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EconomyRelationship between GVA and GDP (basic prices/ market prices/ factor costs)Competitive devaluation- effectsPSU mahanavratnas and navratnasPower Sector in IndiaBanking licenses Relations BillMarginal Oil Field PolicyBank Boards BureauCDMA band spectrum meaningThe government's move to increase import duty on steel may improve the bottomline of domestic steel manufacturers, but is likely to hit downstream manufacturersAtkinson's inequality measureANGUS DEATON- for optionalWhy has poverty estimate by world bank dipped to 12%? in India- prepare short notes from Jayati Ghosh's paperIndia has not achieved the MDG targets of universal primary school enrolment, women empowerment, reducing child and infant mortality, and improving sanitation to end open defecationGovind rao decentralisation article Nov. 02 India is number 1 in FDI It seems India is a victim of its own size. It imagines that the vastness of its internal market is sufficient to allow for the expansion of a manufacturing sector. It is extraordinary that this delusion has persisted so long, in spite of 70 years of our economic history serving as evidence to the contraryThe system of conclusive land titles is based on four basic principles: One, a single agency to handle land records (including the maintenance and updating of the textual records, maps, survey and settlement operations, registration of immovable property mutations, etc); second, the “mirror” principle, which states that, at any given moment, the land records mirror the ground reality; three, the “curtain” principle, which refers to the fact that the record of title is a true depiction of the ownership status, mutation is automatic following registration, there is no need of probing into past title transactions, and title is a conclusive proof of ownership; and four, title insurance, which refers to the fact that the title is guaranteed for its correctness and the party concerned is indemnified against any loss arising because of inaccuracy in this regard. At the moment, land records in India don’t reflect any of these principlesThere are still some segments of the industry which are subject to a number of controls of the pre-1991 type. A typical example is the sugar industry. Molasses are subject to a type of control which results in a subsidisation of the liquor industry. The basic principle underlying liberalisation is of the need to create competitive markets with minimal barriers to entry and should be extended to all sectors. Pricing of natural resources has become an issue. In the absence of competition, transparent mechanisms for fixing the prices must be followed which will be fair to both the producers and the end usersThe annual rate of growth of per capita income in the period between 1993-94 and 2004-05 was 4.3 per cent and the growth rate for the period between 2004-05 and 2011-12 was 6.7 per cent. The annual decline in the poverty ratio in percentage points (according to the Suresh Tendulkar committee’s methodology) was 0.74 in the first period and 2.18 in the second period. In fact, the finding that the decline in poverty was much faster in the latter period is valid irrespective of where the poverty line is drawn. Between 2009-10 and 2011-12, according to the Tendulkar Committee’s methodology, the reduction in poverty ratio was 7.9 points. According to the Rangarajan Committee’s methodology, it was 8.7 pointsLearn GDP growth rates: In the post reform period beginning 1992-93, the economy has grown at an average rate of 6.8 per cent. In the more recent period, the growth rate has been even higher. Over the decade beginning 2004-05, the average annual growth rate has been 7.6 per cent. Between 2005-06 and 2010-11, the growth rate was 8.7 per cent. Contrast this with the annual growth rate of 3.5 per cent between 1952 and 1980Urea is sold at one-fourth the price of table salt today. But the excessive use of cheap urea destroys the soil and leads to more plant vegetative growth. An explosion of insect and pest populations is then inevitable. Indiscriminate, unregulated sale of pesticides and spurious products is leading to an ecological disasterFood processing, essential for agricultural prosperity, never bloomed — for instance, Punjab exports wheat but imports wheat flourCapital goods policy: Roy: Diversify services to boost exports: BEPSWhat is being crafted as a key intervention appears essentially to be another round of financial repackaging. The discoms' debts are proposed to be transferred to the state governments concerned, which will issue bonds against these. The Union Cabinet is shortly expected to endorse this. If the state defaults on servicing these bonds, the Centre would step in and commandeer parts of financial grants/devolutions to the state. It is hoped that this additional pressure on the finances of the states will force them to implement tough distribution sector reformsThe thermal power sector is operating at a decadal low of 59 per cent plant load factor because discoms do not have the money to pay for buying more powerIndia's overall population growth rate (at about 1.4 per cent now) is falling more dramatically than anticipatedThere are of course two classical shortcomings preventing India from becoming a manufacturing power - regulatory cost and inadequate infrastructureEU migrant crisis could easily affect the flow of Indian workers to the regionNSDC: The corporation is, after all, the only one of its kind - a public-private partnership (PPP) set up to promote skill development by catalysing the creation of large and quality for-profit institutions. The partnership model followed by NSDC has put the responsibility of delivering skilled population essentially at the doors of the private companies that are funded. A task of such magnitude cannot be performed by the government or the private sector working in separate silos. In that sense, NSDC provided a wonderful opportunity for industry to play a leadership role in training and employing people - whether it is through imparting vocational education, vetting the curriculum, or assessing and certifying training programmes. All of this is also, of course, in their own interest. If Indian companies continue to be lukewarm in their response, questions will be asked whether they are treating skill training as a cosmetic exercise in corporate social responsibilityThe TPP and other mega trade agreements under negotiation such as the Transatlantic Trade and f Partnership and the Regional Comprehensive Economic Partnership (RCEP) are bound to challenge India's businesses in many ways, says our commerce ministry. First, they will erode existing preferences for Indian products in established traditional markets such as the US and the European Union (EU), benefiting the partners to these agreements. Second, they are likely to develop a rules architecture which will place greater burden of compliance on India's manufacturing and services standards for access to the markets of the participating countries.TN Ninan's BS article on October 10: effects of deflation on IndiaBanking Regulations Act, enables RBI to supersede the board of directors of a bank for upto 12 months if it feels that the board is not working in the interest of shareholders and depositors. If such a step is taken, RBI could run the bank by appointing an administrator till a new board is appointed. In such a scenario, while shareholders wealth decline, depositors money stay safe. More importantly, RBI watchers indicate the central bank can supersede the board if the top management fails to deliverSubsidies account for 1.6% of the total GDP, as against 2.5% in 2012A key TPP agenda is to counter the might of China in the Pacific region; TPP countries account for 40℅ of total world tradeWorld bank has revised the poverty line from $1.25 to $1.90India's natural gas pricing policyIntegrated Power Development SchemeChallenges to payment banks and SFBs might come also from PMJDY and exisiting priority sector lending norms for existing banks2015 NPT RevConIn 2014-15, subsidies accounted for 2.1% of the GDP, 2.64 times the entire capex of the central government, and accounted for about 23% of the central government's revenue receipts Many of the new small banks will be run by MFIs, which is good because MFIs have deep penetration and know their customers (Subir gokarn, business standard, Sep 23)Key features: National Skills Policy ---India now ranks?130?out of 189 countries in the?ease of doing business 2016,?according to a?World Bank report. The improvement in two indicators, ‘starting a business’ and ‘getting electricity,’ pushed India up the ladderData shows that although the inflation has been slowing both in rural and urban areas of the country, there is a widening difference between the two as rural inflation is decelerating at a much slower pace. The difference between rural and urban inflation is most stark for fuel and transportation, followed by core and to a lesser extent food. Rural India has some structural disadvantages vis-a-vis urban India. Urban India is benefitting from lower global prices while rural India, partly because of its structural ailments, is not being able to partake with equal vigourStructural bottlenecks in rural India are harsher. Transport networks are also sparser and distribution channels are insufficient.World Bank report shows that between 2004-2009, 15% of India’s population, or 40% of the poor, moved above the poverty line (reducing poverty)India joined the MCAA (Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information) 54 countries are a part of itBulk taxpayer information will periodically be sent by the source country of income to the country of residence of the taxpayerThis will help prevent international tax evasionAEOI (Automatic Exchange of Information) based on CRS (Common Reporting Standards), when fully implemented, would enable India to receive information from almost every country in the world including offshore financial centres and would be the key to prevent international tax evasion and avoidance and would be instrumental in getting information about assets of Indians held abroad including through entities in which Indians are beneficial ownersThis will help the Government to curb tax evasion and deal with the problem of black moneySEBI now allows urban local bodies to issue municipal bondsCurrently, these depend on financing from central grants and to some extent form state governmentsThese bodies are critical for urban infrastructural developmentFMC and SEBI merger (see roles of both, what ministry they fall under etc.)Aim is to curb wild speculation and strengthen regulation of commodity forward marketWith regards to domestic MFs managing offshore funds, the government has now done away with the 20-25 ruleRule: A minimum of 20 investors in an MF, and no single investor is allowed to buy more than 25% stake in a single schemeOn an average, there are 7-8 plans under each scheme of a mutual fund. If the norm is applicable at the plan level, it effectively would have meant a closure of the entire scheme at the cost of other plans which would be in compliance with the criteriaPreviously, the applicability used to be at the plan levelIn Indian investment jargon, what does ‘EEE’ stand for?EEE: Exempt, Exempt, ExemptWhat is excise duty? Who usually bears the burden?Excise duty in India is a tax on products manufactured within India, for sale within IndiaThe manufacturer pays the burdenBoth the center and the state have excise dutiesWhat is Octroi?Octroi is a local body imposed tax in India collected on goods crossing municipal bordersTax is to be paid by the trader to the civic bodyMaharashtra is the only state in India that still levies itArm’s Length Transactions and Transfer PricingThe?arm's length principle?