'

Monet
aryPol
i
cy'

Defi
niti
on:Monetar
ypoli
cyisthemacroeconomicpolicylai
ddownbyt hecentralbank.It
i
nvolvesmanagementofmoneysupplyandi nt
erestr
ateandi sthedemandsi deeconomi c
poli
cyusedbythegover
nmentofacount
rytoachievemacroeconomi
cobject
ivesli
keinfl
ati
on,
consumpti
on,gr
owthandli
qui
dit
y.

Descri
pti
on:InIndi
a,monetar
ypoli
cyoftheReser
veBankofIndiaisai
medatmanagingthe
quanti
tyofmoneyinordert
omeettherequi
rement
sofdi
ff
erentsect
orsoft
heeconomyandto
i
ncreasethepaceofeconomicgr
owth.

TheRBIi mplement st hemonet arypol i

cythroughopenmar ketoper at
ions,bankratepol i
cy ,
reser
vesy st
em,cr editcontrolpoli
cy,mor alpersuasi
onandt hroughmanyot herinstr
ument s.
Usinganyoft heseinstrumentswi l
lleadtochangesi nthei
nterestrate,orthemoneysuppl yin
theeconomy .Monet arypolicycanbeexpansi onaryandcont r
actionaryinnat ur
e.Increasing
moneysuppl yandr educingi
nterestratesindi
cateanexpansi
onar ypolicy.Therever
seoft hisi s
acontract
ionarymonet arypoli
cy.

Fori
nstance,
li
qui
dit
yisi
mportantforaneconomyt ospurgrowth.Tomai
ntainli
qui
dit
y,t
heRBI
i
sdependentonthemonetar
ypolicy.Bypurchasi
ngbondsthroughopenmarketoper
ati
ons,
the
RBIi
ntr
oducesmoneyinthesyst
em andr educesthei
nter
estrat
e.

RBIMonet
aryPol
icy/Cr
edi
tpol
icy2018

Monet arypol i
cyisapoli
cyfor mulatedbythecentralbank,i
.e.,RBI(Reser
veBankofI ndia)and
rel
ates tot he monetar
ymat ter
s oft he count
ry.The policyi nvol
ves measur es t
aken f or
regulat
ingt hemoneysuppl y
,av ail
abil
i
tyandcostofcr edi
ti nt heeconomy .Thepol icyalso
overseesdi str
ibut
ionofcreditamonguser saswel lasborrowi ngandlendingratesofint er
est.
I
nadev elopingcountr
yli
keIndia,iti
ssignif
icanti
nthepromot ionofeconomi cgrowth.

Thevari
ousi
nst
rument
sofmonet ar
ypoli
cyincl
udev ar
iat
ionsi
nbankrat
es,otheri
nter
estr
ates,
sel
ecti
vecr
edi
tcont
rol
s,suppl
yofcurr
ency,
v ar
iat
ionsi
nreserv
erequi
rementsandopenmar ket
oper
ati
ons.

KeyI
ndi
cat
ors

I
ndi
cat
ors Cur
rentRat
e

CRR-cashr
eser
ver
ati
o 4%

SLR-
stat
utor
yli
qui
dit
yrat
io 19.
5%

Repor
ate 6.
50%

Rev
erser
epor
ate 6.
25%

Mar
ginal
Standi
ngFaci
l
ityr
ate 6.
75%

BankRat
e 6.
75%
Obj
ect
ivesofMonet
aryPol
icy

Whil
ethemai nobjecti
veofmonet arypoli
cyiseconomicgr
owt
haswel
laspr
iceandexchange
r
atestabi
l
ity
,ther
ear eotheraspectsthati
tcanhelpwit
haswel
l.

Promotionofsavi
ngandi nvestment:Sincethemonetar
ypol
icycontr
olstherateofi
nter
estand
i
nflat
ionwit
hinthecountry,itcanimpactt hesavi
ngsandinvestmentoft hepeopl
e.Ahigher
rat
eofinter
esttr
ansl
atest oagr eat
erchanceofinvest
mentandsavings,
t her
eby,mai
ntai
ninga
healt
hycashfl
owwi t
hintheeconomy .

Control
li
ngtheimport
sandexports:Byhelpi
ngi
ndustr
iessecur
eal oanatareducedr
ateof
i
nterest,
monetar
ypoli
cyhel
psexport
-ori
ent
eduni
tstosubst
it
utei
mpor t
sandincr
easeex
port
s.
This,i
nturn,
hel
psimprov
ethecondit
ionoft
hebal
anceofpayments.

Managingbusinesscycl
es:Thetwomai nstagesofabusinesscy cl
eareboom anddepressi
on.
Monetarypoli
cyisthegreatestt
oolusi
ngwhi chboom anddepr essi
onofbusinesscycl
escan
becontrol
l
edbymanagi ngt hecr
edi
ttocontrolt
hesupplyofmoney .Theinf
lat
ionint
hemar ket
canbecont r
oll
edbyreducingthesuppl
yofmoney .Ontheot herhand,whenthemoneysuppl y
i
ncreases,
thedemandi ntheeconomywill
alsowitnessari
se.

Regulat
ionofaggregat
edemand:Si ncemonetar
ypoli
cycancont r
olthedemandi naneconomy,
i
tcanbeusedbymonet ar
yauthorit
iestomaint
ainabalancebet weendemandandsuppl yof
goodsandser vi
ces.Whencredi
tisexpandedandtherat
eofi nter
estisreduced,ital
lowsmore
peoplet
osecur el
oansfort
hepurchaseofgoodsandservices.Thi
sleadstot herisei
ndemand.
Ont heotherhand,whentheaut hori
ti
eswishtoreducedemand,t heycanr educecredi
tand
rai
setheinter
estrat
es.

Generat
ionofemployment
:Asmonetar
ypoli
cycanreducet
heinterestr
ate,
smallandmedium
ent
erpri
ses(SMEs)caneasil
ysecur
ealoanforbusi
nessexpansion.Thi
scanleadtogreater
employmentoppor
tuni
ti
es.

Hel
pingwit
hthedev el
opmentofinfr
astr
uct
ure:Themonetarypol
i
cyal
l
owsconcessi
onal
f
undi
ngfort
hedev
elopmentofi
nfr
astr
uctur
ewit
hint
hecount
ry.

All
ocati
ngmor ecreditfort
hepr i
orit
ysegment s:Underthemonetarypoli
cy,addi
ti
onalf
unds
areal
locat
edatl owerratesofinterestforthedevel
opmentofthepri
ori
tysect
orssuchassmall
-
scal
eindustr
ies,agri
cult
ure,underdevelopedsecti
onsofthesoci
ety
,etc.

Managi nganddev el
opingthebankingsect or:Theent
ir
ebankingi ndust
ryismanagedbyt he
ReserveBankofI ndia(RBI
).Whi l
eRBIaimst omakebankingfacil
iti
esav ai
l
abl
ef arandwide
acrosst henati
on,i talsoinst
ructsotherbanksusingthemonet ar ypoli
cytoestabli
shrural
brancheswher evernecessaryf oragr
icul
turaldevel
opment.Addi
tionall
y,thegovernmenthas
alsosetupr egi
onalr ur
albanksandcooper ati
vebankstohelpfar
mer sreceiv
ethef i
nanci
alai
d
theyrequir
einnot ime.

Fl
exi
bleI
nfl
ati
onTar
get
ingFr
amewor
k(FI
TF)

TheFlexi
bleI
nfl
ati
onTargeti
ngFramework(FI
TF)wasintr
oducedinIndi
aposttheamendment
oftheReserveBankofI ndi
a(RBI)Act,1934in2016.Inaccordancewi t
htheRBIAct,the
Gover
nmentofIndiaset
stheinf
lati
ont
argetever
y5yearsaft
erconsult
ati
onwit
htheRBI.Whil
e
theinfl
ati
ontargetfortheperi
odbetween5August2016and31Mar ch2021hasbeen
deter
minedtobe4%oft heConsumerPri
ceI
ndex(CPI
),t
heCent
ral
Governmenthasannounced
thatt
heuppertoler
ancel
imitf
orthesamewi
llbe6%andthel
owertol
erancel
i
mitcanbe2%f or
thesame.

Int
hisfr
amework,t
her
earechancesofnotachi
evi
ngt
hei
nfl
ati
ont
argetf
ixedf
orapar
ti
cul
ar
amountoft
ime.Thi
scanhappenwhen:

The aver
age inf
lat
ion i
sgr eaterthan t
he uppertol
erance l
eveloft
he i
nfl
ati
on t
argetas
predet
erminedbytheCentr
al Gover
nmentfor3quart
ersinarow.

Theaveragei
nfl
ati
onislessthanthelowertol
eranceleveloft
het
argeti
nfl
ati
onf
ixedbyt
he
Cent
ralGover
nmentbef
orehandfor3consecuti
vequart
ers.

Monet
aryPol
icyTool
s

Tocontr
olinf
lat
ion,t
heReserv
eBankofIndianeedstodecreasethesuppl
yofmoneyor
i
ncr
easecostoffundi
nor
dertokeept
hedemandofgoodsandservi
cesi
ncontr
ol.

Quant
it
ati
vet
ool
s–

Thetoolsappl
iedbythepolicythatimpactmoneysuppl
yintheent
ir
eeconomy
,incl
udi
ng
sect
orssuchasmanuf
actur
ing,agri
cul
tur
e,aut
omobi
le,
housi
ng,
etc.

Reser
veRat
io:

Banksar
erequi
redtokeepasi
deasetper
cent
ageofcashr
eser
vesorRBIappr
ovedasset
s.
Reser
ver
ati
oisoftwot
ypes:

CashReserv
eRatio(CRR)–Banksarerequir
edt osetasi
dethisport
ionincashwi
ththeRBI
.
Thebankcannei
therl
enditt
oanyonenorcanitearnanyi
nter
estrat
eorprofi
tonCRR.

StatutoryLiqui
dityRati
o( SLR)–Banksar erequi
redtosetasi
dethisporti
oninl
iqui
dasset
s
suchasgol dorRBIappr ovedsecuri
ti
essuchasgov er
nmentsecur
it
ies.Banksar
eall
owedto
earninterestonthesesecuri
ti
es,howeveri
tisver
ylow.

OpenMar
ketOper
ati
ons(
OMO)
:

I
nor dert
ocont r
olmoneysuppl
y,RBIbuy
sandsell
sgov
ernmentsecuri
ti
esi
ntheopenmar
ket
.
Theseoperati
onsconduct
edbyt heCentr
alBanki
ntheopenmar ketar
eref
err
edtoasOpen
MarketOperat
ions.

WhenRBIsel l
sgover
nmentsecuri
ti
es,theli
quidi
tyissuckedf r
om themar ket,andt
heexact
opposi
tehappenswhenRBIbuyssecur
it
ies.Thelatt
erisdonetocontroli
nfl
ati
on.Theobj
ect
ive
ofOMOsar etokeepacheckontemporaryli
qui
ditymismatchesint
hemar ket,owingt
ofor
eign
capi
tal
flow.

Qual
it
ati
vet
ool
s:
Unli
kequantit
ati
vetool
swhi chhaveadi r
ectef
fectontheenti
reeconomy’
smoneysupply,
quali
tat
ivet
oolsaresel
ect
ivetool
sthathav
eaneffecti
nthemoneysuppl
yofaspeci
fi
csect
or
oftheeconomy.

Marginr
equir
ement s–RBIprescri
besacer
tainmar
ginagainstcol
lat
eral
,whi
chintur
nimpact
s
theborr
owing habitofcust
omer s.When themargi
nr equirement
sar erai
sed bytheRBI,
cust
omerswillbeablet
oborr
owl ess.

Moralsuasion–Bywayofper suasi
on,RBIconv
incesbankst
okeepmoneyi
ngov
ernment
secur
it
ies,
rathert
hancer
tai
nsectors.

Selecti
vecredi
tcont
rol–Cont
rol
l
ingcr
edi
tbynotl
endi
ngt
osel
ect
ivei
ndust
ri
esorspecul
ati
ve
businesses.

Mar
ketSt
abi
li
sat
ionScheme(
MSS)-

Pol
icyRat
es:

Bankrate–Thei nt
erestrat
eatwhichRBIl
endslongter
mf undstobanksisrefer
redtoasthe
bankrate.However,pr
esentl
yRBIdoesnotent
ir
elycontr
olmoneysupplyviathebankrate.I
t
usesLiquidi
tyAdj
ustmentFacil
i
ty(
LAF)–reporateasoneoft hesi
gni
fi
canttoolstoest
abli
sh
cont
rolovermoneysupply.

Bankr
atei
susedt
opr
escr
ibepenal
tyt
othebanki
fitdoesnotmai
ntai
nthepr
escr
ibedSLRor
CRR.

Li
qui
dit
yAdjustmentFaci
li
ty(
LAF)– RBIusesLAFasani
nst
rumentt
oadj
ustl
i
qui
dit
yand
moneysuppl
y.Thefol
l
owingty
pesofLAFar
e:

Reporate:Reporat
eistherat
eatwhi chbanksborr
owf r
om RBIonashort
-t
erm basi
sagai
nsta
repur
chaseagreement.Underthi
spolicy,banksar
er equir
edtoprov
idegover
nmentsecuri
ti
es
ascoll
ater
alandlat
erbuythem backafterapre-
def
inedtime.

Rever
seReporate:I
tist
hereverseofreporat
e,i.
e.,
thi
sistherateRBIpay
stobanksi
nor
dert
o
keepaddi
ti
onal
fundsinRBI
.Itisli
nkedtoreporat
einthefoll
owingway:

Rev
erseRepoRat
e=RepoRat
e–1

Margi
nalSt
andi
ngFacil
it
y(MSF)Rate:MSFRat eisthepenalr
ateatwhichtheCent
ralBank
l
endsmoneytobanks,
overt
herateavai
labl
eunderther
eppoli
cy.Banksav
ail
i
ngMSFRat ecan
useamaximum of1%ofSLRsecur
it
ies.

MSFRat
e=RepoRat
e+1

Monet
aryPol
icyTr
ansmi
ssi
on

Bor
rower
sfai
ltof
ull
ybenef
itf
rom RBI
’
srepor
atecutduet
othef
oll
owi
ngr
easons:

Banksar
enotaf
fect
edbyRBIr
atecut
sast
heCent
ral
Banki
snott
hei
rpr
imar
ymoneysuppl
i
er.
Deposi
tsal
readymadearefi
xedattherat
eswhent
akenandcannotber
educed;t
her
atecut
s
wil
lonl
yref
lecti
nthenewdeposi
trat
es.

PPF,PostOffice accounts and othersmallsavi

ng inst
rument
s are avai
labl
e athi
gh
admini
ster
edi
nter
estratesandi ncaseofr
educt
ionofbankdeposi
trat
es,cust
omershavet
he
choi
cetomovetothosef unds.

Banksdonotpr
efert
olowert
hei
rrat
esashi
ghl
endi
ngr
ateskeepst
hei
rpr
ofi
tmar
ginsup.

I
ndiadoesnothaveawell-
dev
elopedcorporat
ebondmarket
,ther
efor
ecor
por
atecust
omer
s
hav
eli
ttl
echoi
cebutt
oreachouttobanksforborr
owi
ng.

St
epst
oimpr
ovemonet
aryt
ransmi
ssi
on:

Botht
hegov er
nmentandRBIhastakenandpl
anst
otakesomest
epsi
nor
dert
oaccel
erat
ethe
tr
ansmissi
onofmonetar
ypoli
cy.

Gover
nmentintendstobr
ingdowntheint
erestr
atesonsmal
lsavi
ngaccount
s.I
fthesmal
l
sav
ingrat
esareli
nkedtot
hebankr
ate,
thi
scouldserv
easaper
manentsol
uti
on.

I
n ordertoimprove monet
arytransmissi
on,RBIwant s banks to change t
he cal
cul
ati
on
methodol
ogyofbaser
atetomargi
nalcostoffundsf
rom averagecostoffunds.

Despi
tebanksrai
singt hel
endi
ngr at
esimmedi
atel
yafterRBI
’
srat
ecut
s,t
heCent
ralBanki
s
unabl
etocont
roli
nflat
ionduetothefol
lowi
ngr
easons:

 Fi
nanci
aldef
ici
tint
hehi
ghergov
ernment
.

 I
ssuesatt
hesuppl
ysi
de,
suchascr
udeoi
lpr
ices,
issuesi
nagr
imar
ket
ing,
etc.

 Lackoffinanci
ali
ncl
usi
onasbor
rower
sst
il
ldependonmoney
lender
s,whoar
enot
underRBI
’
scontrol
.

 Non-
monet
isedeconomyi
ncer
tai
nrur
alar
eas.

 DearMoneyPol
i
cyorCont
ract
ionar
yMonet
aryPol
i
cy:

Dearmoneypol i
cyisapol
i
cywhenmoneybecomemoreexpensi
vewiththeri
seofi
nter
estr
ate.
Duetothis,thesuppl
yofmoneyal
sodecr
easesi
ntheeconomy,ther
eforei
tisal
soref
err
edto
asthecontract
ionar
ymonetar
ypol
i
cy.

Thi
spol i
cyleadstoadropinbusi
nessexpansionsowingtoahighcostofcr
edit
,aswellasa
fal
linbusinessexpansi
on.Thi
sinturnaffect
sempl oymentasitbr
ingsdowngr owt
hr at
es.
Theref
ore,int
erestr
atecut
ssuchasSLRandCRRar epref
err
edbythegovernmentandt he
corpor
ates.

