Most Comprehensive Economics Current Affairs For Mains 2019 by Prepmate

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Table of Contents
Economics ................................ 1
1. What’s with the back series GDP data? (Relevant for GS Prelims, GS Mains Paper III;
Economics) ............................................................................................................................... 1
2. Uneasy fields: on Kisan Mukti Morcha (Relevant for GS Prelims, GS Mains Paper III;
Economics) ............................................................................................................................... 2
3. Soon, you may opt to withdraw your Aadhaar number (Relevant for GS Prelims, GS Mains
Paper III; Economics) ......................................................................................................................... 3
4. Why there is a crisis in the aviation industry (Relevant for GS Prelims, GS Mains Paper III;
Economics) ........................................................................................................................................... 4
5. Cabinet approves Agriculture Export Policy, 2018 (Relevant for GS Prelims, GS Mains
Paper III; Economics) ............................................................................................................... 5
6. Cabinet approves implementation of Shahpurkandi Dam (National Project) on river Ravi

in Punjab (Relevant for GS Prelims, GS Mains Paper III; Economics) ........................................ 7
7. Cabinet ‘In Principle’ approves strategic sale of the Government of India’s existing 52.63%
of total paid up equity shareholding in Rural Electrification Corporation to Power Finance
Corporation along with transfer of management control (Relevant for GS Prelims, GS
Mains Paper III; Economics) ............................................................................................................. 9
8. Kolkata-Patna becomes India’s second container cargo sector on Inland Waterways
(Relevant for GS Prelims, GS Mains Paper III; Economics) .......................................................... 9
9. Why are farmers all over India on the streets? (Relevant for GS Prelims, GS Mains Paper
III; Economics) ................................................................................................................................... 10
10. Current account woes (Relevant for GS Prelims, GS Mains Paper III; Economics)................ 11
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11. RBI Governor Urjit Patel has left. Now what? (Relevant for GS Prelims, GS Mains Paper III;
Economics) ......................................................................................................................................... 12
12. Shock resignation: on Urjit Patel quitting as RBI chief (Relevant for GS Prelims, GS Mains
Paper III; Economics) ....................................................................................................................... 13
13. FDI on the increase (Relevant for GS Prelims, GS Mains Paper III; Economics) .................... 14
14. Creation of Fisheries and Aquaculture Infrastructure Development Fund (FIDF) (Relevant
for GS Prelims, GS Mains Paper III; Economics) .................................................................... 14
15. Cabinet approves New Bill to ban Unregulated Deposit Schemes and Chit Funds
(Amendment) Bill, 2018 (Relevant for GS Prelims, GS Mains Paper III; Economics) .......... 15
16. Himachal, Kerala and T.N. top development index (Relevant for GS Prelims, GS Mains
Paper III; Economics) ............................................................................................................. 18
17. GST cut on 17 items, 6 services (Relevant for GS Prelims; Economics) ................................ 19
18. In Meghalaya, flouting the ban on mining (Relevant for GS Prelims, GS Mains Paper III;
Economics) ............................................................................................................................. 20
19. States’ Startup Ranking 2018 Announced (Relevant for GS Prelims, GS Mains Paper III;
Economics) ............................................................................................................................. 22
20. Government moves to enhance bank recapitalisation outlay to Rs. 1,06,000 crore in the
current financial year (Relevant for GS Prelims, GS Mains Paper III; Economics) ............. 23
21. Inauguration of Bogibeel Bridge (Relevant for GS Prelims, GS Mains Paper III; Economics)
.............................................................................................................................................................. 25
22. Bimal Jalan-headed panel to examine RBI’s economic capital framework (Relevant for GS
Prelims, GS Mains Paper III; Economics) ...................................................................................... 27
23. Big Blow to E-Commerce sector. Govt takes away ground beneath its feet (Relevant for GS
24. New rules for e-commerce: how they affect marketplace players, buyers (Relevant for GS
25. What is the latest clarification on policy around e-commerce?(Relevant for GS Prelims, GS
Mains Paper III; Economics) ........................................................................................................... 31

26. The lowdown on the state of the economy (Relevant for GS Prelims, GS Mains Paper III;
Economics) ......................................................................................................................................... 33
27. Why do farmers need more than loan waivers(Relevant for GS Prelims, GS Mains Paper III;
Economics) ......................................................................................................................................... 35
28. Ease of bad loans stress: on RBI's Financial Stability Report (Relevant for GS Prelims, GS
Mains Paper III; Economics) .................................................................................................. 36
29. In a first, Mallya declared a ‘fugitive economic offender’ (Relevant for GS Prelims, GS Mains
Paper III; Economics) ............................................................................................................. 37
30. Cabinet approves first-ever three-way merger in Indian Banking with amalgamation of
Vijaya, Dena and Bank of Baroda (Relevant for GS Prelims, GS Mains Paper III; Economics)
.............................................................................................................................................................. 37
31. List of India’s legal disputes at WTO (Relevant for GS Prelims, GS Mains Paper III;
Economics) ......................................................................................................................................... 38
32. What is the idea of Universal Basic Income that the Economic Survey found ‘conceptually
appealing’, and which Sikkim intends to implement? Whom does it benefit, and whom can
it harm? In what ways? (Relevant for GS Prelims, GS Mains Paper II; Economics)............. 39
33. Why farmers in the sugar bowl of Western Maharashtra are angry (Relevant for GS
34. CBI books former ICICI Bank chief Chanda Kochhar for criminal conspiracy (Relevant for GS
Prelims, GS Mains Paper III; Economics) ......................................................................................... 41
35. Gold turns red hot, price at a peak (Relevant for GS Prelims, GS Mains Paper III;
Economics) ......................................................................................................................................... 43
36. GST revenues going off target (Relevant for GS Prelims, GS Mains Paper III; Economics).. 44
37. ICICI Bank sacks Chanda Kochhar (Relevant for GS Mains Paper III; Economics) .......... 45
38. First Revised Estimates of National Income, Consumption Expenditure, Saving and
Capital Formation, 2017-18 (Relevant for GS Prelims, GS Mains Paper III; Economics) 46
39. RBI lifts curbs on three PSBs (Relevant for GS Prelims, GS Mains Paper III; Economics) 48
40. ‘Unemployment data based on draft report’ (Relevant for GS Prelims, GS Mains Paper
III; Economics) .................................................................................................................................. 50

41. In election year, what is the politics and economics of the budget? (Relevant for GS
Prelims, GS Mains Paper III; Economics)............................................................................... 50
42. What is the lowdown on MGNREGA funding? (Relevant for GS Prelims, GS Mains Paper
III; Economics) .................................................................................................................................. 53
43. All you need to know about Maharashtra’s struggle to amend APMC Act (Relevant for GS
Prelims, GS Mains Paper III; Economics) .................................................................................... 54
44. How ICICI clawback can be a game-changer in India’s financial sector (Relevant for GS
Prelims, GS Mains Paper III; Economics) .................................................................................... 55
45. Delay in releasing key employment data has undermined the credibility of data
officialdom (Relevant for GS Prelims, GS Mains Paper III; Economics) ............................... 57
46. U.K. Home Secretary orders Vijay Mallya’s extradition to India (Relevant for GS Prelims,
GS Mains Paper III; Economics) ................................................................................................... 59
47. What is the Saradha scam? How is Trinamool linked? (Relevant for GS Prelims, GS Mains
Paper III; Economics) ..................................................................................................................... 60
48. ‘Angel tax’ issue on start-ups (Relevant for GS Prelims, GS Mains Paper III; Economics)
.............................................................................................................................................................. 62
49. Status of National Gas Grid (Relevant for GS Prelims, GS Mains Paper III; Economics) .. 63
50. Pension for informal workers (Relevant for GS Prelims, GS Mains Paper III; Economics)
.............................................................................................................................................................. 64
51. The lowdown on Mallya’s extradition (Relevant for GS Prelims, GS Mains Paper III;
Economics) ....................................................................................................................................... 65
52. Shrinking air links in NorthEast (Relevant for GS Prelims, GS Mains Paper III;
Economics) ....................................................................................................................................... 66
53. Taxation of Digital Businesses (Relevant for GS Prelims; Economics) ............................... 68
54. 1st Aqua Mega Food Park in Andhra Pradesh (Relevant for GS Prelims; Economics) .... 69
55. RBI to pay govt. ₹28,000 cr. in interim surplus (Relevant for GS Prelims & Mains Paper
III; Economics) ................................................................................................................................. 69
56. Cabinet approves launch Kisan Urja Suraksha evam Utthaan Mahabhiyan (Relevant for
GS Prelims; Economics) ................................................................................................................. 70
57. Easing global Oil Prices (Relevant for GS Prelims & GS Mains Paper III; Economics) ..... 70

58. Safety nets: on banning unregulated deposit schemes (Relevant for GS Prelims & Mains
Paper III; Economics) ..................................................................................................................... 71
59. GST on under-construction flats, affordable housing slashed by 7% (Relevant for GS
Prelims & Mains Paper III; Economics) ...................................................................................... 72
60. RBI takes 3 banks off prompt corrective action framework (Relevant for GS Prelims &
Mains Paper III; Economics) ......................................................................................................... 73
61. Regulating drug prices (Relevant for GS Prelims & Mains Paper III; Economics) .................. 74
62. A new zone for Andhra Pradesh: What could change for the Railways, state (Relevant for
GS Prelims & Mains Paper III; Economics) ............................................................................................... 75
63. Analysis of SEBI’s new rules to protect those investing in liquid mutual funds (Relevant for
GS Prelims & Mains Paper III; Economics) .......................................................................................................... 77
64. Resolution of Essar Steel case (Relevant for GS Prelims & Mains Paper III; Economics) ...... 78
65. India ranks 11th in gold holding’(Relevant for GS Prelims; Economics)..................................... 79
66. In light of L&T and Mindtree, a look at how hostile takeover bids have played out over the
years (Relevant for GS Prelims & Mains Paper III; Economics) ............................................................. 81
67. Dollar-rupee swap scheme (Relevant for GS Prelims & Mains Paper III; Economics)............. 82
68. Nirav Modi denied bail, to stay in London jail till March 29 (Relevant for GS Prelims &
Mains Paper III; Economics) ......................................................................................................................................... 83
69. Govt. earns ₹85,000 crore from disinvestment in 2018-19, overshoots target (Relevant for
GS Prelims & Mains Paper III; Economics) .......................................................................................................... 84
70. Reserve Bank of India postponed the implementation of the Indian Accounting Standards
(Ind AS) norms for banks (Relevant for GS Prelims & Mains Paper III; Economics) ................ 84
71. India has highest number of poor despite 27 crore moving out of poverty in 10 years:
report (Relevant for GS Prelims; Economics)..................................................................................................... 85
72. Bringing Nirav back (Relevant for GS Prelims & Mains Paper III; Economics) ........................... 87
73. What is systematic investment plan? (Relevant for GS Prelims & Mains Paper III;
Economics) ............................................................................................................................................................. 89
74. RBI cuts repo rate to 6%, lowers GDP forecast to 7.2% (Relevant for GS Prelims & Mains
Paper III; Economics) ........................................................................................................................................ 90

75. High inflow of foreign investment into India Stock Market (Relevant for GS Prelims &
Mains Paper III; Economics) ......................................................................................................................................... 91
76. The cases against Vijay Mallya (Relevant for GS Prelims & Mains Paper III; Economics) ... 92
77. India becomes net steel importer in 2018-19 fiscal (Relevant for GS Prelims; Economics) 94
78. Should debt mutual funds investors worry? (Relevant for GS Prelims & Mains Paper III;
Economics) ............................................................................................................................................................................... 94
79. Chinese economy coming back to high trajectory (Relevant for GS Prelims & Mains Paper
III; Economics) ....................................................................................................................................................................... 96
80. Story of airline industry in India (Relevant for GS Prelims & Mains Paper III; Economics) 97
81. Why did fixed maturity plans of some funds fail to fully mature? What are the risks
involved? (Relevant for GS Prelims & Mains Paper III; Economics) .................................................... 99
82. India notifies tax agreement with US to stop evasion by MNCs (Relevant for GS Prelims &
Mains Paper III; Economics) ...................................................................................................................................... 101
83. RBI's reluctance to furnish list of wilful defaulters (Relevant for GS Prelims & Mains
Paper III; Economics) .....................................................................................................................................102
84. NSE fined ₹1,000 crore in co-location case (Relevant for GS Prelims & Mains Paper III;
Economics) ..........................................................................................................................................................103
85. New SBI rules link savings bank interest to repo rate: what has changed, why (Relevant
for GS Prelims & Mains Paper III; Economics) ............................................................................................ 104
86. Pepsi vs Gujarat farmers: case, its withdrawal (Relevant for GS Prelims & Mains Paper
III; Economics) ................................................................................................................................................................... 106
87. Why has the Supreme Court given an ultimatum to the Reserve Bank of India on loan
defaulters? (Relevant for GS Prelims & Mains Paper III; Economics) .........................................107
88. Chips at stake in the PepsiCo-farmers fight : Who has infringed on rights under the
Protection of Plant Varieties and Farmers’ Rights Act, 2001? (Relevant for GS Prelims &
Mains Paper III; Economics) .................................................................................................................................... 108
89. Reliance subsidiary acquires UK toy retailer Hamleys (Relevant for GS Prelims & Mains
Paper III; Economics) .................................................................................................................................................... 110

90. Decline in automobiles sales signal Economic slowdown in India (Relevant for GS
Prelims & Mains Paper III; Economics) ............................................................................................................ 111
91. RBI now uses divergence to compel banks to improve their loan-loss ratios (Relevant
for GS Prelims & Mains Paper III; Economics) ............................................................................................ 111
92. Rising trade deficit of India on account of falling exports (Relevant for GS Prelims &
Mains Paper III; Economics) .................................................................................................................................... 112
93. Why appeals are stuck at WTO, how India will be hit if process breaks down (Relevant
for GS Prelims & Mains Paper III; Economics) ........................................................................................... 113
94. Higher education to get a boost with ₹1.5 lakh crore action plan (Relevant for GS
Prelims & Mains Paper III; Economics) ........................................................................................................... 114
95. Draft export policy unveiled (Relevant for GS Prelims & Mains Paper III; Economics) 115
96. US takes India off currency watchlist (Relevant for GS Prelims & Mains Paper III;
Economics) .......................................................................................................................................................................... 116
97. Dr K. Kasturirangan Committee submits the Draft National Education Policy to the
Union HRD Minister (Relevant for GS Prelims & Mains Paper III; Economics) ................ 117
98. Landmark decision taken in the first Cabinet meeting of the NDA Government offers
pension coverage to crores of farmers (Relevant for GS Prelims & Mains Paper III;
Economics) .................................................................................................................................................. 118
99. PM-KISAN Scheme extension to include all eligible farmer families irrespective of the
size of land holdings (Relevant for GS Prelims & Mains Paper III; Economics) ................. 119
100. GDP growth slumps to 5.8% and unemployment highest in 45 years (Relevant for GS
Prelims & Mains Paper III; Economics) ...................................................................................................... 121
101. Govt sets up two new Cabinet panels to generate jobs and tackle economic
slowdown (Relevant for GS Prelims & Mains Paper III; Economics).................................... 122
102. RBI's repo rate cut (Relevant for GS Prelims & Mains Paper III; Economics) ............. 123
103. Indian Railway Station Development Corporation (IRSDC) enters into Tripartite
Agreement with French National Railways (SNCF) & AFD, a French Agency (Relevant for
GS Prelims; Economics) ....................................................................................................................................... 124
104. The RBI’s approach in the revised circular on stressed assets (Relevant for GS

105. Recommendations of NEP on Higher Education (Relevant for GS Prelims & Mains
Paper III; Economics) ............................................................................................................................................ 125
106. Ratification of the Multilateral Convention to Implement Tax Treaty Related
Measures to Prevent Base Erosion and Profit Shifting (Relevant for GS Prelims & Mains
Paper III; Economics) ............................................................................................................................................ 128
107. Traffic Index 2018: How Mumbai congestion was measured at world high (Relevant
for GS Prelims & Mains Paper III; Economics)) .................................................................................... 129
108. India to impose retaliatory tariffs on 29 U.S. goods from June 16 (Relevant for GS
Prelims & Mains Paper III; Economics) ..................................................................................................... 130
109. How will Jet’s insolvency process play out? (Relevant for GS Prelims & Mains Paper
III; Economics) ......................................................................................................................................................... 131
110. Mega Kaleshwaram project becomes operational (Relevant for GS Prelims;
Economics) ................................................................................................................................................................. 133
111. What are Stalled Projects? How are they dealt? (Relevant for GS Prelims & Mains
Paper III; Economics) ........................................................................................................................................... 133
112. Educational Development Schemes for economically backward classes (Relevant for
GS Prelims & Mains paper III; Economics) .............................................................................................. 134
113. GST Council meet outcomes (Relevant for GS Prelims ; Economics) ............................... 135
114. Citing personal reasons, RBI Deputy Governor who disagreed quits six months
before term ends (Relevant for GS Prelims & Mains Paper III; Economics) ........................ 135
115. Niti Aayog health index (Relevant for GS Prelims & Mains Paper III; Economics) .. 136
116. RBI panel’s suggestions on the MSME sector (Relevant for GS Prelims & Mains Paper
III; Economics) ......................................................................................................................................................... 138
117. What is black money, and why is it to so difficult to quantify it? (Relevant for GS
Prelims & Mains Paper III; Economics) ............................................................................................ 139
118. ‘One nation one ration card’ scheme from July 1, 2020 (Relevant for GS Prelims &
Mains Paper III; Economics) ................................................................................................................. 141
119. New framework: on SEBI's norms for mutual fund investments (Relevant for GS
120. Govt cuts interest rate on small savings schemes by 0.1 pc (Relevant for GS Prelims
& Mains Paper III; Economics) ........................................................................................................................ 142
121. What does it mean for India to become a $5-trillion economy (Relevant for GS
Prelims & Mains Paper III; Economics) ..................................................................................... 142
122. Behind the decline in fiscal deficit (Relevant for GS Prelims & Mains Paper III;
Economics) .................................................................................................................................................................. 144
123. Stocks crash on budget, global cues (Relevant for GS Prelims & Mains Paper III;
Economics) .................................................................................................................................................................. 147
124. Cabinet approves the Banning of Unregulated Deposit Schemes Bill, 2019 (Relevant
for GS Prelims & Mains Paper III; Economics) ....................................................................................... 148
125. Cabinet approves Launch of Pradhan Mantri Gram Sadak Yojana-lll (PMGSY-III)
(Relevant for GS Prelims & Mains Paper III; Economics) ................................................................ 148
126. Why is India opting for overseas bonds? (Relevant for GS Prelims & Mains Paper III;
Economics) .................................................................................................................................................................. 150
127. Draft Model Tenancy Act: what govt proposes for house owners, tenants (Relevant
128. How to read the current fall in bond rates; where are yields headed? (Relevant for
GS Prelims & Mains Paper III; Economics) ............................................................................................... 153
129. Finance Ministry, NITI Aayog guidelines ignored in airport privatization (Relevant
130. Ban or regulate? — On India's policy on cryptocurrencies (Relevant for GS Prelims &
Mains Paper III; Economics) ............................................................................................................................. 155
131. Understanding cryptocurrencies: What’s to like, and what’s to fear (Relevant for GS

1. What’s with the back series GDP data? (Relevant for GS Prelims, GS Mains Paper III;
Economics)
Method to calculate data and manner in which it was released led to criticism from
various quarters
The government on Wednesday released the GDP growth estimates for previous years based
on the new method of calculation and base year it had adopted in 2015. The new data and
the manner in which it was released led to criticism from various quarters, including
Opposition political parties and economists alike.
What happened?
In 2015, the government adopted a new method for the calculation of the gross domestic
product of the country, and also adopted the Gross Value Added measure to better estimate
economic activity. Further, the change involved a bringing forward of the base year used for
calculations to 2011-12 from the previous 2004-05. However, this had led to the problem of
not being able to compare recent data with the years preceding 2011-12. The back series
data released on Wednesday provided the earlier years’ data using the new calculations.
What does the new data say?

The new data release shows that GDP growth during the UPA years averaged 6.7% during
both UPA-I and UPA-II, compared with the 8.1% and 7.46%, respectively, estimated using
the older method. In comparison, the current government has witnessed an average GDP
growth rate of 7.35% during the first four years of its term, based on the new method.
The new data shows that, contrary to the earlier perception, the Indian economy never
graduated to a ‘high growth’ phase of more than 9% in the last decade or so. Former Chief
Statistician of India TCA Anant also pointed out that the newer data, especially for the mining
and manufacturing sectors, shows that India did not recover from the global financial crisis
as quickly as initially thought.
What were the changes made?

The first and most basic change made in the data calculations was changing the base year.
While using 2011-12 as the base year is simpler for calculations for subsequent years, it was
a tougher exercise calculating backwards using the new base.
According to the Ministry of Statistics and Programme Implementation, the method for
preparing the back series is largely the same as what is used to calculate the data using the
new base, which is how all national accounts calculations will be made going forward.
While doing the exercise, the government adopted the recommendations of the United
Nations System of National Accounts, which included measuring the GVA, Net Value Added
(NVA), and the use of new data sources wherever available. One of these data sources is the
Ministry of Corporate Affairs MCA-21 database, which became available since 2011-12.
One problem encountered was in finding matching data for the older series as what the MCA-
21 database provided. The key difference between the two was that the old method
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measured volumes — actual physical output in the manufacturing sector, crop production,
and employment for the services sector. The MCA-21 database allows for a more granular
approach, looking at the balance sheet data of each company and aggregating the
performance of the sector from that, after adjusting for inflation.
For most sectors, simply changing the price vectors from a 2004-05 to a 2011-12 base was
enough, but others required a splicing of new and old data in the relevant proportions to
arrive at the closest approximation.
The new method is also statistically more robust as it tries to relate the estimates to more
indicators such as consumption, employment, and the performance of enterprises, and also
incorporates factors that are more responsive to current changes, unlike the old series that
usually took 2-3 years to register an underlying change.
What are the problems with the new data?

As even the government concedes, there are a number of ways to calculate the back series
data. To arrive at the ‘best’ one, it held numerous consultations with leading economists and
statisticians and even delayed the data release once to address all the questions the experts
posed.
However, the number of options available and the manner in which the data was released
also led to criticism and doubt over the method that was finally chosen. Former Chief
Statistician of India Pronab Sen pointed out that the fact that the data was released by Niti
Aayog led to questions over the credibility of the method chosen. While it was being handled
exclusively by the Central Statistics Office, the assumption was that the statistically strongest
method would be chosen. Adding Niti Aayog to the equation puts this in doubt, Mr. Sen said,
since it brought political considerations into the fray.
The Opposition also termed the data release a “gimmickry, jugglery, trickery and chicanery”,
a claim disputed by Finance Minister Arun Jaitley.
Are these numbers different from previous estimates?

The new back series data diverges quite sharply significantly from the estimates made in a
draft report released by the National Statistical Commission earlier this year, which showed
that growth during the UPA years crossed 9% on at least four occasions, and even hit 10.78%
in 2010-11. This report pegged the average GDP growth during UPA-I at about 8.4% and
UPA-II at 7.7%. The government, however, was quick to clarify that this was just a draft
report that used only one of the many methods on offer to estimate the back series, and that
it was not the final number.
(Adapted from The Hindu)
2. Uneasy fields: on Kisan Mukti Morcha (Relevant for GS Prelims, GS Mains Paper III;
Economics)
Kisan Mukti Morcha & its demands

Last week, tens of thousands of farmers reached Delhi for a two-day Kisan Mukti Morcha and
held the country’s attention. They sought a special 21-day Parliament session to discuss the
crisis in India’s agrarian economy.
Their key demands included an unqualified loan waiver to mitigate indebtedness levels in
farm households and better remuneration for their produce instead of promises on paper of
high minimum support prices. These broad demands sum up the precarious livelihood of a
majority of farmers who work on small, fragmented land holdings.
Recent kisan protests

This is certainly not the first distress call from the farm sector to Parliament and
policymakers; several such stirs have taken place across States over the past year alone. In
March, when around 30,000 farmers and tribals from Maharashtra walked for days to
Mumbai, they drew appreciation for their restrained conduct compared to the usually unruly
protesters. And, they secured assurances from Chief Minister Devendra Fadnavis of tangible
action on their demands over the next six months. Finding little movement on those
promises, many of those who had marched to Mumbai joined the rally in Delhi, which was
by far the biggest such gathering. Galvanised by the All India Kisan Sangharsh Coordination
Committee, it reportedly had participation from 200-plus organisations, with farmers from
24 States.
Agriculture sector performance

With rural distress palpable, elections for five State Assemblies under way, and the Lok
Sabha election just about six months later, farmers’ issues are bound to further dominate
politics. Official data released last Friday show that the agriculture sector clocked a growth
of just 3.8% (on a gross value added basis) in the second quarter of this fiscal, compared to
the 5.3% recorded in the preceding quarter.
Demonetisation affected farm sector

To put that in perspective, farm sector output was growing strongly in the first three
quarters of 2016-17, before imploding in the aftermath of the demonetisation exercise. The
latest number suggests that the semblance of recovery seen in the previous two quarters has
dimmed too.
The government has done an about-turn on its responses to a parliamentary panel that
farmers were hit hard by the note ban, and sought to reassure farmers by reiterating its own
initiatives for the sector.
3. Soon, you may opt to withdraw your Aadhaar number (Relevant for GS Prelims, GS
Mains Paper III; Economics)
The Union government is in the last stages of finalising a proposal to amend the Aadhaar Act
to give all citizens an option to withdraw their Aadhaar number, including biometrics and
data.

Supreme Court judgement on Aadhar

This follows the Supreme Court judgment in September that upheld the validity of Aadhaar,
however, with certain riders.
A Constitution Bench had struck down Section 57 of the Act that allows private entities to
use the unique number for verification. The Bench also declared that seeking to link it with
bank accounts and SIM cards was unconstitutional.
Disclosure of Aadhar details in case of national security issue

In line with the court order, the proposal seeks to appoint an adjudicating officer to decide
whether a person’s Aadhaar related data need to be disclosed in the interest of national
security.
The court had also struck down Section 33(2), which allowed disclosure of Aadhaar
information for national security reasons on the orders of an officer not below Joint
Secretary. It had said an officer above Joint Secretary should consult a judicial officer and
together take a call.
PAN holders cannot withdraw

However, the proposal, which will be sent to the Cabinet, is likely to benefit only those who
do not have a PAN card or do not require one, as the court had upheld the linkage of PAN
with Aadhaar.
Over 37.50 crore PANs have been issued till March 12, 2018. Of these, the number of PANs
issued to individuals stood at more than 36.54 crore, of which about 16.84 crore have been
linked with Aadhaar.
4. Why there is a crisis in the aviation industry (Relevant for GS Prelims, GS Mains
Paper III; Economics)
What is the crisis?

The three main publicly listed airlines in the country — IndiGo, SpiceJet and Jet Airways —
slipped from profitability to steep losses in the first nine months of the current calendar year.
These airlines together account for 70% of the domestic market share.
Why are they in trouble?

With crude oil prices having risen over the past year and a half, the cost of Aviation Turbine
Fuel saw a 40% rise. Fuel accounts for the biggest expenditure for an airline — anywhere
between 30 and 40% of the total expenditure incurred. At the same time, the rupee has seen
a consistent fall and even breached 74 to a dollar in early October, though it has stabilised to
a degree now. This meant that fuel costs apart, airlines were spending more on payments
made in foreign currency for engine lease rentals, and maintenance and purchase of spare
parts. Despite this rise in operational costs, the airlines have been unable to raise fares
because of stiff competition among them. In fact, the lean months of July, August and
September saw carriers wooing passengers with attractive offers in an attempt to fill up
seats, as is the norm during this season every year.
As a result, by the end of September, market-leader IndiGo posted a loss of Rs. 6,52.1 crore
— its first loss since being listed. The airline saw a nearly 60% rise in its expenses to Rs.
7,502.2 crore compared to the previous year. Of this, fuel expenses at Rs. 3,035.4 crore
accounted for an almost 50% increase and the remainder was because of rupee depreciation
and an inability to raise fares. Importantly, the cost incurred on fuel in the second quarter
was double that in the same period last year.
Massive fleet expansion in recent times

To make matters worse, as airlines embark on a massive fleet expansion, there are more
seats to fill than ever before, as many of these airplanes are pressed into service on the
already popular routes. All domestic airlines have among them more than 570 airplanes as
of now. IndiGo alone has climbed up from 77 aircraft in March 2014 to 198 until December
2018, growing 2.5 times in the past four years. A third of this capacity addition by IndiGo
happened during the current calendar year. Altogether, domestic airlines will be adding over
1,000 planes in the next seven-eight years.
What does it mean for passengers?
An airline shutting down could impact connectivity and compress capacity on important
routes and drive up airfares. Air travel is no more a luxury, but a necessity, and impacts the
economy. So, possible airline failures will impact the public directly and indirectly.
However, experts say that an airline closing down is unlikely, though there could be a merger
or a consolidation.
What lies ahead?

Short-term cyclical issues are unlikely to impact the long-term strategic outlook. India is the
aviation market of the 21st century and experts see a profitable future for most Indian
carriers, if infrastructure, policy and regulatory framework improve. According to the
International Air Transport Association, the global aviation body, India will be the third
biggest aviation market by 2024 after China and the U.S.
5. Cabinet approves Agriculture Export Policy, 2018 (Relevant for GS Prelims, GS

The Union Cabinet has approved the Agriculture Export Policy, 2018. The Cabinet has also
approved the proposal for establishment of Monitoring Framework at Centre with
Commerce as the nodal Department with representation from various line
Ministries/Departments and Agencies and representatives of concerned State Governments,
to oversee the implementation of Agriculture Export Policy.
The Government has come out with a policy to double farmers’ income by 2022. Exports of
agricultural products would play a pivotal role in achieving this goal. In order to provide an
impetus to agricultural exports, the Government has come out with a comprehensive

“Agriculture Export Policy” aimed at doubling the agricultural exports and integrating Indian
farmers and agricultural products with the global value chains. The Agriculture Export Policy
has the following vision:
“Harness export potential of Indian agriculture, through suitable policy instruments, to

make India global power in agriculture and raise farmers’ income.”
Objectives:
Objectives of the Agriculture Export Policy are as under:
• To double agricultural exports from present ~US$ 30+ Billion to ~US$ 60+ Billion by 2022
and reach US$ 100 Billion in the next few years thereafter, with a stable trade policy regime.
• To diversify our export basket, destinations and boost high value and value added
agricultural exports including focus on perishables.
•To promote novel, indigenous, organic, ethnic, traditional and non-traditional Agri products
exports.
• To provide an institutional mechanism for pursuing market access, tackling barriers and
deal with sanitary and phyto-sanitary issues.
• To strive to double India’s share in world agri exports by integrating with global value chain
at the earliest.
• Enable farmers to get benefit of export opportunities in overseas market.
Elements of Agriculture Export Policy:

The recommendations in the Agriculture Export Policy have been organised in two
categories – Strategic and Operational – as detailed below:
Strategic Policy measures
Infrastructure and logistics support
Holistic approach to boost exports
Greater involvement of State Governments in agri exports
Focus on Clusters
Promoting value-added exports

Marketing and promotion of “Brand India
Operational Attract private investments into production and processing
Establishment of strong quality regimen
Research & Development
Miscellaneous
(Adapted from PIB)
6. Cabinet approves implementation of Shahpurkandi Dam (National Project) on river

Ravi in Punjab (Relevant for GS Prelims, GS Mains Paper III; Economics)
The Union Cabinet has approved implementation of Shahpurkandi Dam Project, Punjab on
river Ravi. For this, Central Assistance of Rs. 485.38 cr (for irrigation component) would be
provided over five years from 2018-19 to 2022-23.
Implementation of this project would help minimising some of the water of the River Ravi
which at present is going waste through the Madhopur Headworks downstream to Pakistan.
Details:
• On completion of the project an Irrigation Potential of 5,000 ha in Punjab State and 32,173
ha in J&K State would be created.
• Funding for Central Assistance to Shahpurkandi Dam project shall be made through
NABARD under existing system for funding of 99 PMKSY-AIBP projects under LTIF.
• In addition to existing monitoring mechanism for projects by Central Water Commission, a
committee headed by Member, Central Water Commission and consisting of concerned Chief
Engineers of Punjab and J&K and other concerned officers would be constituted to
oversee/monitor the implementation of project.
• The Advisory committee of MoWR, RD&GR on Irrigation, Flood Control and Multipurpose
Projects accepted the second Revised Cost Estimate amounting to Rs. 2715.70 crore
(February, 2018 Price Level) in its 138th meeting held on 31.10.2018.
• The project would be implemented by Govt. of Punjab with Central Assistance of Rs. 485.38
crore The project would be completed by June 2022.
Impact:

• Some of the water of the River Ravi at present is going waste through the
MadhopurHeadworks downstream to Pakistan whereas there is requirement for the same
for use in Punjab and J&K. Implementation of the project would minimise such wastage of
water.
• On completion of the project an additional Irrigation Potential of 5000 ha in Punjab State

and 32173 ha in J&K State would be created.
• In addition, water being released to provide irrigation in 1.18 Lac ha area under UBDC
system in Punjab would be managed/regulated efficiently through this project and the
irrigation in the area would be benefitted. On completion, Punjab would also be able to
generate 206 MW of hydropower.
Expenditure:
The balance cost of works component of ShahpurKandi Dam project is Rs. 1973.53 cr.
(Irrigation component: 564.63 cr, Power component: 1408.90 cr.) Out of the this, Rs 485.38
Cr would be provided as Central Assistance.
Beneficiaries:
Irrigation in 5000 ha of land in Punjab and 32172 ha in J&K would be provided. The
implementation of scheme would generate 6.2 lakh man-days employment for unskilled
workers, 6.2 lakh man-days employment for semi-skilled andl 1.67 lakh man-days
employment for skilled workers.
Background:
Indus Waters Treaty was signed between India and Pakistan in 1960 for sharing of Indus
waters. According to the Treaty, India got the full rights for utilization of waters of the three
Eastern Rivers namely Ravi, Beas and Satluj.
Some of the water of the River Ravi at present is going waste through the
MadhopurHeadworks downstream to Pakistan. Implementation of the project would
minimise such wastage of water.
A Bilateral agreement was signed between Punjab and J&K in Jan, 1979. As per the
agreement, construction of RanjitSagar Dam (Thein Dam) and Shahpurkandi Dam was to be
taken up by Punjab Govt. RanjitSagar Dam was commissioned in Aug, 2000. The
ShahpurKandi Dam project is proposed on River Ravi, 11 d/s of RanjitSagarDam and 8 km
u/s of Madhopur Head Works.
The Project was initially approved by the Planning Commission during November, 2001 and
was included under the Accelerated Irrigation Benefits Scheme (AIBP) of this Ministry for
funding its irrigation component.
Revised cost of the ShahpurKandi Dam National project was approved by the Advisory
Committee of MoWR, RD & GR on 24th August, 2009 for Rs. 2285.81 crore Central Assistance
of Rs. 26.04 crore was released during period 2009-10 to 2010-11. However, the works could

not progress much due to non-availability of funds on the part of Govt. of Punjab for power
component and later interstate issues with J&K.
Series of meetings were held bilaterally as well as at Govt. of India level. Finally, an
agreement was reached between Punjab and J&K states under the aegis of MoWR, RD&GR at
New Delhi on 8th September, 2018.
(Adapted from PIB)
7. Cabinet ‘In Principle’ approves strategic sale of the Government of India’s existing
52.63% of total paid up equity shareholding in Rural Electrification Corporation to
Power Finance Corporation along with transfer of management control (Relevant for
GS Prelims, GS Mains Paper III; Economics)
The Cabinet Committee on Economic Affairs has given its ‘In Principle’approval for strategic
sale of the Government of India’s existing 52.63% of total paid up equity shareholding in
Rural Electrification Corporation (REC) to Power Finance Corporation (PFC) along with
transfer of management control.
What is the rationale?

The acquisition intends to achieve integration across the Power Chain, obtain better
synergies, create economies of scale and have enhanced capability to support energy access
and energy efficiency by improved capability to finance power sector. It may also allow for
cheaper fund raising with increase in bargaining power for the combined entity.
Both REC and PFC are Central Public Sector Enterprises under the Ministry of Power.
(Adapted from PIB)
8. Kolkata-Patna becomes India’s second container cargo sector on Inland Waterways

(Relevant for GS Prelims, GS Mains Paper III; Economics)
After the success of container cargo being shipped from Kolkata to Varanasi earlier this year,
Bihar’s capital Patna will be witness to a new landmark in India’s Inland Water Transport
(IWT) sector with 16 TEUs of container cargo (equivalent to 16 truckloads) belonging to food
giants PepsiCo India and EmamiAgrotech Ltd from Kolkata reaching the city’s Gaighat IWT
terminal on river Ganga next week.
Kolkata-Patna is India’s new IWT origin-destination pair for containerised cargo movement
on the National Waterway-1. Plans are at an advanced stage to operationalise Patna-
Varanasi sector of NW-1 for container cargo movement.
What are the advantages of IWT?

Container cargo transport comes with several inherent advantages. Even as it reduces the
handling cost, allows easier modal shift, reduces pilferages and damage, it also enables cargo
owners to reduce their carbon footprints.
10
JalMargVikas Project
The Ministry of Shipping is developing NW-1 (River Ganga) under JalMargVikas Project
(JMVP) from Haldia to Varanasi (1390 Km) with the technical and financial assistance of the
World Bank at an estimated cost of Rs 5369 crore. The project would enable commercial
navigation of vessels with capacity of 1500-2,000 DWT.
The movement will give a fillip to the region’s growth and employment. According to the
World Bank economic analysis, of the 1.5 lakh direct and indirect employment opportunities
to be created due to interventions under JMVP, 50,000 will be in Bihar alone.
(Adapted from PIB)
9. Why are farmers all over India on the streets? (Relevant for GS Prelims, GS Mains
What happened?
Mass farmer protests have erupted across the country over the past few months from
Maharashtra to Bengal, with the October march in Delhi leading to violent clashes with the
police. Farm distress has been on top of the agenda for political parties in the Assembly
elections.
What is the problem?

Apart from the headline-grabbing protests, data show evidence of farm distress. National
Crime Records Bureau statistics show more than 3 lakh farmers have killed themselves in
the last two decades. Indebtedness was cited as the reason for more than 55% of farmers’
suicides in 2015. Maharashtra, which saw the highest number of farmers’ suicides, has 57%
of its farm families in debt. NSSO data show more than half of all farmers are in debt, with
each household owing an average of ₹47,000. In States like Andhra Pradesh and Telangana,
where levels of indebtedness are around 90%, the average debt of a household hovers
around ₹1 lakh. Almost 70% of agricultural households spend more than they earn and
almost a quarter of all farmers live below the poverty line. Census data for 2011 show the
number of cultivators who own land have been overtaken by landless agricultural workers
for the first time. Many of these 144 million workers earn less than ₹150 a day working in
the fields, and the failure to generate jobs in other parts of the economy gives them few
options.
What are the reasons for this?

Long-term issues include the increasing fragmentation of land — average plot sizes are
barely more than one hectare — a lack of post-production infrastructure, marketing
mechanisms and supply chains. The last two years have actually seen record farm output in
most major crops, but the resultant glut has led to crashing prices. At the same time, input
costs have spiked, with diesel prices surging 26% this year and fertilizer costs shooting up
more than 15%. Demonetisation was a blow to many in the rural cash economy. The move
affected farmers’ ability to buy seeds and fertilizers, pay off loans and hire farm labour,
according to an initial Agriculture Ministry report to a parliamentary panel last month. The

11
Ministry later rescinded its report, but farmers groups say the long-term impact of the note
ban lingers.
What is the government doing?

The M.S. Swaminathan Commission had recommended that the minimum support prices for
23 major crops be set at 1.5 times the cost of production, and the government claims it has
fulfilled its promises to do so. However, the government’s calculation of the cost of
production only includes actual paid-out costs and the imputed cost of family labour, while
the Commission’s formula also included the imputed cost of capital and the rent on the land.
Moreover, the government only procures wheat, rice and a limited amount of pulses and
oilseeds at MSP rates, benefiting only a fraction of farmers. Most summer crops have been
selling at below MSP rates in the marketplace this year. While loan waivers are a popular poll
promise and have been implemented in some States, small farmers without access to
institutional credit are often left out. The cap on waivers and poor implementation has led
to absurd situations such as farmers receiving cheques for just ₹1.
What policy solutions lie ahead?