(ALP) is the condition or the fact that the parties to a transaction are independent and on an equal footingTransfer pricing?is the setting of the price for goods and services sold between controlled (or related) legal entities within an enterpriseAn example that might violate transfer pricing is sale of a house from parents to their children (very likely to be below the market price) Gold Monetization Scheme:India has huge amounts of gold – imports are one of the largest among the world (something to the order of a fourth of total global circulation)Before the government took measures to check the inflow, about 1000 tonnes of gold came into India annuallyIn 2012/13, gold imports cost about $56 billion, the second largest item on the import bill after crude oilTo reduce India’s import of gold (because large imports drain away precious foreign exchange reserves and worsen current account deficit), and to bring the already held large amounts of gold into circulation, the government has set up a sovereign gold bond that will carry a fixed rate of interest, and upon maturity, will give the owner the then current value of goldThe returns will be completely tax freePhysical gold won’t pass hands- think of this as a paper security you buy at the current price of gold; for the period you hold it, you get fixed interest, and upon maturity, you get the then market price of goldTwo potential complications: many people buy gold with cash, and may not be able to prove ownership; and banks may not have the necessary infrastructure for testing the purity of goldRead for potential reasons for failure: Units Development and Refinance Agency (MUDRA) Bank:Set-up announced by Budget 2015Initially, this will be a subsidiary of the Small Industries Development Bank (SIDBI), and will later become and independent, full-fledged bankImportant thing to note is that MUDRA bank will not be a lending bank, but will refinance MFIs who are in the business of lending to small entitiesIt will also lay down rules and policy guidelines for micro enterprise financing businesses, registration, accreditation, and starting of MFIsThis will be a bank to finance the setting up of small and micro-units and thereby encourage entrepreneurship among SC/STs and OBCs (lending will be preferentially given to these classes)It will regulate and refinance all MFIs that lend to micro/ small business entities engaged in manufacturing, trading, and services activities Logic is to bridge the funding gap that affects the ‘middle’ – top corporates are funded by the banking system, bottom of the ladder is funded by MFIs, but the middle rung of micro and small enterprises suffers funding problemsAccording to government estimates, only 4% of 5.77% crore small business units have access to institutional finance, leaving many to rely on informal lenderThe bank will regulate MFIs, and lend to ‘last-mile lenders’ that will provide financing to the businesses being targetedAjay Shah calls this a ‘bad idea’: `Mudra bank' is an old style socialist initiative, which is inconsistent with all the other modern elements of financial sector reformsBroadband and telephone penetration numbersOf the 1.25 billion people in India, only about 20% use internet (and about half of those use social media). About 900 million people have mobilesNational Common Agricultural Market (APMC reform): Online National Agricultural Market has recently been approved by the Cabinet; will provide more options to farmers for selling their produceCurrently, farmers are restricted to selling their produce at mandis or market committees that charge various taxes on producersState APMCs are seen as extortionist monopolistic places; even if trade is conducted outside an APMC and doesn’t utilize any APMC infrastructure, commission is still to be paid to the APMSCentre has been trying for a long time to convince the states to relax their APMC laws for over a decade, to no availAn online platform would be set up wherein farmers will be able to sell and buy fruits, vegetables and other produce from across the countryAn agency would be set up to oversee online trading and to ensure that transactions take place smoothlyIt will also focus on creating godowns and facilitating transportation of the farm produce after the online tradeGDR (GDRs and black money/ extent of RBI regulation)GDRs are financial instruments used by domestic companies to raise funds from abroadUsually denominated in foreign currency (thus, Indian companies raise funds in $ or ? etc. via GDRs)SEBI has come across quite a few cases where GDRs have been used for round-tripping of funds in the name of capital-raising of listed companies from abroad (an investor ‘invests’ his money in a tax-haven company; a domestic company then raises funds from this tax-haven by issuing GDRs => investor’s money is now clean and back in India)India-USA standoff about DCRs for solar cell productionThe case was filed by US along with the launch of both phases of Jawaharlal Nehru National Solar Mission (NSM), which aims at producing 20,000 mW of solar power by 2022The US was miffed at the Indian government urging developers of photovoltaic projects to procure solar cells and solar modules from domestic manufacturers onlyThe US alleged that Indian authorities were asked for mandatory usage of domestically produced solar power panels, which restricted the entry of American importsThe US, in its submission to the WTO, stated that India has violated GATT by not giving national treatment to imported products, and TRIMs, which prohibits the imposition of local content requirementsUPSI: Unpublished Price Sensitive Information, used in insider trading legislationShanta Kumar Committee recommendations Note that the government didn’t eventually accept the recommendation regarding cutting the % of population covered under the actWhat is the ratio of government revenue to GDP in India?Gross Tax Revenue to GDP ratio: 10.7% (2012, World Bank estimate)Total revenue to GDP ratio: 12.8%Change in GDP measurement methodGDP calculation: factor cost v/s market price:India has recently moved towards calculating GDP at market prices, and these numbers show that the Indian economy had been doing much better in the last few yearsInternationally, GDP (MP) is the usual norm, so India has made a move in the right directionGDP (MP) = C +I +G +(X-M)Calculation at factor cost calculate all the above quantities at prices that the producers receive, while GDP at market prices calculates the above quantities at prices paid by the consumersBecause of the existence of indirect taxes and subsidies on products, there can exist a wedge between prices paid by the consumers and those received by the producersThus, GDP (FC) = GDP (MP) – Indirect Taxes + Producer SubsidiesHeadline inflation- measure of total inflation within an economy, including commodities such as food and energy prices Minimum Alternative Tax:MAT is a way to make companies pay at least a minimum amount of tax (18.5%)It is applicable to all companies (including foreign companies with income sources in India) except those engaged in infrastructure and power sectorsReasons for MAT: The Indian Income Tax Act allows a large number of exemptions from total income. Besides exemptions, there are several deductions permitted from the gross total income. As a result, a lot of companies used to show considerable book profits, and distribute large dividends, but were able to use these exemptions to pay close to zero tax. These came to be known as ‘zero-tax’ companies. MAT was introduced to counter thisTax incentives practically bring down the corporate tax rate, and the average effective rate is around 23%, while many large corporates that are investing heavily find the actual rate falls to much lower levels. This is the reason why the government levies MAT on the book profits of companies at 18.5%, as the threshold below which the rate can’t fallThere are rumors that the present government might scrap MAT. They claim that the government is looking at gradually weeding out tax exemptions and concurrently reducing the corporate tax rate, such that MAT will become redundantFFC recommendations42% of total tax revenue to be devolved to the states: Factors for determining which state gets what share of tax revenue: Population (1971- 17.5% weight; 2011- 10% weight), Area (15%), Forest Cover (7.5%), (Fiscal Capacity, measured as income distance, which is the difference between the state’s per-capita income and the per-capita income of the highest earning state in India (50%))Central transfers can be divided into the following two categories:Transfers from the divisible pool of taxes (excludes cess etc.)Grants-in-aid, covering grants recommended by the FC, and not the ones that support state plans/ CCSs Aside from these, center also does non-FC recommended transfers that include grants for state-plan support, and grants to fund CCSs. While the FC transfers are statutory and do not impinge on states’ fiscal autonomy, the other two kinds of grants described above are tied to conditions/ sectors, and do impinge on fiscal federalismWhat this means for the overall transfers from the center to the states is as follows:Transfers as % of GDP (budget 2015/16) 2013/14 2015/16Total transfers from center to states 5.555.95Tax devolution 2.813.71Grants (cumulating all three kinds of grants- non-plan, state plan support, and CCS support)2.752.24Thus, as we can see, the increase in tax devolution is not revenue neutral for the center- that is, the decline in grants-in-aid does not cover the increase in tax devolution. This is inevitable, given that some CCSs like MGNREGA are constitutionally mandated and need to be funded no matter what.Local governments:FFC has been quite generous in recommending a larger grant to local governments (includes Panchayati Raj Institutions (PRIs) and Urban Local Governments (ULGs). The allocation to local governments is over twice the amount recommended by the 13th FC, and for ULGs it is nearly three times relative to the 13th FC recommendations While there was a clamour by various state and local governments to allocate at least 5% of the divisible pool to local governments, the 14th FC has recommended a grant-in aid for local governments that is equal to an estimated 3% of the divisible poolDistribution of LG grants to the states based on 2 factors: 2011 population (90% weight) and area (10%)Grant to each state should be divided into two; one part strictly for gram panchayats, and the other only for municipalities; the division should be on the basis of urban and rural population figures for the statesGrants for both these kinds of local bodies will be of two kinds: basic grants (80-90%), and performance grants (10-20%) (rural-urban)The performance grant to urban local governments is to be given if they fulfil three conditions – have their accounts audited, improve own revenues, and publish service-level benchmarksThe share of performance grants has been reduced from 35% in ThFC to 10% (urban) and 20% (rural)SFC to decide the sharing of grants within the stateState and local governments should explore the possibility of issuing municipal bonds as a source of financeBetter accounting and reporting procedures at the LG levelIndex of Industrial Production (IIP): A composite indicator that measures the short-term changes in the volume of production