DemandPul
lInf
lat
ion:

Thisi
sastat
ewhenpeopl
ehaveexcessmoneytobuygoodsinthemarket.RBIpr
act
iseseasi
er
contr
olont
hisasi
tcanl
eadt
oaf al
linmoneysuppl
yintheeconomy,
whi chintur
nwouldmean
adr
opi
npr
ices.

Suppl
ySi
deI
nfl
ati
on:

Inf
lat
ioni
nt heeconomyowingt oconst
rai
ntsinthesuppl
ysideofgoodsinthemarket.Thi
s
cannotbecontr
oll
edbyRBIasitdoesnotcontr
olpri
cesofcommodit
ies.Thegov
ernmentplay
s
animport
antrol
einthi
scasethroughfi
scal
poli
cy.

Concl
usi
on:

RBIhasbeenfoll
owi
nganeut ralpol
icystanceforsomet i
menow.Thi smeansthatwith
i
nfl
ati
onbei
ngatanal lt
imelow of4.0%,andthegrowthproj
ect
ionsoftheI
ndi
aneconomy
bei
ngataconstant7.
30%,theRBIwi llt
rynottodestabi
l
izethedeli
cat
ebal
ance,byei
ther
i
nfusi
ngorr
emovingt
oomuchf undsfr
om themarket
s.

Tothi
send,theCent r
alBankhasi ncreasedt herepor ateandrev erser eporateon1August
2018by25basispointst
aki
ngt hem to6.50%and6. 25%,respect
ively.Ithasalsoincr
easedt
he
BankRateandMSFRat eto6.75% each.Thi sensur esthatthegov ernment ’
srequir
ementfor
moreli
qui
dit
yforindustr
ygrowthisf ulf
il
led,wit
houtt heriskofincreasei ninfl
ati
onbeingt
oo
hi
gh.

Fi
scalPol
icy
:

Apol icysetbyt hefi

nancemi nist
rythatdealswi t
hmat ter
srelat
edtogovernmentexpendi
ture
andr ev enues,i
sr ef
erredtoasthef i
scalpol
icy.Revenuemat t
erincl
udematter
ssuchasr ai
sing
ofl oans,t ax poli
cies,serv
ice charge,non- tax matter
s such as di
vestment
,etc.Whi l
e
expendi turemattersincl
udesalari
es,pensi
ons, subsi
dies,f
undsusedforcr
eati
ngcapit
alassets
l
ikebr idges,roads,etc.

Fiscalpol i
cy means t he use oft axati
on and public expendit
ure by t
he gov er
nmentf or
stabil
izati
onorgr owthoft heeconomy .Accordingt
oCul barston,“Byfi
scalpol
icywer ef
ert o
gov er
nmentact i
onsaf f
ecti
ngitsreceiptsandexpenditureswhichor di
nar
il
yasmeasur edbythe
gov er
nment ’
sr ecei
pts,its surplus ordef i
cit.
”The gov ernmentmay change undesi rable
variat
ions in pri
vate consumpt i
on and investmentby compensat oryv ar
iat
ions ofpublic
expendi t
uresandtaxes.

Fi
scalpoli
cyal so f
eedsinto economictrendsand i nf
luencesmonet arypoli
cy.When the
gover
nmentreceivesmorethanitspends,
ithasasur pl
us.Ifthegov ernmentspendsmorethan
i
treceiv
esitr unsadef i
cit
.Tomeett headdi ti
onalexpenditures,itneedstoborrow fr
om
domesti
corf orei
gnsources,draw uponit
sf orei
gnexchanger eserv
esorpr i
ntanequival
ent
amountofmoney .Thi
stendstoinfl
uenceothereconomicv ar
iables.

Onabr oadgenerali
zati
on,excessiv
epr int
ingofmoneyl eadstoinfl
ati
on.Ifthegovernment
borr
owst oomuchf r
om abroadi tl
eadst oadebtcr i
sis.Excessi
vedomesticborrowi
ngbyt he
governmentmayl eadtohigherreali
nterestratesandthedomest i
cpri
vatesectorbei
ngunable
toaccessfundsresulti
nginthe“crowdingout ”ofpri
vateinvest
ment.Soitcanbesaidthatthe
fi
scaldefi
citcanbeli
keadoubl eedgeswor d,whichneedtobet ackl
edverycaref
ull
y.

Mai
nObj
ect
ivesofFi
scal
Pol
i
cyi
nIndi
a

Bef
oremov
ingont
hedi
scussi
ononobj
ect
ivesofI
ndi
a’
sFi
scalPol
i
cies,f
ir
stl
yknow t
hatt
he
gener
alobj
ect
iveofFi
scal
Pol
i
cy.

Gener
alobj
ect
ivesofFi
scal
Pol
icyar
egi
venbel
ow:

 Tomai
ntai
nandachi
evef
ull
empl
oyment
.

 Tost
abi
l
izet
hepr
icel
evel
.

 Tost
abi
l
izet
hegr
owt
hrat
eoft
heeconomy
.

 Tomai
ntai
nequi
l
ibr
ium i
ntheBal
anceofPay
ment
s.

 Topr
omot
etheeconomi
cdev
elopmentofunder
dev
elopedcount
ri
es.

Fiscalpol
i
cyofI
ndiaal
wayshastwoobject
ives,namel
yimpr
ovi
ngt
hegr
owt
hper
for
manceof
theeconomyandensur
ingsoci
alj
ust
icet
othepeople.

Thef
iscalpol
icyi
sdesi
gnedt
oachi
evecer
tai
nobj
ect
ivesasf
oll
ows:
-

1.Devel
opmentbyeff
ect
iveMobi l
isati
onofResour ces:Theprinci
palobject
iveoffi
scalpol
icy
i
stoensurerapi
deconomicgrowthanddev elopment.Thisobj
ecti
veofeconomi cgrowthand
devel
opmentcanbeachievedbyMobi l
isati
onofFinancialResources.Thecentralandstate
gover
nmentsi
nIndi
ahaveusedfiscalpolicyt
omobi l
iseresour
ces.

Thef
inanci
alr
esour
cescanbemobi
l
isedby
:-

a.Taxati
on:Througheff
ect
ivefiscalpol
ici
es,thegover
nmentai
mstomobi l
iseresourcesby
wayofdi rectt
axesaswel lasi ndi
recttaxesbecausemostimpor
tantsourceofr esour
ce
mobil
isat
ioninI
ndiai
staxat
ion.

b.Publi
c Savi
ngs:The resour
ces can be mobil
ised t
hrough publi
c savi
ngs by r
educi
ng
gov
ernmentexpendi
tur
eandincr
easi
ngsurplusesofpubl
icsectorent
erpri
ses.

c.Pr i
vat
eSavings:Througheff
ecti
vefi
scalmeasuressuchastaxbenefi
ts,
thegov
er nmentcan
raiseresour
cesf r
om pr i
vat
esect orandhouseholds.Resourcescanbemobi l
isedthrough
gov er
nmentborrowingsbyway soft r
easur
ybi l
l
s,issuanceofgover
nmentbonds,etc.,l
oans
from domesti
candf orei
gnpart
iesandbydefi
citf
inanci
ng.

2.Reductionininequali
ti
esofI ncomeandWeal th:Fi
scalpol i
cyai msatachi evi
ngequi tyor
socialj
usticebyreducingi ncomei nequali
tiesamongdi fferentsect i
onsoft hesoci ety.The
di
recttaxessuchasi ncomet axar echargedmor eonther ichpeopl eascompar edt olower
i
ncomegr oups.Indi
recttaxesareal somor ei nthecaseofsemi -
luxuryandluxuryitemswhi ch
aremostlyconsumedbyt heuppermi ddleclassandt heupperclass.Thegov ernmenti nvestsa
si
gnifi
cantpr opor
ti
on of i tst ax revenue i nthe implement ation of Povert
y Al l
eviati
on
Programmest oimprovethecondi t
ionsofpoorpeopl einsociety.

3.PriceSt
abili
tyandCont rolofI
nfl
ati
on:Oneoft
hemainobject
ivesoff
iscal
policyi
st ocont
rol
i
nf l
ati
onandst abi
li
zeprice.Theref
ore,t
hegover
nmentalwaysaimstocontroltheinfl
ati
onby
reducingf
iscaldef
ici
ts,
introduci
ngtaxsavi
ngsschemes,
producti
veuseoffinanci
alresour
ces,
etc.
4.Empl oymentGener ation:The governmenti s making everypossi
ble eff
ortt oi ncr
ease
empl oymenti nthecount rythrougheff
ectivefiscalmeasures.Invest
mentininfr
ast r
ucturehas
resultedindirectandindirectemployment.Lowert axesanddut i
esonsmall
-scal
ei ndustri
al(SSI)
unitsencour agemor einv estmentandconsequent lygener
at emor eempl
oyment .Variousr ur
al
empl oymentpr ogrammeshav ebeenundertakenbyt heGov ernmentofI
ndiatosol veproblems
i
nr uralareas.Similar
ly,selfemploymentschemei stakentopr ovi
deempl
oy mentt otechnical
ly
qualif
iedpersonsi ntheur banareas.

5.Bal
ancedRegi onalDev elopment:t
herearev ar
iouspr
ojectsli
kebuil
dingupdamsonr i
ver
s,
el
ectr
ici
ty,
schools,roads,indust
ri
alproj
ectsetcrunbythegov er
nmenttomi t
igat
ether
egi
onal
i
mbalancesinthecount r
y.Thisisdonewiththehelpofpubli
cexpendi
ture.

6.Reducing t
heDef i
citint
heBal anceofPay ment:somet imegovernmentgiv
esexport
i
ncenti
vestotheexporter
stoboostupt heexportf
rom thecount
ry.I
nthesamewayi mport
cur
bingmeasur esarealsoadopt
edt ochecki mport
.Hencet hecombineimpactofthese
measuresisi
mpr ov
ementint
hebalanceofpaymentofthecount
ry.

7.Incr easesNationalI
ncome:it’
sthestrengthoft
hefi
scalpolicyt
hatisbri
ngsoutthedesi
red
resultsint heeconomy.Whent hegov er
nmentwanttoincreasetheincomeofthecount
rythen
i
ti ncreasest hedir
ectandindir
ecttaxesratesi
nthecount r
y.Therearesomeothermeasures
l
ike: r
educt ioni
ntaxrat
esot hatmorepeoplesgetmoti
vatedtodepositact
ualt
ax.

8.Devel
opmentofI nf
rast
r uctur
e:whent hegov ernmentoft heconcernedcountryspends
moneyont hepr
ojectsli
kerailways,school
s, dams,elect
ri
cit
y,roadsetctoincr
easethewelf
are
oft
hecit
izens,i
timprovestheinfrast
ructur
eoft hecountry.Aimprovedinfr
astr
uctur
eisthekey
tof
urt
herspeedupt heeconomi cgrowthoft hecountry.

9.ForeignExchangeEarnings:whenthecent
ralgover
nmentofthecount
rygiv
esincenti
vesli
ke,
exemptionincustom duty,concessi
oninexcisedutywhi
leproduci
ngthingsinthedomest i
c
markets,i
tmotiv
atestheforei
gninvestor
stoi
ncreasethei
nvest
mentinthedomesticcountr
y.

UNI
ONBUDGETOFI
NDI
A(2018-
19)

GOBACK

Lastupdat
ed:
Feb,
2018

TheUni onBudgetf or2018-19hasbeenannouncedbyMrAr unJai t

ley,UnionMi ni
sterfor
Finance,GovernmentofIndi
a,i
nParli
amentonFebr
uary1,2018.Itf
ocusesonupl if
ti
ngther ur
al
economyandst r
engtheni
ngoft heagr
icul
tur
esector,heal
thcarefort heeconomicall
yl ess
privi
l
eged,inf
rastr
ucturecr
eati
onandimprov
ementinthequal
ityofeducationofthecountry
.

Hi
ghl
ight
sofUni
onBudget2018-
19

Ov
erv
iewoft
heeconomy

 TheGDPgr
ewat6.
3percenti
nthesecondquar
terof2017-
18andi
sexpect
edt
ogr
ow
 at7.
2-7.
5percenti
nthesecondhal
fof2017-
18.

 Growt
hfor2018-
19i
sfor
ecast
edat7.
4percentbyt
heI
nter
nat
ionalMonet
aryFund
(I
MF).

 Expor
tsar
eexpect
edt
ogr
owat15percenti
n2017-
18.

 Fi
scal
def
ici
ttar
getf
or2018-
19i
ssetat3.
3percentoft
heGDP.

 Fiscaldef
ici
tfor2017-
18i
srev
isedt
oRs5.
95l
akhcr
ore(
US$93.
54bi
l
li
on)at3.
5per
centoftheGDP.

FOREI
GNTRADEPOLI
CYOFI
NDI
A

I
ntr
oduct
ion

Theint
egr ati
onoft hedomest i
ceconomyt hroughthetwi
nchannelsoftradeandcapi
talfl
ows
hasacceleratedinthepastt wodecadeswhi chinturnl
edtotheIndi
a’
sGDPr eachi
ngRs167.73
tr
il
li
on(US$2. 30tri
l
lion)in2017-18*.Si
mul t
aneousl
y,t
hepercapitai
ncomealsonearl
ytrebl
ed
duri
ngthesey ear
s.India’
stradeandexternalsect
orhadasigni
fi
cantimpactontheGDPgrowth
aswellasexpansi oni npercapit
aincome.

Totalexport
sf rom I
ndia(Merchandi
seandSer vi
ces)increased20.7percentyear
-on-
year
duri
ngApr i
l
-August2018t oUS$221.83bill
ion,whil
etotali
mpor t
sincr
easedby21.1percent
year-
on-y
eartoUS$269. 54bil
l
ionaccor
dingt odatafr
om theMi ni
str
yofCommerce&Industr
y.
Export
sfrom thecount
ryrecor
dedthei
rhighestgrowthin2017-18.

Accor
dingtoMrSureshPr
abhu,Mini
sterf
orCommer ceandIndustr
y,theGover
nmentofI
ndi
ais
keentogrow expor
tsandprov
idemor ejobsfort
hey oung,tal
ented,wel
l-
educat
edandeven
semi-
skil
l
edandunskil
l
edworkf
orceofIndia.

Capi
talI
nfl
ows

Indi
a'
sforei
gnexchangereser
veswer
eUS$400.
49bi
l
li
oni
ntheweekupt
oSept
ember14,
2018,
accordi
ngtodat
af r
om theRBI.

Ext
ernalSect
or

I
nAugust2018,USupgr
adedIndi
a’
sst
atusasat
radi
ngpar
tneronparwi
thi
tsNor
thAt
lant
ic
Tr
eat
yOrgani
zati
on(
Nato)al
l
ies.

I
ndia’
sexternalsect
orhasabrightf
utur
easgl
obalt
radei
sexpect
edt
ogr
ow at4percenti
n
2018from 2.
4percentin2016.

Bi
lat
eraltr
adebet
weenIndi
aandGhanai
sri
singexponent
ial
lyandi
sexpectedt
ogrow f
rom
US$3bi l
l
iont
oUS$5bi l
l
ionov
ert
hecomi
ngthreey
ears,st
atedMrAaronMikeOquay
eJunior
,
Ghana'
sAmbassadort
oIndi
a.

I
ndiahasr ev
ised i
tspr
oposalontradef
acil
it
ati
onforser
vices(TFS)attheWorl
d Trade
Organi
sat
ion(WTO)andhasissuedanewdraf
t,wi
tht
hecontentsbei
ngmoremeani
ngfuland
accept
abl
etoot
hermembercount
ri
es.

The Union Cabinet

,Gover
nmentofI ndi
a,has approved t
he proposed Memorandum of
Under
standing(MoU)bet
weenExpor
t-
ImportBankofI
ndia(EXI
M Bank)andExpor
t-
ImportBank
ofKorea(KEXIM).

TheGoodsandSer vi
cesNet work(GSTN)hassi gnedamemor andum ofunderstanding(MoU)
withMrAj ayK Bhal
la,Dir
ectorGeneralofFor ei
gnTr ade( DGFT) ,tosharer eal
isedforei
gn
exchangeandimport
-expor
tcodedat a,processexporttransacti
onsoft axpay
er sundergoods
andservi
cestax(
GST)mor eeffi
cient
ly,
increaset
ransparencyandr educehumani nterf
ace.

InMar ch2017,theUni onCabi netapprovedt hesigningofthecustomsconv enti

onont he
i
nternati
onaltr
ansportofgoods,TransportsI
nternat
ionauxRouti
ers(TI
R)makingI ndi
athe71st
si
gnatorytothetreaty,
whi chwi
llenabl
et hemov ementofgoodst hr
oughoutthesecount r
iesin
AsiaandEur opeandwi llall
owthecountrytotakef ul
lbenef
itoftheInt
ernat
ionalNor t
hSout h
Transport
ati
onCor r
idor(INSTC)
.

MrRi chardVerma,theUnit
edStat
esAmbassadort
oI ndi
a,hasveri
fi
edthatI
ndia-
USrel
ati
ons
acrosst r
ade,def
enceandsocialt
ieswil
lbeamongthetopprior
it
iesofthenewlyel
ect
edUS
PresidentMrDonaldTrump'
sadminist
rat
ion.

For
eignTr
adePol
icy

Int
heMi d-Ter
m Review oft
heFor ei
gnTr adePol i
cy(FTP)2015- 20theMi nist
ryofCommer ce
andIndust
ryhasenhancedt hescopeofMer chandiseExportsfrom Indi
aScheme( MEI S)and
Ser
viceExportsfr
om IndiaScheme( SEI
S),increasedMEI Si ncent
iveraisedf orready-made
gar
ment sandmade-upsby2percent ,r
aisedSEI Sincent
iveby2percentandi ncreasedthe
val
i
dityofDutyCr
editScri
psfrom 18monthst o24mont hs.

