All Scheduled Commercial Banks, Regional Rural Banks and Scheduled Primary Co-operative Banks are covered under

the Banking Ombudsman. e-Abhilekh The National Archive of India launched quarterly news bulletin, e-Abhilekh, to promote and project activities and development made in India and abroad in the archival field. Mauna Kea, Hawaii The Thirty Meter Telescope (TMT) is a planned ground-based large segmented mirror reflecting telescope, proposed to be built on Mauna Kea in Hawaii. The telescope is much larger than existing telescopes and designed for observations from the near ultraviolet to the midinfrared Haryana Haryana has registered an unprecedented spurt in incident of cyber crimes (137), making it the top state with highest number of cases in the country. West Bengal was closely behind Haryana with 113 cases and Maharastra came third with 90 cases of virtual cases What is the name of Indias first indigenously built aircraft carrier, which would be launched in August, 2013? Vikrant The Rs 50,000 crore deal for supplying 126 Rafale combat aircraft is related to India's relationships with __?france The term Fire Ice is used for ___? Methane Hydrates Hydrates are a frozen mixture of water and gas, primarily methane. The methane molecules reside inside a water molecule lattice. The methane will ignite in ice form - hence the "fire ice" moniker. Persons with Disabilities Persons with disabilities Act 1995

Prevention, protection, promotion, rehab- unemployment allowance, grievances redressal machinery etc. gives 3 per cent reservation in employment.

2005 2008

National policy for persons with disabilities India ratified UN convention on Protection & promotion of rights & dignity of persons with disabilities.

Mahatma Gandhi Pravasi Suraksha Yojana (MGPSY)

by Ministry of Overseas Indian for the Overseas Indian workers having Emigration Check Required (ECR) passports. feature is similar to Swavalamban: you subscribe to NPS-lite then Government will make some contribution in your account. free life insurance as long as you work in ECR country. Implemented via Bank of Baroda and LIC. This is new scheme Launched in 2013. to provide comprehensive healthcare and improve the quality of life of children

Rashtriya Bal Swasthya karyakram

focus on 4D 1. 2. 3. 4.

defects at birth (cleft lip, downs syndrome, Talipes etc.) diseases (dental, heart, asthama etc) deficiencies (Vit.A deficiency= Bitot spot) development delays including disability. This is a recent scheme. By ministry of women and child Development Made due to rising demand for gender sensitisation among boys after the Delhi gang-rape incident. Itll give training/moral education to adolescent boys (11-18 age) to respect women. Official name will be Rajiv Gandhi scheme for empowerment of adolescent boys. (Just like SABLAs official name is Rajiv Gandhi Scheme for empowerment of adolescent girls).

Saksham

Yes, any economic chapter is incomplete without dragging Rajiv Gandhi or Sabla in it hehehe.

SABLA

Rajiv Gandhi Scheme for Empowerment of Adolescent Girls To provide nutrition for growing adolescent girls by provision of food grains. All girls will be given a kishori card which will be updated with details of the girls growth and provision of the food grains. SABLA implemented by Ministry of Women and Child Development. (not by HRD ministry or social welfare ministry) SABLA is created by merging earlier two schemes : Nutrition program for adolescent girls + Kishori Shkati Yojana. Target: girls aged 11-18 100 gms of foodgrain per day per girl for 300 days in a year.

Committees after Delhi rape Chief Justice Verma JS Why? to review existing laws and examine levels of punishment in cases of aggravated sexual assault and it has submitted its recommendations. to identify lapses on the part of public authorities and suggest measures to improve the safety and security of women in the capital.

Justice Usha Mehra

integrated Child development service started in 75 beneficiary 1. children below the age of six 2. lactating mothers 3. pregnant mothers ICDS provides for

nutritional and health status. immunization health checkups preschool and non-formal education

has convergence with reproductive and child health (RCH) program under National rural health Mission

ICPS

integrated child protection scheme for children in difficult circumstances (neglected, abandoned, trafficked etc.) Toll free childline: 1098

12th FYP: Child Development Targets

Improve the Child Sex Ratio from 914 in 2011 to 950 by 2017 Prevent and Reduce Child Under nutrition (percentage of underweight prevalence in children 03 years) by half (50 per cent) Reduce anemia in girls and women by half (50 per cent) Ensure that 80 per cent or more Panchayat, districts and cities progressively become child friendly.

A Child Development Index on the lines of Women Development Index. Review and Update the National Policy for Children 1974

Problems with existing Child labour act?

children under the age of 14 years are prohibited from employment only in hazardous industry. In other words, Child labour Act permitted children under the age of 14 to work in nonhazardous industries including some agricultural work. Thus, right to education act and Child labour act are conflicting: Children cannot be both working and in school at the same time! + Teens between 14-18 years can be employement in hazardous industry (because act talks about upto 14 age). Therefore 12th FYP wants amendment in the Child labour act to abolish all forms of child labour. following this, in 2012, cabinet gave approval to amend the Child labour act. new Bill seeks to prohibit employment of children below 14 years in all occupations except where the child helps his family after school hours. Children between 14 and 18 have now been termed in the amendment as adolescents and can only be employed in non-hazardous industries

Scheduled Castes Census year 2001 2011 % of SC in total population 16.2 16.9

Pradhan Mantri Adarsh Gram Yojana (PMAGY)

launched in March 2010 as a pilot scheme for inte-grated development of 1000 SC majority villages The scheme is presently being implemented in five States viz. Assam (100 villages), Bihar, Himachal Pradesh, Rajasthan and Tamil Nadu (225 villages each)

Forest Rights Act 2006

full name Scheduled Tribes and other Traditional Forest Dwellers (Recognition of Forest Rights) Act, 2006. The Act recognises and vests individual forest-dwellers with forest rights to live in and cultivate forest land that was occupied before 13 Dec 2005.

Rights such as

1. right to live in forest 2. right to self-cultivation for livelihood 3. community right to use minor forest produce, grazing, fish and other products of water bodies, 4. Right to in situ rehabilitation including alternative land in cases where they have been illegally evicted or displaced 5. Right to protect, regenerate or conserve or manage any community forest resources (although this sounds more like a duty than right!) OBC reservation in promotion

In the existing system, SC, ST, OBC get reservation in recruitment But in case of promotion, only SC and ST get reservation (15% and 7.5% respectively), but OBCs dont get reservation benefits in promotion. Why?

Human Development Index (HDI)

In 1990, Mahbub ul Haq (Pak), Amartya Sen (India), developed this Human development index (HDI) HDI gives equal weightage to three dimensions

Dimension 1.Health

Measured via (till 2010) life expectancy @birth

Changes in 2010 Same

2.income

GDP per capita adjusted for purchasing-power parity (PPP US$).

now it is measured via purchasingpower-adjusted per-capita Gross National Income (GNI) because GNI includes remittances from abroad, hence provides better economic picture of many developing countries like India.

via 3.Education gross enrollment(1/3rd weight) + adult literacy (2/3rd weight) 1. Expected years of schooling for a school-age child in a country entering school today 2. mean years of prior schooling for adults aged 25 and older.

HDI=Geometric Mean

Earlier HDI was arithmetic mean [(A+B+C)/3], but since 2010, they have shifted to geometric mean=cube root of (A x B x C) why? because in Geometric mean, low achievement in one dimension is not compensated for by high achievement in another dimension. thus Poor performance in any dimension (health, wealth or edu) is now directly reflected in the new HDI. The Rise of the South*: Human Progress in a Diverse World *The south here means the leading developing countries, Brazil, China, India, Indonesia, Mexico, South Africa, Turkey etc. By 2020, the combined economic output of three leading developing countriesBrazil, China and Indiaalone will surpass the aggregate production of Canada, France, Germany, Italy, the United Kingdom and the United States.

2013

The 2013 Report identifies four specific areas of focus for sustaining development momentum: 1. 2. 3. 4. enhance equity (+women) enable greater voice and participation of citizens (+youth) confront environmental pressures manage demographic change

HDI index 2012

The HDR report = released in 2013. But the HDI index (and ranking) is given for 2012. If a country has HDI index number close to 1=totally awesome. for example #1 rank given to Norway, it has index 0.955.

India- 136 Tendulkar vs Saxena? Chief setup by Setup in Submitted reported in Suresh Tendulkar (died in 2011) Planning Commission 2005 Dr.NC Saxena Rural Development Ministry 2009

2009

Objective?

to review alternate concepts of poverty to recommend changes in the existing procedure used for official estimates of poverty. recommended the Mixed Reference Period (MRP) equivalent Poverty Line Basket (PLB) This new reference PLB has been applied to rural as well as urban population in all the States.

to advise the rural ministry on the suitable methodology for BPL Census. and *not* for estimation of poverty.

Recommendation?

automatic exclusion and exclusion of rural households from the BPL list+ grading of remaining households.

Saxena vs Sengupta? Chief Who set it up? Why was it Dr.NC Saxena Check the previous table! Arjun Sengupta MSME ministry

National

Commission

for

Enterprises

in

the

setup?

Unorganized Sector to examine the problems confronting enterprises in the Unorganized Sector and make appropriate recommendation to provide technical, marketing and credit support to the enterprises.

Why controversy?*

He says atleast 50% Indian He says 77% of Indian junta is BPL. Junta is BPL.

*but as per Tendulkars method only ~37% junta is BPL in 2004-05 and this number has further declined to ~30% in 2009! Rural Infra

Bharat Nirman- most of it already covered in previous articles. hence giving just selective updates/points.

Indira Awas Yojana (IAY)

MIS software Awaasoft Government increased the money given to rural households from 1st April 2013. Plains: Rs.70k Hills/difficult areas/Naxal affected:75k by Rural Development ministry, promises every landless and homeless poor family in rural areas a homestead of not less than 10 cents (0.1 acre or 4,356 sq ft), as per 11th FYP: more than 8 million rural families are homeless. fully covered habitat = those with the provision of at least 40 litres per capita per day (lpcd) of safe drinking water. 12th FYP= the focus is on increasing the service level from 40 lpcd to 55 lpcd + piped water supply schemes and household tap connections. Total Sanitation Campaign (TSC)= now renamed into Nirmal Bharat Abhiyan (NBA). It aims to transform rural India into Nirmal Bharat by achieving 100 per cent access to sanitation for all rural households by 2022. According to Census 2011, only 32.7 per cent of rural households have latrine facilities. (Improving from 32 to 100% is miles to go!)

(draft) Homestead bill, 2013

Rural water

drinking

TSC

Urban Infra JNNURM Already done in earlier article.

RAY

Rajiv Awas Yojana (RAY) for creating a slum-free India. in-situ rehabilitation of slum dwellers. Integrated Low Cost Sanitation Scheme (ILCS): The ILCS aims at conversion of individual dry latrines into pour flush latrines thereby liberating manual scavengers.

ILCS

MNREGA

under Ministry of Rural Development at least one hundred days of guaranteed wage employment in a financial year to every rural household (and not to every individual) unskilled manual work (machinery, contractors not allowed) one-third participation of women.

Major recent initiatives under the MGNREGA

basket of permissible activities has been expanded Electronic fund management system (eFMS) to reduce delay in payment of wages for drought-affected talukas/ blocks: Additional employment over and above 100 days per household. Aadhaar to prevent leakage and ghost accounts. Convergence with the Total Sanitation Campaign (TSC). funding Centre: State=90:10 wage: material ratio=60:40 Social audit, Ombudsman, unemployment allowance

Aajeevika: salient features

self-employment programme to lift the assisted rural poor families (swarozgaris) above the poverty line gives them income-generating assets through a mix of bank credit and government subsidy. one woman member from each identified rural poor household to be brought under the SHG network, ensuring 50 per cent of the beneficiaries from SC/STs, 15 per cent from minorities, and 3 per cent persons with disability while keeping in view the ultimate target of 100 per cent coverage of BPL families training, innovation, capacity building and other fancy stuff.

Aajeevika

original name= Swarnjayanti Gram Swarozgar Yojana (SGSY). later name changed to= National Rural Livelihood Mission (NRLM). again name changed to Aajeevika. (Instead of renaming it twice, they could have saved the mental trouble for UPSC aspirants by directly naming it after

Swarna Jayanti Shahari Rozgar Yojana (SJSRY):

to providing gainful employment to the urban unemployed and underemployed helps them set up self-employment ventures or creating wage employment opportunities. Curiously, unlike SGSY this scheme hasnt been renamed.

Social Security Agreements (SSAs):

Basics of social security already covered under http://mrunal.org/2012/07/economysocial-security.htm SSAs are bilateral instruments to protect Indian professionals working abroad (including self-employed) SSAs facilitate mobility of professionals between two countries. SSAs exempting them from double payment of social security contributions. SSA also provides for exportability and totalization in case of contributions made in foreign country. o exportability of social security benefits when person relocates to India or any other country after having made the due social security contribution. o totalization of the periods of contribution made in both countries for the purpose of assessing eligibility for the benefit/pension in each country. 2006: 1st SSA signed between India and Belgium So far India has signed 17 SSAs with Belgium, Germany, Switzerland, France, Luxembourg, Netherlands, Hungary, Denmark, Czech Republic, Republic of Korea, Norway, Finland, Canada, Sweden, Japan, Austria and recently with Pourtugal

India and GHG

India has signed the United Nations Framework Convention on Climate Change (UNFCC) India has acceded to the Kyoto Protocol in 2002, although as a developing country, India (or China) doesnt have compulsory targets for emission reduction. But still, India has given voluntary commitment that by 2020 well reduce the GHG emission intensity of our GDP by 20-25% of 2005 level. Globally, Indias policy to achieve sustain-able development is guided by the principle of common but differentiated responsibility (CBDR). India is one of the countries that prefer an aspirational rather than a mandatory or prescriptive approach for emission reduction. It is estimated that Indias per capita emission in 2031 will still be lower than the global per capita emission in 2005 o 2005: global =4.22tonnes of CO2 equivalent o 2031: India = under 4 tonnes

India is part of 94 Multilaterals Environmental Agreements including o Ramsar Convention on Wetlands, o Convention on International Trade in Endangered Species of Fauna and Flora (CITES), o Convention on Biological Diversity (CBD)

India and Sustainable development What? 12th Five Year plan (2012-17) Where is Sustainable angle? Theme: faster, more inclusive and sustainable growth.

Eco-industrial parks (EIP)

eco-industrial park (EIP) or estate is a community of manufacturing and service businesses Theyre located together on a common property. Goal is to improve the economic performance of the participating companies while minimizing their environmental impacts An EIP also seeks benefits for neighbouring communities to assure the net impact of its development is positive. In particular, we should consider converting our Special Economic Zones (SEZ) and townships along the MumbaiDelhi Industrial Corridor into Eco-industrial hubs.

Steel

India is the largest producer of DRI steel in the world. Some of the existing process of steel production o COREXBOF : The Corex process followed by basic oxygen furnace for conversion of iron into steel. (this is a steel production method). o BFBOF: The blast furnace and basic oxygen furnace route (another steel production method).

Cement

India = 2nd largest cement producer in the world (1st is China). Three main types of cements are produced in India In the descending order of their total production (highest to lowest)

1. Portland Pozzolana Cement (PPC) 2. Ordinary Portland Cement 3. Portland Slag Cement

Coal gasification

This technology helps in utilization of deep coal deposits, which cannot be mined using conventional means or because they are located in environmentally fragile regions. Coal gasification also allows the possibility of in situ carbon capture. Problem: Indian coal has very high ash content and initial results suggest that efficiency gain over sub-critical units is only marginal. Solution: Government should pump some money in R&D, start a few pilot projects.

Bachat Lamp Yojana (BLY)

Bachat Lamp Yojana (BLY), is registered under the Clean Development Mechanism (CDM) of the Kyoto Protocol, part of the United Nations Framework Convention on Climate Change (UNFCCC). This scheme is developed by BEE under the aegis of the Ministry of Power. to promote energy efficient lighting in India. It provides an innovative business model to sell CFLs to households at the same price as incandescent bulbs, the balance being recovered as carbon credits. (under Kyoto protocols CDM: clean development mechanism).

Coal Cess

Budget 2010: Government introduced clean energy cess on coal Rs.50 per ton. (applicable to both domestic and imported coal.) The money thus collected is sent to National Clean Energy Fund. SUVs= sport utility vehicles. Mostly run on subsidized diesel, which is originally meant for farmers. Budget 2012: customs duty on imported SUV increased to 100% (means more film stars will try to evade it!) excise duty on SUVs increased to 30%

Higher excise duty on SUVs

PAT

PAT = Perform Achieve and Trade PAT comes under the National Mission for Enhanced Energy Efficiency (and that mission comes under National Action Plan On Climate Change). PAT is a scheme for trading energy-efficiency certificates (ESCerts) in large energyintensive industries. Basics explained in the article on 11th Chapter click me In the Twelfth Five Year Plan, the PAT scheme is likely to achieve about 15 million tonnes oil equivalent of annual savings in coal, oil, gas, and electricity. Some experts argue that PAT is not very effective because it is one type of cap-n-trade scheme. Instead of that, we just should just put some type of carbon tax on the polluters.