of a basket of industrial goods during a given period as compared to a base periodIn India, three major heads are manufacturing (about 80% weight), mining, and electricity (10% each)Manufacturing is sub-divided into production goods and user-based goods (subdivided into basic, capital, intermediate, and consumer)What is the ‘Peter Pan Syndrome’?Technology adoption is lower when there is greater corruption, but higher when there is better enforcement and auditingCorruption and lower enforcement reduces adoption of productivity-enhancing technology among retailers in?IndiaFirms tend to remain small to avoid transparency, a result of more technology, and thus avoid the risk of getting slapped with higher taxes and more regulationWhat is the extent of India’s forex reserves?About 383 billion dollarsForex reserves = Foreign Currency Assets (FCAs) + SDRs + Reserve Tranche Positions (RTPs); FCAs are the biggest componentReserve Tranche Position: Difference between an IMF member country’s quota (quota = SDR (payable in specified currencies) + own currency) and IMF’s holdings of its currency; the country can draw upon this in times of need, so these count as forexDifferences between WPI and CPIThere are only a few countries that use WPI to calculate inflation rates. Many nations have already shifted to using CPIWPI measures general level of price changes either at the level of the wholesaler or at the producer while CPI takes into account of consumer prices and the retail marginsWPI is said to result an erroneous measure while CPI will describe actual cost of living and inflation rate more accuratelyWPI does not include the services sector at all; the services sector produces about 60% of India’s GDP!New FTP:Consolidation of all previous export incentive schemes under two: Merchandise Exports from India Scheme (MEIS), and Services Exports from India Scheme (SEIS)Under?MEIS, the main sectors to be provided?support?include: processed, packaged?agricultural?and?food?items,?agricultural?and village?industry?goodsSEIS will be available to ‘service providers located in India’ as against ‘Indian service providers’In a big relief for exporters, all scrips issued under MEIS and SEIS and the goods imported against these scrips will be fully transferable. This means that scrips issued under export from India schemes can now be used for payment of customs duty for import of goods, payment of excise duty on domestic procurement of inputs or goods, and payment of service taxThe FTP will not be reviewed annually, but only after 2.5 years, thus guaranteeing stability to exportersAmbitiously aims to bump up exports to about $900 billion (from around $400 billion today, merchandise + services together)However, India’s exports in the last 11 months (till February) grew only by 0.88%! There appears to be a secular stagnation in global growth that stacks the odds against us building an export-oriented economyThe acknowledgment that India is being left out of global mega trade agreements such as the Trans-Pacific Partnership indicates that the government is taking those developments seriously. Not only does India risk losing export markets if those agreements come through, but it will also be left out of new trade paradigms that these agreements are introducing such as the focus on harmonising sub-national regulations on intellectual property, environment and labour.Hence, the focus on improving the domestic environment by streamlining schemes and developing competitive products is appropriateWhat are the 8 core industries? What % of the industrial output do they account for?8 core industries are Coal, crude oil, natural gas, petroleum refinery products, fertilizers, steel, cement, and electricity. They together contribute about 40% to industrial production (38% exact)SECC findings:25 crore households in the country; 18 crore rural; 11 crore deprived25% rural families have no literate adult over 25 years old33% rural families are landless, depend on manual labour53% rural families are SCs/STsOnly 5 % of rural poor have finished high school; 3% have graduated collegeOnly 8% of Indians are graduatesIndia’s economy is now over $2 trillion; India is still in the lower-middle income category, however ($1,610 per capita; middle income: $4,000-$12,000)RBI's strategic debt restructuring (SDR) schemeMajority stake (51%) for banks in stressed companies The decision on invoking the SDR by converting the whole or part of the loan into equity shares should be taken by the JLF as early as possible but within 30 days from the review of the accountFaster conversion of debt into equityBringing in a new promoter49% foreign stake in insurance includes both FDI and FPIs(FDI gives the investor ownership as well as management right; FPI only gives the investor ownership, no management rights)RBI Interest Subvention Scheme for farmersFarmers paying their existing loans on time can avail new loans at discounted ratesThe benefit of interest subvention will be available to small and marginal farmers having Kisan Credit Card for a further period of up to six months post-harvest on the same rate as available to crop loan?Sugar woes in IndiaGovernment sets high sugarcane prices (especialy the UP government) => high input prices for sugar millsBanks are not willing to advance working capital to private mills , fearing defaults and a rise in NPAsThis has been accompanied with a glut in sugar production from BrazilAs a result, arrears of Rs. 20,000 crores have piled up; government has provided subsidy for Rs. 6,000 crore, mill owners saying its nowehere near enoughBrent?is the leading global price benchmark for Atlantic basin crude oilsIt is used to price two thirds of the world's internationally traded crude oil suppliesBrent is also an acronym for the differing layers of an oil field: Broom, Rannoch, Etieve, Ness, and TarbatBrent oil is considered a more sour commodity than?WTI, though both crudes are considered sweet oils. This is generally based on the sulfur content of the underlying fuel, with 0.5% being a key benchmark. When oil has a total sulfur level greater than half a percent, it is considered sour, while a content less than 0.5% indicates that an oil is ‘sweet’. Brent has a sulfur level of about 0.37%Sour oil is more prevalent than its sweet counterpartCapital Goods PolicyWould help the industry in acquiring foreign technologies and also develop them within the country?Imports continue to address 35 to 40 per cent of domestic demand with the proportion being significantly higher in "critical components" segment for each subsectorIndian share in global exports in the capital goods sector is still low, ranging between 0.1 and 0.6 per cent, across various sub-sectors. In contrast, share of global exports for China ranges between 7.7 and 16.3 per cent depending on the sub sectorThe scheme was launched under the 'Make in India' initiative and it provides support to the industry to acquire technology, set up technology development centres in collaboration with institutes, and create common infrastructure for the capital goods industry?Currently, capital goods are 12% of our manufacturing output. They can be increased to 20% by 2022 according to the vision of the policyA robust capital goods sector will fire up the manufacturing sector, as there is a direct correlation between themGoldilocks economy: An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. Thus, sustains moderate economic growthTrans Pacific PartnershipAmong other things, the TPP seeks to lower?trade barriers?such as tariffs, establish a common framework for?intellectual property, enforce standards for?labour law?and?environmental law, and establish an?investor-state dispute settlement?mechanismTPP is considered by the?United States?government as the companion agreement to TTIP (the?Transatlantic Trade and Investment Partnership), a broadly similar agreement between the United States and the?European UnionBrunei, Chile, NZ, Australia, Singapore, USA, Peru, Vietnam, Malaysia, Mexico, Canada, JapanThese countries together account for about 29% of global tradeChina is not a member of TPPFor the US, a great attraction of the TPP is that it will enforce tighter intellectual-property rules on other countries. Such rules tend to have an uncertain impact on innovation while generating substantial rents for US patent and copyright holdersTransatlantic Trade and Investment PartnershipThe?Transatlantic Trade and Investment Partnership?(TTIP) is a proposed?free trade agreement?between the?European Union?and the?United StatesEconomic relations between US and EU are quite free, but also tense, and there are frequent trade disputes between the two economies, many of which end up before the?World Trade OrganizationThere are a number of trade conflicts between the two powers, but both depend on the other's economic market and disputes only affect 2% of total trade A free trade area between the two would represent potentially the largest regional free-trade agreement in history, covering 46% of?world GDPTopics under discussion include three broad areas: Market access; Specific regulation; and broader rules and principles and modes of co-operationWith tariffs between the United States and the EU already low, 80 percent of the potential economic gains from the TTIP agreement depend on reducing the conflicts of duplication between EU and U.S. rules on those and other regulatory issues, ranging from food safety to automobile partsPerhaps most worrisome are the?Investor-State Dispute Settlement (ISDS) provisions?of the two agreements. These provisions establish a separate judicial track, outside a country’s own legal system, that allows firms to sue governments for apparent violations under trade treatiesRegional Comprehensive Economic Partnership (RCEP): Proposed?FTA between the ten member states ASEAN (TIMM-BC-PSLV: Brunei,?Myanmar,?Cambodia,?Indonesia, Laos,?Malaysia, Philippines,?Singapore,?Thailand,?Vietnam) and the six states with which ASEAN has existing FTAs (Australia,?China,?India,?Japan,?South Korea?and?New Zealand)RCEP countries account for 40% of world tradeRCEP will cover trade in goods, trade in services, investment, economic and technical co-operation, intellectual property, competition, dispute settlement and other issuesPrinciple of ASEAN centrality; India is a big supporter of the overall frameworkDifference between RCEP and East Asia Free Trade Agreement (EAFTA) and the?Comprehensive Economic Partnership in East Asia?