcUay.dpuf
http://www.dnaindia.com/money/report-10-things-to-know-about-indigo-srs-3136-crore-ipo-opening-today-2139024
http://www.livemint.com/Companies/pv281SgpjB4zq1Z3bJzqAP/IndiGo-IPOsubscribed-fully-on-Day-2.html
http://profit.ndtv.com/news/market/article-ipos-shine-on-dalal-street-indigovrl-logistics-lead-gains-1247482
http://in.reuters.com/article/2015/11/02/india-coffee-dayidINKCN0SR0BO20151102

COULD THE NEW H-1B BILL HURT INDIAN IT FIRMS?

The US is set to pass a bill on immigration with major implications
for the $146-billion Indian IT sector.

Industry experts and immigration lawyers fear a new bipartisan bill, called H-1 and L-I
Reform Act, 2015, introduced by senators Chuck Grassley, chairman of the Senate
Judiciary Committee, and Dick Durbin, Assistant Democratic Leader, could presage a
hawkish skilled-worker immigration regulation.
Indian IT companies
have more than 50%

The bill seeks to prohibit companies from hiring H-1B employees

of their employees

if they employ more than 50 people in the US and more than

on H-1Bs and L-1s.

50% of those employees are H-1B and L-1 visa holders.

This development

the forthcoming US

This could seriously hamper the growth and inflate the

cost of operations of Indias outsourcing services industry
that earns more than half of its $100 billion software
export revenue from the US.
The bill, if passed, will place severe restrictions on Indian IT

Presidential

companies that are the largest users of H-1B visas. Though

should also be seen

in the background of

companies do not disclose the data, it is believed that the large

elections.
Indian IT companies have more than 50% of their employees on H-1Bs and L-1s.
The Bill also gives the labour department enhanced authority to review, investigate,
and

H-1Bs are for skilled

workers, and L-1 visas are
for those with specialized
knowledge who are
transferred to the U.S.
within their company.

audit

employer compliance with programme requirements, as well as to penalize

fraudulent or abusive conduct. It requires the production of extensive statistical data
about the H-1B and L-1 programmes, including wage data, worker education levels,
place of employment and gender.
Analysts say the new bill could spell trouble for outsourcing firms like Indias two
largest, Tata Consultancy Services Ltd.532540.BY -0.53% and Infosys Ltd.500209.BY
-0.43%, which are already facing challenges as cloud computing and other forces
upend their industry.
The industry has already stepped up efforts to reach out to legislators in the US.
Earlier this year, Nasscom released a report that said Indian IT industry supported
more than 400,000 jobs in the US and has generated roughly $20 billion in taxes in
the last five year
Sources
http://timesofindia.indiatimes.com/tech/tech-news/New-US-bill-with-H1Bvisa-curbs-to-hurt-IT-firms/articleshow/49796025.cms
http://blogs.wsj.com/indiarealtime/2015/11/16/what-the-new-h-1b-visareform-bill-could-mean-for-indian-outsourcers/
http://timesofindia.indiatimes.com/tech/tech-news/How-IT-companiesexploit-H-1B-visa-loopholes/articleshow/47675886.cms
http://www.livemint.com/Industry/Dsqmn2lc5WwETtLUQlFbZM/Could-thenew-H1B-bill-hurt-Indian-IT-firms.html

BANK OF JAPAN KEPT POLICY RATES INTACT DESPITE

RECESSION. WHY?
Bank of Japan Governor Haruhiko Kurodas view is that the inflationary trend is
improving in japan over the years. The second recession that hit Japan is apparently
not sufficient evidence to prove otherwise. Kuroda has said that the inflation trend is
improving while noting that he remains ready to adjust policy if needed. Economists
are divided into two camps -- one expecting further easing early next year and
another projecting no further action for the foreseeable future.
The BOJ is already doing massive easing, and I dont think
they want to do more because the additional impact will be
limited, said Maiko Noguchi, an economist at Daiwa
Securities Group Inc. and a former official at the central bank.
Japan slipped into recession recently in September owing to
low prices and slow wage gain in the economy. In a briefing
in Tokyo after the meetings results were announced, Kuroda
said Japanese companies havent carried through on capital
expenditures quite as much as their plans indicated. He said
such expenditures should increase, even if a bit delayed.
Kuroda also said in the briefing that there was no need to
change the view that price expectations in Japan are rising
over the longer term.

According to
experts, Japan is
unlikely to meet
its 2 percent price
target in its latest
time frame of
around six months
through March
2017.
But a price
measure that
excludes fresh
food and energy,
which rose 1.2
percent in
September is also

Monetary Base
The BOJ kept its pledge unchanged to increase the monetary base at an annual
pace of 80 trillion yen ($648 billion), a policy thats weakened the yen and help
inflate the profits of Japans large exporters.
It also helped push Japans inflation higher and back into line with its peers in the
Group of Seven nations, until a rout in the oil market pushed prices lower in many
advanced economies. The most recent reading for the BOJs core inflation gauge
was -0.1 percent. Prices excluding fresh food and energy rose 1.2 percent.
In its monetary policy statement, the BOJ said that inflation expectations appear to
be rising on the whole from a somewhat longer-term perspective, though it added
that some indicators have shown relatively weak developments.

The BOJ board will meet again on December 17-18 after the Federal Reserve ends a
two-day gathering on Dec. 16. The U.S. central bank is expected to raise interest
rates, based on comments by Fed officials who held out the possibility of a
December rate increase.
Sources:

http://www.bloomberg.com/news/articles/2015-11-19/kuroda-highlightsimportance-of-getting-higher-wages-in-japan
http://www.bloomberg.com/news/articles/2015-11-19/boj-keeps-policyunchanged-even-after-recession-weak-inflation
http://www.bloomberg.com/news/articles/2015-11-19/asian-stocks-rise-onfed-minutes-as-investors-await-boj-decision
http://newsofpak.com/boj-keeps-policy-steady-even-as-japan-slips-intorecession/