A government panel aiming to double farmers’ income by 2022 has come up with a 13-
volume report, but its final set of policy recommendations is still pending with the
Agriculture Ministry. It is expected to focus on ways to ensure sustainability of production,
monetisation of farmers’ produce, re-strengthening of extension services and recognising
agriculture as an enterprise and enabling it to operate as such by addressing structural
weaknesses. This week, the Cabinet approved an agriculture export policy, lifting
restrictions on organic and processed food, which it hopes will double farm exports by 2022
and widen the market for domestic produce. Farmers groups are urging political parties to
support two private member Bills introduced in the last session of Parliament for guaranteed
implementation of MSP and a comprehensive loan waiver and debt reduction scheme.
However, they have also come out with a wider charter of demands, which deals with input
costs, social security, farm workers employment, land rights, irrigation, agro-ecology, crop
insurance and contract farming.
10. Current account woes (Relevant for GS Prelims, GS Mains Paper III; Economics)
Rise in CAD
The latest trade figures published by the Reserve Bank of India confirm the damage caused
by high global oil prices in the last few months. India’s current account deficit (CAD) widened
to 2.9% of gross domestic product (GDP) in the July-September quarter, a four-year high.
This is in contrast to the same quarter a year ago when the CAD was only 1.1% of GDP. The
widening of the CAD was due to an increase in the trade deficit, which jumped to $50 billion
in the September quarter as compared to $32.5 billion a year ago.
Falling oil prices: Reduction in CAD expected

The government, however, may not be too worried about the widening CAD figures as the
major factor that was behind the phenomenon has abated; global oil prices have dropped
12
sharply since early October. Brent crude is down almost 30% from the high it reached in
early October. So the size of the deficit is likely to come down in the quarter ending
December.
Threat to stability on account of volatile prices

This is not to suggest that all is fine. As usual, medium to long-term risks to the external
sector remain. For one, there is the threat of price volatility faced by heavy importers of oil.
Unless India manages to diversify its energy base by tapping into local sources of energy, this
will remain a perennial threat to economic stability.
Reponse of govt
Each time the external account has come under pressure, the government has simply tried
to bring in piecemeal emergency measures, such as a little opening up of the capital account
or ill-advised restrictions on imports. Such a policy obviously manages to only kick the can
down the road rather than bring a permanent solution to the problem. In order to bring
about any meaningful change, the government should also try implementing proper
structural reforms that can boost exports, thus helping fund imports through means other
than capital inflows, and end the over-reliance on imported oil.
(Adapted from The Hindu Editorial)
11. RBI Governor Urjit Patel has left. Now what? (Relevant for GS Prelims, GS Mains
Is this the first time that an RBI Governor has resigned in the context of conflict with
the government?
Not quite — even though the earlier situations arose several decades ago. The first Governor,
Sir Osborne Smith, who took over on April 1, 1935, left office on June 30, 1937, before
completing his term of three and a half years, apparently following differences with the
Government’s Member, Finance.
Sir Benegal Rama Rau, who served as Governor from July 1, 1949 to January 14, 1957,
resigned before the end of his second extended term following serious differences with
Finance Minister T TKrishnamachari. Prime Minister Jawaharlal Nehru did not back Rama
Rau.
How is the Governor’s resignation expected to impact the institutional relationship

between the RBI and the government?
RBI’s operational independence as the lender of last resort, the institution in charge of
ensuring the financial stability of the country, and the nation’s debt manager, has long been
acknowledged. The Governor has always been seen as much more than just a financial sector
regulator — Raghuram Rajan once said there were good reasons why Governors of central
banks sat at G-20 meetings along with Finance Ministers.
However, there have been signs in recent years that the relationship between the RBI and
the government could undergo a fundamental change — to the disadvantage of the Bank.
13
What will be the likely impact on the markets, and on the larger economy?
In the near term, the financial markets are bound to be impacted. Indian markets had closed
for the day when the news of Patel’s resignation came, but the Near Deliverable Forward or
NDF market, which is the offshore market for the Indian rupee, reacted with the currency.
The uncertainty at the RBI and monetary management policies will weigh on the minds of
market participants — especially in the bond markets, but also in equities, on foreign
investors who have bet on Indian stocks, and on corporate offerings. This would mean a hit
on sentiment and possibly higher cost of borrowings in the near term, and difficulties in
raising funds from the capital market.
When and how will the process of appointment of the new Governor start?
Unlike in the UK, Canada, and some other Western jurisdictions, there is no formal search
process to select the RBI Governor. There is no formal call for applications, and the Prime
Minister and Finance Minister have traditionally chosen from names on a shortlist. Before
the appointment of Governor DuvvuriSubbarao in 2008, Finance Minister P Chidambaram
and Chairman of the PMEAC C Rangarajan met some candidates for “interactions”, including
Subbarao, who was then Finance Secretary, RBI Deputy Governor Rakesh Mohan, and HDFC
Chairman Deepak Parekh.
(Adapted from The Indian Express)
12. Shock resignation: on Urjit Patel quitting as RBI chief (Relevant for GS Prelims, GS
Major embarrassment for the government

The Reserve Bank of India Governor Urjit Patel has cited personal reasons for resigning with
immediate effect, but anyone who has followed the events of the last couple of months will
know it was anything but that. It was a period during which the Centre and the RBI were
engaged in an unseemly tussle over a clutch of issues that had a bearing on the RBI’s
autonomy, something that Mr. Patel had sought to preserve.
As his predecessor RaghuramRajan pointed out, when a public servant resigns, it is a sign of
protest. Mr. Patel’s decision clearly caught everyone by surprise as it came following
perceptions of a thaw in relations between the Centre and the RBI, after an agreement was
hammered out at a board meeting last month on some of the contentious issues, including a
controversial proposal to use the central bank’s reserves for fiscal purposes.
But clearly, the larger issue that divided the Centre and the RBI — which related to autonomy
and the independent functioning of the Governor — was never fully resolved. Mr. Patel’s
resignation is a serious embarrassment to the NDA government, which has scrambled to
make statements expressing surprise at his action and praising him for his work. As attempts
to signal that it had nothing to do with Mr. Patel stepping down and to reinforce that he did
indeed quit for personal reasons, these remarks were largely unconvincing.
Questions on govt
Mr. Patel’s resignation is bound to raise questions about the Centre’s ability to work with
independent-minded economists, coming as it does following the departures of former RBI
14
Governor Raghuram Rajan, who was at odds with the Centre on many issues, and the sudden
resignations of Niti Aayog Vice-Chairman Arvind Panagariya and Chief Economic Adviser
Arvind Subramanian. It is true that Mr. Patel’s reclusive and non-communicative style may
not have endeared him to some bankers, but his eminence as an economist and his
understanding of macro-economic issues is undisputed.
Governments have sparred with the RBI before on the issue of autonomy, but the NDA
government went one step further by starting consultations under Section 7 of the RBI Act,
which gives the Centre the power to direct the RBI to act in specific ways. The immediate
priority now is for the Centre to fill the breach without wasting time. Global investors and
the markets are already on edge, and they will be keenly watching, along with the ratings
agencies, how the Centre handles this self-created crisis. The incoming Governor is bound to
be judged, among other things, by perceptions about his independence. The RBI cannot be
treated as if it is just another government department. And the Centre will now need to
demonstrate that a post-Patel central bank will continue to enjoy operational autonomy.
Anything less will not go down well with both investors and the markets.
13. FDI on the increase (Relevant for GS Prelims, GS Mains Paper III; Economics)
Foreign Direct Invest (FDI) has increased constantly from USD 45.15 billion in 2014-15 to
USD 60.97 billion in 2017-18.
Details of FDI in the country during last four years are given below:
S. No. Financial Year FDI Inflow (in USD Billion)
1. 2014-15 45.15
2. 2015-16 55.56
3. 2016-17 60.22
4. 2017-18 60.97
Figures are provisional subject to reconciliation with RBI, Mumbai.
(Adapted from PIB)
14. Creation of Fisheries and Aquaculture Infrastructure Development Fund (FIDF)

(Relevant for GS Prelims, GS Mains Paper III; Economics)

15
The Cabinet Committee on Economic Affairs chaired by the Prime Minister Shri Narendra
Modi has given its approval for creation of special Fisheries and Aquaculture Infrastructure
Development Fund (FIDF).
The approval entails an estimated fund size of Rs.7,522 crore, comprising Rs.5,266.40 crore
to be raised by the Nodal Loaning Entities (NLEs), Rs. 1,316.6 crore beneficiaries
contribution and Rs.939.48 crore budgetary support from the Government of India. National
Bank for Agriculture and Rural Development (NABARD), National Cooperatives
Development Corporation (NCDC) and all scheduled Banks (hereinafter referred as Banks)
shall be the nodal Loaning Entities.
Benefits:
• Creation of fisheries infrastructure facilities both in marine and Inland fisheries sectors.
• To augment fish production to achieve its target of 15 million tonne by 2020 set under the
Blue Revolution; and to achieve a sustainable growth of 8% -9% thereafter to reach the fish
production to the level of about 20 MMT by 2022-23.
• Employment opportunities to over 9.40 lakh fishers/fishermen/fisherfolk and other
entrepreneurs in fishing and allied activities.
• To attract private investment in creation and management of fisheries infrastructure
facilities.
• Adoption of new technologies.
FIDF would provide concessional finance to State Governments / UTs and State entities,
cooperatives, individuals and entrepreneurs etc., for taking up of the identified investment
activities of fisheries development. Under FIDF, loan lending will be over a period of five
years from 2018-19 to 2022-23 and maximum repayment will be over a period of 12 years
inclusive of moratorium of two years on repayment of principal.
(Adapted from PIB)
15. Cabinet approves New Bill to ban Unregulated Deposit Schemes and Chit Funds
(Amendment) Bill, 2018 (Relevant for GS Prelims, GS Mains Paper III; Economics)
In a major policy initiative to protect the savings of the investors, the Union Cabinet chaired
by the Prime Minister Shri Narendra Modi has given its approval to introduce the following
bills in the Parliament:-
(a) Banning of Unregulated Deposit Schemes Bill, 2018 in parliament &

(b) Chit Funds (Amendment) Bill, 2018
The Banning of Unregulated Deposit Schemes Bill, 2018

The Union Cabinet chaired by the Prime Minister Shri Narendra Modi has given approval to
introduce the banning of Unregulated Deposit Schemes Bill, 2018 in Parliament. The bill is
aimed at tackling the menace of illicit deposit taking activities in the country. Companies/

16
institutions running such schemes exploit existing regulatory gaps and lack of strict
administrative measures to dupe poor and gullible people of their hard-earned savings.
Details:
The Banning of Unregulated Deposit Schemes Bill, 2018 will provide a comprehensive
legislation to deal with the menace of illicit deposit schemes in the country through,
a. complete prohibition of unregulated deposit taking activity;

b. deterrent punishment for promoting or operating an unregulated deposit taking scheme;
c. stringent punishment for fraudulent default in repayment to depositors;
d. designation of a Competent Authority by the State Government to ensure repayment of
deposits in the event of default by a deposit taking establishment;
e. powers and functions of the competent authority including the power to attach assets of
a defaulting establishment;
f. designation of Courts to oversee repayment of depositors and to try offences under the
Act; and
g. listing of Regulated Deposit Schemes in the Bill, with a clause enabling the Central
Government to expand or prune the list.
Salient Features:
The salient features of the Bill are as follows:

•The Bill contains a substantive banning clause which bans Deposit Takers from promoting,
operating, issuing advertisements or accepting deposits in any Unregulated Deposit Scheme.
The principle is that the Bill would ban unregulated deposit taking activities altogether, by
making them an offence ex-ante, rather than the existing legislative-cum-regulatory
framework which only comes into effect ex-post with considerable time lags.
•The Bill creates three different types of offences, namely, running of Unregulated Deposit
Schemes, fraudulent default in Regulated Deposit Schemes, and wrongful inducement in
relation to Unregulated Deposit Schemes.
•The Bill provides for severe punishment and heavy pecuniary fines to act as deterrent.
•The Bill has adequate provisions for disgorgement or repayment of deposits in cases where
such schemes nonetheless manage to raise deposits illegally.
•The Bill provides for attachment of properties/ assets by the Competent Authority, and
subsequent realization of assets for repayment to depositors.
•Clear-cut time lines have been provided for attachment of property and restitution to
depositors.
•The Bill enables creation of an online central database, for collection and sharing of
information on deposit taking activities in the country.

17
•The Bill defines "Deposit Taker" and "Deposit" comprehensively.

•"Deposit Takers" include all possible entities (including individuals) receiving or soliciting
deposits, except specific entities such as those incorporated by legislation.
•"Deposit" is defined in such a manner that deposit takers are restricted from camouflaging
public deposits as receipts, and at the same time not to curb or hinder acceptance of money
by an establishment in the ordinary course of its business.
•Being a comprehensive Union law, the Bill adopts best practices from State laws, while
entrusting the primary responsibility of implementing the provisions of the legislation to the
State Governments.
Background:
The Finance Minister in the Budget Speech 2016-17 had announced that a comprehensive
central legislation wouldbe brought in to deal with the menace of illicit deposit taking
schemes, as in the recent past, there have been rising instances of people in various parts of
the country beingdefrauded by illicit deposit taking schemes. The worst victims of these
schemes are the poor and the financially illiterate, and the operations of such schemes are
oftenspread over many States. Subsequently, Finance Minister in the Budget Speech 2017-
18 had announced that the draft bill to curtail the menace of illicit deposit schemes had been
placed in the public domain and would be introduced shortly after its finalization.
The Chit Funds (Amendment) Bill, 2018

The Union Cabinet, chaired by the Prime Minister Shri Narendra Modi, has given its approval
to introduce the Chit Funds (Amendment) Bill, 2018 in Parliament. In order to facilitate
orderly growth of the Chit Funds sector and remove bottlenecks being faced by the Chit
Funds industry, thereby enabling greater financial access of people to other financial
products, the following amendments to the Chit Funds Act, 1982 have been proposed:
• Use of the words "Fraternity Fund" for chit business under Sections 2(b) and 11(1) of the
Chit Funds Act, 1982, to signify its inherent nature, and distinguish its working from "Prize
Chits" which are banned under a separate legislation;
• While retaining the requirement of a minimum of two subscribers for the conduct of the
draw of the Chit and for the preparation of the minutes of the proceedings, the Chit Funds
(Amendment) Bill, 2018 proposes to allow the two minimum required subscribers to join
through video conferencing duly recorded by the foreman, as physical presence of the
subscribers towards the final stages of a Chit may not be forthcoming easily. The foreman
shall have the minutes of the proceedings signed by such subscribers within a period of two
days following the proceedings;
• Increasing the ceiling of foreman's commission from a maximum of 5% to 7%, as the rate
has remained static since the commencement of the Act while overheads and other costs
have increased manifold;

18
• Allowing the foreman a right to lien for the dues from subscribers, so that set-off is allowed
by the Chit company for subscribers who have already drawn funds, so as to discourage
default by them; and
• Amending Section 85 (b) of the Chit Funds Act, 1982 to remove the ceiling of one hundred
rupees set in 1982 at the time of framing the Chit Funds Act, which has lost its relevance. The
State Governments are proposed to be allowed to prescribe the ceiling and to increase it from
time to time.
(Adapted from PIB)
16. Himachal, Kerala and T.N. top development index (Relevant for GS Prelims, GS
Himachal Pradesh, Kerala, and Tamil Nadu have been ranked highest in terms of being on
track to achieve the United Nations’ Sustainable Development Goals (SDG), according to a
first-of-its-kind index released by NITI Aayog recently.
“The SDG Index Score for Sustainable Development Goals 2030 ranges between 42 and 69
for States and between 57 and 68 for UTs,” the report said.
“Among the States, Kerala and Himachal Pradesh are the front runners, with an SDG India
Index score of 69. Among the UTs, Chandigarh is the front runner with a score of 68.”
Tamil Nadu has a score 66, and is the top scorer on the goals to do with eradicating poverty
and also providing clean and affordable energy.
How is the score calculated?

The index comprises a composite score for each State and Union Territory based on their
aggregate performance across 13 of the 17 SDGs. The score, ranging between 0 and 100,
denotes the average performance of the State/UT towards achieving the 13 SDGs and their
respective targets. The average Indian score was 57.

19
What does Index seek to attain?

“The aim of the index is to instil competition among States to improve their performance
across social indices as the States’ progress will determine India’s progress towards
achieving the set goals by 2030,” NITI Aayog CEO Amitabh Kant said. Using the index, States
will be monitored on a real-time basis.
17. GST cut on 17 items, 6 services (Relevant for GS Prelims; Economics)

20
Rate cut excluding Cement

The Goods and Services Tax Council cut rates on 17 items and six types of services, leaving
only one common use item — cement — in the 28% bracket.
Cutting rates on cement would have a significant impact on revenues and so the Council
decided to hold off on it.
Goods with slashed rates

Seven items that saw tax rates being slashed from the 28% bracket are certain vehicle parts
used in agriculture, monitors and TVs up to 32 inches, retreaded tyres, power banks, digital
cameras, videogame consoles (all from 28% to 18%), and parts and accessories for the
carriages for disabled persons (from 28% to 5%).
Services with slashed rates

The GST rate on cinema tickets above Rs. 100 was cut from 28% to 18% and on tickets up to
Rs. 100 from 18% to 12%.
18. In Meghalaya, flouting the ban on mining (Relevant for GS Prelims, GS Mains Paper
III; Economics)

21
An ‘underground economy’ has for long been known to fuel Meghalaya’s politics. It has taken
the collapse of a coal mine and – in all probability – the death of at least 15 miners for the
reality of illegal mining to hit hard.
The accident on December 13, when the miners struck an aquifer leading to the flooding of
a 370-foot mine, was the first after the National Green Tribunal (NGT) banned unscientific
‘rat-hole mining’ in the State on April 17, 2014.
Where is the mine?

The mine, about 130 km from the capital Shillong, is at Ksan near the river Lytein in the
Saipung area of East Jaintia Hills, one of eight mining districts of the State.
The site is 48 km from where rights and anti-mining activist Agnes Kharshiing was assaulted
a month ago for her campaign against illegal mining. East Jaintia Hills has a major share of
an estimated coal reserve of 576 million tonnes in the State, which also has substantial
deposits of limestone and other minerals. Much of the coal sent out of Meghalaya before the
NGT ban was from this district. An assessment by a committee, constituted by the NGT,
recorded the highest amount of extracted coal — 3.7 million tonnes of a total 6.5 million
tonnes — in the State in September 2014.
What prompted the NGT ban?

The NGT ban, retained in 2015, followed a petition filed by the All Dimasa Students’ Union in
Assam. The union had cited a study by O.P. Singh of the North Eastern Hill University that
said mining in the coal belts and coal stockpiles in the Jaintia Hills areas were polluting rivers
and streams flowing down to Assam’s Dima Hasao district, killing aquatic life and rendering
the water unfit for drinking or irrigation. Apart from the ecological impact, the NGT observed
that “there is umpteen number of cases where by virtue of rat-hole mining, during the rainy
season, water flooded into the mining areas resulting in the death of many.” The trigger for
the ban was the case of 15 miners trapped fatally inside a flooded mine in the South Garo
Hills in July 2012. In between, a Shillong-based NGO filed a public interest litigation petition
against illegal coal mining, claiming the rat-hole mines employed 70,000 child labourers. The
government later said only 222 children were found working in the mines.
What is rat-hole mining?

Coal mining in Meghalaya, financed by businessmen from outside, took off commercially in
the 1980s. Since much of the State’s land is community-owned, it was easy for the moneyed
locals to purchase land and employ non-tribal labourers to burrow for maximum profit. Rat-
hole mining, involving digging of tunnels 3-4 feet high, was the most preferred to strike at
narrow coal seams deeper inside the hills.
The less dangerous of two methods of digging tunnels is side-cutting on the slopes. The other
method entails digging a rectangular pit vertically to a depth of up to 400 metres. Rat-hole-
sized tunnels are dug horizontally wherever the coal seams are found for the workers to
crawl in and out. The NGT found these techniques unscientific and unsafe for workers.
Why does it continue?

22
Many who matter in Meghalaya own a coal mine or are associated with the trade. They
include politicians, bureaucrats, police officers and extremists. In 2015, the State
government said the ban would cost it Rs. 600 crore in revenue. The high stakes involved
had made political parties promise reopen coal mines during the February Assembly
election.
Chief Minister Conrad Sangma, earlier in denial mode, has admitted after the accident that
illegal mining does happen. He has promised appropriate action but at the same time said
mining activities are spread across too vast an area to monitor.
Activists are sceptical; on Thursday, an affidavit in the Meghalaya High Court pointed out
that the prime accused in the mob attack on Ms. Kharshiing and her associate Amita Sangma
was a leader of the ruling National People’s Party and there was no hope of a “meaningful
investigation” because of a nexus among the coal mafia, the police and politicians.
19. States’ Startup Ranking 2018 Announced (Relevant for GS Prelims, GS Mains Paper
III; Economics)
The Department of Industrial Policy and Promotion (DIPP) announced results of the first
ever States’ Start-up Ranking 2018. DIPP began this exercise from January, 2016.
Categories of Ranking
States have been identified as leaders across various categories such as Start-up policy
leaders, incubation hubs, seeding innovation, scaling innovation, regulatory change
champions, procurement leaders, communication champions, North-Eastern leader, and hill
state leader.
On the basis of performance in these categories, the States have been recognised as the Best
Performer, Top Performers, Leaders, Aspiring Leaders, Emerging States and Beginners, as
follows:
•Best Performer
Gujarat
•Top Performers
Karnataka, Kerala, Odisha, and Rajasthan
•Leaders
Andhra Pradesh, Bihar, Chhattisgarh, Madhya Pradesh, and Telangana
•Aspiring Leaders
Haryana, Himachal Pradesh, Jharkhand, Uttar Pradesh, and West Bengal
•Emerging States
Assam, Delhi, Goa, Jammu & Kashmir, Maharashtra, Punjab, Tamil Nadu, and Uttarakhand
23
•Beginners
Chandigarh, Manipur, Mizoram, Nagaland, Puducherry, Sikkim, and Tripura
Fifty-one officers from States and Union Territories have been identified as “Champions”,
who have made significant contributions towards developing their State’s Start-up
ecosystem.
Rationale for ranking

The key objective of the exercise was to encourage States and Union Territories to take
proactive steps towards strengthening the Start-upecosystems in their states. The
methodology has been aimed at creating a healthy competition among States to further learn,
share and adopt good practices.
Start-up ranking framework

DIPP consulted all stakeholders of the Start-up ecosystem and came up with 7 key reform
areas as the basis of the States’ Start-up ranking framework. An online portal was launched,
which was instrumental in enabling States seamlessly submit their initiatives across these
reform areas.
(Adapted from PIB)
20. Government moves to enhance bank recapitalisation outlay to Rs. 1,06,000 crore
in the current financial year (Relevant for GS Prelims, GS Mains Paper III; Economics)
PSBs to be further recapitalised for thrust to banking sector as growth engine.

Better-performing PCA banks to be provided adequate capital for coming out of PCA.
Government moved proposal in Parliament for enhanced bank recapitalisation outlay from
Rs. 65,000 crore to Rs. 1,06,000 crore in the current financial year to propel economic
growth, cementing India’s position as the fastest growing economy of the world. This would
enable infusion of over Rs. 83,000 crore in the coming few months in Public Sector Banks
(PSBs).
The enhanced provision is aimed at:

(1) Meeting regulatory capital norms
(2) Providing capital to better-performing PCA Banks to achieve 9% Capital to Risk-

weighted Asset Ratio (CRAR); 1.875% Capital Conservation Buffer and the 6% Net NPA
threshold, facilitating them to come out of PCA
(3) Facilitating non-PCA banks that are in breach of some PCA thresholds to not be in breach
(4) Strengthen amalgamating banks by providing regulatory and growth capital
Following comprehensive clean-up of the banking system under Government’s 4R’s

approach of Recognition, Resolution, Recapitalisation and Reforms, the envisaged

24
recapitalisation would equip banks financially at levels higher than the global norms. In this
connection, it is pertinent that India’s capital norms for banks are 1% higher than the norms
recommended under the global Basel-III framework. Further, unlike the early intervention
regime of other major economies, India’s PCA framework for weaker banks has more
onerous thresholds, viz., higher capital thresholds and a Net NPA threshold that further
embeds capital requirement on account of provisioning of NPAs. Today’s proposal in an
expression of Government’s commitment that each PSB is an article of faith, and aims at
securing compliance even for the higher regulatory norms.
The results of Government’s comprehensive 4R’s approach to strengthen PSBs and foster a
culture of clean and responsible banking are now visible:
฀฀฀Recognition of restructured standard assets as NPAs was initiated with Asset Quality
Review in 2015 and with discontinuation of restructuring schemes this year, the recognition
exercise is nearly over with such assets declining from the peak of 7.0% in March 2015 to
0.59% as of September 2018.
Resolution
process has been strengthened by changing the creditor-debtor relationship
through the Insolvency and Bankruptcy Code and debarment of wilful defaulters and
connected persons, which has resulted in record recovery this year.
Recapitalisation,
under which, with today’s decision, total mobilisation of capital in PSBs
since commencement of clean-up in 2015-16 is slated to be over Rs. 3,00,000 crore.
Reforms
have accompanied recapitalisation in the form of a comprehensive PSB Reforms
Agenda that addresses the root causes of poor asset quality and commits banks to clean
lending and rolling out of next-generation banking services by leveraging benefits of
technology and formalisation of the economy.

25
Through 4R’s, the banking system has registered sharp reduction in stress and loan defaults,
record recovery and steady increase in provision coverage, and is poised to further harness
the benefit from large-scale resolution anticipated over the current and next financial years.
Major impact of the 4R’s approach is as under:
Gross NPAs of PSBs have started declining after peaking in March 2018, registering a decline
of Rs. 23,860 crore in the first half of the current financial year.
Non-NPA accounts overdue by 31 to 90 days (Special Mention Accounts 1 & 2) of PSBs have
declined by 61% over five successive quarters from Rs. 2.25 lakh crore as of June 2017 to Rs.
0.87 lakh crore as of September 2018, substantially paring down credit at risk.
The Provision Coverage Ratio (PCR) of PSBs has risen steeply from 46.04% as of March 2015
to 66.85% as of September 2018, giving banks cushion to absorb losses.
Record recovery of Rs. 60,726 crore has been effected by PSBs in the first half of the current
financial year, which is more than double the amount recovered over the corresponding
period last year.
PSBs have de-risked their portfolio as reflected in the Credit Risk-weighted Assets (RWAs)
to Gross Advances ratio which has been decreased from 80.26% in Sep-17 to 71.20% in Sep-
18.
India’s global rank on “getting credit” under World Bank’s Ease of Doing Business Index has
improved from 44 in 2016 to 22 in 2018, manifesting Enhanced Access & Service Excellence
(EASE) in banking.
(Adapted from PIB)
21. Inauguration of Bogibeel Bridge (Relevant for GS Prelims, GS Mains Paper III;
Economics)
The record length is being widely reported: at 4.94 km, the Bogibeel Bridge is the country’s
longest road-cum-rail bridge, and its fourth longest of any kind above water. The bridge was
inaugurated by Prime Minister Narendra Modi recently. The Prime Minister flagged off an
Intercity Express between Tinsukia in Assam and Naharlagun in Arunachal Pradesh. The
train will run five days a week.
The short journey

The Bogibeel Bridge, inside Assam, is 20 km from the border with Arunachal Pradesh. It
connects Dibrugarh on the Brahmaputra’s south bank to Dhemaji on the north bank. Within
the Northeast, the train journey between Assam and Arunachal Pradesh now reduces from
500 km to 100 km. For the rest of India too, Dibrugarh becomes accessible without travelling
via Guwahati.

26
While railway lines run along both banks, a train crossing of the Brahmaputra was possible
at only two places so far. Both these rail-cum-road options — in Jogighopa in western Assam
and on the outskirts of Guwahati (Saraighat bridge) — are hundreds of kilometres from the
Assam-Arunachal border, and both bring trains from the north bank into Guwahati on the
south. The Bogibeel Bridge provides an alternative in the east.
So far, travellers had to make the loop via Guwahati. For the rest of India too, Dibrugarh
becomes accessible without travelling via Guwahati. The train journey from Delhi to
Dibrugarh reduces by 3 hours (from 37 hours to 34) and the distance by 170 km.
Strategic importance of bridge

1. This boosts the defence forces by facilitating quicker movement of troops and equipment
to areas near the India-China border.
2. It also benefits tourists, trade goods and those seeking medical treatment. Dibrugarh,
considered a gateway to parts of Arunachal Pradesh, is home to Assam Medical College. For
patients on the north bank, the only crossing into Dibrugarh so far was by ferry. That could
take up to a couple of hours; a train can cross the new bridge in 5 minutes.
The long journey

The bridge has been three decades in the making. The proposal dates back to the Assam
Accord of 1985. It was approved by the Cabinet Committee on Economic Affairs in 1997, the
foundation stone was laid that year by then Prime Minister H D Deve Gowda, and
construction was inaugurated in 2002 by then PM Atal Bihari Vajpayee.
Comparison with other bridges

As a railway bridge, the Bogibeel Bridge upstages the 4.62-km Vembanad Bridge between
Edappally and Vallarpadam in Kochi, Kerala, as well as the 4.55-km Digha-Sonpur across
Ganga in Bihar. The former is a rail bridge across the Vembanad Lake; the latter is rail-cum-
road like the Bogibeel Bridge.

27
In a comparison of all bridges across water, the Bogibeel comes in at fourth, after the
neighbouring Dhola-Sadiya road bridge (9.15 km), the Patna-Hajipur road bridge (5.75 km),
and the Bandra-Worli Sea Link (5.6 km).
In October, the Centre announced a plan for construction of a 19-km bridge over the
Brahmaputra from Dhubri in Assam to Phulbari in Meghalaya. The proposed time of
completion is 10 years. Once that happens, three of India’s five longest bridges would be
running across the country’s widest river.
(Adapted from Indian Express)
22. Bimal Jalan-headed panel to examine RBI’s economic capital framework (Relevant
for GS Prelims, GS Mains Paper III; Economics)
Bimal Jalan panel

The Jalan panel would review the status, need and justification of various provisions,
reserves and buffers presently provided for by the RBI.
The Reserve Bank of India (RBI) and the Centre pushed for resolution of the contentious
issue of the RBI’s economic capital framework and transferring a higher surplus to the latter
by setting up an expert committee headed by former Governor Bimal Jalan.
What will committee do?

28
The Committee on Economic Capital Framework would propose a suitable profits

distribution policy taking into account all the likely situations of the RBI, including the
situations of holding more provisions than required and the RBI holding less provisions than
required. The Jalan panel would review the status, need and justification of various
provisions, reserves and buffers presently provided for by the RBI and review global best
practices followed by the central banks in making assessment and provisions for risks which
central bank balance sheets are subject to, the RBI said in a statement. The Jalan Committee
will submit its report within a period of 90 days from the date of its first meeting.
Composition of committee
Former RBI Deputy Governor Rakesh Mohan, who is against transferring a higher surplus to
the government, is the Vice Chairman of the committee. Economic Affairs Secretary Subhash
Chandra Garg will be the nominee of the Finance Ministry while RBI Deputy Governor NS
Vishwanathan will represent the central bank. RBI Central Board Members Bharat Doshi and
Sudhir Mankad are also members of the Jalan panel. The RBI’s Central Board agreed to set
up the panel in its meeting in November.
Contentious issue
One of the contentious issues in the conflict between the government and the RBI was the
size of the central bank’s reserves which at Rs.9.6 lakh crore was reckoned as excessive by
the government. Of the RBI’s total reserves of Rs 9.6 lakh crore, the currency and gold
revaluation reserves alone account for Rs 6.9 lakh crore. The other components of the
reserves include the contigency fund of Rs 2.31 lakh crore, the asset development fund of Rs
22,811 crore, the investment revaluation account of Rs 13,285 crore and foreign exchange
forward contracts valuation account at Rs 3,282 crore.
According to analysts, the panel will have to address the question of excess ‘reserves’ which
is subjective with varying opinions on optimal levels of ‘reserves’, and the degree of
conservatism of the central bank. While the RBI necessarily needs to be conservative,
another argument is that a central bank can always print money to provide support in an
adverse situation and hence does not require excess ‘reserves’.
Different views on RBI reserves

In the Economic Survey 2016-17, former Chief Economic Adviser Arvind Subramanian had
said that the RBI “is already exceptionally highly capitalised” and its capital transfer to the
government can be used for recapitalising the banks and/ or recapitalising a public sector
asset rehabilitation agency.
However, this proposal was opposed by the then RBI Governor Raghuram Rajan.
23. Big Blow to E-Commerce sector. Govt takes away ground beneath its feet (Relevant
What does the new e-commerce rules say?

29
The govt. has barred online retailers such as Flipkart and Amazon from selling products of
companies in which they own stakes. New rules also disallow them from entering into
exclusive deals for merchandise.These new rules will change the way India’s $18 billion e-
commerce industry works.
Big worries for Amazon

Barring e-commerce market-places from selling produce of firms in which they own stakes
could, in particular hit Amazon, that has several such joint ventures, including Cloudtail and
Appario.Cloudtail is a joint฀ venture between Amazon and Narayana Murthy’s Catamran
Ventures.
No more 'exclusive'
The move to ban exclusive deals for products also hurts top online retailers such as Flipkart
and Amazon.Flipkart, for instance has exclusive partnerships with top smartphone brands
such as Xiaomi and Oppo.Smartphones contribute over 50% of overall e-commerce sales in
India.
Were Acting Smart

Most large e-commerce firms previously exploited loopholes in existing FDI rules and
created complex structures to get around the norms.
For instance, when Govt restricted any one seller from contributions more than 25% sales
on a platform, the same products were routed from large sellers to small sellers and then
sold on the platform.
In other instances, large sellers formed multiple entities which sold their products separately
on online market places.
The latest policy is aimed at plugging those loopholes.
'Playing to the gallery’

The decision follows complaints by small traders who contend that discounts offered by e-
retailers was driving them out of business.
24. New rules for e-commerce: how they affect marketplace players, buyers (Relevant
What are the new rules, and what do they means for companies, vendors and
customers?
The government Wednesday announced new e-commerce rules restricting players from
selling the products of companies in which they have a stake, and capping the percentage of
inventory that a vendor can sell through a marketplace entity (IT platform of an e-commerce
entity) or its group companies. To curb the practice of deep discounts, the government said
they cannot directly or indirectly influence the price of goods and services, and also brought
in a new set of rules that bar the sale of products exclusively in one marketplace. What are
the new rules, and what do they means for companies, vendors and customers?
30
What has changed?

From February 1, 2019, e-commerce companies running marketplace platforms — such as
Amazon and Flipkart — cannot sell products through companies, and of companies, in which
they hold equity stake.
While foreign direct investment is not permitted in the inventory-based model of e-

commerce, the clarification put a cap of 25% on the inventory that a marketplace entity or
its group companies can buy from a vendor. “Inventory of a vendor will be deemed to be
controlled by e-commerce marketplace entity if more than 25% of purchases of such vendor
are from the marketplace entity or its group companies,” the statement said.
How will Amazon and Flipkart be impacted?

Industry experts say the changes will have a significant impact on the business model of e-
commerce majors, as most of them source goods from sellers who are related party entities.
“Going forward, the suppliers will not be permitted to sell their products on the platform run
by such marketplace entity. This will impact backend operations, as Group entities would
have to be removed from the e-commerce value chain. The time has now come to look at
franchise channels, rather than equity investments channels, to do business in India,” Rajiv
Chugh, National Leader, Policy Advisory &Speciality Services, EY India, said.
Advertising
Also, e-commerce players like Amazon and Flipkart, who have their private labels, will not
be able to sell them on their platforms if they hold equity in the company manufacturing
them.
However, some experts feel that a degree of leeway may still be available to the companies.
“These clarifications will have a major impact on the major e-commerce players since most
of them primarily source goods from sellers who are primarily relevant to such e-commerce
players. However, the language of the clarification seems to grant leeway, to a certain extent,
to entities which are step-down subsidiaries of the entity in which the e-commerce entity or
its group companies hold equity. Nonetheless, these clarifications will definitely have major
repercussions on the business model of such e-commerce players,” AtulPandey, partner at
Khaitan & Co, said.
Who are the big marketplace retailers who may be impacted?

Cloudtail India Pvt Ltd is the biggest retailer operating on Amazon, while WS Retail was the
biggest seller on Flipkart. Cloudtail’s ownership shows a clear link with Amazon.
Incorporated in October 2011 as Sparrowhawk Sales and Marketing, its name was changed
to Cloudtail India in August 2012. Prione Business Services holds 99.99% stake in Cloudtail.
Prione is a joint venture between Amazon Inc. and Infosys co-founder N R Narayana Murthy’s
Catamaran Advisors. Catamaran holds 51% stake in Prione, Amazon Asia Pacific Resources
owns 48%, and the remaining 1% is owned by Amazon Eurasia Holdings.
Another retailer that may be impacted is Appario Retail, which is a wholly owned subsidiary
of Frontizo Business Services. Frontizo is a joint venture between Amazon India Ltd and
Ashok Patni, the co-founder of Patni Computer Systems. Frontizo’s latest filings with the
31
Registrar of Companies shows that Amazon Asia Pacific Holdings owns 48% stake in the
company, and Zodiac Wealth Advisors holds 51%. The remaining 1% is with Zaffre LLC,
based in Delaware, United States.
Under the new rules, Cloudtail and Appario, in which Amazon holds equity stake, may not be
able to sell products on Amazon’s e-commerce platform.
What else has changed?

The government has said that e-commerce entities will have to maintain a level playing field,
and ensure that they do not directly or indirectly influence the sale price of goods and
services. The policy mandates that no seller can sell its products exclusively on any
marketplace platform, and that all vendors on the e-commerce platform should be provided
services in a “fair and non-discriminatory manner”. Services include fulfilment, logistics,
warehousing, advertisement, payments, and financing among others.
How are consumers and small retailers likely to be impacted?

Consumers may no longer enjoy the deep discounts offered by retailers that have a close
association with marketplace entities. The absence of large retailers will, however, bring
relief to small retailers selling on these platforms. Traders running traditional brick-and-
mortar stores, who now find it difficult to compete with the large e-commerce retailers with
deep pockets, could gain.
KunalBahl, co-founder of Snapdeal, welcomed the changes. “Marketplaces are meant for
genuine, independent sellers, many of whom are MSMEs (Micro, Small & Medium
Enterprises). These changes will enable a level playing field for all sellers, helping them
leverage the reach of e-commerce,” Bahl posted on Twitter Wednesday.
Praveen Khandelwal, secretary general, Confederation of All India traders (CAIT) also
welcomed the decision to tighten FDI norms and called for forming a regulatory authority to
check flouting of e-commerce rules. Asking the government to come with an e-commerce
policy soon, he said that small vendors should get enough chances to participate in the online
business.
25. What is the latest clarification on policy around e-commerce?(Relevant for GS

Prelims, GS Mains Paper III; Economics)
The new clarification issued by the government regarding FDI in e-commerce has created a
furore among firms in the sector and their vendors alike. Here is a lowdown on the new rules:
What happened?
The Department of Industrial Policy & Promotion issued a clarification to the existing rules
pertaining to Foreign Direct Investment in e-commerce companies.

32
1. The main features of the clarification include the provision that vendors that have any
stake owned by an e-commerce company cannot sell their products on that e-commerce
company’s portal.
2. Another provision says any vendor who purchases 25% or more of its inventory from an
e-commerce group company will be considered to be controlled by that e-commerce
company, and thereby barred from selling on its portal.
This provision aims to ensure that vendors in which marketplaces, such as Amazon, have a
stake do not sell the bulk of their items to a third-party vendor who then goes on to sell those
items on the e-commerce marketplace.
In other words, the provision seeks to deny control by the marketplace entity over vendors.
The third major provision says the e-commerce firm will not be allowed to influence the price
of a product sold on its portal by giving incentives to particular vendors.
What is the context for these changes?

E-commerce companies can operate under two different models in India. The first is the
marketplace model where the e-commerce firm simply acts as a platform that connects
buyers and sellers. FDI is allowed in e-commerce companies in this model. The second model
is inventory-based where the inventory of goods sold on the portal is owned or controlled
by the e-commerce company. FDI is not allowed under this model.
What has been happening is that large e-commerce companies such as Amazon and Flipkart,
while not owning inventory themselves, have been providing a platform for their group
companies such as CloudTail and WS Retail respectively.
‘Some see this as skewing the playing field, especially if these vendors enjoyed special
incentives from the e-commerce firm, over others. These controlled or owned vendors may
then be able to offer discounts to customers that competitors may not be able to match.
Who benefits?
The thrust of the DIPP policy is directed at protecting small vendors on e-commerce
websites. It seeks to ensure small players selling on the portals are not discriminated against
in favour of vendors in which e-commerce companies have a stake. The Confederation of All
India Traders welcomed this move as it feels the new set up will ensure a level playing field
for all vendors looking to sell on the e-commerce portals. Smaller marketplaces that do not
have stake in any vendors will also be able to now compete with the big daddies.
Who else will be affected?

The main players to be affected will be group companies and affiliates of the biggest e-
commerce platforms, Amazon and Flipkart. These include CloudTail, WS Retail, Myntra and
private label brands such as Amazon Basics and Flipkart’sMarQ and to some extent the
private label business of online marketplace operator ShopClues.
The provision that bars companies — in which e-commerce firms have a stake — from
selling on their portals will hurt start-ups as well, since many of these will be barred from
33
selling due to minor equity stakes being held by the e-commerce companies. L.
Badrinarayanan of Lakshmikumaran&Sridharan Attorneys says small vendors will not be as
affected because most of them, anyway, do not purchase more than 25% of their inventory
from a single source and so they will be allowed to sell their items on the e-commerce
platforms.
Where will Amazon now sell its own products such as Kindle and Amazon Echo?
The verdict on this is unclear. FDI in single-brand retail is allowed in India, so if Amazon has
a licence for single-brand retail, it can sell its own products on its portal. Or vendors like Tata
Croma, for example, may buy these products from Amazon and sell them on its portal.
Is it the end of discounts?

Discounts will not go away, said SatishMeena, senior forecast analyst, Forrester Research.
Earlier, Amazon used to give discounts through CloudTail, but now it would have to give
discounts through other sellers as well, he said. That is, e-commerce firms will have to ensure
a level playing-field among their vendors. They can still promote their own portals by
offering cashback offers and vouchers, but these will have to apply to purchases from all
vendors.
Will a vendor be unable to sell on a marketplace, if the latter holds any stake in the
vendor?
Experts agree that this provision will likely be amended, with a benchmark equity
percentage being set. That is, the rules may be changed such that a vendor with more than a
certain stake owned by an e-commerce firm cannot sell on that portal, rather than the
current wording that says ‘any stake’.
Will the business model or shareholding in a vendor such as CloudTail change?

This is difficult to say, MrMeena said, as it is difficult to imagine CloudTail selling via
Amazon’s competitiors. It would be difficult for Amazon to go on with the current structure.
CloudTail must change ownership if it has to sell on Amazon, which means Amazon has to
sell its CloudTail holding, he said.
26. The lowdown on the state of the economy (Relevant for GS Prelims, GS Mains Paper
III; Economics)
What is it?
Sporting feats are difficult to imagine from match records and statistics — numbers alone
can leave one in the dark about what transpired on the field. The tale of India’s economy in
the year gone by is not too dissimilar. One could be fooled into believing little happened if
one simply looked at some key parameters at the same time last year and compared them to
where we are at now. Bond yields, for instance, on 10-year government securities are
virtually the same in December 2018 as they were in December 2017. The GDP grew at 7%
for the September-December quarter of 2017, and the latest growth print suggests a rise of
7.1% in the July to September quarter of 2018. Yet, 2018 has been far from benign — in fact,
34
it has been one of the most topsy-turvy roller-coaster rides for the economy in recent years
(if one ignores the 2016 demonetisation).
What is the situation now?

Right now, India’s macro economy “appears to be in a sweet spot,” as D.K. Srivastava, chief
policy adviser at EY India, puts it. The Organisation for Economic Co-operation and
Development’s global growth estimates for 2019 have been revised downward by 20 basis
points to 3.5%, but it expects India to be the fastest growing major economy in 2018-19 with
a 7.5% surge in GDP. Even the conservative Reserve Bank of India expects growth to be 7.4%.
Mr. Srivastava’s optimism stems from the fact that some of the biggest dark clouds that
hovered over the economy through the year have now receded or blown away. For starters,
after a torrid nine months of freefall, the rupee finally recovered some ground against the
U.S. dollar in November. It had gone from a level of around 64 to the dollar at the beginning
of the year to as low as 73.7 by October. Consumer Price Inflation, which had been over the
4% comfort zone since late 2017, finally started to taper off after June, slipping to 2.3% by
November — the lowest level in 17 months. This happy turn of the tide was largely driven
by a drop in crude oil prices that had been buoyant through most of the year, raising concerns
about India’s current account deficit and other fiscal indicators going out of whack as it is an
oil-import dependent economy.
How did it come about?

While the oil price surge (and cooling off) was dictated by global geopolitical tremors, the
Indian government did try to tweak key policy initiatives in a bid to stir up the domestic
growth engines. From rationalising the new indirect tax regime (introduced last July)
through this year, to plugging loopholes in the insolvency and bankruptcy process aimed at
cleaning up the mess in banks as well as corporate India’s balance sheets — some of this has
apparently paid off. From a growth rate of just 5.6% in the first quarter of 2017-18
(attributed to firms’ scaling back of inventories ahead of the roll-out of the Goods and
Services Tax), gross domestic product climbed steadily for four successive quarters, even
crossing the 8% mark to register 8.2% in the April to June quarter. Bank credit growth that
had been somnolent in recent times hit a 5-year high (14.6%) in October as investment
demand revived. Yet, there was a dark cloud in this silver lining — GDP growth in the July to
September quarter slipped to 7.1%, driven mainly by changes in India’s external trade basket
owing the surge in crude oil prices.
What lies ahead?