(CEPEA): RCEP is not working on a pre-determined membership?EPW article: in dropbox folder under Trade (To Read)India's IPR laws, draft IPR policySitharaman gave few details of the draft policy, which is not yet publicly available, but said it “focusses on stronger enforcement of IPR by increasing the manpower strength in IP offices and reducing the pendency of IPR filings”Ministry administering the IPR: Department of Industrial Policy and Promotion (DIPP), and Ministry of Commerce and IndustryIPR in India is under various laws -?1. Patent Act, 19702. Geogrpahical Indicators act?3. Trademarks act?4. Copyrights actIndia's IPR regime is fully TRIPS compliantWTO: Singapore Issues1996; from the very beginning, developed countries have wanted an agreement on non-agriculture related trade issues, such as government procurement, trade facilitation, competition etc.These issues are known as the ‘Singapore Issues’Developed countries want developing countries to relax their control around these issues; developing countries don’t want to negotiate unless they get some concession on agricultuiral front (market access, developed countries slashing their farm subsidies etc.)Talks repeatedly broke down on these issues, until the July Package was announced in Geneva in 2004 (under the Doha Round)‘July Package’ covers agriculture, non-agricultural market access, services, and trade facilitationWTO: Transparency MechanismSince the Cancun meeting (2003), the US, EU, and China are increasingly relying on bilateral and regional route to pursue their trade interestsRecognizing the rise of PTAs, the WTO has finally taken a step towards rationalizing its approach towards them. A start has been made with the setting up of the ‘transparency mechanism’, whereby member countries are bound to disclose details of their PTAs for the WTO’s scrutinyHowever, while a step in the right direction, this mechanism for now simply remains an information disclosure mechanism, and nothing elseWTO: TFAWTO negotiations have been happening in five working groups. Some important topics under negotiation are:?market access, development?issues, WTO rules,?and trade facilitationBali Package focused on addressing a small portion of the Doha programme, principally, bureaucratic ‘red-tape’, by means of the ‘Trade Facilitation Agreement’The only binding target is reforming customs bureaucracies and formalities to facilitate tradeNo developed country undertook legal promises to reduce agricultural subsidiesIndia agreed to be a part of this in 2013, but Modi government vetoed it, fearing loss of negotiation power in WTO and also more importsWTO: Domestic Support- Amber, Blue, and Green Boxes‘Green box’ roughly translate into a green ‘go’ signal, and amber could be considered a cautionary light, there is no red box. Instead, the WTO has invented a ‘blue box’ which is used for what the organization considers production-limiting programsTo further complicate matters, you could consider yourself ticketed for running a red light if the amber box subsidies exceed pre-set reduction commitment levels. In addition, there are exemptions for many of the boxes, including those designed to help make developing countries more trade competitiveGreen boxPolicies not restricted by the trade agreement because they are not considered trade distortingThese green box subsidies must be government-funded — not by charging consumers higher prices, and they must not involve price support. They tend to be programs that are not directed at particular products, and they may include direct income supports for farmers that are decoupled from current production levels and/or pricesAmber boxAgriculture's amber box is used for all domestic support measures considered to distort production and tradeAs a result, the trade agreement calls for 30 WTO members, including the United States, to commit to reducing their trade-distorting domestic supports that fall into the amber boxU.S. agricultural subsidies listed as changing production and/or changing the flow of trade include commodity-specific market price supports, direct payments and input subsidiesBlue boxAny support payments that are not subject to the amber box reduction agreement because they are direct payments under a production limiting programThe blue box is an exemption from the general rule that all subsidies linked to production must be reduced or kept within defined minimal levels. It covers payments directly linked to acreage or animal numbers, but under schemes which also limit production by imposing production quotas or requiring farmers to set aside part of their landOpponents of the blue box want it eliminated because the payments are only partly decoupled from production, or they want an agreement in place to reduce the use of these subsidies. Others say the blue box is an important tool for supporting and reforming agriculture, and for achieving certain ‘non-trade' objectives, and argue that it should not be restricted as it distorts trade less than other types of supportWTO 'peace clause'Article 13 of the WTO: Domestic support measures and export?subsidies?of a WTO Member that are legal under the provisions of the Agreement on Agriculture cannot be challenged by other WTO Members on grounds of being illegal under the provisions of any another WTO agreementThe Peace Clause expired in 2004. It is now possible, therefore, for?developing countries?and nations favoring?free trade?in agricultural goods, such as the?Cairns Group, to use the?WTO dispute settlement?mechanism in order to challenge, in particular,?U.S.?and?EU?export subsidies?on agricultural productsName 5 different ‘types’ of patentsCopyright, Geographic Indication, Trademark, Patent, Industrial DesignsSection 3(d) of the Indian Patents ActOne unique provision of the Indian Patent Act is embodied in Section 3, clause (d). This provision prevents patenting of minor improvements in chemical and pharmaceutical entities unless the invention results in the enhancement of known efficacy of that substanceThis is TRIPS compliantThis provision is a safeguard for public health purposes and sets a higher threshold for granting pharmaceutical patents. In January, Gilead Sciences (a US company) was denied a patent by the Indian Patent Office for its drug Sofosbuvir that cures Hepatitis C, owing to application of Section 3(d)Section 3(d) has been extremely contentious since its introduction in 2005.?The transnational pharmaceutical industry regards it as establishing an unacceptably high barrier to patenting, as do many foreign governments. But many observers, including the United Nations Programme on HIV/AIDS and civil society groups, defend 3(d) and point to India as a model for developing countries attempting to use TRIPS flexibilities to promote public healthIn 2013, pharma giant Novartis?lost a six-year legal battle?after the Indian supreme court ruled that small changes to its leukaemia drug Glivec did not deserve a new patentThis gives a clear distaste in India for ‘evergreening’- the practise of big pharma firms to make small changes to drugs whose licenses are about to expire, simply to renew their licenses. In such cases, India has started giving out ‘compulsory licenses’The best thing is that India broke no TRIPS laws; it’s decision is valid under TRIPS, but so far countries had just been too scared to try itTax Administration Reform CommissionMay 2014: TARC headed by Parthsarathi Shome, gave reportAbolish Revenue Secretary post. It is manned by Generalist IAS officer. Taxation requires subject specialization over finance, banking, commerce etc.Merge CBDT and CBEC=> Central board of direct and indirect taxes. Businessmen who evade indirect taxes, evade direct tax as well. Merger will help track them more effectivelyReplace PAN with CPAN?(Common Permanent Account). Same number be used for DEMAT, EPFO, custom-Excise passbook, service tax ID, VAT TIN no. and so on. That way tax evasion difficultTreat tax payers as customers.?10% of Department budget be spent on customer services. Separate ombudsman to “teach” lesson to rude IT officialsCustoms department crucial role in tracking international money/gold/diamond transactions. Empower them with ICT technology, RFID for Real time tracking of shipping containersAdditional:?Adopt Direct Tax Code, Abolish Wealth tax. Because juntaa deliberately undervaluing their property on paper, to evade wealth tax=> real estate black money game begins from hereNational Payments System (RuPay): RuPay card is India’s answer to the two most dominant market transaction processing players in the world Visa, MasterCard, AmEx owned by Visa Inc., MasterCard Inc. and American Express Co.?respectivelyIndia is now the sixth country in the world to have domestic payment gateway systemHaving our own domestic card payment network which helps in electronic money transfers will help both banks (between 200-250 member banks) and consumers in the following ways: lesser processing fee, faster transactions, no entry fee for banks joining the networkDownsides: no international acceptance yet, only debit cards available (not credit cards)Apprentices act: Skill-building initiativeFrom the point of view of employer they think that the rules laid down in the Apprentice Act are stringent for them, one of the major reason according to them for not providing apprenticeship on a large basis is that the penal provision of imprisonment of 6 months and others makes them apprehension of prosecutionIt takes on the minimum age requirement of apprentice that is 14 years of age usually but the Bill increased the apprenticeship for the designated trades related to hazardous Industrial work to 18 years of ageThe central government will designate how many apprentice an employer will hold and this will be regulated by (Central Apprentice Council). Earlier states did’t accept apprentices from other state but this bill has opened the scope now for the people of other states tooNow, there can be multiple employers, who can provide apprenticeship either through agency or by coming together, which is a great boost for the workers as well as the employers. The arrangement for the practical training must be there with the employers and the assent of advisor, which was necessary earlier, has been removed in the new bill passed. The syllabus of apprentice will be approved by central government through (CAC), the bill limits the provision for training in designated tradePenal provisions regarding imprisonment of the employer has been removed by this amendment. Employers have been provided with the privilege of deciding the holidays, leaves and the hours of work at the time of apprenticeshipGoing by the statistics projected by the government there were only 4.98% of apprentice of around only 2 lakhs seats were there but after the amendments around 24 lakhs apprentice seats will be createdLabour, skills etc.:Unorganised Workers’ Social Security Act, 2008 National Commission for Enterprise in the unorganized sector report, 2005Framework of revival and rehabilitation of MSMEsSkills ministry report on sector wise human resources National Rural Livelihoods Mission (Aajeevika)Draft Skills PolicyFinancial Sector: CommitteesComitteeSubjectRecommendationsNayakGovernance in bank boardsGovernment owns majority shares in PSBs, thus have the power to appoint its Board of Directors. This sometimes leads to sycophants being appointed, and thus bank governance suffers. Recommendations:* Set up a ‘Bank Investment Company’ that will be the majority shareholder (on behalf of the government) in all PSBs* This BIC will recommend appoints of board directors and CMDs* Before BIC is approved by Parliament, set up the Bank Boards Bureau (BBB)Gopalkrishna Capacity building in banks and non-banksField-level details, such as recruitment of staff etc.Urijit PatelInflation* RBI’s job should be to focus on inflation only )(via CPI)* RBI should improve accountability by forming an MPC* Government should focus on fiscal consolidationVishwanathan Bankruptcy reform1. Early recognition of financial distress in company and timely intervention by the government to rescue the organization2. Liquidate un-viable company as soon as possible3. Allow secured creditors to apply for the rescue of the company (earlier it was filled after the company have beendefaulted by 50 per cent of its outstanding debt)?4. Unsecured creditors representing 25 per cent of the debt be allowed to initiate rescue proceedings against the debtor companyParthasarathi ShomeGARR guidelinesGeneral Anti-Avoidance Rules:People adopt various methods so that they can reduce their total tax liability. The methods adopted to reduce their tax liability can be broadly put into four categories: Tax Evasion, Tax avoidance, Tax