Cap n Trade vs Carbon Tax lets compare their pros and cons. Cap-and-Trade Here Government allows industries emit xyz tonnes of CO2. But if you emit less than that amount, you get certificate and you can sell it to another company that has overshoot its emission quota/cap/limit. Carbon tax Youve to pay tax directly proportional to your CO2 emission.

RPO RPO target define how much electricity in the country is estimated to be produced from renewable energy sources (=green electricity) Year %Green electricity (in total electricity production)

2009 5 2012 7 2020 15

Under RPO mechanism, the DISCOMs, Captive Power Plants, and Open Access Consumers have to purchase certain the minimum level of renewable energy (out of total consumption). State Electricity Regulatory Commission (SERC) look after this matter.

Renewable Energy Certificates (RECs)

They are provided under the RPO mechanism They enable the obligated entities (DISCOMs, Captive Power Plants, and Open Access Consumers) to meet their Renewable Purchase Obligation (RPO). Those obliged entitles can trade surplus or deficit RECs among themselves and the owner of the REC certificate can claim that he has purchased renewable energy.

Green National Accounts

2011: Govt. setup an expert group under Prof. Sir Partha Dasgupta (of Cambridge univ.) to develop framework for Green National Accounts for India

We need green national accounts because the contemporary national accounts are unsatisfactory basis for economic evaluation. Because they dont consider the full environmental consequences of economic Development. system of green national accounting would o take into account the environmental costs of development o reflect the use of precious depletable natural resources in the process of generating national income.

Infra

India is the fourth largest consumer of energy in the world after USA, China and Russia but it is not endowed with abundant energy resources 12th FYP Wants 1 trillion dollar investment (~56 lakh crore rupees) in infrastructure. This is nearly double of the investment made during the Eleventh Five Year Plan Infrastructure projects take a long time to plan and implement. Delays in land acquisition, municipal permission, supply of materials, tender process/award of work, operational issues, etc. continued to drag down implementation of these projects. here are some numbers to show the gravity of the situation

Gas pricing

Pricing of gas is presently done under the New Exploration Licensing Policy (NELP). The Government provides the operator freedom to sell the gas produced from the NELP blocks at a market-determined price , subject to the approval of pricing formula. The Government is reviewing pricing under the price sharing contract (PSC) to clarify the extent to which producers will have the freedom to market the gas.

Coal Pricing Under Integrated Energy Policy Earlier=Before 2012 On basis of useful heat value (UHV) This even included heat trapped in ash content.

Now (from 2012) on gross calorific value (GCV) basis No

This price-reform is likely to increase the prices of domestic coal to some extent but this is a desirable adjustment because domestic thermal coal, continues to be underpriced.

Types of Coal In ascending order of their quality (and price)

Type

Note

Carbon content % Highest moisture content = smoke. Most inferior. Important states: TN (Neyveli), Gujarat, Rajasthan Upon heating, it releases a liquid calledBitumin. Used to make coking coal, gas coal, steam coal Chattisgarh, Jharkhand, WB, MP, Odisha Short blue flame Lowest moisture content. 40

Peat

Lignite / Brown coal

40-60

Bituminous/ Coal

Black-

60-80

Anthracite / hard coal FSA highlights

80-90

Fuel sharing agreements Signed between coal India ltd (seller) and thermal power companies (buyer/customer) Duration: The FSAs will be signed for a period of 20 years and will be reviewed after every five years. If coal India doesnt provide 80% of the assured supply, then theyve to pay penalty to buyer. If CIL cannot meet demand through domestic supplies, it can meet the shortfall through imported coal. But, if a customer does not accept imported coal, CIL doesnt need to pay any penalties.

Investment

Coal Mines (Nationalization) Act, 1973 does not allow private companies to mine coal for sale to third parties although it allows captive mining for specified end use sectors hence coal sector doesnt attract big investment. There is need for large (foreign) investment and technology in the coal sector. Because a host of small (desi) players would not increase coal production to desired levels.

NELP To attract private investment into oil and natural gas. There have been nine rounds of bidding, starting with a first in 1998 Government has prioritized allocation of gas produced from NELP blocks in the following order:

1. 2. 3. 4. 5.

Fertiliser plants producing subsidised fertilisers LPG plants Power plants City Gas Distribution (CGD) for CNG and domestic PNG Steel, petrochemicals, refinery, captive power plants and CGD for industrial and commercial customers

Coal bed methane (CBM)

The primary energy source of natural gas is a substance called methane (CH4). Coal bed methane (CBM) is simply methane found in coal seams. CBM is generated either from a biological process as a result of microbial action or from a thermal process as a result of increasing heat with depth of the coal.

Oil Shale

from sedimentary rocks that contains kerogen (a type of fossil fuel). Pyrolysis : under this process, above rocks are heated at extreme temperature without oxygen. Thus kerogen is released. It is further refined and thus we get shale oil. Oil shale can be mined and processed to generate oil similar to oil pumped from conventional oil wells;

Gas Hydrate

also known as clathrate hydrates (methane ice, fire ice) it is solid ice-like form of water. it contains (methane, ethane etc.) gas molecules in its cavities they are essentially natural gas in a frozen state. Some estimates suggest that the total amount of natural gas bound in hydrate form may exceed all conventional gas resources coal, oil and natural gas, combined. Challenge: When gas hydrates are brought to the surface the pressure is reduced and the temperature rises. This causes the ice to melt and the methane to escape.

TAPI pipeline

A 1680 km pipeline from Turkmenistan Afghanistan Pakistan India (TAPI) Itll become operational by 2018. It will carry 90 million metric standard cubic meters a day for a 30 year period. India has to pay a transit fee to Pakistan and Afghanistan as the pipeline passes through these nations.

The Auto Fuel Policy

Approved by the Government, for upgradation of the quality of auto fuels (Petrol and Diesel) o to Bharat Stage (BS) IV in 13 identified cities o to BS-III in the rest of the country.

During 2011-12, BS-IV fuels have been introduced in seven cities, namely, Puducherry (UT), Mathura (UP), Vapi (Guj), Jamnagar (Guj), Ankaleshwar (Guj), Hissar (Haryana) and Bharatpur (Raj) between January to March, 2012. Efforts are being made to progressively expand coverage of BS-IV fuels with introduction of these fuels in 50 more cities by 2015. Electricity= is a concurrent subject (List III of the seventh Schedule of the Constitution of India.) 100% FDI permitted in electricity generation, transmission and distribution and trading.

The Electricity Act,2003

Electricity generation has been delicensed. (recall the activities that require industrial license) Although Hydro projects need concurrence from the Central Electricity Authority. No license required for generation and distribution in rural areas. Setting up of the State Electricity Regulatory Commissions (SERCs) made mandatory. An Appellate Tribunal to hear appeals against the decision of the CERC and SERCs. Electricity must be supplied via Meters Penalty for power theft = increased Established Central Electricity Authority (CEA) to prepare a National Electricity Plan.

Bagasse Cogeneration

This is a renewable energy source. Bagasse= fibrous matter that remains after juice is extracted from sugarcane. Cogeneration= process of using a single fuel to produce more than one form of energy in sequence. In Bagasse cogeneration: output = Heat (use by the sugar mill for production) + electricity (sold to consumers). In normal electricity generation plants, up to 70% of heat in steam is rejected to the atmosphere. But In cogeneration plant, this heat is not wasted and is instead used to meet process heating requirement.

Jawaharlal Nehru National Solar Mission

2010: Launched under National plan on climate change Falls under ministry of new and renewable energy To achieve following things by 2022 install 20GW solar power 2 GW of off-grid Solar 20 million sq. metre of solar thermal collector area 20 million rural households to have solar lighting

i. ii. iii. iv.

Chindus Budget speech

India tosses out several thousand tonnes of garbage each day. We will evolve a scheme to encourage cities and municipalities to take up waste-to-energy projects in PPP mode. Government will provide low interest funds from National Clean Energy Fund (NCEF) to IREDA Then IREDA will lend it to renewable energy projects. +800 crores to Ministry of Non Renewable Energy for wind energy projects.

Share of renewable energy Period 2011-12 2016-17* 2020* % Share of renewable energy in total electricity generated 7% 12% 15%

Services as per National Accounts classification

trade, hotels, and restaurants; transport, storage, and communication; community, social, and personal services financing, insurance, real estate, and business services*; *Business services further includes: computer-related services, R&D, accounting services and legal services, and renting of machinery ( in order of their share in GDP.)

Services as per WTO and RBIs classification

^Above services (as per National accounts classification) + construction.

Conditions on FDI in Multibrand retail

Government will have the first right to procurement of agricultural products State governments/UTs would be free to take their own decisions in regard to implementation of the policy as retail trade is a state subject. Foreign investor must bring at least US $ 100 million investment. He must invest 50% of FDI in backend infrastructure. He must procure at least 30 per cent of manufactured/ processed products from Indian small industries. For this purpose Indian Small industries= those which have a total investment in plant and machinery not exceeding US $ 1million. Retail sales outlets may be set up only in cities with a population of more than 10 lakh as per Census 2011 and may also cover an area of 10 km around the municipal/urban agglomeration limits of such cities.

States/UT agreed to Multibrand retail?

Eleven states/UTs, viz. Andhra Pradesh, Assam, Delhi, Haryana, Jammu and Kashmir, Maharashtra, Manipur, Rajasthan, Uttarakhand, Daman and Diu, and Dadra and Nagar Haveli have agreed to permit establishment of retail outlets.

FIPB

Foreign Investment Promotion Board. Looks after FDI approvals. Made up of following Secretaries to the Government of India

FDI is not permitted in 1. 2. 3. 4. 5. Lottery, Betting, Gambling, Casinos. Chit funds and Nidhi company Real Estate, Farm Houses tobacco products areas reserved for public sector: 1) Atomic Energy and 2) Railway Transport (other than Mass Rapid Transport Systems). 6. Trading in Transferable Development Rights (TDRs) ^as per DIPP circular, plus 7. Legal services 8. Accountancy services. LOK ADALAT

Statutory body under Legal Services Authorities Act, 1987. Lok Adalat is a forum where the disputes/cases pending in the court of law or at prelitigation stage are settled/compromised amicably. Lok Adalats award is final and binding on all parties and no appeal lies before any court against it.

Telecom India has 2nd largest telecom network in the world after China Tele-density It shows the number of telephones per 100 persons. Teledensity @end of Oct 12 Rural Approx. % 41

Urban Overall TRAI

159 77

Telecom Regulatory Authority of India (TRAI) established by an Act of parliament in 1997 (hence TRAI=Statutory body) Chairman=Rahul Khullar To notify the rates at which telecommunication services within India and outside India shall be provided Spectrum management lay down the standards of quality of service to be provided by the service providers conduct the periodical survey of such service provided by the service providers so as to protect interest of the telecom users ensure effective compliance of Universal Service Obligations TRAI also makes recommendations to the Government on a host of issues including conditions for entry of new service providers and terms and conditions of licences granted to service providers

TSDAT

Telecom Dispute Settlement and Appellate Tribunal (TDSAT) Setup in 2000 To hear appeal against any direction/ decision of TRAI to adjudicate any dispute between a licensor and a licensee; between two or more service providers; between a service provider and a group of consumers

National Telecom Policy (NTP) 2012 #1: telecom 1. 2. 3. 4. 5. 6. Do another 2G scam secure, affordable, and high-quality telecommunication services to all citizens. One Nation-One Licence across services and service areas. One Nation-Full Mobile Number Portability and work towards One Nation-Free Roaming Recognize telecom as an infrastructure sector Recognize telecom, including broadband connectivity, as a basic necessity like education and health

#2: rural 1. Increase rural tele-density to 70 by the year 2017 and 100 by the year 2020.

2. Provide high-speed and high-quality broadband access to all village panchayats through a combination of technologies by the year 2014 and progressively to all villages and habitations by 2020. #3: internet 1. transition to the new Internet Protocol (IPv6) in the country in a phased and time-bound manner by 2020 2. Work towards Right to Broadband. a. Provide affordable and reliable broadband-on-demand by the year 2015 b. 175 million broadband connections by the year 2017 c. 600 million by the year 2020 at minimum 2 Mbps download speed and make available higher speeds of at least 100 Mbps on demand National policy on Electronics, 2012

create an ecosystem for a globally competitive ESDM (Electronic System and Design and Manufacturing): infrastructure + industry friendly and stable tax regime. By 2020 achieve o Domestic production of 400 billion USD o Investment of 100 billion USD o Increase EDSM export to 80 billion USD o employment to around 28 million people Setup electronic manufacturing clusters Setup semiconductor wafer manufacturing facilities renaming the Department of Information Technology as Department of Electronics and Information Technology (Deity). Cyber security e-waste handling

USOF

Universal service fund obligation For provision of phone lines in non-viable areas More details already covered in www.mrunal.org/2012/09/yb-usof.html

National optical fiber network

For providing broadband connectivity to all 2.5 lakh gram panchayats. Project is funded by Universal service obligation fund

National knowledge network

government approved is project in 2010 NIC is implementing it over a period of 10 years it aims to interconnect higher learning institutions with high-speed internet connection

National knowledge Commission

setup in 2005 high-level advisory body to the Prime Minister of India Chairman= Sam Pitroda Gives policy advice for education, research to transform India into a knowledge society.

Information technology (Amendment) Act 2008

original act was enacted in 2000. Details given in earlier article:http://mrunal.org/2012/07/yearbook-it-act.html 2008: it was amended to provide for data protection, cyber security and new forms of cyber crimes

Spectrum Trading

Recall that 2G scam revolves around the controversy that certain companies (like Swan telecom) bought the spectrum but did not start telecom operation. They merely sold it to third company at a higher price (similar to black cinema-tickets) Historically, in most countries, the Regulator has used a command and control mechanism to decide allocation of spectrum. However, it is being increasingly felt that this system does not allow the spectrum licence holders the flexibility to respond quickly to changes in market demand and technology, This results in chunks of spectrum lying underutilized, and thereby creating an artificial scarcity. Therefore, some countries like Australia, Canada, New Zealand, and some EU countries have permitted spectrum trading in the secondary market. (just like how shares and bonds are traded). Spectrum trading is likely to improve spectrum efficiency, boost market competition and provide incentives to innovation to service providers

12th FPY targets for Telecom 1. By 2017 a. Provide of 1200 million connections b. increase rural teledensity to 70% c. Broadband connection of 175 million 2. Commissioning of National Optical Fibre Network (NOFN) 3. Making India a hub for telecom equipment manufacturing 4. Provide preferential market access for indigenously manufactured products. 5. Adopt green policy in Telecom 6. incentivize use of renewable energy sources. Central Road Fund

Under the Act of 2000 Money comes from Rs.2 per liter as cess on petrol and High speed Diesel. (additional excise duty)

Money thus collected, first goes to the Consolidated Fund of India from there, Central Government allocates money to Central Road Fund (CRF) from time to time, after deducting the expenses of collection. Money is used to develop and maintain national, state and village roads + railway overbridges, underbridges and other safety measures

Index: IIP vs WPI vs CPI What is IIP, already discussed in earlier article click me. IIP What? Who calculates? Under Which Ministry? Base year? Index of Industrial Production Central Statistical Organization (CSO) Statistics & Implementation 2004 682 items clubbed in 399 groups: 1 in Mining, 1 in Electricity and 397 in Manufacturing Based on sector: 1. mining, 2. manufacturing 3. electricity Categories Based on use: 1. 2. 3. 4. basic goods capital goods intermediate goods consumer goods: i) durable (ii)non-durable 1. Entire urban population 2. Entire rural population 3. Urban + Rural (consolidate from above two) Programme WPI Wholesale price index CPI Consumer index price

Economic advisor

Central Statistical Organization (CSO) Statistics Programme Implementation 2010 &

Commerce

2004

Items?

676

200

1. Primary articles 2. Fuel, power, light, lubricants 3. Manufactured products.

Industrial Licensing As per the Industries Development Regulation Act 1951, you need to get license to operate in following industries 1. 2. 3. 4. Distillation and brewing of alcoholic drinks. Cigars and cigarettes of tobacco and manufactured tobacco substitutes; Electronic Aerospace and defense equipment: all types; Industrial explosives, including detonating fuses, safety fuses, gun powder, nitrocellulose and matches; 5. Hazardous chemicals; a. Hydrocyanic acid and its derivatives b. Phosgene and its derivatives c. Isocyanates and di-isocyanates of hydrocarbon, not elsewhere specified (example: Methyl Isocyanate). National Manufacturing Policy (NMP) 2011: Objectives 1. 2. 3. 4. 5. 6. Increase share of manufacturing in GDP to 25% within a decade. create additional 100 million jobs over special focus to industries that are employment intensive give vocational skill/training to rural youth industrial growth in partnership of states industrial regulation will be simplified and rationalized

National investment & manufacturing zones (NIMZs)

provided under National manufacturing policy 2011

IPR initiatives The Madrid Protocol

Administered by World Intellectual Property Organisation (WIPO) provides for a system for international registration of trade marks. Madrid protocol will help Indian companies register their trade-marks in all member countries under this protocol via single application in one language and one time fees in one currency.

Trademark Amendment Act 2010

Was passed to accede India to Madrid Protocol

I-Mark

I-Mark= Indian Design Mark By Indian design council under Department of Industrial policy and promotion (DIPP) > Ministry of Commerce and Industries.