Despite the latest blip, growth in the first half of 2018-19 looks better than the first half of
2017-18, and if external factors like oil prices don’t play spoil sport, there is room for more.
The Finance Minister has expressed “comfortable hopes” of meeting the fiscal deficit target
for this year, and that should keep other macro indicators in favourable zones. But with the
general election months away and an anti-incumbency fear gripping the powers that be
(after the State election reverses), the biggest risk to the economy is short-run populism with
long, lingering side-effects. More loan waivers, anyone?

35
27. Why do farmers need more than loan waivers(Relevant for GS Prelims, GS Mains

After the recent Assembly elections, the new governments in Rajasthan, Madhya Pradesh
and Chhattisgarh announced farm loan waivers, a key promise. Last year, Uttar Pradesh,
Maharashtra, Karnataka and Tamil Nadu announced waivers as farmers were in distress.
Andhra Pradesh, Odisha and Haryana are likely to announce sops ahead of elections.
According to SBI Research, around Rs. 70,000 crore will be spent on farm debt waivers till
May 2019. The clamour for farm loan waivers has been growing, but this “'populist” measure
alone cannot be a permanent solution to mounting agrarian distress, according to experts.
Since the post-reforms policy regime in 1991, agriculture has been facing multiple crises.
The rising pressure of population on land and agriculture, besides sluggishness in the
shifting of workforce away from agriculture, has adversely affected small and marginal
farmers, say agriculture experts and economists.
Why do farmers want more?

Rising costs, drop in income and increasing incidence of indebtedness among small and
marginal farmers manifested in a spate of suicides over the years. Experts believe it is the
responsibility of the Union government to waive farm loans, but insist that it is only a “stop-
gap” arrangement. They argue that until policies are not tweaked in favour of farmers to
address their risks related to production, weather-disaster, price, credit and market, the loan
waiver will become a periodical instrument for temporary relief. A large number of small
and marginal farmers are distressed as the current system of market institution doubly
squeezes them, in input as well as output.
What is government stand?

In the backdrop of the ongoing debate on farm loan waivers, the NITI Ayog, the government’s
policy think tank, recently pointed out that waiving loans is not a lasting answer to the
problem of agrarian distress as this step only helps a small number of farmers. According to
agriculture policy expert and NITI Aayog member Ramesh Chand, the number of farmers,
especially the small and marginal who avail themselves of institutional loans, are very few
and this is the reason that even after spending huge sums of money on loan waivers not even
half the farmers are benefiting. In some of the States, not even 25% of farmers get loans from
institutional sources. A NITI Aayog study had also highlighted the fact that in some States,
about three-fourths of the farm loans were being used for consumption instead of meeting
agricultural needs, Professor Chand says. The Reserve Bank of India’s study, ‘State Finances:
A Study of Budgets,’ released earlier this year, analysed the previous experiences with loan-
waiver schemes in various States and concluded that “debt relief helps in reducing household
debt but there appears to be no evidence of increase in investment and productivity of
beneficiary households.”
What is the way forward?

As a short-term measure, farmers need to be freed of the tyranny of the middlemen by
reforming the rent-seeking, anti-farmer commission agent (arthiya) system. The inter-
locking of the credit and the output markets is a major factor for the crises of indebtedness.
36
The system of making payments through the commission agent needs to be dismantled to
break the credit-crop nexus. Lakhwinder Singh, an agriculture expert and a professor of
economics at Punjabi University, Patiala, says that for a permanent solution to agrarian
distress, the government should give agro-processing industry a policy push to pull rural
people out of agriculture. In the long run, there’s an urgent need for integration of agriculture
with industry, and that too with the involvement of the local workforce in such a manner
that surpluses should be invested locally. “The subsidies and tax concessions which have
been offered or given to the corporate sector should be given to rural entrepreneurs who are
willing to start manufacturing firms that will process local raw materials and employ rural
labour. The transformation is possible if primary producers are integrated with both
manufacturing and marketing activities for reaping surpluses generated by them,” he says.
28. Ease of bad loans stress: on RBI's Financial Stability Report (Relevant for GS
The Reserve Bank of India’s Financial Stability Report reveals the first half-yearly decline in
the ratio of gross non-performing assets (GNPA) to advances since September 2015. The
ratio across all scheduled commercial banks has eased to 10.8% as of end-September 2018,
from 11.5% in March, with both public sector and private sector lenders posting drops in the
key indicator of bad loans.
What is possibility in future?

This prompted RBI Governor Shaktikanta Das to prognosticate that the sector “appears to be
on course to recovery”. Still, state-owned banks continue to have higher levels of bad loans
than their private sector peers and are projected to show slower improvements over the
second half of the fiscal. The GNPA ratio for public sector banks (PSBs) is posited to only inch
lower to 14.6% by March, from 14.8% in September. One reason is that PSBs have a
disproportionately higher share of bad loans from among large borrowers, who accounted
for almost 55% of loans advanced by all banks as of September. The GNPA ratio for this
category at PSBs was 21.6%, compared with just 7% at private banks.
29. In a first, Mallya declared a ‘fugitive economic offender’ (Relevant for GS Prelims,
GS Mains Paper III; Economics)
Absconding liquor baron Vijay Mallya became the first person to be declared a fugitive
economic offender by the special court hearing cases under the Fugitive Economic Offenders
Act (FEOA).
Who is Fugitive Economic Offender?

1. The FEOA, which became a law on July 31, 2018, allows for declaring a person as an
offender after an arrest warrant has been issued against the individual and the value of
offences exceeds Rs. 100 crore.
37
2. Another condition for declaring a person a fugitive economic offender (FEO) is when the
individual refuses to return to the country to face prosecution.
What are the repercussions on declaration?

As per the new law, a special FEOA court can order the confiscation of a FEO’s properties,
including those which are benami, and the proceeds of crime in and outside India. Once
properties are confiscated, the Union government has the right over them, and it can dispose
them after 90 days.
30. Cabinet approves first-ever three-way merger in Indian Banking with

amalgamation of Vijaya, Dena and Bank of Baroda (Relevant for GS Prelims, GS Mains
The Union Cabinet has approved the scheme of amalgamation for amalgamating Bank of
Baroda, Vijaya Bank and Dena Bank, with Bank of Baroda as the transferee bank and Vijaya
Bank and Dena Bank as transferor banks.
The amalgamation will be the first-ever three-way consolidation of banks in India, with the
amalgamated bank being India's second largest Public Sector Bank.
The amalgamation will help create a strong globally competitive bank with economies of
scale and enable realisation of wide-ranging synergies. Leveraging of networks, low-cost
deposits and subsidiaries of the three banks has the potential of yielding significant
synergies for positioning the consolidated entity for substantial rise in customer base,
market reach, operational efficiency, wider bouquet of products and services, and improved
access for customers.
Key points of the Scheme of amalgamation:

(a) Vijaya Bank and Dena Bank are transferor banks and BoB is transferee bank.
(b) The scheme shall come into force on 1.4.2019.
Some of the strengths of the envisaged amalgamated entity are-

• The amalgamated bank will be better equipped in the changing environment to meet the
credit needs of a growing economy, absorb shocks and capacity to raise resources.
Economies of scale and wider scope would position it for improved profitability, wider
product offerings, and adoption of technology and best practices across amalgamating
entities for cost efficiency and improved risk management, and financial inclusion through
wider reach.
• It would also enable creation of a bank with scale comparable to global banks and capable
of competing effectively in India and globally.
• Strengths of individual banks - such as Dena Bank's relatively higher access to low-cost
CASA deposits, Vijaya Bank's profitability and availability of capital for growth, and the
extensive and global network and offerings of BoB will translate into advantages in terms of
38
market reach, operational efficiencies and the ability to support a wider offering of product
and services.
• The amalgamated banks will have access to a wider talent pool, and a large database that
may be leveraged through analytics for competitive advantage in a rapidly digitalising
banking context. Benefits would also flow as a result of wider reach and distribution network
and reduction in distribution costs for the products and services through subsidiaries.
• Public at large shall benefit in terms of enhanced access to banking services through a
stronger network, the ability to support a wider offering of product and services, and easy
access to credit.
(Adapted from PIB)
31. List of India’s legal disputes at WTO (Relevant for GS Prelims, GS Mains Paper III;
Economics)
India has 7 disputes at WTO which are at different stages of settlement. India is defending its
interest in these disputes with the help of experienced Law Firms.
I. DS430 - Import of poultry and poultry products from United States, Complainant:
India,
II. DS436 - Countervailing duty by United States on Indian steel products, Complainant:
India,
III. DS456 - National Solar Mission dispute with United States, Complainant: United
States,
IV. DS510 - United States’ Sub-Federal Renewable energy programme, Complainant:
India,
V. DS518 - India-certain Measures on imports of iron and steel products from Japan,
Complainant: Japan,
VI. DS541 - Export Subsidies measures of India, Complainant: United States,
VII. DS-547 - United States-Certain measures of Unites States on steel and aluminium
products, Complainant: India.
VIII. GST burden on small businesses eased (Relevant for GS Prelims; Economics)
IX. The GST Council in its 32nd meeting took decisions aimed at reducing the tax and
compliance burden on small and medium enterprises, including increasing the
threshold limit below which companies are exempt from GST, extending the
Composition Scheme to small service providers, and allowing small companies to file
annual returns.
X. Benefits for small enterprises

XI. 1. The Council raised the annual turnover limit under which companies would be
exempt from GST to ₹40 lakh for most States and ₹20 lakh for the North Eastern and
hill states, from the earlier limit of ₹20 lakh and ₹10 lakh, respectively.
XII. Rationale

39
XIII. A very large part of GST revenue comes from the formal sector and large companies.
The decisions taken today by the GST Council have been done to help the small and
medium companies. The revenue impact due to these will be minimal.
XIV. 2. Mr. Jaitley announced that the limit for eligibility for the Composition Scheme
would be raised to an annual turnover of ₹1.5 crore from April 1, 2019. He added that
companies opting for the Composition Scheme would be allowed to file annual
returns and pay taxes quarterly from April 1.
XV. The Composition Scheme currently allows companies with an annual turnover of up
to ₹1 crore to opt for it, and file returns on a quarterly basis at a nominal rate of 1%.
So far, only manufacturers and traders were eligible for this scheme.
XVI. 3. Mr. Jaitley said that the Council had decided to extend the Composition Scheme to
small service providers with an annual turnover of up to ₹50 lakh, at a tax rate of 6%.
XVII. 4. Kerala cess: The GST Council also decided to allow Kerala to levy a cess of up to 1%
for up to two years on intra-State supplies to help finance the disaster relief efforts
following the recent floods in the state.
XVIII. Pending issue

XIX. As there were diverse and differing opinions on the issues of taxing real estate and
lotteries, the GST Council decided to set up to separate Groups of Ministers to look
into the issue and present their assessments to the Council.
32. What is the idea of Universal Basic Income that the Economic Survey found
‘conceptually appealing’, and which Sikkim intends to implement? Whom does it
benefit, and whom can it harm? In what ways? (Relevant for GS Prelims, GS Mains
Paper II; Economics)
Sikkim is set to become the first state in India to roll out Universal Basic Income (UBI),—
every person should have a right to a basic income to cover their needs, just by virtue of
being citizens. Sikkim aims to implement the scheme by 2022, has already started the
process to introduce the unconditional direct cash transfers.
The 2017 Economic Survey had flagged the UBI scheme as “a conceptually appealing idea”
and a possible alternative to social welfare programmes targeted at bringing down poverty.
The idea and its appeal

While India has made considerable progress in bringing down poverty from about 70% of
the population at the time of independence to about 22% in 2011-12 (Tendulkar Committee
estimates), the effectiveness of the targeted schemes run by central and state governments
have always been in question. Studies and government audits reflect the data manipulation

40
and leakages, with the poor and deserving crowded out of BPL card ownership and the rich
reaping undeserved benefits. Targeting is seen as being both inefficient and inequitable.
UBI envisages an uncompromised social safety net that seeks to assure a minimum income
for everone.
How UBI works

A basic income is a regular, periodic cash payment delivered unconditionally to all citizens
on an individual basis, without requirement of work or willingness to work. The five broad
features of such schemes are: payments at periodic regular intervals (not one-off grants),
payments in cash (not food vouchers or service coupons), payments to individuals,
universality, and unconditionality.
Typically, UBI would require subsumption of other subsidies and allowances in order to free
up resources so that a particular amount can be directed to people on a periodic basis.
The case of Sikkim

In India, Sikkim is planning to implement UBI. It is a surplus power generating state, which
exports nearly 90% of the 2,200 MW that its hydel projects produce — ensuring a steady
revenue stream that other states typically lack. It has a literacy rate of 98% and a BPL
population way below the national average.
Sikkim has indicated that it will do away with most subsidies before launching its UBI
scheme.
The criticisms
None of the places where UBI has been tried have levels of income disparity that exist in
India. So, while the idea might work in Sikkim, it might not in, say, Bihar.
The funds given under UBI may be cornered by male members of the family.
The funds given may be mis-utilised such as for consumption of alcohol and drugs.
33. Why farmers in the sugar bowl of Western Maharashtra are angry (Relevant for GS
Sugarcane farmers in western Maharashtra called off their violent four-day-old agitation,
giving sugar mill owners and the government two weeks to find the money to pay them their
full dues. Protesters led by the Swabhimani Shetkari Sanghtana had paralysed harvesting
and transportation of sugarcane for three days.
This region accounts for 60% of Maharashtra’s, and 30% of India’s, sugar production. What
are the issues in the unrest?
What triggered this round of sugarcane farmers’ protests?

41
The Swabhimani Shetkari Sanghtana has consistently opposed the decision of sugar mills to
pay the fair and remunerative price (FRP) in instalments, and demanded payment in one go.
Even after two months since beginning of the crushing season, mills in Maharashtra have
performed poorly on due payments.
Taken together, cane dues in the states of Maharashtra and Uttar Pradesh, which account
for almost 75% of the crop grown in the country, have already crossed Rs 11,000 crore, and
arrears are set to peak around April.
Why are sugar mills unable to pay farmers their dues?

Thanks to assured irrigation and conducive climate, sugar mills in this region are able to
realise higher amounts of sugar per tonne of cane crushed. As the FRP of cane is linked to its
sugar recovery, the average rate payable to farmers here is around Rs 2,850 per tonne net
harvesting and transportation charges. This is huge compared to, say, Pune or Ahmednagar,
where farmers get an average net FRP of around Rs 2,200-2,300 per tonne. Growers in
Marathwada have an even lower realisation.
Since the beginning of the current crushing season, mills across Maharashtra have said that
the present sugar realisation of Rs 2,900 per quintal would not be enough to meet the
production cost of Rs 3,400 per quintal. Banks, millers say, have valued sugar at Rs 3,000 per
quintal, and 85% of this would be made available to them as working capital. 15% of this
amount would go towards meeting expenses like gunny bags, salaries etc., leaving just
enough to pay farmers at the rate of Rs 2,300 per tonne of cane.
Farmers in Ahmednagar and Marathwada, under pressure to sell their cane early due to the
drought, have not protested the payment of FRP in instalments.
What is the way forward in this situation?

Mills have knocked on the doors of both the central and state governments seeking a bailout
package in order to be able to pay farmers.
Cane is a highly political crop, and frequently decides the fate of leaders in Western
Maharashtra. Arrears could peak just as voting for the Lok Sabha elections begins, and the
last thing the ruling party in both the Centre and the state would want is to face full-blown
farmer protests.
(Adapted From The Indian Express)
34. CBI books former ICICI Bank chief Chanda Kochhar for criminal conspiracy (Relevant for GS
The CBI on Thursday booked former ICICI Bank head Chanda Kochhar on charges of criminal
conspiracy, cheating and abuse of official position for “dishonestly sanctioning loans to the
Videocon Group”.

42
What is the allegation against the ICICI Board?

The board of ICICI Bank has finally acted on the allegations of misconduct against its CEO and
managing director, Chanda Kochhar. It had earlier maintained that she was on annual personal
leave; now, she will stay away from the office till the completion of an inquiry into the charges
levelled against her by a whistle-blower. Rather than allow the controversy to fester, the board
of ICICI Bank, an institution that often sought to hold a mirror up to the inefficiencies of public
sector banks, should have acted earlier.
Till the inquiry is complete the bank will be steered by a new chief operating officer, Sandeep
Bakhshi. The official version is that he will report to Ms. Kochhar, who herself took the decision
to go on leave till the end of the inquiry — but this is at best a face-saving cover for a board that
was reluctant to act since the controversy broke.
Meanwhile, the tenure of M.K. Sharma, the chairman of the bank’s board, is set to end this month
and there is still no clarity on his successor. This extended uncertainty in a crisis situation is
unwarranted.
What is allegation against Ms. Kochar?

ICICI Bank’s troubles are rooted in a 2016 complaint by an investor alleging a quid pro quo deal
between Ms. Kochhar’s immediate family members and the Videocon group, which got a Rs.
3,250-crore loan from it. When this ‘conflict of interest’ complaint resurfaced in the public
domain this year, Mr. Sharma said he had personally inquired into it two years earlier and found
nothing amiss.
How the issue came to limelight?

With the Central Bureau of Investigation and later the stock market regulator SEBI swooping in,
the issue of whether the bank had failed to make adequate disclosures about its dealings with
the borrower (who is now a defaulter) and a firm related to Ms. Kochhar’s husband was
spotlighted. The bank is yet to respond to SEBI, but changed tack after the latter decided to
launch a probe into allegations of a quid pro quo and alleged misconduct by Ms. Kochhar.
What is the stage of investigation?

Three weeks on, the names of the members of and terms of reference for the probe panel to be
led by retired Supreme Court judge B.N. Srikrishna are still awaited. It is debatable whether such
a high-profile panel is required to ascertain if Ms. Kochhar, whose term ends next March, had
made adequate disclosures while deciding on the loans.
What should be done?

The board itself could have dealt with this through an internal investigation rather than giving
the impression that it wanted to paper over the issue, sending a poor signal to all stakeholders.
No doubt Ms. Kochhar, a star on the corporate firmament, enjoys a formidable reputation as a
banker. While one should not prejudge the inquiry findings, there is no doubt that the strength
of corporate governance practices in the bank has come under question because of the way the
issue has played out.

43
35. Gold turns red hot, price at a peak (Relevant for GS Prelims, GS Mains Paper III;
Economics)
Reason for escalation of prices

Gold prices in India hovered near record levels as a combination of factors including an
increase in global demand, especially from central banks, and a fall in the quantum of mining
of the precious metal pushed up prices in the domestic market.
Gold prices inclusive of the 3% goods and services tax (GST), touched Rs. 33,800, the highest
ever for the yellow metal.
Fall in currency values contributing to rise

Jewellers, meanwhile, attributed the surge to increased demand from central banks,
especially from countries facing currency issues.
Central banks of many countries like Russia, Turkey, along with a few other smaller
economies that have seen currency issues, are buying gold, thereby pushing up the demand.

44
Higher import duty in India

While the Indian market is influenced by the global prices — currently close to a seven-
month high of about $1,300 per ounce — the addition of import duties makes the yellow
metal more expensive than the global benchmark price in rupee terms.
36. GST revenues going off target (Relevant for GS Prelims, GS Mains Paper III;
Economics)
With tax rates being cut regularly, experts fear collections will fall further

Even though the official data for Goods and Services Tax (GST) collections in January will be
released on February 1, several news agencies have been reporting that the GST collection
for January 2019 will come in at ₹94,000-96,000 crore, which is lower than the year’s
average and far lower than what experts estimate the government should be getting. The
average collection between April and December was ₹96,782 crore. The collections crossed
the ₹1 lakh crore mark only twice in the nine months under consideration. Even this was
lower than the ₹1.1 lakh crore tax analysts say the government should be collecting.
Given that the GST Council cut rates on a number of items and services in its December 22
meeting, the likelihood of January’s revenue being even lower than December’s low of
₹94,726 crore is very high. If this is the case, it would mark the third consecutive month of
falling GST revenue.
What are the reasons for lower collections?

The GST Council, in its 31st meeting on December 22, cut rates on almost 20 categories of
goods and a number of services. As a result, only one common-use item — cement— was left
in the highest tax slab of 28%. The reason for the creation of the 28% slab was to offset the
lower collections from the items that were made exempt from GST or put in the lowest slab
of 5%.
Naturally, a reducing number of items in the 28% slab will result in lower collections. The
way to offset lower rates is to increase the number of people paying tax. That is, compliance
has to increase. However, analysis by The Hindu of GST data has shown that compliance has,
in fact, been falling. The data show that while the number of people required to file monthly
returns has grown 32% from July 2017 (when GST was implemented) to about 98.5 lakh in
November 2018, the number of people not filing these returns has grown 167% during that
time. In other words, the number of non-filers is growing faster than the tax base itself.
The government seems to have identified another reason for falling revenues: businesses
generating fake invoices to claim higher input tax credits than they should be receiving. The
tax officials are now starting to look at this in a deeper manner and examining how to plug
the leaks.

45
The root of this problem is that the government doesn’t have an easy and accessible way to
match the invoices of sellers and buyers and catch discrepancies. That system will likely be
rolled out from April 2019 onwards, but there is no official clarity on what it will involve.
Why is this worrisome?

Falling GST revenues themselves are a worrisome prospect because they put pressure on
government finances, and especially on other sources of revenue. Direct tax collections have
been growing at a robust rate for most of this financial year. But this also means that the
government will be hard pressed to reduce personal income tax rates in the General Budget
of 2019-20.
Weak GST revenues also limit the government’s ability to provision enough resources for
any budgetary support it might decide to give the agricultural sector or to small and medium
businesses.
37. ICICI Bank sacks Chanda Kochhar (Relevant for GS Mains Paper III; Economics)
What has the ICICI bank decided?

The ICICI Bank has decided to terminate the contract of former managing director and CEO,
Chanda Kochhar after the B.N. Srikrishna panel found that she violated the bank’s code of
conduct.
The bank also said there would be a clawback of bonuses paid between 2009 and 2019.
What were the findings of the panel?

In June last year, the bank formed the one-member panel, assisted by a law firm, to look into
the allegations of conflict of interest against Ms. Kochhar in relation to a loan given to
Videocon Industries.
The Srikrishna panel report concluded that primarily on account of ineffectively dealing with
conflict of interest and due disclosure or recusal requirements, Ms. Kochhar was in violation
of the ICICI Bank Code of Conduct, its framework for dealing with conflict of interest and
fiduciary duties, and in terms of applicable Indian laws, rules and regulations.
What are the implications for Ms. Kochhar?

Ms. Kochhar, who assumed charge as MD and CEO on May 1, 2009, resigned in October last
year.
The bank board, which discussed the report on Wednesday, decided to treat the separation
of Ms. Kochhar from the bank as a ‘Termination for Cause’, with all attendant consequences,
which included revocation of all her existing and future entitlements, like any unpaid
amounts, unpaid bonuses or increments, unexercised stock options, and medical benefits,
and requires the clawback of bonuses from April 2009 until March 2018. The bank said there
are no implications of the report on its published financial statements.

46
38. First Revised Estimates of National Income, Consumption Expenditure, Saving and
Capital Formation, 2017-18 (Relevant for GS Prelims, GS Mains Paper III; Economics)
The Central Statistics Office (CSO), Ministry of Statistics and Programme Implementation has
released the First Revised Estimates of National Income, Consumption Expenditure, Saving
and Capital Formation for the financial year 2017-18 along with Second Revised Estimates
for the financial year 2016-17 and Third Revised Estimates for the financial year 2015-16
(with Base Year 2011-12) as per the revision policy. Earlier estimates for 2011-12 to 2016-
17 were released vide press note dated 31stJanuary, 2018 and Provisional Estimates of
2017-18 were released on 31st May, 2018.
The salient features of the estimates at aggregate level are indicated below:
Gross Domestic Product

Nominal GDP or GDP at current prices for 2017-18 is estimated as Rs. 170.95 lakh crore
while that for 2016-17 is estimated as Rs. 153.62 lakh crore, exhibiting a growth of 11.3 per
cent during 2017-18 as against 11.5 per cent during 2016-17.
Real GDP or GDP at constant (2011-12) prices for 2017-18 and 2016-17 stand at Rs. 131.80
lakh crore and Rs. 122.98 lakh crore, respectively, showing growth of 7.2 per cent during
2017-18 and 8.2 per cent during 2016-17.
Industry-wise Analysis
The changes in the Gross Value Added (GVA) at basic prices in different sectors of the
economy at current and constant (2011-12) prices are presented below. At the aggregate
level, nominal GVA at basic prices increased by 11.1 per cent during 2017-18 as against 10.8
per cent during 2016-17. In terms of real GVA, i.e. GVA at constant (2011-12) basic prices,
there has been a growth of 6.9 per cent in 2017-18, as against growth of 7.9 per cent in 2016-
17.
The shares of different sectors of the economy in terms of overall GVA during 2011-12 to
2017-18 and corresponding annual growth rates are mentioned below:
Year Share in GVA at current prices (In %) Growth in GVA at constant (2011- Aggregate GVA (Rs. in
12) prices (In %) lakh crore)
Primary Secondary Tertiary All Primary Secondary Tertiary All Current Constant
2011- 21.7 29.3 49.0 100.0 - - - - 81.1 81.1

12

47
2012- 21.3 28.7 50.0 100.0 1.4 3.6 8.3 5.4 92.0 85.5
13
2013- 21.4 27.9 50.6 100.0 4.8 4.2 7.7 6.1 103.6 90.6
14
2014- 20.9 27.3 51.8 100.0 1.2 6.7 9.8 7.2 115.0 97.1
15
2015- 20.1 27.6 52.3 100.0 2.1 9.5 9.4 8.0 125.7 104.9
16
2016- 20.2 27.1 52.7 100.0 6.8 7.5 8.4 7.9 139.4 113.2
17
2017- 19.5 27.0 53.5 100.0 5.0 6.0 8.1 6.9 154.8 121.0
18
Net National Income

Nominal Net National Income (NNI) at current prices for 2017-18 stands at Rs. 151.28 lakh
crore as against Rs. 135.95 lakh crore in 2016-17, showing an increase of 11.3 per cent
during 2017-18 as against an increase of 11.8 per cent in the previous year.
Gross National Disposable Income

Gross National Disposable Income (GNDI) at current prices is estimated as Rs. 173.16 lakh
crore for 2017-18, while the estimate for 2016-17 stands at Rs. 155.65 lakh crore, showing
a growth of 11.2 per cent in 2017-18 as against 11.0 per cent in 2016-17.
Saving
Gross Saving during 2017-18 is estimated at Rs. 52.16 lakh crore against Rs.46.48 lakh crore
during 2016-17. Rate of Gross Saving to GNDI for 2017-18 is estimated at 30.1 per cent
against 29.9 per cent for 2016-17.
The highest contributor to Gross Saving is the household sector with saving of Rs. 29.38 lakh
crore in 2017-18. The saving of non-financial corporations has increased from Rs. 18.10 lakh
crore in 2016-17 to Rs. 20.73 lakh crore in 2017-18. Further, the saving of the financial
corporations has also increased from Rs. 3.37 lakh crore during 2016-17 to Rs. 3.68 lakh
crore in 2017-18. The saving of General Government was (-) Rs. 1.21 lakh crore during 2016-
17 and (-) Rs. 1.63 lakh crore in 2017-18.
Capital Formation

48
Gross Capital Formation (GCF) at the current as well as the constant prices is estimated by
two approaches :– (i) through flow of funds, derived as Gross Saving plus net capital inflow
from Rest of the World (ROW); and (ii) by the commodity flow approach, derived by the type
of assets. The estimates of GCF through the flow of funds approach are treated as the firmer
estimates. GCF by industry of use and by institutional sectors does not include ‘valuables’
and therefore, these estimates are lower than the estimates available from commodity flow
approach.
GCF at current prices is estimated at Rs. 55.27 lakh crore for 2017-18 compared to Rs. 47.41
lakh crore during 2016-17. The rate of GCF to GDP increased from 30.9 per cent during 2016-
17 to 32.3 per cent in the 2017-18. The rate of GCF (excluding valuables) to GDP stands at
29.8 per cent and 31.1 per cent for 2016-17 and 2017-18 respectively. The rate of capital
formation in 2011-12 to 2017-18 has been higher than the rate of saving because of positive
net capital inflow from ROW.
Consumption Expenditure
18. Private Final Consumption Expenditure (PFCE) at current prices is estimated at Rs.
100.83 lakh crore for 2017-18 as against Rs. 91.16 lakh crore in 2016-17. In relation to GDP,
the rates of PFCE at current prices during 2016-17and 2017-18 are estimated at 59.3 per
cent and 59.0 per cent respectively.
19. At constant (2011-12) prices, the PFCE is estimated as Rs. 69.04 lakh crore and Rs. 74.17
lakh crore, respectively for 2016-17 and 2017-18. The corresponding rates of PFCE to GDP
for 2016-17 and 2017-18 are 56.1 per cent and 56.3 per cent respectively.
20. Government Final Consumption Expenditure (GFCE) at current prices is estimated as Rs.
18.86 lakh crore for 2017-18 as against Rs. 15.83 lakh crore during 2016-17. At constant
(2011-12) prices, the estimates of GFCE for 2016-17 and 2017-18 stand at Rs. 11.99 lakh
crore and Rs. 13.79 lakh crore respectively.
Estimates at per Capita Level

21. Per Capita Income, i.e. Per Capita Net National Income at current prices, is estimated as
Rs. 1,04,659 and Rs. 1,14,958 for 2016-17 and 2017-18 respectively. Correspondingly, Per
Capita PFCE at current prices, for 2016-17 and 2017-18 is estimated at Rs. 70,175 and Rs.
76,619 respectively.
(Adapted From PIB)
39. RBI lifts curbs on three PSBs (Relevant for GS Prelims, GS Mains Paper III;
Economics)
The Reserve Bank of India (RBI) has decided to allow three public sector banks — Bank of
India, Bank of Maharashtra and Oriental Bank of Commerce — to exit the PCA framework
following capital infusion by the government and a decline in net non-performing asset ratio.
Findings of RBI
49
The RBI, which conducted a review following a demand made by government to lift the
restrictions in order to boost credit growth, said, “it was noted that a few banks are not in
breach of the PCA (Prompt Corrective Action) parameters as per their published results for
the quarter ending December 2018, except for return on assets (RoA).” “However, though
the RoA continues to be negative, the same is reflected in the capital adequacy indicator,” it
added.
What is PCA?
1. What is Prompt Corrective Action?

To ensure that banks don't go bust, RBI has put in place some trigger points to assess,
monitor, control and take corrective actions on banks which are weak and troubled. The
process or mechanism under which such ac tions are taken is known as Prompt Corrective
Action, or PCA.
2. Why the need for PCA

The 1980s and early 1990s were a period of great stress and turmoil for banks and financial
in stitutions all over the globe. In USA, more than 1,600 commercial and savings banks in
sured by the Federal Deposit Insurance Corporation (FDIC) were either closed or given
financial assis tance during this period. The cumulative losses incurred by the failed
institutions exceeded US $100 billion. These events led to the search for appropriate
supervisory strategies to avoid bank failures as they can have a destabilising effect on the
economy .
3. Too big to fail?

Due to the adverse impact on the economy , medium sized or large banks are rarely closed
and the governments try to keep them afloat. Bank rescues and mergers are far more
common than outright closures. If banks are not to be allowed to fail, it is essential that
corrective action is taken well in time when the bank still has adequate cushion of capital to
minimise the losses.
4. What does the RBI stipulate?

RBI has set trigger points on the basis of CRAR (a metric to measure balance sheet strength),
NPA and ROA. Based on each trigger point, the banks have to follow a mandatory action plan.
Apart from this, the RBI has discretionary action plans too. The rationale for classifying the
rule-based action points into “mandatory“ and “discretionary“ is that some of the actions are
essential to restore the financial health of banks while other actions will be taken at the
discretion of RBI depending upon the profile of each bank.
5. What will a bank do if PCA is triggered?

Banks are not allowed to re new or access costly deposits or take steps to increase their fee-
based income. Banks will also have to launch a special drive to reduce the stock of NPAs and
contain generation of fresh NPAs. They will also not be allowed to enter into new lines of
business. RBI will also impose restrictions on the bank on borrowings from interbank
market.

50
40. ‘Unemployment data based on draft report’ (Relevant for GS Prelims, GS Mains
NITI Aayog officials debunk media report of 6.1% joblessness

The government’s think tank NITI Aayog debunked claims of a news report that
unemployment in 2017-18 was at a 45-year high. The NITI Aayog said the report of the
National Sample Survey Office (NSSO), cited as the source for the report, was in fact a draft
and not approved by the government.
NSSO draft report

A report in the Business Standard, which cited the NSSO’s periodic labour force survey —
that is yet to be released — said the unemployment rate was 6.1% in 2017-18. The only year
of comparable data when the unemployment rate was higher was in 1972-73. It was at 2.2%
in 2011-12.
The NSSO report is a matter of much controversy, with the two external members of the
National Statistical Commission citing the delay in its release as a major reason for their
resignations.
Urban and rural comparisons

The data reportedly showed that joblessness was higher in urban India (7.8%) than in rural
India (5.3%). Within this, it stood at 17.4% for rural males and 13.6% for rural females. In
urban India, joblessness was at 18.7% among males and a huge 27.2% among females.
Labour force participation rate

Importantly, the data reportedly showed that the labour force participation rate (LFPR), the
measure of people working or looking for jobs, declined from 39.5% in 2011-12 to 36.9% in
2017-18. This phenomenon — of unemployment rising while the LFPR dipped — is a cause
for serious worry, experts say, explaining that it probably shows that people are simply
giving up on finding jobs and have stopped seeking work.
41. In election year, what is the politics and economics of the budget? (Relevant for GS
With the Union Budget 2019, here’s what the government sought to achieve with farmer
support scheme, how far the middle class will benefit from tax rebate, and other takeaways.
Going into the interim budget Friday, what were the fears from the point of view of
fiscal discipline and prudent resource management?
A high-stakes Lok Sabha election is less than three months away, a major agrarian crisis has
left farmers in large swathes of the country in distress, and a government that came to power
saying it would create jobs for crores of youths has largely failed to deliver on this promise.
There were, thus, apprehensions that the government could go for broke in this budget,
51
spending on sops to woo all constituencies — including the farm sector, the middle class, the
unorganised sector, and the youth.
There was also speculation that some form of Universal Basic Income or UBI scheme, which
would call for huge funding, would be announced — especially after some pundits read
Congress president Rahul Gandhi’s promise of a nationwide Minimum Income Guarantee
scheme — if voted to power in the elections — as a “preemptive strike”.
These fears existed despite the fact that by convention, an interim budget sticks to
allocations for spending on salaries, interest payments, and ongoing schemes or
programmes for the first four months of the fiscal before the new government takes over.
And were there any specific expectations from the budget?

Again, given the reality of the looming Lok Sabha elections, measures for financial support
to farmers hit by poor crop price realisations were widely anticipated. There were also
expectations of tax breaks for the middle class, which is a constituency for the ruling BJP.
In specific terms, what does the Budget have for farmers, who are perhaps the most
restive group in India today?
The Finance Minister has announced a Pradhan Mantri Kisan Samman Nidhi, or assured
income support scheme for small and marginal farmers across the country — those having
cultivable land up to two hectares. This will be Rs 6,000 annually, which will be transferred
directly into their bank accounts in three equal instalments of Rs 2,000 each. The scheme
will be effective retrospectively from December 1, and the first instalment will be paid before
the end of March this year.
But Rs 6,000 a year works out to just Rs 500 per month for the individual farmer. To
what extent can that sum address the farmer’s concerns?
The government says that this would provide assured supplemental income to the most
vulnerable farmer families, and would also meet their important needs before the harvest.
What the government may have in mind is expenses towards buying seeds, fertilisers, and
labour, for instance. It can, of course, only be of limited help in meeting the cost of farming
or easing the debt burden of farmers. But given that this was just an interim budget, there
was also very little leeway available to bump up this assistance. To that extent, the support
scheme could be political signalling — to assuage farmers, and to assure them that the
government is mindful of their concerns.
The other big takeaway is the tax proposals. What’s in them, whom will they benefit,
and how?
Much of it centres around lowering the tax burden of the ordinary salaried class though there
are tax breaks for home buyers too. For home buyers, it is essentially on account of relief
from the notional tax which they were required to pay on their second home which was
unused.
To what extent can individuals with taxable incomes higher that Rs 5 lakh a month
benefit from the tax rebate offered in the interim budget?
52
Their tax savings will work out to up to Rs 3,000 annually on account of an increase in the
standard deduction limit from Rs 40,000 now to Rs 50,000. They can also benefit if their
interest income is higher than Rs 10,000 annually, thanks to the threshold limit on Tax
Deducted at Source (TDS) being raised to Rs 40,000.
What is there in the budget for the unorganised sector?

India’s unorganised sector has 42 crore workers including street vendors, farm workers,
ragpickers, and domestic helps. That is a very large constituency to address. The government
has now proposed a mega pension scheme, the Pradhan Mantri Shram-Yogi Maandhan for
such workers whose monthly income is up to Rs 15,000. The proposed scheme envisages a
monthly pension of Rs 3,000 which will kick in at age 60. The monthly contribution for the
social security cover has been kept low, with the government offering to put in a matching
contribution.
Why has the Finance Minister chosen to boost the real estate sector? What does he
hope to realise, and how?
The real estate sector has been facing a downturn over the past several years, which was
further aggravated by the demonetisation exercise of November 2016. It is a sector that
employs huge numbers of workers in a vast range of formal and informal industries. A large
chunk of these workers were hit after the notes ban and the slowdown in growth, which
impacted many realty firms. Real estate is a sector which has a strong multiplier effect — if
it does well, industries like steel, cement and paints also do well, and in turn create jobs, and
boost revenues and growth.
Has Friday’s budget hurt Prime Minister Narendra Modi reputation for being a fiscal
deficit ‘hawk’? Is it a sop/largesse budget?
The fiscal deficit for the current fiscal has been revised upward to 3.4% from the budgeted
target of 3.3% — a slippage of just 0.1 per cent. In the last fiscal, against the targeted 3.2%,
the government reported a deficit of 3.5% of GDP. While this record at the fag end of his term
will take some sheen off Modi’s ‘fiscal hawk’ record, it is not a throwaway budget or a
showering of sops — in fact, it could hardly have been so given the risk of a major slippage
on the fiscal front, with its repercussions on interest rates and inflation.
But is there a growth/deficit tradeoff in the budget proposals?

Not really. This time, as the government has pointed out, the overriding need was to provide
income support to farmers which meant breaching the fiscal deficit target. The GST regime
has still not settled fully. The measures announced today aren’t exactly a stimulus — even
though there are some who reckon that some of the steps announced could boost
consumption, i.e., prompt consumers to spend a little more as their tax burden eases.
The Congress has said the budget is not a vote on account but an “account for votes”.
How valid is this criticism?
The criticism may be on account of the government’s attempt to woo farmers and the middle
class through fiscal support and tax breaks. What the party has implied is that instead of
sticking to just earmarking funds for essential spending by various ministries and

53
departments and on ongoing programmes or schemes, the government has extended itself
in offering sops to elicit political support ahead of elections.
42. What is the lowdown on MGNREGA funding? (Relevant for GS Prelims, GS Mains
What is it?
The Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) scheme has
been allocated ₹60,000 crore in the Budget for 2019-20. It is less than what was spent on the
scheme in the current year, that is, the revised estimate for 2018-19, which stands at ₹61,084
crore. In his Budget speech, Finance Minister Piyush Goyal noted: “Additional amount would
be provided, if needed.” The original 2018-19 Budget allocation for the scheme, a lifeline for
landless labourers and rural workers, was ₹55,000 crore. However, by the end of 2018, 99%
of the funds had been exhausted. A number of States already had a negative net balance. The
activists protested that people were being denied work in several States. The Rural
Development Ministry, which administers the scheme, asked for a supplementary allocation
and was granted ₹6,084 crore in early January, taking the revised estimate for the year to
₹61,084 crore.
How did this come about?

A look at the funding patterns over the last decade shows this is not the first time allocations
for the scheme are lower than what was spent in the previous year. In most years,
supplementary allocations later in the year have ensured that the final amount spent has
risen at least incrementally each year. However, the revised estimates for 2012-13 were
actually lower than the previous year, while the amount spent in 2014-15 was exactly the
same as in the previous year. When MGNREGA funding is adjusted for inflation, a bleaker
picture appears, making it clear that both the UPA and NDA governments have short-
changed the scheme for several years now. In 2011-12, the revised estimate was ₹31,000
crore. For the next four years, the inflation-adjusted amount spent on the scheme was lower
than ₹30,000 crore in 2011 terms. The current allocation of ₹61,084 crore drops to just
₹41,013 crore in 2011 terms, when adjusted for inflation using the Consumer Price Index for
rural labourers.
Why does it matter?

Rural workers are being discouraged from registering with the scheme, being denied work
even when they do register, and are facing long delays in payment of wages even when they
do get work. Researchers, activists and elected representatives blame this on the lack of
sufficient funding. The promise of the MGNREGA is to enhance livelihood security by
providing at least 100 days of wage employment a year to households that want it. If work is
not provided within 15 days, applicants are entitled to an employment allowance. Thus,
work is a legal entitlement under the scheme and funding should be demand-driven.
However, researchers have found a widening gap between demand and supply of work. A
study of 3,500 panchayats in 2017-18 found that the employment provided was 32% lower
54
than the work demand generated. Researchers calculated that in order to meet the
registered work demand last year, the scheme should have had an allocation of ₹76,131
crore. Workers are also facing weeks- and months-long delays in payment of wages, often
without compensation. Finance Ministry documents admit that one of the causes is the non-
availability of funds.
What lies ahead?

The future funding situation is bleak, given that the government’s “highest ever allocation”
tag disguises the pending liabilities. If the total allocation of ₹61,084 crore had come through
on the budget day, the scheme would still have a negative net balance of ₹3,270 crore,
according to its financial statement on February 1. The next two months are the peak season,
and workers have been promised an additional 50 days of work in drought-hit areas.
Researchers predict that the deficit could grow as high as ₹12,000 crore by the end of this
financial year. With Central money running out, States have also been asked to use their own
funds to pay workers over the next two months, with the promise of an April refund. These
deficits and liabilities will eat into the allocation for next year, slashing the amount available
for new works in 2019-20.
43. All you need to know about Maharashtra’s struggle to amend APMC Act (Relevant
The Maharashtra government’s attempt to amend the Maharashtra Agriculture Produce

Marketing (Development and Regulation) Act, 1963, has hit a roadblock again. It had to
withdraw the Bill from the Legislative Council even after it was passed by the Assembly. The
amendment Bill has been in the works for over 14 years and owing to its politically and
economically important stakeholders, who are farmers, traders and ‘mathadi’ workers (head
loaders), the government has struggled to push through the changes.