Mitigation, and Tax Planning. GAAR provides to curb tax avoidanceGAAR empowers the Revenue Authorities to deny the tax benefits of transactions or arrangements which do not have any commercial substance or consideration other than achieving the tax benefit. GAAR is intended to target tax evaders, especially Indian companies and investors trying to route investments through Mauritius or other tax havens in order to avoid taxes. GAAR provides discretionary powers to revenue authorities to tax impermissible avoidance arrangements. The arrangements as a whole or aim part may be disregarded and tax benefit deniedGS BajpaiNational Pension SystemCurrent NPS rules for the private sector allow a maximum exposure to equity of 50% and only through index funds that replicate either the BSE’s Sensex or the National Stock Exchange’s Nifty 50 index. Index funds mimic movements in the index to which they are linked. This form of investment is called passive investment. For government sector employees, equity exposure is limited to 15%.The report of the Bajpai committee recommends moving from this directed investment regime to one that leaves the choice of investment of pension assets to the subscriber1. Pension fund investments must be liberalized so that the pensioner has the provision of investing it in other options and not limited by one2. It also mentions that the government fund must be handled and taken care of by private managers and investor other than government investors solely3. The investing rules and regulations must be eventually be same for both private and government4. This may be implemented in six years to come after proper 'wait and watch' scrutinyFinancial Sector: Priority Sector Lending: Priority Sector Lending is an important role given by the Reserve Bank of India (RBI) to the banks for providing a specified portion of the bank lending to few specific sectors like agriculture or small scale industriesThis is essentially meant for an all round development of the economy as opposed to focusing only on the financial sector Typically, these are small value loans to farmers for agriculture and allied activities, micro and small enterprises, poor people for housing, students for education and other low income groups and weaker sectionsLending norms:For local banks, both the public and private sectors have to lend 40% of their net bank credit, or NBC, to the priority sector as defined by RBI, foreign banks have to lend 32% of their NBC to the priority sectorShadow banking- pros and cons; RBI’s recent move to tighten regulatory norms: The?shadow banking system?is a term for the collection of?non-bank financial intermediaries?that provide services similar to traditional?commercial banks, but are outside the regulatory net. Activities of formal baking institutions outside regulatory net are also a part of shadow bankingNPAs in Indian banking sector:Estimates, effects, remedial measuresWhat criteria is the government now following for re-infusion of capital into PSBs?Problems faced by the banking sector: recapitalization, consolidation, professionalization of bank boards and their management; Basel III requirementsPSBs performed quite well after the bank reforms in 1993, till about 2010. After that, their finances deteriorated for 2 reasons- they got into infrastructure financing in a big way, and CEOs selections went wrong in many places. Now, the government must help by adequate capital infusion, rather than insisting on banks improving their performance before they can access capitalNBFCs and the Microfinance industryDefense Sector: procurement policyFDI in defense manufacturing sector in India (national level government bodies, unbundling etc.)Animal rearing- Deep Sea fishing (EPW article on dropbox)Food Safety in IndiaPulse production in IndiaChina's stock market crashRevise economic surveySBI and ICICI have been designated ‘Systematically Important Banks’; will be required to maintainhighr level of capital as compared to other banksSome indicators of the ‘strong fundamentals’ that everyone bandies about: healthy financial system, transparency, strong banks, sober national balance sheets, reasonable current account deficit etc.Railway has recently said that private operators will be allowed to maintain and operate ‘branch lines’ and ‘hill lines’; however, Bibek Debroy points out that these are historically unremunerative linesWhile the popular narrative depicts the fall in oil prices as good for oil importing nations such as India, the flipside could be that in such countries, the price of goods related to oil falls so much that there is a widespread deflation!The problems of dropped calls in India is getting aggravated because of high auction prices; these left operators with little investible surplus to improve infrastructureAverage size of landholdings in India is 1.15 hectaresRailway sector (India spends 0.3% of GDP on Railways, 1.5% on highways)Changes in base rates: now banks have to calculate these based on marginal cost of lending; banks with larger share of term deposits will be worst hit (see BS article, saved on desktop)System of Rice IntensificationThe gross NPA of banks as a % of gross advances increased to 4.6% from 4.5% between September 2014 and March 2015; overall stressed advances stand at around 11% of total advances: need to rework the bankruptcy code, and aim for quick capacity building in banks to ensure NPA-likely loans are not advanced to begin withEven though India is facing a rare 2-year drought, food inflation is likely to remain low, because of timely warnings given by IMD, and also because global supplies are ample and prices low; our buffer stocks are also at record high levelsAfter OROP, 53% of our defence spending will be on personnelExport/ GDP ratio is about 15%; CAD is about -1.5%. While this is much better than the -4% levels seen in 2012 and 2013, one must be mindful that this isn't the result of an improving exports/ GDP ratio, but of curbs on gold imports and the fall in oil pricesTrade deficit: -7%; net 'invisibles' (software exports + transfers) = +5.6% => CAD = -1.4%Key thing to note about capital formation in agriculture: the share of private sector in agri GCF used to be around 60% in 1980s; rose to 80-85% in 1990s, and is stuck there still. Implies that public GCF is minuscule, and this has adverse implications for 'heavy' capital works in agriDuring the 'boom' phase, India's exports had grown at 20% p.a.; after the 2008 crisis hit, they turned negative 20% in 2009-10In 1980s and early 1990s, services exports used to be about 20-25% of total exports; now, they're routinely around 40%SSIs: What the small entrepreneurs need is not protection but institutional support to fund modernisation and technology upgradation, infrastructural support, and adequate working capital finance from the banking sectorCurrent installed wind energy capacity is 23GW; target for 2022 is 60GWPreviously, SEBI used to regulate securities market, and the FMC, commodities market. Now, FMC has been merged with SEBI. This is due to previously seen turf wars, FMCs regulatory failures (like the multi billion dollar scam 2 years ago), and FMC so far being toothless and lacking statutory powers (meant that it acted more or less as an appendage of the Ministry of Consumer Affairs)Household savings have decline to only 28% in 2015 (from a peak of 36% in 2005)India has spent more on gold imports in the last 10 years than all FII (debt and equity) inflows combinedECBs have implications for monetary stability as they add to the country's overall external debt and future repayment liability. However, given domestic capital constraints, an attempt is now being made to liberalize the ECB policy within the overall calibrated stance of gradual opening up of the capital accountAn exclusive economic zone (EEZ) is a sea zone prescribed by the United Nations Convention on the Law of the Sea over which a state has special rights regarding the exploration and use of marine resources, including energy production from water and wind. It stretches from the baseline out to 200?nautical miles (nmi) from its coast.InfrastructureIndia’s 3 phase nuclear power programme:The Indian nuclear power programme, launched in 1954, envisaged a three-stage development of nuclear power generation from the country’s uranium and thorium resources.Stage-I: construction of Natural Uranium, Heavy Water Moderated and Cooled Pressurised Heavy Water Reactors (PHWRs). Spent fuel from these reactors is reprocessed to obtain PlutoniumStage-II: construction of Fast Breeder Reactors (FBRs) fuelled by Plutonium produced in stage-I. These reactors would also breed U-233 from Thorium (Kalpakkam reactor is a Fast-Breedor Reactor in Chennai)Stage-III: power reactors using U-233 / Thorium as fuelDebroy Panel recommendations on Railway Privatization: Proposed separation of activities like running of hospitals, schools, catering, real estate development, manufacturing of locomotives, coaches and wagons from the core business of running trainsEstablishment of an independent regulator — Railway Regulatory Authority of IndiaEvolve a statutory rail regulator, scrap the Rail Budget and make room for more players in an open access’ regime which turns the Railways into just another train-service provider in the country (like what exists in the UK)National Waterway 4: Vijayawada to Pondicherry; trial run later this year by IWAISolar energy: India’s stated target for solar energy generation by 2020 is 100 GW; current installed capacity is about 2,600 MW. Achieveing the target will require an estimated $150 billion p.a., most of which will need to come from the developed world (such as USA- in this context the dispute over PV cells with WTO can’t do any good)2G, 3G Spectrum sales: target was Rs. 82,000 crore, but eventually mopped up over 1 lakh crore; the auctions are conducted by the Department of Telecommunications (DoT)TAPI pipeline: Turkmenistan, Afghanistan, Pakistan, India pipeline to transport natural gas from the Caspian sea to India via Afghanistan and PakistanAlso known as Trans-Afghanistan pipelineIt is being funded by the ADBGAIL India may become a part of the TAPI projectEPC v/s PPPEPC: Engineering, Procurement, and ConstructionUnder an EPC contract, the contractor designs the installation, procures the necessary materials and builds the project, either directly or by subcontracting part of the workGuaranteed price, time for completion, cap on liability, performance guarantee etc.PPP: Public-Private ParticipationAn arrangement between the public and private sectors with clear agreement for delivery of public infrastructure and/or public services.The private sector contractors are long term providers of services combining Design, Build, Finance, Operation & Maintenance and To deliver services needed by public sectorExamples are BOT, DBFOT (Design, Build, Finance, Operate, Transfer)It is believed that EPC will minimise, if not eliminate, the time and cost over-runs characteristic of the extant item rate contracts. Further, this will enable a faster roll-out of projects ?with least costs and greater efficiency while minimizing the ?potential for excessive discretionIndia-based Neutrino ObservatoryFood Security: Article July 09 (Infrastructure)NBFCs are usually distinguished from banks by their inability to take deposits from the public. NBFC cannot accept demand deposits;they do not form part of the payment and settlement system and cannot issue cheques drawn on itself;deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs, unlike in case of banksAerial seeding is a technique