I
nSept
ember2018,GovernmentofI
ndiai
ncreasedthedut
yincent
ivesf
or28mi
l
kit
emsunder
t
heMerchandi
seExpor
tfr
om Indi
aScheme(MEIS).

Allexpor
tandimport
-rel
atedacti
vi
ti
esaregovernedbytheFor eignTr
adePoli
cy(FTP),whi
chis
ai
medatenhanci ngt
hecount r
y'
sexpor
tsanduset radeexpansionasaneff
ecti
veinst
rumentof
economicgrowthandempl oy
mentgenerat
ion.

TheDepartmentofCommer cehasannouncedi
ncreasedsupportf
orexpor
tofvar
iouspr
oducts
andi
ncludedsomeadditionali
temsundertheMerchandiseExpor
tsfr
om I
ndiaScheme(MEIS)
i
nordertohelpexpor
ter
st oovercomet
hechall
engesfacedbythem.

TheCent ralBoardofExci
seandCust oms( CBEC)hasdev el
opedan'int
egrateddeclar
ati
on'
processleading t
othecr eati
onofasi ngl
ewi ndow whi
chwi llpr
ovi
det hei mpor
tersand
exporter
sasinglepoi
nti
nterfacef
orcust
omsclearanceofi
mportandexportgoods.

Aspar toftheFTPst r
ategyofmarketexpansion,I
ndiahassignedaCompr ehensi
veEconomic
Part
ner shi
pAgr eementwi thSout
hKoreawhi chwillpr
ovideenhancedmarketaccesstoIndi
an
exports.Theset r
adeagr eementsareinli
newi thIndi
a’sLookEastPoli
cy.Toupgr adeexport
sectorinfr
astructur
e,‘TownsofExpor tExcell
ence’andunitslocatedt
herei
nwi l
lbegr ant
ed
additi
onalfocusedsuppor tandi
ncent
ives.

RBIhassi
mpl
i
fiedt
her
ulesf
orcr
edi
ttoexpor
ter
s,t
hroughwhi
cht
heycannow getl
ong-
ter
m
advancefrom banksforupt o10y ear
st oserv
icethei
rcontr
acts.Thi
smeasurewi
l
lhel
p
export
ersgeti
ntolong-
ter
m cont
ract
swhil
eaidi
ngtheover
all
exportper
for
mance.

TheGov er
nmentofIndi
aisexpect
edtoannounceani
nter
estsubsi
dyschemef
orexpor
ter
sin
ordert
oboostexpor
tsandexpl
orenewmarkets.

RoadAhead

Indi
ai spresentlyknownasoneoft hemosti mport
antplay
ersinthegl obaleconomiclandscape.
Itstr
adepol i
cies,governmentref
or msandi nher
enteconomi cstrengthshav eatt
ri
butedt oit
s
standingasoneoft hemostsoughtaf t
erdesti
nat
ionsforfor
eigninvestmentsinthewor l
d.Also,
technologicalandi nfr
astr
uctur
aldev el
opmentsbeingcarri
edoutt hroughoutthecountryaugur
wellforthet r
adeandeconomi csectorintheyear
stocome.

Boostedbyt hef or
thcomingFTP,I ndia'sexportsar eexpectedreachUS$750bi l
l
ionby2018-
2019accor di
ngt oFederat
ionofIndi aExpor tOrganisat
ion(FIEO)
.Also,wit
htheGov er
nmentof
Indiastr
iki
ngimpor t
antdealswitht hegov ernment sofJapan,Austral
iaandChina,theexter
nal
sectorisincr
easingitscontr
ibut
iont ot heeconomi cdev el
opmentoft hecountr
yandgr owthin
theglobalmarkets.Moreover,byimpl ementingtheFTP2014- 19,
by2020, I
ndia'
sshareinworld
tradeisexpectedtodoublefrom thepr esentlev
el ofthr
eepercent.

*
Prov
isi
onal
est
imat
esatcur
rentpr
ices

ExchangeRat
eUsed:
INR1=US$0.
0154asonMar
ch28,
2018

I
ndi
a’sFr
eeTr
adeAgr
eement
s–The‘
present
’andt
he‘
fut
ure’

FreeTradeAgr eementTr
adei
sofgr eati
mpor
tancetomostnati
onsinthemodernworl
d.Tr
ade
withoutbarr
ier
s–f reetr
ade–ispromotedbyinst
it
uti
onsli
keWorl
dTradeOrgani
sat
ion(WTO).
Int hi
sbackground, asanemer gingsuperpower,Indi
a’
sFreeTradeAgreementsdeser
ve
specialat
tenti
on.

Whatar
eFr
eeTr
adeAgr
eement
s(FTA)
?

AFreeTradeAgreementisanagreementbet
weencountri
estoreduceorel
i
mi natebarri
erst
o
t
rade.
Tradebar
ri
ersincl
udetar
if
fbarr
ier
sli
ketaxesandnont
ari
ffbar
ri
ersl
i
keregulator
ylaws.

Tr
adebar
ri
ersi
ncl
udet
ari
ffbar
ri
ersl
i
ket
axesandnont
ari
ffbar
ri
ersl
i
ker
egul
ator
ylaws.

AFr eeTradeAgreementorFTAi sanagr eementbetweentwoormorecount ri

eswherethe
countr
iesagreeoncertai
nobli
gati
onsthataff
ecttr
adeingoodsandser
vices,andpr
otecti
ons
fori
nvestor
sandintel
l
ectual
propert
yri
ghts,amongothert
opi
cs.

I
ndi
a-ASEANFr
eeTr
adeAgr
eement

Recent
ly,
Indi
aandTheAssociat
ionofSout
heastAsi
anNat
ions(
ASEAN)compl
eted25y
ear
sof
cooper
ati
onandpart
ner
ship.

Wit
ht heini
ti
ati
onofeconomicref
ormsinIndi
af r
om 1991onwar ds,t
hethengovernment
i
nit
iat
edthe‘
LookEastPol
i
cy’whi
chwaspar
ti
cular
lyfocusedonSout
heastAsi
aandEastAsi
a.
Thesuccessi
vegov
ernmentsr
igorousl
yimplementedthepolicy
.Wi t
hther
egi
mechangei
n
2014,
ther
ewasanupgradeoft
he‘LookEastPoli
cy’
to‘ActEastPoli
cy’
.

TheIndi
a-ASEAN relat
ionshipandt i
esgowaybackinhi
story
.Cul
tur
all
y,Sout
heastAsiahas
bor
rowedheav i
l
yf rom Indiaandt her
ewereev
enIndi
ankingswhowentt oSoutheastAsi
an
l
andsandestabli
shednewdy nast
iesther
e.

Withtheendoft
hecol
oni
sat
ioner
a,sl
owl
ythet
iesbet
weenI
ndi
aandASEANst
art
edt
odev
elop
yetagai
n.

Therewasincr
easi
ngcont
actbet
weenpeopl
eandt
hisl
edt
oar
isei
nexchangesandev
en
economi
cal
l
y .

LookEastPol
icywasagame-changerandaft
ert
hat
,ther
ehasbeennol
ooki
ngbackandonl
y
growt
hofrel
ati
onsinbet
weentworegions.

Economi
cPer
spect
ive

TheEconomi crel
ati
oni sapi l
laronwhi cht het woregion’spart
nershi
pr est
s.Inthiscontext,
wit
ht heenfor
cementoft he‘LookEastPol icy’thereweregrowingt r
aderelat
ionsingoodsand
i
nvestments.Aft
ertheIndia-ASEANf reetr
adeagr eementwascr eatedin2003,t r
aderelati
ons
boomedev enfurt
her.In2009,t heFreeTradeAgr eementinGoodswassi gnedandenact edin
2010.TheASEAN- I
ndiaFreeTradeAr ea(AIFTA)hasbeencompl etedwiththeentryi
ntoforceof
theASEAN- I
ndi
aAgr eement sonTr adeinSer v i
ceandI nvest
ment son1Jul y2015.Wi ththis,
I
ndiawill
standtogainasi thasalwaysaskedf oranFTAwhi chwillbemorecompr ehensi
v eand
i
ncludedservi
ceswhichhasbeenI ndi
a’sst
rongersect or
.

TheASEANnat ionsandIndi
at oget
herconsi stoneoft hel argesteconomi cr egi
onswi t
hat ot al
populati
on ofabout1. 8 bi
ll
ion.ASEAN i s current
lyI ndia’sfourthl argesttrading partner,
accountingf or10.2percentofI ndia’stotaltrade.I
ndi a,ont heot herhand,i sASEAN’ s7t h
l
argest t radi
ng par t
ner.India’s ser vi
ce-ori
ented economy per fectl
y compl ements t he
manuf acturi
ng-basedeconomiesoft heASEANcount ries.Theannualt r
adebet weenI ndiaand
ASEANst oodatappr oxi
matelyUS$76. 53bill
ionin2014- 15.Howev er,itdroppedt oUS$65. 04
bil
l
ioni n2015-16duet odecli
ni ngcommodi typri
cesagai nstthebackdr opofasl uggi
shgl obal
economy .

I
nvestmentfl
owsar equit
er emarkabl
ebot hway s,wit
hASEAN account i
ngf orapproxi
matel
y
12.5per
centofinv
estmentflowsi nt
oI ndi
asi nce2000.Singaporeisthepri
mar yhubf orbot
h
i
nwardandoutwardinvest
ment s.For
eigndirectinvest
ment(FDI)inf
lowsint
oI ndi
afrom ASEAN
betweenApri
l2000andMay2016wer eaboutUS$49. 40bill
ion.FDIoutfl
owsf rom Indi
ato
ASEAN count
ri
es,fr
om April2007t oMar ch2015,accor di
ngt odatafrom theDepar t
mentof
EconomicAff
air
s(DEA),wasaboutUS$38. 672bi l
li
on.

I
nor dert
oenhanceeconomi candstr
ategi
crelat
ionswiththeSoutheastAsi
ancountri
es,the
I
ndiangovernmenthasputinplaceaProj
ectDevelopmentFundtosetupmanufactur
inghubs
i
nCambodi a,Myanmar,LaosandViet
nam(CMLV)count r
iesthr
oughseparat
eSpeci
alPur pose
Vehicl
es(
SPVs).

Chal
lengesi
nIndi
a-ASEANFr
eeTr
adeAgr
eement
I
ndi
a-ASEAN

Despitethef actthattheTr adeAgr eementwi t

hASEANhashel pedt r
adegrowimmensel ywi th
I
ndia,sti
ll,t
hei ssuer emainsthatt heagr eementhasbenef it
tedt heASEANr egi
onmor et han
I
ndia.Wi t
ht heagr eementingoodssi gned,t hedomest icmarketshav efacedsti
ffcompet i
t i
on
becauset heyhav etocompet ewi t
ht hecheapergoodsoft heASEANr egi
on.Forexampl e,the
rubberimpor tsfr
om Mal aysia,palm oili
mpor tsf r
om Indonesi
ahav emadeitatoughor dealfor
thelocalmanuf acturersofpalm oilandr ubber ,especi
all
yther ubberplant
ati
onsofKeralawho
havecompl ainedoft hecheaperi mpor t
sev ersincetheagreementwasaboutt obesigned.

Theot herdr
awbackoft heagr eementi
st hattheagr eementinser v
iceshasn’treapedmany
benefit
sforI
ndi a.AccordingtoASEANr ul
es,untilallthenationshavenotratif
iedtheFTAsi n
thei
rLegisl
atures,theFTAwi l
lnotbeenf orced.Thi shascausedmucht roubleforIndi
aas
Phil
ippi
neshasn’ trat
if
iedt heFTAi nser v
icesast herewillbedirectcompet i
ti
oni nbetween
I
ndiaandPhi li
ppinesindi rectcompeti
ti
oni nserviceswhi chwouldbeadi sadvantageforthe
l
atter.

Overtheyear
s,wit
ht hestat
ist
icsandt radefi
gures,i
tcanbeeasilydecipher
edthatthet
rade
i
mbalanceinfav
ourofASEANandI ndiahasanexpandingtradedefici
twiththeregi
onwhich
dear
lyhur
tsit
sCurrentAccountDefi
citandthus,hurtI
ndi
aoveral
lfi
scall
y.

I
ndi
aandRCEP

RegionalCompr ehensi
veEconomi cPar t
nership,alsoknownasRCEPi samegat rade-bl
ock
whichisbei ngnegot i
atedinbetweent het enmember soft heASEAN gr oupandsi xother
member snamel ySouthKorea,Austr
ali
a,China,Japan,NewZeal andandIndia.I
tisaFreeTrade
Agreement( FTA)whichisbeingproposedamongstt hesenat
ionswhi chwil
lincl
udegoodsand
servi
ces,investments,int
ell
ect
ualpropertyr i
ghts,economicandt echni
calcooperati
onand
disput
eset t
lement.

Ifnegoti
atedandenfor
ced,i
twillbeoneoft hel
argesttr
adi
ngblocsoft
heworl
d.Witha
combinedGrossDomesti
cProductofalmost$17tr
il
li
onandcover
ingmoret
han40per
centof
theworl
d’str
ade.I
tal
socover
smor ethan3bil
li
onpeople.

Theblocaimsattari
ffli
ber
ali
zat
ionamongstt
henati
onsandso,t
her
ewi
l
lbeeasi
ermar
ket
accessamongstf
orallt
henati
onsamongstt
hemsel
ves.

Adv
ant
agesf
orI
ndi
a

ForIndi
a,whichisnotapartoft heothermaj ortr
adebl ocsoft hewor l
d,suchasAsi aPacifi
c
EconomicCooperati
on(APEC) ,t
heTr ansPaci f
icPartnership( TPP),thi
sfreetradeagreement
wouldprovetobeofadv antageasear l
i
eritwasf earedt hatwi t
hthepr esenceoftheset r
ade
bl
ocsandt henegoti
ati
onoft hei
rFTAs, I
ndi
ami ghtloseouti t
smar ketshare,especi
all
yincase
oftext
il
es,
pharmaceuti
calsandmedi cinesetc.t
oot herSout heastAsiannationsli
keVietnam.

Also,wit
hIndiaalr
eadyhavinganFTA wi thASEAN andJapanandSout
hKorea,wi
ththe
negoti
ati
onoft heRCEP,itwil
lcompl ementIndi
a’
spre-
exi
sti
ngFTAsandwi
l
lal l
ow bet
ter
accesstoconsumermarket
sinothernati
ons.

Wi
tht
heFTAbei
ngnegot
iat
edev
eni
nser
vices,
itwi
l
laddt
otheadv
ant
agef
orI
ndi
awher
ethey
haveacompar ati
veadv ant
ageov erothernati
ons,especi
all
yinthecont extofI
nfor
mat
ion
Technol
ogyr
elatedser
vices,heal
thcar
eservi
cesandeducati
onalser
vices.

Chal
lengesf
orI
ndi
a

Theagr icultur
alsect orofI ndi
a,whi chf acesi ssuesl i
kel ackofi nvestment ,low producti
vi
ty,
obsoletet echnologyandf ragmentedl andhol di
ngswi l
lsuf f
erev
enmor easwi ththenegot i
ati
on
oftheRCEPagr eement ,now,theIndianmar ketwillbefloodedwi t
hpr oductsfrom othernati
ons
whichar ecompar at
ivel
ycheaperandhav eamor eef fici
entagriculturalsector.Theal r
eady
negotiat
edFTAwi thASEAN hashur tthei nterestsofsomepar ti
cul arcommuni t
iessuchas
rubberplant at
ionsandpal m oilpr
oduct i
on.Al so,theal l
iedsectors,suchast hedai rysect
orin
I
ndia,whi chstil
l i
snotatamat urestage, willalsofacest i
ffcompet i
tionf r
om count r
iesli
keNew
Zealandwhohav eav erystrongdairysect orandt heireconomyt hri
v esont hesame.

Also,theindustr
ialsect
orofIndi
aisstil
linanascentstage.Int
hecontextofgoods,Indiahas
alr
eadygi venuponat hreet
iert
arif
freduct
ionproposalwhichwouldofferdi
ffer
entcov er
age
forASEAN,JapanandSout hKor eaandmuchl owerl eveloftar
if
freducti
oncov eragef or
Australi
a,ChinaandNewZealand.

Witht he agreementon t he intel

lectualpr opertyr i
ghtsto be negot i
ated,whi ch i s being
pressuri
sed byJapan,t hi
s willlead tot he issue thatIndia mayl ose its status as t he
pharmaceuticalhuboft hewor l
d.Agr eeingt odat aexclusi
vit
y,extendingpat ent
ingt ermsand
undulystrongenf orcementmeasur eswi llweakent hegenericpharmaceut i
calsect orandwi l
l
comei ndi r
ectconf li
ctwi t
hsection3( d)oft heI ndianPatentsAct .Thiswi l
lmakemedi cines
expensiveandi naccessiblenotjustf orIndiansbutf ortheentir
edev elopingwor ld.Indi
ahas
alr
eadyr esi
stedpr essur
ei nnotsuccumbi ngtodi lutetheprovi
sionswi tht heEur opeanUni on
andt heFTAt obepr oposedwi ththesame.Thus,di l
uti
ngthemeasur esi nt hiscont extmi ght
againopenaPandor a’sboxf orI
ndia.