After it was passed in the Assembly last November, the Mumbai and Pune APMCs called a
strike, alleging that the proposed amendment severely limited their powers. One of the
important amendments the Bill seeks to bring about is to free essential items from the
purview of APMCs and allow them to be sold outside.
Farmer organisations such as the Shetkari Sanghatana, formerly led by Sharad Joshi, support
this amendment. “Sharad Joshi always said that the APMC Act is one of the main reasons why
farmers are prey to the monopoly of traders,” said Anil Ghanvat, president of Shetkari
Sanghatana.
What are the changes?
The Bill also has a provision that the APMCs can continue to levy cess/market fee on the
produce brought and traded in their mandis, but cannot charge anything on goods traded
outside. The traders’ lobby had said no levy should be charged if the produce was sold
outside. Following the meeting between the stakeholders and the government, sources said
a compromise was reached to abolish this levy altogether. One of the amendments that was
55
opposed by traders and farmer organisations was the direct payment to farmers from
traders for purchase of more than ₹2 lakh, bypassing the Adta (the middleman). According
to both, the Adta plays an important part as an assurer to both parties, and eliminating his
role would be harmful to traders as well as to farmers.
Maharashtra is the second State after Bihar to attempt such amendments. While Bihar
scrapped it altogether, Maharashtra is trying to do the same, by first allowing traders or
processors to deal directly with farmers. Neither they nor the farmers will have to go to the
APMC yards to buy and sell their produce. The buyers can directly buy from farmers based
on the price quoted by them. Unable to get the Bill cleared in both Houses of the Legislature,
the government in August 2016 de-listed fruits and vegetables from the purview of the APMC
through a resolution. Further, it was expanded to all farm products. Apart from the
government claim that farmers will get a better price after the amendment, it believes that
the competitive environment will help the APMCs improve their infrastructure as well as
their quality of service to attract farmers. According to Mr. Ghanavat, farmers will go to the
market which gives them a better price, be it private buyers or the APMCs.
How many APMCs are there?

Maharashtra has 306 APMCs. The APMC Act had made it mandatory for farmers to sell all
their crops in the mandi within a geographically delineated market area under a particular
committee’s jurisdiction. A few lakh traders and head loaders survive on these committees.
It is alleged that local political interests drive all the decisions taken by the APMCs. The
supporters of the Bill claim that political compulsions have forced successive governments
not to push for the amendments.
Shashikant Shinde, leader of the head loaders and one of the MLAs opposing the Bill, said it
is being introduced to serve the interests of multinational companies. According to him, the
APMCs provide a mechanism which ensures at least a minimum support price for the
farmers’ produce, and outside the APMCs, farmers will be forced to sell at a price quoted by
companies.
The State government will continue to hold meetings with the stakeholders, and is likely to
present the Bill, approved by all, in the budget session from February 24.
44. How ICICI clawback can be a game-changer in India’s financial sector (Relevant for
GS Prelims, GS Mains Paper III; Economics)
The ICICI Bank board’s decision to treat the exit of its former CEO Chanda Kochhar as a
dismissal after an internal probe by Justice B N Srikrishna had found that she had violated
the lender’s norms, or code of conduct, marks perhaps a game-changing moment in India’s
financial sector. For, the blow is not just in terms of loss of a high-profile office but, more
importantly, is monetary.

56
The decision of the bank to claw back bonuses — in other words, get her to repay incentives
paid to her since 2009 besides stock options accrued to her while she was CEO — promises
to be huge. The Indian Express has calculated that her potential losses could be as high as Rs
9.82 crore as performance bonus between April 2009 and March 2018 while she was CEO,
and Rs 221 crore as the current value of her over 57 lakh shares granted by the bank over
these nine years.
The big signal

One of the signals for higher executives in the Indian financial sector is that this could be a
trigger for greater scrutiny of their performance vis-à-vis their remuneration packages and
measured against their governance practices and conduct. And that it may not be easy to get
away when the line is breached. The boards of many listed firms, too, should now be under
pressure to act rather than hastily defend their CEOs. In India, the regulators do not explicitly
prescribe such ethical codes. The ICICI group’s Code of Business Conduct and Ethics, 2018
says these are something that a well-respected institution must have in place and adhere to
on an ongoing basis. “We therefore expect a high level of ethical conduct. You must conduct
your duties according to the language and spirit of this code and seek to avoid even the
appearance of improper behaviour,” it says. ICICI’s decision now, coming after an initial
response of denial and backing the CEO then, is likely to build pressure on the boards of many
other listed firms to be guided more by the interests of their shareholders rather than the
management.
New in India, not in West

The term “clawbacks” gained currency in India after the RBI under then Governor Urjit Patel
hit private banks — including ICICI, besides Axis Bank and Yes Bank — hard for divergence
between the accounts, or financial information, furnished by them and the one reviewed by
the regulator. The RBI stepped in to stop performance-based incentives such as bonuses and
stock options in the year in which divergences were found. But instances of such clawbacks
are common in the US and Europe, with statutory rules in place to act as as a deterrent
against restating of financial statements and to discourage excessive risk-taking and
misconduct by corporate leaders. The pitch had been cleared in India before 2014, when the
RBI unveiled rules to enable bank boards to act against senior bankers in cases of violation
of the Code and governance practices. That was built on by a committee formed by the RBI
to review governance in bank boards and headed by P J Nayak, a former chairman of Axis
Bank, which in 2015 recommended that the RBI impose penalties through cancellation of
unvested stock options and claw back monetary bonuses from officials whenever greening
of loans was detected. Interestingly, the committee recommended this at a time when banks
were reporting good numbers but when there was anecdotal evidence of funding of
accounts.
Rule changes elsewhere

The corporate scandals in the West had, as early as 2002, prompted a change of rules in the
US. Provisions on clawback were incorporated in the Sarbanes-Oxley Act to make CEOs and
CFOs more responsible for honest financial reporting. It is another matter that even in the
country with the world’s deepest financial markets and most powerful regulators, it took
considerable time to enforce this. In 2010, one of the Commissioners of the US Securities
57
Exchange Commission (SEC), Luis A Aguilar, in a speech at the University of California

conceded that the delay in enforcing this important law deprived investors of the benefit of
the law and the accountability that the Congress sought to foster. Fewer companies would
have then restated their accounts and fewer investors would have been harmed had the law
been enforced, he pointed out. The same could be said of some of the boards of top Indian
firms as also the regulators. This law was followed by the Dodd-Frank Wall Street Reform
and Consumer Protection Act after the global financial crisis to address incentive-based
compensation arrangements with clawback provisions, designed again to prevent excessive
risk-taking.
Top-heavy stock options

N R Narayana Murthy, a founder of Infosys which popularised the concept of stock options
in the country almost two decades ago, despairs now at the lack of self-restraint by senior
managements in rewarding themselves. He wants boards to create a climate for fairness with
their actions and to ensure that compassionate capitalism is acceptable to many Indians.
Interestingly, Infosys and Axis Bank were two standout firms which fostered a culture of
granting stocks to staff-members across the board to ensure that all of them were
stakeholders. In some of India’s listed private banks, like Axis Bank for instance, it has been
limited to the top deck over the last few years. The last CEO, in fact, ended with over 13 lakh
options, raising questions about the link between performance and rewards and board
generosity.
The lessons
In an interview to The Indian Express, Murthy had suggested that firms should consider
granting such incentives or stock options over time, to ensure demonstrable commitment
over the medium term. That would mean granting it over a much longer period and enabling
boards to act swiftly when there is misgovernance. In that 2010 speech, ‘An Insider’s View
of the SEC’, Commissioner Aguilar listed instances where the US regulator chose to sit on the
sidelines. Rarely do regulators admit that they have not often listened to investors. Aguilar
did that, saying “it is important that the SEC learns the lessons from the past”. Indian firms,
their boards, management and regulators could also choose to do that.
The clawback now announced by ICICI will be tested legally and the outcome will have a
bearing on future action against other chiefs too. There is still work left. India’s financial
regulators and the government should come together to work on a design — taking into
count global best practices for a law to check abuse of incentive based remuneration by
senior corporate executives. A show of greed by some of them should not take away the
sheen of stakeholder capitalism.
45. Delay in releasing key employment data has undermined the credibility of data
officialdom (Relevant for GS Prelims, GS Mains Paper III; Economics)
Resignations from National Statistical Commission

58
The resignations of the National Statistical Commission’s acting Chairperson P.C. Mohanan
and member J.V. Meenakshi appear linked to the Centre’s refusal to release new data on
employment that were due to be made public in December 2018.
What is the information on unemployment?

They could also be related to unease about the recently unveiled back-series data on the
economy, which recorded slower growth during the UPA-led government’s rule, and were
released by the NITI Aayog bypassing convention and the commission’s views. Reports
suggest that the findings of the new Periodic Labour Force Survey, for July 2017-December
2018, are not too flattering, with unemployment registering a five-decade high.
The government has said no such reservations were expressed by Mr. Mohanan or Dr.
Meenakshi during NSC meetings and that the report will be released after ‘quarterly’ data for
the survey period is processed.
What is the role of NSC?

A key role of the NSC, set up in 2006, is to verify whether data being put in the public domain
are reliable and adequate. Information has been collected and disseminated by successive
governments under laid-down schedules, earning Indian data greater global trust than most
other emerging market peers, especially China.
Questions on government
On the question of job-creation for the youth, the Prime Minister and his Cabinet have been
building an argument that jobs abound, but credible data are missing. The National Sample
Survey Organisation’s quinquennial employment surveys were to be conducted in 2016-17.
The year was switched to 2017-18 as the new Labour Force Survey was being prepared to
replace it.
Separately, a quarterly survey of select employment-intensive sectors initiated by the

Labour Bureau after the 2008 global financial crisis, that provided some clarity on ground
realities, was inexplicably junked. Instead, proxy data from enrolments into social security
schemes for formal sector employees are being touted as a sign of job-creation: economists
have rightly called them out as inaccurate. Even then, Arun Jaitley, in his last year’s Budget
speech, cited ‘an independent study’ to claim seven million formal jobs will be created in
2018-19.
The Centre for Monitoring Indian Economy has pegged job losses in 2018 at 11 million based
on its regular employment surveys. The government’s coy approach to jobs-related data may
be due to its disastrous demonetisation gambit which hurt supply chains and informal jobs
in the economy and whose effects have lingered. Contrast this with the NSSO surveys of
2009-10 that revealed little good news on household incomes and job-creation, thanks to
after-effects of the global financial crisis. The UPA didn’t dither from releasing the data, took
criticism on its chin, explained it was an exceptional situation and commissioned another set
of surveys in 2011-12 to correct for the timing. The Modi government should have treaded
the same path without upending India’s statistical integrity.

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46. U.K. Home Secretary orders Vijay Mallya’s extradition to India (Relevant for GS
14 days for appeal

British Home Secretary Sajid Javid has signed the order for the extradition of liquor baron
Vijay Mallya to India. The businessman — whose legal team had previously indicated their
intention to appeal the extradition — will now have two weeks to lodge an appeal. Vijay
Mallya faces charges of money laundering and fraud in India.
What are the rules in Britain?

Under Britain’s extradition rules, Mr. Javid had two months from the date of the judgement
to determine whether to order the extradition. The signing of the order on February 3 came
just a few less than two-month window from the date of judgement — December 10, 2018
— within which a decision had to be made.
What were the considerations?

In making extradition decisions, the Minister has to consider issues including whether the
death penalty would be involved or the person be extradited to a third country (neither of
which would apply in this case).

60
What are the options with Mr. Mallya?

Should the appeal to the High Court fail, Mr. Mallya would still have further opportunities to
attempt to overturn the extradition order, by seeking permission to appeal to the Supreme
Court, though that could only take place if the High Court certified that the appeal involved a
“point of law of general public importance, and either the High Court or the Supreme Court
gives leave for the appeal to be made.”
47. What is the Saradha scam? How is Trinamool linked? (Relevant for GS Prelims, GS
What is the alleged scam that has led to the current unprecedented political standoff
between the Centre and Mamata Banerjee? How are the TMC and the Kolkata Police
Commissioner linked to the allegations?
The Ponzi scheme

In the early 2000s, businessman Sudipto Sen set up the Saradha Group, and launched what
the securities market regulator Securities and Exchange Board of India (SEBI) later
categorised as a collective investment scheme. The Saradha Group used a consortium of
companies to tap small investors, promising them very high returns. Like in a classic Ponzi
scheme, money was collected through a wide network of agents, who were paid commissions
of over 25%.
In a few years, Saradha’s raised about Rs 2,500 crore. It built its brand through filmstar
endorsements, investments in popular football clubs, ownership of multiple media outlets,
and sponsorship of cultural events such as Durga Pujas. The scheme expanded to Odisha,
Assam, and Tripura, and the number of investors reached close to 17 lakh.
How Saradha operated

Saradha began by issuing secured debentures and redeemable preferential bonds to the
public in violation of SEBI rules that bar companies from raising capital from more than 50
people without issuing a proper prospectus and balance sheet. Companies must also have
SEBI permission to operate, and must get their accounts audited.
After SEBI raised a flag in 2009, the Group diversified, opening 239 companies, and building
a complex corporate structure. Through schemes involving tourism packages, forward travel
and hotel booking, timeshare credit transfer, real estate, infrastructure finance, and
motorcycle manufacturing, the Saradha Group continued to raise capital from ordinary
people. The bulk of the investors put in around Rs 50,000 each.
Many others invested through chit funds under the Chit Fund Act, 1982. Chit funds are
regulated by the state government.
When the Saradha scam broke

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By 2009, politicians in West Bengal had begun to discuss Saradha’s alleged fraudulent ways.
In 2012, SEBI, which was already watching the Group, asked it to stop accepting money from
investors until it got the regulator’s permission. Alarm bells started to ring in January 2013,
when for the first time, the Group’s cash inflow was lower than its outflow — another classic
event in a Ponzi scheme.
By April 2013, the scheme had collapsed, and investors and agents lodged hundreds of
complaints with the Bidhannagar Police. Sudipto Sen fled West Bengal after writing an 18-
page letter, in which he accused several politicians of arm-twisting him into making poor
investments that led the company to collapse. An FIR was registered, and Sen was arrested
along with his associate Debjani Mukherjee in Sonmarg on April 20, 2013.
Investigations found the company had laundered investments in locations such as Dubai,
South Africa and Singapore. Mamata Banerjee’s government set up a Special Investigation
Team (SIT) to probe the case after clubbing all the FIRs. Around the same time, the CBI began
investigations in Assam after the state government handed over the probe to it. Based on
state police FIRs, the Enforcement Directorate registered cases of alleged money laundering,
and arrested several people.
In May 2014, the Supreme Court transferred all cases to the CBI, given the inter-state nature
of the alleged scam. The SIT, which had by now conducted a year-long probe, had to hand
over to the CBI all case papers, evidence, and the accused it had arrested.
The Trinamool connection

Along with his brand, Sen had worked on building political relations. He had acquired media
organisations and invested in the Bengali film industry. Actor and TMC MP Satabdi Roy and
former Bollywood hero and Rajya Sabha member Mithun Chakraborty were Saradha’s brand
ambassadors. Then TMC MP Kunal Ghosh was appointed CEO of the media group in which
Saradha invested Rs 988 crore and hired close to 1,500 journalists. By 2013 it was running
eight newspapers in five languages. Ghosh was said to be drawing a salary of Rs 16 lakh per
month.
Another then TMC MP, Srinjoy Bose, was involved in the Group’s media operations. Then
West Bengal Transport Minister Madan Mitra headed the Group’s employees’ union.
Saradha gifted patrol motorcycles to Kolkata Police. The government deployed and
distributed ambulances and motorcycles sponsored by Saradha in Naxalism-hit areas of the
state.
The Group allegedly also had connections with Congress leader and former union minister
Matang Sinh, and the Assam BJP leader Himanta Biswa Sarma, who was then in the Congress.
The ED questioned Sarma’s wife Rinki in February 2015 for accepting money from the
Saradha Group to run advertisements on her TV channel in Assam. The agency also
questioned TMC MP Arpita Ghosh in the case.
The CBI questioned over a dozen TMC MLAs and MPs, and arrested Srinjoy Bose, Madan
Mitra and Kunal Ghosh. Among those questioned were then TMC vice president and former
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West Bengal DGP Rajat Majumdar, Trinamool Youth Congress chief Shankudeb Panda, and
MPs Satabdi Roy and Tapas Paul.
Mukul Roy, who was once among Mamata’s closest confidants and is now with the BJP, was
also questioned, as were the Assamese singer and filmmaker Sadananda Gogoi and former
Odisha advocate general Ashok Mohanty.
Former Assam DGP Shankar Barua committed suicide after CBI questioned him and searched
his house.
Where top cop comes in

Kolkata Police Commissioner Rajeev Kumar headed the SIT constituted by the Mamata
government, which investigated the Saradha case for a year. CBI has claimed that it has been
trying to question the members of the SIT, including Kumar, for one and a half years to get
information on some missing evidence, but Kumar and his colleagues have been avoiding the
agency.
CBI sources claim communication, notices, and summons to members of the SIT and the West
Bengal Police asking for cooperation in the investigation have been sent on 18 occasions
since September 2017, but no one has turned up for questioning. The sources say that the
Kolkata Police and SIT officials have given ill health or personal engagements as reasons to
stay away, and then asked for a mutually agreeable venue to sit and discuss the case.
According to CBI Joint Director Pankaj Srivastav, who is in charge of the Kolkata zone, Rajeev
Kumar alone has been sent five notices and summons to appear before CBI since October
2017. The first of these summons was sent on October 18, 2017, and the latest one on
December 8, 2018.
To the last summons, the West Bengal DGP replied that queries could be sent in writing
which would be replied to and, in case the need arose, a meeting could be arranged between
the CBI and SIT at a “mutually convenient place”, CBI sources said.
According to CBI, the SIT had not handed over a diary of Sudipta Sen that has details of
payments made to prominent people, apart from other evidence. “Our multiple requests to
hand over all documents seized by the SIT have fallen on deaf ears. They have the diary,
interrogation reports of several accused — some of them recorded on video — some pen
drives, and material recovered from a bank locker owned by Sen. Several of these things
were not brought on record by the SIT. We learnt of them during interrogation of the
accused,” Srivastav told The Indian Express.
48. ‘Angel tax’ issue on start-ups (Relevant for GS Prelims, GS Mains Paper III;
Economics)
WHAT IS ANGEL TAX?

63
Angel tax is a term used to refer to the income tax payable on capital raised by unlisted
companies via issue of shares where the share price is seen in excess of the fair market value
of the shares sold. The excess realisation is treated as income and taxed accordingly. The tax
was introduced in the 2012 Union Budget by then finance minister Pranab Mukherjee to
arrest laundering of funds. It has come to be called angel tax since it largely impacts angel
investments in startups.
IS AN EXEMPTION AVAILABLE FROM THIS TAX?

Later on, the government issued a notification in 2018 to give exemption to startups under
Section 56 of the Income Tax Act in cases where the total investment including funding from
angel investors did not exceed Rs 10 crore. For the exemption, startups were also required
to get approval from an inter-ministerial board and a certificate of valuation by a merchant
banker. According to the notification, the exemption would apply only when the angel
investor had a minimum net worth of Rs 2 crore or an average returned income of over Rs
25 lakh in the preceding three financial years.
WHY HAS THE INDUSTRY RAISED THE ISSUE OF VALUATION OF STARTUPS?

The share issued to an investor has to be valued to decide whether the price is in excess of
fair value. The industry has demanded that the discounted cash flow (DCF) method of
valuation be used to calculate angel tax instead of the net asset value (NAV) method, though
even that may not capture the true value of a startup. The valuation of a startup is usually
based on a commercial negotiation between the company and the investor, and is a function
of the company’s projected earnings at that point in time. However, since startups operate
in a highly uncertain environment, many companies are not always able to perform as per
their financial projection. Equally, some companies exceed the projection by a long mile if
they are doing well.
WHAT IS THE LATEST ISSUE? WHAT HAS THE GOVERNMENT DONE?

At least 80 startups have received notices to pay angel tax since last year. Many founders
have said they have been asked to pay up as much as 30% of their funding as tax. Angels have
also received multiple notices asking them to furnish details on their source of income, their
bank account statements and other financial data. Procuring valuations from merchant
bankers is also a more expensive proposition for startups than going through chartered
accountants. For those who have been issued notices, charges are piling up for chartered
accountant fees for filing an appeal. The government has said no coercive action will be taken
to recover the demand and has set up a committee to review the entire issue.
What is the possibility in future?

Start-ups troubled by the so-called angel tax may soon receive some concession from the
government. The Centre set up a five-member working committee to look into revising the
norms of the angel tax imposed on start-ups.
(Adapted from Economic Times )
49. Status of National Gas Grid (Relevant for GS Prelims, GS Mains Paper III;
Economics)

64
The Government has envisaged to develop the National Gas Grid. At present about 16,788
Km natural gas pipeline is operational and about 14,239 Km gas pipelines are being
developed to increase the availability of natural gas across the country. These pipelines have
been authorized by Petroleum and Natural Gas Regulatory Board (PNGRB) and are at various
stages of execution viz. Pre-Project activities/laying/testing/commissioning etc.
PNGRB has authorized GAIL to develop North East gas pipeline to develop approximately
750 km long Barauni - Guwahati pipeline as an integral part of Jagadishpur –Haldia –Bokaro
Dhamra Pipeline (JHBDPL) project which will connect North East region with the National
Gas Grid. Further, PNGRB has also authorized Indradhanush Gas Grid Limited (IGGL), a joint
venture company of five Central Public Sector Enterprises (CPSEs) i.e. IOCL, ONGC, GAIL, OIL
and NRL for the development of North East Gas Grid to connect eight states of North Eastern
India.
(Adapted from PIB)
50. Pension for informal workers (Relevant for GS Prelims, GS Mains Paper III;
Economics)
The government has allocated only ₹500 crore for the scheme
What is the scheme?

A major announcement in the Interim Budget 2019-20 was the creation of the Pradhan
Mantri Shram Yogi Mandhan, a pension scheme for informal workers. Under this scheme,
subscribers will receive an assured monthly pension of ₹3,000 per month from the age of 60
onwards. Towards this, they will have to contribute ₹55 a month (if they join at the age of 18
years), or ₹100 a month (if they join at the age of 29 years). The government will match these
contributions. The government has reportedly set a cap on the age of joining at 40 years, but
this is yet to be officially confirmed by the Labour Ministry.
Whom does it include?

In his Budget speech, Finance Minister Piyush Goyal said half of India’s GDP comes from the
work done by 42 crore workers in the unorganised sector, such as street vendors, rickshaw
pullers, construction workers, rag pickers, agricultural workers, beedi workers, those
engaged in the handloom and leather industries, and domestic workers. He said the
government must provide these workers with a “comprehensive social security coverage” in
their old age. The Shram Yogi Mandhan scheme is aimed at achieving that, and therefore
includes all informal sector workers with an income of less than ₹15,000 per month.
According to the government, this works out to 10 crore people.
Finance Ministry officials have suggested that the pension payouts could be made directly in
the workers’ accounts, which would be Aadhaar-linked.
What will the government spend?

65
So far, the government has allocated just ₹500 crore for the scheme, but this is likely to be
increased in the full Budget that will be presented in July. An analysis of the Interim Budget
documents shows that the allocation for the Pradhan Mantri Shram Yogi Mandhan could
possibly come at the expense of an existing pension scheme — the National Social Assistance
Programme (NSAP) — announced last year to benefit more than three crore poor senior
citizens, disabled people, and widows.
The NSAP had originally been allocated ₹9,975 crore in the 2018-19 Budget, which was
reduced to ₹9,200 crore in the Interim Budget 2019-20, which is a drop of ₹775 crore.
Will the scheme work?

Social sector workers have pointed out that creating a voluntary contributory pension
scheme for informal sector workers is not likely to work as their salaries are low. The
argument is that they already pay large amounts as indirect taxes.
Further, for a salaried worker, the pension contribution can be cut from the salary. A daily
wage earner or migrant labourer will, however, have to regularly deposit her income each
month, which is an uncertain proposition.
What lies ahead?

The government is silent on what happens to the scheme if an informal sector worker misses
a contribution. Does the worker become disqualified from the scheme? If so, what happens
to the amount already contributed? Will the government refund the worker that amount, or
will that amount be forfeited? Another matter to be considered is what happens to a worker
who transitions to the formal workforce. Answers are awaited on all these questions.
(Adapted from The Hndu)
51. The lowdown on Mallya’s extradition (Relevant for GS Prelims, GS Mains Paper III;
Economics)
What is it?
Earlier this week, Britain’s Home Secretary Sajid Javid signed the order for Vijay Mallya’s
extradition to India to face charges of fraud and money laundering, following the judgment
handed down by Westminster Magistrates Court Chief Magistrate Emma Arbuthnot in
December. She concluded there was a prima faciecase against Mr. Mallya, rejected the
argument that the case was politically motivated, and labelled him a “glamorous, flashy,
famous, bejewelled, bodyguarded, ostensibly billionaire playboy.” India wants to bring
criminal action against Mr. Mallya, whose business interests have ranged from aviation to
liquor, for defaulting on over $1.4 billion in loans Kingfisher took out from Indian banks.
Authorities argue misrepresentations were made to acquire those loans, while Mr. Mallya
had no intention of repaying them and sought to squirrel away funds and use them in ways
that were not permitted by the terms of the loans. However, the ample opportunities for
appeal available to Mr. Mallya — who has indicated his intention to pursue them — means
the entire process could take another two years, estimates Pavani Reddy, managing partner
at Zaiwalla & Co. in London.
66
Will he be allowed to appeal?

The signing of the order means the appeal process can now be kick-started. Mr. Mallya has
two weeks from the signing of the order to seek permission to appeal to the High Court, at
which stage that application will be considered by the judge on paper over a 21-day to 3-
month period, explains Ms. Reddy. If he manages to get permission to appeal, the appeal
process should begin within 76 days, though with options for seeking extensions available
to both sides, the appeal could take 6-8 months to begin with. If — following the paper
consideration — the judge denies permission to appeal, Mr. Mallya can push for an oral
hearing, which could add a further three months to the process. If at this stage, permission
is still refused that would end his appeal options.
How long will the process take?

He can seek permission to appeal to the Supreme Court — at first instance from the High
Court, and if unsuccessful he can seek permission from the Supreme Court itself. If successful
at this stage, he would have 28 days to file an appeal, with the ensuing appeal taking over 6-
9 months more, estimates Ms. Reddy. He could apply as a last resort to the European Court
of Human Rights though such appeals are only granted in very rare cases, she notes. In 2014,
only 4 of 833 applications for appeal were granted. The 2003 Extradition Act says he must
be extradited within 28 days of the court of appeal’s decision (or when appeal proceedings
are discontinued). If the deadline (including any extension) is passed without the extradition
happening, he could apply to be discharged from extradition, unless the Home Office could
provide a good reason for any delay.
What can India do?

While the applications for permission to appeal can’t be speeded up, an expedited appeals
process can be requested if leave is granted, which would involve pushing for an early date
in the court’s diary.
Grounds, of course, vary significantly, and include suggestions that the person is being
pursued for political motivations because of race or religion and so on.
Others include the passage of time, and rules against double jeopardy. While it is not common
for extradition appeals to succeed, last year India successfully appealed a Westminster
Magistrate Court’s ruling that discharged the alleged bookie Sanjeev Chawla, who India had
been seeking to extradite over the 2002 cricket match fixing scandal.
As per the guarantees offered to the Chief Magistrate, if Mr. Mallya is extradited, he will be
held in Barrack 12 of the Arthur Road Jail in Mumbai — with certain assurances of space,
daylight and medical facilities — both ahead of any trial and after any conviction.
52. Shrinking air links in NorthEast (Relevant for GS Prelims, GS Mains Paper III;
Economics)
The day Prime Minister Narendra Modi laid the foundation for the first civilian airport in
Arunachal Pradesh, Jet Airways operated its last flight on the Guwahati-Aizawl route. By
67
withdrawing from Mizoram, the private airliner joined an expanding list of flight operators
that have suspended operation from new and existing routes in the geographically
challenged northeastern region. This has undermined New Delhi’s ambitious flagship
regional connectivity scheme UDAN, an acronym for the Hindi phrase Ude Desh ka Aam
Naagrik meaning ‘let the common man fly.’
Why was the flight terminated?

Mizoram’s Lengpui Airport, 32 km from the capital Aizawl, took a little more than two years
to be completed in February 1998. It soon became the busiest airport in the region after the
ones in Assam’s Guwahati, Manipur’s Imphal and Tripura’s Agartala. But the airlines began
withdrawing operations for reasons such as safety, maintenance and viability. If an accident
made Northeast Shuttles stop its Cessna flights in 2011, losses made Kingfisher Red
withdraw a year later. Air India ended its Guwahati-Aizawl flights as did SpiceJet in less than
a year after its inaugural flight in October 2016. Jet Airways, once the only private airline
flying to and from northeastern India, withdrew from Aizawl on February 10. The airline
attributed it to non-viability of the route because of fuel price rise, a depreciating rupee and
a difficult pricing environment.
Is only Mizoram affected?

No. Jet Airways withdrew from Imphal and Assam’s Silchar and Jorhat, along with Aizawl.
Much before the first round of UDAN was launched in April 2017, private airlines had
withdrawn from Nagaland’s Dimapur.
The Hyderabad-based Air Deccan, which won exclusive rights in the UDAN bidding to
connect Meghalaya capital Shillong to Aizawl, Agartala, Silchar, Dimapur and Imphal,
operated only 10 flights to Agartala and Dimapur in May 2018. The Delhi-based Zoom Air
operated between Assam’s Tezpur and Kolkata for only three months, till July 2018, before
withdrawing owing to “technical issues.” And from September 1, 2018, SpiceJet suspended
its operation from Agartala, six years after Jet Airways and a few other small airlines had
withdrawn.
Has the demand gone down?

According to Zoliana Chhakchhuak, Aizawl-based head of a regional tour operators’
association, viability is often cited by airliners, despite a passenger occupancy rate of 60-
70% in most flights, and more people in the region flying than ever before.
While some of the smaller airports have flights connecting Kolkata and Delhi, the withdrawal
of service to and from Guwahati — the hub of communication in the region — is expected to
affect tourism, a sector that has capitalised on peace in the region. Airliners and the Airports
Authority of India (AAI) agree that the passenger volume has doubled in the last five-six
years from Guwahati and other popular airports in the region. But improved road and rail
connectivity, they said, have become a bane for smaller airports.
For instance, a two-hour drive brings a passenger from Shillong and an overnight train trip
brings one from Dimapur to Guwahati.

68
Where is connectivity headed?

The Ministry of Civil Aviation announced the opening of 92 air routes in the region in the
second round of UDAN in November 2017. Bidders snapped up six airports – Rupsi, Jorhat,
Lilabari and Tezpur in Assam, and Tezu and Pasighat in Arunachal Pradesh — and 12 routes,
of which only two are operational. These are Jorhat-Kolkata and Lilabari-Kolkata serviced by
Indigo Airlines and SpiceJet. Rupsi and Tezu are yet to be operational, while Pasighat is the
only new airport to have come up under the regional connectivity scheme.
In May 2018, Air India started a flight between Guwahati and Pasighat in Arunachal Pradesh
with VIPs, including Chief Minister Pema Khandu, on board. The militarily strategic airport,
which allows Sukhoi 30 to land and take off, has had very few civilian flights. AAI officials say
UDAN, in its current form, is difficult for smaller airliners to sustain. Aviation experts say the
scheme has not been able to add wings because it is aimed more at reaping political benefits
than increasing connectivity. Furthermore, it does not have enough incentives for airlines to
ignore the issue of viability.
53. Taxation of Digital Businesses (Relevant for GS Prelims; Economics)

To address the challenges posed by the enterprises who conduct their business through
digital means and carry-out activities in the country remotely, the following measures have
been taken:
1. A new levy by the name of ‘Equalisation Levy’ was introduced vide Chapter VIII of the
Finance Act, 2016. The introduction of the levy was based on the recommendations of a
Committee, comprising of officers of the Income-tax Department and member of the general
public, constituted by the Government to deliberate on the issue of taxation of the digital
economy in the light of the report on Action Plan 1 of the OECD Base Erosion and Profit
Shifting (BEPS) project and suggest possible measures. Presently, the levy is charged @ 6%
of the amount of consideration for specified services received or receivable by a non-resident
not having permanent establishment ('PE') in India, from a resident in India who carries out
business or profession, or from a non-resident having permanent establishment in India,
where the aggregate amount of such consideration exceeds one lakh rupees in a previous
year.
2. Section 9(1)(i) of the Income-tax Act, 1961 (‘the Income-tax Act’) was amended to bring
in the concept of “Significant Economic Presence” for establishing “business connection” in
the case of non-resident in India. Accordingly, significant economic presence shall mean–
i. Any transaction in respect of any goods, services or property carried out by a non-resident
in India including provision of download of data or software in India if the aggregate of
payments arising from such transaction or transactions during the previous year exceeds the
amount as may be prescribed; or
ii. Systematic and continuous soliciting of its business activities or engaging in interaction
with such number of users as may be prescribed, in India through digital means.

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If digital businesses operated by non-residents are structured to artificially avoid

establishment of a “business connection” or “permanent establishment” in India, including
by way of claiming the activities carried out in India to be preparatory or auxiliary in nature,
the GAAR provisions under the Income-tax Act may become applicable to the income of such
digital businesses in India. Signing of the Multilateral Instrument is unlikely to address the
broader tax challenges of digitalisation of economy owing to the redundancy of physical
presence-based nexus.
The imposition of Equalization Levy has led to increase in tax collection. The collection under
the Equalisation levy exceeded Rs. 550 crore for FY 2017-18. Further, the introduction of
taxation based on significant economic presence is also expected to increase tax collection
as it seeks to widen the tax base in India by establishing business connection and charging
to tax income earned by digital businesses which operate out of jurisdictions with which
India has not entered into a Double Taxation Avoidance Agreement (DTAA). However, in
respect of digital businesses operating out of jurisdictions with which India has already
entered into a DTAA, significant economic presence will only be effective after renegotiation
of such DTAA which will be based on international consensus.
(Adapted from PIB)
54. 1st Aqua Mega Food Park in Andhra Pradesh (Relevant for GS Prelims; Economics)
Godavari Mega Aqua Food Park was inaugurated at Tundurru Village in Bhimavaram
Mandal, West Godavari District, Andhra Pradesh. This is the 1st Mega Aqua Food Park
operationalised exclusively established for fish and marine products processing in the State
of Andhra Pradesh.
(Adapted from PIB)
55. RBI to pay govt. ₹28,000 cr. in interim surplus (Relevant for GS Prelims & Mains
Amount of surplus to be transferred

Reserve Bank of India announced that it would transfer ₹28,000 crore to the Centre as
interim surplus for the half-year ended December 2018.
This will take the Centre’s total receipts from the RBI as surplus transfer in 2018-19 to
₹68,000 crore. The central bank had earlier paid ₹40,000 crore to the government as its final
share of surplus for 2017-18. The RBI follows July-June accounting year. This is second
consecutive year that the central bank has transferred interim surplus to the government.
Importance of Surplus
The interim surplus transferred by the RBI now is crucial to the Centre’s ability to meet the
revised fiscal deficit target of 3.4% for this fiscal.
Background
70
Sources indicate the system of audit of balance sheet twice a year would be continued for the
coming years also in order to decide on the interim surplus. Last year, RBI had transferred
₹10,000 crore as interim surplus. The government had been putting pressure on the central
bank to transfer more funds from the contingency reserves. A panel, headed by former RBI
Governor Bimal Jalan, had been formed to review the economic capital framework of the
bank.
56. Cabinet approves launch Kisan Urja Suraksha evam Utthaan Mahabhiyan
(Relevant for GS Prelims; Economics)
The Cabinet Committee on Economic Affairs, has approved launch of Kisan Urja Suraksha
evam Utthaan Mahabhiyan with the objective of providing financial and water security to
farmers.
The proposed scheme consists of three components:
Component-A: 10,000 MW of Decentralized Ground Mounted Grid Connected Renewable
Power Plants.
Component-B: Installation of 17.50 lakh standalone Solar Powered Agriculture Pumps.
Component-C: Solarisation of 10 Lakh Grid-connected Solar Powered Agriculture Pumps.
All three components combined, the scheme aims to add a solar capacity of 25,750 MW by
2022. The total central financial support provided under the scheme would be Rs. 34,422
crore.
The Component-A and Component-C will be implemented on pilot mode for 1000 MW
capacity and one lakh grid connected agriculture pumps respectively and thereafter, will be
scale-up on success of pilot run. Component-B will be implemented in full-fledged manner.
(Adapted from PIB)
57. Easing global Oil Prices (Relevant for GS Prelims & GS Mains Paper III; Economics)
Why has inflation been falling?

Inflation at both the retail and wholesale levels has been falling for the last 4-5 consecutive
months. Inflation as measured by the Consumer Price Index (CPI), which captures retail
inflation, and the Wholesale Price Index (WPI) has been falling in general for the last year or
so. The CPI, for example, was as high as 5.21% in December 2017, following which it fell quite
steadily (except for a mid-year blip in 2018) till it reached 2.05% in January 2019, the lowest
it has been in 19 months. The WPI has similarly seen an overall decline, but has been more
volatile than the CPI.
The main reason why inflation has been falling is the drop in global oil prices. After rising in
the middle of 2018 to average $80 a barrel in October, the Indian basket of crude oil prices
fell to $57 a barrel in December 2018. It was $59 in January 2019. Prices in February have
been slightly higher than that, but the increase is not much.
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What does this mean for the economy?

The nature of the Indian economy is such that a change in oil prices has knock-on effects on
almost every sector such as food, manufacturing, transport and infrastructure. Any sector
that uses fuel or energy as an input is affected by global oil prices because India is still
overwhelmingly dependent on imported oil to meet its needs.
When global oil prices fall, inflation falls across the board, most notably in energy-intensive
sectors. And within this, falling prices in each of these sectors have an impact on the other
sectors dependent on them. For example, falling inflation in the transport sector means that
every sector that needs to transport goods will also benefit.
Another aspect of falling inflation is that the Reserve Bank of India has more leeway to go
easy on interest rates, one of its key inflation targeting tools. In its last Monetary Policy
Review, the central bank cut the benchmark interest rate by 25 basis points. Some experts
feel there is scope for even more cuts. Politically, low and falling inflation is always to the
benefit of the government. This is especially noteworthy in the run-up to the general election.
In contrast, the CPI inflation averaged about 7.6% in the three months leading up to the 2014
elections.
Why do WPI and CPI inflation diverge?

Economists have pointed out the divergence for quite some time now. The main reason
behind it is that the two indices measure different products and assign each of the categories
different weights in the calculation of the overall index.
This divergence has intensified since the implementation of the Goods and Services Tax
because the new tax system affects retail inflation far more than it does wholesale inflation,
since it is included in the final price of the product.
What is the outlook ahead?

The outlook on oil prices is a stable one. The consensus is that crude oil prices will remain in
the range of $55-65 a barrel for the next three to four quarters. Given how important this is
for inflation in India, experts feel retail inflation will remain subdued at 2-3% and wholesale
inflation at 3-4% in the near future.
58. Safety nets: on banning unregulated deposit schemes (Relevant for GS Prelims &
The savings of low-income Indian households have traditionally remained unprotected by

the government when compared to those of the more affluent economic groups. But that may
be about to change now.
New ordinance on banning of Unregulated Deposits

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President Ram Nath Kovind promulgated the Banning of Unregulated Deposit Schemes
Ordinance, which bars all deposit schemes in the country that are not officially registered
with the government from either seeking or accepting deposits from customers.
What are the provisions of ordinance?

1. The ordinance will help in the creation of a central repository of all deposit schemes under
operation, thus making it easier for the Centre to regulate their activities and prevent fraud
from being committed against ordinary people.
2. The ordinance allows for compensation to be offered to victims through the liquidation of
the assets of those offering illegal deposit schemes.
What was need of ordinance?

Popular deposit schemes such as chit funds and gold schemes, which as part of the huge
shadow banking system usually do not come under the purview of government regulators,
have served as important instruments of saving for people in the unorganised sector. But
these unregulated schemes have also been misused by some miscreants to swindle the
money of depositors with the promise of unbelievably high returns in a short period of time.
The Saradha chit fund scam in West Bengal is just one example of such a heinous financial
crime against depositors. The Centre’s latest attempt to curb unregulated deposit schemes
through an ordinance reflects a timely recognition of the need for greater legal protection to
be offered for those depositors with inadequate financial literacy.
Requires proper implementation

While the intent of the ordinance, which is to protect small depositors, is indeed
commendable, the benefits that depositors will eventually derive from the new legislation
will depend largely on its proper implementation. For one, policymakers will have to make
sure that the bureaucrats responsible for the on-ground implementation of the ordinance
are keen on protecting the savings of low-income households. There must also be checks
against persons in power misusing the new rules to derecognise genuine deposit schemes
that offer useful financial services to customers in the unorganised sector. In fact, in the past
there have been several cases of politicians acting in cahoots with the operators of fraudulent
deposit schemes to fleece depositors of their hard-earned money. Another potential risk
involved when the government, as in this case, takes it upon itself to guarantee the legitimacy
of various deposit schemes is that it dissuades depositors from conducting the necessary due
diligence before choosing to deposit their money. The passing of tough laws may thus be the
easiest of battles in the larger war against illicit deposit schemes.
59. GST on under-construction flats, affordable housing slashed by 7% (Relevant for

GS Prelims & Mains Paper III; Economics)
What will be new rates?

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In a big relief to home buyers, the GST Council slashed tax rates on under-construction
housing properties to 5% without input tax credit, from the existing 12%. The Council also
cut GST rates on affordable housing to 1% from the current 8% and expanded the scope of
affordable housing to those costing up to ₹45 lakh and measuring 60 sq. metre in metros and
90 sq. metre in non-metro cities.
The new tax rates will come into effect from April 1, 2019. However, builders will not be able
to claim input tax credit (ITC) under the new GST rates.
What are the Current rates?

Currently, the GST is levied at 12% on payments made for under-construction properties or
ready-to-move-in flats where completion certificate has not been issued at the time of sale.
However, Goods and Services Tax (GST) is not levied on real estate properties for which
completion certificate has been issued at the time of sale.
GST rate on lotteries

With regard to lotteries, the GST Council, however, deferred its decision. Currently, state-run
lotteries attract 12% GST, while state-authorised ones attract 28%.
(Adapted to The Hindu)
60. RBI takes 3 banks off prompt corrective action framework (Relevant for GS
Prelims & Mains Paper III; Economics)
Banks out of PCA

Three more banks — Allahabad Bank and Corporation Bank, from the public sector, and
Dhanlaxmi Bank from the private sector — are now out of the Reserve Bank of India’s (RBI)
prompt and corrective action (PCA) framework.
Earlier, such restrictions were taken off Bank of India, Oriental Bank of Commerce and Bank
of Maharashtra.
Six more under PCA

There are another six banks that are still under PCA framework.
Basis for taking off from PCA

While lifting the restrictions on the State-run lenders, RBI said the Board for Financial
Supervision (BFS) reviewed the performance of the banks under PCA and noted that these
two banks had received capital infusion from the government.
“This has shored up their capital funds and also increased their loan loss provision to ensure
that the PCA parameters were complied with,” RBI said.
Allahabad Bank and Corporation Bank had received capital of ₹6,896 crore and ₹9,086 crore
respectively.