of sowing seeds using helicopters and aeroplanes to scatter them. Aerial reforestation has been usually done to repopulate forest land after some type of disaster since the 1930s.Aerial seeding is an alternative to other seeding methods where terrain is extremely rocky or at high elevations or otherwise inaccessible.AP recently started use of this technique.The National Investment & Manufacturing Zones (NIMZs) are an important instrumentality of the National manufacturing policy. The NIMZs are envisaged as?integrated industrial townships?with:state of the art infrastructureland use on the basis of zoningclean and energy efficient technologynecessary social infrastructureskill development facilities etc.NIMZs also aim to provide a productive environment for persons transitioning from the primary to the secondary and tertiary sectors.The National Manufacturing Policy (NMP) has the objective of enhancing the share of manufacturing in GDP to 25% and creating 100 million jobs over a decade. The NMP provides for promotion of clusters and aggregation, especially through the creation of national investment and manufacturing zones (NIMZ).Railways require renewal of tracks, more railway bridges, better signalling and rolling out of accident-proof coaches and engines. Railways Ministry has planned an investment of Rs. 8.5 lakh crore in the next five years. Since, all investments could not come from fares or freight, additional funds will be raised through prudential borrowing from institutions such as the LIC, the World Bank and other multilateral agencies, which would be repaid in the next 30-40 years through an increase in revenues?The government has accepted Justice AP Shah Panel’s recommendations on?not levying MAT on Foreign Institutional InvestorsAIIB:Reflecting regional character of the Bank, its regional members will be the majority shareholders, holding approximately 75% of shares. India is the second largest shareholder in the Bank after China. China, India and Russia are the three largest shareholders. The voting shares are based on the size of each member country’s economy and not contribution to the bank’s authorised ernment has approved the auction of 69 small oilfields to private/ foreign companies, giving a unified license (unlike before) for exploration of any kind of hydrocarbon. Until now, profit-sharing mechanism was followed. It encouraged investors to take higher exploration risks, and in the event of success, the costs could be recovered. This mechanism meant that the government had to scrutinise the various costs incurred by the private companies, which often led to delays and disputesThe newrevenue-sharing and royalty-sharing mechanism will be benchmarked against the prevailing market price of oil. If the company sells at below this price, then the sharing will still have to be done at the market price. If the company manages to sell at a higher price than the market rate, then the sharing will be based on this higher priceYuan devaluation: little potential benefits to India-Petroleum products and jewellery account for roughly 30% of India’s exports. In contrast, over 40% of China’s exports are mechanical and electronic goods. Further, unlike India, where agricultural products account for 10% of exports, China exports little or no agricultural produce. This lack of product overlap reduces potential gains or losses on account of fluctuations in the value of the yuanCurrently, 50% of India’s energy comes from coal based sources, and only 2% from nuclear sources. Deals such as with Australia for uranium imports are likely to be quite helpful in this regardAerobic rice cultivation: growing rice plant as irrigated crop like cultivating maize and wheat in?aerobic condition, where oxygen is plenty in soilNo puddling, transplanting and no need of frequent irrigation, which?reduce labour?usage more than 50%, compared to irrigated riceThroughout the growing season, aerobic rice field is kept under?unsaturated condition?and field is irrigated by surface or sprinkler system to keep soil wetTherefore,?water productivity is reported to be higher?in aerobic riceFrom environmental point of view, emission of methane is lower substantially in aerobic riceHigh weed infestation is the major constraint for aerobic rice and cost involved in weed control is higherPoorly managed field may cause partial to complete failure of crop, which might happen due to weeds and micronutrient non-availabilityThe focus of the World Bank Doing Business report is on eight key areas: The setting up of a business, allotment of land and obtaining construction permit, complying with environment procedures, complying with labour regulations, obtaining infrastructure-related utilities, registering and complying with tax procedures, carrying out inspections and enforcing contractsGujarat’s model of irrigation reform inlcudes water harvesting, drip irrigation, conservation of water resources through micro irrigation network and setting up or creating village pond, check dams and ‘boribandh’ (sand bag) dams so that water actually reaches the farmers in all areas within the stateIndia is the?only country?to have a specific cell of its kind inside the Pentagon. This cell is called the India Rapid Reaction Cell, and it works on all the initiatives that are ongoing under (India-US) DTTI (Defence Trade and Technology Initiative). The cell looks at ways to transform bilateral defence relationship without any bureaucratic obstacles, move away from the traditional buyer-seller dynamic to a more collaborative approach, explore new areas of technological collaboration and expand the U.S.-India business ties.According to a new report by McKinsey, India’s gross domestic product (GDP) could see a jump of about 60% by 2025 if the gender inequality issue in society is resolved and more women are allowed to join the workforce. In India, the share of regional GDP generated by women is only 17%. The gap in labour force participation partly reflects the unequal sharing of household responsibilities between men and women. Around 75% of the world’s unpaid work is undertaken by women, including the vital tasks that keep households functioning such as child care, caring for the elderly, cooking and cleaningWorld Bank’s poverty estimates say that India’s poverty ratio is only 12%, based on a PPP poverty line of $1.9/ day. Indian authorities have derided this estimate, saying that PPP is okay for comparing GDP across countries, but not poverty. The consumption basket that the World Bank uses is also inappropriate for India, as it includes elements such as pasta, wine, mineral water etc. A good example of continuing protectionism: imposition of steel duties to curb importsA The e-commerce sector in India is projected to cross $80 billion by 2020, and grow further to $300 billion by 2030. This growth will mainly be driven by growing adoption of smartphones and increasing Internet penetrationAccording to CRISIL Ratings, around 7,500 km of highway projects in India— 5,100 km under construction and 2,400 km operational — awarded between FY10 and FY12 on a build, operate, transfer (BOT) basis — are at high riskTo cut pilferage in the public distribution system (PDS), the Karnataka state government has decided to set up biometric system-based?point of sales (POS)?machines in all fair price ration shops across the StateAlcohol and tobacco industries will soon have to pay more taxes towards an additional ‘sin tax’ under the proposed GST structureAfter the increased devolution to the states through the 14th Finance Commission, the CMs’ panel has now also recommended classifying all central schemes into three categories — core, core- of- core and optional.In the first, the fund- sharing pattern between the Centre and states would be 60: 40 for general category states. For the eight Northeastern and three Himalayan states, this ratio would be 90: 10All core- of- core schemes would be fully funded by the Centre In schemes categorised as optional, the fund- sharing pattern between the Centre and states would be 50: 50 for general category states and 80: 20 for Northeastern and hilly statesFunds for the optional schemes would be allocated to states as a lump sum and states would be free to choose which optional scheme they want to adopt. According to the panel’s report, the NITI Aayog would frame the criteria for lump sum allocations and would monitor the implementation of all the schemesThe Scheme of Mega Food Parks aims at providing a mechanism to link agricultural production to the market by bringing together farmers, processors and retailers so as to ensure maximizing value addition, minimizing wastages, increasing farmers’ income and creating employment opportunities particularly in rural sector. The Scheme has a cluster based approach based on a hub and spokes model. It includes creation of infrastructure for primary processing and storage near the farm in the form of Primary Processing Centres (PPCs) and Collection Centres (CCs) and common facilities and enabling infrastructure at Central Processing Centre (CPC).The 7th Pay Commission will lead to an increase of 0.65% points in the ratio of expenditure on to GDP. The salary hikes are expected to boost sales of affordable homes and consumer durables, which in turn will drive demand in the economy.By signing the?Kuala Lumpur declaration?on the establishment of the AEC,?ASEAN leaders have declared the establishment of an EU-style regional economic bloc,?ASEAN Economic Community (AEC). The AEC envisages a single market with a free flow of goods, capital and skilled labour across borders in the highly competitive economic region. This community could give India greater access to a market with a combined GDP of $2.57 trillion. The grouping is also seen as a huge middle-class market that Indian industries and services can take advantage of.An Advaned Pricing Agreement, usually for multiple years, is signed between a taxpayer and the tax authority (CBDT) on an appropriate transfer pricing methodology for determining the price and ensuing taxes on intra-group overseas transactions.The International Monetary Fund has admitted China’s yuan into its benchmark currency basket. To meet the IMF’s criteria, Beijing has undertaken a flurry of reforms in recent months, including better access for foreigners to Chinese currency markets, more frequent debt issuance and expanded yuan trading hours.From the other documentIndian EconomyLand use pattern in India: Forest Area: 23%Gross area sown: 59.4%Area under non-agricultural uses, such as housing, industry, offices, roads, railways etc.: 8% (7% in 1997; Pangaria says that this one percent rise has led to manifold increase in per-capita income, and hasn’t come at the expense of net sown area, which in fact has grown!)Make in India:Focus should be on building competitive advantage and global scale in sectors where we have a large domestic market and certain inherent capabilitiesFive priority industries: Defence: We are the world’s leading arms importer. Localising what we buy as a condition for all defence deals along with a willingness to allow majority foreign ownership can turbocharge our local defence industryElectronics Hardware: India imports $45 billion of mobile phones, computers and communications hardware; by 2020, this is projected to grow to $300 billion and exceed our oil import bill. This is unsustainable. We have to create policy incentives to create a local electronic hardware-manufacturing ecosystem. Since most component suppliers, Original Equipment Manufacturers and Original Design Manufacturers are Chinese, this