I-Mark is the Indian equivalent of the Japanese G-Mark, the highest quality marking for industrial design in Japan.

PSU: delegation 1997 2009

Navratna and Miniratna Maharatna Under these schemes, the profit making central public sector enterprises are given extra powers and freedom. Matter falls under Department of Public Enterprises Feb 2013: Bharat Heavy Electricals Limited (BHEL) and Gas Authority of India Ltd.(GAIL) were given Maharatna Status.

Measures to boost MSME sector

Public Procurement Policy for Goods= All the central ministries / departments / central public sector undertakings (CPSUs) shall procure a minimum of 20 per cent of their annual value of goods / services required by them from MSEs. And out of that, 4 per cent procurement from MSEs owned by SC / ST entrepreneurs Govt also provides guarantee cover for loans upto 100 lakh. Capital Subsidy Scheme to help them upgrade their technology. SIDBI set up the India Microfinance Equity Fund in 2011-12

Indias rank in Agro production India ranks in production of 1. 2. 3. 4. 1. 2. 3. 4. 5. 6. 7. Milk, Pulses Jute And Jute-Like Fibres Tractors Rice, Wheat, Sugarcane. (Brazil is first) Groundnut, Vegetables, Fruits Cotton Production

First

Second

FYP Achievement: Agro Plan 9th 10th 11th Agro growth Actually achieved (%) 2.5 2.4 3.6

Fertilizers: NIP 2012

government has notified the New Investment Policy 2012 (NIP-2012) in the urea sector. It will encourage investments in brownfield and greenfield projects. increase in domestic production capacity reduce import dependence reduce govt. expenditure on subsidy. ensure the long-term availability of gas required for expansion and greenfield/brownfield projects. If gas prices increase, then In the event of increase in gas prices provisions are made in the policy to protect the interest of investors. It + government is implementing direct cash transfer to the farmers for purchase of fertilizer, seeds etc.

Nutrient Based Subsidy (NBS)

Indian farmers use too much urea because 1) govt. gives subsidy hence its cheap 2) lack of awareness. But for optimal crop production, you need to use variety of fertilizers and not just Urea. So government came up with Nutrient Based Subsidy scheme. Under this scheme, Government gives subsidy on each grade of phosphatic and potassic (P&K) fertilizer depending upon its nutrient content. Government also give additional subsidy on secondary and micro-nutrients. Farmers pay only 58 to 73 per cent of the delivered cost of P&K fertilizers; the rest is borne by the Government of India in the form of subsidy. Manufacturers/marketers are allowed to fix the maximum retail price (MRP)=> prices of these decontrolled products have double. But urea is not covered under the NBS scheme and government continues to provide subsidy on urea separately. Result=> farmers are relying more on Urea than on the new P&K fertilizers. So, while government had expected that NBS scheme would reduce the Urea consumption but actually reverse has happened.

National Food Security Mission (2007) was launched in 2007-8 with three major components, viz. Components NFSM-Rice NFSM-Wheat NFSM-Pulses

Target=Increase production by ___ million tones at the end of 11th FYP 10 8 2

+Restore soil fertility Enhance farm-level economy, employment opportunities;

Now lets look at some schemes (Government schemes= goldmine minefield for MCQs).

Mid-Day meal

Scheme is implemented By HRD ministry. But Department of food and civil supply (under Ministry of Consumer Affairs, Food and Public Distribution) provides the food grain requirement. Wheat based nutrient program Under Integrated child Development scheme Scheme implemented by Ministry of Women and Child Development. Emergency Feeding program To provide food to old, infirm, destitute BPL under distress condition. Launched in mid 90s, for some districts in Odisha (KBK region). National social assistance program In mid 90s. To fulfill article 41 under DPSP (right to work, education and public assistance in certain cases). It contains following components

WBNP

EFP

NSAP

1. 2. 3. 4.

Indira Gandhi National Old Age Pension Scheme (IGNOAPS), Indira Gandhi National Widow Pension Scheme (IGNWPS), Indira Gandhi National Disability Pension Scheme (IGNDPS), National Family Benefit Scheme (NFBS): to BPL family, for death of primary breadwinner. 5. Annapurna (food).

TDPS

Targeted Public distribution system. Started in late 90s Initially, to provide 10 kg food grain / per family / month Now amount increased to 35 kg per BPL and AAY family per month. Antyodaya Anna Yojana Started in 2000 Find poorest of poor families in BPL (covered under TPDS) And give them wheat @Rs.2/kg and Rice @Rs.3/kg Started in 2000 By rural Development ministry. For senior citizen who are not getting pension under NOAPS (National old age pension scheme). Annapurna gives them 10kg food grain per person per month. Later it was merged in the National Social Assistance Programme (NSAP). Initially By Tribal affairs ministry (now transferred to Dept of Food and Public distribution) During natural disaster or lean season, the marginalized households dont have money to buy ration. They can borrow food grains from the village grain bank. Village grain banks are setup in food scare areas like drought prone, hot/cold desert, tribal and hill areas. Not again, man this is becoming so damn clichd. Rajiv Gandhi Scheme for empowerment of Adolescent girls. SABLA implemented by Ministry of Women and Child Development. (not by HRD ministry or social welfare ministry) SABLA is created by merging earlier two schemes : Nutrition program for adolescent girls + Kishori Shkati Yojana. Target: girls aged 11-18 100 gms of foodgrain per day per girl for 300 days in a year.

AAY

Annapurna

Village grain bank

SABLA

Baltic Dry Index (BDI)

London based Baltic Exchange, releases this index number on daily basis. It measures changes the cost to transport raw materials by sea. If Baltic Dry index number increases = more raw material is getting shipped= world economy is doing good (and will do good). If Baltic Dry index number decreases = there is decrease in export of raw material / preproduction items= something bad is about to happen with world economy. In the recent times, BDI was highest in 2008 and then started falling. There was a small rise in BDI index during Nov.2012, but still it is nowhere near to the high level of 2008. Meaning, world economy hasnt yet recovered from the fallout in US and EU.

Indias Chief import exports Import 1. 2. 3. 4. 5. Petroleum Gold Electronic goods Pearls, precious stones Machinery except electronics Export 1. 2. 3. 4. Petroleum (crude and products) Gems and jewelry Transport equipment, machinery Drugs, pharmaceuticals, chemicals

^As per Commerce chapter India 2013 (Yearbook.)

Compositional changes in Indias export basket have been taking place over the years. The share of manufacturing exports fell drastically, mainly due to the fall in shares of traditional items like textiles and leather and leather manufactures even though the share of engineering goods and chemicals and related products increased.

Top three trading partners

In recent years, the top three trading partners of India = US, UAE, China (whoever their rank /position keeps changing like in the game of musical chairs). For 2011-12: first is China, second is UAE and third is USA. (2012-13 data yet to come) CEPA Economic Cooperation Comprehensive Agreement Economic partnership

CECA Comprehensive Agreement

Reduce the tariffs (custom/import duties). Countries sign CECA first and then gradually move towards CEPA like agreement. Example, India has CECA with 1. Malaysia 2. Singapore 3. ASEAN (under negotiation)

Reduce tariffs + cooperation in trade in services, investment. = wider scope. Example, India has CEPA With 1. Japan 2. South Korea 3. Sri Lanka (under negotiation)

FTA/PTA: Already concluded 10 FTA with 1. Sri lanka 5 PTA with 1. Asia Pacific Trade Agrment (APTA):

2. SAFTA (India, Pakistan, Nepal, Sri Lanka, Bangladesh, Bhutan and Maldives) 3. Nepal 4. Bhutan 5. Thailand, + early harvest Scheme (EHS) 6. Singapore (CECA) 7. ASEAN (CECA) 8. S.Korea: CEPA 9. Japan: CEPA 10. Malaysia: CEPA

2. 3. 4. 5.

Bangladesh, China, India, S.Korea, Sri Lanka Global system of trade preferences (GSTP) Afghanistan MERCOSUR Chile

Trade agreements: Recent development Signed and came into force.South Asia Free Trade Area Under SAFTA, India has granted zero basic custom duty to all LDCs, viz. Afghanistan, Bangladesh, Bhutan, and Maldives, on all items, except alcohol and tobacco products. Signed but negotiations still on.

SAFTA

India Thailand FTA India-ASEAN CECA

Signed, broader framework already in force. Minor details remain to be negotiated.

RECP among ASEAN+6

Regional Comprehensive Economic Partnership (RCEP) Agreement among ASEAN + 6 (Australia, China, India, Japan, Korea, and New Zealand). During 20th ASEAN summit in Phnom Penh Cambodia (in 2012), the ASEAN states agreed to move towards this agreement. Itll provide economic partnership among ASEAN + its FTA partners. RCEP will cover trade in goods, services, IPR, dispute settlement etc.

India-EU

Broad based trade and investment agreement. Negotiations still going on.

GSTP

Global System of Trade Preferences among Developing Countries (GSTP) It is a preferential trade agreement to increase trade between developing countries in the framework of the UNCTAD (United Nations Conference on Trade and Development). India has unilaterally offered special concessions to Least developed countries under this agreement. Cabinet approved implementing Indias schedule of concessions under GSPT. India has also unilaterally offered special concessions to LDC

Japan

In Nov. 2012, India and Japan signed a pact to enable Japan to import rare earth minerals from India. (This will help reduce Japans reliance on China for rare earth minerals). Rare earth minerals are important for high-tech electronics, mobile phones and hybrid cars, missile guidance systems etc.

Salient Features FTP Annual Supplement 2013 1. 2. 3. 4. 5. 6. 7. 8. 9. Reduced Minimum land area requirement for SEZ, by half No minimum land requirement for settingup IT SEZ Permitted sale and transfer of units inside SEZ. Zero Duty Export Promotion Capital Goods Scheme Government will give 2% Interest Subvention Scheme for more sectors. (upto 31st March 2014) Duty Credit Scrips issued under Focus Market Scheme, Focus Product Scheme and Vishesh Krishi Gramin Udyog Yojana(VKGUY) can be used for payment of service tax. Import of cars/vehicles is permitted through designated ports only. Now import of cars/vehicles would also be allowed at Faridabad and Ennore Port (TN) System for online issuance of Registration Certificate for export of Cotton, Cotton Yarn, Non Basmati Rice, Wheat and Sugar.

ASIDE scheme

Assistance to States for Developing Export Infrastructure and Allied Activities (ASIDE) Scheme It provides assistance to State and union territories to create infrastructure for export Development. Top 5 exporter states in India (also top-5 in terms of ASIDE allocation): Gujarat, Maharashtra, Tamil Nadu, Karnataka, and Andhra Pradesh. (Why? Think about the geographical, social, political, economic factors)

Towns of Export Excellence These get more attention / funds under ASIDE scheme and other schemes of commerce ministry for boosting exports. year Place 1. Abad 2012 Textiles 2. Kolhapur Sector

3. Shaharanpur 4. Morbi 2013 5. Gurgaon

Handicraft Ceramic Apparel

Interest Subvention

Earlier Government gave 2% interest subvention on handlooms, handicrafts, carpets, and SMEs This scheme has been extended to labor-intensive sectors viz. toys, sports goods, processed agricultural products, and readymade garments. Scheme is applicable upto 31 March 2014.

Special Economic Zones

Asias first Export processing zone (EPZ) was setup in Kandla, Gujarat, 1965 Special Economic Zones (SEZ) Act, enacted in 2005 and and Rules were notified in February 2006. Government has given formal approvals to setup 579 SEZs, of which 384 have been notified. As a whole, SEZs have provided employment to more than 9 lakh people. 100 per cent FDI is allowed in SEZs through the automatic route Problem area: land acquisition. (some of that is addressed under the 2013s annual supplement to Foreign trade policy.)

RBIs measures

RBI increased ceilings for External Commercial Borrowings (ECBs) RBI allowed the banks to determine their interest rates on loans to exporters (in foreign currency).

To boost trade

Peak rate of basic customs duty = 10% (for non agro products) Normal excise duty = 12% Normal service tax= 12%

IT

The Rangachary Committee was appointed to look into tax matters relating to Development Centres & IT sector and Safe Harbour rules for a number of sectors. By the way, Rangachary was also a member of Shome Panel (for GAAR).

What is countervailing duty (CVD)? Suppose we imported xyz thing from USA. And that xyz thing is also manufactured by Indian producers as well.

But the American Government provides some subsidies to their exporters, hence the price of imported XYZ item is more than the locally produced desi variety. And or The Indian producers are required to pay more taxes hence desi variety has become more expensive than the American product. In such case, Indian Government can imposes addition tax on the imported item to protect the domestic industry. This is known as countervailing duty (CVD).

In 2013, US Department of Commerce started investigation a countervailing duty (CVD) investigation against India and six other countries on export of shrimp. Because the (domestic) American shrimp industry had complained that Indian Government provides lot of incentives, subsidies and tax reliefs to Indian shrimp exporters, so US Government should impose a CVD on the shrimps imported from India. Important Summits 2012 SAARC ASEAN BRICS G20 Addu, Maldives (2011) Phnom Penh, Cambodia Delhi

2013 Kathmandu Brunei Durban, S.Africa Los Cabos, Mexico St. Petersburg, Russia Brisbane, Australia

Trade Blocs/ Regional Groups List is not exhaustive. 1. 2. 3. 4. 5. 6. 7. 8. 9. Australia Brunei Canada Chile China HongKong Indonesia Japan SouthKorea

APEC

Asia-Pacific Economic Cooperation

10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 1. 2. 3. 4. 5. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 1. 2. 3. 4. 5. 6. 7. 1. 2. 3. 4. 5.

Malaysia Mexico New Zealand Papua NewGuinea Peru Philippines Russia Singapore Taiwan Thailand United States Vietnam Bangladesh China India S.Korea Sri Lanka Brunei Cambodia Indonesia Laos Malaysia Burma (Myanmar) Philippines Singapore Thailand Vietnam Bangladesh Bhutan Myanmar India Nepal SriLanka Thailand Brazil Russia India China South Africa

APTA

Asia Pacific Trade agreement

ASEAN

Association of South East Asian Nation

BIMSTEC

Bay of Bengal Initiative for MultiSectoral Technical and Economic Cooperation. Bangladesh, India, Myanmar, Sri Lanka, and Thailand Economic Cooperation

BRICS

Brazil, Russia, India, China and South Africa

CELAC

Community of Latin American and

33 countries in that region. Names

Caribbean States

not worth the space hahaha. 1. 2. 3. 4. 5. 6. 7. 8. 9. Armenia Azerbaijan Belarus Kazakhstan Kyrgyzstan Moldova Russia Tajikistan Uzbekistan

CIS

Commonwealth of Independent States

COMESA

Common Market Southern Africa

for

Eastern

and

20 member states stretching from Libya to Zimbabwe. 15 members in Western Africa. 1. 2. 3. 4. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. Iceland Liechtenstein Norway Switzerland Austria Belgium Bulgaria Cyprus Czech Republic Denmark Estonia Finland France Germany Greece Hungary Ireland Italy Latvia Lithuania Luxembourg Malta Netherlands Poland Portugal Romania Slovakia

ECOWAS

Economic Community African States

of

Western

EFTA

European Free Trade association

EU

European Union

24. 25. 26. 27. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 1. 2. 3. 4. 5. 6. 7. 8. 1. 2. 3. 4. 5. 6.

Slovenia Spain Sweden UK Argentina Australia Brazil Canada China European Union France Germany India Indonesia Italy Japan Mexico Russia SaudiArabia SouthAfrica SouthKorea Turkey UnitedKingdom UnitedStates Canada France Germany Italy Japan Russia UK US Bahrain Kuwait Qatar Saudi Arabia Oman United Arab Emirates (UAE)

G20

Group of 20

G8

Group of 8 (Wealthiest nations)

GCC

Gulf cooperation council

GSTP

Global system of trade preferences

44 developing countries. List is not worth the table space hahaha.

IBSA

India Brazil South Africa

1. India 2. Brazil 3. South Africa 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 1. 2. 3. 4. 5. Australia Bangladesh Comoros India Indonesia Iran Kenya Madagascar Malaysia Mauritius Mozambique Oman Seychelles Singapore S.Africa Sri Lanka Tanzania Thailand UAE Yemen Argentina Brazil Paraguay Uruguay Venezuela 2012)

IORARC/Ocean Rim

Indian Ocean Rim association of regional cooperation.

MERCOSUR

Southern Common Market. (Mercado Comun Del sur)

(member

since

NAFTA

North American Free Trade Agreement

1. Canada 2. US 3. Mexico 1. 2. 3. 4. 5. 6. 7. 8. Afghanistan Bangladesh Bhutan India Maldives Nepal Pakistan Sri Lanka

SAARC

South Asian Association for Regional Cooperation

SACU

Southern African Customs Union

1. 2. 3. 4. 5. 1. 2. 3. 4. 5. 6. 7. 8. 1. 2. 3. 4. 5. 6.

South Africa Botswana Lesotho Swaziland Namibia India Paki Nepal Lanka Bangladesh Bhutan Maldives Afghanistan (latest member) China, Kazakhstan, Kyrgyzstan, Russia, Tajikistan, Uzbekistan.