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Capital adequacy ratio

As on December 31, Allahabad Bank had a capital adequacy ratio of 10.42% and net NPA
ratio of 7.7%, while Corporation Bank’s CAR was at 11.12% and net NPA 11.47%.
According to norms, PCA framework gets triggered when a bank breaches one of the three
risk thresholds. Crossing 6% net NPA is one of them.
61. Regulating drug prices (Relevant for GS Prelims & Mains Paper III; Economics)
What has been the impact of market-based pricing?

The largest share of out-of-pocket expenditure on health is due to medicines (approximately
70%, according to the NSSO). This is a major access barrier to healthcare, especially for the
poor. Health experts have criticised the Drug (Prices Control) Order (DPCO), 2013 for doing
little to increase the affordability of medicines. Data from the Department of Pharmaceuticals
show that the majority of medicines have price reductions of 20% or less.
How are prices regulated?

The DPCO controls the prices of all essential medicines by fixing ceiling prices, limiting the
highest prices companies can charge. The National List of Essential Medicines (NLEM) is
drawn up to include essential medicines that satisfy the priority health needs of the
population. The list is made with considerations of safety, efficacy, disease prevalence and
the comparative cost-effectiveness of medicines, and is updated periodically by an expert
panel set up for this purpose under the aegis of the Ministry of Health and Family Welfare.
This list forms the basis of price controls under the DPCO.
What is the mechanism for price capping?

The NLEM 2015 contains 376 medicines on the basis of which the National Pharmaceutical
Pricing Authority (NPPA) has fixed prices of over 800 formulations using the provisions of
the DPCO. However, these formulations cover less than 10% of the total pharmaceutical
market. The DPCO follows a market-based pricing mechanism. The ceiling price is worked
out on the basis of the simple average price of all brands having at least 1% market share of
the total market turnover of that medicine.
Have any other methods been used?

Prior to 2013, the DPCO followed a cost-based pricing mechanism that was based on the
costs involved in manufacturing a medicine along with reasonable profit margins. Health
experts have argued that this policy resulted in comparatively lower prices than the current
market-based policy.
Since the implementation of the DPCO, 2013, the NPPA has made certain departures from
the market-based pricing mechanism, which was found to be insufficient for ensuring
affordability. This has been done through the use of special powers to act in public interest
under Paragraph 19 of the DPCO, to regulate the prices of cardiac stents and knee implants.

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These moves have brought about dramatic price reductions: 85% in the case of stents and
65% in the case of knee implants.
What about cancer drugs?

“The government is planning to cap the trade margins for highly priced drugs for cancer and
rare diseases to bring down their prices,” says Malini Aisola, health researcher and co-
convenor of the All India Drug Action Network. She explains that this move is in the wake of
recent amendments to the DPCO that exempted patented medicines and rare disease drugs
from price controls. But Ms. Aisola claims that the trade margin capping will not sufficiently
bring down prices. “We urge the government to take serious policy measures to ensure true
affordability such as through price controls, implementation of the national rare disease
policy and the use of legal flexibilities under patent law,” she says.
62. A new zone for Andhra Pradesh: What could change for the Railways, state
(Relevant for GS Prelims & Mains Paper III; Economics)
Railway Minister Piyush Goyal announced a new Railway zone based in Visakhapatnam,
fulfilling a demand from Andhra Pradesh politicians pending since the creation of Telangana
nearly five years ago.
Was a new Railway zone promised to Andhra at the time of bifurcation?

The TDP (and of late even the BJP’s Andhra Pradesh unit) has been demanding this ever since
Hyderabad and Secunderabad — headquarters of South Central Railway — went to
Telangana. It has been argued that getting a zonal Railway headquarters is important for
local pride; also, that The Andhra Pradesh Reorganisation Act, 2014, had “promised” this.
The Thirteenth Schedule of the Act says under the head ‘Infrastructure’ that the “Indian
Railways shall, within six months from the appointed day, examine establishing a new
railway zone in the successor State of Andhra Pradesh and take an expeditious decision
thereon”.
Does the Indian Railways have a state-specific character?

The Indian Railways was envisaged as a modern organisation with a pan-India presence and
character. Currently, the Railways have 17 zonal headquarters in 14 cities: Kolkata, Patna,
Gorakhpur, Allahabad, Delhi, Secunderabad, Chennai, Hubballi, Mumbai, Jaipur, Bilaspur,
Jabalpur, Guwahati, and Bhubaneswar. They are not necessarily in state capitals, nor is every
state “represented” on the list.
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Two zones — Central and Western — are headquartered in Mumbai; Kolkata has Eastern
and South Eastern, apart from the Kolkata Metro. In its replies to Parliament, the Railway
Ministry in most cases presents facts and figures zonewise, rather than statewise. It says
zones and divisions (a zone is divided into divisions) are created based on administrative
and operational needs.
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How did the zones of the Indian Railways come into existence?
Following independence, India worked to consolidate 42 big and small railways owned by
the princely states and other entities into a single network. In 1947, the country’s total rail
network was 54,380 km, and included networks as small as Sangli (8 km) or as big as Nizam
State Railway (2,125 km).
In 1951-52, six zonal railways were created to “amalgamate the smaller independent lines
into contiguous areas of self-sufficient zones having economic unity and natural flow of
traffic”, said an internal report of the Railways that examined whether a new zone for Andhra
Pradesh was feasible. The intention was to bring down overheads, eliminate duplication of
work, “unnecessary correspondences”, and inter-railway adjustments, and ensure more
expeditious disposal of business. The internal assessment report was submitted to the
Ministry last year.
How is the Indian Railways network administered?

Each zonal railway is a self-governed unit with a jurisdiction and boundary. A train passes
through multiple zones (and divisions) on its journey, crossing from one administrative
entity to another at ‘interchange’ points where it is “handed over” to the next zone. Each zone
is responsible for the smooth operation and punctuality of a train while it is in its jurisdiction.
Boundaries that do not add to the efficiency of the Railways are avoidable, officials say. The
final product offered by the Indian Railways is, after all, a train that cuts across regional and
geographical boundaries on its journey, says the internal assessment report. An increase in
the number of jurisdictions without a clear need is akin to erecting more checkposts or
barriers on a road when the smooth flow of traffic is the key requirement, officials say. “A
new barrier will slow down train operations to a considerable extent…, affect the mobility,
commercial viability, and result in wastage of precious capacity, rolling stock and
manpower,” the assessment says.
What specific challenges could the creation of the new zone pose?
Waltair (Visakhapatnam) division, which loads around 60 million tonnes of freight every
year (which is quite high for a division), will become a zonal headquarters. A part of Waltair
division will be merged with the adjacent Vijayawada division, and another part will become
the new Rayagada division. This break-up of East Coast Railway (which has Waltair division)
will create operational bottlenecks, reduce flexibility in the loading and unloading of freight,
and could hit the revenue generation capability of the zone, critics of the move argue.
South Central Railway, which will be reorganised for the new zone, will be disrupted as well.
“Due to its critical size, ports, industries and mineral hubs are well served by its internal
cycles. Any realignment of the present zonal system will have a detrimental effect,” says the
assessment.
Rayagada in Odisha, where the only significant railway installation currently is a yard, will
have to be turned into a divisional headquarters of the new zone, as per the government’s
decision. This will mean both capital expenditure and recurring expenditure. Creating a
zonal headquarters in Waltair, too, will involve costs.
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But will the move help Andhra?

In general, a new Railway zone does little for a state or its people. Groups C and D vacancies
are filled through Railway Recruitment Board exams; there are already 21 such boards for
17 zonal Railways, and the exams are open to any qualifying Indian citizen. Each zonal
headquarters has a Railway Recruitment Cell to fill Group D jobs, but the same rules apply
there, too.
Amaravati, the new capital of Andhra Pradesh, is in the Vijayawada-Guntur division, and is
already well connected to the rest of India by five lines. Projects for rail-connectivity
infrastructure in the area have already been sanctioned, and a new zone does not help much.
Floodgates could now be opened for more state-specific zones and divisions. Demands for at
least 52 new divisions and 26 new zones have already been made. Odisha MPs have in the
past objected to the realignment of Bhubaneswar-based East Coast Railway, of which Waltair
is the premium division. Some Odisha leaders have told the Railways that if Visakhapatnam
is taken away from ECoR, the state should be compensated with new divisions like Rourkela,
Jharsuguda, and Jajpur-Keonjhar.
63. Analysis of SEBI’s new rules to protect those investing in liquid mutual funds
What are new regulations on liquid mutual funds?

According to new regulations issued by the Securities and Exchange Board of India (SEBI),
liquid mutual funds holding debt securities with a maturity term of more than 30 days will
have to value these securities on a mark-to-market basis. Until now, liquid mutual funds
could report the value of debt instruments with a maturity term of up to 60 days using the
amortisation-based valuation method. Only debt securities with a maturity term of over 60
days were to be valued on a mark-to-market basis. So the new rule seemingly narrows the
scope for amortisation-based valuation.
What is the need of new rules?

Amortisation-based valuation, which is completely detached from the market price of the
securities being valued, allowed mutual funds to avoid the volatility associated with mark-
to-market valuation. SEBI’s new rules come in the midst of the crisis in Infrastructure
Leasing and Financial Services (IL&FS) that led to various fund managers reporting the value
of the same debt instruments issued by the infrastructure lender at vastly different levels.
The chief financial markets regulator believes that mandating mutual funds to report the
value of a greater share of their holdings on a mark-to-market basis can lead to a better and
more objective valuation of these securities.
What can be implications?

By exempting securities with a maturity period of up to 30 days from mark-to-market
valuation, however, SEBI may be doing no favour to individual investors. This is because the
new SEBI rule gives a strong incentive for liquid mutual funds to invest more of their funds
under management in securities with a maturity period of fewer than 30 days; this helps
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avoid the volatility of mark-to-market accounting and the need to provide a fair account of
the value of their investments. What is likely is a decrease in the yields received on securities
maturing in 30 days or less and an increase in the yields on debt instruments with a maturity
period of 31 to 60 days. It will, however, do nothing to make investors in mutual funds
become more informed about the real value of their investments.
The latest SEBI rules are also in direct contrast to the usual accounting practices when it
comes to the valuation of securities. Generally accepted accounting principles mandate
securities with the least maturity to be reported on a mark-to-market basis while allowing
the amortisation-based method to be employed to value other securities with longer
maturity periods. This makes sense as the profits and losses associated with securities with
shorter terms are closer to being realised by investors when compared to longer-term
securities. SEBI would do well to mandate that all investments made by liquid mutual funds
should be valued on a mark-to-market basis. Simultaneously, it should work on deepening
liquidity in the bond market so that bond market prices can serve as a ready reference to
ascertain the value of various debt securities.
What is amortisation-based method and mark-to-market based method?

Amortization is an accounting technique used to lower the cost value of a finite life or
intangible asset incrementally through scheduled charges to income.Amortization is the
paying off of debt with a fixed repayment schedule in regular installments over time like with
a mortgage or a car loan.
Mark-to-market refers to denoting or relating to a system of valuing assets by the most

recent market price.
64. Resolution of Essar Steel case (Relevant for GS Prelims & Mains Paper III;
Economics)
The National Company Law Tribunal’s approval of ArcelorMittal’s bid for the insolvent Essar
Steel Ltd is significant for several reasons.
Largest single recovery of debt

First, the ₹42,000-crore bid will be the largest single recovery of debt under the Insolvency
and Bankruptcy Code (IBC) enacted in 2016. Assuming that the original resolution plan
submitted to the NCLT stands, the secured lenders will manage to recover about 85% of their
dues. The 15% haircut that they will suffer should be seen against the extraordinarily high
amount of over ₹49,000 crore that is due from Essar Steel.
Clarity on law
Second, the case, which took 583 days to resolve, compared to the 270 days provided under
the Code, has tested several aspects of the law and set important precedents for the future.
Among the aspects that have been clarified during the long resolution process for Essar Steel
are the eligibility of those who have defaulted in repaying their borrowings elsewhere to bid,
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the time-limits for bidding and the place of unsecured, operational creditors under the
resolution mechanism.
Result
Finally, this was seen as a marquee case for the IBC, given the high profile of the company
and its promoters, and the amount at stake. The battle royal between multinational players
to acquire the insolvent company was proof, if any were needed, of the quality and
importance of the underlying asset. In the event, the successful culmination of the Essar Steel
case will be a big leg-up for the insolvency resolution process that is less than three years
old.
To be sure, though the NCLT has given the go-ahead, the last word on the subject may not
have been heard as the existing promoters could go in appeal against the verdict. The Code
provides for an appeal to the National Company Law Appellate Tribunal and then to the
Supreme Court, and it is unlikely that the promoters, who bid a much higher ₹54,389 crore,
will let go without a fight. The banks, though, will be hoping that the process ends in the next
couple of weeks as they would want to account for the receipts from the resolution process
within this financial year.
After all, only four cases (excluding Essar Steel) out of the initial list of 12 big defaulters
referred by the Reserve Bank of India for resolution back in June 2017 have been successfully
resolved till now. Insolvency and Bankruptcy Board of India data also point to a pile-up of
cases in the various benches of the NCLT. As many as 275 companies, representing 30% of
the total of 898 undergoing resolution, have exceeded the 270-day limit set for resolution
under the Code. This can be partly explained by the attempt of promoters to tie down the
process through appeals at every stage, but the fact is that there is a need for more benches
of the NCLT to clear the pile-up. The government would do well to look into this issue.
65. India ranks 11th in gold holding’(Relevant for GS Prelims; Economics)

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India’s position
India, which is the world’s largest consumer of gold, has the 11th largest gold reserve, with
the current holding pegged at 607 tonnes, as per the latest report by the World Gold Council
(WGC).
India’s overall position in terms of total gold holding would have been tenth had the list
included only countries. Whereas, International Monetary Fund (IMF) is included and is
third on the list with total gold reserves of 2,814 tonnes.
Global Trend
The numero uno slot is occupied by the U.S., which boasts of gold reserves of 8,133.5 tonnes,
followed by Germany with 3,369.7 tonnes. Italy and France complete the top five list with
reserves of a little over 2,400 tonnes each. Meanwhile, among Asian countries, China and
Japan have more reserves of the precious metal when compared to India. China has reserves
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of 1,864.3 tonnes, while Japan has gold reserves of 765.2 tonnes. Pakistan, with its gold
reserves of 64.6 tonnes, occupies the 45th position.
66. In light of L&T and Mindtree, a look at how hostile takeover bids have played out
over the years (Relevant for GS Prelims & Mains Paper III; Economics)
Two of India’s elder statesmen could be watching the battle for control at Bengaluru-based
software services firm Mindtree, with local engineering giant Larsen & Toubro having
mounted a hostile — or unsolicited — takeover bid. Pranab Mukherjee and Manmohan Singh
were impacted in different ways by what was possibly the country’s first major hostile
takeover attempt.
In 1983, NRI businessman Swraj Paul bought into Delhi-based firms Escorts and DCM under
a new scheme that allowed NRIs to invest in Indian companies. When he acquired more than
the holdings of the promoters, Indian business houses sought the support of Mukherjee, then
Finance Minister, to prevent a takeover and to frame a policy to protect established Indian
companies. The matter reached Parliament, a legal battle followed, and the government
eventually went in for a mediation to convince Paul to sell his shares back to the promoters,
the H P Nanda family (Escorts) and the Shri Ram family (DCM).
Mukherjee has recounted all this in The Turbulent Years. On the other hand, Manmohan
Singh, who was then RBI Governor, has referred to serious disagreements between him and
Mukherjee. “Sometimes there was tension. For instance, there was that famous case of Swraj
Paul’s investments,” Singh’s daughter Daman Singh quotes him as saying in her book.
What Singh was referring to was the attempt to browbeat the RBI into approving the deal. In
a rare instance, the government directed the RBI to carry out its instructions, saying that the
central bank was only an agent for implementation of a government scheme, which Singh
protested.
Then & now

Over four decades later, an aggressive attempt at gaining control of a company will hardly
bother political leaders, especially in an election season. Rather than the government
explicitly stepping in, securities market regulator SEBI is empowered to regulate takeovers
and mergers of publicly listed companies. India now has takeover rules or regulations, the
first ones approved in 1994 and tweaked a couple of times since.
The rules do not quite define a hostile takeover, except to say that it is broadly an unsolicited
bid or attempt by a person without any arrangement or a memorandum of understanding
with the persons currently in control of the targeted company. Hostility (if the word could
be used) arises in the case of the attempt on Mindtree as its founders Subroto Bagchi,
Krishnakumar Natarajan, N S Parthasarathy and Rostow Ravanan, who jointly control over
13 %, have opposed L&T coming in, saying it is a threat to the unique organisation that they
have collectively built over 20 years and with a differentiated corporate culture.

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The trigger for all this is the decision of the firm’s biggest shareholder — V G Siddhartha,
promoter of Cafe Coffee Day and son-in law of former Karnataka Chief Minister S M Krishna
— to exit by selling his 20.4% share to L&T.
India & the world

Globally, takeover attempts face resistance on account of cultural differences between the
targeted company and the acquirer. Yet it is far more common outside India, with many
viewing such changes as a disciplining mechanism and also beneficial to minority
shareholders because the stock price vaults.
When attempted, hostile takeovers have rarely succeeded in India. An undivided Reliance
attempted to take control of L&T in 1989, having bought in though a transaction involving a
Bank of Baroda subsidiary. Dhirubhai Ambani took over as L&T chairman; Mukesh and Anil
Ambani came on board.
With influential shareholders involved, the L&T management mounted a push-back and
Reliance had to exit by selling their shares to the Birlas, who too exited later. The government
stepped in when British American Tobacco was attempting to take control of ITC. Other
hostile attempts include that by ICI for Asian Paints, and by India Cements for Raasi Cements.
What next
The takeover regulations in such cases stipulate that the acquirer will have to make an open
or public offer for buying out 26% from the minority shareholders (in Mindtree). To achieve
this, L&T will need to depend not just on such shareholders but also on institutional
shareholders such as investment institutions and overseas investors. It has offered to buy
31% at Rs 980 a share, which will mean spending Rs 5,027 crore. The other possibility is that
the existing promoters manage to bring a strategic partner — known as a white knight for
stepping in to support the incumbent promoters — or raise funds to buy back shares.
(Adapted From Indian Express)
67. Dollar-rupee swap scheme (Relevant for GS Prelims & Mains Paper III; Economics)
The Reserve Bank of India’s decision last week to resort to a dollar-rupee swap, instead of
the traditional open-market purchase of bonds, to infuse liquidity into the economy marks a
significant shift in the central bank’s liquidity management policy.
What is dollar-rupee swap scheme?

Under the three-year currency swap scheme, which is scheduled to open in next week, the
RBI will purchase $5 billion from banks in exchange for rupees. The central bank will infuse
as much as ₹35,000 crore into the system in one shot at a time when liquidity generally tends
to be squeezed.
What will be the implications of dollar-rupee swap scheme?

1. For the banks, it is a way to earn some interest out of the forex reserves lying idle in their
kitty.

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2. Apart from injecting fresh liquidity into the economy, the move will have implications for
the currency market even as it helps shore up the RBI’s dollar reserves.
3. Bond yields rose on the day following the announcement of the swap scheme last week,
reflecting the prevailing opinion among traders that the RBI may gradually reduce its
dependence on the regular bond purchase scheme to manage liquidity within the economy.
4. While traditional open market operations distort the bond market, the new forex swap
scheme will introduce new distortions in the currency market.
5. The rupee’s recent rally against the dollar has been halted by the RBI’s decision to infuse
rupees and suck out dollars through the swap scheme. Even so, it is worth noting that the
rupee has appreciated significantly in value terms against the dollar since the low reached
in October as foreign investors have begun to pour money into the Indian economy.
Evaluation of dollar-rupee swap scheme

Overall, the dollar-rupee swap is a useful addition to the RBI’s policy toolkit as it offers the
central bank a chance to directly influence both the value of the rupee and the amount of
liquidity in the economy at the same time using a single tool.
In the aftermath of the liquidity crisis in the non-banking financial sector, it can be an
effective way to lower private borrowing costs as well. The coming elections, which can lead
to an increase in cash withdrawals from banks, may have also played a role in the RBI’s larger
decision to boost liquidity in the system.
Factor which will determine success of dollar-rupee swap scheme

The way banks respond after receiving fresh liquidity from the RBI, however, will determine
the success of the new liquidity scheme to a large extent. Businesses could benefit from the
greater availability of liquidity, but only if banks aggressively pass on the benefit of lower
rates to their borrowers. If banks choose to deposit the fresh RBI money in safe government
securities at low yields, as they have done in the past, the de facto cap on the government’s
borrowing costs will remain intact. But if banks manage to find alternative ways to deploy
their money, the RBI’s new liquidity scheme could end up raising borrowing costs for the
government, punishing it for fiscal indiscretion.
(Adapted From The Hindu)
68. Nirav Modi denied bail, to stay in London jail till March 29 (Relevant for GS Prelims
& Mains Paper III; Economics)
Nirav Modi arrested in London

Indian diamond businessman Nirav Modi, accused in the ₹13,000 crore Punjab National
Bank fraud case, was denied bail. The hearing before district judge Marie Mallon took place
a day after Modi was arrested at a bank branch in London by the Metropolitan Police.
Why Nirav Modi was denied bail?

84
The judge said that she wasn’t inclined to give Modi bail because of the “high value amount”
involved in the allegations against him and the “substantial grounds” for believing he would
“fail to surrender” before the court if bail were granted.
69. Govt. earns ₹85,000 crore from disinvestment in 2018-19, overshoots target
The government has overshot its disinvestment target for the second consecutive year,
according to the Ministry of Finance. As against a target of ₹80,000 crore for disinvestment
for the 2018-19, the divestment receipts have touched ₹85,000 crore. During the current
financial year, Department of investment and Public Asset Management (DIPAM) has
realised the proceeds through 28 transactions. In 2017-18, the government had earned a
little more than ₹1 lakh crore from disinvestments against a target of ₹72,500 crore.
The government has also earned large amounts from the sale of Exchange Traded Funds
(ETFs), with the latest edition, so far, having earned it ₹10,000 crore.
70. Reserve Bank of India postponed the implementation of the Indian Accounting
Standards (Ind AS) norms for banks (Relevant for GS Prelims & Mains Paper III;
Economics)
Reserve Bank of India postponed the implementation of the Indian Accounting Standards
(Ind AS) norms for banks indefinitely. The RBI had initially planned to implement the norms
starting April 1, 2018 in order to bring Indian accounting standards in line with international
standards, but the Centre’s delay in enacting the necessary amendments have delayed the
implementation for banks for another year.
What is expected from implementation of Accounting Standard on banks?

It is believed that the adoption of the accounting standard could cause banks to prematurely
recognise losses on their loans and build up the necessary underlying capital required to
overcome the impact of such losses.
How are proposed accounting norms for banks different from existing practices?
Under the proposed norms, financial institutions like banks will have to calculate expected
credit losses (ECL) on their loans during each reporting period and make necessary
adjustments to their profit-and-loss account even before a borrower may default on a certain
loan.
This is in contrast to the present accounting norms wherein banks incur credit losses in their
books only after outstanding loans have been in a state of default over a certain number of
days as stated in the rules laid down by the RBI.

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What is the position of banks on new Accounting standards?

Given the losses they would likely have to incur, it is understandable why banks would try
to avoid adopting the accounting norms for as long as possible. So the delay in the
implementation of the Ind AS norms is not surprising at all. Further, to adjust to the new
norms, banks will have to improve their ability to forecast future credit losses with precision.
Until this happens, bank earnings could experience volatility. The Central government, which
has been trying to bail out public sector banks without carrying out the structural reforms
required to clean up balance sheets, might also prefer to delay the enactment of the
legislation.
For the new norms will cause more outstanding loans to be added to the huge existing pile
of bad loans and cause further headaches to the government. According to estimates made
by India Ratings & Research, public sector banks would have to make additional provision of
over a trillion rupees if the norms are adopted right away. The Centre may not be able to foot
the bill, and may instead prefer to help public sector banks to hide the true size of their bad
loans. This does not bode well for the health of the banking system as banks that do not
recognise their problems might not resolve them.
71. India has highest number of poor despite 27 crore moving out of poverty in 10
years: report (Relevant for GS Prelims; Economics)
India has reduced its poverty rate drastically from 55% to 28% in 10 years, with 271 million
people moving out of poverty between 2005-06 and 2015-16, according to the Global MPI
2018 Report prepared by the United Nations Development Programme (UNDP) and the
Oxford Poverty and Human Development Initiative. The report, covering 105 countries,
dedicates a chapter to India because of this remarkable progress. However, India still had
364 million poor in 2015-16, the largest for any country, although it is down from 635 million
in 2005-06.
The report measures MPI, or multidimensional poverty index, which it says can be broken
down to show “who is poor” and “how they are poor”. This factors in two measures, poverty
rate as a percentage of the population, and intensity as the average share of deprivations that
poor people experience. The product of these two is MPI. If someone is deprived in a third or
more of 10 weighted indicators, the global index identifies them as “MPI poor”.
In India, poverty reduction among children, the poorest states, Scheduled Tribes, and
Muslims was fastest, the report says. Of the 364 million people who were MPI poor in 2015-
16, 156 million (34.6%) were children. In 2005-06 there were 292 million poor children in
India, so the latest figures represent a 47% decrease or 136 million fewer children growing
up in multidimensional poverty.

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Although Muslims and STs reduced poverty the most over the 10 years, these two groups
still had the highest rates of poverty. While 80% of ST members had been poor in 2005-06,
50% of them were still poor in 2015-16. And while 60% of Muslims had been poor in 2005-
06, 31% of them were still poor in 2015-16.
Bihar was the poorest state in 2015-16, with more than half its population in poverty. The
four poorest states —Bihar, Jharkhand, Uttar Pradesh, and Madhya Pradesh — were still
home to 196 million MPI poor people, which was over half of all the MPI poor people in India.
Jharkhand had the greatest improvement, followed by Arunachal Pradesh, Bihar,
Chhattisgarh, and Nagaland. At the other end, Kerala, one of the least poor regions in 2006,
reduced its MPI by around 92%.
Global findings
Worldwide, the report found, 1.3 billion people live in multidimensional poverty in the 105
developing countries it covered. This represents 23%, or nearly a quarter, of the population
of these countries. These people are deprived in at least one-third of overlapping indicators
in health, education, and living standards, it says.

87
While the study found multidimensional poverty in all developing regions of the world, it
was seen to be particularly acute in Sub-Saharan Africa and South Asia. These two regions
account together for 83% (more than 1.1 billion) of all multidimensionally poor people in
the world.
Additionally, two-thirds of all multidimensionally poor people live in middle-income

countries, with 889 million people in these countries experiencing deprivations in nutrition,
schooling, and sanitation, just like those in low-income countries.
The report describes the level of global child poverty as staggering, with children accounting
for virtually half (49.9%) of the world’s poor. Worldwide, over 665 million children live in
multidimensional poverty. In 35 countries, at least half of all children are MPI poor. In South
Sudan and Niger, some 93% of all children are MPI poor.
72. Bringing Nirav back (Relevant for GS Prelims & Mains Paper III; Economics)
Why extradition of the main accused in the PNB fraud case, now in a U.K. prison, will take
time

88
The story so far:

The long-awaited push by India to extradite Nirav Modi — the key accused in the Punjab
National Bank fraud case — kicked off last week. Things didn’t go quite according to plan:
Mr. Modi’s legal team had been in talks with the Metropolitan Police’s extradition unit and
he was to hand himself over as part of a voluntary process this week. However, he was
arrested last Tuesday after an Indian-origin clerk at a bank in central London recognised him
and alerted the police, pushing things forward unexpectedly.
What happened to his bail plea?

He has twice been denied bail following hearings at Westminster Magistrates Court — most
recently on Friday. This came despite assurances such as £1 million in security, an offer to
wear an electronic tag and his defence team’s insistence that he saw London as a “haven”
which he had no intention of fleeing. Chief Magistrate Emma Arbuthnot said there was a risk
he would fail to surrender to the court and pointed to the large amount involved in the
alleged fraud ($1-2 billion), as well as his attempts to move elsewhere — including by
seeking citizenship in the South Pacific island of Vanuatu. She acknowledged that there were
“inconsistencies” in some of the witness accounts against him but did not believe these were
enough grounds to override cause for concern.
What happens next?

Mr. Modi will remain in prison — for now HM Wandsworth, one of Western Europe’s biggest
prisons. He will appear through videolink for a brief technical hearing on April 26. The
prosecution has until May 24 to present the papers, which will be followed by further time
for the defence to present theirs. Mr. Modi can appeal the bail ruling to a higher court, parallel
to the extradition proceedings. Moving to the main extradition trial at Westminster
Magistrates Court could take months: with Vijay Mallya, the case management hearings
began in June 2017 after his arrest in April, while the trial began in December.
How is the case similar to Mallya’s? déjà vu,”

“I’m having a sense of quipped Ms. Arbuthnot on Friday. There were certainly parallels: a
high-profile, high-net-worth individual — associated with high-living and expensive tastes
— wanted by India on charges of fraud and attempting to conceal the proceeds. There were
also teams from the Enforcement Directorate and the Central Bureau of Investigation
present at both proceedings, while Modi’s barrister, Clare Montgomery, and his solicitor,
Anand Doobay, also represented Mr. Mallya.
Are there lessons from the Mallya case?

The Mallya case had been cast as a watershed moment for the way in which Indian
authorities worked with Britain on extradition. That case was meant to have honed India’s
understanding of the system and the standards, documentation and evidence that were
expected in such cases. However, that it still needs improvements became quickly evident
on Friday as the judge and defence lawyer made sharply worded criticism of the state of the
papers — in particular the numbering and indexing — with the judge insisting on the
presentation of “clean” papers henceforth.
What are the differences?

89
While Mr. Mallya maintained a high profile before the start of proceedings here and owned
property in the U.K., the prosecution positioned Mr. Modi as being uncooperative with
authorities. They allege that he had attempted to bribe and threatened to kill a witness and
applied pressure on others, and contested the defence’s suggestion that he had never left the
country since the scandal broke, pointing to a trip to the U.S. they said he made this February.
The judge herself described the allegations of witness intimidation and attempts to destroy
evidence (including a phone and a server) as “very unusual” in a fraud case.
How will the case proceed?

Barrister Toby Cadman, acting for the Crown Prosecution Service, who is representing India,
told the court that Mr. Modi was wanted in India on charges of fraud and money laundering.
Under dual criminality requirements in the U.K.-India extradition treaty, an extradition
offence must be punishable by at least 1 year in prison under both countries’ legal systems.
However, the treaty states that extradition may be refused if the offence is of a “political
character” and this could come into play and be invoked by the defence team as it was in the
Mallya case. As the defence’s bail arguments also made plain, they are likely to point to the
inconsistencies in witness accounts and challenge the idea of a systematic and deliberate
attempt to defraud the bank through letters of undertaking.
73. What is systematic investment plan? (Relevant for GS Prelims & Mains Paper III;
Economics)
What is a SIP?
A Systematic Investment Plan (SIP) is a way to invest in mutual funds wherein a fixed sum
of money is put into a mutual fund scheme at a specified date every month. It is considered
to be investor-friendly and an efficient manner of investing in the capital markets as one can
start investing with small monthly contributions instead of first building a huge investment
corpus.
It is a hassle-free manner of investment as well since one can issue standing instructions to
the bank for a specified amount to be transferred to the fund house/distributor every month
at a pre-determined date.
How can one start a SIP?

There are two ways of starting an SIP. One can use the direct way of investing though the
fund house or go through a distributor. For direct plans, an investor can go to the website of
the fund house for the scheme in which the SIP has to be started.
All the fund houses have a link on their portals for investors who want to start an SIP.
Typically, only the Permanent Account Number (PAN) and/or Aadhaar is needed to open an
account.
Thereafter, one can select the scheme, SIP amount, starting date and duration of SIP. If one
opts for a distributor, then the same process can be done online on the distributor’s portal.
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Is it better to start direct SIPs or go through a distributor?

The returns for those investing directly will always be marginally better than for those
investing through distributors as direct plan investors do not need to pay distributor
commission. And since SIPs are typically long-term investments, the difference in the total
corpus, at times, could be substantial.
However, going through a distributor has its advantages as well as one can get access to
investment advice, help in fund selection and a consolidated view of the holdings through an
app. On the other hand, if an investor wants to start 4-5 SIPs with different fund houses, then
a direct approach would mean going to each of the fund house websites and opening a folio
and keying in the details to start the SIP. However, there are some fintech start-ups that offer
direct SIP options on their platform.
Is a demat account necessary for starting a SIP?

No. One does not need a demat account to start a SIP. As mentioned earlier, one can just start
a SIP by opening an account — folio in industry parlance — through the fund house or the
distributor. In fact, this is also one of the reasons for the increasing popularity of SIPs as one
need not open a demat account through a stock broker.
What are the benefits of a SIP?

Timing the market is the most difficult thing when it comes to equity investment. SIPs, in a
way, address this issue. SIPs capture every rise and fall of the market and hence, an investor
need not worry about the level of the market. Also, there are sector-specific funds — pharma,
banks, technology, etc. — and also those based on the size of the companies — such as large-
cap, mid-cap, small-cap funds — that allow the investor to have a diversified portfolio rather
than concentrate risk in a few companies.
(Adapted Form The Hindu)
74. RBI cuts repo rate to 6%, lowers GDP forecast to 7.2% (Relevant for GS Prelims &
Repo rate lowered to 6%

The 6 –member monetary policy committee of the Reserve Bank of India (RBI) for the second
consecutive time cut the benchmark lending rate by 25 basis points to 6%. It cited concerns
over growth as it lowered the GDP forecast to 7.2% for the current financial year from 7.4%
projected in the February policy.
Why the repo rate has been reduced?

The central bank said the output gap remained negative and the domestic economy was
facing headwinds, especially on the global front. (Output gap refers to the difference between
the actual output of the economy and its maximum potential.) “The need is to strengthen
domestic growth impulses by spurring private investment that has remained sluggish,” it
said.

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Four members of the committee voted for a rate cut, while RBI Deputy Governor Viral
Acharya and Chetan Ghate voted for status quo.
Role of inflation in decision

The committee maintained the neutral policy stance, which means interest rates can move
in either direction. With the inflation outlook remaining benign, the RBI will address the
challenges to sustained growth of the economy while ensuring price stability on an enduring
basis.
The RBI lowered its inflation forecast to 2.9%-3% from 3.2%-3.4% for the first half of the
current financial year and 3.5-3.8% in the second half, assuming a normal monsoon.
Impact on bond interests

Bond traders, however, were not impressed with the 25 bps rate cut as they were expecting
a higher quantum to address growth headwinds and deficit liquidity. The yield on the 10 year
benchmark bond hardened from 7.27% to 7.35%.
Impact on savings rate

SBI had linked savings bank rate (for over ₹1 lakh deposit) and some short term loans with
repo rate, with effect from May 1. The current savings bank rate of 3.5% was linked to a repo
rate of 6.25%, so now with 25 reduction in the repo rate, savings bank rate (for ₹1 lakh) will
become 3.25% from May 1.
Highlights
* Short-term lending rate (repo) reduced by 25 basis points to 6 per cent
* This is second back-to-back rate cut
* RBI maintains Neutral stance on the monetary policy
* Four out of six MPC members voted in favour of rate cut
* GDP growth projection lowered to 7.2 per cent for 2019-20
* RBI revises downward retail inflation estimate to 2.4 per cent in Q4 FY19.
* MPC notes output gap remains negative and domestic economy facing headwinds
(Adapted from The Hindi)
75. High inflow of foreign investment into India Stock Market (Relevant for GS Prelims
High inflow of foreign capital

Foreign investors appear to have rediscovered India. The inflow of foreign capital into India’s
stock market in the month of March hit a high of $4.89 billion, the biggest foreign inflow into
Indian stocks since February 2012. As a result, the stock market rose a solid 8% in March.
Foreign investment in Indian equities stood at $2.42 billion in February, as against a net
outflow of $4.4 billion during the same month a year earlier, and is expected to be strong in
April as well.
Factors behind this inflow

92
Both cyclical and structural factors are behind this sudden uptick in foreign investment that
has helped the rupee make an impressive comeback. The rupee has appreciated by about 7%
since early October, when it was reeling at around 74 against the dollar.
Last year, India received more foreign direct investment than China for the first time in two
decades. While the Chinese economy has been slowing down considerably in the last one
year, India has emerged as the fastest-growing major economy.
Doubts over the robustness of the GDP calculation method notwithstanding, it is clear that
investors expect India to be a major source of global growth in the coming years.
Short-term factors
Other short-term reasons may also be behind some of the recent inflow of capital into the
country. For one, there is a sense among a section of investors that their fears of political
instability are misplaced.
More important, there are clear signs that western central banks have turned dovish. Both
the Federal Reserve and the European Central Bank, for instance, have promised to keep
interest rates low for longer. This has caused investors to turn towards relatively high-
yielding emerging market debt. Indian mid-cap stocks, which suffered a deep rout last year,
are now too attractive to ignore for many foreign investors.
Challenges for foreign investors

The return of foreign capital is obviously a good sign for the Indian economy. But
policymakers need to be careful not to take foreign investors for granted. Other emerging
Asian economies will be competing hard to attract foreign capital, which is extremely nimble.
Any mistake by policymakers will affect India’s image as an investment destination. To retain
investor confidence, whichever government comes to power after the general election this
summer will need to increase the pace of structural reforms and also ensure proper
macroeconomic management with the help of the Reserve Bank of India.
Long-pending reforms to the labour and land markets are the most pressing structural
changes that will affect India’s long-term growth trajectory. The high fiscal deficit of both the
Centre and the State governments and the disruptive outflow of foreign capital are the other
macroeconomic challenges. These are some issues that need to be solved sooner rather than
later.
76. The cases against Vijay Mallya (Relevant for GS Prelims & Mains Paper III;
Economics)
Fugitive liquor baron Vijay Mallya, whose written application for permission to appeal an
order for his extradition to India was rejected by the United Kingdom High Court last week,
and his failed venture Kingfisher Airlines Ltd, are under investigation by the Enforcement
Directorate (ED), Central Bureau of Investigation (CBI), Serious Fraud Investigation Office
93
(SFIO), and Securities and Exchange Board of India (Sebi) for loan defaults of over Rs 10,000
crore to a consortium of Indian banks led by the State Bank of India (SBI).
Mallya faces charges of cheating, criminal conspiracy, money laundering and diversion of
loan funds. A few of his companies, including Kingfisher Airlines, face charges of violating
The Companies Act, 2013, and norms laid down by the capital markets regulator.
Mallya has denied any wrongdoing. He has the option to apply for an oral consideration of
his appeal, followed by a representation to the United Kingdom Home Secretary, invoking
his human rights.
Enforcement Directorate
The ED has charged Mallya under Sections 3 and 4 of the Prevention of Money Laundering
Act (PMLA). The agency has alleged that the now defunct Kingfisher Airlines “diverted” at
least Rs 3,547 crore of the loan that it received.
The ED’s complaint has listed five instances of alleged diversion of loan funds granted to
Kingfisher Airlines by lenders: (i) the diversion of Rs 3,432.40 crore through “over-invoicing”
of lease rentals of aircraft between April 2008 and March 2012; (ii) the diversion of Rs 45.42
crore “for making payment towards the rental lease” of a corporate jet which was used
“exclusively” by Mallya; (iii) the diversion of Rs 50.90 crore from Kingfisher Airlines to the
Force India Formula One team that Mallya controlled; (iv) the diversion of Rs 15.90 crore
from Kingfisher Airlines to Mallya’s firm that owned the Indian Premier League cricket team
Royal Challengers Bangalore; and (v) the diversion of Rs 2.80 crore to ICICI Bank as
repayment of an earlier loan to Kingfisher Airlines.
The ED has accused Kingfisher Airlines and Mallya of “concealment, possession, acquisition,
and use of proceeds of crime”. It has also accused United Breweries Holdings Ltd of assisting
Mallya in money laundering by not honouring a corporate guarantee that the company gave
to the banks, which was to be invoked in case of a loan default by Kingfisher Airlines.
Both the ED and the CBI have alleged that Mallya did not fully disclose his assets while
executing a personal guarantee agreement with lenders when the loans of Kingfisher Airlines
were restructured in December 2010. The agencies have also claimed to have found that
Mallya had “amassed huge properties outside India, especially in United Kingdom, USA,
France and Africa” and that he “has got interest in various companies which are
created/incorpoporated outside India”.
CBI
The CBI has charged Mallya under Sections 120B (criminal conspiracy) and 420 (cheating)
of the Indian Penal Code, and Sections 13(1)(d) and 13(2) of the Prevention of Corruption
Act.
The CBI has accused Kingfisher Airlines, its corporate guarantor, United Breweries Holdings,
and personal guarantor, Mallya, of giving “several glaring misrepresentations and false

94
information” to lenders. It has claimed to have found oral and documentary evidence to show
Mallya’s “intention” to cheat the bank.
Sebi
The capital markets regulator, Sebi, has banned Mallya from accessing the securities market
until January 2021 for alleged “diversion of funds perpetrated in a listed company by way of
dubious and concealed financial statements/projections or false books of accounts”.
Fugitive Economic Offender

In January, a special court in Mumbai declared Mallya a fugitive economic offender, the first
such designation under the Fugitive Economic Offenders (FEO) Act, 2018.
The Act defines a fugitive economic offender as “any individual against whom a warrant for
arrest in relation to a Scheduled Offence has been issued by any Court in India, who (i) has
left India so as to avoid criminal prosecution; or (ii) being abroad, refuses to return to India
to face criminal prosecution”. A “Scheduled Offence” is one which is “specified in the
Schedule, if the total value involved in such offence or offences is one hundred crore rupees
or more”.
77. India becomes net steel importer in 2018-19 fiscal (Relevant for GS Prelims;
Economics)
For the first time in three years, India was a net importer of steel during the 2018-19 fiscal
year as the country lost market share among its traditional steel buyers and imports jumped
on demand for higher quality steel domestically.
Reasons for fall in exports

India’s exports during the fiscal year declined after rival steelmakers in China, Japan, South
Korea and Indonesia, blocked from markets in the United States and Europe by tariffs and
other protectionist measures, ate away at the country’s markets in the Middle East and
Africa.
Reasons for rise in imports

Imports of value-added steel, primarily for the auto sector and high-end electrical steel, were
the biggest source of imports.
78. Should debt mutual funds investors worry? (Relevant for GS Prelims & Mains
Investors in debt mutual funds had a scare last week after Kotak Mutual Fund and HDFC
Mutual Fund wrote to their investors acknowledging that they have exposure to securities
of troubled Essel Group companies. While Kotak said it has returned nearly 99% capital of

95
its Fixed Maturity Plan (FMP) investors and will return more with accrued interest after a
successful strategic sale of Zee in September 2019, HDFC MF said it has extended the date of
maturity of one of its FMPs from April 15, 2019 to April 29, 2020.
Generally considered safe for investment with funds parked in government and private-
sector debt instruments offering fixed returns, debt-oriented schemes also carry a risk
though not as high as equity schemes. For investors in debt schemes, it is important to know
that if their debt MF scheme has invested in debt securities of a company that is not
financially strong and is facing liquidity pressure, then their investments may suffer in the
event of a default by that investee company.
A look at the current case and how it impacts investors:
What are FMPs, and what is the issue that fund houses are facing?
FMPs are fixed-tenure mutual fund schemes that invest in debt instruments including
government securities, commercial papers (CPs), non-convertible debentures (NCDs) and
certificates of deposits (CDs) among others and thereby generate interest income for
investors. They are close-ended funds that mature after a predetermined time period.
In the case in question, investors who had put their money in Kotak MF’s FMP in November-
December 2015 were ideally supposed to get their capital along with interest income on the
date of maturity, April 10, 2019. However, since the fund house had high exposure (almost
27% of initial corpus) to ITNL and two Essel Group companies that are facing a liquidity
crisis, the fund house is not in a position to fully honour its commitment. The fund house said
it has repaid 99.25% of the investors’ initial investment and that it is working towards
optimal recovery from two Essel Group companies by September 30, 2019.
Other mutual funds such as HDFC Mutual Fund and Reliance Mutual Fund with exposure to
Essel Group companies and IL&FS Group are also set to face a similar issue when it becomes
necessary for their FMP or debt scheme to repay the investors at maturity.
How much investment is stuck in the non-convertible debentures?