Also,inthecaseoftheservicessect or
,whereI ndiaisassumi ngandpitchi
ngforgains,i
t
remainstobeseenwhetheri
twilldulygainornot.Indiai
spitchi
ngforMode3andMode4t ype
gains.WithMode4t ypesofgai nshighlyunli
kelytobeawar ded,i
nt hecont
extofMode3,
exceptinthecaseofI
nformati
onTechnol ogyandI nformat
ionTechnologyEnabl
edSer
vices,i
t
remainstobeseenwhetheri
twillbenefi
tIndi
amuchornot .

Final
ly
,toconclude,t
heFTAwi llbasical
lyputabi gchal
l
enget othe‘MakeinIndia’pr
ogramme
whichthecurr
entgov er
nmentisaggr essi
vel
ypr omot i
ng.Forexample,thegrant
ingoftari
fffr
ee
access tothe Chinese goods,whi ch have alreadyflooded t
he Indian mar
kets and have
decimatedt
heIndiangoodsandmar ketswil
lfurtheraggravatet
hesit
uat i
onandaddt oincr
ease
thebudgetdef
icitwit
hChina.

Sout
hAsi
aFr
eeTr
adeAgr
eement(
SAFTA)

South Asi
an Associ
ati
on f
orRegi onalCooper at
ion orSAARC,asi tisknown,i sar egion
comprisi
ngofalltheSouth-Asi
annat i
onsort hesubcontinenti
.e.India,Pakist
an,Sr
iLanka,
Bangl
adesh,Nepal,Bhut
anandt heot hertwocount ri
esnamelyAf ghanistanandMaldiv
es.It
wasconceivedtoimprovetheint
errel
ationshi
psbetweenthenationsandi mprovi
ngpeopleto
peopl
econtactasallt
hepeopleareunitedcult
ural
lybutdi
vi
dedbyt hebor ders.

I
nthi
scont
ext
,theconceptofSout
h-Asi
aFr
eeTr
adeAgr
eementorSAFTAwasconcei
vedf
or
thef i
rstt
imei n1993asaPr ef
erenti
alTradeAgreement(anagreementamongstt henati
onsto
tradeselectedgoodswithoutt
arif
fsorwi thver
ylowtar
if
fs)andlat
er,itwasupgradedtoaFree
Tr adeAgreementin2004andcamei nt
of orcei
n2006.Thi
swasbasi call
ydonetoimprovetr
ade
andeconomi crel
ati
onsamongstthemembernat i
onsofSAARC.

Wit
htheclassif
icat
ionofnati
onsasLeastDev el
opi
ngCount r
iesandNon-LeastDev
elopi
ng
Count
ri
es,t
herewasacr eat
ionofanequalplat
formforal
ltheplayersi
nther
egionsothatt
he
Fr
eeTradeAgreementwouldnotl
eadtoissuesfort
hedomesticmar ket
s.

Howev er
,despi temor ethant enyearsaf tertheenact mentoft heFTA,t het r
adegr owth
amongstt hemembernat i
onsismeagr e.Thisputsaquest i
onmar kont heconceptofcreat
ion
ofanFTAi nt heregi
on.Becauseoft hegeopoliti
calscenarioofthesubcontinent
,therehave
alwaysbeencont enti
ousissuesamongstt heneighbours.Forexample,I
ndiaandPakistanhave
alwayshadt heirdi
ff
erencesandthei
rrelati
onshipbecomest heelephantintheroom incaseof
anysummi tandnegotiat
ionstobedone.Al so,t
hepr oxi
mityofPakistantoChinahasaddedt o
thetr
oubles.

Othersmal
lernati
onshavealsoplayedt
heChinacardagai
nandagainagai
nstI
ndiawhi
chhas
l
edt oavoi
di ntheconfi
denceamongstthenati
ons.Thetr
adeamongstthenat
ionsi
ssopoor
t
hatitcompri
sesofonlyfi
vepercentoft
hetot
altr
adeofthenat
ions.

Theclauseof‘sensi
ti
veli
st’hasalsohurttr
adepr ospectswhicheachnationappr ehensiveof
l
osingoutonitsdomesticindust
ryascompar edt ot heothernat
ionsandt hus,haveincluded
quit
eamanyoft heli
stofgoodsandser v
icestobet radedinthesensi
ti
vel
ist.Wheni ncludedin
theli
st,
thepr
oductsbecomei mmunefrom tari
ffconcession.

I
ndi
a-Eur
opeanUni
onFr
eeTr
adeAgr
eement(
Proposed)

I
ndia-EuropeanUni on(EU)FTA,of f
ici
all
yknownast heBroad-
BasedTr adeandInvest
ment
Agreementi sbeingnegotiat
edforquit
eawhi le.However,i
n2013,ther
ewasabr eakdownin
tal
ksi nbetweent hetwosidesandthetalkshavebeenstall
edeversi
nce.TheEur
opeanUnion
want sIndiatoreducetheimportdut
iesonalcoholandautomobi
lesandIndiawant
stheEUt o
declareIndiaasa‘datasecur
e’count
ry.

Also,in2016,I ndi
aunilater
al l
yt erminatedBi l
ateralInvestmentTreati
eswi thmanycount ri
es
acrosst heworld,wi
thmanyoft hem bei ngEur opeannat i
ons.Thishasaddedt ot heincreased
scept i
ci
sm ofthenationswhohav equest ionmar ksov erthefutur
einvestmentstobemadei n
India.Thereasonwhyt heBi lateraltreat
ieshav ebeent erminatedisthatIndiahasputf orward
i
t sowncondi t
ionofexhaust ingal lthejudi ci
alandl it
igati
onmeasur esav ai
labl
eint hecount ry
fir
standt henonlygof orinternationalli
tigati
onorar bitr
ati
on.The2016ModelI ndianBi l
ateral
InvestmentTreatyrequir
est hef oreigninv estortol i
ti
gateatleastforfiv
ey earsinthenat i
onal
cour t
sbeforeapproachi
ngt hei nt
er nati
onal tr
ibunal.

I
ncont rast
, theEUandCanadahadputf orwardtheideaofInv estorStat
eDi sput
eMechani sm at
thegloball evelinwhi cht hef orei
gni nvestor
si nacount r
ycandr agt hegov er
nmentatt he
i
nternati
onalar bit
rati
oncent reswi thoutexhaust i
ngt helocalliti
gati
onmeansandcl ai
m huge
l
ossesci ti
ngl ossest heysuf feredduet ov ari
ousr easons,includingpolicychanges.Thishas
beensummar i
lyrejectedbyI ndia,Argentinaaswel lasJapan.Japanhasbeenopposi ngiton
thegr oundst hati nternat
ionalar bi
trat
ionwi llinvol
vehugecost swher easIndiawant st he
for
eigni nvestorstoexhaustt henat i
onalj udi
cialremediesandt henonl ygof orint
ernati
onal
ar
bit
rat
ion.

Fut
ureoft
heFr
eeTr
adeAgr
eement
sandI
ndi
a’sst
andont
hem

Theuni l
ateralt
ermi nationoftheBI Tswi t
hsomanynat ionsshoul dberevi
ewed, especial
l
ywhen
Indiaisbei ng projected asabr i
ghtspoti nt hegl obaleconomy .Themov ecomesasa
regressi
vest epasi tincreasestheconf usi
onoft hef oreigninvestor
swhowi shtoi nvesti
nIndia.
Also,theclausewhi chsay satleastf i
veyearsofnat ionallit
igati
onisnecessaryaf t
erwhichthe
i
nt er
nati
onalt r
ibunal scanbeappr oachedlooksl i
keast epint hewrongdirecti
on.Thisgoes
againstthegov ernment ’ssloganof‘ MoreGov ernance,LessGov er
nment’andagai nstthe
conceptof‘EaseofDoi ngBusiness’ i
nthenation.

Inregardwi t
ht heFTAs,I ndiashoul
dbev erycarefulintheclausesofnegoti
ati
on.Despit
e
havingast r
ongser vicessect ori
naselectfewcategories,(I
T,I
TES,Healt
hcar
eandEducat i
on
etc.
)t heagricul
turalsectoraswel last heindust
rialsector
,especial
lyt
heMicro,Smalland
Medi um Scal
eEnt erpri
sesar esti
l
lnotasmat ur
eandst rongascompar edt
otheothercount
ri
es
withwhichIndiaisnegot i
atingFTAs.

Forthesakeofgaininganadv ant
ageintheservi
cessect orandaccesstoforei
gnmar ketsin
serv
ices,whi
chareal sonotcomplet
elyaccessi
blebecauseoft henati
on’
sreservat
ions,Indi
a
endsupcompr omi
singont hepri
maryandsecondarysectorwhichaff
ectst
oomanyl ivel
ihoods
andtheeconomyov eral
l.

Thus,
thenegot
iat
ionsatanint
ernat
ionall
evelshoul
dbedoneonl
yaf
terpr
operdel
i
ber
ati
onand
under
standi
ngoft
hesituat
ion.

Gov
ernmentBudget
ingi
nIndi
a

Agov ernmentBudgetisbasicall
yasanannualst atementofal lt
heestimatedr eceipt
sand
esti
matedexpendit
uresofthegov er
nmentinafiscalyearfrom 1Apri
lto31Mar ch.Thought he
word“Budget”doesnotfi
ndsment i
onintheConstit
ution,buti
tismandatedinArticl
e112t hat
theUniongovernmentshallpresentbefor
ethePar l
iamentan“ Annualfi
nanci
alStat ement”of
esti
matedrecei
ptsandexpensesoft heGover
nment .

TheObj
ect
ivesofGov
ernmentBudgeti
nIndi
a:

Inami xedeconomyli
keours,t
hegovernmentplay
sasi gni
fi
cantrol
ealongwi
tht
hepr
ivat
e
sect
or.Thethr
eemajorf
unct
ionsser
vedbythi
spresent
ati
onofesti
mates.

All
ocati
on funct
ion:Publ
ic goods (nat
ionaldef
ense,roads,gov
ernmentadmini
strat
ion,
measures oflowerairpol
lut
ion,
etc.
)can’tbe pr
ovi
ded byMarketMechani
sm(t
ransacti
on
betweenindi
vi
duals)
.

Distri
butionfunct
ion:Governmentcanalt
erincomedistri
buti
onbymakingt r
ansf
erpay ment
s
andcol lecti
ngtaxes,ther
eforeaff
ecti
ngpersonaldisposabl
eincomeofhousehol ds.Thus,
throughi t
staxandexpenditur
epoli
cygovernmenttr
iestoachiev
eaf ai
rincomedist
ribut
ioni
n
society.

St
abil
izat
ion f
uncti
on:Fluctuat
ionsin economymayl ead t
oinf
lat
ion and unempl
oyment
.
Gover
nmentpolicymeasurestostabi
l
izedomesti
ceconomy.
Pr
imar
yDi
ff
erencebet
weenPubl
icandPr
ivat
eGoods:

 Benefi
tofpubli
cgoodsavail
ablet
oall,notl
i
mit
edt oanypart
icul
arconsumer.Al
soone
i
ndivi
dualcanenjoyt
hebenefi
tsofpubli
cgoodwit
houtreduci
ngit
savail
abi
li
tytoother
s.

 Forpublicgoods,t
herei
snowayt oexcludeanyonefrom enjoy
ingbenef i
tsofthegood.
(Theyarenon-excl
udabl
e).Si
ncenon-payi
nguserscan’ tbeexcluded,hencediff
icul
tto
coll
ectfeesforpubli
cgood.Leadsto“fr
ee-r
ider
”problem.Tocombatt hismissi
ngl i
nk
betweenconsumer&pr oducergover
nmenthast oprovidepubl
icgoodandmakepubl i
c
provi
sions.

Component
sofGov
ernmentBudget
ingi
nIndi
a

Constit
uti
onmandatespresentati
onofast atementofesti
matedr ecei
ptsandexpendi
tur
esof
governmenti
nf i
nancialyearfrom 1Apr i
lto31Mar chbeforethePar l
iament
,underArti
cle
112.gover
nmentbudgeti
nginIndia-economicsstudymater
ial&notes

TheAnnual
Financi
alSt
atementi
stheBudgeti
sdi
vi
dedi
ntoRev
enueandCapi
tal
.

Rev
enueBudgetofGov
ernmentofI
ndi
a:

Thecurr
entr
ecei
ptsofgov
ernmentar
eincl
udedi
nther
evenuebudget
.Est
imat
edexpendi
tur
e
fr
om t
hese.

Rev enueRecei
pts:Non-r
eedemable,
i.
e.,
can’
tber
ecl
aimedfr
om t
hegov
ernment
).Ther
evenue
receiptsar
ediv
idedint
oTaxr ev
enueandNon-t
axr
evenue.

TaxRev enue:proceedsoft
axesanddut
iesl
evi
edbycent
ralgov
ernment
.Iti
sdi
vi
dedi
ntodi
rect
taxesandIndir
ecttaxes.

Di
rectTaxes:coll
ect
eddir
ectl
yfr
om fi
rms(corporat
iont ax)& i
ndi
vi
duals(
incomet ax)
.Al
so
i
ncludesPapert
axes(
weal
thtax
,gi
ftt
axandestateduty)becausel
owrevenuey i
eld.

I
ndir
ectTaxes:Exci
set
ax(dut
iesongoodsproducedwit
hincountr
y),cust
omsdut i
es(
taxeson
i
mportedgoods&expor
tedgoods),
Serv
icet
ax(taxonser
vicessi
nce1994t ocor
rectdi
spari
tyi
n
t
axati
onofgoods&serv
ices).

 I
ncomet
axpr
ogr
essi
vet
oachi
ever
edi
str
ibut
ionobj
ect
ive,
higheri
ncomemor
etax
.

 Cor
por
ati
ont
axpr
opor
ti
onal
basi
s.Taxr
atei
npr
opor
ti
ont
opr
ofi
t.

 Exci
sedutynecessi
ti
esofli
feexcl
udedorexempted/l
ow r
ate,comf
ortmoder
atet
ax,
l
uxuri
es,
tobaccoandpet
rol
eum pr
oduct
ionheav
ytax.

NonTaxRevenue:inter
estrecei
ptsonloansgivenbycentr
algover
nment ,
div
idendsorpr
ofi
tsi
n
i
nvest
mentofgov ernment,fees&ot herrecei
ptsforservi
cesrenderedbygov er
nment.Al
so,
cashgr
ant
s-i
n-ai
dreceivedfrom f
orei
gncount r
iesandi
nter
nati
onalorgani
sat
ions.

Rev
enueExpendi
tur
e:
Expenseotherthancr
eati
onofphysi
calorf
inanci
alasset
sofcentr
algover
nment,whi
chmeans
expendi
tur
ef ornor
malfunct
ioni
ngofgover
nmentdepartment
s(daytodaywor
king)

 i
nter
estpay
ment
sondebtt
akenbygov
ernment

 gr
ant
stost
ategov
ernmentandot
her
s(ev
enf
orcr
eat
ionofasset
s).

Budgetcl
assi
fi
esexpensei
nto–Pl
anexpendi
tur
eandNonPl
anexpendi
tur
e

Pl
anrevenueexpendi
tur
e:I
tisr
elat
edt
ocent
ralpl
an(
FYP)andcent
ralassi
stancet
ost
atesand
UTsPl
ans.

NonPl
anr
evenueexpendi
tur
e:I
tcov
ersgener
al,
economi
c&soci
alser
vicesofgov
ernment
.

 I
nter
estpay
ment
sonmar
ketl
oans,
ext
ernal
loans.

 def
enceser
vices(
can’
tber
educed)

 Subsi
dies(
impor
tantpol
i
cyi
nst
rumentf
orwel
far
e)

 Sal
ari
esandpensi
ons.

Capi
talBudgetofGov
ernmentofI
ndi
a:

Assetsandli
abi
li
ti
esofcentralgov
ernment.Changesoccurr
ingcapi
tali
sconsi
der
ed,shows
capi
talr
equi
rementsofgov
ernmentandpatt
ernofthei
rfi
nanci
ng.

Capi
talRecei
pts:

Recei
ptscr
eat
ingl
i
abi
l
iti
es,
andr
educi
ngf
inanci
alasset
s.Thesear
e:

 Mar
ketBor
rowi
ngs:
Loansr
aisedf
rom publ
i
c.

 Treasur
yBill
s:Bor
rowi
ngsf
rom RBIand ot
hercommer
cialbanksand FI
sthr
ough
tr
easurybi
l
ls.

 Loansr
ecei
vedf
rom f
orei
gngov
ernmentandi
nter
nat
ional
organi
sat
ion.

 Recov
eri
esofl
oansgr
ant
edbycent
ral
gov
ernment
.

 Smal
lsav
ingsi
nPOsav
ingsaccount
,Nat
ional
Sav
ingCer
ti
fi
cat
e,et
c.

 Pr
ovi
dentFund

 PSUdi
sinv
est
ment(
recei
ptsf
rom sal
epfshar
einPubl
i
cSect
orUnder
taki
ngs)
.

Capi
talExpendi
tur
e:

Expensewhi
chr
esul
tincr
eat
ionofphy
sicalorf
inanci
alasset
.Reduct
ioni
nfi
nanci
all
i
abi
l
iti
es.
Theyare:

 Expendi
tur
eonLandacqui
sit
ion,
bui
l
dingmachi
ner
y,equi
pment
.
  I
nvest
menti
nshar
es

 Loans&adv
ancesbyCent
ral
gov
ernmentt
ost
atesandUTs,
PSUsorot
her
s.

 Al
socl
assi
fi
esasPl
anandnon-
Planexpendi
tur
es.