SAFTA

South Asia Free Trade Agreement

SCO

Shanghai Cooperation Organisation

IMF: Advanced Economies in ASIA 1. 2. 3. 4. S.Korea Hong Kong Singapore Taiwan

FDI is not permitted in Lottery, Betting, Gambling, Casinos. Chit funds and Nidhi company Real Estate, Farm Houses tobacco products areas reserved for public sector: 1) Atomic Energy and 2) Railway Transport (other than Mass Rapid Transport Systems). Trading in Transferable Development Rights (TDRs) Legal services Accountancy services

Peeping into the world of Financial Market and SEBI !!! Understanding Financial Markets

1. What are the various types of financial markets?

The financial markets can broadly be divided into money and capital market.

Money Market:

Money market is a market for debt securities that pay off in the short term usually less than one year, for example the market for 90-days treasury bills. This market encompasses the trading and issuance of short term non equity debt instruments including treasury bills, commercial papers, bankers acceptance, certificates of deposits, etc.

Capital Market:

Capital market is a market for long-term debt and equity shares. In this market, the capital funds comprising of both equity and debt are issued and traded. This also includes private placement sources of debt and equity as well as organized markets like stock exchanges. Capital market can be further divided into primary and secondary markets.

2. What is meant by Secondary Market?

Secondary Market refers to a market where securities are traded after being initially offered to the public in the primary market and/or listed on the Stock Exchange. . Majority of the trading is done in the secondary market. Secondary market comprises of equity markets and the debt markets.

For the general investor, the secondary market provides an efficient platform for trading of his securities. For the management of the company, Secondary equity markets serve as a monitoring and control conduitby facilitating value-enhancing control activities, enabling implementation of incentive-based management contracts, and aggregating information (via price discovery) that guides management decisions.

3. What is the difference between the primary market and the secondary market?

In the primary market, securities are offered to public for subscription for the purpose of raising capital or fund. Secondary market is an equity trading avenue in which already existing/pre- issued securities are traded amongst investors. Secondary market could be either auction or dealer market.

While stock exchange is the part of an auction market, Over-the-Counter (OTC) is a part of the dealer market.

SEBI and its Role in the Secondary Market

4. What is SEBI and what is its role?

The SEBI is the regulatory authority established under Section 3 of SEBI Act 1992 to protect the interests of the investors in securities and to promote the development of, and to regulate, the securities market and for matters connected therewith and incidental thereto.

5. What are the various departments of SEBI regulating trading in the secondary market?

The following departments of SEBI take care of the activities in the secondary market. Sr.No. 1. Name of the Department Market Intermediaries Registration and Supervision department (MIRSD) Major Activities Registration, supervision, compliance monitoring and inspections of all market intermediaries in respect of all segments of the markets viz. equity, equity derivatives, debt and debt related derivatives.

2.

Market Regulation Formulating new policies and supervising the Department (MRD) functioning and operations (except relating to derivatives) of securities exchanges, their subsidiaries, and market institutions such as Clearing and settlement organizations and Depositories (Collectively referred to as Market SROs.) Derivatives and New Supervising trading at derivatives segments of Products Departments stock exchanges, introducing new products to be (DNPD) traded, and consequent policy changes

3.

Products available in the Secondary Market

6. What are the products dealt in the secondary markets?

Following are the main financial products/instruments dealt in the secondary market:

Equity: The ownership interest in a company of holders of its common and preferred stock. The various kinds of equity shares are as follows:-

Equity Shares:

An equity share, commonly referred to as ordinary share also represents the form of fractional ownership in which a shareholder, as a fractional owner, undertakes the maximum entrepreneurial risk associated with a business venture. The holders of such shares are members of the company and have voting rights.

Rights Issue / Rights Shares: The issue of new securities to existing shareholders at a ratio to those already held.

Bonus Shares: Shares issued by the companies to their shareholders free of cost by capitalization of accumulated reserves from the profits earned in the earlier years.

Preferred Stock / Preference shares: Owners of these kinds of shares are entitled to a fixed dividend or dividend calculated at a fixed rate to be paid regularly before dividend can be paid in respect of equity share. They also enjoy priority over the equity shareholders in payment of surplus. But in the event of liquidation, their claims rank below the claims of the companys creditors, bondholders / debenture holders.

Cumulative Preference Shares: A type of preference shares on which dividend accumulates if remains unpaid. All arrears of preference dividend have to be paid out before paying dividend on equity shares.

Cumulative Convertible Preference Shares: A type of preference shares where the dividend payable on the same accumulates, if not paid. After a specified date, these shares will be converted into equity capital of the company.

Participating Preference Share: The right of certain preference shareholders to participate in profits after a specified fixed dividend contracted for is paid. Participation right is linked with the quantum of dividend paid on the equity shares over and above a particular specified level.

Security Receipts: Security receipt means a receipt or other security, issued by a securitisation company or reconstruction company to any qualified institutional buyer pursuant to a scheme, evidencing the purchase or acquisition by the holder thereof, of an undivided right, title or interest in the financial asset involved in securitisation.

Government securities (G-Secs): These are sovereign (credit risk-free) coupon bearing instruments which are issued by the Reserve Bank of India on behalf of Government of India, in lieu of the Central Government's market borrowing programme. These securities have a fixed coupon that is paid on specific dates on half-yearly basis. These securities are available in wide range of maturity dates, from short dated (less than one year) to long dated (up to twenty years).

Debentures: Bonds issued by a company bearing a fixed rate of interest usually payable half yearly on specific dates and principal amount repayable on particular date on redemption of the debentures. Debentures are normally secured / charged against the asset of the company in favour of debenture holder.

Bond: A negotiable certificate evidencing indebtedness. It is normally unsecured. A debt security is generally issued by a company, municipality or government agency. A bond investor lends money to the issuer and in exchange, the issuer promises to repay the loan

amount on a specified maturity date. The issuer usually pays the bond holder periodic interest payments over the life of the loan. The various types of Bonds are as follows-

Zero Coupon Bond: Bond issued at a discount and repaid at a face value. No periodic interest is paid. The difference between the issue price and redemption price represents the return to the holder. The buyer of these bonds receives only one payment, at the maturity of the bond.

Convertible Bond: A bond giving the investor the option to convert the bond into equity at a fixed conversion price.

Commercial Paper: A short term promise to repay a fixed amount that is placed on the market either directly or through a specialized intermediary. It is usually issued by companies with a high credit standing in the form of a promissory note redeemable at par to the holder on maturity and therefore, doesnt require any guarantee. Commercial paper is a money market instrument issued normally for tenure of 90 days.

Treasury Bills: Short-term (up to 91 days) bearer discount security issued by the Government as a means of financing its cash requirements.

Arvind Mayaram Committee (Indian Economy) Why was Arvind Mayaram Committee formed ?

The Union Government in March 2013 constituted a committee to clearly define the Foreign Direct Investment (FDI) and Foreign Institutional Investment (FII). The 4 member committee consists of Arvind Mayaram, the Economics affairs secretary. The DIPP Secretary, an RBI Deputy Governor and a SEBI Whole-time Member are the other members of the high power committee. There is a lot of confusion in the mind of foreign investors because there is no distinction between FDI and FII The committee has been constituted pursuant to the budget announcements by the Finance Minister. It will simplify definition as to what constitutes FII and what constitutes FDI.

The panel would look at the definition of FDI and FII and not the foreign investment caps in different sectors. It was also to recommend policy changes in order to boost and identify sectors for encouraging FDI in India .

At present what is the definition of FII and FDI ?

At present, if an investor has a stake of 10 per cent or less in a company, the investment is treated as foreign institutional investment. If an investor has a stake of more than 10 per cent, it is treated as foreign direct investment.

What was the committee up with?

The committee has suggested that nine sectors should be categorized as those where Indian ownership will be mandatory or indirectly saying that such sectors should not be allowed 100 per cent FDI.

The nine sectors identified by committee include-- FM radio, uplinking news & current affairs, print media (news & current affairs), commodity exchanges, stock exchanges along with depositories and clearing corporation, power exchanges, petroleum & natural gas refining, insurance, defence production and private security agencies.

For these nine sectors, the committee has suggested FDI be capped at 49 per cent and clearance given be through the automatic route. Also it said that even if any foreign firm holds 51 per cent in any of these nine sectors, they will remain under Indian ownership.

The recommendations of committee also seek to change the stipulation under the civil aviation requirements that effective control and ownership be retained with Indians in airlines, which has been blocking the Jet-Etihad deal.

The panel recommended increase in FDI insurance cap to 49 per cent from 26 per cent. The changes recommended by panel, if accepted, will mean significant liberalisation.

MORAL OF THE STORY ?

Broadly the panel has suggested that wherever the caps are at 26% be raised to 49%, wherever it is at 51% it be raised to 74% and wherever 74% it should be made 100%.

What are the reactions of private sector ? A hike in the cap for FDI in defence to 49% may be welcomed by domestic companies like Mahindra which have evinced interest in this space. Hiking the same to 100% in telecom would be greatly welcomed by the mobile operators. In particular it would provide room to Bharti Airtel, which is looking for ways to ease its debt burden. Global companies like Vodafone and Telenor, which currently operate in India with minority Indian partners may then prefer to go solo.

Telecom sector in India at present !!

*********************************************************************************

Additional Reading !

What is automatic route and government/approval route for FDI ?

i. Automatic Route

FDI is allowed under the automatic route without prior approval either of the Government or the Reserve Bank of India in all activities/sectors as specified in the consolidated FDI Policy, issued by the Government of India from time to time.

ii. Government Route

FDI in activities not covered under the automatic route requires prior approval of the Government which are considered by the Foreign Investment Promotion Board (FIPB), Department of Economic Affairs, Ministry of Finance. Currency Volatility -->> RBI -->> MSF :(

What has the RBI done?

Late on Monday, RBI moved in to check speculation in the currency market and fixed a daily limit on how much banks can borrow from the central bank -- 1% of banks' deposit base or R75,000 crore for the entire banking system. If a bank requires more funds, it can borrow emergency money using the marginal standing facility (MSF) at sharply costlier 10.25% interest rate from 8.25% earlier. This, however, may push banks to raise lending rates for auto, home and other borrowers.

The central bank will also sell government bonds worth R12,000 crore in the secondary market to suck out liquidity.

What is marginal standing facility (MSF)?

The MSF rate is the rate at which banks borrow from the RBI during periods of acute liquidity shortage using their statutory liquidity ratio (SLR) securities as collateral.

When do banks resort to borrowing through the MSF?

When banks are extremely short of funds, they are willing to pay a higher interest rate to borrow extra money from the RBI even at a much higher rate.

How will a hike in the MSF rate help currency volatility?

The rupee has slid more than 13% since May. While this is partly explained by the foreign investors pulling out from Indian equity and debt markets fearing a winding down of the US monetary stimulus programme, there is also a speculative component that is hammering down the rupee. By making it costlier for banks to borrow, the RBI wants to discourage banks' lendable resources from being used for taking speculative positions on the rupee.

What is statutory liquidity ratio (SLR)?

Apart from keeping a portion of deposits with the RBI as cash, banks are also required to maintain a minimum percentage of their deposits with them at the end of every business day, in the form of gold, cash, government bonds or other approved securities. This minimum percentage, which now stands at 23%, is called SLR. While cash reserve ratio (CRR) is maintained in cash form with RBI, SLR is maintained in liquid form with banks themselves.

What is repo rate?

It is the rate at which the RBI lends to banks. A lower repo reduces banks' borrowing costs goading them to cut interest rates for final home, auto and corporate borrowers.

What is reverse repo rate? The reverse repo is the rate at which RBI borrows from banks to suck out liquidity.

What are policy rates?

The policy rate acts as the guide for final lending rates that banks charge from borrowers. In tight liquidity situations the repo rate acts as the policy rate. In cases of excess liquidity, when banks park money with the RBI from their pool of lendable resources, the reverse repo rate is the policy rate. A higher reverse repo would give banks incentive to park money with the RBI, reducing liquidity and demand. A higher reverse repo rate sucks cash from the system to stymie demand and cool prices.

What prompted the RBI to maintain a status quo on policy rates?

Skyrocketing onion and vegetable prices and costlier staples such as rice and wheat pushed India's wholesale price index (WPI)-based inflation to 4.86% in June, adding to a range of problems for the government battling to the steer the country out of a web of economic mess in an election year. The latest spike in WPI inflation, which was at a 40-month low of 4.7% in May, has largely been driven by high food prices that grew at 9.74% in June compared with 8.25% in May. A sub-5% WPI inflation is still well within the RBI's comfort zone, but with high retail inflation that threatens to reach well into double digits this month, experts reckon that the central bank is unlikely to cut lending costs in its July 30 review meet. Moreover, the sharp slide in the rupee, which has fallen nearly 13% since May, will fuel inflation further by making most imported goods such as crude oil costlier. Consumer price index (CPI)-based inflation a more realistic index because it measures shop-end prices

grew 9.87% in June from 9.31% in the previous month, on costlier vegetables and food items.

As long as CPI inflation remains close to double digits and the balance of payment is at risk, analysts expect the RBI would have little room to cut interest rates now. Discrepancies in the Microfinance sector of India !!!

The limited outreach and scale of Indian MFIs, relative to the MFI giants in Indonesia and Bangladesh, reflects, at least in part, theabsence of an enabling policy, legal and regulatory framework. MFIs suffer from the fact that their regulatory oversight is fragmented across many government agencies.

Problem of mobilizing fund (The NBFC clause) !!!

MFIs are not allowed to mobilize deposits (even from their own members) unless they convert themselves into a non-bank finance company (NBFC). And even as NBFCs, an investment grade rating from corporate rating agencies is required for mobilizing deposits. This is difficult for most MFI-NBFCs; based on past examples, on account of the typically geographically concentrated and non-collateralized portfolios that MFIs have, rating agencies, in almost all cases, have not assigned the required credit rating. The minimum start-up capital requirement for registering as an NBFC (Rs 20 million or US$450,000) is typically beyond the reach of most MFIs. Similarly, the minimum capital requirements for insurance companies (Rs 1 billion, or US$23 million) are high. .

NGOs not allowed !!!!!

MFIs have problems raising equity: NGOs are not allowed to invest in MFI equity, because of the charitable status of NGOs under the Section 11 and 12 of the Income Tax Act. And regulation on equity investment in MFIs dictates that foreign equity must be a minimum of US$500,000, and cannot exceed 51% of total equity; this implies that bringing in US $500,000

foreign equity requires raising an equal amount (almost Rs 23 million) from India an amount that is considered far too high by most Indian MFIs.

Foreign Funding (not allowed) !!!!

Whats more, since 2002, MFIs are no longer allowed to raise debt from foreign donors and development finance institutions through the External Commercial Borrowing (ECB) route.

Comparing Indian MFI with that of Bangladesh and understanding our limits !!!!!

Second, the cost of funds for Indian MFIs is relatively high, and unlike in Bangladesh and a number of other countries, the Indian MFI sector has not benefited from grants/subsidized funding.

Unlike in, say, Bangladesh, where PKSF lends to MFIs at 4-6% p.a. (less than half the market interest rate), Indian MFIs, right from inception, tend raise debt (from SIDBI, FWWB or commercial banks) at market rates (between 11-13.5% p.a.).

While, in many ways, this is a more sustainable way to grow, in practice, the high cost of funds combined with problems in accessing equity, has meant that achieving profitability and growth has been more difficult for Indian MFIs than their counterparts in countries like Bangladesh.

Lack of Professionalism !!!!

Third, the Indian MFI sector suffers from capacity and skills constraints, and inadequate support systems. As microfinance is a specialized activity and given that many MFIs have evolved from NGOs that have otherwise been focusing on grant based activities, staff tend to have stronger inclination towards social development issues and tend to possess limited skills in finance, accounting and business management. Thus, sensitization to issues like internal controls, importance of credit discipline amongst groups/members, MIS, financial control and management, financial analysis, business planning, systems development, new product design, etc tend to be of relatively low quality. MFIs need considerable technical assistance to scale up skills in these aspects.

Constraints !!!!!

 Fourth, most MFIs in India lend to SHGs. This means that MFIs in India are constrained by many of the same factors that have held back the outreach and scale of SHG Bank Linkage. In particular, capacity, time and cost issues related to group formation have posed constraints

If we mitigate with these issues.....we could definitely have a bright future for MFI in India !!!!

Inflation indexed Bonds (IIBs) --- (fully Deciphered )

How is it different from a normal bond ?

for this consider this exmple !!!

***Consider a bond with a face value of 10,000 rupees ($180), which pays a coupon of 5% and matures after 10 years.

Case of a NORMAL BOND ----> This means, the bond pays 500 rupees as interest every year until the bond matures after 10 years. On maturity, the investor gets the principal 10,000 rupees back. Case of a Inflation indexed Bond -----> the principal, or face value, of the bond will change with inflation, while the interest rate or coupon rate will remain fixed

Why investers alwayzzz preferred investing in GOLD ?

Gold, has scored over other investment avenues for many reasons: it has consistently beaten inflation, gives capital gains, requires no documentation, no TDS or capital gains and, most importantly, confers anonymity. The existing financial instruments bank deposits, mutual funds and other capital market instruments have not been attractive enough to a large number of investors.