The total exposure of mutual funds to Essel Group companies is around Rs 7,300 crore.
However, Reliance Mutual Fund, Kotak Mutual Fund and HDFC Mutual Fund have lent
around Rs 950 crore to Konti Infra and Edisons Utility by subscribing to the non-convertible
debentures issued by the two companies in 2015-16. While Reliance MF had lent around Rs
510 crore to the two companies as of March 2016, Kotak MF had exposure of over Rs 300
crore to the two entities. HDFC Mutual Fund too subscribed to NCDs issued by Edisons and
lent around Rs 150 crore as of March 2016.
Is there a bigger worry?

While banks are already facing a big NPA crisis on account of default by a number of
corporate entities on their debt instruments, including large companies, the news of mutual
funds having exposure to such companies has raised an alarm among investors of mutual
funds. If a corporate entity defaults on payment principal and interest to invested MF
schemes, it takes away, in turn, the ability of the fund house to honour repayment to its
96
investors. Thus, it puts both the interest income and capital investment of the MF investor at
risk. With more and more corporate entities facing debt woes, the banks, NBFCs and mutual
funds that have exposure to debt papers of such companies fall at risk.
In India, while government bonds are the safest investment instruments, debt papers issued
by blue-chip companies are also considered low-risk investments.
Are retail investors also getting impacted?

While debt-oriented mutual funds are mostly subscribed to by corporate investors and high
net-worth individuals (HNIs), or those investing Rs 5 lakh and above, the share of retail
investors in such schemes has grown over the last four years. As of December 2018, while
the total asset under management of debt-oriented schemes stood at Rs 694,506 crore, the
share of retail investor money amounted to Rs 72,214 crore or 10.3% of the total AUM. In
December 2014, the share of retail investor money in debt-oriented schemes was 6.8%. On
the other hand, the share of corporate investment in debt-oriented schemes currently stands
at 51.5% , and HNIs’ share is around 36%.
So, retail investors too have exposure to such schemes and their money is at risk on account
of fund houses’ exposure to Essel Group companies.
Looking at equity-oriented schemes, retail investors are the dominant players and their
share in the total equity-oriented schemes’ AUM of Rs 8.4 lakh crore is nearly 52%.
Have there been such instances in the past, too?

While the exposure of MFs to Essel Group companies has come as a fresh concern, a series of
defaults by the IL&FS Group companies on CPs beginning August 2018 had put them under
a lot of pressure then. Many corporates, mutual funds, and insurance companies invested in
CPs and NCDs of the IL&FS Group, and following the default their funds have been locked in
IL&FS debt instruments, leading to a liquidity crunch. The situation created a liquidity
shortage of over Rs 90,000 crore in the system.
79. Chinese economy coming back to high trajectory (Relevant for GS Prelims & Mains
Quarterly rate of growth

China’s economy is showing signs of a rebound. According to figures released by its National
Bureau of Statistics, the Chinese economy grew at 6.4% in the first quarter of the current
year compared to the same period last year. While this rate of growth is equal to the pace
registered in the December quarter and faster than economists’ expectations of a 6.3%
expansion, it is still slower than the growth rate of 6.8% recorded in the same period last
year.
Chinese government gave large boost to economy

97
Retail sales and factory output also showed strong growth momentum. The latest growth
figure is seen as a sign that the Chinese government’s efforts over the last few quarters to
stimulate what is the world’s second largest economy are beginning to have a positive effect.
Total social financing grew by almost 40% to 8.2 trillion yuan in the first quarter of the year,
pointing to a credit expansion that will boost growth in the coming quarters.
Growth in exports expected

With trade tensions with the United States subsiding significantly for now, export growth
may accelerate, further boosting the Chinese economy. Chinese exports reached a five-
month high in March, rising 14.2% when compared to the same month last year. The Chinese
stock market has also been buoyed by the early signs of an economic turnaround and
increased liquidity, with the CSI 300 index rising by over a third in value since the beginning
of the year.
What are the challenges to stimulus driven growth?

Gross domestic product growth that is generated largely by increased lending, however,
poses the risk of losing momentum once the stimulus is withdrawn. Beijing, of late, has once
again been prodding its banks to boost lending to public and private businesses, apart from
implementing various fiscal measures to boost consumer spending. This could lead to a
tricky situation where businesses that resort to heavy borrowing when credit is easily
available become burdened with disproportionately high amounts of debt once the economic
boom cycle reverses.
Chinese authorities may eventually be forced to crack down on exuberant lending by banks
when the economy is found to be overheating. It was such a crackdown that contributed to
the fall in property prices in the last few years. For now, though, property prices have begun
to rebound after restrictions on the real estate sector were eased lately, in an attempt to
stimulate growth in the economy. The Chinese government is now walking a tightrope as it
attempts to keep the momentum from slowing in the short term, even as market forces try
to correct imbalances within the economy. Such macroeconomic policy, focussed too
narrowly on the short term while ignoring the long-term consequences, however, does not
bode well for either the Chinese economy or the wider global economy.
80. Story of airline industry in India (Relevant for GS Prelims & Mains Paper III;
Economics)
For four decades after eight independent domestic airlines — Deccan Airways, Airways
India, Bharat Airways, Himalayan Aviation, Kalinga Air Lines, Indian National Airways, Air
India (formerly Tata Airlines), and Air Services of India — were merged to create state-
owned Indian Airlines in 1953, India’s aviation sector remained a national monopoly. Policy
changes came in the 1990s — and liberalisation and economic reforms gave the private
aviation industry new wings of hope. Several of the private airlines that took off during that
decade were to hit air pockets soon, however — and in the years that followed, the sector
saw the entry of quite a few new players even as the businesses of others collapsed or were
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taken over. The suspension of operations at Jet Airways — at one time India’s largest private
airline — announced Wednesday, follows the troubles at Kingfisher, Air Deccan, and Sahara.
The beginnings
Founder promoter Naresh Goyal’s Jet Airways was one of the first private airlines in newly
liberalised India. In 1993, a year after its launch, Jet got an air-taxi operator’s permit, which
meant it could fly, but without a schedule. A flight schedule allows a carrier to estimate costs
and revenues for six months, the period of a single schedule in India. Less than two years
later, Jet got permission to fly as a scheduled airline after the government abolished The Air
Corporation Act, 1953, which gave the state-owned carriers the monopoly to operate as
scheduled airlines.
Start-stop-start
Besides repealing The Air Corporation Act, the government announced an Open Skies policy
in 1992, liberalising rules and regulations to open up the commercial aviation market. This
led to the birth, over the next decade or so, of private sector players including ModiLuft,
Damania Airways, Air Sahara, and East-West Airlines. Most of these new players, however,
folded up soon or were merged — Jet Airways in contrast, stood out as an efficient private
sector operator, gaining market share with each passing year.
ModiLuft and East-West ceased operations in 1996. Air Sahara, which started operations in
1993 as Sahara Airlines, was acquired by Jet in 2007 — a business move that many analysts
argue marked the beginning of the company’s troubles.
ModiLuft, which had an excellent record for three years until it shut down in 1996, was later
acquired by Ajay Singh, who launched it as SpiceJet in 2005 along with NRI businessman
Bhulo Kansagra. As SpiceJet faced difficulties, Kansagra sold his stake to US distress investor
Wilbur Ross in 2008, who sold it to Sun Group’s Kalanithi Maran a couple of years later. The
airline was teetering on the verge of closure when it was again acquired by Ajay Singh in
2015, who turned it profitable.
Boom and bust

The real expansion of the private airlines, and the number of domestic flyers in India, started
in the 2000s. In 2003, Captain G R Gopinath started the country’s first low-cost carrier Air
Deccan, which was followed by the launch of SpiceJet, IndiGo and GoAir. All these carriers
followed the model of no-frills, cheaper tickets, and higher passenger load factors.
The LCC (low-cost carrier) model revolutionised the Indian aviation sector, pushing the
country’s annual passenger growth rate to double digits. Alongside the LCCs, Kingfisher
Airlines started operations in 2005, pitching itself in the middle of a no-frills and a full-
service carrier. These new airlines posed a formidable challenge to Jet Airways, which had
so far operated largely in a duopoly with state-owned carriers Air India and Indian Airlines
(which were merged in 2011).
But the situation changed soon.

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Air Deccan faced extreme financial difficulties and was bought by Kingfisher in 2007.
However, Kingfisher itself went belly-up in 2012, while SpiceJet faced intermittent
headwinds. Jet, which had a 44% share of the domestic passenger market in 2003-04,
steadily lost ground — in February this year, the deeply troubled airline had only 10% of the
domestic market share, fourth behind IndiGo (43.4%), SpiceJet (13.7%) and Air India
(domestic, 12.8%), according to government data. In all these years, IndiGo stood out as the
only carrier that improved its market share and financial performance.
In December 2004, the government announced a major policy change, allowing Indian
scheduled carriers with a minimum five years’ continuous operations and a minimum of 20
aircraft (the so called 5/20 rule) to fly international routes. Jet was the key beneficiary of this
policy change. In 2016, the government scrapped the 5/20 rule and replaced it with 0/20,
enabling SpiceJet, IndiGo and GoAir to launch international flights in the following years.
A brutal industry
Over the last four years, India’s aviation market has grown at a yearly average rate of 20%,
among the fastest in the world. More and more Indians are flying; paradoxically though,
nearly all the major players are in dire straits financially.
Apart from operational and managerial efficiencies, one of the key determinants of an
airline’s success or failure is the price of crude oil. Fuel costs account for roughly 40 per cent
of a carrier’s operating cost. Steep taxes on aviation turbine fuel (ATF) in India — one of the
highest in the world — make Indian carriers less competitive against global players.
The launch of the LCCs disrupted the business model of the full-service players, eating into
their market share, and creating stress in the market. The wafer-thin margins, and heavy
competition and government taxes, results in airlines turning commercially unsustainable
from time to time, and they require constant infusion of funds to stay afloat.
81. Why did fixed maturity plans of some funds fail to fully mature? What are the risks
involved? (Relevant for GS Prelims & Mains Paper III; Economics)
Earlier this month, Kotak Mutual Fund informed investors in its Fixed Maturity Plans (FMPs)
that it would not be able to fully redeem investments made in two series of the FMPs.
Separately, HDFC Mutual Fund also announced the extension of one of its FMP schemes,
which was due for maturity on April 15, by 380 days.
What are FMPs?

Debt mutual funds, unlike equity MFs, invest in debt securities issued by companies (both
publicly listed and privately held) and governments. FMPs, in turn, are a class of debt funds
that are close-ended: one can only invest in them at the time of a new fund offer and they
come with a specified maturity date, much like a fixed deposit (FD). However, in contrast to
deposits, FMPs don’t offer a guaranteed return but only pitch an indicative yield that the
investor then takes a bet on. What the investor forgoes in terms of liquidity compared with
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an FD, she hopes to make good via the marginally higher returns that the fund’s investments
in higher-yield debt instruments such as commercial paper, corporate bonds and non-
convertible debentures (NCDs) could potentially earn it. Additionally, investments in FMPs
are more tax-efficient, since there are indexation benefits linked to capital gains, as opposed
to tax on interest income in the case of an FD. FMPs, however, like other debt funds come
with their own set of risks: the most significant ones are interest rate risk and credit risk.
How did Kotak’s and HDFC’s FMPs end up stuck?

Both the mutual funds’ investment managers had invested (as part of their portfolios) in debt
securities issued by some of the Subhash Chandra-promoted Essel Group’s listed and
unlisted companies.
Specifically, Kotak had invested in debentures of Konti Infrapower & Multiventures Private
Limited, a Mumbai-based provider of accounting and consulting services, and Edisons Utility
Works Private Limited, also based in Mumbai and reportedly operating in the construction
industry. These debentures, which carried a coupon interest rate of 11.1%, were rated
A+(SO) — putting them in the middle of the scale for investment grade ratings and indicating
that the issuer had stable financial backing. The debt had also been secured by a pledge of
Zee Entertainment Enterprise Limited’s shares.
While the exact purposes for which the borrowed funds were utilised is not known, Mr.
Chandra’s group firms did make some investments in infrastructure projects and also sought
to acquire Videocon’s D2h business. “In retrospect, disastrous investment decisions,” was
how investment advisory services provider Morningstar Inc. described the group’s
investments, in an April 12 note on their website.
In November 2018, the Essel Group announced that the promoter group planned to sell up
to 50% of its stake in Zee Entertainment. This announcement, coupled with market
speculation about financing difficulties at the group, prompted some lenders to start looking
for ways to minimise their losses in the eventuality of a ‘credit event’ such as the
announcement of a default on repayment of the borrowings.
On January 25, some lenders sold about ₹200 crore worth of Zee Entertainment shares,
resulting in a sharp fall in the stock’s price from its previous close of ₹434 on the BSE, to
₹319 per share.
At this point, the remaining lenders including Kotak MF and HDFC MF opted to not convert
the notional loss on their holdings into a real one and instead reached a standstill agreement
with the Essel Group.
As per the agreement, the creditors agreed to give Mr. Chandra and the Essel Group time up
to September 30, 2019, to conclude the strategic stake sale in Zee Entertainment and use the
proceeds to repay the borrowings with interest.
Which are the funds affected by Essel woes?

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The cumulative amount at stake for FMPs is estimated to be more than ₹1,400 crore with
over 40 schemes maturing later this year. More importantly, about 14 schemes, with an
exposure of almost ₹475 crore, were set to mature this month.
In the case of Kotak, besides the FMP Series 127 and 183, which matured on April 8 and April
10, respectively, and whose investors did not receive full redemption proceeds on account
of the funds’ exposure to the Essel group firms, four other FMPs viz. Series 187, 189, 193 and
194 as well as the Kotak Credit Risk Fund have exposure to the Essel group firms.
According to Morningstar Inc.’s analysis of FMP fund portfolio statements as of December

2018, the cumulative exposure of close-ended funds like FMPs to the Essel group’s debt was
pegged at ₹1,670 crore (see graphic).
What else is at stake for MF investors?

Kotak’s note to investors from earlier this month is revealing. Besides the Essel group
exposure, the fund house has acknowledged that four of the FMPs viz. Series 183, 192, 193
and 194 had also invested, in May 2016, in NCDs issued by the IL&FS Transportation
Networks Limited, a unit of the financially distressed IL&FS.
Kotak said it had made a 100% provision by February 12, 2019, for this investment as the
recovery would now depend on a resolution plan agreed to by a new board at the
beleaguered parent and the National Company Law Tribunal.
Also, the troubles at both the Essel group and IL&FS point to the woeful inadequacy of credit
ratings as a means to assess the most crucial element for fixed income investing: credit risk.
A look at Kotak’s own breakdown of the overall portfolio holdings of Assets Under
Management (AUM) for its debt schemes reveals that only about 46% of the overall funds
are parked either in sovereign (almost 13%) or AAA-rated (22.9%) securities.
The rest of the AUM are spread across fixed income securities rated below AAA, while still
invested in investment grade assets.
The industry’s mandatory disclaimer: “Mutual fund investments are subject to market risk”,
couldn’t be more germane than in this case.
82. India notifies tax agreement with US to stop evasion by MNCs (Relevant for GS
What is agreement for exchange of CbC reports?

India has notified the inter-governmental agreement with the US for exchange of country-
by-country (CbC) reports on multinational companies regarding income allocation and taxes
paid in order to help check cross-border tax evasion. The agreement, which was signed by
Central Board of Direct Taxes chairman P C Mody and US ambassador to India Kenneth Juster
in March, was notified by the revenue department on April 25, 2019.
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This agreement for exchange of CbC reports, along with the Bilateral Competent Authority
Arrangement, will enable both the countries to automatically exchange CbC reports filed by
the ultimate parent entities of multinational enterprises (MNEs) in the respective
jurisdictions, pertaining to the years commencing on or after January 1, 2016.
Benefit to Indian subsidiary companies in US

It will also obviate the need for Indian subsidiary companies of US multinationals to do local
filing of the CbC reports, thereby reducing the compliance burden.
What is a CbC report?

A CbC report aggregates country-by-country information relating to the global allocation of
income, taxes paid, and certain other indicators of an MNC. It also contains a list of all the
group companies operating in a particular jurisdiction and the nature of the main business
activity of each such constituent entity.
MNEs having global consolidated revenue of 750 million euro or more (or a local currency
equivalent) in a year are required to file CbC reports in their parent entity's jurisdiction. The
rupee equivalent of 750 million euros has been prescribed as Rs 5,500 crore in Indian rules.
This information will enable an enhanced level of assessment of tax risk by tax
administrations of both the countries.
What will be impact of notification?

The notification would enable both the countries to exchange CbC Reports filed by the
ultimate parent entities of international groups in USA, pertaining to the financial years
commencing on or after January 1, 2016. As a result, the Indian entities would not be
required to do local filing of the CbC Reports in India.
(Adapted from Times of India)
83. RBI's reluctance to furnish list of wilful defaulters (Relevant for GS Prelims &
Supreme Court directions to RBI

The Reserve Bank of India has been given a “last opportunity” by the Supreme Court to stop
being in “contempt” of the court’s order of December 2015. Ruling on a batch of contempt
petitions against the RBI, a two-judge bench directed it to furnish all information relating to
inspection reports and other material sought by Right to Information (RTI) petitioners, save
material exempted by the court’s earlier order particularly on the grounds that it had a
bearing on the security of the state. The bench made it clear that “any further violation shall
be viewed seriously”.
What has been the attitude of RBI?

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The banking regulator has repeatedly tried to stonewall multiple requests seeking
information ranging from the names of wilful defaulters on bank loans worth hundreds of
crores of rupees, to the bank-wise breakup of losses.
Central Information Commission order

The Central Information Commission too had, in November, directed the then RBI Governor,
Urjit Patel, to show cause “why maximum penalty should not be imposed on him” for the
central bank’s “defiance” of Supreme Court orders on disclosing the names of wilful loan
defaulters.
The RBI was accused off by the CIC for failing to uphold the interest of the public and not
fulfilling its statutory duty to depositors, the economy and the banking sector, by privileging
individual banks’ interests over its obligation to ensure transparency.
RBI needs to ensure transparency

At a time when the level of bad loans at commercial banks continues to remain worryingly
high, worsening their combined capital to risk-weighted assets ratio (CRAR), it is inexcusable
that the RBI continues to keep the largest lenders to banks, the depositors, and the public in
the dark on the specific loan accounts that are endangering the banking system’s health and
viability. The RBI’s latest Financial Stability Report shows that the industry-wide CRAR slid
to 13.7% in September 2018, from 13.8% in March 2018, with the ratio at the crucial public
sector banks declining more sharply to 11.3%, from 11.7% over the same period.
For a banking regulator that never tires of stressing the need for greater accountability from
the numerous public sector banks, the RBI’s reluctance to be more transparent is perplexing.
As the CIC aptly observed last year, the central bank’s intransigence and repeated failure to
honour the court’s orders ultimately undermines the very rule of law it seeks to enforce as a
banking sector regulator empowered by Parliament.
84. NSE fined ₹1,000 crore in co-location case (Relevant for GS Prelims & Mains Paper
III; Economics)
The Securities and Exchange Board of India (SEBI) has barred the National Stock Exchange
(NSE), which has the largest market share in equity segment and almost a monopoly in
equity derivatives, from accessing the securities market for six months.
The capital markets regulator has further ordered the exchange to pay ₹1,000 crore — that
is, ₹624.89 crore plus 12% interest from April 1, 2014 — for its alleged failure to exercise
proper due diligence while offering co-location facility thereby affecting market fairness and
integrity.
What is Co-location?
Co-location refers to the system wherein a broker’s server is kept in the exchange premises
to reduce latency, or delay in computing terms, while executing trades.
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What was the impact?

“The same created a trading environment in which the information dissemination was
asymmetric, which cannot be considered fair and equitable. This failure of NSE to ensure
equal and fair access, in the facts and circumstances as detailed and discussed in above
paragraphs, has resulted in violation...” added the SEBI order.
What is the matter?

The roots of the matter go back to 2015 when SEBI received complaints against NSE where,
among other things, it was alleged that the system that NSE used while disseminating data
through co-location facilities allowed certain users to get information before others, thereby
creating an information asymmetry.
The regulator has ordered Ravi Narain and Chitra Ramkrishna — both former MD & CEOs of
NSE — to disgorge a part of their salary drawn when they were at the helm of affairs at the
exchange, which has the largest market share in equity segment and almost a monopoly in
equity derivatives.
While Mr. Narain has been directed to disgorge 25% of his salary drawn from FY11 to FY13,
Ms. Ramkrishna is to disgorge a similar share of her salary drawn in 2013-14.
Both have also been barred from being associated with any listed firm or a Market
Infrastructure Institution — bourses, clearing corporations, depositories — for five years.
Other officials who have been issued restraining orders include Ravi Varanasi, head,
business development; Nagendra Kumar, head, membership department; Deviprasad Singh,
head, colo support; Suprabhat Lala, A-VP; and Umesh Jain, CTO.
SEBI has also barred OPG Securities, allegedly the prime beneficiary of the co-location
matter, and its directors from accessing the securities market for five years, while directing
the entities to disgorge nearly ₹25 crore. Ajay Shah of Indira Gandhi Institute of Development
Research has also been restrained from holding any position with a stock exchange or a listed
company for two years. “NSE is... examining [the] SEBI order and will take appropriate steps
as may be legally advised,” an NSE spokesperson said.
85. New SBI rules link savings bank interest to repo rate: what has changed, why
SBI linking interest rates to repo rate

State Bank of India (SBI), the country’s largest bank with almost a quarter share of the
banking business, linked its interest rates on savings bank deposits and short term loans to
the repo rate of the Reserve Bank of India (RBI).
SBI went ahead even though RBI had deferred the plan to link the rate of interest to external
benchmarks like the repo rate or Treasury Bill rate following opposition from other banks.
What does this mean for SBI’s customers?

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The bank has linked savings bank deposits with balances of more that Rs 1 lakh to the repo
rate, changing from the practice of linking to the Marginal Cost of Funds based Lending Rate
(MCLR).
The repo rate — the interest rate at which the RBI lends funds to banks — is currently 6%.
As per SBI’s formula, the new rate for savings bank deposits above Rs 1 lakh and up to Rs 1
crore will be 2.75% below the current repo rate — which works out to 3.25% per annum, as
against the 3.5% offered so far.
For savings bank deposits above Rs 1 crore, the new rate will be 3.75%, down from the
earlier rate of 4%.
All cash credit accounts and overdrafts with limits above Rs 1 lakh will be linked to the repo
rate (current repo rate of 6% plus a spread of 2.25%), the bank has said. Risk premiums over
and above this floor rate will be based on the risk profile of the borrower, as is the current
practice.
How will small depositors and small borrowers be impacted?

Savings account deposits with balances less than Rs 1 lakh will continue to earn 3.5%
interest — the same as the old rate fixed for these accounts. This interest rate is also subject
to change by the bank as per RBI rules, but it will not be reset automatically as the repo rate
moves.
Once the savings bank deposits cross the Rs 1 lakh mark, the lower interest rate will be
automatically applicable. There is relief for small borrowers with cash credit or overdraft
limits up to Rs 1 lakh, as they will not be linked to the repo rate.
What is the purpose of linking interest rates to an RBI benchmark rate?

In its December 2018 monetary policy meet, which was also the last policy of former
Governor Urjit Patel, the RBI had proposed the benchmarking of fresh floating-rate retail
loans and loans to micro and small enterprises to an external benchmark like repo rate or
Treasury Bill rate, effective April 1, 2019.
According to the RBI, the spread over the benchmark rate — to be decided at banks’
discretion at the inception of the loan — should remain unchanged through the life of the
loan, unless the borrower’s credit assessment undergoes substantial change.
The new system of external benchmark is expected to bring in more transparency in fixing
interest rates, and faster transmission of rates. Banks were lagging in these two crucial
factors while determining their deposit and lending rates.
Why did RBI defer the plan in its April policy?

On April 4, the RBI announced that it has put on hold its proposal to link interest rates on
deposits and short-term loans to an external benchmark like the repo rate or Treasury Bill.
Many banks were lobbying against linking loans to an external benchmark rate, fearing a fall
in margins. According to a FICCI-IBA Survey of Bankers, spreads kept by banks under the
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proposed external benchmarking of new floating rate loans could be higher to protect
themselves adequately in case of high volatility of benchmarks.
86. Pepsi vs Gujarat farmers: case, its withdrawal (Relevant for GS Prelims & Mains
PepsiCo India Holdings (PIH) announced it is withdrawing lawsuits against nine farmers in
north Gujarat, after having sued 11 farmers for “illegally” growing and selling” a potato
variety registered in the company’s name. What were these cases about?
The patent is for the potato plant variety FL-2027 (commercial name FC-5). Pepsi’s North
America subsidiary Frito-Lay has the patent until October 2023. For India, PIH has patented
FC-5 until January 2031 under the Protection of Plant Varieties and Farmers’ Rights
(PPV&FR) Act, 2001.
PIH, which has a buyback agreement with Gujarat farmers, accused the 11 farmers — three
of whom earlier had contracts with the company — of illegally growing, producing and
selling the variety “without permission of PIH”.
Speaking to The Indian Express before the cases were withdrawn, one of the accused farmers
had said the agreement was that PIH would collect potatoes of diameter greater than 45 mm,
and that farmers had been storing smaller potatoes for sowing next year. Four other farmers,
who were slapped with Rs 1.05 crore lawsuits, said they got registered seeds from known
groups and farmer communities and had been sowing these for the last four years or so, and
had no contractual agreement with anyone. They said they learnt they were growing a
registered variety only when they got a court notice on April 11.
Activists’ view
In the days that followed the lawsuits, activists, farmer unions and other organisations cited
Section 39(1)(iv) of the PPV&FR Act in defence of the farmers. The section states:
“Notwithstanding Anything contained in this Act — a farmer shall be deemed to be entitled
to save, use, sow, resow, exchange, share or sell his farm produce including seed of a variety
protected under this Act in the same manner as he was entitled before the coming into the
force of this Act, provided that the farmer shall not be entitled to sell branded seed of a
variety protected under this Act.”
Organisations said the Act was tailored to give farmers free access to seeds. Kavitha
Kuruganti of Alliance for Sustainable and Holistic Agriculture, a nationwide network of more
than 400 organisations, said the rights on a patented seed differ from country to country. “In
the US, if someone has patented a seed, no other farmer can grow it. If PepsiCo is looking at
enjoying similar rights in this country, it does not hold,” she said (this was before the PIH
announcement on Thursday).
Cases & announcement

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A court in Deesa, Banaskantha, had appointed court commissioners to investigate the

premises of two farmers as well as two cold storages. In Aravalli, a court had issued a
summons notice to five farmers. In Ahmedabad, the commercial court had extended an ex-
parte ad-interim injunction on four Sabarkantha farmers until June 12, barring them from
growing or selling FC-5.
The Gujarat government, meanwhile, announced it would become a party to all the suits and
back the farmers. On Wednesday, the government reportedly held out-of-court settlement
talks with the company, which eventually announced the withdrawal of cases. It has
withdrawn six cases against nine of the farmers, and its officials will meet state government
authorities Friday to discuss an arrangement.
87. Why has the Supreme Court given an ultimatum to the Reserve Bank of India on
loan defaulters? (Relevant for GS Prelims & Mains Paper III; Economics)
On April 26, the Supreme Court directed the Reserve Bank of India (RBI) to disclose to the
public the names of wilful defaulters on loans and also other information gathered by the
central bank during its annual inspection of commercial banks. The RBI and the Supreme
Court have been at loggerheads over this issue for a while now, with the central bank
repeatedly refusing to obey the orders of the Supreme Court.
What did the RBI do?

In January 2016, the RBI refused to comply with demands made by activists under the Right
to Information Act (RTI) to disclose copies of the annual inspection reports on banks such as
the State Bank of India, Axis Bank, and ICICI Bank despite orders from the Supreme Court.
The RBI also refused to provide information regarding the derivative losses suffered by
banks and the fines imposed on banks by the RBI for violating various norms. The Supreme
Court has this time around given the RBI a “last opportunity” to abide by its orders or face
serious penal action. The disclosure of information about banks, however, is not the only
point of conflict between two of the nation’s powerful institutions. In early April, the
Supreme Court quashed the RBI’s circular issued on February 12, 2018 which directed banks
to resolve their troubled loans within a period of 180 days. If banks failed to resolve their
bad loans within the given deadline, the bad loan cases would be sent to bankruptcy courts.
Why does it matter?

The outcome of the battle between the RBI and the Supreme Court will determine the
amount of information related to banks that will be made available to the public. Supporters
of the Supreme Court’s position believe that greater transparency will allow the general
public and investors in public and private sector banks to make better decisions with their
money. In particular, they point to the problem of wilful defaults that has been plaguing
banks. According to data gathered by TransUnion CIBIL, the amount of wilful defaults has
risen by four times in the last five years from ₹39,504 crore at the end of March 2014 to
₹1,61,213 crore at the end of December 2018. At the same time, the number of wilful
defaulters has doubled over the same period. State Bank of India, the largest public sector
bank, has suffered the largest amount of wilful defaults among all banks.
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The disclosure of the names of wilful defaulters to the public, many believe, will help bring
about better credit discipline in the country by exposing problems brewing within banks
sooner rather than later. In fact, they find it surprising that the RBI which has been
spearheading the fight against bad loans is unwilling to release vital information on wilful
defaulters to the public. The RBI, on its part, has argued that the disclosure of auditing
information related to banks can lead to the exposure of sensitive information that may not
be in the commercial interest of banks or even in the interest of the wider economy. The RBI
also seems to believe that releasing information about defaulters can unfairly shame
borrowers who may genuinely not be able to pay back their loans due to various financial
difficulties. Such shaming could have the unintended consequence of impeding genuine
business activity in the economy. The central bank has also put forward the argument that it
has the fiduciary duty to protect certain information about banks.
What lies ahead?

It is hard to predict what will happen next in this battle. The Supreme Court may begin
contempt proceedings against the RBI if it chooses to disobey its latest order, but the impact
this will have on the RBI’s freedom remains to be seen. The RBI has chosen not to obey orders
coming from the Supreme Court in the past, including previous proceedings of contempt
against it. If the RBI is forced to abide by the Supreme Court order, it will certainly increase
publicly available information on banks. Greater transparency will also help make the RBI
more accountable. If there are legitimate reasons for banks and the RBI to withhold certain
information from the public domain, however, the forced disclosure of information following
the Supreme Court’s order may lead to various unintended consequences both within the
financial sector and the broader economy. The RBI, for instance, may choose to not include
in its annual inspection reports certain sensitive information about banks that it feels
shouldn’t be in the public domain.
88. Chips at stake in the PepsiCo-farmers fight : Who has infringed on rights under the
Protection of Plant Varieties and Farmers’ Rights Act, 2001? (Relevant for GS Prelims
A David versus Goliath story has played out in Gujarat over the last month, with food and
beverages giant PepsiCo dragging potato farmers to court for allegedly growing its
registered potato variety used to make ‘Lays’ chips. Four small farmers from Sabarkantha
district were sued ₹1.05 crore each, although they cite a law allowing them to grow and sell
even registered plant varieties. Faced with growing social media outrage, boycott calls from
farmers groups and condemnation from major political parties, the company finally agreed
to withdraw cases after talks with the Gujarat government.
When was the variety introduced?

PepsiCo introduced, in 2009, the FC5 variety of potato that it uses to make its popular ‘Lays’
potato chips to India. The potato variety is grown by approximately 12,000 farmers who are
a part of the company’s collaborative farming programme, wherein the company sells seeds
to farmers and has an exclusive contract to buy back their produce. In 2016, the company
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registered the variety under the Protection of Plant Varieties and Farmers’ Rights Act, 2001
(PPV&FRA).
Finding that farmers who were not part of its collaborative farming programme were also
growing and selling potatoes of this variety in Gujarat, PepsiCo filed rights infringement
cases under the Act against some farmers in Sabarkantha, Banaskantha and Aravalli districts
in 2018 and 2019. Farmers allege that the company hired a private detective agency to pose
as potential buyers, take secret video footage and collect samples from farmers’ fields
without disclosing its real intent.
What is the farmers’ stand?

The ₹4.2 crore lawsuit against four small farmers in Sabarkantha district was heard by an
Ahmedabad commercial court on April 9, and an ex-parte injunction ordered against the
farmers. However, farmers’ rights groups across the country began a campaign against
PepsiCo, requesting the Protection of Plant Varieties and Farmers’ Rights Authority to
intervene in the case and bear the farmers’ legal costs using the National Gene Fund. At the
April 26 hearing, the company offered an out-of-court settlement to the farmers on the
condition that they give an undertaking not to grow the registered variety and surrender
existing stocks or to join its collaborative farming programme.
Demanding an unconditional withdrawal of cases, farmers unions affiliated to the ruling

Bharatiya Janata Party (BJP) as well as the Left parties joined in boycott calls against PepsiCo
products and stoked outrage on social media as well. In the midst of an election season in
which agricultural issues are in the spotlight, senior political leaders from the Congress and
BJP added their criticism. On April 27, the Gujarat government announced that it would back
the farmers and join the legal case on their behalf, although it later indicated it was working
toward an out-of-court settlement. Finally, on May 2, PepsiCo agreed to withdraw all nine
cases after discussions with the government.
What is the legal basis for the suit?

Both PepsiCo and the farmers cite the same Act to support their opposing positions. The
PPV&FRA was enacted in 2001 to comply with the World Trade Organisation’s Agreement
on Trade-Related Aspects of Intellectual Property Rights.
PepsiCo based its suits on Section 64 of the Act dealing with infringements of the registered
breeder’s rights and subsequent penalties. The farmers’ legal case depended on Section 39
of the Act, which allows the cultivator to “save, use, sow, resow, exchange, share or sell his
farm produce including seed of a variety protected under this Act” with the sole exception of
branded seed. As this section begins with the words “Notwithstanding anything contained in
this Act…”, farmers claim their rights have precedence.
Over the last decade, more than 3,600 plant varieties have been registered under the Act,
with more than half of the registration certificates going to farmers themselves. This was the
first case of infringement of rights under the Act, according to the central agency set up to
implement the Act.

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Who are the stakeholders and what are the stakes?

“The company is harassing us. I am not a crorepati, I cannot afford to pay these damages they
want,” says Haribhai Patel, who owns four acres and was sued for ₹1.05 crore. He claims he
bought potato seeds locally, and is within his rights to grow and sell any variety. Even
PepsiCo supporters admit that they lost the perception battle by dragging small farmers to
court for large sums in election season.
However, some of the farmers sued in 2018 seem to be larger players with bigger stakes in
the game. Fulchand Kachchhawa reportedly owns over 150 acres of land, as well as cold
storage facilities, and is a potato grower and trader selling much of his produce to ‘Balaji
Wafers’, the major regional competitor of ‘Lays’ chips. It is alleged that he sells the registered
variety of seeds to smaller farmers and buys their produce as well. It is unclear whether his
activities would be protected under Section 39 of the PPV&FRA.
PepsiCo says its collaborative farming programme and registered variety rights are under
threat. While ‘Lays’ claims to be a leader in the country’s ₹5,500 crore potato chips market,
regional players are eating into the market share.
Farmers rights groups such as the Alliance for Sustainable and Holistic Agriculture saw the
issue as a test case on farmers rights in India under the WTO regime, and warned that a bad
precedent could hurt farmers of other crops and endanger the country’s food sovereignty.
What happens next?

While farmers have claimed victory, they also demanded an apology from PepsiCo and plan
to sue for compensation for “harassment” by the company. They are also wary of any future
government-facilitated negotiations on seed protection and the rights of breeders. Pepsico’s
decision to withdraw the cases was “backed by an assurance from the government for a long
term amicable settlement”, according to sources familiar with the development, who added
that both the Gujarat government and the Centre were involved in that assurance for further
talks.
89. Reliance subsidiary acquires UK toy retailer Hamleys (Relevant for GS Prelims &
Reliance Brands, a subsidiary of Reliance Industries Ltd (RIL), acquired UK-based toymaker
Hamleys from C.banner International.
About Hamleys
Hamleys has about 167 stores across 18 countries. In India, Reliance has the master
franchise for Hamleys, and currently operates 88 stores across 29 cities.
Why acquisition was carried out?

This acquisition will make Reliance Brands to be a dominant player in the global toy retail
industry.
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As is known, Reliance plans to launch an e-commerce marketplace later this year that will
sell everything from food, fashion to toys and this acquisition will perfectly fit into its
strategy.
History of Hamleys
Hamleys is currently owned by Chinese fashion conglomerate C.banner International, which
had acquired it for £100 million in 2015. Hamleys started with a single-store shop, Noah’s
Ark, in 1760, around the time when the British East India Company was ruling India.
(Source: https://indianexpress.com/article/business/companies/reliance-subsidiary-acquires-uk-toy-
retailer-hamleys-5720180/)
90. Decline in automobiles sales signal Economic slowdown in India (Relevant for GS
Recent indicators
Society of Indian Automobile Manufacturers (SIAM) has reported The decline of almost 16%
in total automobile industry sales in April as compared to earlier.
The Index of Industrial Production (IIP) for March shows output fell 0.1% from a year earlier
to a 21-month low. The capital goods sector shrank by 8.7% on the back of an 8.9%
contraction in the preceding month. Output of consumer durables fell 5.1%.
Position of global economy

The position of global economy is also expected to be bad on account of trade war between
the two largest economies, the U.S. and China, and rising tensions in West Asia which will is
already pushing oil prices.
Expectations from new government

The new government that emerges after May 23 must draw appropriate policy measures
that not only help reinvigorate demand but also ensure that such a revival is robust, across-
the-board and enduring.
(Source:https://www.thehindu.com/opinion/editorial/missing
demand/article27130430.ece)
91. RBI now uses divergence to compel banks to improve their loan-loss ratios
What is Divergence in loan recognition?

Divergence takes place when the Reserve Bank of India (RBI) finds that a lender has under-
reported (or not reported at all) bad loans in a particular year and hence asks the lender to
make disclosures if under-reporting is more than 10% of bad loans or the provisioning.
Which are the banks at default?

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Three state-run banks — Union Bank of India, Indian Bank and Central Bank of India — had
reported divergence while announcing the results. In all these banks, divergence was spotted
for the financial year 2017-18.
Divergence was identified not because these banks hadn’t classified the loan as non-
performing assets (NPA) but because they were late in classifying them.
CATEGORIES OF NPAs
According to Reserve Bank of India (RBI) guidelines, banks are required to classify NPAs
further into substandard, doubtful, and loss assets based on the time period of pending debts.
1. Substandard assets: Assets that have remained NPA for a period less than or equal to 12
months.
2. Doubtful assets: An asset would be classified as doubtful if it has remained in the

substandard category for a period of 12 months.
3. Loss assets: A loss asset is considered uncollectible or is of such little value that its
continuance as a bankable asset is not warranted, although it may have some salvage or
recovery value.
How divergence leads to higher provisioning?

Since the date of classification as NPA had been pushed back, the banks had to make higher
provisioning. In the first stage of NPA, which is the ‘sub-standard’ category, 15-20%
provision is required and for next category, which is ‘doubtful’, a 40% provision is required.
So, banks have been asked to classify the account as NPA on an earlier date, which means,
increase in provisioning requirement due to ageing factor.
(Source:https://www.thehindu.com/business/Industry/rbi-now-uses-divergence-to-
compel-banks-to-improve-their-loan-loss-ratios/article27174135.ece)
92. Rising trade deficit of India on account of falling exports (Relevant for GS Prelims
Falling exports
The estimates for foreign trade show a sharp slowdown in merchandise export growth in
April, to 0.64% from last earlier. If we do not count 31% increase in shipments of petroleum
products to overseas markets, India’s export of goods actually contracted by over 3% in
dollar terms last month.
Analysis of decrease in exports
The fall in exports was seen in 16 out of 30 major product groups. The fall was noticed in
engineering and even traditionally strong export sectors — gem and jewellery, leather and
leather products, textiles and garments and drugs and pharmaceuticals.

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These sectors are all key providers of jobs. Thus, reduction in these sectors will impact jobs,
wages and consumption demand in the domestic market.
Rising imports
Imports grew by 4.5% to $41.4 billion in April due to purchases of crude oil and gold.
Excluding oil and gold, however, imports shrank by more than 2% last month, signalling that
import demand in the real productive sectors has reduced.
As a result of merchandise imports outpacing exports, the trade deficit has widened to $51.9
billion in the first nine months of fiscal 2018-19. It has already surpassed the preceding
financial year’s 12-month shortfall of $48.7 billion.
(Source:https://www.thehindu.com/opinion/editorial/external-
woes/article27165660.ece)
93. Why appeals are stuck at WTO, how India will be hit if process breaks down
The World Trade Organization’s (WTO’s) dispute settlement mechanism is going through a
“crisis”: the body is struggling to appoint new members to its understaffed Appellate Body
that hears appeals in trade. Unless the issue is resolved, the body could become defunct, and
countries locked in international trade disputes will be left with no forum for recourse.
Over 20 developing countries met in New Delhi last week to discuss ways to prevent the
WTO’s dispute resolution system from collapsing due to the logjam in these appointments.
What is the WTO’s Appellate Body, and why is it important?

The Appellate Body, set up in 1995, is a standing committee of seven members that presides
over appeals against judgments passed in trade-related disputes brought by WTO members.
With over 500 international disputes brought to the WTO and over 350 rulings issued since
1995, the organisation’s dispute settlement mechanism is one of the most active in the world,
and the Appellate Body is the highest authority in these matters.
What is the present state of the body?