will necessarily imply incentivising Chinese companies to establish factories in IndiaConstruction: India will invest a trillion dollars over the coming years in improving infrastructure. We need to create incentives that not only spur investment in manufacturing materials such as cement and steel but also construction equipment, locomotives, power generation equipment and so on. Everything we install should be made in IndiaHealthcare: India’s generic pharmaceutical industry is world class. We must not concede on intellectual property rights that neutralise our advantage. India is also exceedingly good at frugal innovation in medical devices such as low cost X-ray and ECG machines. We have a real shot at being a world leader in innovation and manufacturing in this space Agro-Industries: We are one of the largest agricultural nations. A third of what we grow just rots and spoils. Investing in agro-industries such as food processing and establishing a reliable cold chain would make a huge difference in terms of rural employment and food securityCoal India’s divestment:10% of the stake in CIL has been sold off to investorsMost has been taken by institutional investors, led by insurance firms; a lot by LIC (this means one arm of the government is buying another, in effect)Budget 2015 analysis:Ajay Shah’s article is a must-read: sales to fund investments:As against public borrowing, these mitigate long-run inflationary pressures because they add to production capacity, boost the aggregate supply, and do not add to the total demand potential of the economy (which would happen if investments were funded by borrowing from the public)‘Balance Sheet Syndrome with Indian Characteristics’ –see Economic Survey Volume 01Pharmaceutical market in India (important because of Dilip Shanghvi now being the richest man in India):World’s third largest in terms of volumeThe lack of patent protection (willingly introduced in the 1960s) made the Indian market undesirable to the multinational companies that had dominated the market, and while they streamed out, Indian companies carved a niche in both the Indian and world markets with their expertise in reverse-engineering new processes for manufacturing drugs at low costsAlthough some of the larger Indian companies have taken baby steps towards drug innovation, the industry as a whole has been following this business model until the presentAs it expands its core business, the industry is being forced to adapt its business model to recent changes in the operating environment. The first and most significant change was the 1 January 2005 enactment of an amendment to India’s patent law that reinstated product patents for the first time since 1972. The legislation took effect on the deadline set by the WTO’s Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement, which mandated patent protection on both products and processes for a period of 20 years. Under this new law, India will be forced to recognize not only new patents but also any patents filed after 1995?Indian companies achieved their status in the domestic market by breaking these product patents, and it is estimated that within the next few years, they will lose $650 million of the local generics market to patent-holdersChallenges: Big firms in the west, such as Pfizer, spend more just on research than the entire revenue of Indian firms. This disparity is too great to be explained by cost differentials, and it comes when advances in genomics have made research equipment more expensive than ever. The drug discovery process is also further hindered by a dearth of qualified molecular biologists. Due to the disconnect between curriculum and industry, pharma in India also lack the academic collaboration that is crucial to drug development in the West Secular Stagnation Theory:Larry Summers in 2013 suggested that it’s possible that the current low-growth phase being seen in many developed economies is here to stayUsually, policy makers use low interest rates as a tool to stimulate demand, but rates are already rock-bottomSummers also proposed that it might not be possible to achieve higher growth without risking financial crises- thus, one could now have economic growth or financial stability, but not bothIndia’s defense procurement:Despite its stated ‘make in India’ campaign, India recently bought a substantial fleet of 36 Rafale fighter jets from France for USDThe BJP government has liberalized FDI in defence to 49% by the automatic route, and 75 to 100% in cases where substantial technology transfer is involvedHowever, since defence FDI liberalization in 2001, FDI inflows in the sector have only about to about $5 billion, in overall FDI flows of $335 billionThis is because it is lucrative for foreign manufacturers to sell to India from their own plants abroad, as India’s repeat orders are few and far between, so making in India doesn’t make senseAlso, the assumption that FDI will necessarily lead to technology transfer is misplaced. The current offsets policy (which mandates that about 30% of all spending in defence deals has to be done in India) views things in financial terms (money spent locally, jobs created etc.); instead, the focus should be on developing the capability of Indian scientists to independently develop and manufacture sophisticated military hardwareImpact of falling oil prices on India’s economy:The implications for India are, on balance, hugely positive: It has saved approximately $40 billion in reduced import costs; inflationary pressures have eased; the subsidy outgo has reduced and growth has got a boost Flipside: Indian companies have substantive investment, trading and financial interests in Venezuela, Russia, Nigeria and the Gulf. Were Venezuela to renege on its debt, Russia to sink deeper into recession, Nigeria to impose capital controls, Iran to suffer a political upheaval and the Gulf countries to cut back on public expenditure, the returns on these investments would be at risk, remittances from Indian workers would slow down, and our strategic and trading relationships may have to be reviewedAt the sectoral level, it will be increasingly difficult to attract risk capital into oil and gas exploration. This is because most oil companies have pared down their exploration budgets. The government is reportedly planning to announce a new licensing round for bidding. If so, and if it is keen to attract international companies, it will have to abandon all thoughts of replacing the current cost-recovery production-sharing model (where companies have first call on production to recover costs) with a revenue-sharing model (where revenues are shared with the government even before costs have been recovered)New Urea Policy: India’s annual urea production (there are about 35 manufacturing units) has stagnated at 22 mt and the country has had to import about 8 mt to meet domestic demandAccording to the new incentive structure for domestic urea units, the Centre would reimburse the fixed cost incurred by the domestic units that produce 100 per cent more than their reassessed capacity along with a part of the variable costHowever, this incentive would have to be less than the import parity price of urea or whichever is lessThe assessment for the energy consumed would be based on a combination of the previous new pricing scheme and average energy consumed in last three years, and incentive will be given to domestic manufacturers with their annual energy consumption to lower the carbon footprintAlongside, transportation of P and K fertilizers will be made freeThe government says the new urea policy will increase annual production by 2 mt and cut the yearly subsidy bill by Rs 4,800 croreAlongside this, the government has also reduced the restrictions on production of neem-coated ureaUsing neem coated urea will not only increase crop yields but also lower input cost to farmersIt will also reduce imports of precious fertilizers as well as reduce ground and soil pollutionPresently India is using only 60 lakh mt neem coated urea which can be increased to full demand of 310 lakh MT in the countryCoated urea is costly by 5% compared to plain prilled urea but it reduces Nitrogen loss by more than 10%, thereby incurring a net savings of Rs. 13.5 per bag for farmersDue to higher nitrogen use efficiency, the use of nitrogen coated urea can also eliminate import of urea resulting in huge foreign exchange savings. Presently, India is importing about 71 lakh MT ureaAdditionally, farmers will also get advantage of better yield, less pest attack due to less use of urea which will also ensure better NPK use ratio and balanced use of fertilizersSPI, GNH, HDI: GNH: Gross National HappinessThe phrase was coined as a signal of commitment to building an economy that would serve Bhutan's culture based on?Buddhist?spiritual values instead of the western material development represented by GNP4 pillars of GNH: sustainable development, preservation and promotion of cultural values, conservation of natural environment, and establishment of good governance (no economic criterion)Proposed policies in Bhutan must pass a GNH review based on a GNH impact statement that is similar in nature to the?Environmental Impact Statement required for development in the U.S.Like many psychological and social indicators, GNH is somewhat easier to state than to define with mathematical precisionFrom an economic perspective, critics state that because GNH depends on a series of?subjective?judgments about well-being, governments may be able to define GNH in a way that suits their interestsIndia’s rank: 111SPI: Social Progress IndexCombines three dimensions – Basic Human Needs, Foundations of Wellbeing, and Opportunity (no economic indicator) Each dimension comprises four components, which are each composed of between three and five specific outcome indicatorsTwo key features of the Social Progress Index are the complete exclusion of economic variables and the use of outcome measures rather than inputsIndia’s rank: 101 out of 133 ranked countries; behind Bangladesh, Honduras etc.HDI: Human Development IndexA composite statistic of?life expectancy, education, and?per capita income?indicatorsDeveloped by Pakistani economist?Mahbub-ul-HaqHas been criticized on a number of grounds including alleged ideological biases towards?egalitarianism?and so-called "Western?models of development", failure to include any?ecological?considerations, lack of consideration of technological development or contributions to the human civilization, focusing exclusively on national performance and ranking, lack of attention to development from a global perspective, measurement error of the underlying statistics, and on the UNDP's changes in formula which can lead to severe misclassification in the categorization of 'low', 'medium', 'high' or 'very high' human development countriesIndia’s rank: 135Using Indian Post to further financial inclusion: India Post has a network of over 1.5 lakh branches across India, a reach that far exceeds all the PSBs combined. Of the 1.5 lakh branches, about 1.4 are in rural areas, compared to the combined 23,000 rural branches of the public sector banksOf the three main building blocks of financial inclusion — cash storage, disbursing payments, and giving credit — India Post has already shown that it is quite capable of handling the first twoIn the longer run, for India Post to play a bigger role in the fulfilment of the government’s social objectives, the following steps can be taken: First, one of the smaller and healthier PSBs could be merged with Indian Post so that the latter acquires a