Why are they being introduced ....and will it really help ?

The government has a much larger objective this time in launching the bonds. It expects the bonds to wean the retail investors away from their preference for gold. However ,it is extremely doubtful whether the IIBs can divert money going into gold jewellery. According to reliable estimates, two-thirds of the gold imports go into the making of jewels, with only a portion of the balance getting invested in gold-backed instruments

What are the other salient features of the inflation indexed bonds?

(1) the IIBs will have a fixed real coupon rate and a nominal principal value that is adjusted for inflation. Periodic coupon payments are paid on adjusted principal.

another example ! lets say that the bonds are issued at a face value of Rs.1,000 and a coupon of 5 per cent. If the indexed-inflation rate is 5 per cent, the interest will be calculated on Rs.1050 for that year. If inflation climbs to 10 per cent, the 5 per cent coupon pay-out will be on an adjusted principal of Rs.1155. Thus, it is claimed, the IIBs will give protection to both principal and interest.

(2) On maturity, the adjusted principal or the face value, whichever is higher, is paid to the investors.

(3) The first series of these bonds will be called Capital Indexed Bonds (CIBs), and will be offered primarily to institutional investors. Subsequent tranches will target retail investors to a much larger extent. The involvement of institutions is necessary for market development and price discovery. The IIBs will be part of public debt. Banks can invest in them to meet their statutory liquidity ratio (SLR) requirements.

(4) Individual investors can invest from Rs.10,000 to Rs.2 crore. Interest will be paid halfyearly. There are no tax concessions for investing in these bonds. Presumably, tax will be deducted at source on these investments. This could be a major shortcoming.

Which inflation rate will be used?

Inflation will be measured by changes in Indias wholesale price index, which includes wholesale prices of food, fuel and manufactured products among other things. But WPI doesnt include things like telephone and other services that are commonly used by people in cities. (Govt. is considering about CPI...letz see wat happens !! )

So it might not reflect the inflation that people feel in their home budgets and bonds linked to the wholesale index might not be so attractive to individuals.

What will be the interest rate?

The interest rate will be decided at the time of the bonds issuance, based on bidding by interested investors. The RBI says it will allow banks and other financial institutions to bid for the bonds in the first couple of auctions to help establish a coupon, which savers can use as a reference before they invest in the bonds. From October onwards, the bonds will only be sold to individuals.

********************************************************************************* MORAL OF THE STORY 1. If prices increase you get a higher interest as well as a higher principal on maturity. 2. If prices fall, you lose out on interest but the RBI says your principal is protected. 3. In other words, you get back what you had originally invested when the bond matures. SEBI - deciphered - A story from dormancy to maturity (25 years )

When was Securities and Exchange Board of India (SEBI) set up?

A report by a committee headed by GS Patel in 1984 recommended major changes in Indias capital markets. The government in its 1987-88 budget announced the proposal to set up a board tasked with powers to regulate stock exchanges. The government set up SEBI through an executive order in 1988 appointing SA Dave, the then executive director of IDBI, as its chairman. Dave and a young team of Ravi Narain, (now the vice-chairman of the National Stock Exchange), Chitra Ramakrishna (current managing director of the NSE), Raghavan Puthran,

GV Nageswara Rao, (now CEO of the IDBI-Federal Bank insurance venture), and Rajesh Tiwari (now with Axis Bank) among others drafted the SEBI Act and defined the contours of the organisation. SEBI received statutory powers after Parliament passed the SEBI Act in 1992, the year in which the Rs. 5,000-crore Harshad Mehta securities scam hit the Indian stock markets. markets regulated before SEBI was set up?

How were stock

Though stock exchanges were in operation, there was no legislation for their regulation till the Bombay Securities Contracts Control Act was enacted in 1925. This was, however, deficient in many respects. Under the Constitution which came into force on January 26, 1950, stock exchanges and forward markets came under the exclusive authority of the central government. Following the recommendations of the AD Gorwala Committee in 1951, the Securities Contracts (Regulation) Act, 1956 was enacted to provide for direct and indirect control of virtually all aspects of securities trading and the running of stock exchanges and to prevent undesirable transactions in securities. Controller of Capital Issues was the regulatory authority for public issues before SEBI was set up. dematerialisation of shares introduced in India?

When was

Parliament passed the Depositories Act in 1996, paving the way for abandoning physical share certificates and introducing dematerialised (demat) holding of shares, which laid the foundations of electronic securities trading in India. Introduction of demat trading was a watershed in Indias capital market history that hastened the settlement process and prevented the menace of fake share certificates.

What is T+5 and T+2?

T+5 and T+2 represent the time taken for settlement of trade. India moved from a T+5 settlement cycle in 2001 to T+2 in 2003, in which shares were being credited to the buyers account within two days of trading from the earlier five days. SEBI is currently examining measures to reduce the settlement cycle to T+1 for even faster trading.

What role has the regulator played in bringing foreign capital into Indian equity markets?

Foreign institutional investors (FIIs) were allowed entry into the Indian equity markets in 1993. With time, they have become one of the major edifices of Indias capital markets. FIIs were allowed to participate in the governments disinvestment programme. The FII investment ceiling was raised to 49% in March 2001.

The need for dual approval for FII registration by the Reserve Bank of India and SEBI was done away with in 2003. Over the years, SEBI has progressively raised the cap on FII investments in Indias government and corporate bonds.

What measures has SEBI taken to encourage retail participation in equity markets and foster the MF industry?

The Indian mutual fund industry has multiplied from a monopoly of the Unit Trust of India (UTI) until the 1990s to a highly competitive industry. With the entry of private sector funds in 1993, a new era began in the Indian mutual fund industry, giving Indian investors a wider choice of fund families. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993. The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996. In February 2003, following the repeal of the Unit Trust of India Act 1963, UTI was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India, the assets of US 64 scheme, assured return and certain other schemes. The second is the UTI Mutual Fund, sponsored by SBI, PNB, BOB and LIC. This was done after a major scam involving UTIs flagship US-64 scheme comes to light jeopardising the interest of lakhs of small investors. Over the years, SEBI has taken several steps to increase the popularity of mutual fund products and prevent mis-selling by distributors including relaxing of know your customer (KYC) norms for small investors and widening the distribution network in rural India by roping in postal agents and banning entry-loads.

What are the key challenges confronting Indias capital markets?

Enforcement remains a key challenge. Indias regulatory architecture is not equipped to prevent such systematic financial swindle of savings of thousands of gullible small depositors. There have been increased incidences of such firms operating between the regulatory boundaries at their will, defrauding investors in the name of emus, plantations, and pyramid formations and experts say that all such schemes fall under Indias rapidly growing unregulated shadow banking area. In addition, deepening Indias corporate debt market remains a key challenge.

********************************************************************************* Additional Reading !

Recently FSLRC report under former SC judge Justice B. N. Srikrishna came out which suggested that

Review of existing legislation including the RBI Act, the SEBI Act, the IRDA Act, the PFRDA Act, FCRA, SCRA, FEMA etc., which govern the financial sector creating a unified regulator for the financial sector by merging SEBI, IRDA, PFRDA and Forward Markets Commission with it. For the time being, it suggested to keep the Reserve Bank of India out of the proposed Unified Financial Agency (UFA). But after sufficient experience is gained it wanted even RBI to be merged with UFA.

Local Body Tax - LBT - deciphered ! ( Maharashtra )

What is LBT?

LBT stands for Local Body Tax, which has been introduced in most of the municipalities and corporations in Maharashtra, in lieu of Octroi or Cess. It is a levy under entry 52 in the State list of Schedule VII of the Constitution of India, on the entry of goods into a city limits for the purpose of consumption, use or sale therein. Thus, the recent agitations against LBT, a levy, which is constitutionally valid, have given rise to questions as to the root cause of the agitations.

Then what is OCTROI ?

Octroi is a levy which was prevalent in Roman times. It was extensively used as a tax tool in Europe till World War II. Now, it is almost extinct except in Ethiopia and Maharashtra (a true reflection of comparable development of the economy or the situations of drought). Other states in India have done away with this levy and they share a portion of the Value Added Tax (VAT) or Sales Tax (ST) with the local bodies.

How does LBT work?

It works differently from the octroi system.

Traders have to compile a list of all goods procured within the month, feed the matter into the software provided by the civic body to check their LBT liability. They have to make payment once every 40 days using online portals, cheque, demand draft or cash through a designated bank or counters of the civic bodies.

Significance of LBT

LBT will be the main source of income for civic bodies. It contributes between 50-70 per cent of the actual revenues of the corporation. The Pune Municipal Corporation collected Rs 1314.27 crores by way of octroi for the financial year 2012-2013, while the Pimpri Chinchwad Municipal Corporation collected Rs 1200 crores in the last financial year.

But why are they protesting if LBT is merely replacing octroi?

The traders contention is that octroi abolition and imposition of LBT simultaneously is a betrayal. With VAT in place across the country, a double-tax regime is not acceptable, they say. Prices of goods are affected by VAT as well as by state or municipality-level taxes. Also, complying with various rules on self-declaration, record maintenance, account books, etc could be an added cost under the LBT regime. Government sources say tax evasion under the octroi regime was simpler, another reason traders are opposing LBT.

Have all Maharashtra municipalities imposed the tax?

Out of the 26 corporations, 24 have migrated to LBT. Mumbai and Nashik will do so later this year.

SC verdict on LBT ?

a writ was filed by Federation of Trade Associations of Pune (FTAP) in Supreme Court (SC) against the state government decision to replace octroi with LBT.

SC refused to impose a stay on the Govt decision !!!!

Why some people call it darconian ?points against it ?

LBT is a draconian Act, especially with key words like goods, dealer, business loosely defined in the legislation, giving enough scope for the administrators to stretch their imagination to fanciful limits to the common mans harassment and dismay.

The Bombay Provincial Municipal Corporations Act, 1949, the Act that gives right to levy LBT, as such does not have a penalty-limit prescribed for any violations relating to LBT, though there is an elaborate Annexure prescribing the various penalties. That shows that penalty cannot be levied legally. However, the Rule 48 framed under this Act, quantifies the penalty that can be levied in different cases. Thus, the said Rule is ultra vires the Act.

Another point against LBT is the cascading effect of teh Tax. Unlike excise or service tax or VAT, there is no concept of set-off or input credit. Another reason against LBT is that there is no time-limit that is specified for completing the assessment of the firms. In such situations, the dealers may be kept in suspense as to their liability to maintain books and records.

The Act is not a comprehensive Act that is well worded or suited for taxation.

A possible solution to this fiasco ????

They should bring in the changes in legislation to repeal LBT and make suitable changes in VAT so that the local bodies do share revenues the state government derives from VAT.

This will ensure that the administration frees itself from the task of collection of addition tax and other related administrative work. This will also help the dealers of additional hassles of payment of tax, filing of return, surveys, raids, check posts, assessments, appeals etc. and also dealing with one more Government body prone to corruption.

Economics Current (FSLRC report )

A government appointed panel today suggested a super regulator, merging oversight functions of market, commodity, insurance and pension regulators, while leaving the banking business regulation under the Reserve Bank.

The Unified Financial Agency (UFA), as suggested by the Financial Sector Legislative Reforms Commission (FSLRC), would subsume the functions of key agencies such as SEBI, IRDA, PFRDA and Forward Markets Commission (FMC).

Banking operations, monetary policy and payment system would continue to be regulated by the RBI. The FSLRC, headed by Justice B N Srikrishna, in its final report also suggested doing away with multiple agency architecture for scanning foreign capital inflows.

At present, FDI policy is framed by DIPP, while FDI proposals are cleared by FIPB after getting due clearances from various agencies like Enforcement Directorate, CBI and RBI.

The report, which was submitted to Finance Minister P Chidambaram, also suggested setting up of a debt management office (DMO) for raising resources for government expenses. Presently government raises funds by issuing bonds through Reserve Bank.

Panel also suggests Financial Stability and Development Councilbe made a statutory body with more powers.

============================================================================ ===== Additional Reading !!!

What is FSLRC ?

The Finance Minister announced the formation of the Financial Sector Legislative Reforms Commission (FSLRC) during his Budget speech of 2011-2012 to rewrite and harmonize financial sector legislations, rules and regulations.

This had become necessary as the institutional framework governing India's financial sector was built over a century. The Resolution notifying the FSLRC was issued by the Government on 24 March 2011. The FSLRC is required to submit its findings within a period of 24 months.

The FSLRC is chaired by former Judge of the Supreme Court of India Justice B.N. Srikrishna.

Apart from the Chairman, the FSLRC consists of 9 other members and a Secretary.

There are over 60 Acts and multiple Rules/Regulations in the financial sector and many of them date back decades when the financial landscape was very different from what is obtaining today.

Large number of amendments made in these Acts over time has increased the ambiguity and complexity of the system. The Commission has to comprehensively review them and rewrite them for a modern financial sector in tune with the aspirations of the resurgent Indian economy.

===========================================================

What is the Financial Stability and Development Council (FSDC) ?

to b setup with a view to strengthen and institutionalize the mechanism for maintaining financial Stability and Development.

Without prejudice to the autonomy of regulators, this Council would engage in macro prudential supervision of the economy, including the functioning of large financial conglomerates and address inter-regulatory coordination issues.

It will also focus on financial literacy and financial inclusion. The Council shall also look into issue relating to financial development from time to time. The Council would have one Sub-Committee which would be headed by Governor, RBI. The Secretariat of the said Council would be in the Department of Economic Affairs, Ministry of Finance.

======================================================================= = ETF (Exchange Traded Fund ) ......totally deciphered !!!!

What is ETF (Exchange Traded Fund ) ???

it is exactly like a mutual fund.Except that 1) It is traded on the exchange, like shares. hence the name. 2) Its value fluctuates all during the day like shares (though minimally), whileMFs value is declared at around 2PM everyday only once. 3) It is free from any entry load (now banned by SEBI) and exit loads applicable on MFs. 4) It is subject to brokerage charges like shares. 5) When you sell ETFs, your account is credited with the money at end of day unlike MFs where it takes 3-5 days to credit your account. 6) You need a demat account to buy and sell ETFs. With MFs you can buy and sell them using your online bank account or through some agent.

What an ETF does is that it creates a fund for some entity. Say you want to invest in Gold in DeMat form !!!!!

Gold costs around 32,000 / 10gms. Now how about an investor like me who only has five thousand bucks, but still wants a share of the pie (i,e. benefit from the rise in price of gold)?

THIS IS possible thru ETF !!

what is INDICATIVE NAV ?

Just like a mutual fund, ETFs have a net asset value (NAV), the price of each unit at the end of the day. But as ETFs trade in real time, funds provide an indicative NAV, or iNAV, which is the real-time NAV of an ETF. iNAV may be different from the market price.

Benefits of investing in ETFs

Convenient to trade as it can be bought/sold on the stock exchange at any time of the day when the market is open (index funds can be bought only at NAV based on closing prices) One can short sell an ETF or buy on margin or even purchase one unit, which is not possible with index-funds/conventional MFs ETFs are passively managed, have low distribution costs and minimal administrative charges. Hence most ETFs have lower expense ratios than conventional MFs Not dependent on the fund manager Like an index fund, they are very transparent

Disadvantages of investing in ETFs

SIP (Systematic Investment Plan) in ETF is not convenient as you have to place a fresh order every month Also SIP may prove expensive as compared to a no-load, low-expense index funds as you have to pay brokerage every time you buy & sell Because ETFs are conveniently tradable, people tend to trade more in ETFs as compared to conventional funds. This unnecessarily pushes up the costs. You can't automatically re-invest your dividends. Secondly, you may have to pay brokerage to reinvest dividends in ETF, whereas dividend reinvestment in MFs is automatic and with no entryload Comparatively lower liquidity as the market has still not caught up on the concept

THEN WHAT IS Gold ETF ???

Gold ETFs are exchange traded funds that are meant to track closely the price of physical gold. So gold ETF lets you own gold in your dmat account. Each unit of the ETF lets the investor own 1gm of gold without physically owning it. Thus investing in a gold ETF provides the benefit of liquidity and marketability which are a limitation of owning physical gold. Gold ETF is liquid because you can trade in it at any time during market hours. Gold ETF is marketable because you can trade any amount in it just like a normal stock including short selling and buying on margin. Owning gold ETF also is cheaper than owning physical gold because it has no cost of carry (the cost of storing physical gold).

thats why govt want to push these kinds of funds so that people dont need to buy physical gold for investment and we dont have to.spent our dollar reserve for importing gold thus current account deficit will be reduced which is record high at 4,2%

Top Performing Gold ETF in India

Reliance Gold Savings Fund Quantum Gold Saving Fund Kotak Gold Fund ICICI Prudential Regular Gold Savings Birla Sun Life Gold Fund SBI Gold Fund-----------------------------------------------------------------------------------------------------------What are Gold Bonds then ?

Gold bonds or gold-convertible bonds are debt instruments that are typically issued by gold mining firms (abroad). These bonds are secured by a stored quota of gold and their yield depends heavily upon fluctuations in global gold prices. -

Gold bonds in India ????

Government may issue gold bonds.....this wl significantly help to reduce gold imports in INDIA .!

Then the difference between Gold ETF and Gold bonds?