Pl
anCapi
talExpendi
tur
e:Rel
atedt
ocent
ral
plan,
cent
ral
assi
stancet
oSt
atesandUTs.

NonPl
anCapi
talExpendi
tur
e:Cov
ersgener
al,
soci
alandeconomi
cser
vicesbygov
ernment
.

Ot
herdocument
sundert
heFRBM Act

Alongwit
hBudget,t
herearethr
eeotherPol
i
cySt
atement
smandat
edbyFRBM Act
(Fi
nanci
al
Responsi
bil
i
ty&BudgetManagement
).

Medi
um Ter
m Fi
scalPol
icySt
atement
:

 Set
s3y
earr
oll
i
ngt
argetf
orspeci
fi
cfi
scal
indi
cat
ors.

 examinesi
frev
enueexpensecanbef
inancedt
hroughr
evenuer
ecei
ptsonsust
ainabl
e
basi
s.

 howpr
oduct
ivi
tycapi
tal
recei
pts(
incl
udi
ngmar
ketbor
rowi
ng)ar
ebei
ngused.

Fi
scalPol
icySt
rat
egySt
atement
:

 set
spr
ior
it
yofgov
ernmenti
nfi
scal
area

 exami
nigcur
rentpol
i
cies

 j
ust
if
yinganydev
iat
ioni
nimpor
tantf
iscal
measur
es.

Macr
oeconomi
cSt
atement
:

 Assesseseconomypr
ospect
swi
thr
espectt
oGDPgr
owt
hrat
e

 f
iscal
bal
anceofcent
ral
gov
ernment

 exter
nalbalance(
genderbudget
ingwhi
chhi
ghl
i
ght
sgendersensi
ti
vi
ti
esofbudget
ary
al
locati
ons)
.

Fi
nanci
alMar
ket:MoneyMar
ketandCapi
tal
Mar
ket

FundRai
singByBusi
nessUni
ts

Busi
nessuni tshavetoraiseshor t
-t
erm aswel lasl
ong-termfundstomeetthei rworking
andfixedcapitalr
equir
ement sfrom ti
met oti
me.From wherewouldtheygetfundsf rom?
Ans:Fr om invest
orsorl ender
s.Sur plusmoneyf l
owsf rom thei
nvestor
sorl enderst o
thebusinessmenf orthepur poseofpr oduct
ionorsaleofgoodsandser v
ices.So,we
fi
ndtwodi f
ferentgroups,onewhoi nvestmoneyorl endmoneyandt heot hers,who
borr
oworuset hemoney .
Fi
nanci
alMar
ket

Fi
nancialmar ketisthemar kett hatfacil
it
atest r
ansferoff undsbet weeni nv
estor
s/
l
endersandbor r
owers/user s.Financialmar ketmaybedef inedas‘ at ransmissi
on
mechani sm bet weeninvestor
s( orlenders)andt heborrowers( orusers)throughwhich
tr
ansferoff undsi sfacil
it
ated’.Itconsistsofi ndivi
dualinvestors,fi
nancialinst
it
uti
ons
andot herintermediar
ieswhoar el i
nkedbyaf ormalt r
adingr ulesandcommuni cati
on
networkf ort radi
ngt hev ari
ousf i
nancialasset sandcr editinstr
ument s.Itdealsin
fi
nancialinst
rument s(li
kebill
sofexchange, shar es,debentures,bonds,etc).

Mai
nfunct
ionsoff
inanci
almar
ket

(
a)I
tpr
ovi
desf
aci
l
iti
esf
ori
nter
act
ionbet
weent
hei
nvest
orsandt
hebor
rower
s.

(b)Itpr
ovidespri
ci
nginformat
ionresul
ti
ngfrom theint
eract
ionbet
weenbuy
ersand
sel
lersi
nthemarketwhentheyt
radethefi
nanci
alasset
s.

(
c)I
tpr
ovi
dessecur
it
ytodeal
i
ngsi
nfi
nanci
alasset
s.

(d)Itensur
esl
i
qui
dit
ybypr
ovi
dingamechani
sm f
orani
nvest
ort
osel
lthef
inanci
al
assets.

(
e)I
tensur
esl
owcostoft
ransact
ionsandi
nfor
mat
ion.

Cl
assi
fi
cat
ionofFi
nanci
alMar
ket

Af
inanci
almar
ketconsi
stsoft
womaj
orsegment
s:

(
a)MoneyMar
ket
;and

(
b)Capi
tal
Mar
ket
.

Whi
lethemoneymar ketdealsinshor
t-
ter
m cr
edi
t,t
hecapi
talmar
kethandl
est
he
medi
um t
erm andl
ong-
ter
m credi
t.

Fi
nanci
alMar
ketCl
assi
fi
cat
ion

MoneyMar
ket
.
 i
. Cal
lMoney
.

i
i
. Tr
easur
yBi
l
l.

i
i
i. Commer
cial
Paper
.

i
v. Cer
ti
fi
cat
eofDeposi
t.

v
. Tr
adebi
l
l.

Capi
tal
Mar
ket
.

i
. Secur
it
iesMar
ket

a.Pr
imar
yMar
ket:
IPOs,
BookBui
l
ding,
Pri
vat
ePl
acement
s.

b.Secondar
yMar ket:Equi tyMar ket
,DebtMar ket,Commodi t
yMar ket
,
Futur
esandOptionsMar ket
.(SecondaryMar ketcanbebasicall
ydivi
ded
i
ntot wo– spotmar ketandf orwardmar ket.Forwardmarkethast wo
di
visi
ons–futuresandopt i
ons/deri
vat
ives.Again,ther
ear
et wotypesof
opti
ons–putopt i
onandcallopti
on.)

i
i
. Non-
Secur
it
iesMar
ket

a.Mut
ual
Funds.

b.Fi
xedDeposi
ts,
Sav
ingsDeposi
ts,
PostOf
fi
cesav
ings.

c. I
nsur
ance.

MoneyMar
ket

Themoneymar ketisamar ketforshort-t

ermf unds,whichdeal sinf inancialassets
whoseperiodofmat uri
tyisupt ooney ear.Itshouldbenot edthatmoneymar ketdoes
notdeali
ncashormoneyassuchbutsi mpl yprovi
desamar ketforcreditinstruments
suchasbil
lsofexchange, pr
omi ssorynotes,commer ci
alpaper,tr
easur ybill
s,etc.These
fi
nanci
alinstruments are close substi
tute ofmoney .These i nst
rument s helpt he
busi
nessunits,otherorganisati
onsandt heGov er
nmentt obor row thef undst omeet
thei
rshor
t-
termr equi
rement.

TheIndi
anmoneymarketconsist
sofReserveBankofI ndi
a,Commer
cialbanks,Co-
oper
ati
vebanks,
andot
herspeci
ali
sedf
inanci
ali
nst
it
uti
ons.

TheReserveBankofIndi
aistheleaderofthemoneymarketinI
ndi
a.SomeNon-
Banki
ngFi
nanci
alCompani
es(NBFCs)andfi
nanci
ali
nst
it
uti
onsli
keLI
C,GI
C,UTI
,et
c.
al
sooper
ateint
heIndi
anmoneymarket
.
Capi
tal
Mar
ket

CapitalMar ketisani nsti

tut
ionalarrangementf orborrowingmedi um andl ong-t
erm
funds and whi ch pr
ov i
des faci
li
ties f
ormar keti
ng and trading ofsecuri
ti
es.So i t
constit
utesal ll
ong-t
erm borr
owi ngsf r
om banksandf inancialinst
it
uti
ons,borrowi
ngs
from forei
gnmar ketsandr ai
singofcapi t
albyissuevarioussecur i
ti
essuchasshar es,
debentures,bonds,et c.Thesecur i
ti
esmar kethast wo di ff
erentsegmentsnamel y
primaryandsecondar ymarket.

PrimaryMar ketvsSecondar yMar ket: Thepri

mar ymar ketconsistsofarr
angement sfor
procurementofl ong-ter
mf undsbycompani esbyf r
eshi ssueofshar esanddebent ures.
Thesecondar ymar ketorstockexchangepr ovi
desar eadymar ketforexi
sti
ngl ongterm
securi
ties.Stockexchangei sthesecondar ymar ket,whichpr ovidesaplacef orregular
saleandpur chaseofdi f
fer
entt ypesofsecur it
iesl i
keshar es,debentures,bonds&
governmentsecur it
ies.Iti
sanor ganisedmar ketwhereal ltr
ansact i
onsareregulatedby
therulesandl awsoft heconcernedst ockexchanges.

Secondar yMar ketsorSt ockExchanges:Thef unct i

onsofast ockexchangesar et o
providereadyandcont inuousmar ketf orsecurit
ies,informati
onaboutpr i
cesandsal es,
safetytodeal i
ngsandi nv estment ,helpsmobi l
i
sat i
onofsav ingsandcapi talfor
mat i
on.I t
actsasabar omet erofeconomi candbusi nesscondi tionsandhel psi nbetterall
ocat i
on
off unds.St ockexchangespr ov i
demanybenef it
st ocompani es,i nvestorsandt he
societyasawhol e.Butt heyal sosuf ferfrom limitati
onsl i
keexclusi vespeculati
onand
fl
uctuati
oni npr i
cesduet or umour sandunpr edictableevents.Ther ear e21st ock
exchangesi nI ndiapr esent ly,includingBSE,NSE andOTCEI .St ockExchangesar e
regulat
edbyt heSecur i
t i
esCont racts( Regulat
ion)ActandbySEBI .SEBIhasi nit
iateda
numberofr eformsi nt hepr imar yandsecondar ymar kett
or egul
at et hestockmar ket.
Document aryand pr ocedur alr equirement sforl isti
ng and t r
ading hav ebeen made
stri
cterandfool pr
ooft opr otectinvest ors’i
nter
est .

The secondar ymar kethasf urthertwo component s.Fi rst,the spotmar ketwher e
secur i
ti
esar etradedf orimmedi atedeli
v eryandpay ment .Theot herisf orwardmar ket
wher ethesecur it
iesar et radedforfuturedel i
veryandpay ment .Thisforwar dmar ketis
furtherdiv
idedi nt
oFut uresandOpt i
onsMar ket(Derivati
v esMar kets)
.Inf ut
uresMar ket
thesecur i
tiesar et r
adedf orconditi
onalf uturedeli
v erywher easi nopt i
onmar ket,t
wo
typesofopt ionsar et r
aded.Aputopt i
ongi vesr i
ghtbutnotanobl i
gati
ont ot heownert o
sellasecur it
ytot hewr i
teroft heoptionatapr edetermi nedpr icebeforeacer tai
ndate,
whileacal loptiongi vesr ightbutnotanobl igati
ont ot hebuy ertopur chaseasecur i
ty
from thewr it
eroft heopt ionatapar ti
cularpricebeforeacer taindate.
MoneyMar
ketandCapi
talMar
ket:Acompar
ison

Poi
ntofDi
sti
nct
ion MoneyMar
ket Capi
tal
Mar
ket

1.Ti
meper
iod/Ter
m Deal
sinshor
t-
ter
mfunds. Longt
ermf
unds.
Deal
sinsecur
iti
esliket
reasur
y Dealsinsecuri
ti
eslike
bi
ll
s,commerci
al paper
,bi
ll
sof shares,debent
ures,
exchange,
cert
if
icateofdeposi
ts bondsand
2.I
nst
rumentDeal
tIn etc. gover
nmentsecur i
ti
es.
Stockbrokers,
underwrit
ers,
mutualfunds,
Commerci
al banks, i
ndividuali
nvestors,
3.Par
ti
cipant
s NBFS,chi
tfundset c. f
inanciali
nsti
tuti
ons
4.Regul
ator
ybody RBI SEBI

Rol
eofbanksi
nsav
ingsmobi
li
sat
ion

The rapid pace oft ransf

ormat ion has cr eat
ed new demands as wel las new
opportuniti
esforbusi ness.Fort hebankingsect or,thechangeshav ecalledforamor e
eff
ectiveandef f
icientpr ov
isionoff inancialservicesi nr esponsetot henew or der
.
Amongt hechangest hathav ebeenwi tnessedincl ude;emer gencyofadi verseSMEs
sectorandofcour se,theemer genceofanew cr opoft obaccof ar
mer sallwithanew
appeti
tef ordi
ffer
entbankpr oducts.Whenpr oper
lyhar nessed,thesesub-sect
orsarethe
potenti
alsourcesofsav i
ngsandgr owt
hi ntheeconomy .
Princi
pall
y,thefi
nancialsy
stem,most
lyt
hebanks,aimt of
acil
i
tat
et heef
fect
iveuseof
funds,beitfrom t
henewf armer
sorthediv
ersesmallt
omedium enter
pri
sesplay
ersas
thenewdi spensati
onshows.Thefi
nanci
alsyst
em i
sexpectedtoactasanint
ermediar
y
forallr
esourcesintheeconomy.

Thesour cesoff undsar eprov i

dedbysav ingsinboththeprivateandpubl icsectorsas
wellasbyt henetinfl
owoff undsfrom abroad.Theyarecoll
ectivel
ychannel l
edthrough
i
ntermedi ari
es such as banks.Thi si ntermediat
ion f
unction involves mobi l
ising
resourcesbypr ovidi
ngt hemeansf orsaverstoholdmonetaryandf inancialassetsand
atthesamet i
meal l
ocati
ngt heser esourcesforproduct
iveinvestment .Bankspl aya
substanti
alr ol
einmobi li
singsavingstopr omoteinvest
mentsandgr owt h.Thisfunction
ofbanksi sv er
ysignifi
cantwi t
hrespecttot heaneconomy,wher einbankspr edomi nate
thefinancialmarkets.

Thewhol epr ocessofmobi l

izingsav i
ngsbyt hebankshi ngesonf inancialst
abil
i
ty.
Stabi
lit
yofthef i
nanci
alsyst
em i svit
altopromoti
ngt hemobi l
i
sati
onofsav i
ngsandto
faci
li
tatethepenetr
ati
onofthef or
malfinanci
alsyst
em int
ot helowandmi ddl
e-i
ncome
secti
ons oft he popul
ati
on.The sav i
ngs mobil
isati
on process by the banks i
sa
necessaryprecondi
ti
onforast eadyandbalancedeconomicandsoci al
dev el
opmenttoo.

Oncethefinancialsy
stem isnotst abl
ei tbecomesdiffi
culttomobili
sesavi
ngsandt he
economyagent swillkeep theirsavingssomewher eincludi
ng undermattresses.I f
savi
ngsarest ashedinorunderamat tr
ess,orotherwisenotdepositedi
ntoaf inancial
i
ntermedi
arysuchasabank,t hereisnochancef orthosesav i
ngst oberecycledas
i
nvestmentbyt hebusinesssectors.

Thismeanst hatsav
ingmayi ncreasewi t
houtincr
easinginv
estment,possi
blycausi
nga
short
-f
allofdemand( api
le-upofinventor
ies,
acut -
backofproduct
ion,employment,and
i
ncome, andthusarecession)r
atherthantoeconomi cgrowth.

Fi
nancialresource mobil
i
sati
on probl
em isverylinked withthe savi
ngs pr
oblem.
Fi
nancialsectormobil
isat
ionrequi
resaninst
it
uti
onalarrangementwhichencourages
andmobi li
sessav i
ngsononehand,andwhi chchannel ssavi
ngst omobil
isedinto
product
iveinv
estmentontheother.
Thiswholepr
ocessi sunderpi
nnedbyotherf
actor
ssuchastheavai
l
abi
li
tyofl
iquidi
tyi
n
thewholeeconomy ,lev
elofcapit
ali
sat
ionofthebanks,r
angeofpr
oduct
sprovidedby
thebanksandotherfactor
s.

Commer ci
alBanksthr
ought hei
ri nt
ermediat
ionrolebetweensav er
sandinvest
orsaffect
the vol
ume as wel las mobi l
isation ofsav i
ngs,bypr ovidi
ng the mar
ketwi t
ht he
diver
sif
icati
onofinstr
umentst hatwi l
lmeett heprecisel
iqui
dit
yneedsofsav er
sandat
thesamet imemakingf i
nancialresourcesavail
abl
et otheinv
estorsoverar
elati
vel
ylong
-peri
odinaccordwiththei
rneeds.

Someoft hechall
engescurrentl
yf acedcount r
yissy nonymouswi thther estoft he
devel
opingcountri
es,canbegener alattr
ibut
edt othei nt
ri
nsicprobl
em ofinadequat e
savi
ngscapacityofthepopulace.I
ti sal
soar guedthattheproblemsofpr omotionand
mobil
isati
onofsavingsarecaused;byinadequaciesi
nthest r
uctureoffi
nanci
almar kets
andthedensit
yoffinanci
ali
ntermediari
es.

I
nourowncaseinZi mbabwe,t
heot
herchall
engethatdet
erthemaximum mobil
i
sati
on
ofsavi
ngsbyt
hebanksincl
udethehangoveref
fect
softhechangeov
erfr
om Zimbabwe
dol
lartothemul
ti
-curr
encysyst
em whereallt
hesav i
ngswerebyt hepopul
acewere
tot
all
ylost
.

I
tisencouragi
ngt
hatt
heGovernmentisi
ntheprocessoflooki
ngf
oramechani
sm t
o
r
epayallt
hosewhower
ehol
dingtheZimbabwedol
laraccount
s.

Thecountryasawholeshouldunderstandt hathi
ghl ev
elsofsavi
ngsinaneconomy
i
ncreasetheamountofnat
ionalresourcesanddecr easetheneedtoresor
ttof
orei
gn
i
ndebtednessi
nor
dertocoverdomesticinvestmentandconsumpti
ondemand.