banking licence and a trained workforce Second, incentives could be offered to the present workforce to sit for the banking exams Third, banking exams could be made a requirement for a percentage of the new recruits; and, finally, the banking division of the post office could be brought under the RBI’s regulatory purviewThis move could free public sector banks from being yoked to social sector objectives and allow them to become competitive and function freely in the highly cut-throat banking sectorTaxation in India:Union subjects (ICE-ICE-CT: Income, Customs, Excise – Inheritance, Capital gains, Estates- Corporation, Transportation by air, rail, or sea)State subjects (LSV-LSV-EMP: Land, Stamp, Vehicles- Luxury (entertainment, gambling, betting, amusement etc.), Sales, VAT (service tax) – Electricity, Minerals, Professions) Minimum Alternative Tax:MAT is a way to make companies pay at least a minimum amount of tax (18.5%)It is applicable to all companies (including foreign companies with income sources in India) except those engaged in infrastructure and power sectorsReasons for MAT: The Indian Income-Tax Act allows a large number of exemptions from total income. Besides exemptions, there are several deductions permitted from the gross total income. As a result, a lot of companies used to show considerable book profits, and distribute large dividends, but were able to use these exemptions to pay close to zero tax. These came to be known as ‘zero-tax’ companies. MAT was introduced to counter thisTax incentives practically bring down the corporate tax rate, and the average effective rate is around 23%, while many large corporates that are investing heavily find the actual rate falls to much lower levels. This is the reason why the government levies MAT on the book profits of companies at 18.5%, as the threshold below which the rate can’t fallThere are rumors that the present government might scrap MAT. They claim that the government is looking at gradually weeding out tax exemptions and concurrently reducing the corporate tax rate, such that MAT will become redundantSummary article hereGeneral Anti Avoidance Rules (GARR):GARR is an anti-tax avoidance rule which prevents tax evaders from routing investments through tax havens like Mauritius, Luxemburg, SwitzerlandInvestors had maintained that the ambiguous language used in the draft of the GAAR could lead to the misuse of the rulePeople adopt various methods so that they can reduce their total tax liability. The methods adopted to reduce their tax liability can be broadly put into four categories: Tax Evasion, Tax avoidance, Tax Mitigation, and Tax Planning. GAAR provides to curb tax avoidanceGAAR empowers the Revenue Authorities to deny the tax benefits of transactions or arrangements which do not have any commercial substance or consideration other than achieving the tax benefit. GAAR is intended to target tax evaders, especially Indian companies and investors trying to route investments through Mauritius or other tax havens in order to avoid taxes. GAAR provides discretionary powers to revenue authorities to tax impermissible avoidance arrangements. The arrangements as a whole or aim part may be disregarded and tax benefit deniedIt was first mooted in 2011, but even in Budget 2015, it has been deferred to 2017, given concerns of some investors who claim that the language used in the rules might be detrimental to profitsGoods and Services Tax:Read: recommended by the task force of the 13th Finance Commission, which pegged the uniform tax rate at 12% (answer why this rate)Deliberation conducted by the Empowered Committee of State Finance Ministers (who set up a Joint Working Group; members: Joint Secretaries of Dept. of Revenue (Union FinMin) and all Finance Secretaries of the States, Convenors: Advisor to the Union Finance Minister, Member-Secretary of the Empowered Committee)Why the single rate?: Eliminates production inefficiencies, ensures no single good is taxed disproportionatelyConsumption taxValue-Added Tax => (Output tax – Input tax) is paid to the government (tax paid only on value added). VAT also follows the destination principle; hence, the GST will not apply for export goods, but will apply to import goods. Also, at every step of the production process, the producers get tax credits, while the end consumer gets no tax credit Dual system: Will be imposed both by the center and the state, and will replace all existing indirect taxes such as excise, sales, service taxesBenefits:Reduction in the number of taxes at the Central and state levelsCut in effective tax rate for many goods by removal of the current cascading effect of taxesReduction of transaction costs for taxpayers through simplified tax compliance Increased tax collections due to wider tax base and better complianceUnification of India into a single market, eliminating the need for border check posts to collect taxes on goods produced in one jurisdiction but sold in anotherGood for consumer statesControversies:Both center and the states want certain high tax-revenue generating goods (like petroleum, alcohol etc.) removed from the ambit of GST => reduces tax baseSome calculations of the revenue-neutral tax rate (post removal of certain goods) are as high as 27% => incentive for evasion => little improvement in complianceIn the currently proposed dual structure, the tax might just be reduced to a renaming of the existing Central Excise Tax and States’ VAT/ sales taxTransaction costs: government will need to make e-infrastructure (‘GST Network’)Attention-diversion cost: other reforms sidelinedCompromises India’s federal structure by not allowing states to set their own rates => restricts the ability of states to determine the level of spending on public goods and services locallyBad for states that produce a lot but don’t consume muchGiven that this is a Constitutional Amendment Bill, this cannot be passed via a Joint SittingRead Pangaria’s articleIn view of the impending changes with the introduction of GST, adequate compensation to ULGs for their loss of income will need to be ensured. The past experience has not been very good in this regard. Many state governments, on abolition of octroi (a tax on entry of goods within the city limits) and in some cases even property tax, had promised compensatory grants to ULGs with an annual increase to maintain the buoyancy. However, compensation to local bodies has remained static and is often not released in timeGST Council: This will be the decision making body that will bring any changes required to the GST Act. It will be composed of the Center and all the states, with the center holding 33% of the voting rights, and the states, 67%. To get any changes approved in the operation of GST, 75% or more votes will need to affirm it. That is, the center has a de-facto veto, whereas a minimum of 12 states will need to come together to block any changes that they don’t agree withBlack Money: Estimates by old CBI chief: $500bn; by Swiss authorities: $2bnSIT instituted by Supreme Court in 2011 under MC Joshi (then chief of CBDT)Recommends harsher sentences for tax offenders, potentially even making tax avoidance above Rs. 50 lakh a criminal offense (currently it is a civil offence)Key observations/ recommendations:Increase punishment under?Prevention of Corruption Act?and the Income Tax ActTaxation is a highly specialised subject. Based on domain knowledge, set up all-India judicial service and a National Tax TribunalLike the USA?Patriot Act,?India should insist on entities operating in India to report all global financial transactions above a threshold limitConsider introducing an?amnesty?scheme with reduced penalties and immunity from prosecution to the people who bring back black money from abroadDevice specific regulations to check large scale possession and transportation of cash, and curb large-scale ‘unreported’ cash dealingsSee the bill under ‘Constitution’ (GS2)Important: For recent SIT’s recommendations, see has come across quite a few cases where GDRs have been used for round-tripping of funds in the name of capital-raising of listed companies from abroadUndisclosed Foreign Income and Assets (Imposition of Tax) Bill, 2015Also known as “black money’ billProvides for separate taxation of any undisclosed foreign income and assets; such income will now not be taxed under the Income Tax ActIt will apply to all residents of IndiaTax rate will be a flat 30%Proposes very stringent punishments; to the tune of 90% of the value of undisclosed assets/ income, to three years of rigorous imprisonmentLiberalized Remittance Scheme:The limit for individual remittances abroad has been raised to $250,000 p.a.There can be some concern about domestic investors investing more in foreign equity markets; however, right now Indian stock market is giving high returns, so might not be a cause for worryMicro Units Development and Refinance Agency (MUDRA) Bank:Set-up announced by budget 2015Initially, this will be a subsidiary of the Small Industries Development Bank (SIDBI), and will later become and independent, full-fledged bankImportant thing to note is that MUDRA bank will not be a lending bank, but will refinance MFIs who are in the business of lending to small entitiesIt will also lay down rules and policy guidelines for micro enterprise financing businesses, registration, accreditation, and starting of MFIsThis will be a bank to finance the setting up of small and micro-units and thereby encourage entrepreneurship among SC/STs and OBCs (lending will be preferentially given to these classes)It will regulate and refinance all MFIs that lend to micro/ small business entities engaged in manufacturing, trading, and services activities Logic is to bridge the funding gap that affects the ‘middle’ – top corporates are funded by the banking system, bottom of the ladder is funded by MFIs, but the middle rung of micro and small enterprises suffers funding problemsAccording to government estimates, only 4% of 5.77% crore small business units have access to institutional finance, leaving many to rely on informal lenderThe bank will regulate MFIs, and lend to ‘last-mile lenders’ that will provide financing to the businesses being targetedAjay Shah calls this a ‘bad idea’: `Mudra bank' is an old style socialist initiative, which is inconsistent with all the other modern elements of financial sector reformsRestructuring Public Sector Banks (The Hindu, May 16):PSBs account for over 70% of all troubled assets in India’s banking sector3 sets of issues: governance (composition and functioning of the board), management (selection of the CEO), and operational (resolution of NPAs, infusion of capital by the government)Governance: Bank Boards Bureau (BBB) will be set up, and it will select CEOs, Directors, and Chairmen. BBB will contain 3 former bankers, 2 eminent professionals, and the DoFS Secretary. The government must let this BBB function independentlyManagement: It has been decided that the office of the CMD will be split into two different offices; this might lead to turf wars, and the actual independent director being under the thumb of the political appointeeOperations: The PSBs performed quite well after the bank reforms in 1993, till about 2010. After that, their finances deteriorated for 2 reasons- they got into infrastructure financing in a big way, and CEOs selections went wrong in many places. Now, the government must help by adequate capital infusion, rather than insisting on banks improving their performance before they can access capital ................
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