A gold ETF tracks the real time price of gold in the market, it is equal to holding physical gold but the difference is you dont take the delivery of the gold in your hands.It is electronically held, which gives the benefit of easy disposal, easy liquidity and real time prices for your gold. You dont have to pay for making charges. Nor do you have to pay wealth tax on the gold ETF. You will fall under the debt taxation category. A gold ETF is one of the smartest way of holding gold as there is no worry regarding safe keeping of gold and the transactions can be done for huge amounts, even a leveraged position can be taken.

A gold fund tries to mimic the price of gold by buying stocks of gold mining companies. The logic is when the price of gold goes up the profits of gold mining companies will also appreciate. Which, in turn will lead to the rise in stock prices and increase in your Mutual Fund NAV. Holding a gold fund is like holding a High beta gold investment. However, investors should note that this fund carries above-average risk. While it may deliver higher returns than Gold ETFs during a gold price rally; it is also prone to correcting much more sharply, if prices fall. The theory holds good as long as the markets are in stable state, but during times like in 2008 & 2009 the stock prices in general had dipped, however good the company was the stock prices were down. Gold Funds underperformed Gold ETF's

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Recently RBI issued a notification that allows mutual funds and ETFs to invest the physical gold they hold on behalf of their investors into Gold Deposit Scheme with banks

Reserve Bank of India (RBI) has relaxed the maturity period of gold deposit schemes from 6 months to 7 years. Earlier it was from 3 years to 7 years. With this move people will invest more in gold schemes, as per RBI.

--------------------------------------------------------------------------------------------ADDITIONAL READING

Gold exchange-traded funds (ETFs) are more tax efficient than physical gold

The income-tax factor For taxation purposes, gold investment is categorised into two-gold ETFs and physical gold, including coins, bars, jewellery and even e-gold. Gold ETFs are treated like debt funds in terms of tax treatment. The capital , the Securities and Exchange Board of India, broadly categorises all funds into twoequity funds and all other funds.Since ETFs are not equity funds, they fall into the second category. Accordingly, you need to pay short-term capital gains (STCG) tax as per your tax slab if you sell ETF units within a year of investing. This means you may have to pay as much as 30.9% if you are in the highest tax bracket. But if you sell the units after a year of investment, the proceeds will attract long-term capital gains (LTCG) tax at 10.3% without indexation or 20.6% with indexation. In case of physical gold, the disadvantage is that the period for which STCG tax is applicable isthree years compared with just a year in gold ETFs. LTCG tax is applicable after three years and you dont have the option of paying tax without indexation.

The wealth tax factor There is no wealth tax in gold ETFs, but the same is applicable on physical gold. If the value of your net gold exceeds Rs 30 lakh, you need to pay 1% of the excess value as wealth tax. The excess value does not include the amount of an ongoing loan you may have taken to procure gold.

For instance, if the value of the net gold you hold is Rs 50 lakh, but you have a loan of Rs 10 lakh to buy the metal, the value of your net gold would be Rs 40 lakh (Rs 50 lakh minus Rs 10 lakh). Accordingly, you would need to pay 1% wealth tax on Rs 10 lakh (Rs 40 lakh minus Rs 30 lakh), which comes to Rs 10,000. You need to pay wealth tax every year till the time you do not sell the same.

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WHAT IS SIP ?

Systematic Investment Plan---A Systematic Investment Plan (SIP) is a vehicle offered by mutual funds to help investors save regularly. It is just like a recurring deposit with the post office or bank where you put in a small amount every month. The difference here is that the amount is invested in a mutual fund. The minimum amount to be invested can be as small as Rs. 100 (100 Indian Rupees) and the frequency of investment is usually monthly or quarterly.

What are commodities?

A commodity is a physical good which has a demand for itself and the market treats all sources of supply equally without any differentiation. The price for a commodity is determined purely by global demand and supply. Commodities have emerged as a popular asset class in the recent times because they provide a good hedge against inflation because in an inflationary environment, the nominal price of commodities starts rising even though their real value is unaffected. Since the price of the commodity is usually denominated in the domestic currency, its real value in the home country is unaffected by inflation.

Salient Features of Banking Laws (Amendment) Bill 2012

The Banking Laws (Amendment) Bill 2011 was introduced in order to amend the Banking Regulation Act, 1949, the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970/1980. The said Bill has been passed by both the Houses of Parliament during its just concluded Winter Session. This Bill would strengthen

the regulatory powers of Reserve Bank of India (RBI) to further develop the banking sector in India. It will also enable the nationalized banks to raise capital by issue of preference shares or rights issue or issue of bonus shares. It would also enable them to increase or decrease the authorized capital with approval from the Government and RBI without being limited by the ceiling of a maximum of Rs. 3000 crore.

Beside above, the Bill would pave the way for new bank licenses by RBI resulting in opening of new banks and branches. This would not only help in achieving the goal of financial inclusion by providing more banking facilities but would also provide extra employment opportunities to the people at large in the banking sector. The salient features of the Bill are as follows: To enable banking companies to issue preference shares subject to regulatory guidelines by the RBI; To increase the cap on restrictions on voting rights;

To create a Depositor Education and Awareness Fund by utilizing the inoperative deposit accounts; To provide prior approval of RBI for acquisition of 5% or more of shares or voting rights in a banking company by any person and empowering RBI to impose such conditions as it deems fit in this regard; To empower RBI to collect information and inspect associate enterprises of banking companies; To empower RBI to supersede the Board of Directors of banking company and appointment of administrator till alternate arrangements are made; To provide for primary cooperative societies to carry on the business of banking only after obtaining a license from RBI; To provide for special audit of cooperative banks at instance of RBI by extending applicability of Section 30 to them; and

 To enable the nationalized banks to raise capital through bonus and rights issue and also enable them to increase or decrease the authorized capital with approval from the Government and RBI without being limited by the ceiling of a maximum of Rs. 3000 crore under the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970/1980. Certain additional official amendments have been proposed on the basis of recommendations of the Standing Committee of Finance which gave its report on the Bill on the 13th December, 2011 and has recommended enactment of the Bill, subject to the following modifications: i) Voting rights in banks may be restricted up to 26%.

ii) The Depositors Education and Awareness Fund may be used for the purpose of promoting depositors interests. Further, pursuant to the discussion with Indian Banks Association (IBA), RBI and Industry Associations, the following additional amendments are proposed: a) to exempt guarantee agreements of banks from the purview of the section 28 of the Indian Contract Act, 1872 to bring finality to redemption of such guarantees; b) to allow select Directors on the Board of RBI a fixed maximum tenure of eight years with terms of not more than two terms of four years each either continuously or intermittently in consonance with the directions of the ACC; c) to exempt conversion of branches of foreign banks to wholly owned subsidiary entities of foreign banks and transfer of shareholding of banks to the Holding Company structure pursuant to guidelines of RBI from payment of stamp duty; and d) to ensure that unnecessary inspections are avoided and to encourage regulatory coordination, a condition has been added such that the inspection of the associate enterprise of a banking company would be conducted by RBI jointly with the sector regulator. What is TIEA and DTAA ?

Tax Information Exchange Agreement (TIEA) -----------------------------------------------------

**According to the agreement, based on the international standard of transparency and exchange of information, information must be foreseeably relevant to the administration and enforcement of the domestic laws of the Contracting Parties concerning taxes covered by the agreement. **It also provides for tax examination abroad and has specific provisions for providing banking and ownership information. **The salient features of the agreement also say that the requesting state has to provide some minimum details about the information requested in order to justify the foreseeably relevance criteria. **Information is to be treated as secret and can be disclosed only to specified person or authorities, which are tax authorities or the authorities concerned with the determination of tax appeal, it says. **It also provides for use of information for non-tax purposes with the written consent of the competent authority of the requested party. **There is a specific provision that the requested party shall provide upon request the information even though that party may not need such information for its own tax purposes. **The agreement also provides for exchange of past information in criminal matters. **So far India has signed TIEAs with the Bahamas, Bermuda, the British Virgin Islands, the Isle of Man, the Cayman Islands, Jersey, Macau, Liberia, Argentina, Guernsey, Bahrain and Monaco and Gibraltar. ================================================================= What is DTAA (Double Tax Avoidance Agreement)?

Basically DTAAs are those pacts that seek to eliminate double taxation of income or gains arising in one country and paid to residents or companies of another. In other words, the treaty is devised to ensure that the same income is not taxed twice. In a bid to curb the growing menace of black money, the Government of India has written, under revised tax treaties, some countries to freeze the assets of Indians that have not been declared in India and repatriate the money. The main purpose of such agreements is to evolve a just system of taxation of different types of income in both the state of source and state of residence. Tax treaties such as Double Taxation Avoidance Agreement serve the purpose of providing protection to tax payers against double taxation and thus preventing the discouragement which taxation may provide in the free flow of international trade, international investment and international transfer of technology.

How is DTAA abused and what is round tripping ?

1. DTAAs are misused when many of the countries with whom we have avoidance agreements do not tax their residents in the manner we do. For example, Mauritius has exempted taxation on capital gains but India imposes. It is important to note that through Mauritius 41.9 per cent of all FDI since 1991 and bulk of the FIIs flows into India. India loses more than $600 million every year in revenues on account of the DTAA with Mauritius, as per some available estimates. India and Mauritius entered into the DTAA way back in 1982 as part of a strategic relationship in response to the US setting up military base in Diego Garcia in the Indian Ocean.

2. The money going out of India, however, is coming back to India for investments, in what is known as "round-tripping". It has been suspected that round-tripping or routing of Indians' illicit money back into the country through the Mauritius route. But in India still we don't have sound estimates regarding round-tripping exist and for this the network of DTAAs and TIEAs to be strengthened to check such practices.

3. It has been suspected that a significant surge in venture capital funds coming from Mauritius in sectors like telecom and real estate, which have been subject matter of close scrutiny for money laundering cases.

4. It has been believed that due to growing popular demand to make public of those having money in bank accounts in locations like Switzerland has also led to a large number of entities shifting their illicit wealth to Mauritius with an aim to ultimately route the funds to India.

================================================================= looking into this aspects ....Govt is now singing protocol to amend double taxation pact with nations it had DTAA done before...

recently....India and Sweden have signed a protocol to amend the existing double taxation avoidance pact between the two countries.

The amending protocol would pave the way for exchange of banking information, besides providing facility for tax examination in each other's country. The double taxation avoidance agreement (DTAA) between India and Sweden was first signed on June 24, 1997. The protocol will replace the Article concerning Exchange of Information in the existing double taxation avoidance pact. It will allow exchange of banking information as well as information without domestic interest. It will now allow use of information for non-tax purposes if allowed under the domestic laws of both the countries, after the approval of the supplying state. The protocol will enable both the countries to assist in conducting tax examination abroad by allowing officials of one country to enter the territory of the other for this purpose. [=====================================]

both TIEA and DTAA are included under Section 90 of the Income Tax Act which empowers the Government to enter into agreements with other nations !!!!

India has comprehensive Double Taxation Avoidance Agreements (DTAA ) with 84 countries ryt now question --------------Q1 ) India and Gibraltar have signed a Tax Information Exchange Agreement (TIEA) that calls for transparent sharing of information among other things. With how many countries have India signed TIEA other than Gibraltar? (a) Eleven (b) Twelve (c) Thirteen (d) Fourteen

2. As per Double Taxation Avoidance Agreement signed by India with other countries which of the following is correct? 1. A businessman who earns profits in the other country must pay taxes in India. 2. A businessman who operates a ship to the other country must pay taxes on his profits in the other country. 3. Dividends are taxable both in the country of source and country of residence. 4. Capital gains from sale of shares is taxable in the country of residence. 3. Which of the following is true in respect of Double Taxation Avoidance Agreements signed by India with different countries from time to time? 1. The Government is authorised to do so under the Income Tax Act, 1961 2. Double Taxation Avoidance Agreement is entered to minimise black money 3. International Trade gets hampered due to such agreements 4. None of the above

Economics Dose (Money Market Instruments )

Some points---

Certificates of deposit (CD), commercial paper (CP), Bill market are the instruments of money market.

Call / Notice money is money borrowed or lent for a very short period.

Treasury Bills are short-term money market instruments, which are issued by the RBI on the behalf of GOI. A considerable part of the governments borrowings takes place through Treasury Bills.

Bonds with variable interest rates with a fixed percentage over a benchmark rate is called floating Rate Bonds.

The minimum investment in government securities is Rs. 10000.

Salient features of the proposed FOOD SECURITY BILL ...!

Some of the major highlights of the Food Security Bill are: Up to 75% of the rural population (with at least 46% from priority category) and up to 50% of urban population (with at least 28% from priority category) are to be covered under Targeted Public Distribution System. 7 kg of food-grains per person per month to be given to priority category households which include rice, wheat and coarse grains at Rs. 3, 2, and 1 per kg, respectively. At least 3 kg of food-grains per person per month to be given to general category households, at prices not exceeding 50% of Minimum Support Price. Women to be made head of the household for the purpose of issue of ration cards. Maternity benefit to pregnant women and lactating mothers. End-to-end computerisation of Targeted Public Distribution System. Three-tier independent grievance redressal mechanism. Social audit by local bodies such as Gram Panchayats, Village Councils etc. Meals for special groups such as destitute, homeless persons, emergency/disaster affected persons and persons on the verge of starvation.

 Food Security Allowance in case of non-supply of food-grains or meals.

For improving the availability of Food ,,what steps must be taken and are taken ?

Rashtriya Krishi Vikas Yojana with an outlay of Rs. 25000 crore. Naitonal Food Security Mission with an outlay of about Rs. 6,000 crore.

National Horticulture Mission with an outlay of Rs 10,363.46 crore during the 11 the FiveYear Plan period. There are many other schemes dealing with different areas of production, such as soil healthcare, crop protection, and irrigation. Inspite of all these schemes our agriculture is still very vulnerable to the behaviour of the monsoon. Our country faces the challenge of producing food not only for 1.2 billion people, but also for about a billion farm animals. Nearly seventy per cent of our population lives in villages and their main sources of livelihood are crop and animal husbandry, fisheries, agro-forestry, agro-processing and agri-business The National Commission on Farmers (2004-06) has provided a detailed strategy for the agricultural progress of India. Food is the first among the hierarchical needs of a human being. Therefore, food security should have the first charge on the available financial resources. A National Food Security Act giving legal rights to food can be implemented only by attending to the safe storage of both grains and perishable commodities like fruits, vegetables and milk.

Glance at present Government's Second Wave of REFORMS

National Investment Board

What is the NATIONAL INVESTMENT BOARD ?

THE Department of Economic Affairs-proposed NIB an empowered standing committee of the Cabinet that will be chaired by the Prime Minister and will include key offices like that of the Finance Minister and the Law and Justice Minister would hear appeals from companies whose projects had been stalled on environmental grounds, and fast-track clearances.

POSITIVE POINTS ABOUT NATIONAL INVESTMENT BOARD

National Investment Board (NIB) led by the Prime Minister is all set to assume the role of a super arbitrator to expedite clearances for major infrastructure projects. This is aimed at eliminating red-tape, a major variant of corruption prevalent in India. This is also to rectify the discretionary powers of ministries that are known for their arbitrary delays and refusals of major projects. NIB will be constituted as an empowered Standing Committee of the Cabinet under the chairmanship of the PM with other key members such as Finance and Law & Justice ministers. NIB will be supported by a secretariat engaged in identifying key projects that require continual monitoring. The initial focus will be on investments over Rs.1,000 crore in roads, mining (especially coal), power, petroleum and natural gas, ports and railway projects. . NEGATIVE POINTS ABOUT NATIONAL INVESTMENT BOARD

The very concept of democracy would be demeaned.

Superceding of the decisions made over the Ministries like that of Environment and Forests ,Tribal Ministries ,Rural Development Ministries would mean that we are not serious about Environment ....because on one side we host COP 11 at Hyderabad and talk high about Environment in the international communities and on other side we talk about superceding the decisions of such Ministries by NIB.

The question of SUSTAINABLE GROWTH arises . Lobbying by the elite industries and foreign players may increase corruption and increase atrocities among the local people at the concern areas hence ACCOUNTABILITY is questioned !

APMC Act

Agriculture Produce Marketing Committee (APMC) Act

Agriculture markets are regulated in India through the APMC Acts. According to the provisions of the APMC Acts of the states, every APMC is authorized to collect market fees from the buyers/traders in the prescribed manner on the sale of the notified agricultural produce.

The relatively high incidence of commission charges on agricultural / horticultural produce renders their marketing cost high, an undesirable outcome.

This suggests that a single-point market fee system is necessary to facilitate the free movement of produce, bring price stabilization, and reduce price differences between the producer and consumer market segments. As the APMCs were created to protect the interest of farmers it would be in the fitness of things to secure farmers the choice to go to the APMC or not.