Numerouscount
ri
eswithlow i
nter
nalsav
ingsratesmustbor r
ow fr
om abroad,whi
ch
r
esul
tsinadebtser vi
ceburden.Thiscl
earl
yunder l
i
nest heimportanceofsavi
ngs
mobi
li
sati
ontosust
aineconomi
cgrowthwit
hnational
financi
alr
esour
ces.

I
nthelongtermifsavi
ngfal
l
sbelowi
nvest
menti
treducesinvest
mentanddet r
actsfrom
f
uturegrowth.Fut
uregrowthi
smadepossibl
ebyf oregoingpresentconsumpt i
ont o
i
ncreaseinvest
ment.However
,savi
ngskepti
namat tr
essamountt oidl
er esources
act
ingast
axt
otheeconomyast
heyar
enotbei
ngputt
opr
oduct
iveuse.

The abov e ar
guments cl
ear
lyunder
li
ne the i
mpor t
ance ofsavi
ngs mobi
li
sat
ion to
sustaineconomicgr
owthwi t
hdomesti
cfinanci
alresour
ces.Domesti
cal
l
y,t
heabili
tyof
thev ari
ouseconomicagentstosavei simportanttospureconomicacti
vi
tyint he
country.

Anyresourcescomi ngf r
om outsi
dethecount
ryshoul
dcompl ementtheresourcesset
asi
debyt her esident
soft hecountr
y.Iti
shencetheresponsibil
i
tyofeachandev er
y
ci
ti
zentodev elopacultureofsavi
ngsandpl
aci
ngthesesavi
ngsi nfi
nanci
ali
nsti
tuti
ons.

Ontheotherhand,t
heBanksshouldplaythei
rfi
duciar
ydutyandprotectt
hesav
ingsof
t
hecit
izensandprovi
dereasonabl
eret
urnsincasethesavi
ngsareplacedi
nappr
opri
ate
i
ncomegenerati
ngaccounts.

I
ndust
ri
alSi
ckness:Meani
ng,
Inci
dence,
Nat
ureandFact
orsCausi
ngI
t

Meani
ngofI
ndust
ri
alSi
ckness:

Thestrengt
hoft
hei
ndust
ri
alsect
or,byandl
arge,det
ermi
nest
hesoundnessoft
he
economy.

Adev elopi
ngeconomyl ikeIndiacannotaffordt hegr owi
ngsicknessi
nindustriesasi t
resul
tsi n a colossalwast age ofphysical,financialand human resources.Int he
presenceoft her esour
cecr unch,theindustrialsicknessbecomesal lthemor ean
alar
mi ngproblem.I ndustr
ialsi
cknessusual l
yr eferst oasi
tuat i
onwhenani ndust
rial
fi
rm per f
ormspoor ly
,incurslossesforsev eraly earsandof tendef
aultsini tsdebt
repaymentobligati
ons.

TheReser v
eBankofIndiahasdef i
nedasickuni tasone“ whi
chhasi ncurredacashl oss
foroneyearandisli
kel
ytocontinueincurr
ingl ossesforthecurrentyearaswel l asinthe
fol
lowi
ngy earandtheunithasani mbalancei nitsfi
nancialstr
uctur e,suchas,cur r
ent
rat
ioislessthan1:1andt her
ei sworseningt rendindebt -
equit
yr atio.
”TheSt at eBank
ofIndi
ahasdef i
nedasickunitasone“ whi chfailst
ogener ateani nternalsurplusona
conti
nuousbasisanddependsforitssurvi
v aluponf r
equentinfusionoff unds.”
Howev er,pr
iortotheenact
mentofSickIndustri
alCompani esAct(SICA)in1985,there
wasnoagr eementont hecrit
eri
at obeusedt odescr i
beani ndustr
ialunitassick.
AccordingtoSICA,asamendedi n1992,anindustr
ialcompanycanbedecl ar
edassi ck
whichhasatt heendofanyf i
nanci
alyearaccumulatedlossesequaltoorexceedingits
enti
renetwor th.I
tmaybenot edthatSickIndustr
ialCompaniesAct( SICA)appl
iest o
regi
steredcompanieswhichhavebeeninexist
enceforatleast5years.

I
ncaseofsmal
lscal
eindust
ri
aluni
t(SSI
),i
tisr
egar
dedasasi
ckuni
tifi
thas:

(i
)Incur
redacashlossintheprevi
ousaccount
ingy earandwaslikel
ytoconti
nuewit
h
l
ossesinthecur
rentaccounti
ngyearandf
urt
herit
scumul ati
vecashlossesar
eequalt
o
50percentormoreofitspeaknetwort
hduri
ngthelastfi
veyear
sand

(
ii
)Ithasdef
aul
tedi
nmeet
ingf
ourconsecut
ivei
nst
all
ment
sofi
nter
est
.

Accor
ding tothe Dev
elopmentCommi
ssi
oner
,a smal
lscal
eindust
ri
aluni
t(SSI
)
becomessicki
fit
s:

(a)Capaci
tyut
il
isat
ionisl essthan50percentoft
hehi
ghestachi
eveddur
ingt
he
precedi
ngf
ivey
ears(inci
pientsi
ckness)
’,

(
b)Networ
thhasbeener
odedbymor
ethan50percent
;and

(
c)Theuni
thasr
emai
nedcl
osedf
oraper
iodmor
ethansi
xmont
hs.

Ont hebasisoft heabov edefini

ti
onsofasi ckindustr
ialuni
t,i
temergesthatthe
sympt omsoft hesi cknessofani ndustr
ialunitmanif
estthemsel
vesint hef
orm of
unbalancedf i
nancialstructur
e,erosionofmor ethan50percentofi tsnetworth,
absenceoft hegener at
ionofinternalsur
plus,under
-uti
li
sati
onofcapaci
tyandsur
vival
oftheunituponfrequenti nf
usionoffunds.

I
nci
denceofI
ndust
ri
alSi
ckness:
Av erydi squieti
ng feature ofthe indust
ri
alscenarioi st he mounting inci
dence of
i
ndustri
al si
ckness.Itisamat t
erofdeepconcernnotonl yforsharehol
der sandcredit
ors
ofthesickconcer nsbutal sotothesocietyatl
arge.Thereissicknessofi ndustr
iesboth
i
nt helarge-scalesector(i.e.,Non-SSIsector
)andi nt hesmal l
-scal
ei ndustri
es(SSI)
.
Growingi ncidenceofsi cknesshasbeenoneoft hepr essingpr obl
emsf acedbyt he
i
ndustri
alsect orinIndia.Substanti
alamountsofbanki ngf undsar el
ockedupi nthese
si
ckindust r
ialunit
s.

Therewasapr oblem ofi ncreasingindust

ri
alsicknessev enbef
orethenew pol i
cyof
l
iberali
sati
onandgl obal
i
sat i
onadopt edi n1991.Thust henumberofSSIsi ckunit
s
i
ncreasedf r
om 58,551in1982, roseto2.21lakhsinMar ch1991andto2.52lakhsinend
-March2001.Table38. 1givest henumberofsickindustri
aluni
tsbothi
nthesmal lscal
e
i
ndust r
ial(
SSI)sectorandnon- smallscalei
ndustri
al(non-
SSI)andtheoutst
andingbank
creditl
ockedinthem.

I
twillbeseenf r
om Tabl e38.1thatthoughthenumberoflargeandmedium si
ck
i
ndustr
ialenter
pri
ses(i.
e.,non-
SSIsickunit
s)i
smuchsmallerthanSSIsi
ckunit
s,t
he
out
standingbankcredi
tlockedi
nthem ismuchgreat
ert
hant
hatinSSIsi
ckuni
ts.

Itmaybenot edthatint hesickindustr

ialcompanies,al otofr esourcesofbanksar e
l
ockedup.Thedat arevealthatasonMar ch31,2001,3,317non- SSIsi
ckindust
rialunit
s
accountedforanout st
andingbankcr edi
tofRs. 21,270cr ores.I
ndustry-
wisedatashow
thatf
iveindustr
ies,namely,text
il
es,engi
neering,el
ectr
ical,chemicalsandironandst eel
accountedforabout56percentoft otaloutstandi
ngbankcr edi
t.

Ther ehasbeenaphenomenalr iseofindustr

ialsi
cknessoverthelastf ew years.I
tis
si
gni f
icantt
onot ethatsicknesshasbeengr owingfasteri
nthesmal l
-scalesectorthan
i
nl argeandmedi um-scal esectors.AttheendofMar ch2001,ther
ewer e252, 947sick
units.Outofthese,
249,630wer esmal l-
scal
esickunit
sagainstwhom out standi
ngbank
creditwasRs.4,506crores.

Nat
ureandCausesofI
ndust
ri
alSi
ckness:

Competiti
onbreedsefficiencybutadv ersel
yaf f
ectsweaki ndust r
ialunit
sandmakes
them sick.The cl
eardi rect
ionalchanges since 1982-83 towar ds l
iberal
i
sat i
on of
i
ndustr
ialli
censi
ngpolicies,foreigncol
laborat
ionapprovals,theconceptofmi ni
mum-
sizepl
antsarewelcomef rom consumer s’poi
ntofv i
ew.Butt heweakeruni tshav eto
paythepr i
ce.Theinevi
tabl ecostofachi ev
ingcompet i
ti
veef fici
encyisthatt heweak
mustbeal l
owedtofade.Butt hecountrycannotall
owt hi
st ohappen.
TheSi ckIndustr
ialCompani es( SpecialProvi
sions)Act ,1985,wasenact edt ohel
pand
revivethesickunits.Thesubst anti
vepor ti
onsoft heActcamei nt
of or
cef rom May15,
1987.TheActpr ovidedf orsett
ingupofaquasi -j
udici
albodydesi gnatedast heBoar d
forIndustri
alandFi nanci
alReconst r
uction(BIFR)todealef fecti
vel
ywi t
ht heprobl
em of
sickindustri
alcompani es.TheReser veBankofI ndiahasi ssuedguidel
inest obanksto
strengthenthemoni tori
ngsystem andt oarrestindustri
alsicknessattheincipi
entstage.

Nat
ureofSi
ckness:

Si
cknessi
nindust
rycanbecl
assi
fi
edi
nto:

(a)Genuinesi
cknesswhichi
sbeyondt
hecont
roloft
hepr
omot
ersoft
heconcer
n
despi
tethesi
ncer
eeffor
tsbyt
hem,

(
b)I
nci
pientsi
cknessduet
obasi
cnon-
viabi
l
ityoft
hepr
oject
,and

(c)Inducedsicknesswhichisduetothemanager
iali
ncompet
enceandwr
ongpol
i
cies
pursueddeli
beratel
yforwantofgenui
nest
ake.

Thisisaman-
madesi
cknessi
nwhi
chsomeunscrupul
ouspr
omotersadoptf
raudul
ent
pract
icest
ostar
taconcer
nandtogetawaywit
ht hemoneyobtai
nedbyfraudand
decei
t.

TheFICCIstudyent i
tled‘I
ndust
rialSickness— Di mensionsandPer spect
ives’saysthat
thecausesofsi cknessar ebothinternalandext ernal
,oftenoperat
ingincombi nati
on.
Exter
nalfact
orsar egov ernmentpol i
ciesonpr icing,dut
ies,t
axes,highinterestrat
es,
taxesonprofi
t,slacknessindemand,sl uggi
shnessi nexportmarkets,hi
ghlabourcost,
i
nadequateavail
abili
tyofinput
s,lackofi nfr
ast
ructureandthelike.

Theinter
nalfactorswhichcont r
ibut
et osicknessar ewr ongplanninginrel
ationto
l
ocat
ion,t
echnology,capi
tal
cost,t
echnologi
calobsolescence,managementdefi
cienci
es
andi
ndustri
alunrest
.Weexpl ai
nbelowtheseexternalandinter
nalf
actorsi
nsomedet ai
l.

Ext
ernal
Fact
ors:
Thef
oll
owi
ngar
esomeoft
heext
ernal
fact
orscausi
ngi
ndust
ri
alsi
cknessi
nIndi
a:

(
i)Gener
alRecessi
onar
yTr
end:

Sometimesagener aldepr
essionhitsi
ndust r
ialuni
ts.Thi
sisref
lectedi
nlackofdemand
fori
ndustri
alproductsingeneral.Anov er
allslowdownineconomi cact
ivi
ti
esaff
ectsthe
perf
ormanceofi ndivi
dualproject
s.Impr operdemandest imati
onf ortheproduct
st o
proj
ectlandstheindustri
aluni
tsindiff
icul
ties.

(
ii
)Hi
ghPr
icesofI
nput
s:

Whent hecost
sofmanuf acturearehi ghandsal
esreali
sati
onlow,theindust
ri
alunit
cannotst
andinthemarket.Thishappenswhenthepr
icesofinput
ssuchaspr i
ceoffuel
suchaspetrol
eum dur
ingener gycrisi
sgoesupwher easthecompetit
ivefor
ceskeep
downthepri
cesoftheproducts.

(
ii
i)Non-
Avai
labi
li
tyofRawMat
eri
als:

Whenthesuppl
i
esofr aw mat
eri
alsarenotav
ail
abl
eregul
arl
yoringoodqual
i
ty,t
he
i
ndust
ri
aluni
tsareboundt obeint r
oubl
e.Thisof
tenoccursi
ncaseofsupplyof
i
mport
edrawmateri
als.

(
iv)Changesi
nGov
ernmentPol
ici
es:

Theindustri
alsicknessi salsocausedbycer t
ainchangesi npol i
cydesi gnsoft he
gov
ernment .Thesef requentchangesaf fectt
hel ong-
ter
m producti
on,financialand
marketingplanningofani ndustr
ialuni
t.Changesi nGov er
nmentpol i
ciesr egardi
ng
i
mpor ts,i
ndustri
alli
censing,taxat
ioncanmakev iableuni
tssick.Forexampl e,li
beral
i
mpor tpoli
cysince1991hasr enderedmanysmal l
-scalei
ndust
rialuni
tssi
ck.

(
v)I
nfr
ast
ruct
ureBot
tl
enecks:

Of
tent
hei
nfr
ast
ruct
uredi
ff
icul
tyi
sresponsi
blef
ori
ndust
ri
alsi
ckness.Noi
ndust
ri
aluni
t
cansur
viv
epr
olongedt
ranspor
tandpowerbot
tl
enecks.

I
nter
nal
Fact
ors:

The f
ollowi
ng aret he i
mpor
tanti
nter
nalf
act
ors whi
ch ar
e of
ten r
esponsi
blef
or
i
ndust
rialsi
ckness:

(
i)Pr
ojectAppr
aisalDef
ici
enci
es:

The i
ndust
ri
alunitbecomes sick when the uni
thas been launched wi
thouta
compr
ehensi
veappr
aisal
ofeconomic,
financi
alandt
echni
cal
viabi
l
iti
esofthepr
oject
.

(
ii
)Indust
ri
alUnr
estandLackofEmpl
oyeeMot
ivat
ion:

Whent her
eisl
abourdi
scontent
,noindust
rialuni
tcanf
unct
ionsmoot
hlyandef
fici
ent
ly.
Whenl abourl
acksmot i
vati
onnogoodr esult
scanbeexpectedandt hi
sresul
tsin
si
cknessandnon-v
iabi
l
ityofsev
eral
indust
rialuni
ts.

(
ii
i)Wr
ongChoi
ceofTechnol
ogy
:

I
fthepr omoter
susewr ongt echnol
ogy ,result
sareboundtobeunsat isf
actor
y.Many
i
ndustri
aluni
ts,
especiall
yinthesmal l
-scalesector
,donotseekprof
essionalgui
dancei
n
i
nstall
i
ngthecorrectmachineryandplant .I
fthemachiner
yandplantinst
all
edturnoutt
o
bedefecti
veandunsui t
able,t
heyar eboundt osuf
ferl
ossesandbecomesi ckandnon-
vi
able.

(
iv)Mar
ket
ingPr
obl
ems:

Theindust
ri
aluni
tbecomessickduet
oproductobsol
escenceandmarketsat
urat
ion.
Thei
ndustri
aluni
tbecomessi
ckwhenit
sproduct
-mixi
snotattunedt
otheconsumers’
demand.

(
v)Wr
ongLocat
ion:
I
fthelocat
ionofanindust
ri
alunithappenstobedef ecti
veeit
herf
rom t
hepointoft
he
marketort
hesuppl
yofinputs,
iti
sboundt oexper
ienceinsur
mountabl
edif
fi
cul
ti
es.

(
vi)LackofFi
nance:

I
nadequatefi
nanci
alar
rangementsori
ntheabsenceofti
mel
yfinancialaidanindust
ri
al
uni
tisboundtocometogrief
.Itwi
ll
notbeabl
etowithst
andoperat
ionallosses.

(
vii
)Impr
operCapi
talSt
ruct
ure:

Ifcapitalstr
uct
ureprovestobeunsoundorunsui
tabl
eespeci
all
yonaccountofdelay
ed
constructionoroperati
on,i
twil
lresul
tincostov
errunsorundul
ylar
geborrowingand
createf i
nanci
alt
roublefort
heuni
tconcerned.