Over the last two years, the membership of the body has dwindled to just three persons
instead of the required seven. This is because the United States, which believes the WTO is
biased against it, has been blocking appointments of new members and reappointments of
some members who have completed their four-year tenures. Two members will complete
their tenures in December this year, leaving the body with just one member.
At least three people are required to preside over an appeal, and if new members are not
appointed to replace the two retiring ones, the body will cease to be relevant. Between 1995
and 2014, around 68% of the 201 panel reports adopted were appealed.
While the US is directly involved in more disputes than other WTO member countries,
several countries—including India—enter disputes as third parties.

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India has so far been a direct participant in 54 disputes, and has been involved in 158 as a
third party.
And what is the way forward from here on?

While new appointments to the Appellate Body are usually made by a consensus of WTO
members, there is a provision for voting where a consensus is not possible.
The group of 17 least developed and developing countries, including India, that have
committed to working together to end the impasse at the Appellate Body can submit or
support a proposal to this effect, and try to get new members on the Appellate Body by a
majority vote.
(Source:https://indianexpress.com/article/explained/why-appeals-are-stuck-at-wto-
how-india-will-be-hit-if-process-breaks-down-5736410/)
94. Higher education to get a boost with ₹1.5 lakh crore action plan (Relevant for GS
Ministry of Human Resource Development plans to launch an ambitious ₹1.5 lakh crore
action plan to improve the quality and accessibility of higher education over the next five
years.
This is being described as the implementation plan for the National Education Policy. The
last NEP was released in 1986, with a revision in 1992.
EQUIP project
The Ministry plans to launch EQUIP project. EQUIP stands for the Education Quality
Upgradation and Inclusion Programme and was crafted by ten committees led by experts
within the government such as NITI Aayog CEO Amitabh Kant, principal scientific advisor K.
Vijay Raghavan and former revenue secretary Hasmukh Adhia, as well as some corporate
chiefs.
The ten committees have drafted strategy to improve access to higher education, especially
for underserved communities; improve the gross enrolment ration; improve teaching and
learning processes; build educational infrastructure; improve the quality of research and
innovation; use technology and online learning tools; and work on accreditation systems,
governance structures and financing.

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Need for funds

Given that the last budget only allocated ₹37,461 crore to the higher education department,
the EQUIP project will need to rely on extra-budgetary resources. The secretary said the
Centre would mobilise money from the marketplace through the Higher Education Financing
Agency (HEFA).
This would go beyond HEFA’s current ambit. The joint venture between the HRD Ministry
and Canara Bank, set up in 2017, has been tasked with raising ₹1 lakh crore to finance
infrastructure improvements in higher education by 2022. So far, projects worth ₹30,000
crore have been approved, HRD Minister Prakash Javadekar said in January.
(Source:https://www.thehindu.com/education/higher-education-to-get-a-boost-with-15-
lakh-crore-action-plan/article27240106.ece)
95. Draft export policy unveiled (Relevant for GS Prelims & Mains Paper III;
Economics)
The Commerce Ministry has come out with a comprehensive draft of the export policy that
includes product-specific rules to provide a ready reckoner for exporters.
The draft policy is aimed at consolidating the export norms for each product as applicable at
different government agencies.
The compendium will help an exporter know all the applicable norms pertaining to a
particular product, helping him/her understand policy conditions for that item.

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Rationale behind the policy

Every product has been accorded eight digit HS codes.
This exercise is for consolidating the norms and not for making any changes in the existing
export policy of the country. The DGFT said that the updated draft had been prepared by
including all existing policy conditions, all notifications and public notices issued after
January 2018.
Besides, it also includes non-tariff regulations imposed by different government agencies.
(Source:https://www.thehindu.com/business/Industry/draft-export-policy-
unveiled/article27267247.ece)
96. US takes India off currency watchlist (Relevant for GS Prelims & Mains Paper III;
Economics)
The US government removed India from its list of major trading partners to be closely
monitored for potentially questionable foreign exchange policies with the move coming
amid escalating trade tensions between the two countries.
Why India’s name has been removed?

India has been removed from the list for “addressing” some of the Trump administration’s
concerns over its currency practices and macroeconomic policies, according to the
Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United
States report released by the US Treasury department. According to it, the only factor of
concern from India is its “significant” bilateral trade surplus with the US, which crosses the
country’s maximum limit of $20 billion.
What is the criteria of adding in monitoring list?

The US includes major trading partners in its monitoring list if they meet at least two of three
criteria – if it has either a significant bilateral trade surplus with the US, if it has a material
current account surplus or if it is engaged in “persistent one-sided intervention” in the
foreign exchange market.
Signifies improvement in trade relations

Currency policy has been used by the Trump administration as a tool in trade talks. This
move is based on quantifiable criteria but it signals a possible de-escalation in India-US trade
tension. US has been holding off on notifying the withdrawal of trade benefits to India despite
the expiry of its notice period, possibly in the hope that the new government will defuse the
standoff.
When was India included?

India was included in the list over a year ago because, in 2017, its foreign exchange purchases
over the first three quarters of the year pushed net purchases of forex above 2 per cent of
GDP. It also had a trade surplus of over $20 billion.

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Countries in the current list include China, Japan, Korea, Germany, Italy, Ireland, Singapore,
Malaysia and Vietnam.
Pressure from US
Over the last two years, US put pressure on India by increasing tariffs on products like steel
and aluminium,as well as removing the country from its Generalized System of Preferences,
which allowed Indian businesses certain trade benefits.
(Source:https://indianexpress.com/article/india/united-states-india-currency-watch-
donald-trump-5755396/)
97. Dr K. Kasturirangan Committee submits the Draft National Education Policy to the
Union HRD Minister (Relevant for GS Prelims & Mains Paper III; Economics)
The Committee led by the Chairman Dr. Kasturirangan submitted the Draft National
Educational Policy to the Union Human Resource Development Minister.
National Policy on Education, 1986 modified in 1992 required changes to meet the
contemporary and futuristic needs of our large youth population. The Draft National
Education Policy, 2019 is built on the foundational pillars of Access, Equity, Quality,
Affordability and Accountability.
Salient features of Draft National Education Policy, 2019

1. The Committee has proposed to rename MHRD as Ministry of Education (MoE).
2. In School Education, a major reconfiguration of curricular and pedagogical structure with

Early Childhood Care and Education (ECCE) as an integral part of school education is
proposed.
3. The Committee also recommends Extension of Right to Education Act 2009 to cover
children of ages 3 to 18. A 5+3+3+4 curricular and pedagogical structure based on cognitive
and socio-emotional developmental stages of children: Foundational Stage (age 3-8 yrs): 3
years of pre-primary plus Grades 1-2; Preparatory Stage (8-11 years): Grades 3-5; Middle
Stage (11-14 years): Grades 6-8; and Secondary Stage (14-18 years): Grades 9-12.
4. Schools will be re-organized into school complexes. It also seeks to reduce content load in
school education curriculum. There will be no hard separation of learning areas in terms of
curricular, co-curricular or extra- curricular areas and all subjects, including arts, music,
crafts, sports, yoga, community service, etc. will be curricular.
5. It promotes active pedagogy that will focus on the development of core capacities: and life
skills, including 21st century skills.
6. The Committee proposes for massive transformation in Teacher Education by shutting

down sub-standard teacher education institutions and moving all teacher
preparation/education programmes into large multidisciplinary universities/colleges. The
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4-year integrated stage-specific B.Ed. programme will eventually be the minimum degree
qualification for teachers.
7. In higher education, a restructuring of higher education institutions with three types of

higher education institutions is proposed- Type 1: Focused on world-class research and high
quality teaching; Type 2: Focused on high quality teaching across disciplines with significant
contribution to research; Type 3: High quality teaching focused on undergraduate education.
This will be driven by two Missions -Mission Nalanda & Mission Takshashila. There will be
re-structuring of Undergraduate programs (e.g. BSc, BA, BCom, BVoc) of 3 or 4 years
duration and having multiple exit and entry options.
8. A new apex body Rashtriya Shiksha Ayog is proposed to enable a holistic and integrated
implementation of all educational initiatives and programmatic interventions, and to
coordinate efforts between the Centre and States. The National Research Foundation, an
apex body is proposed for creating a strong research culture and building research capacity
across higher education.
9. The four functions of Standard setting, Funding, Accreditation and Regulation to be

separated and conducted by independent bodies: National Higher Education Regulatory
Authority as the only regulator for all higher education including professional education;
Creation of accreditation eco-system led by revamped NAAC; Professional Standard Setting
Bodies for each area of professional education and UGC to transform to Higher Education
Grants Commission (HEGC). The private and public institutions will be treated on par and
education will remain a ‘not for profit’ activity.
Several new policy initiatives for promoting internationalization of higher education,

strengthening quality open and distance learning, technology integration at all levels of
education, adult and lifelong learning and initiatives to enhance participation of under-
represented groups, and eliminate gender, social category and regional gaps in education
outcomes are recommended. Promotion of Indian and Classical Languages and setting up
three new National Institutes for Pali, Persian and Prakrit and an Indian Institute of
Translation and Interpretation (IITI) has been recommended. The path breaking reforms
recommended will bring about a paradigm shift by equipping our students, teachers and
educational institutions with the right competencies and capabilities and also create an
enabling and reinvigorated educational eco-system for a vibrant new India.
(Source: http://pib.nic.in/PressReleseDetail.aspx?PRID=1573031&RegID=3&LID=1)
98. Landmark decision taken in the first Cabinet meeting of the NDA Government
offers pension coverage to crores of farmers (Relevant for GS Prelims & Mains Paper
III; Economics)
The Union Cabinet has approved a new Central Sector Scheme, a historic decision that will
empower farmers across India. This is a path breaking scheme that will provide pension
cover to our industrious farmers who toil day and night to keep our nation fed. It is also for

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the first time since independence that such a pension coverage has been envisioned for
farmers.
It is estimated that 5 crore small and marginal farmers will benefit in the first three years
itself. The Central Government would spend Rs. 10774.50 crore for a period of 3 years
towards its contribution (matching share) for providing social security cover as envisaged
under the scheme.
The salient features of this scheme are:

A voluntary and contributory pension scheme for all Small and Marginal Farmers (SMF)
across the country.
Entry age of 18 to 40 years with a provision of minimum fixed pension of Rs.3,000/- on
attaining the age of 60 years.
For example, a beneficiary farmer is required to contribute Rs 100/ - per month at median
entry age of 29 years. The Central Government shall also contribute to the Pension Fund an
equal amount as contributed by the eligible farmer.
After the subscriber’s death, while receiving pension, the spouse of the SMF beneficiary shall
be entitled to receive 50% of the pension received by the beneficiary as family pension,
provided he/she is not already an SMF beneficiary of the Scheme. If, the death of the
subscriber happens during the period of contribution, the spouse shall have the option of
continuing the Scheme by paying regular contribution.
Synergy between schemes, prosperity for farmers:

An interesting feature of the Scheme is that the farmers can opt to allow his/her monthly
contribution to the Scheme to be made from the benefits drawn from the Pradhan Mantri
KisanSAmman Nidhi (PM-KISAN) Scheme directly. Alternatively, a farmer can pay his
monthly contribution by registering through Common Service Centres (CSCs) under MeitY.
Fulfilling core promises, empowering the agriculture sector:

For seventy years after Independence, such a coverage for farmers was never thought. It was
in the run up to the 2019 Parliamentary elections that PM Narendra Modi first mooted such
an idea, which gradually found resonance across the length and breadth of India. Such a plan
was mentioned in the BJP manifesto and in the first Cabinet meeting after the formation of a
new Government, it has become a reality.
99. PM-KISAN Scheme extension to include all eligible farmer families irrespective of
the size of land holdings (Relevant for GS Prelims & Mains Paper III; Economics)
The Union Cabinet, chaired by the Prime Minister Narendra Modi has approved that the
ambit of the Pradhan Mantri KisanSamman Nidhi (PM-KISAN) would be comprehensively
extended. With this decision, all land holding eligible farmer families (subject to the
prevalent exclusion criteria) would avail of the benefits under this scheme.
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More beneficiaries, greater progress:

The revised Scheme is expected to cover around 2 crore more farmers, increasing the
coverage of PM-KISAN to around 14.5 crore beneficiaries, with an estimated expenditure by
Central Government of Rs. 87,217.50 crores for year 2019-20.
Speed, scale and a major promise delivered:

Today’s Cabinet decision pertaining to expanding the ambit PM-KISAN marks the fulfilment
of a major promise made by the Prime Minister to the people of India in the run-up to the
2019 Parliamentary elections. The BJP manifesto too mentioned this major policy decision.
It may also be noted that certain operational issues like lack of updated land records in
Jharkhand and lack of Aadhaar penetration in states of Assam, Meghalaya and J&K have also
been resolved.
PM-KISAN: A path-breaking support incentive for farmers:

The genesis of the PM-KISAN Yojana dates back to the interim Budget for the year 2019-
2020.
The key element of PM-KISAN is income support of Rs. 6000/- to the small and marginal
landholder farmer families with cultivable land holding upto 2 hectare across the country.
(This has been expanded today)
The amount is being released in three 4-monthly instalments of Rs.2000/- each over the
year, to be credited into the bank accounts of the beneficiaries held in destination banks
through Direct Benefit Transfer mode.
The scheme was launched in a record time of 3 weeks, on 24th February at a huge
programme in Gorakhpur, Uttar Pradesh where the first rounds of instalments was paid to
several farmers.
So far, 1st instalment to 3.11 crore beneficiaries and 2nd instalment to 2.66 crore
beneficiaries have been credited directly to the bank accounts of the farmer families.
Serving India’s Annadatas with renewed vigour:

Time and again, PM Narendra Modi has spoken with great reverence for India’s farmers. He
has described India’s farmers as our Annadatas who undertake great efforts to feed 1.3
billion Indians.
Between 2014 to 2019, numerous measures were taken to empower the hardworking
farmer. This includes increase in the Minimum Support Prices (MSP) for 22 crops, Soil Health
Cards, PM Krishi Sinchai Yojana, PM KisanSampada Yojana, e-NAM for better markets and
more. These steps have made agriculture more prosperous and ensured greater productivity
for farmers. They will go a long way in fulfilling the Prime Minister’s dream of doubling
farmer incomes by 2022, when India marks 75 years of freedom.

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100. GDP growth slumps to 5.8% and unemployment highest in 45 years (Relevant for
India’s GDP grew at 5.8% in the January-March 2019 quarter, dragging down the full year
growth to a five-year low of 6.8%. India has lost fastest growing tag to China, if quartery
growth rates are compared. The unemployment rate in the country rose to a 45-year high of
6.1% in 2017-18, as per official data.
Reason for slowdowm

Slowdown, caused by temporary factors such as liquidity crunch, is likely to continue in the
April-June 2019 quarter, with the demand picking up from the second quarter onwards. The
slowdown is on loan stress in NBFC sector.
Performance of various sectors

During the year, the slowdown in the economy was led by sluggish growth in the agriculture,
forestry and fishing sector (2.9% growth), the mining sector (1.3% growth) and
manufacturing (6.9%).
The sectors which saw growth rate of over 7% were public administration, defence and other
services, construction, financial, real estate and professional services, and electricity, gas,
water supply and other utility services.
Unemployment at 45year high

The unemployment data, which was released a day after Prime Narendra Modi took oath for
the second term, confirms an earlier leaked version of this survey that claimed that
joblessness was at a 45-year high.

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The data showed that 7.8% of the employable urban youth and 5.3% of employable rural
youth was without jobs. Additionally, 6.2% male and 5.7% females across the country were
jobless.
Further, as per the data, unemployment rate for males was higher in rural areas at 5.8% as
against 3.8% for women, while in urban areas the rate for women was 10.8 against 7.1% for
men.
(Source:https://www.thehindu.com/business/Economy/gdp-growth-slumps-to-
58/article27394803.ece)
101. Govt sets up two new Cabinet panels to generate jobs and tackle economic
slowdown (Relevant for GS Prelims & Mains Paper III; Economics)
Acknowledging that a slowing economy and need for jobs are pressing issues that need
sustained follow-up, the new government under Prime Minister Narendra Modi decided to
set up two new committees of the Cabinet — one on Investment and Growth, and the other
on Employment and Skill Development.
Falling economic growth rate

For the government, a slowing economy has been a major concern, especially during the last
financial year when GDP growth rate dropped below the original estimate of 7 per cent to
6.8 per cent. Growth rates were sequentially lower every quarter, with the last quarter
(January-March 2019) growing just 5.8 per cent, the lowest in 20 quarters.
Private investment has remained depressed for the past many years due to poor credit
generation on account of huge bad loans. Moreover, the consumption expenditure is also
slowing down.
Composition of Cabinet Committee on Growth and Investment

The Cabinet Committee on Growth and Investment will have five members and likely include
Amit Shah (Home), Nitin Gadkari (Road, Transport & Highways and MSMEs), Nirmala
Sitharaman (Finance and Corporate Affairs) and Piyush Goyal (Railways and Commerce and
Industry), sources said. These ministries are key to attracting large private investments in
infrastructure sectors and green field projects, facilitating ease of doing business, and
clearing foreign investment proposals.
Cabinet Committee on Employment and Skill Development

The slowing growth has had its impact on jobs too. The unemployment rate for 2017-18,
according to the Periodic Labour Force Study, stood at 6.1 per cent, the highest in the last
four decades. The Cabinet Committee on Employment and Skill Development attempts to
address the skilling and jobs problem holistically.
It will be composed of ministries such as HRD, Labour and Employment, and Skill and
Entrepreneurship. It will allow for an integrated approach while addressing issues related
to skilling at school level, ITIs and the certification process in government and private
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skilling institutes. Two, to ensure that skills being imparted are in tune with the job
requirement and sectoral demand, the Cabinet Committee on Employment and Skill
Development also proposes to include ministers representing various sectors such as
agriculture, infrastructure, construction and manufacturing.
(Source:https://indianexpress.com/article/india/slowdown-need-for-jobs-on-the-table-
govt-sets-up-two-new-cabinet-panels-5767500/)
102. RBI's repo rate cut (Relevant for GS Prelims & Mains Paper III; Economics)
Reserve Bank of India announced a 25 basis point (0.25 percentage point) cut in Repo rate.
Repo rate is the rate at which money is lended by RBI to Commercial Banks.
Whether a deeper 50 basis point cut was necessary, given the sharp slowdown in the
economy, is debatable. With inflation well under the benchmark figure of 4%, the stage was
set for the RBI to reduce Repo rate.
Thus, RBI has changed its policy stance to ‘accommodative’ from ‘neutral’. RBI Governor
Shaktikanta Das made statement at the press conference that ensuring systemic liquidity will
remain a priority for the central bank.
Banks not passing interest rate cut to customers

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RBI has to do something to make banks pass on the reduction in the interest rates. By its own
admission, only 21 of the cumulative 50 basis points rate cut effected by the RBI in the
February and April policies has been passed on to borrowers by banks. The excuse from
banks was that liquidity was tight and so deposit rates could not be cut. However, liquidity
has considerably improved in the past.
(Source:https://www.thehindu.com/opinion/editorial/no-
surprises/article27583406.ece)
103. Indian Railway Station Development Corporation (IRSDC) enters into Tripartite
Agreement with French National Railways (SNCF) & AFD, a French Agency (Relevant
for GS Prelims; Economics)
Indian Railway Station Development Corporation (IRSDC) entered an Tripartite Agreement

with French Railways (SNCF) & AFD, a French Agency. Under this agreement, AFD a French
agency, has agreed to provide in-kind grant financing up to 7,00,000 EURO, through French
National Railways (SNCF) as a Technical Partner to IRSDC to support the Railway Station
Development Program in India. This will impose no financial liability on IRSDC or Indian
Railways.
About Indian Railway Stations Development Corporation

The Indian Railway Stations Development Corporation (IRSDC) is a special purpose vehicle
(SPV) of the Government of India that has been established to develop new stations and
redevelop existing Indian railwaystations. IRSDC is a joint venture between Indian Raliwau
Construction Company Ltd. (IRCON) and Rail Land Development Authority (RLDA) with a
51:49 equity shareholding ratio respectively. ISRDC was incorporated under the Companies
Act, 1956 on 12 April 2012.
(Source:http://pib.nic.in/PressReleseDetail.aspx?PRID=1573850&RegID=3&LID=1)
104. The RBI’s approach in the revised circular on stressed assets (Relevant for GS
The efforts of the Reserve Bank of India to clean up the non-performing loans mess in the
banking system suffered a setback in April when the Supreme Court shot down its circular
of February 12, 2018, terming it ultra vires.
Version 2.0 of the circular, titled “Prudential Framework for Resolution of Stressed Assets”,
issued by the central bank on June 7, manages to retain the spirit of the original version even
while accommodating the concerns of banks and borrowers.
What is there in new circular?

The RBI has achieved a good balance between its objective of forcing a resolution of stricken
assets and giving banks the elbow room to draw up a resolution within a set timeframe
without resorting to the bankruptcy process.

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Banks will now have a review period of 30 days after a borrower defaults to decide on the
resolution strategy, as compared to the one-day norm earlier. They will also have the
freedom to decide whether or not to drag a defaulter to the insolvency court if resolution
does not take place within 180 days of default. Banks had no such option earlier.
By making an Inter Creditor Agreement between lenders mandatory, the RBI has ensured
that they will speak in one voice, while the condition that dissenting lenders should not get
less than the liquidation value puts a floor on recovery from the resolution process.
There will be disincentives in the form of additional provision of 20% to be made by banks
if a resolution is not achieved within 180 days and a further additional provision of 15% if
this extends to a year.
If that is the stick, the carrot is that they can write back half of the additional provision once
a reference is made to the insolvency court and the remaining half can also be clawed back
by banks if the reference is admitted for insolvency resolution. This approach will give banks
the freedom to explore all options before referring a defaulter to the insolvency process.
The central bank, anyway, retains the right to direct banks to initiate insolvency proceedings
in specific cases by drawing on its powers under Section 35AA of the Banking Regulation Act.
(Source:https://www.thehindu.com/opinion/editorial/striking-a-
balance/article27766599.ece)
105. Recommendations of NEP on Higher Education (Relevant for GS Prelims & Mains
The committee committee set up for drafting a new National Education Policy (NEP) discuss
two major areas: School education and higher education. This artile focusses on higher
education.
Need for Multi-disciplinary eduication

The main thrust of the draft policy is on breaking the “rigid boundaries of disciplines” in
higher education and moving towards broad-based, flexible learning. Institutions offering
single streams (such as technical education) must be phased out, and all universities and
colleges must aim to become multidisciplinary by 2030, the report proposes.
The future workplace will demand critical thinking, communication, problem solving,
creativity, and multidisciplinary capability. Single-skill and single-discipline jobs are likely
to become automated over time.
Liberal Arts Science Education

For this, the draft pitches for reintroduction of the four-year undergraduate programme in
Liberal Arts Science Education (LASE) with multiple exit options, and scrapping of the MPhil
programme. The LASE curriculum will be designed to develop broadly “useful capacities”
(critical thinking, communication skills, scientific temper, social responsibilities etc), while
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offering rigorous education in specialisations (called majors or dual majors) across

disciplines.
The three-year traditional BA, BSc, as well as BVoc degrees will continue as well for those
institutions that wish to continue such programmes, but all Bachelor’s degrees will move
towards taking a more comprehensive liberal education approach.The draft policy also
proposes building a small number of new liberal arts universities, modelled after Ivy League
schools, in the next five years.
Global footprint
The NEP 2018 proposes an increase in the number of off-shore campuses of Indian
institutions and permitting the world’s top 200 institutions to set up branches in India, with
a new law to regulate the latter’s entry and operation. Indian higher education institutions
(HEIs), it states, should be encouraged to offer their distance-learning programmes abroad
and enter into international partnerships for research.
Currently, India sends the third largest number of students (over 3 lakh) abroad for higher
education. However, only 46,000 foreign students, accounting for less than one per cent of
international students worldwide, study in Indian HEIs.
National Research Foundation

The NEP has recommended that a National Research Foundation (NRF), tasked with creating
a conducive ecosystem for research through funding and mentoring, should be set up. Funds
for research and innovation have fallen from 0.84% of GDP in 2008 to 0.69% in 2014. The
draft attributes India’s performance in research to a separation between research
institutions and teaching institutions, lack of research culture, lack of funds and poor
research capacities of state universities.
The proposed NRF, to be set up by an Act of Parliament as an autonomous institution and

with an annual grant of Rs 20,000 crore, will “seed, grow and facilitate research at academic
institutions, particularly at universities and colleges where research is currently in a nascent
stage…”
Regulatory reforms
The draft proposes a common regulatory regime for the entire higher education sector. As
with primary education, it suggests that in higher education, too, the functions of “regulation,
provision of education, funding, accreditation and standard setting will be separated, and
will not be performed by the same institution or institutional hierarchy”.
The National Higher Education Regulatory Authority (NHERA) will be the sole regulatory
authority, while NAAC, along with other accreditation agencies, will oversee accreditation.
The existing University Grants Commission, currently regulator as well as grants disbursing
agency, will transform into the Higher Education Grants Council (HEGC) and will limit itself
to grants giving.

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Other regulatory bodies — such as Medical Council of India, Bar Council of India, AICTE,
National Council for Teacher Education — will become Professional Standard Setting Boards
in their respective fields, without regulatory powers in professional education.
Rashtriya Shikha Aayog

The draft NEP envisages the creation of a new apex institution for education, through an Act
of Parliament, that will be responsible for “developing, articulating, implementing,
evaluating, and revising the vision of education in the country on a continuous and sustained
basis”.
The Rashtriya Shiksha Aayog (RSA) will be chaired by the Prime Minister and run by
executive and advisory bodies, half of which will made up of ministers and the other half of
educationists and civil society members. A range of institutions — NRF, NCERT, NHERA,
National Testing Agency, Higher Education Grants Council, and state education regulatory
authorities, among others — will be reporting to this super organisation.
The RSA will be given Constitutional status through an Act of the Parliament.
Technology in Education
The policy dissects this topic into four broad areas:
1. Training of teachers in the use of educational technology, and use of educational
technology for professional development of teachers.
2. Classroom tools and curriculum, such as “computational training”, online course software
etc.
3. Access for those disadvantaged students who cannot attend a physical school.
4. Overall educational records management with a National Repository of Educational Data.

The draft policy proposes a National Education Technology Forum, a group of education
leaders and government officials to discuss and advise on how to strengthen educational
technology, and Centres of Excellence in Educational Technology in prominent institutions.
Other suggestions
1. Public investment in higher education to be raised from the current 10% of overall public
expenditure in education to 20%, over a 10-year period.
2. Substandard and dysfunctional technical educational institutions to be closed.
3. Rashtriya Shiksha Aayog to commission a perspective plan for professional education.
4. A quasi-judicial body may be constituted for a mission-mode clean-up of teacher

education.

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5. The four- year integrated BEd. will, by 2030, become the minimal degree qualification for
schoolteachers. All pre-service teacher education programmes will be offered only in
multidisciplinary institutions.
6. First year or two of MBBS will be designed as a common period for all science graduates
after which they can take up MBBS, BDS, Nursing or other specialisations.
7. A common exit examination for MBBS.
(Source:https://indianexpress.com/article/explained/simply-put-how-education-can-be-
flexible-national-education-policy-5774128/)
106. Ratification of the Multilateral Convention to Implement Tax Treaty Related

Measures to Prevent Base Erosion and Profit Shifting (Relevant for GS Prelims & Mains
The Union Cabinet has approved the ratification of the Multilateral Convention to Implement
Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI)
Impact:
The Convention will modify India's treaties in order to curb revenue loss through treaty
abuse and base erosion and profit shifting strategies by ensuring that profits are taxed where
substantive economic activities generating the profits are carried out and where value is
created.
Details:
i. India has ratified the Multilateral Convention to Implement Tax Treaty Related Measures
to Prevent Base Erosion and Profit Shifting, which was signed by the Hon'ble Finance
Minister Sh. Arun Jaitley at Paris on 07/06/2017 on behalf of India.
ii. The Multilateral Convention is an outcome of the OECD / G20 Project to tackle Base
Erosion and Profit Shifting (the "BEPS Project") i.e., tax planning strategies that exploit gaps
and mismatches in tax rules to artificially shift profits to low or no-tax locations where there
is little or no economic activity, resulting in little or no tax being paid. The BEPS Project
identified 15 actions to address base erosion and profit shifting (BEPS) in a comprehensive
manner.
iii. The Convention enables all signatories, inter alia, to meet treaty-related minimum
standards that were agreed as part of the Final BEPS package, including the minimum
standard for the prevention of treaty abuse.
iv. The Convention will operate to modify tax treaties between two or more Parties to the
Convention. It will be applied alongside existing tax treaties, modifying their application in
order to implement the BEPS measures.

129
Background:
The Convention is one of the outcomes of the OECD/G20 project, of which India is a member,
to tackle base erosion and profit shifting. The Convention enables countries to implement
the tax treaty related changes to achieve anti-abuse BEPS outcomes through the multilateral
route without the need to bilaterally re-negotiate each such agreement which is burdensome
and time consuming.
It ensures consistency and certainty in the implementation of the BEPS Project in a

multilateral context. Ratification of the Multilateral Convention will enable application of
BEPS outcomes through modification of existing tax treaties of India in a swift manner.
107. Traffic Index 2018: How Mumbai congestion was measured at world high
A recent study has ranked Mumbai as the most traffic-congested city in the world for the
second straight year, and Delhi at fourth place. How was this determined, and what do the
findings say of traffic across the world?
The study
The findings are part of the Traffic Index 2018 published by TomTom, an Amsterdam-based
company that offers traffic solutions, uses location technology to collect traffic information,
and has been publishing city rankings for eight years. The latest index ranks 403 cities across
56 countries, including 13 new cities.
The measure
For this study, congestion has been defined in terms of the additional time taken to reach a
destination as opposed to when the road would have been clear of traffic. Mumbai’s 2018
congestion level of 65%, therefore, means that the extra travel time is 65% more than an
average trip would take during uncongested conditions. For Delhi, by the same yardstick, the
extra travel time is 58% more.

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Around the world

Nearly 75% of the cities part of the 2018 index had increased or stable congestion levels
between 2017 and 2018, with only 90 cities showing measurable decreases, states the
report.
(Source:https://indianexpress.com/article/explained/traffic-index-2018-how-mumbai-
congestion-was-measured-at-world-high-5772433/)
108. India to impose retaliatory tariffs on 29 U.S. goods from June 16 (Relevant for GS
India has decided to impose retaliatory tariffs on 29 goods imported from the U.S. from June
16 onwards. The tariffs will place a burden of $220-290 million on the U.S., about the same
amount imposed by Washington on India in 2018.
Earlier hike in tariffs

The tariffs on the 29 goods — including walnuts, apples, and some pulses — were initially
announced in June 2018 in retaliation to U.S. President Donald Trump’s decision in March
that year to impose higher import tariffs on Indian aluminium and steel. India has repeatedly
asked for exemption from these higher tariffs, but to no avail.
However, negotiations continued for about a year, with India repeatedly extending the
deadline for the imposition of retaliatory tariffs. These talks, as well as the ones surrounding
granting India duty-free imports for certain items under the U.S.’ Generalised System of
Preferences (GSP) seem to have fallen through.

131
Last year, the U.S. announced that it would be reviewing India’s eligibility for the GSP, and in
June this year, decided that it would withdraw the benefits.
(Source:https://www.thehindu.com/business/Economy/india-to-impose-retaliatory-
tariff-on-29-us-items-from-june-16/article27935160.ece)
109. How will Jet’s insolvency process play out? (Relevant for GS Prelims & Mains
The story so far: Jet Airways, the troubled private airline that has failed to meet its huge debt
obligations, was admitted to the National Company Law Tribunal (NCLT). This happened
after a consortium of lenders led by State Bank of India (SBI) that had lent money to the
airline over the years approached the NCLT to begin insolvency proceedings. Shares of the
airline soared more than 120% after news broke that the airline has been admitted by the
NCLT for bankruptcy proceedings.
In accordance with the procedures laid out under the Insolvency and Bankruptcy Code, 2016,
the court ordered an interim resolution professional to take control of Jet Airways. The
professional appointed by the court will now look at ways to salvage the most value out of
the airline so that the money can be used to pay back lenders.
Why did Jet Airways fail?

It was founded by Naresh Goyal in 1992, and began flying a year later. It was one of the
earliest private entrants into India’s airline industry after the government slowly began to
liberalise the economy. The opening up of the airline industry to more private companies in
the ensuing years caused a boom in air travel in the country. At the same time, greater

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competition put increasing pressure on airlines to either deliver better services to justify
their high prices, or cut costs to operate more efficiently as budget airlines. Jet, which was
unable to adapt to changing market conditions, suffered losses for many consecutive years.
The unpredictability of the price of oil in the global market also played a role in messing up
its cost calculations. In the first quarter of financial year 2018, Jet posted a loss of ₹1,323
crore.
Since that huge loss, its management has tried to pump additional money into the airline to
meet its operating costs and has also announced various aggressive measures to cut down
costs. But all this may have come a little too late. Lenders, seeing the writing on the wall, have
refused to keep throwing good money after bad just to keep the airline afloat. Kingfisher and
Sahara are two other private airlines which failed under the pressures of competition. Air
India, which is again burdened by a huge amount of debt like Jet, was another prominent
loser in the battle for market share. But unlike Air India, Jet does not have the government
to bail it out of its financial trouble.
What made lenders approach the bankruptcy court?

It is estimated that Jet may owe about ₹20,000 crore in the form of short- and long-term debt
obligations to an array of lenders. A consortium of lenders that loaned money to Jet has
already been in talks with some potential buyers such as Etihad (UAE) and Tata Sons who
could invest capital in Jet in order to make the airline fully operational once again. However,
these talks have failed to materialise into an actual deal given the high level of debt on Jet’s
balance sheet.
What lies ahead for the airline and its lenders?

Jet Airways is the first airline company in India to be admitted to undergo bankruptcy
proceedings under the Insolvency and Bankruptcy Code, 2016. In contrast to other
companies that have previously undergone bankruptcy proceedings under the bankruptcy
code, Jet has very few assets, especially when compared to the size of its debt obligations.
Many of the airline’s aircraft have already been seized by lenders after Jet stopped making
payments. This leaves banks such as the SBI with very little to salvage from the airline, so it
is very doubtful whether Jet’s lenders will be able to make any significant recovery of their
debts just by selling off its assets.
The resolution professional in charge of Jet may thus want to keep the airline running as a
going concern so that it might fetch the best value for lenders in the long run. Potential
buyers may be interested in capitalising on the airline’s brand value and trying to re-launch
the carrier by infusing fresh capital. Buyer interest, however, will depend largely on the
amount of debt that lenders are willing to write off. The sale of Air India earlier this year
failed to attract any bids due to the airline’s heavy debt burden that the lenders were
unwilling to write off before the sale. If no buyer shows interest in purchasing Jet as a going
concern, the only option left may be to sell each of Jet’s assets individually. Jet will then cease
to exist as a company.
(Source:https://www.thehindu.com/business/Industry/how-will-jets-insolvency-
process-play-out/article28111635.ece)
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110. Mega Kaleshwaram project becomes operational (Relevant for GS Prelims;

Economics)
Kaleshwaram Lift Irrigation Project (KLIP), claimed as the world’s largest multi-stage and
multi-purpose lift irrigation scheme, was inaugurated.
The project is intended to irrigate over 37 lakh acres of land, providing drinking water to
Hyderabad and villages en route and supplying water for industrial needs by lifting 195 tmc
ft of water from the Godavari at 2 tmc ft a day during the flood season. By lifting one more
tmc ft water a day later, the government plans to bring another 8 lakh acres under irrigation.
What is Lift irrigation?

Lift irrigation is a method of irrigation in which water is not transported by natural flow, (as
in gravity-fed canal) but is lifted with pumps or surge pools etc.
Lift irrigation schemes must accomplish two main tasks: first, to carry water by means of
pumps or other way, from the water source to the main delivery chamber, which is situated
at the top most point in the command area. Second. they must distribute this water to the
field of the beneficiary farmers by means of a suitable and proper distribution. So that in Lift
Irrigation system, the gravity flow of water by canals or river is not available or used.
About Lift Irrigation

In LI water is lifted from lower level to higher level with the help of pumps and other
equipment. Construction of dams and canals helped tremendously to increase the irrigated
area lying at lower level than the dam level, but scarcity of water remained the problem for
higher level areas. So as to bring higher level area under irrigation L.I.S. are taken up. The
8% of Maharashtra irrigation is occupied by lift irrigation.
Advantages of Lift Irrigation

1. Lift irrigation made irrigation possible at higher level.
2. Land acquisition problem in L.I.S. is less.
3. Water losses are low.
4. Man power is less used.
(Source:https://www.thehindu.com/news/national/mega-kaleshwaram-project-
becomes-operational/article28104425.ece)
111. What are Stalled Projects? How are they dealt? (Relevant for GS Prelims & Mains
Project Monitoring-Invest India Cell

The Government of India has set- up a Project Monitoring-Invest India Cell (PMIC), earlier
known as Project Monitoring Group, for resolving of issues and fast tracking the setting-up
and expeditious commissioning of large Public, Private and Public-Private Partnership (PPP)
Projects.

134
Stalled Projects
There is no prescribed criterion for classifying a project as a Stalled Project. The primary
focus of PMIC is on expediting the approvals for clearances from Central and State
Authorities for setting-up of projects. PMIC does not distinguish between a ‘stalled’ or an
‘under implementation’ Project in accepting a project for resolution of its issues.
PMIC has been monitoring the resolution of a variety of issues brought before it by the
Central Ministries/State Governments and project proponents. So far, out of 1,038 projects
considered by PMIC, issues in 615 projects have been resolved.
112. Educational Development Schemes for economically backward classes (Relevant

for GS Prelims & Mains paper III; Economics)
Ministry of Human Resource Development is implementing following schemes for the

Economically Backward Class students.
1. Central Sector Scheme of Scholarship for College and University Students (CSSS)
Under this scheme, scholarship is provided to the eligible meritorious students having family
income less than Rs. 8.0 lakh per annum, for pursuing higher studies. The amount of
scholarship is Rs. 10,000/- per annum for the first three years and Rs. 20,000/- per annum
for the fourth and fifth year.
2. Special Scholarship Scheme for Jammu & Kashmir (SSS for J&K)
Scholarship is provided to the eligible students from the State of Jammu & Kashmir, having
family income less than Rs. 8.0 lakh per annum, to pursue higher studies outside the State of
J&K. An amount to the tune of Rs. 1.30 lakh to Rs. 4.00 lakh per annum is provided.
3. Central Sector Interest Subsidy Scheme (CSIS)

Under this Scheme, full interest subsidy is provided during the moratorium period (course
period plus one year), on the educational loan up to Rs. 7.5 lakh, taken by the students having
annual parental income up to Rs.4.5 lakh.
4. Fees Waiving in IITs

In IITs, from the academic year 2016-17, following provisions were made for protecting the
interest of the socially and economically backward students while making the payment of
tuition fee.
(i). The SC/ST/PH students shall get complete fee waiver.

(ii). The most economically backward students (whose family income is less than Rs.1 lakh
per annum ) shall get full remission of the fee.
(iii). The other economically backward students (whose family income is between Rs.1 lakh
to Rs. 5 lakh per annum ) shall get remission of 2/3rd of the fee.
(iv). All students shall have access to interest free loan under the Vidyalaxmi scheme for the
total portion of the tuition fee payable.
135
Under the Vidyalaxmi Scheme, Interest subvention on the education loans for all students
admitted for undergraduate and the five year integrated degree programmes is provided.
For advancement of Economically Weaker Sections of the society, and as per the Constitution
103rdAmendment Act 2019, Government has issued orders providing 10 percent
reservation to EWS categories in admission to educational institutions. This reservation for
EWS categories would be provided without disturbing the existing entitlements for SC/ST
and OBC categories.
113. GST Council meet outcomes (Relevant for GS Prelims ; Economics)
GST council meet outcomes:

1. Aadhaar has been approved as sufficient proof to obtain GST registration.
2. No major tax cuts were carried out. Even the expectation that there would be a cut in the
tax imposed on electric vehicles, from 12% to 5%, was not met.
3. Another notable decision taken by the council was the one to extend the tenure of the
National Anti-Profiteering Authority by two years, till November 2021.
Further, the council increased the quantum of penalty that could be imposed by the authority
on profiteering companies, from the current maximum of ₹25,000 to an additional 10% of
the profiteered amount. Given that the government has increased the powers of the anti-
profiteering body, it would not be surprising if the body becomes a permanent feature under
GST.
(Source:https://www.thehindu.com/opinion/editorial/lacklustre-
meet/article28118982.ece)
114. Citing personal reasons, RBI Deputy Governor who disagreed quits six months
before term ends (Relevant for GS Prelims & Mains Paper III; Economics)
Confirming his resignation, the RBI said, “A few weeks ago, Acharya submitted a letter to the
RBI informing that due to unavoidable personal circumstances, he is unable to continue his
term as a Deputy Governor of the RBI beyond July 23, 2019.”
Reserve Bank of India (RBI) Deputy Governor Viral V Acharya, a strong votary of the central
bank’s independence and seen as having differed with Governor Shaktikanta Das on the
inflation trajectory, growth prospects and policy rates, has resigned from his post, a little
over six months before his term was scheduled to end.
Acharya, 45, joined the RBI in January 2017 and was its youngest Deputy Governor, post
economic liberalisation, in charge of the monetary policy department. He had differed with
Governor Das on inflation issues and repo rate reduction in monetary policy reviews this
year. Acharya, who will be returning to New York University as CV Starr Professor of
Economics, was not expecting another term as he had supported former Governor Urjit Patel
in the RBI’s feud with the Centre on several issues in late 2018, said a top-level source.
136
This is the second high profile resignation in the last six months at the RBI. In December
2018, Governor Patel had resigned nearly nine months before the end of his term over
differences with the government. The RBI is now left with three Deputy Governors N S
Viswanathan, B P Kanungo and M K Jain. And with Viswanathan’s term ending next month,
two Deputy Governor posts will be vacant.
On October 26, 2018, differences between the RBI and the government came out in the open
when Acharya, in a stinging criticism, reminded the government about the need for an
independent central bank, warning that “governments that do not respect central bank
independence will sooner or later incur the wrath of financial markets, ignite economic fire,
and come to rue the day they undermined an important regulatory institution”.
Acharya’s remarks came after the government reportedly issued directives to the central
bank under Section 7 of the RBI Act — a provision under which the government can give
directions to the RBI to take certain actions “in the public interest”.
Then RBI Governor Patel had differed with the government on several issues, including
transferring surplus to the government, more credit flow to small units, easing of curbs on
public sector banks and funding support to the NBFC sector.
(Source:https://indianexpress.com/article/business/banking-and-finance/rbi-deputy-
governor-viral-acharya-economy-shaktikanta-das-5797983/)
115. Niti Aayog health index (Relevant for GS Prelims & Mains Paper III; Economics)

137
About the report

The report ‘Healthy States, Progressive India: Report on Rank of States and UTs’ has ranking
in three categories — larger States, smaller States and Union Territories “to ensure
comparison among similar entities.”
The Index ranks the States and Union Territories based on 23 health-related indicators,
including neonatal mortality rate, under-five mortality rate, proportion of low birth weight
among new-borns, proportion of districts with functional Cardiac Care Units, full
immunisation coverage and proportion of specialist positions vacant at district hospitals.
Findings of the report

The report stated that only about half the States and UTs showed an improvement in the
overall score between 2015-16 (base year) and 2017-18 (reference year).
The report added that among the eight Empowered Action Group States, only three States —
Rajasthan, Jharkhand and Chhattisgarh — showed improvement in the overall performance.