In the light of this, the Inter-Ministerial Group recommended that the APMC Act be revisited, so that enough flexibility is imparted to farmers to sell their produce. Further, it is important to develop a robust agricultural marketing system through adequate investment domestic and/or foreign - so as to strengthen the back end infrastructure and reduce wastages. The Inter-Ministerial Group (IMG) on Inflation convened in 2011 has suggested reforms of APMC Acts to strengthen supply-chain effeciency. Overall, any strategy for strengthening agricultural marketing needs to have a three-pronged objective: 1. of providing remunerative prices to farmers; 2. strengthening efficiencies of supply chain; and 3. ensuring that end consumers are charged fair and reasonable prices

--------------------------------------------------------------------------------------------------------Additional Reading HINDU Business Article (published on November 2011)

APMCs hold key to retail reform

Unless State APMC laws are implemented, benefits from investment in retail won't reach farmers. Amidst opposition, including from its own coalition partners, the UPA government has approved 51 per cent FDI in multi-brand retail and 100 per cent FDI in single brand retail. This sets the stage for the proposal to be placed in Parliament for passage. The government has justified this reform as an important pillar for fighting the double-digit inflation in the country. The popular debate on FDI in retail has focused largely on the impact that unfettered introduction of corporate modern retail would have on the traditional retailers and their employment/livelihood concerns. This debate is likely to be renewed in the days to come. But an important stakeholder group in the retail distribution chain are the multitude of small farmers and small agro-processors, who receive the most miniscule share of the revenue pie, and whose concerns are almost always overshadowed by the better lobbying power of the intermediaries in the agricultural supply chain. Here, we examine the impact that the new retail policy will have on this group of producer/consumer, as also the effect on inflation. India has been undergoing considerable structural change in the post-liberalisation period. While the farm sector is slowly diversifying and its share in growth is declining, it continues to support or provide a living to more than half the country's populace. But farming isn't a remunerative profession, especially in India. The absence of a functioning agricultural market and an unviable minimum support price (MSP) for rice has forced farmers in Andhra Pradesh to leave their lands fallow in this cropping season; the movement is spreading to other states. Since the mid-1990s, an estimated 1.5 lakh small farmers have committed suicide, most of them due to debts, according to the Centre for Human Rights and Global Justice at New York University. Most analysts and policymakers favour modernising distribution networks and shortening supply chains to make it easier for retailers and food processors to buy direct from farmers, which would potentially improve the returns to investment made by the farmer. But despite the existence of a draft model Agriculture Produce Marketing Committee (APMC) Act, not all States that have adopted it enforce this Act in the right spirit, and some have only partially amended/introduced amendment Bills. According to Agriculture Ministry data, out of 35 states and Union Territories (UTs) only 17 states have amended their APMC Act to allow direct marketing, contract farming and markets in private and cooperative sectors. Key grain producing states, such as Haryana, Punjab and Madhya Pradesh, have initiated only partial reforms. Also, seven states and UTs don't have any APMC Act to govern agricultural trade. And in the states that allow retailers to do this outside the regulated local markets known as mandi, in practice, poor infrastructure makes that difficult. As a result, the supply chains are fragmented and often involve several layers of middlemen between tractor and table. HURDLES TO DISTRIBUTION We conducted a survey of experts in the sector, in order to understand the effect of intermediaries in the supply chain on business models and profitability and productivity, and on how to improve state of play in the regulatory regime.

The not-so-surprising finding was that the large geographical area of India and its relatively weak infrastructure were the most important constraints on creating a proper distribution system. Combined with the multiple tax jurisdictions and various inter-state border barriers, this has resulted in fragmentation of the fresh food and groceries market, both from the procurement and retailing perspectives. This latter has, in fact, resulted in levelling the sourcing field in so far as all retailers (large and small, including the hand-cart retailers) necessarily have to make procurements from the mandis. Our discussions with large corporate retailers (domestic and JV units) and cash-and-carry wholesalers reveal that even with the investments made in the backend infrastructure and tying up direct sourcing, around 60-70 per cent of the total procurements are still from the mandis and the consolidators (importers/trading houses). But the more important understanding was that the mandis are usually managed/controlled by a few traders, who often collude and form cartels, and thereby prevent the farmer from selling to the best buyer. Furthermore, not only are trading licences given according to the norms set by the market governing councils, these entrenched interests also don't allow private mandisto operate, that would allow for free competition in the market. In a rare example, Delhi has six mandis and seemingly enough competition, but the muddled nature of the operating laws and their opaque implementation make the mandis de facto monopolies. Hence, farmers are denied the right to sell their produce outside the mandis and directly to consumers, retailers or food processors, while the retailer pays inflated prices when procuring from the intermediaries. IMPLEMENT STATE-LEVEL LAWS A reform of the APMC Act will require huge political will to break these agricultural cartels, in addition to harmonising the implementation of the Act in the different states that create market distortions. But unless state-level APMC laws are altered and implemented to conform to the spirit of the model APMC law, the benefits from the increased investment in the retail sector and new infrastructure creation won't reach the small farmers and small agroprocessors. Creating an effective choice of multiple and competitive market channels for farmers by means of APMC reform will be the first step towards fighting the persistent inflationary conditions assailing the country. (The author is Senior Fellow, CUTS Institute for Regulation and Competition (CIRC)). FINANCIAL ADMINISTRATION (PART -1) All Public Undertakings are dependant upon Finance . Hence , Foremost attention should be paid to treasury -Kautilya

Govt is FINANCE only - LORD GEORGE.

To RUN ADMINISTRATION nd FOR DEVELOPMENT , a LUBRICANT is required...i.e. FINANCE...!!

Broadly v can classify FINANCIAL ADMINISTRATION into two parts

1. Maintenance and Expenditure 2. Financial ADMINISTRATION + Maintainence and DEVELOPMENT EXPENDITURE...

It consists of the following parts

1. PLANING of PUBLIC EXPENDITURE and REVENUE (BUDGETING -EXECUTIVE) 2. MAKING FUNDS AVAILABLE FOR GOVERNMENTAL ACTIVIES (ROLE OF LEGISLATURE) 3. ENSURING and AUDIT)LAWFUL nd EFFICIENT EXPENDITURE nd MONEY (Process of Accounting

Why FINANCIAL ADMIN. is called a DYNAMIC PROCESS ?

It is called as Dynamic Process because it includes -

formation and enactment of BUDGET legislation of budget execution of budget treasury management rendering of accounts of executive for Auditing

Evolution of BUdget

1250 AD . .... First Time in form of political document MAGNA CARTA

1688 AD ...glorious revolution in UK...it included the demand for

1. No taxation without representation 2. Head of executive cannot suspend a law noted in Parliament 3. executive has no power to raise the tax without approval of Parliament

What is a Budget...

in layman's language ....it is a annual statement of estimated receipts and expenditure of Govt. in respective financial year

this very definition challenged by MOHIT BHATTACHARYA

1. this definition does not mention post , present ,as well as future operations 2. der is no distinction between Act of Administration and Act of Poitics

What are the objectives of Budget ???

1. ensures financial accountability of the executive with that of legislature 2. ensures accountability of Subordinate to the Superior 3.ensures socio - eco policy and itzz implementation 4. acts as the instrument facilitating adminstrativ management and unifies into a single plan

BUDGET ACTS AS A pOLITICAL inSTRUMENT

itzz not merely a technical instrument but it is a political instrument...!.

Irene Rubin in her work 'The Politics of Public Budgeting' has said --that is a political document.... --it explains what the govt will nd what will do ? --it refelcts the priorities on the basis of Group Demand and Sectoral Demands and Regional DEmand --reflcts the relative properties of the deciosion made for local and constituency purpose. --it provides a powerful tool for accountability to people --it also refelects citizen preference for different forms of taxation nd different levels of society (influence of lobbies is also reflected here)

Harold Smith * he says that in India in 1980s ,it became more like a political influenced bu the ideologies of the coalition era of politics

*Budget as a tool for the implementing electoral commitments e.g. Bharat NIrman , Comman Minimum Programme,etc

BUDGET ACTS AS A ECONOMIC inSTRUMENT

basically budget consists of two components that is the revenues and the expenditures

Government comes with the fiscal policy

it provides for the packs and the previleges

thru budgeting the public resources are used which can help implement public policies

'AARON WALDESKY' states that Budget is a set of goals having PRICE TAGS attached to it which means every Budget has financial implications results into impacting the economic progress overall.

BUDGET ACTS AS A SOCIAL inSTRUMENT

taxation policy in the Govt Budget aims at narrowing down the class distinctions and social inequalities. those who earn more pay more taxes while those who earn less pay less taxes in INDIA we hav the system of Progressive TAXES Budgeting system in our society creates avenues for employemnt and dey r used for acheving social schmes and programmes to remove poverty

Principles of BUDGET 1. Clarity and Precision 2. Integrity 3. Publicity 4. Accuracy 5. Comprehensiveness 6. UNITY 7. Periodicity Marginal Standing Facility..(Precise) What is the marginal standing facility?

The Reserve Bank of India in its monetary policy for 2011-12, introduced the marginal standing facility (MSF), under which banks could borrow funds overnight from RBI against pledging government securities. Banks can borrow funds through MSF when there is a considerable shortfall of liquidity. This measure has been introduced by RBI to regulate short-term asset liability mismatches more effectively.

Under the MSF scheme the banks can borrow overnight upto 1 per cent of their net demand and time liabilities (NDTL) i.e. 1 per cent of the aggregate deposits and other liabilities of the banks. The MSF rate is pegged 100 basis points or a percentage point above the repo rate. In the annual policy statement, RBI says: "The stance of monetary policy is, among other things, to manage liquidity to ensure that it remains broadly in balance, with neither a large surplus diluting monetary transmission nor a large deficit choking off fund flows."

What is the difference between liquidity adjustment facility-repo rate and marginal standing facility rate?

Banks can borrow from the Reserve Bank of India under LAF-repo rate, which stands at 7.25%, by pledging government securities over and above the statutory liquidity requirement of 23%. Though in case of borrowing from the marginal standing facility, banks can borrow funds up to one percentage of their net demand and time liabilities, at 8.25%. However, it can be within the statutory liquidity ratio of 23%. In MSF banks avail funds under the stipulated SLR.The rate of interest on amount availed under this facility will be 100 basis points above the LAF repo rate.Requests will be received for a minimum amount of Rs. One crore and in multiples of Rs. One crore thereafter. The MSF would be the last resort for banks once they exhaust all borrowing options including the liquidity adjustment facility by pledging through government securities, which has lower rate of interest in comparison with the MSF. The MSF would be a penal rate for banks and the banks can borrow funds by pledging government securities within the limits of the statutory liquidity ratio. The scheme has been introduced by RBI with the main aim of reducing volatility in the overnight lending rates in the inter-bank market and to enable smooth monetary transmission in the financial system." Microfinance Institution (MFI)-----FOCUS

What Is a Microfinance

Institution (MFI)?

A microfinance institution (MFI) is an organization that provides financial services to the poor. This very broad definition includes a wide range of providers that vary in their legal structure, mission, and methodology. However, all share the common characteristic of providing financial services to clients who are poorer and more vulnerable than traditional bank clients.

During the 1970s and 1980s, the microenterprise movement led to the emergence of nongovernmental organizations (NGOs) that provided small loans for the poor. In the 1990s, a number of these institutions transformed themselves into formal financial institutions in order to access and on-lend client savings, thus enhancing their outreach.

Specialized microfinance institutions have proven that the poor are bankable. Today, formal institutions are rapidly absorbing the lessons learned about how to do small-transaction banking. Many of the newer players in microfinance, such as commercial banks, have large existing branch networks, vast distribution outlets like automatic teller machines, and the ability to make significant investments in technology that could bring financial services closer to poor clients. Increasingly, links among different types of service providers are emerging to offer considerable scope for extending access.

Characteristics of MFIs

Formal providers are sometimes defined as those that are subject not only to general laws but also to specific banking regulation and supervision (development banks, savings and postal banks, commercial banks, and non-bank financial intermediaries).

Formal providers may also be any registered legal organizations offering any kind of financial services. Semiformal providers are registered entities subject to general and commercial laws but are not usually under bank regulation and supervision (financial NGOs, credit unions and cooperatives). Informal providers are non-registered groups such as rotating savings and credit associations (ROSCAs) and self-help groups.

Ownership structures:

MFIs can be government-owned, like the rural credit cooperatives in China; member-owned, like the credit unions in West Africa; socially minded shareholders, like many transformed NGOs in Latin America; and profit-maximizing shareholders, like the microfinance banks in Eastern Europe. The types of services offered are limited by what is allowed by the legal structure of the provider: non-regulated institutions are not generally allowed to provide savings or insurance.

MFIs in INDIA ?

CLICK ON THE PIC FOR DETAILS

FORBES MAGAZINE named seven microfinance institutes in India in the list of the world's top 50 microfinance institutions. ----Bandhan, as well as two other Indian MFIsMicrocredit Foundation of India (ranked 13th) and Saadhana Microfin Society (15th) have been placed above Bangladesh-based Grameen Bank (which along with its founder Mohammed Yunus, was awarded the Nobel Prize). Besides Bandhan, the Microcredit Foundation of India and Saadhana Microfin Society, other Indian

entries include Grameen Koota (19th), Sharada's Women's Association for Weaker Section (23rd), SKS Microfinance Private Ltd (44th) and Asmitha Microfin Ltd (29th)

Roots of the Rise of MFIs The recent rise and growth of micro finance institutions has only made such SHGs all the more vulnerable in the present scenario of economic distress. According to the State of the Microfinance Sector report of the ACCESS alliance, the MFI operations expanded by 13 times in four years to end the year 2009 at Rs 117.9 billion ($2.6 billion) in outstanding loans. Of its 26.6 million borrowers, poor women and disadvantaged sections form one of the largest sections of the clientele. Whereas there was only one for-profit MFI in the country in the middle of the 1990s, this number had spiraled to 149 registered micro finance institutions by 2009. Of these, about 11 per cent of the large micro finance companies had a disproportionally larger share in the credit market, having 82 percent of the clients and controlling about 88 per cent of the loan portfolio. This reveals the emergence of new corporate entities and private finance companies who have started to exploit the credit needs of the poor by charging high interest rates. An investigation by a report from the Down to Earth magazine in Andhra Pradesh revealed that whereas bank linked self-help groups were charging interest rates of about 15 percent from their borrowers, the interest rates charged by the MFIs were at about 60 per cent. This clearly showed that a space had been created for exploitative financial intermediaries for entering the rural and urban credit markets. That this phenomenon was linked to the refusal of public sector banks and the state to extend the outreach of its formal credit infrastructure is evident from the fact that most of the MFIs are concentrated in the 256 districts where the poor have a demand for credit, but the formal banking system is not able to meet this demand. Of this Andhra Pradesh and Karnataka have the greatest density of micro finance institutions, and more than 50 percent of the outstanding loans are in the southern states. This meteoric rise of the MFIs has its roots in the liberalization of the banking system and its failure to meet the demands of the rural poor, especially women. Initially the MFIs were

started in response to the program of financial inclusion. The SHG-bank linkage program was started by the National Bank for Agriculture and Rural Development (NABARD) where nongovernment organizations (NGOs) and not-for-profit institutions played an intermediary role in promoting and facilitating the link between self-help groups and banks. Thus many MFIs started as not-for-profit NGOs and then began to expand their operations to make direct contact with the clients. Thus SKS Microfinance (which is the largest MFI in the country today) started as a not-for-profit institution and converted itself into a non-banking financial company in 2004. Similarly, Sampdana, another of the MFI giants, started with 500 clients and increased its clientele to about 3 lakh (300,000) in the period between 1998 and 2004 when it became another for-profit company. This conversion of not-for-profit institutions into MFIs was a result of a state policy that increasingly facilitated the penetration of big private capital in this sector. International institutions like the World Bank supported the funders of the MFIs like Basix and the NGOs like PRADAN and SEWA in order to facilitate the demise of public sector banking.

Weakness of the Neoliberal Model

Such policies only exposed the weakness and inability of the current government and bank driven programs to meet these challenges. Women participating in the bank linkage program faced difficulties in getting access to bank credit despite the fact that it is they who had formed the SHGs. Thus around one lakh SHGs under the bank linkage scheme are yet to be credit linked even though they have formed the group under the linkage scheme. Further, the bank linkage scheme itself operates in two ways: first where the SHGs are supported directly through the banks on the one hand and, second, where banks lend to the MFIs for onward lending to the SHGs. They believe that this will only increase their outreach. But it is precisely this strategy which has also created the space for a replacement of the banks with the MFIs in some regions. Thus NABARDs own report on the Status of Microfinance, 2009-2010 shows that while the rate of growth of direct bank support to the MFIs went up by 8.1 percent during the last year, direct support to the SHGs only went up by around six percent. This shows that the banks found it easier to give bulk loans to the MFIs rather than strengthen their direct links with the SHGs. Further, the ACCESS alliance report shows that the operation of the MFIs expanded by 83 percent in the last two years whereas the expansion of banking operations was only half that rate. This shows that the roots of rise of the MFIs lie in the slow growth of public sector banking and their reluctant and tenuous links with the SHGs.