(
vii
i)ManagementDef
ici
enci
es:

The bi ggestcause ofi ndustr

ialsickness ist he manager i
ali nefficiency.Lack of
professionalmanagementorexper i
encedmanagementandt heexi stenceofher editary
managementi san impor t
antcauseofi ndust
rialsickness.Inefficientmanagement
resultsi ni nabi
li
tyt o per cei
vet hings in proper perspectiv
e dev oid of rout ine
considerati
ons.Ineff
icientmanagementi salsounablet obuil
dupgoodt eam andi nspire
confidencef oranor ganisedcoll
ectiveeffortandt akesaut ocraticandhi gh-handed
decisions.

(
ix)Vol
unt
arySi
ckness:

Thereissomesi cknesswhichi
sv oluntar
il
yinvi
tedbytheent r
epreneur
sf orvari
ous
mot i
vesli
kegetti
nggov er
nmentconcessionorai dfrom f
inanci
alinsti
tut
ions.Thus
i
ndustri
alsi
cknesscannotbeatt
ri
butedt oanysingl
e,orsi
mplecausebutmaybet he
resul
tofacombinati
onofnumberofalli
edcauses.

Ananal
ysi
sof637 l
arge-
scal
euni
tsi
dent
if
ied t
hatdef
ici
encyi
nmanagementwas
responsi
blef
or52percentcasesofsickness.Whil
elabourt
roublescausedsickness
onlyin2percentoftheindust
ri
es,mar
ketrecessi
onandenvironmentalf
actor
scame
secondwith23percent
.

Theot hercauseswer et echni

calf
actor
sandf aul
tyi ni
ti
alplanning(14percent)and
i
nfrastructuralfactorssuchaspowercutsandshortageofcr i
ti
calinputs(
9percent)
.Of
the637l argeuni ts,350couldbeputbackont hetrack.Oft hese,221uni
ts,wi
ththe
outstandingcr editofRs.1,125.
06cror
eswereputundert henursingprogr
amme.

Suggest
ionsf
orRehabi
li
tat
ionofSi
ckUni
ts:

Ther ehabi
l
itat
ionofsi
ckunitsorrestor
ingthem t
onormalheal t
hisamat terofgreat
urgencyinviewoftheser
ioussoci
al,economicandpol
i
ticalconsequencesofindust
ri
al
i
ll
ness.

Thef
oll
owi
ngmeasur
esmaybesuggest
ed:

(
i)Cooper
ati
onbet
weenTer
m-Lendi
ngI
nst
it
uti
onsandCommer
cial
Banks:

Sincecommerci
albankspr ov
ideworki
ngcapi t
al,t
heyareinaposit
iontoknow about
theworki
ngofindust
ri
alconcern.Butassi
stancefrom t
erm-l
endi
nginst
it
uti
onsi
sal so
essent
ial
forr
escueoperat
ions.

(
ii
)Coor
dinat
ionbet
weenVar
iousGov
ernmentAgenci
es:

Al
lgover
nmentagenci
es,bot
hregul
ator
yandpr
omot
ional
,mustj
oinhandst
orest
ore
si
ckuni
tstoheal
th.

(i
i
i) Full cooperat
ion fr
om v ar
ious suppli
ers,
’ unsecur
ed cr
edi
tors and other
stakehol
ders,par
ti
cular
lyf
rom t
heemployees,i
salsoessenti
alt
otaketheconcer
nout
ofthedif
ficul
ti
esinwhichi
tisi
nvol
ved.

(
iv)Wi
ll
ingCooper
ati
onandCl
earUnder
standi
ngwi
tht
hePr
ojectPr
omot
ers:
Generall
yther
eisalackoft
rustandconf
idenceamongthevari
ousint
erest
sconcer
ned.
I
ti sfoundthatgover
nmentagenci
esanddeal i
nginst
it
uti
onsaremor eworr
iedabout
thei
rmoneyandar eanxi
oustorecovert
hem inst
eadofcuri
ngofthehealt
hofthesick
unit
s.

(
v)Checki
ngOv
er-
Val
uat
ionofI
nvent
ori
es:

Thebanksshoul
dv er
if
yonar egul
arbasist
hevaluat
ionofi
nvent
ori
esbothinter
msof
quant
it
y and pr
ice.This would pr
eventover
-borr
owing on t
he hypot
hecati
on of
i
nvent
ories.

(
vi)Mar
ket
ing:

Ther eshould bewel lorganised and scient

if
icmar keti
ng byt
hepr ojectpromoter
s
otherwiselaunchi
ngofapr ojectwi
llbeal eapinthedark.Goodmarket
ingarrangement
s
willpreventi
ndust
rial
sickness.

(
vii
)Recov
eryofOut
standi
ng:

Ever
yef f
ortshouldbemadetoreal
izeout
standi
ngadv
ancessot
hatt
heconcer
nisabl
e
togatherfundstoavoi
dsi
ckness.

(
vii
i)Moder
nisat
ionofMachi
ner
y:

I
fthesickuni
tistoberestor
edtoheal
th,ol
dandobsol
etemachi
ner
yandout
dat
ed
t
echnol
ogyshoul
dbedi
scardedatt
heear
li
est.

(
ix)I
mpr
ovi
ngLabourRel
ati
ons:

Restr
ict
ivel
abourandunr
easonabl
et r
adeunionsar egreatobst
acl
es.I
mpr
ovi
ngl
abour
rel
ati
onswil
lgoalongwayincuri
ngindust
ri
alsickness.
(
x)Ef
fi
cientManagement
:

I
fnecessaryi
nef
fi
cientmanagementshoul
dberepl
aced.Thekeyt
oi ndust
ri
alheal
thli
es
i
nal er
tandeffi
cientmanagement.Themanagementshouldshow acal m approach,
pat
ienceandper
sev er
ance,
cour
ageandabil
it
ytost
eerinbadweather.

(
xi)Per
for
manceI
ncent
ives:

Itisnecessarytoof
ferperf
ormanceincenti
vest
otheexecut
ivesandthewor
kersto
i
nducet hem t
oputi
nt hei
rbesteff
orts.Thi
swil
lbequi
tehelpfuli
ncuri
ngi
ndustr
ial
sickness.

(
xii
)Sy
mpat
het
icGov
ernmentAt
ti
tude:

Duri
ngperiodsofindustr
iali
l
lnessthegover
nmentagenci
esshouldadoptasympat
heti
c
andunderstandi
ngattit
udesot hatthepr
oblem i
snotaggrav
atedbutmov est
owardsa
sol
uti
oninstead.

(
xii
i)Aust
eri
tyandEconomy
:

Austeri
tyanddiscipli
nesshoul
dbeenf or
cedatal ll
evel
s.Ev
eryeff
ortshouldbemadein
rai
sing fundsint
er nal
lythr
ough thesaleofexcessasset s,surpl
usmachi ner
y,etc.
Uncall
edf ortours,lavi
shentert
ainments,unnecessar
ypersonalexpensesshouldbe
rut
hlessl
ycutdown.

Concl
usi
on:

Inv i
ew ofthelarge-scaleindustrialsi
cknessi twouldbenecessar ytoor ganizeat ask
force consi
sti
ng ofcompet entand exper i
enced executi
ves inv ar
ious branches of
businesstogoi ntot hecaseandmoni torrecover
y.Rehabil
it
ationofsickunitsisnotan
easyandsi mpl eaf fai
r.Anal l-
roundef f
ortisnecessarytor ootoutt hedisease,fir
st
necessarystepi st hei dent
ifi
cati
onofsi ckunit
swhi chcanbemadev iabl
et hrough
renovati
on,expansion,anddiv er
sificat
ion.Unitsbeyondrecoveryshoul
dbewoundup.
Thesecond st ep ist her econsti
tuti
on ofmanagement .Wher et hemanagementi s
unwil
lingorunablet oplayi t
sproperr ole,thefinanci
alinst
ituti
onsandt hegovernment
agenciesshouldintervenet oful
fil
ltheirlargesocialresponsibil
i
tyofensuringeffi
cient
useofnat i
onalresources.Sinceindust r
ialsicknessisduebot ht oexter
nalcauses,e.g.
,
generalrecessi
on,andi nternalcausesl ikedishonestandi neffi
cientmanagement ,the
remedymustal solieinbothdi r
ecti
ons.

Wi t
hav iewtomeet ingt hesituation,theear l
ywar ningsy stem i
sst rengthened.Vi abil
it
y
studiesshoul
dbeunder takent oidentifythesickunitsincludingcreepingsi cknesswhi ch
couldbeev entuall
yr estoredt ohealthwi t
haddi t
ionalfinancialaidonl i
beralandeasy
terms.Toanext entincreasei nindustr i
alsi
cknessi sinevitabl
eresultoft hev eryprocess
ofmoder ni
sati
onort echnol ogicaldev el
opmenti ndustry.Itisnatur
al thattheuni tswhich
cannotkeeppacewi tht heongoi ngt echnologicalchangewi l
lbecomesi ck,t heyshould
beallowedtowi ndup.

Exi
m Pol
icy

Exi
m Pol icy,al
soknownast heFor eignTradePol icyi sannouncedev ery5y earsby
Ministr
yofCommer ceandI ndustry
, Gover
nmentofI ndi a.I
tisupdat edev eryyearonthe
31stofMar chandal lt
heamendment sandimpr ovement si ntheschemear eeff
ective
fr
om t he1stofApr il
.Exim poli
cydeal singeneralpr ovisi
onsper t
ai ni
ngt oexportsand
i
mpor ts,promotionalmeasures,dut yexemptionschemes,expor tpr omotionschemes,
specialeconomi c zone programs and ot her det ai
lsf or different sector
s.The
Governmentannouncesasuppl ementt ot
hispoli
cyeachy ear.TheGov er
nmentofI ndia
al
sor eleasestheHandBookofPr oceduresdetaili
ngt hepr ocedurest obef oll
owedf or
eachoft heschemesment i
onedi ntheExim Poli
cy.

EXI
M POLI
CY

 The f
orei
gn tr
ade ofI
ndi
ais gui
ded by t
he Expor
t-
Impor
tpol
i
cy oft
he
Gover
nmentofIndi
a.

 Regul
atedbyTheFor
eignTr
adeDev
elopmentandRegul
ati
onAct1992.

 Exi
m pol
i
cycontai
nvar
iouspol
i
cydeci
sionswi
thr
espectt
oimpor
tandexpor
ts
fr
om t
hecount
ry.

 Exi
m Pol
i
cyi
spr
epar
edandannouncedbyt
hecent
ral
gov
ernment
.

 Exi
m PolicyofIndi
a ai
ms to dev
elopi
ng expor
tpot ent
ial
,improvi
ng export
per
for
mance,encouragi
ng f
orei
gn tr
ade and creat
ing f
avorabl
e balance of
paymentposi
ti
on.
Gener
alObj
ect
ivesofExi
m Pol
i
cy

 Toest
abl
i
sht
hef
ramewor
kforgl
obal
i
zat
ion.

 Topr
omot
ethepr
oduct
ivi
tycompet
it
ivenessofI
ndi
anI
ndust
ry.

 ToEncour
aget
heat
tai
nmentofhi
ghandi
nter
nat
ional
l
yaccept
edst
andar
dsof
qual
i
ty.

 To augment export by f
aci
li
tat
ing access t
o raw mat eri
al,
i
nter
mediat
e,
component
s,consumabl
esandcapi
talgoodsfr
om t
heint
ernat
ionalmarket
.

 Topr
omot
eint
ernat
ional
l
ycompet
it
ivei
mpor
tsubst
it
uti
onandsel
f-
rel
i
ance.

TheGov t
.ofI ndia,Mini
str
yofCommer ceandI ndustr
yannounceExportImportPol
icy
ever
yf i
vey ears.Thecur r
entpoli
cycoverstheper i
od2002-2007.TheExportImport
Poli
cy(ForeignTr adePolicy)i
supdatedev er
yy earont he31stofMar chandthe
modifi
cati
ons,impr ov
ement sandnew schemesar eeffect
ivew.e.
f.1stApri
lofevery
year
.

Cont
extofnewFor
eignTr
adePol
icy

Tradeisnotanendinit
self
,butameanstoeconomicgr
owt handnat
ionaldevel
opment
.
Theprimarypur
poseisnotthemereearni
ngofforei
gnexchange,
butthestimul
ati
onof
great
ereconomicact
ivi
ty.

ForI
ndi
atobecomeamajorplay
erinworldtr
ade,anal
lencompassi
ng,comprehensi
ve
vi
ewneedst
obetakenf
ortheoveral
ldev
elopmentoft
hecountr
y'
sforei
gntr
ade.

Whileincreaseinexport
sisofv i
tali
mpor t
ance, wehavealsotof aci
li
tatethoseimpor t
s
whichar erequi
redtostimulateoureconomy .Coherenceandconsi stencyamongt rade
and othereconomi cpol i
ciesi simportantf ormaximizi
ng t hecont ri
buti
on ofsuch
pol
iciestodev el
opment.Thus,whi l
eincorporat
ingtheexist
ingpr acti
ceofenunci ati
ng
an annualFor ei
gn Trade Policy,itis necessaryto go much bey ond and take an
i
ntegratedapproachtothedev elopmentalrequir
ementsofIndia'sfor
eigntrade.

TheFor
eignTr
adePol
icyi
sbui
ltar
oundt
womaj
orobj
ect
ives.Thesear
e:

Todoubl
eourper
cent
ageshar
eofgl
obalmer
chandi
set
radewi
thi
nthenextf
ivey
ear
s;
and

Toactasanef
fect
ivei
nst
rumentofeconomi
cgr
owt
hbygi
vi
ngat
hrustt
oempl
oyment
gener
ati
on.

STRATEGY
Forachi
evi
ngt
heseobj
ect
ives,
thef
oll
owi
ngst
rat
egi
esneedt
obeadopt
ed:

Unshackl
i
ng ofcont
rolsand creat
ing an at
mosphereoft rustand tr
anspar
encyt
o
unl
eashthei
nnat
eentrepr
eneur
shipofourbusinessmen,
industr
ial
i
stsandtr
aders.

Si
mpl
i
fyi
ngpr
ocedur
esandbr
ingi
ngdownt
ransact
ioncost
s.

Neutr
ali
zingi
nci
denceofalll
evi
esandduti
esoninput
susedinexpor
tproduct
s,based
onthefundament
alpr
inci
plet
hatdut
iesandl
evi
esshoul
dnotbeexpor
ted.

Faci
l
itat
ingdev
elopmentofI
ndi
aasagl
obal
hubf
ormanuf
act
uri
ng,
tradi
ngandser
vices.

Ident
if
ying and nurtur
ing speci
alf ocus ar
eas whi
ch would generat
e addit
ional
employmentoppor t
unit
ies,par
ti
cul
arl
yinsemi-ur
banandr
uralareas,anddev
elopi
nga
seri
esof'I
nit
iat
ives'
foreachofthese.

Faci
li
tati
ngt echnol
ogi
calandinfrast
ruct
ureupgradati
onofallthesector
softheIndi
an
economy ,especial
l
ythroughimportofcapit
algoodsandequipment,ther
ebyi
ncreasi
ng
val
ueaddi ti
onandpr oduct
ivi
ty,whil
eattai
ningint
ernat
ional
l
yaccept edst
andardsof
quali
ty.

Acti
vat
ing ourEmbassies as key pl
ayer
si n ourexportstr
ategy and l
inki
ng our
Commer ci
alWingsabr
oadthroughanelect
roni
cplat
for
mf orr
ealti
met radei
ntel
li
gence
andenquir
ydissemi
nati
on.

Thenew Poli
cyenvisagesmerchantexpor
ter
sandmanuf act
urerexpor
ter
s,busi
ness
andindust
ryaspar
tnersofGov
er nmenti
ntheachi
evementofit
sstatedobj
ect
ivesand
goal
s

Thenew Exi m- Pol

icyi sessent ial
lyar oadmapf ort hedev elopmentofI ndi
a'sforei
gn
trade.Itcont ai
nst hebasi cprinciplesandpoi ntst hedirecti
oni nwhichwepr oposetogo.
Byv i
rtueofi t
sv erydy nami cs,at radepolicycannotbef ull
ycompr ehensiveinallit
s
det ai
ls.Itwoul dnat ural
lyrequiremodi fi
cati
onf rom timet ot i
me.Wepr oposetodot hi
s
through cont inuous updat i
ng,based on t he i nevi
table changi ng dy namics of
i
nt ernationaltrade.I tisinpar tnershipwi thbusi nessandi ndustr
yt hatwepr oposeto
erectmi lest
onesont hisroadmap.Wi thav iew todoubl ingourper centageshar eof
globalt radewi thi
n5y earsandexpandi ngempl oy mentoppor tuni
ti
es,especi al
lyinsemi
urbanandr uralareas,cer tainspeci alfocusi nit
iati
veshav ebeeni denti
fi
edf orthe
agr i
culture,handlooms, handi cr
af t
, gems&j ewel l
eryandl eathersectors.

Thet
hrustsect
orsi
ndi
cat
edbel
owshal
lbeext
endedt
hef
oll
owi
ngf
aci
li
ti
es:

AGRI
CULTURE

A new schemecal l
edt heVisheshKr
ishiUpajYojana(SpecialAgri
cul
turalProduce
Scheme)forpromotingtheexportoff
ruit
s,veget
abl
es,f
lowers,minorforestpr
oduce,
andthei
rvalueaddedproduct
shasbeenintr
oduced.

Fundsshal
lbeear
mar
kedunderASI
DEf
ordev
elopmentofAgr
iExpor
tZones(
AEZ)

Uni
tsi
nAEZshal
lbeexemptf
rom BankGuar
ant
eeundert
heEPCGScheme.
I
mpor
tofcapi
tal
goodsshal
lbeper
mit
teddut
yfr
eeundert
heEPCGScheme

Uni
tsi
nAEZshal
lbeexemptf
rom BankGuar
ant
eeundert
heEPCGScheme.