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Among the UTs, Chandigarh jumped one spot to top the list with a score of (63.62), followed
by Dadra and Nagar Haveli (56.31), Lakshadweep (53.54), Puducherry (49.69), Delhi
(49.42), Andaman and Nicobar (45.36) and Daman and Diu (41.66).
Performance of various states

Kerala continued to top the list for the best performing State in the health sector among the
21 large States, while Uttar Pradesh retained the worst performer tag, according to the
second edition of NITI Aayog’s Health Index released on Tuesday.
Kerala, which got an overall score of 74.01, was followed by Andhra Pradesh (65.13),
Maharashtra (63.99), Gujarat (63.52) and Punjab (63.01), Himachal Pradesh (62.41), Jammu
and Kashmir 62.37, Karnataka (61.14) and Tamil Nadu (60.41).
Uttar Pradesh continued to be at the bottom of the list with its score falling to 28.61. Other
States at the bottom of the list were Bihar (32.11), Odisha (35.97) and Madhya Pradesh
(38.39).
(Source:https://www.thehindu.com/news/national/kerala-best-state-on-health-
parameters-up-worst/article28136791.ece)
116. RBI panel’s suggestions on the MSME sector (Relevant for GS Prelims & Mains
Importance of MSME sector

The micro, small and medium enterprises (MSME) sector in India contributes more than
28% of the GDP and about 45% to manufacturing output. It provides employment to about
111 million people. Thus, the sector’s health is crucial to the economy’s vitality and society’s
well being.
RBI Panel recommendations

An expert committee constituted by the Reserve Bank of India has in this context submitted
a substantially germane study on the issues bedevilling MSMEs and made a fairly exhaustive
set of recommendations to redress them.
1. It is imperative that the thrust of the enabling legislation — a 13-year-old law, the MSME
Development Act, 2006 — be changed to prioritise market facilitation and ease of doing
business.
2. Observing that many Indian start-ups that are at the forefront of innovation are drawn to
look overseas, given the conducive business environment and the availability of
infrastructure and exit policies, the experts suggest that a new law ought to address the
sector’s biggest bottlenecks, including access to credit and risk capital.
3. A substantial part of the study is justifiably devoted to reimagining solutions to improve

credit flow to MSMEs. For instance, the experts recommend repurposing the Small Industries
Development Bank of India. In its expanded role, it is envisaged that the SIDBI could not only
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deepen credit markets for MSMEs in under-served regions by being a provider of comfort to
lenders including NBFCs and micro-finance institutions, but also become a market-maker for
SME debt.
4. With technology, especially digital platforms, having become so ubiquitous, the panel has
made a case for greater adoption of technology-facilitated solutions to a plethora of
problems encountered by the sector.
5. To address the bugbear of delayed payments, the mandatory uploading of invoices above
a specified amount to an information utility is a novel approach. The aim is to name and
shame buyers of goods and services from MSMEs to expedite settlements to suppliers.
6. Another suggestion entails expediting the integration of information on the Government

e-Marketplace, or GeM, platform with the Trade Receivables Discounting System. The goal
here too is to boost liquidity at MSMEs.
7. A noteworthy recommendation urges banks to switch to cash flow-based lending. Lending

on the basis of cash utilized by industrial units.
(Source:https://www.thehindu.com/opinion/editorial/prudent-
prescription/article28191294.ece)
117. What is black money, and why is it to so difficult to quantify it? (Relevant for GS
The story so far: The Standing Committee on Finance recently came out with its report on
the ‘status of unaccounted income and wealth both inside and outside the country’ in which,
after consulting three premier think-tanks and doing multiple analyses using various
methods, it came to the conclusion that there was no reliable way to quantify black money
whether in India or abroad.
What is black money?

The simplest definition of black money could possibly be money that is hidden from tax
authorities. That is, black money can come from two broad categories: illegal activity and
legal but unreported activity.
The first category is the more obvious of the two. Money that is earned through illegal activity
is obviously not reported to the tax authorities, and so is black. The second category
comprises income from legal activity that is not reported to the tax authorities. Another
major source of black money is income earned by companies that is routed through shell
companies abroad, thereby evading tax authorities.
Why is it difficult to measure it?

The very definition of black money makes it extremely difficult to quantify. How is the
government supposed to measure the economic activity that is actively being hidden from
it? According to the Standing Committee’s report, the sectors that see the highest incidence
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of black money include real estate, mining, pharmaceuticals, pan masala, the gutkha and
tobacco industry, bullion and commodity markets, the film industry, and educational
institutes and professionals.
The estimates of the black money in the system provided by the Standing Committee vary
from 7% of GDP to 120% of GDP, highlighting the wide variance in the methods of estimation.
What are some of the methods used?

One of the more popular methods is the monetary method. This method assumes that the
existence of and changes in the share of unaccounted income is reflected in the stock or flow
of money in the system. In other words, track the money in the economy and you’ll get an
idea of how much has not been accounted for.
Another method is the global indicator or input-based method. In this method, unaccounted
income is modelled using a single universal variable with which it is assumed to be highly
correlated, therefore these estimates are also called input-based estimates. Basically, the
estimated level of activity in these indicators is compared to the reported level of GDP to
arrive at an estimate of under-reporting.
One common input used in this method is the quantity of land freight transport. The idea is
that matching the actual amount of freight transported in the country to the reported amount
of economic activity in the related sectors could give an estimate of how much is not being
reported.
A third method to measure black money is a straightforward survey. This one, however,
requires voluntary information from people and businesses concealing their incomes and so
is prone to inaccuracies.
How can the government curb black money?

There are several ways and the first is through legislative action. The government has
already enacted several laws that seek to formalise the economy and make it necessary to
report economic transactions. These include the Central Goods and Services Tax Act, the
various GST Acts at the State levels, the Black Money (Undisclosed Foreign Income and
Assets) and Imposition of Tax Act, 2015, the Benami Transactions (Prohibition) Amendment
Act, and the Fugitive Economic Offenders Act to name a few.
Another method employed by the government to make it harder for transactions to be

hidden is to mandate the reporting of PAN for transactions of more than ₹2.5 lakh, and the
prohibition of cash receipts of ₹2 lakh or more and a penalty equal to the amount of such
receipts if a person contravenes the provision.
The Income Tax Department has also started monitoring non-filers of income tax returns
using third-party information to identify persons who have undertaken high value financial
transactions but not filed their returns.

141
(Source:https://www.thehindu.com/business/Economy/what-is-black-money-and-why-
is-it-to-so-difficult-to-quantify-it/article28228853.ece)
118. ‘One nation one ration card’ scheme from July 1, 2020 (Relevant for GS Prelims &
‘One Nation One Ration Card’ scheme, which will allow portability of food security benefits,
will be available across the country from July 1, 2020. This means poor migrant workers will
be able to buy subsidised rice and wheat from any ration shop in the country, so long as their
ration cards are linked to Aadhaar.
All the States have been given one more year to use point of sale (PoS) machines in the ration
shops and implement the scheme. Already, 77% % of the ration shops across the country
have PoS machines and more than 85% of people covered under the National Food Security
Act (NFSA) have their cards linked to Aadhaar, he said.
Need for Aadhaar linkage

While Aadhaar linkage is not necessary to access NFSA benefits in a beneficiary’s local
registered ration shop, located closest to her home address, it will be necessary to access the
portability scheme, according to senior Food Ministry officials.
(Source:https://www.thehindu.com/news/national/centre-gives-1-year-deadline-to-
states-for-rolling-out-one-nation-one-ration-card/article28227599.ece)
119. New framework: on SEBI's norms for mutual fund investments (Relevant for GS
Need for regulations

Securities and Exchange Board of India has released more stringent regulations to govern
the management of mutual funds. The mutual fund industry came under its scrutiny after
some mutual funds in the last few months had to postpone redemption of their fixed maturity
plans (FMPs). HDFC Mutual Fund and Kotak Mutual Fund came to grief and had to roll over
or proportionately reduce redemption of their FMPs in April after some Essel group
companies failed to redeem their non-convertible debentures where the funds had invested.
What are the new regulations?

According to the new SEBI regulations, liquid mutual fund schemes will have to invest at
least 20% of their funds in liquid assets like government securities. They will be barred from
investing more than 20% of their total assets in any one sector; the current cap is 25%. When
it comes to sectors like housing finance, the limit is down to 10%.
Rationale behind new measures

These measures are aimed to prevent situations such as the one being witnessed now. While
the mandated investment in government securities will ensure cushion of liquidity, the
reduction in sectoral concentration will discipline funds and force them to diversify their
risks.
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SEBI has also required that assets of mutual funds be valued on market value basis in order
to better reflect the value of their investments.
(Source:https://www.thehindu.com/opinion/editorial/new-
framework/article28236195.ece)
120. Govt cuts interest rate on small savings schemes by 0.1 pc (Relevant for GS
The government reduced interest rate on small savings schemes, including NSC and PPF, by
0.1 per cent for the July-September quarter.
The move is aimed at matching the softening of interest rates in the banking sector since the
RBI cut its benchmark policy rate thrice during the year.
Barring interest on savings deposits, which has been retained at 4 per cent annually, rate on
all other schemes has been slashed by 0.1 per cent.
What are the interest rates now?

Public Provident Fund (PPF) and National Savings Certificate (NSC) will fetch annual interest
rate of 7.9 per cent from the existing rate of 8 per cent, while Kisan Vikas Patra (KVP) will
yield 7.6 per cent with maturity of 113 months.
At present, interest rate on KVP is 7.7 per cent and maturity is 112 months.
The girl child savings scheme Sukanya Samriddhi Account will fetch a lower return of 8.4 per
cent from 8.5 per cent.
Term deposits of 1-3 years will fetch interest rate of 6.9 per cent, to be paid quarterly, while
the five-year quarterly pegged at 7.7 per cent and for recurring 7.2 per cent from existing
rate of 7.3 per cent.
Interest rate for the five-year Senior Citizens Savings Scheme will now fetch a lower rate of
interest at 8.6 per cent from 8.7 per cent.
(Source:https://indianexpress.com/article/india/govt-cuts-interest-rate-on-small-
savings-schemes-by-0-1-pc-5805657/)
121. What does it mean for India to become a $5-trillion economy (Relevant for GS
If India grows at 12% nominal growth (that is 8% real GDP growth and 4% inflation), then
from the 2018 level of $2.7 trillion, India would reach the 5.33 trillion mark in 2024.

143
It is now clear that the main goal of the second Modi government will be to make India a $5-
trillion economy by the end of this term. But what does it mean for India to become a $5-
trillion economy? How likely is India to achieve the target? Will every Indian gain from it?
What is the meaning of becoming a $5-trillion economy?

Essentially the reference is to the size of an economy as measured by the annual gross
domestic product or GDP. As a thumb rule, the bigger the size of the economy, the more
prosperous it can be expected to be.
In 2014, India’s GDP was $1.85 trillion. Today it is $2.7 trillion and India is the sixth-largest
economy in the world.
The first column of the table alongside provides a snapshot of where India stood as of 2018
according to World Bank. In terms of overall GDP, this data shows that India is very close to
overtaking the United Kingdom. It also shows that Indonesia’s GDP is almost one-third of
India’s.
Are Indians the sixth-richest people in the world?

144
No. That India is the sixth-largest economy does not necessarily imply that Indians are the
sixth-richest people on the planet. The GDP is the first and most rudimentary way to keep
score among economies. If one wants to better understand the wellbeing of the people in an
economy, one should look at GDP per capita. In other words, GDP divided by the total
population. This gives a better sense of how an average resident of an economy might be
fairing.
If one looks at the GDP per person data in the second column of the table, it reveals a very
different, and indeed a more accurate picture of the level of prosperity in the respective
economies. For instance, on average, a UK resident’s income was 21 times that of an average
Indian in 2018. This wide gap exists even though India’s overall GDP is very nearly the same
as UK’s. Similarly, on average, an Indonesian earns double that of an Indian even though
Indonesia’s overall economy is just one-third of India’s.
Can India achieve the target by 2024?

The answer would depend essentially on the assumption about economic growth. If India
grows at 12% nominal growth (that is 8% real GDP growth and 4% inflation), then from the
2018 level of $2.7 trillion, India would reach the 5.33 trillion mark in 2024.
However, there’s a glitch. Last year, India grew by just 6.8%. This year, most observers expect
it to grow by just 7%. So India must keep growing at a rapid pace to attain this target.
How will GDP per capita change when India hits the $5-trillion mark?
If by 2024 India’s GDP is $5.33 trillion and India’s population is 1.43 billion (according to UN
population projection), India’s per capita GDP would be $3,727. While this would be
considerably more than what it is today, it will be lower than Indonesia’s GDP per capita in
2018.
(Source:https://indianexpress.com/article/explained/explained-budget-2019-economy-
gdp-nirmala-sitharaman-5819352/)
122. Behind the decline in fiscal deficit (Relevant for GS Prelims & Mains Paper III;
Economics)
FM surprised all by announcing a marginal decline from 3.4% to 3.3%. How will it be
achieved? Will it affect the flow of funds between Centre and states? Will it come at the cost
of capital expenditure by PSUs?
But despite sluggish tax collections, Sitharaman has chosen to stick to the gilded path,
projecting to bring down the deficit to 3.3 per cent of GDP in 2019-20 (BE), from 3.4 per cent
in 2018-19 (RE).
How does the Centre plan to meet its fiscal deficit target?
At the aggregate level, the Centre expects its gross tax revenues to grow at 18.3 per cent in
FY20. Achieving this is a tall task. Tax collections grew by a mere 8.4 per cent in FY19.

145
Sluggish economic activity — the RBI has lowered its GDP growth projection for FY20 to 7
per cent from 7.4 per cent earlier.
Within the broad rubric of gross tax collections, direct tax collections are expected to grow
at roughly 18.6 per cent in FY20, up from 12.3 per cent the year before.
On the other hand, indirect tax collections have been budgeted to grow around 18 per cent
in FY20, up from roughly 4 per cent the previous year.
Sources other than tax

The finance minister has also relied heavily on dividends from the RBI and other public
financial institutions, disinvestment proceeds as well as revenues from the telecom sector to
shore up revenues. But the worry is that failure to meet these stiff targets will not only risk
the task of meeting the fiscal deficit target for this year, but also cast doubts on the medium
term fiscal roadmap that envisages bringing down the deficit to 3 per cent in 2020-21.
What is the importance of cesses and surcharges?

Over the years, the Centre has begun to rely more on revenue collected through cesses and
surcharges to meet its expenditure obligations. Unlike other taxes, revenue collected through
this route is not part of the divisible tax pool, and is thus not shared with the states. According
to the 14th Finance Commission, states should receive 42 per cent of the divisible tax pool.
But since cesses and surcharges are not part of this pool, an increase in revenues through
this channel helps shore up only the Centre’s coffers.

146
In this Budget too, the finance minister has raised the special additional excise duty and road
and infrastructure cess each by one rupee on a litre of petrol and diesel. As a result of this,
the states’ share in gross tax revenues (excluding GST compensation cess as that is meant to
compensate states) is expected to fall from 36.3 per cent in FY18 to 34.4 per cent in FY20.
To put this in perspective, the amount the Centre hopes to mop up through ceases and
surcharges is now greater than its entire allocation to centrally sponsored schemes or even
its total capital expenditure.
Will public sector borrowing continue to crowd out private investment?

In the recent past, there has been much concern over the rise in borrowings of the public
sector (Centre, states and public sector enterprises) as this left very little space for the
private sector to borrow. But, the Budget documents reveal that borrowings by central PSUs
are expected to decline from Rs 4.1 lakh crore in FY19 to 3.1 lakh crore in FY20. Much of this
decline is due to fall in FCI’s borrowings.
On the other hand, the Centre’s gross market borrowings are pegged at Rs 7.1 lakh crore in
FY20, up from Rs 5.71 lakh crore last year. But, as announced in the Budget, part of the
borrowings will be met by raising funds from abroad. This will bring down the level of public
sector borrowings in the domestic market, creating space for the private sector.
Even though the combined borrowings of the Centre and PSUs have risen as a percentage of
GDP, they are expected to decline to 4.9 per cent of GDP in FY20 from 5.2 per cent in FY19
(GDP estimates have been taken from the Budget).
Will lower borrowings impact capital spending by the public sector?

The Budget has pegged the Centre’s capital expenditure at Rs 3.3 lakh crore in FY20, up from
Rs 3.16 lakh crore in FY19. Add to this capital expenditure of railways and other public sector
enterprises and the total capital expenditure works out to around Rs 8.76 lakh crore in FY20,
lower than Rs 9.29 lakh crore in the previous year.

147
(Source:https://indianexpress.com/article/explained/fiscal-deficit-union-budget-2019-
highlights-nirmala-sitharaman-indian-economy-gdp-growth-5819920/)
123. Stocks crash on budget, global cues (Relevant for GS Prelims & Mains Paper III;
Economics)
Reasons for free fall of budget

The first trading session of the equity markets after the Union Budget saw stocks in a free-
fall mode as a mix of global factors and domestic concerns emanating from some of the
proposals in the Budget spooked investors.
The government’s proposal to levy a surcharge on the high-income group coupled with the
tax on buyback and increase in public holding in listed entities dampened investor
sentiments, while the overall negative trend in emerging markets on account of a robust U.S.
jobs data lowering the prospect of a rate cut by the Federal Reserve further played
spoilsport.

148
Intraday low
The 30-share Sensex fell nearly 910 points during intraday trading to touch a low of
38,605.48 before marginally recouping some of the osses to close at 38,720.57, down 792.82
points or 2.01%.
The broader Nifty ended the day at 11,558.60, shedding 252.55 points or 2.14%. Further, the
India VIX index, which is looked upon as a barometer of near-term volatility, gained over 6%
on Monday.
(Source:https://www.thehindu.com/business/markets/stocks-crash-on-budget-global-
cues/article28323650.ece)
124. Cabinet approves the Banning of Unregulated Deposit Schemes Bill, 2019
The Union Cabinet has approved the banning of Unregulated Deposit Schemes Bill, 2019. It
will replace the banning of Unregulated Deposit Schemes Ordinance, 2019.
The banning of Unregulated Deposit Schemes Bill, 2019 will replace the Ordinance
promulgated on 21st February, 2019, which will otherwise cease to operate after six weeks
after reassembly of Parliament.
Impact
The Bill will help tackle the menace of illicit deposit taking activities in the country, which at
present are exploiting regulatory gaps and lack of strict administrative measures to dupe
poor and gullible people of their hard-earned savings.
Background
The banning of Unregulated Deposit Scheme Bill, 2018 was considered by the Lok Sabha in
its sitting held on 13th February, 2019 and after discussion, the same was passed, as
amended through the proposed official amendments, as the banning of Unregulated Deposit
Scheme Bill, 2019. However, before the same could be considered and passed in the Rajya
Sabha, the Rajya Sabha was adjourned sine die on the same day.
125. Cabinet approves Launch of Pradhan Mantri Gram Sadak Yojana-lll (PMGSY-III)
In a major boost to rural road connectivity across the country, the Cabinet Committee on
Economic Affairs has given its approval for the launch of Pradhan Mantri Gram Sadak Yojana-
lll (PMGSY-III). It involves consolidation of Through Routes and Major Rural Links
connecting habitations to Gramin Agricultural Markets (GrAMs), Higher Secondary Schools
and Hospitals.

149
Under the PMGSY-III Scheme, it is proposed to consolidate 1,25,000 Km road length in the
States.The Scheme will also include Through Routes and Major Rural Links that connect
habitations to Gramin Agricultural Markets (GrAMs), Higher Secondary Schools and
Hospitals.
Impact
• This would facilitate easy and faster movement to and from Gramin Agricultural Markets
(GrAMs), Higher Secondary Schools and Hospitals.
• Roads constructed under PMGSY would also be maintained properly.
Financial Implications
• It will entail an estimated cost of Rs 80,250 crore (Central Share-Rs. 53,800 crore, State
Share- Rs 26,450 crore).
• The funds would be shared in the ratio of 60:40 between the Centre and State for all States
except for 8 North Eastern and 3 Himalayan States (Jammu & Kashmir, Himachal Pradesh &
Uttarakhand) for which it is 90:10.
Implementation
•Project period: 2019-20 to 2024-25.
• Selection of candidate roads based on the sum total of the marks obtained by particular
road on the basis of parameters of population served, market, educational and medical
facilities, etc.
• Construction of bridges upto 150 m in plain areas and 200 m in Himalayan and NE States
proposed, as against the existing provisions of 75 m and 100 m in plain areas and Himalayan
and NE States respectively.
• The States shall be asked to enter into a Memorandum of Understanding (MoU) before
launching of PMGSY-III in the concerned State for providing adequate funds for maintenance
of roads constructed under PMGSY post 5-year construction maintenance period.
Progress under PMGSY

A total of 5,99,090 Km road length has been constructed under the scheme since inception
till April, 2019 (inclusive of PMGSY-I, PMGSY-II and RCPLWEA Scheme.
Background
PMGSY-III scheme was announced by the Finance Minister in Budget Speech for the year
2018-19.
The CCEA in its meeting held on 9th August, 2018 approved continuation of PMGSY-I & II
beyond 12th Five Year Plan and covering of balance eligible habitations under PMGSY-I by
March 2019, PMGSY-II, and habitations under identified LWE blocks (100-249 population)
by March 2020.
PMGSY-I
PMGSY was launched in December, 2000 with an objective to provide single all-weather road
connectivity to eligible unconnected habitation of designated population size (500+ in plain
areas and 250+ in North-East, hill, tribal and desert areas as per Census, 2001) for overall
150
socio-economic development of the areas. 97% of the eligible and feasible habitations have
already been connected by all-weather road.
Road Connectivity Project for Left Wing Extremism Area (RCPLWEA)

Government launched Road Connectivity Project for Left Wing Extremism affected Areas in
the year 2016 as a separate vertical under PMGSY to provide all-weather road connectivity
with necessary culverts and cross-drainage structures in 44 districts (35 are worst LWE
affected districts and 09 are adjoining districts), which are critical from security and
communication point of view. Under the Scheme, 5,066 Km road length has been sanctioned.
126. Why is India opting for overseas bonds? (Relevant for GS Prelims & Mains Paper
III; Economics)
The government, Finance Minister Nirmala Sitharaman announced in the Budget speech,
plans to raise a portion of its gross borrowing from overseas markets. The government and
the Reserve Bank of India (RBI) will reportedly finalise the plans for the overseas issue of
sovereign bonds by September. While several commentators have argued that this is a risky
move, the government itself is convinced that it will help boost private investment in the
country.
What is an overseas bond issue?

A government bond or sovereign bond is a form of debt that the government undertakes
wherein it issues bonds with the promise to pay periodic interest payments and also repay
the entire face value of the bond on the maturity date. So far, the government has only issued
bonds in the domestic market.
According to Ms. Sitharaman, India’s sovereign external debt to GDP ratio is among the
lowest around the world, at less than 5%. Against this background, the government will start
raising a part of its gross borrowing programme in external markets in external currencies.
What are the benefits of an overseas bond issue?

Government borrowing is at such a level that there are not enough funds available for the
private sector to adequately meet its credit and investment needs. If the private sector
cannot borrow adequately, then it cannot invest as it wants to, and that cripples one major
engine of economic growth.
According to Finance Secretary Subhash Chandra Garg, government borrowing accounts for
about 80-85% of domestic savings. Therefore, borrowing overseas allows the government
to raise funds in such a way that there is enough domestic credit available for the private
sector.
What are the risks?

Several economists have expressed their concerns over the fact that India might follow the
path of some Central and South American countries such as Mexico and Brazil. In the 1970s,
151
several of these countries borrowed heavily overseas when the global market was flush with
liquidity. But then, when their currencies depreciated sharply a decade later, these countries
were in big trouble as they could not repay their debt.
Another risk to India from overseas borrowings is that this would lead to a quicker increase
to its foreign exchange reserves, which would lead to a stronger rupee at a time when it is
already appreciating against the dollar. This, many experts say, would be an adverse
outcome. A stronger rupee would encourage imports at a time when the government is
trying to curb them, and discourage exports at a time when they are being encouraged.
On the other hand, a rupee depreciation for whatever external reason would prove even
more disastrous as it would make it far more expensive for India to repay its external debt.
The third problem with an overseas bond issue is that the government would not be able to
inflate itself out of trouble. That is, in the domestic market, if the government does ever reach
the stage where it is finding it difficult to repay its debt, it can simply print more money, let
inflation rise quickly and repay its debt. This is not an option in an overseas bond issue. The
Indian government cannot print foreign currency to repay its debt.
(Source:https://www.thehindu.com/business/Economy/why-is-india-opting-for-
overseas-bonds/article28422380.ece)
127. Draft Model Tenancy Act: what govt proposes for house owners, tenants
Last week, the Ministry of Housing and Urban Affairs (MHUA) released the draft Model
Tenancy Act, 2019, which aims to regulate rental housing by a market-oriented approach. Its
objective and features:
Why an Act
Pointing to the Census 2011 count of 1.1 crore houses lying vacant, an MHUA statement said
the Model Act would bring these into the rental market, and would promote the growth of
the rental housing segment: “The existing rent control laws are restricting the growth of
rental housing and discourage owners from renting out their vacant houses due to fear of
repossession. One of the potential measures to unlock the vacant house is to bringing
transparency and accountability in the existing system of renting of premises and to balance
the interests of both the property owner and tenant in a judicious manner.”
Broad outlook
The Model Act lays down the obligations of tenants and landlords, and provides for an
adjudication mechanism for disputes.
It is intended to be an Act “to balance the interests of owner and tenant by establishing
adjudicating mechanism for speedy dispute redressal and to establish Rent Court and Rent
Tribunal to hear appeals and for matters connected” to rental housing.

152
Its stated aim is to promote the creation of a rental housing stock for various income
segments including migrants, formal and informal sector workers, students, and working
professionals, mainly through private participation.
The Act mandates that no person will let or take any rental premises without an agreement
in writing, in both urban and rural areas. Within two months of executing such an agreement,
the land owner and tenant are required to intimate the Rent Authority, who will issue a
unique identification number to both parties. Agreements can be submitted through a
dedicated digital platform.
What changes, what does not

The Model Act, if adopted and enforced by the states, will lead to a better regulated private
rental housing market for the middle and higher income segments. What it is not likely to do,
however, is ensure a robust rental housing stock that caters to all groups, including large
numbers of people in the cities who are forced to live in informal settlements; nor is it likely
to increase the social rental housing supply.
Tenant and landlord rights

The Model Act lays down various rules, including that the security deposit to be paid by the
tenant should not exceed two months’ rent for residential property, and should be a
minimum of one month’s rent for non-residential property. It lists the kinds of repairs each
party would be responsible for, with the proviso that money for repairs can be deducted
from the security deposit or rent, as applicable, if a party refuses to carry out their share of
the work. The Rent Court can allow repossession of the property by the landlord if the tenant
misuses the premises, after being served a notice by the landowner. Misuse of the premises,
as defined, includes public nuisance, damage, or its use for “immoral or illegal purposes”. If
the tenant refuses to vacate, the landlord can claim double the monthly rent for two months,
and four times the monthly rent thereafter.
Model Act, existing Acts

While announcing the Model Act in her Budget statement, Finance Minister Nirmala
Sitharaman termed the existing rent control laws as archaic. The Model Act states that all
state rent control Acts stand repealed, a reform that has been a condition set for many World
Bank-funded projects in India. However, since land and urban development are state
subjects, the central Model Act is not binding on the states unless they draft their legislation
based on it. MHUA officials said states and Union Territories will choose to repeal or amend
their existing Acts. The MHUA also clarified that the Model Act would be applicable
“prospectively and will not affect the existing tenancies”.
Repeal of rent control Acts has been a politically sensitive issue in the cities, especially in
South Mumbai, where old properties in prime locations have been occupied for decades by
residential and commercial tenants at negligible rents. The Model Act has been in the making
since 2015, but has been held up on this point. The new Act will be applicable only to fresh
tenancies. The draft has been circulated to all states, and they are expected to give their
suggestions by July 26.

153
(Source:https://indianexpress.com/article/explained/draft-model-tenancy-act-what-
govt-proposes-for-house-owners-tenants-5829266/)
128. How to read the current fall in bond rates; where are yields headed? (Relevant
for GS Prelims & Mains Paper III; Economics)
Yields of 10-year G-secs (or the 10-year government bonds) have been falling sharply and
almost continuously of late. At the end of trading sessions on July 16, these yields were
trading at a 30-month low.
So why does a fall in government bond yields matter?

The way the bond market functions, the yield, or the interest rate earned, on a government
bond — especially the 10-year one — is a good indicator of the prevailing interest rate in an
economy.
If yields on government bonds (also called government securities or G-secs) are falling, it is
reflective of a downward movement in interest rates applicable for the broader economy as
well. For the average consumer then, the rate of interest that she will pay for say, a new car
this Diwali, will likely be lower than a year ago or indeed, the present.
And what exactly are G-secs?

In simplest terms, a G-sec is an IOU given by the government to anyone who lends it money.
Like every entity in an economy, the government too needs to borrow to carry out its
functions. The G-sec is the government’s vehicle to borrow from the public.
What makes G-secs attractive?

In any investment, apart from the reward (that is, the rate of return or rate of interest), the
other key factor is the level of risk. G-secs are appealing because they are considered to be
among the safest of investments — the sovereign is not expected to default or go bankrupt.
However, as is always the case, the price of a safe investment is modest returns.
How are yields calculated?

Every G-sec has a face value and a coupon payment. There is also the price of the bond, which
may or may not be equal to the face value of the bond. And then there is the yield, which is
the effective rate of interest that one earns when one buys a bond.
Now suppose the face value of a 10-year G-sec is Rs 100, and its coupon payment is Rs 5.
Buyers of this bond will give the government Rs 100 (the face value); in return, the
government will pay them Rs 5 every year for the next 10 years, and will pay back their Rs
100 at the end of the tenure. In this instance, the bond’s yield or effective rate of interest is
5%. The yield is the investor’s reward for parting with Rs 100 today, but for staying without
it for 10 years.
But say, there was just one bond, and two buyers (people willing to lend to the government).
The actual selling price of the bond may in such a scenario go from Rs 100 to Rs 105 or Rs
110 because of the bidding war between the two buyers. Importantly, even if one buys the
154
same bond at Rs 110, the coupon payment of Rs 5 will not change. Thus, as the price of the
bond increases from Rs 100 to Rs 110, the yield falls to 4.5%.
But what is the relation between G-sec yields and interest rate in the economy?
The way bond yields function implies that they are in close sync with the prevailing interest
rate in an economy. With reference to the above example, only if the interest rate in the
broader economy is 5% will the bond’s selling price be the same as the bond’s face value. If
there is any discrepancy, the market will ensure it is removed.
For instance, if the prevailing interest rate is 4% and the government announces a bond with
a yield of 5% (that is, a face value of Rs 100 and coupon of Rs 5) then a lot of people will rush
to buy such a bond to earn a higher interest rate. This increased demand will start pushing
up bond prices, even as the yields fall. This will carry on until the time the bond price reaches
Rs 125 — at that point, a Rs-5 coupon payment would be equivalent to a yield of 4%, the
same as in the rest of the economy.
This process of bringing yields in line with the prevailing interest rate in the economy works
in the reverse manner when interest rates are higher than the initially promised yields.
So, are interest rates likely to fall in the coming future?

The yields of G-secs have been falling, and are now at the lowest level since the November
2016 demonetisation exercise. The fall has been faster since the announcement in the Budget
that the government would limit its borrowing. A lower supply of bonds, without a change
in demand, has effectively pushed up prices and, in the process, brought down yields.
Moreover, the RBI is concerned about the low inflation and deceleration in economic growth,
and is expected to further cut interest rates in its forthcoming reviews. The falling bond
yields are, thus, pointing to where the interest rates are likely to be in the coming months.
(Source:https://indianexpress.com/article/explained/why-consumers-should-rejoice-at-
bond-yields-plummeting-5836310/)
129. Finance Ministry, NITI Aayog guidelines ignored in airport privatization

Finance ministry recommendation overlooked

A Finance Ministry recommendation not to award the same player more than two airports,
out of a total of six to be privatised by the Centre, was among some of the key suggestions
brushed aside by the government panel for public private partnerships — the PPP Appraisal
Committee (PPPAC) — effectively leading to Adani Enterprises Limited emerging as the
winning bidder for all airports.
Following the Union Cabinet’s in-principle nod in November 2018 to privatise six airports
owned by the Airports Authority of India (AAI), the PPPAC met on December 11 to
recommend the proposal for final approval.

155
The panel dismissed key suggestions made by the Finance Ministry’s Department of
Economic Affairs (DEA) and the NITI Aayog to improve criteria for selecting bidders.
These included the requirement of prior experience in operation and management (O&M) as
well as providing the total project cost up front for each of the airports, to better determine
the financial capability of interested players.
Tender floated
Three days later, on December 14, the AAI floated a tender for operation, management and
development under the PPP mode for the Lucknow, Ahmedabad, Jaipur, Guwahati,
Thiruvananthapuram and Mangaluru airports.
In February 2019, the AAI declared Adani Enterprises Limited the highest bidder for all six
airports. On July 3, the Union Cabinet gave its nod for leasing three of these airports, while
“a decision on the remaining three is awaited.”
Logic behind guidelines

The DEA and NITI Aayog’s detailed notes of the proposal on the six airports were circulated
among the participating ministries ahead of the PPPAC meeting.
In its note, the DEA noted unequivocally, “the six airport projects are highly capital intensive
projects, hence it is suggested to incorporate the clause that no more than two Airports will
be awarded to the same bidder duly factoring the high financial risk and performance issues.
Awarding them to different companies would also facilitate yardstick competition.
To buttress its point, the DEA cited that though GMR was the only qualified bidder for Delhi
and Mumbai, both the airports were not given to the same company.
In a separate note, the NITI Aayog highlighted the need to have players with prior Operation
and Management (O&M) experience. It referred to the Model Request for Qualification (RfQ)
that requires an applicant without O&M experience to either tie-up with an entity or engage
qualified personnel with the requisite experience.
(Source:https://www.thehindu.com/business/Industry/finance-ministry-niti-aayog-
guidelines-ignored-in-airport-privatisation/article28733682.ece)
130. Ban or regulate? — On India's policy on cryptocurrencies (Relevant for GS

Decision on inter-ministerial committee on cryptocurrencies

The recommendation of an inter-ministerial committee that India should ban all private
cryptocurrencies, that is, Bitcoin and others like it, hardly comes as a surprise. The
committee was under the chairmanship of Subhash Chandra Garg, the former Economic
Affairs Secretary. The committee has opposed private cryptocurrencies even while
advocating a central bank-issued cryptocurrency.
156
The inter-ministerial even recommended to draft a law that mandates a fine and
imprisonment of up to 10 years for the offences of mining, generating, holding, selling,
dealing in, transferring, disposing of, or issuing cryptocurrencies.
Reason for stand against cryptocurrencies

In his Budget speech in 2018, Finance Minister Arun Jaitley said the government doesn’t
consider them legal tender. The Reserve Bank of India has repeatedly warned the public of
the risks associated with dealing with cryptocurrencies. Bitcoin, the most prominent among
them, has yo-yoed wildly in value, even over short periods of time. A May 2019 article by
Bloomberg, citing data from blockchain analysis firm Chainalysis, said “speculation remains
Bitcoin’s primary use case”. Its use in illegal online marketplaces that deal with drugs and
child pornography is well-documented. There have been cases of consumers being
defrauded, including in India.
Global scenario
Governments and economic regulators across the world are wary of private
cryptocurrencies. As they need neither a central issuing authority nor a central validating
agency for transactions, these currencies can exist and thrive outside the realm of authority
and regulation. They are even deemed a threat to the official currency and monetary system.
Many countries, including Canada, Thailand, Russia and Japan, seem to be moving on the path
of regulation, so that transactions are within the purview of anti-money laundering and
prevention of terror laws.
China has gone for an outright ban. It is believed that India has taken adopted Chinese model
on cryptocurrencies.
(Source:https://www.thehindu.com/opinion/editorial/ban-or-
regulate/article28739549.ece)
131. Understanding cryptocurrencies: What’s to like, and what’s to fear (Relevant for
An inter-ministerial committee (IMC) that was set up to assess the viability of virtual
currencies has recommended that India should ban private cryptocurrencies such as Bitcoin.
The detailed report of the IMC was submitted on February 28 but it was made public only on
July 23. It is available on the Department of Economic Affairs’ website.
What are virtual currencies?

A virtual currency is a digital representation of value that can be digitally traded and
functions as (a) a medium of exchange, and/ or (b) a unit of account, and/or (c) a store of
value, but, unlike fiat currency like the rupee, it is not legal tender and does not have the
backing of a government. A cryptocurrency is a subset of virtual currencies, and is
decentralised, and protected by cryptography.
What are Distributed Ledger Technologies and Blockchain?

157
Imagine a small group of school friends maintaining a list of transactions among themselves,
but with a twist: Instead of holding this list in one single computer or in the notebook of one
of the group members or authorising some outside authority (say, their class teacher) to
maintain (and update) the list, all of them decide to maintain a separate copy of the list in
their personal computers. Every time they transact, the rest of the members verify the
transaction and once it is verified by all, they update their list. Further, to make sure that
none of them changes records of the past transactions in their personal list, they decide to
place each transaction as a block, and to stack it one after the other in a sequence. This way,
no one can tweak the details of any past transactions because the overall sequence will not
match with sequences held by others. Lastly, to make sure that no other child from the school
gets to know the details, they devise a code (a cypher) for all their communications related
to the list.
Broadly speaking, this is how Distributed Ledger Technologies, and Blockchain, in particular,
function. DLT refers to technologies that involve the use of independent computers (also
referred to as nodes) to record, share, and synchronise transactions in their respective
electronic ledgers. Keeping such distributed ledgers obviates the need for keeping the data
centralised, as is done in a traditional ledger. All virtual currencies use DLT.
A transaction under DLT essentially refers to the transfer of “value” from one to another.
This “value” could be any record of ownership of assets — money, security, land titles — or
the record of specific information such as information about one’s identity or health
information, etc. That is why DLT has applications in several fields.
Blockchain is a specific kind of DLT that came to prominence after Bitcoin, a cryptocurrency
that used it, became popular. Cryptocurrencies such as Bitcoin use codes to encrypt
transactions and stack them up in blocks, creating Blockchains. It is the use of codes that
differentiates cryptocurrencies from other virtual currencies.
What is the IMC’s view on DLT and cryptocurrencies?

The first thing to understand is that the IMC recognises the potential of DLT and Blockchain.
The IMC accepts that internationally, the application of DLT is being explored in the areas of
trade finance, mortgage loan applications, digital identity management or KYC requirements,
cross-border fund transfers and clearing and settlement systems. To that extent, it
recommends the Department of Economic Affairs (within the Finance Ministry) to take
necessary measures to facilitate the use of DLT in the entire financial field after identifying
its uses. The IMC also recommends that regulators — RBI, SEBI, IRDA, PFRDA, and IBBI —
explore evolving appropriate regulations for development of DLT in their respective areas.
However, the IMC has recommended a ban on “private” cryptocurrencies. In other words, it
is open to a cryptocurrency that the RBI may unveil. The IMC’s view is that it “would be
advisable to have an open mind regarding the introduction of an official digital currency in
India”. It noted that the RBI Act has the enabling provisions to permit the central government
to approve a “Central Bank Digital Currency” (CBDC) as legal tender in India.
Why have private cryptocurrencies attracted a ban?

158
While it is true that the technology used in virtual currencies has immense potential, without
a central regulating authority, they can have numerous downsides. The IMC’s first concern
is that non-official virtual currencies can be used to defraud consumers, particularly
unsophisticated consumers or investors. The IMC gives the example of the Rs 2,000 crore
scam involving GainBitcoin in India where investors were duped by a Ponzi scheme.
Moreover, such currencies often experience tremendous volatility in their value. For
example, Bitcoin was selling at $20,000 per coin in December 2017 but in less than a year, it
was trading at $3,800 per coin. In a country where lakhs of traders get involved in such
currencies, this could have huge implications.
Second, scaling up such a currency system over a large population would require crippling
levels of energy resources. Currencies such as Bitcoin require humongous processing power.
According to a report by the Bank of International Settlement, Bitcoin processing already
uses as much energy as is used by Switzerland; it called this an environmental disaster.
Third, the IMC is worried that if private cryptocurrencies are allowed to function as legal
tender, the RBI would lose control over the monetary policy and financial stability, as it
would not be able to keep a tab on the money supply in the economy.
Fourth, the anonymity of private digital currencies make them vulnerable to money
laundering and use in terrorist financing activities while making law enforcement difficult.
Fifth, there is no grievance redressal mechanism in such a system, as all transactions are
irreversible.
It is for these broad reasons that the IMC singled out private cryptocurrencies for a ban.
(Source.https://indianexpress.com/article/explained/understanding-cryptocurrencies-
whats-to-like-and-whats-to-fear-5859083/)


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6. Cabinet approves implementation of Shahpurkandi Dam (National Project) on river Ravi

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65. India ranks 11th in gold holding’(Relevant for GS Prelims; Economics)..................................... 79

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What does the new data say?

What were the changes made?

What are the problems with the new data?

Are these numbers different from previous estimates?

(Adapted from The Hindu)

Kisan Mukti Morcha & its demands

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Recent kisan protests

Agriculture sector performance

Demonetisation affected farm sector

(Adapted from The Hindu)

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Supreme Court judgement on Aadhar

Disclosure of Aadhar details in case of national security issue

PAN holders cannot withdraw

(Adapted from The Hindu)

What is the crisis?

Why are they in trouble?

Massive fleet expansion in recent times

What lies ahead?

(Adapted from The Hindu)

5. Cabinet approves Agriculture Export Policy, 2018 (Relevant for GS Prelims, GS

Website: www.prepmate.in Telegram Channel: @upscprepmate

“Harness export potential of Indian agriculture, through suitable policy instruments, to

Elements of Agriculture Export Policy:

Strategic Policy measures

Infrastructure and logistics support

Holistic approach to boost exports

Greater involvement of State Governments in agri exports

Promoting value-added exports

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Marketing and promotion of “Brand India

Operational Attract private investments into production and processing

Establishment of strong quality regimen

Research & Development

(Adapted from PIB)

6. Cabinet approves implementation of Shahpurkandi Dam (National Project) on river

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• On completion of the project an additional Irrigation Potential of 5000 ha in Punjab State

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(Adapted from PIB)

What is the rationale?

(Adapted from PIB)

8. Kolkata-Patna becomes India’s second container cargo sector on Inland Waterways

What are the advantages of IWT?

(Adapted from PIB)

What is the problem?

What are the reasons for this?

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What is the government doing?

What policy solutions lie ahead?

(Adapted from The Hindu)