The second important factor that led to the rise of the MFIs was the failure of the poverty alleviation programs that relied on the SHGs as the main mobilization strategy.The Andhra example is well known in this regard. Here the withdrawal of low interest rate based selfemployment programs has led to the increasing operation of the MFIs. Further, in governmental schemes like the SGSY or the Urban Self-Employment Schemes, subsidies were linked to the ability of the SHGs to get loans from banks. The design of many of these schemes was such that applicants had to get their loans sanctioned before they could avail of even the inadequate and reduced subsidy (which in most cases did not exceed 35 per cent of the entire project). This was accompanied by inadequate infrastructural, training and marketing support for such employment opportunities. Thus, even though many of these schemes were targeted at the poorest of the poor (those below the poverty line), the rural and urban poor were not able to avail of these schemes adequately. For example, the government of Delhi was able to make only about 500 SHGs and train 3,000 women in one decade of its Shahri Swarozgar Yojana. Thus, along with other macro economic factors, the failure to provide work to the rural and urban poor also made them more and more vulnerable to the MFIs as well as informal sources of credit to meet their daily needs.

MFIs & SHG-Bank linkage programme In a joint fact-finding study on microfinance conducted by the Reserve Bank of India and a few major banks, the following observations were made:

Some of the microfinance institutions (MFIs) financed by banks or acting as their intermediaries or partners appear to be focusing on relatively better banked areas, including areas covered by the SHG-Bank linkage programme. Competing MFIs were operating in the same area, and trying to reach out to the same set of poor, resulting in multiple lending and overburdening of rural households.

Many MFIs supported by banks were not engaging themselves in capacity building and empowerment of the groups to the desired extent. The MFIs were disbursing loans to the newly formed groups within 1015 days of their formation, in contrast to the practice obtaining in the SHG Bank linkage programme, which takes about six to seven months for group formation and nurturing. As a result, cohesiveness and a sense of purpose were not being built up in the groups formed by these MFIs.

Banks, as principal financiers of MFIs, do not appear to be engaging them with regard to their systems, practices and lending policies with a view to ensuring better transparency and adherence to best practices. In many cases, no review of MFI operations were undertaken after sanctioning the credit facility

DIFFERENCE BETWEEN NBFC AND MFI ?

NBFC vs MFI

NBFC stands for non banking financial company that performs functions similar to banks in the absence of banks in rural areas.

However, NBFC cannot issue checks drawn on itself and also cannot operate saving accounts.

MFI stands for micro finance institutions and the operate at a further smaller level than NBFC

MFI provide very small loans to the underprivileged sections of the society

 Because of complaints in the functioning of MFI, government is planning to convert them into NBFC

What is FII?

FII is nothing but Foreign Institutional Investors. Below entities are called FIIs 1. Pension Funds 2. Mutual Funds 3. Insurance Companies 4. Investment Trusts 5. Banks 6. University Funds 7. Endowments 8. Foundations 9. Charitable Trusts 10. Asset Management Companies 11. Institutional Portfolio Managers 12. Trustees 13. Power of Attorney Holders

Advantages

Enhanced flows of equity capital

FIIs have a greater appetite for equity than debt in their asset structure. The opening up the economy to FIIs has been in line with the accepted preference for non-debt creating foreign inflows over foreign debt. Enhanced flow of equity capital helps improve capital structures and contributes towards building the investment gap.

Managing uncertainty and controlling risks.

FII inflows help in financial innovation and development of hedging instruments. Also, it not only enhances competition in financial markets, but also improves the alignment of asset prices to fundamentals.

Improving capital markets.

FIIs as professional bodies of asset managers and financial analysts enhance competition and efficiency of financial markets.

Equity market development aids economic development.

By increasing the availability of riskier long term capital for projects, and increasing firms incentives to provide more information about their operations, FIIs can help in the process of economic development.

Improved corporate governance.

FIIs constitute professional bodies of asset managers and financial analysts, who, by contributing to better understanding of firms operations, improve corporate governance. Bad corporate governance makes equity finance a costly option. Also, institutionalization increases dividend payouts, and enhances productivity growth.

Disadvantages

Problems of Inflation: Huge amounts of FII fund inflow into the country creates a lot of demand for rupee, and the RBI pumps the amount of Rupee in the market as a result of demand created.

Problems for small investor: The FIIs profit from investing in emerging financial stock markets. If the cap on FII is high then they can bring in huge amounts of funds in the countrys stock markets and thus have great influence on the way the stock markets behaves, going up or down. The FII buying pushes the stocks up and their selling shows the stock market the downward path. This creates problems for the small retail investor, whose fortunes get driven by the actions of the large FIIs.

Adverse impact on Exports: FII flows leading to appreciation of the currency may lead to the exports industry becoming uncompetitive due to the appreciation of the rupee.

Hot Money: Hot money refers to funds that are controlled by investors who actively seek short-term returns. These investors scan the market for short-term, high interest rate investment opportunities. Hot money can have economic and financial repercussions on countries and banks. When money is injected into a country, the exchange rate for the country gaining the money strengthens, while the exchange rate for the country losing the money weakens. If money is withdrawn on short notice, the banking institution will experience a shortage of funds. *****************************************************************

What is the relation between FDI and FII?

**FII generally means portfolio investment by foreign institutions in a market which is not their home country. These institutions are generally Mutual Funds, Investment Companies, Pension Funds, Insurance House's is a short term benefit to the country and the rules and regulations to enter the Indian Market are not much, the fluctuations in the stock market is generally due to the FII Investments , cause the rules are eased the investor can leave the market at Any point of time. **There investments are in the stock market whereas FDI is generally a long term commitment to a particular company in a sector in terms of equity investment by some foreign entity.

** Therefore we could see Lehman investing 15% in say Unitech, now that would be FDI.

However if Lehman has bought shares of Unitech though secondary markets (stock trading market) it would have been an FII. FII funding is a paramount maker of stock markets and there selling or buying moves the stock in a day. FDI also have to follow a high rules and regulations to enter the market and the subs. given to such players are huge in term of taxes .FDI have long term commitment and hence we see flight of capital in terms of FII outflows but not generally in FDIs. **The Economy high and low depends on the FDI's Investment where as the Stock mark fluctuations are generally because of FII

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What is IPO ?

*Initial public offering ....jb koi compony pahli bar apne poduct ko public ko pahli bar offer karti hai to usko IPO bolte hai .

*it can be used by small or big compony to increase their capital.

*many companies that request for initial public offering make their finance from the lone by the bank ..

***************************************************************** WHICH IS BETTER FOR INDIA FDI or FII ?

The article looks like having a good discussion on FDI and FII , even though old article( 2006 April).

India doesn't need FDI

It won't be an exaggeration to say Nimesh Kampani, Chairman, JM Morgan Stanley, knows the Bombay Stock Exchange like the back of his hand.

Kampani was one of those who propelled the stock exchange boom in the early 1980s when Reliance Industries founder Dhirubhai Ambani entered the world of equities.

Nimeshbhai, as he is popularly known, is media-shy and a man of few words. For a change, he agreed to a rare and exclusive interview with Managing Editor (National Affairs) Sheela Bhatt in New Delhi and discussed what can bring about changes in India.

The world is saying <st1:country-region w:st="on" style="box-sizing: borderbox;">India</st1:country-region> will grow, <st1:country-region w:st="on" style="boxsizing: border-box;">India</st1:country-region> will become a big power. What are the hidden risk factors in this hype? There is too much liquidity across the globe. Rich people all around have so much cash in hand that they are looking for markets that are growing. How many places in the world are registering growth? Europe doesn't have much of it. Only Asia is attractive. The <st1:country-region w:st="on" style="box-sizing: border-box;">US</st1:country-region> is showing one to three per cent growth in most sectors. The <st1:country-region w:st="on" style="box-sizing: border-box;">US</st1:country-region> economy is developed. People there have cash in hand to spend. People in the <st1:country-region w:st="on" style="box-sizing: borderbox;">US</st1:country-region> want to consume using credit cards. Our risk factor lies in liquidity. Too much liquidity of those consumer economies is chasing Indian stocks. Because there is an absence of growth in their domestic markets. Their money is welcomed in <st1:country-region w:st="on" style="box-sizing: borderbox;">India</st1:country-region> but the risk of withdrawal comes along with that. If withdrawal of money happens it can very well bust Indian stocks. In the last five years, $45 billion investment has come to the Indian markets from foreign institutional investors. Today, the market value of their money should be around $120 billion. Who will buy when they will rush in to sell?

Right now, one lot is selling and the other lot is buying. Those who bought shares at much lower price of say, Rs 80 are selling at Rs 800 and booking profit. The newcomers, on the other hand, are buying at Rs 800 with confidence in market. The new buyers will like to wait for the next five years for the stock prices to go further up. We know <st1:country-region w:st="on" style="box-sizing: border-box;">Japan</st1:countryregion> has invested $5 billion in the Indian market. Much of it is retail money. These days, as soon as new public issue opens, it gets filled up within the first few hours.

Why is it so? Because <st1:country-region w:st="on" style="box-sizing: border-box;">Japan</st1:countryregion> has saved money for years. Investors there get zero or negligible interest. At some places, bank charges them for keeping deposits. In our banks, on the contrary, we get four per cent, at least. The Japanese are tired of dead investment. So they are looking out. In the last one year, the Japanese have got return of 48 per cent in the Indian stock exchange. They had started with $1 billion. Now it has reached $5 billion. Nomura Securities and others invested in it. They take index stocks. When an investor does not know the country well, he tends to buy index shares only. The Japanese and the Koreans have invested. Recently I met 30 parliamentarians from<st1:countryregion w:st="on" style="box-sizing: border-box;">Denmark</st1:country-region>. I made a presentation to them on <st1:country-region w:st="on" style="box-sizing: borderbox;">India</st1:country-region>'s future. Thereafter, two of them came and talked about investing in Indian stocks.

What can go wrong in realising your dreams of <st1:country-region w:st="on" style="boxsizing: border-box;">India</st1:country-region>? Politics. If something happens to this government and there is instability at the Centre, it can affect our growth. In 2004, between May 13 and 18, the stock index plunged when Sonia Gandhi delayed her decision to announce (Dr Manmohan) Singh's name as the prime minister. The market picked up only when the announcement was made. The investor does not like political uncertainty. They are afraid of power in the hands of Left parties or the so-called Third Front because all they want is a stable government. These days people say Dr

Singh is the weakest prime minister but the stock market does not think so. Dr Singh may be weak politically but he is the best prime minister as far as the country's economy is concerned. The prime minister along with Finance Minister P Chidambaram, Commerce and Industry Minister Kamal Nath and Deputy Chairman of Planning Commission Montek Singh Ahluwalia are too good for Indian markets.

<st1:country-region w:st="on" style="box-sizing: border-box;">China</st1:country-region> has not grown with the help of FII investment. Your comment. Yes. <st1:country-region w:st="on" style="box-sizing: border-box;">China</st1:countryregion> has grown with the help of bank money, or people's money. <st1:country-region w:st="on" style="box-sizing: border-box;">China</st1:country-region> has got four prime banks owned by the government. These banks' non-performing assets is approximately above 30 per cent. Can you imagine about Rs 6 lakh crore (Rs 6 trillion) is disappearing from the total deposits of Indian people kept in the Indian banks? Indian banks have deposits worth around Rs 20 lakh crore (Rs 20 trillion). Chinese banks have more than what Indian banks have. Out of that money, 30 per cent has vanished. Its savings rate is around 40 per cent. The question is: Where has people's money gone? It has gone into building infrastructure. They have issued loans to whoever came to the bank. To build infrastructure, they were fast to disburse money. Now, they are writing off those loans. In <st1:country-region w:st="on" style="box-sizing: border-box;">India</st1:country-region>, bad debts of banking industry stands at a meagre 1.75 per cent. <st1:country-region w:st="on" style="box-sizing: border-box;">China</st1:country-region> went ahead full steam without taking care of the accounting and financial niceties. <st1:country-region w:st="on" style="box-sizing: border-box;">India</st1:country-region> is a democratic country. Here, journalists and Parliament would ask questions about fiscal management. About 30 per cent of bad debts won't be allowed. A friend of mine was in <st1:country-region w:st="on" style="box-sizing: borderbox;">China</st1:country-region> recently. He was travelling along a road lined with houses on both sides. After 15 days, when he returned along the same road, he saw those homes had disappeared and a bigger road was being built. That is <st1:country-region w:st="on" style="boxsizing: border-box;">China</st1:country-region>. There the government can evacuate you in no time.

Many of us feel the Sensex boom helps only a few people. Indian slums are growing as ever. Slums will not go away in the next two decades. You need wealth to distribute it. We need to create wealth in private hands. In <st1:country-region w:st="on" style="box-sizing: borderbox;">China</st1:country-region>, government created wealth. In <st1:country-region w:st="on" style="box-sizing: border-box;">India</st1:country-region>, we are following a different route. The Indian process will be a slow one.

Recently we at Morgan Stanley, handled the issue of China Construction Bank. It is the first government-owned bank in <st1:country-region w:st="on" style="box-sizing: borderbox;">China</st1:country-region> to go public. It was heavily subscribed. Meaning, <st1:countryregion w:st="on" style="box-sizing: border-box;">China</st1:country-region> is now adopting discipline in fiscal management. Recently, <st1:country-region w:st="on" style="box-sizing: border-box;">China</st1:countryregion> collected around $8 billion from the <st1:country-region w:st="on" style="box-sizing: border-box;">US</st1:country-region> and Hong Kong and other places and wrote off old bad debts. Now, it has begun repairing its balancesheet. Therefore, we need huge investment in infrastructure before we can even think of removing slums. We cannot tackle poverty until we raise money to finance infrastructure. I always believe that more roads, more construction and development of tourism are sure-shot ways to create huge employment. Do you find deficit financing a big issue for Indian fiscal management? I don't think it's an issue. <st1:country-region w:st="on" style="box-sizing: borderbox;">India</st1:country-region>'s deficit is under control. The problem lies with the states and not with the Centre. <st1:country-region w:st="on" style="box-sizing: borderbox;">India</st1:country-region>'s combined deficit is 10 per cent. States should improve financial management. Gujarat and Tamil Nadu are the best managed states as the governments there are excellent in financial management. They are developing their states' resources impressively. If you are asked to take one creative decision as finance minister, what will that be? I will go to Parliament and ask for permission to create fiscal deficit. I want to spend $50 billion on infrastructure! Here deficit financing is justified because I am not spending on people. Rather, I am creating assets. People will get employment and that should justify deficit planning. You need political guts and courage to do it. Planners would fear that if tax does not rise, inflation will increase and savings would pump in more money. This, in turn, will increase liquidity. But all depends on the management of spending on infrastructure. Spending on infrastructure will increase internal mobility of our people. I feel tourism and infrastructure are the areas where the Indian government should be involved. All other areas can be developed with private money. Does <st1:country-region w:st="on" style="box-sizing: border-box;">India</st1:countryregion> need more foreign direct investment? <st1:country-region w:st="on" style="box-sizing: border-box;">India</st1:countryregion> doesn't need FDI. To get FDI, you have to install infrastructure first. <st1:country-region w:st="on" style="box-sizing: border-box;">China</st1:country-region> is getting 10 times more FDI than <st1:country-region w:st="on" style="box-sizing: border-box;">India</st1:countryregion> because they have invested in roads and bridges and airports.

Why do you say <st1:country-region w:st="on" style="box-sizing: borderbox;">India</st1:country-region> doesn't need FDI? You need infrastructure to manage incoming FDI. You need clear policy. FDI is not needed in <st1:country-region w:st="on" style="box-sizing: borderbox;">India</st1:country-region> because we are getting more money from the FIIs. We are getting around $12 billion from them. They are buying in secondary markets and that money gets into the Indian economy. While <st1:country-region w:st="on" style="box-sizing: border-box;">India</st1:countryregion> gets around FDI worth $5 billion, <st1:country-region w:st="on" style="box-sizing: border-box;">China</st1:country-region> gets around $50 billion. They don't have our types of stockmarkets. So FIIs are absent there. In <st1:country-region w:st="on" style="boxsizing: border-box;">India</st1:country-region>, when FIIs pump in $12 billion, it means a few Indians have sold their shares to them (the FIIs), so that free cash gets invested somewhere within <st1:country-region w:st="on" style="box-sizing: borderbox;">India</st1:country-region> by Indians.

That money goes into land, buying of new stocks and into banks. The fundamentals of money are that it goes where it gets sound returns. Therefore, if you keep up our policies and make them fair, <st1:country-region w:st="on" style="box-sizing: borderbox;">India</st1:country-region> should not worry which way it gets money. Mittal Steel, Reliance, Tata, Vedanta and other Indian companies are going to invest more than Rs 2 lakh crore (Rs 2 trillion) in the coming years. FDI is not a big issue because Indians are in now a position to raise big money and invest in<st1:country-region w:st="on" style="box-sizing: border-box;">India</st1:country-region>. The government should see that people get returns.

Source : http://www.rediff.com/money/2006/apr/03minter.htm

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FII players pull out their money from stock-market even for slightest good/bad rumors and invest in in different country. That's why it's called 'Hot money' -was responsible for 1997 Asian financial crisis {2 marker in GS Mains Paper-I, 2007} In 2007, the 2 marker appeared because that year SEBI made some regulation in FII investment via participatory notes to control the hot-money. Also, there were allegations that Pakistan might use it for 'financial-terrorism' using FII via Participatory notes. Although there are tools such as Tobin Tax, to control the flight of hot-money. But still, For development, Governments want and prefer FDI and not FII. Because It's hard to pull out FDI once invested.