Capi
talgoodsi
mpor
tedunderEPCGshal
lbeper
mit
tedt
obei
nst
all
edany
wher
eint
he
AEZ.

Importofr
estr
ict
edit
ems,suchaspanel
s,shal
lbeal
lowedunderNewtownsofexpor
t
excel
l
encewithat hr
eshol
dli
mitofRs250cr or
eshallbenot
ifi
edthevari
ousexpor
t
promoti
onschemes.

Importofi
nputssuchaspest
ici
desshal
lbeper
mit
tedundert
heAdv
anceLi
cencef
or
agroexpor
ts.

HANDLOOMS

Speci
fi
cfundswoul
dbeear
mar
kedunderMAI
/MDASchemef
orpr
omot
inghandl
oom
expor
ts

Dut
yfreeimportenti
tl
ementofspecif
iedt
ri
mmi ngsandembel
l
ishment
sshal
lbe5%of
FOBvalueofexpor
tsduri
ngtheprev
iousfi
nanci
alyear
.

Dutyf
reeimpor
tent
it
lementofhandknot
tedcar
petsampl
esshal
lbe1%ofFOBv
alueof
expor
tsduri
ngt
heprevi
ousfi
nancial
year
.

Dutyfr
eeimportofoldpiecesofhandknot
tedcar
pet
sonconsi
gnmentbasi
sforr
e-
expor
taft
err
epairshal
lbepermi
tt
ed.

Newt
ownsofexpor
texcel
l
encewi
that
hreshol
dli
mitofRs250cr
oreshal
lbenot
if
ied.

HANDI
CRAFTS

New Handicraf
tSEZsshal
lbeestabli
shedwhi
chwoul
dpr
ocur
epr
oduct
sfr
om t
he
cot
tagesectoranddot
hefi
nishi
ngf
orexpor
ts

Dutyfr
eeimportent
it
lementoft r
immingsandembel l
ishmentsshallbe5%oft heFOB
val
ueofexpor
tsduri
ngthepr ev
iousfi
nanci
alyear
.Theentit
lementisbroadbanded,
and
shal
lext
endal
sot omerchantexport
erst
iedupwithsupport
ingmanuf act
urer
s

TheHandicr
aftExpor
tPr omot
ion Councilshal
lbeauthorized t
oimporttr
immings,
embell
i
shmentsand consumableson behalfofthose exporter
sforwhom dir
ectl
y
i
mporti
ngmaynotbev iabl
eSpeci
fi
cf undswouldbeear mar kedunderMAI& MDA
Schemesf
orpromoti
ngHandicr
aftexport
s

CVDi
sexempt
edondut
yfr
eei
mpor
toft
ri
mmi
ngs,
embel
l
ishment
sandconsumabl
es.

GEMSANDJEWELLERY

I
mpor
tofgol
dof18car
atandabov
eshal
lbeal
l
owedundert
her
epl
eni
shmentscheme

Dut
yfr
eeimportent
it
lementofconsumabl
esformetal
sotherthanGol
d,Pl
ati
num shal
l
be2%ofFOBvalueofexpor
tsdur
ingthepr
evi
ousfi
nanci
alyear
.
Dut
yfr
eei
mpor
tent
it
lementofcommer
cial
sampl
esshal
lbeRs100,
000.

Dutyfr
eer
e-i
mpor
tent
it
lementf
orr
eject
edj
ewel
l
eryshal
lbe2% oft
heFOBv
alueof
expor
ts

Cut
ti
ngandpol i
shi
ngofgemsandj ewel
ler
y,shallbet
reat
edasmanuf
act
uri
ngf
ort
he
pur
posesofexempti
onunderSect
ion10AoftheIncomeTaxAct

LEATHERANDFOOTWEAR

Dut
yf r
eeimportent
it
lementofspeci
fi
edi
temsshal
lbe5% ofFOBv
alueofexpor
ts
dur
ingthepr
ecedi
ngfi
nanci
alyear
.

Thedut yfr
eeenti
tl
ementfort heimpor
toft r
immi ngs,embel l
ishmentsandf oot
wear
componentsforfootwear(leatheras wel
las sy nt
hetic)
,glov es,tr
avelbags and
handbagsshal
lbe3% ofFOB v al
ueofexportsoft hepr evi
ousf i
nanci
alyear.The
enti
tl
ementshallalso cov
erpacki ng mater
ial,such as pr int
ed and non print
ed
shoeboxes,
smal
lcartonsmadeofwood, t
inorplast
icmat eri
alsforpacki
ngfootwear

Machiner
yandequi
pmentf
orEf
fl
uentTr
eat
mentPl
ant
sshal
lbeexemptf
rom basi
c
cust
omsduty.

Re-
exportofunsuit
ableimportedmater
ial
ssuchasr aw hides&skinsandwetblue
l
eather
sispermit
tedCVDi sexempt
edonl i
ningandinter
li
ningmater
ialnot
if
iedatS.
No
168ofCustomsNotifi
cat
ionNo21/2002dated01.03.
2002

CVD i
sexempt
edonr
aw,t
annedanddr
essedf
urski
nsf
all
i
ngunderChapt
er43of
I
TC(HS).

EXPORTPROMOTI
ONSCEHEMES

 Tar
getpl
usschemet
oaccel
erat
egr
owt
hofexpor
ts.

 Vi
sheshkr
ishi
upaj
yoj
naf
oragr
o-expor
ts.

 Ser
vedf
rom I
ndi
ascheme

 Addi
ti
onal
flexi
bil
i
tyunderEPCG

Impor
toffuelunderDFRCenti
tl
ementall
owedtobet
ransf
err
edt
omar
ket
ingagenci
es
aut
hori
zedbyMinofPetrol
eum andNat
uralGas.

TheDEFBschemewi
l
lbecont
inued.

EOUsshal lbeexempt
edf
rom Ser
viceTaxi
npr
opor
ti
ont
othei
rexpor
tedgoodsand
ser
vices.

Aschemet
oest
abl
i
shFr
eeTr
adeandWar
ehousi
ngZonei
sint
roducedt
ocr
eat
etr
ade-
r
elat
edinfrast
ruct
uret
of aci
li
tat
eimpor
tandexpor
twi
thf
reedom t
ocar
ryoutt
rade
t
ransact
ionsinfr
eecur
rency.

InordertoshowcaseIndi
a'
sindust
ri
alandt r
adepr owesstoit
sbestadv antageand
l
everageexi
sti
ngfaci
li
ti
est
oenhancethequanti
tyofspaceandserv
icethegovtplansto
tr
ansfor
m PragatiMai
danint
oawor ld-
classcomplexwithvi
sit
orfri
endli
nessingress
andegresssyst
em.

ANot
eonSpeci
alEconomi
cZones(
SEZ)

SEZar egrowt henginesthatcanboostmanuf actur

ing,augmentexpor tsandgener ate
empl oyment.Thepr i
vat
esect orhasbeenact i
velyassociatedwi ththedev elopmentof
SEZs.TheSEZsr equir
especi alfi
scalandregulatoryregimei nordertoi mpartahassl e
freeoper at
ionalregimeencompassi ngthest ateoft hear tinfr
astr
uct ur
eandsuppor t
services.Thepr oposedlegisl
ationonSEZst obeenact edinthenearf uturewouldcov er
theconcept soft hedeveloperandco-dev eloper,i ncorporatethepr ovisi
onofv ir
tual
SEZs,hav efiscalconcessionsundert heI ncomeTaxandCust omsAct ,provi
def or
Of f
shoreBanki ngUnits(OBUs)et c.

Outoft he24new Speci alEconomi cZones( SEZs)approv edf orestabl

ishment(ason
31/3/ 2004) ,3 SEZs atSal tLake ( Manikanchan),Indore and Jai purhave become
oper ati
onalandanot hertwoZonesar enowr eadyforoperation.ThenewSEZsar ebeing
setupl argelybyt heStateGov ernment sortheiragenciesorbyt hepriv
atesectorin
associ ati
onwi tht heStateGov ernment sorbyt hepri
vatesect oront hei
rown.Per i
odic
meet i
ngs ar e hel d by t he Depar tment of Commer ce wi t
h t he St ate
Gov ernment s/promot er
soft heSEZst oexpedit
et heproj
ect s.EightSEZsatKandlaand
Surat( Gujarat
),Sant a Cruz (Mahar ashtr
a),Cochin( Kerala),Chennai( TamilNadu),
Vishakapat nam ( AndhraPr adesh),Falt
a(WestBengal )andNOI DA( UP)conver
tedf r
om
Expor tProcessingZones( EPZs)ar eoperati
onal.

Manuf
act
uri
ngSect
ori
nINDI
A

I
ntr
oduct
ion

Manufact
uri
nghasemergedasoneoft hehighgrowt hsector
sinIndia.Pri
meMi nist
erof
Indi
a,MrNarendr
aModi,hadlaunchedthe‘MakeinI ndia’
progr
am topl aceIndi
aont he
worldmapasamanuf actur
inghubandgi veglobalrecognit
iontotheI ndi
aneconomy .
Indi
aisexpect
edtobecomet hefif
thlar
gestmanuf acturi
ngcountryinthewor l
dbyt he
endofyear2020*
.

Mar
ketSi
ze

TheGr ossValueAdded( GVA)atbasi ccurrentpri

cesf r
om themanuf actur
ingsectorin
Indi
agr ewataCAGRof4. 34percentdur i
ngFY12andFY18aspert hesecondadv ance
esti
mat esofannualnat
ionali
ncomepubl ishedbyt heGov er
nmentofI ndi
a.InApril
-June
quart
erof2018- 19,manufact
uringsector’
sGVAatbasi cpr i
ceincreased13.5percent
year-
on-year
.UndertheMakei nIndiaini
ti
ati
v e,t
heGov er
nmentofI ndiaai
mst oincrease
theshar eofthemanufacturi
ngsect ortothegr ossdomest i
cpr oduct(GDP)to25per
centby2022,f r
om 16percent ,andt ocreat e100mi l
li
onnew jobsby2022.Busi ness
condit
ionsintheIndi
anmanuf actur
ingsectorcontinuetoremainpositi
ve.
I
nvest
ment
s

Wi t
hthehelpofMakeinIndi
adriv
e,I
ndiaisont
hepat hofbecomingt hehubforhi-
tech
manuf act
uri
ngasglobalgi
antssuchasGE,Siemens,HTC,Toshi ba,andBoeinghav e
eit
hersetuporar ei
nprocessofsett
ingupmanufacturi
ngplant
si nIndi
a,at
tract
edby
Indi
a'smarketofmor
ethanabill
i
onconsumersandincreasi
ngpurchasingpower.

AsperLabourBureau’
sQuar
ter
lyReportonEmploy
mentScenario,
manuf
act
uri
ngsect
or
addedanesti
mated89,000j
obsinthesecondquar
terof2017-
18.

Cumulati
veFor
eignDir
ectInvest
ment( FDI)i
nIndi
a’
smanuf
act
uri
ngsect
orr
eached
US$76.82bi
l
li
onduri
ngApri
l2000-June2018.

I
ndi
a has become one ofthe mostat
tracti
ve desti
nat
ions f
orinvestmentsinthe
manuf
acturi
ngsector.Someoft
hemajori
nv est
ment sanddevelopmentsinthi
ssect
or
i
ntherecentpastar
e:

I
ndi
a’smanufact
uri
ng PMIwasrecor
ded at52.20 i
n September2018.Ther
isei
n
manuf
act
uri
ngoutputi
nJul
yledt
oa14mont hexpansi
onstreak.

I
nJul y2018,Samsunginaugur
atedtheworl
d’sbi
ggestmobil
ephonefact
oryinUtt
ar
Pradesh.Thefact
orywil
ldoubl
et hecompany’
smobilephonepr
oduct
ioncapaci
tyto
120mi l
li
onuni
tsby2020.

AsofMay2018,TheChat ter
jeeGroup (
TCG)ispl
anni
ng t
o setup aConti
nuous
Poly
merisati
on(CP)uni
tandaspi nni
nguni
t,whi
chwi
l
lactasfor
wardi
ntegr
ateduni
ts
fori
tspetr
ochemical
ssubsi
diar
yMCPI .

AsofApril2018,Ralli
sIndi
a,asubsidi
aryofTataChemical
s,i
splanni
ngt
oundertake
backwar
di nt
egrat
ionasi tsinput
shav ebecomecostl
ierandthemov ewil
lhel
pt he
companytoeasepr essur
eonitsprof
itmargi
ns.

'
Fori
tsCommerci
alVehi
cles,
AshokLeyl
andisuti
l
isi
ngmachi
nel
earni
ngalgorit
hmsand
i
tsnewlycr
eat
edtel
ematicsuni
ttoimprov
et heper
for
manceoft
hev ehi
cle,dri
verand
soon.

Gov
ernmentI
nit
iat
ives

TheGovernmentofI
ndi
ahastakensever
ali
nit
iat
ivestopromot
eaheal
thyenvi
ronment
fort
hegrowthofmanufact
uri
ngsectori
nthecount r
y.Someofthenotabl
eini
ti
ati
ves
anddev
elopmentsar
e:

InSept
ember2018,t
heGovernmentofIndi
aexempted35machinepart
sfr
om basi
c
cust
om dut
yinor
dert
oboostmobil
ehandsetpr
oduct
ioni
nthecount
ry.

GovernmentofIndi
aisint
heprocessofcomingupwi t
hanew i ndust
ri
alpol
i
cywhich
env
isionsdevel
opmentofagl
obal
lycompeti
ti
veIndianindust
ry.AsofAugust2018,
the
pol
icyhasbeensenttot
heUni
onCabinetf
orapproval.

InUni
onBudget2018-19,
theGovernmentofIndi
areducedt
heincometaxr
ateto25per
centf
oral
lcompanieshavi
ngaturnoverofuptoRs250cror
e(US$38.75mil
li
on)
.
UndertheMid-Ter
m ReviewofForeignTr
adePolicy(
2015-
20)
,theGover
nmentofI
ndi
a
i
ncreasedexporti
ncent
ivesav
ail
abletol
abouri
ntensi
veMSMEsector
sby2percent
.

TheGover
nmentofIndi
ahasl aunchedaphasedmanuf act
uri
ngprogr
amme( PMP)
ai
medataddi
ngmoresmart
phonecomponentsundertheMakeinI
ndi
aini
ti
ati
vet
her
eby
gi
vi
ngapushtot
hedomesti
cmanuf act
uri
ngofmobil
ehandset
s.

TheGov er
nmentofI ndiaisintal
kswit
hstakehol
der
st ofur
thereaseforei
gndi rect
i
nvestment(FDI
)indefenceundert
heaut
omati
crout
eto51percentfrom t
hecurrent49
percent,in or
derto giveaboostt otheMakei nIndi
aini
tiat
iveand to generate
employment.

TheMini
str
yofDef ence,GovernmentofI ndi
a,approv
edt he“Str
ategicPart
nershi
p”
modelwhich willenabl
e priv
ate companies totie up wit
hf oreign pl
ayer
sf or
manuf
act
uringsubmari
nes,f
ighterj
ets,
hel
i
coptersandarmouredvehi
cles.

TheUnionCabinethasapprovedt
heModi f
iedSpecialI
ncent
ivePackageScheme(M-
SIPS)i
nwhich,proposal
swi l
lbeaccept
edt i
llDecember2018orupt oanincent
ive
commitmentl
i
mi tofRs10,
000cror
e(US$1.5bill
i
on).

RoadAhead

Indi
ai sanattr
acti
vehubforf or
eigninvestmentsi
nthemanufact
uri
ngsect
or.Sever
al
mobi l
ephone,l
uxuryandautomobilebrands,amongot
her
s,hav
esetuporarel
ookingto
establ
isht
heirmanufact
uri
ngbasesi nthecountr
y.

Themanufacturi
ngsectorofIndiahasthepotenti
altoreachUS$1t ri
ll
ionby2025and
Indi
aisexpectedtorankamongstt hetopthreegrowtheconomi esandmanufact
uri
ng
desti
nat
ion ofthewor ld bythey ear2020.Thei mplementat
ion oftheGoodsand
Servi
cesTax( GST)willmakeI ndi
aacommonmar ketwi t
haGDPofUS$2. 5tri
ll
i
on
alongwi
thapopulati
onof1. 32bil
li
onpeopl
e,whichwil
lbeabi gdrawforinv
est
ors.

Withimpet
usondev elopingi
ndustri
alcorr
idorsandsmar tcit
ies,t
hegovernmentai
ms
toensureholi
sti
cdev elopmentoft henat i
on.Thecor r
idorswoul dfur
therassi
stin
i
ntegr
ati
ng,monitor
ing and developing a conduci
ve envir
onmentf orthe i
ndustr
ial
devel
opmentandwil
l promoteadvancepracti
cesinmanuf act
uring.

Ser
vicesect
ori
nIndi
a

I
ntr
oduct
ion

Theser v
icessect orisnotonlyt hedomi nantsect orinIndi
a’sGDP, buthasalsoatt
ract
ed
si
gnifi
cantf oreigni nvest
mentf l
ows,cont r
ibutedsi gnif
icant
lyt o export
saswel las
provi
ded large-scale employment .I ndia’
s services sectorcov ers a wide v
ari
etyof
acti
vi
tiessuchast rade,hot
elandr estaurants,transport
,storageandcommuni cati
on,
fi
nancing,insurance,r ealestate,busi nessser vices,communi ty,socialandpersonal
serv
ices,andser vicesassociatedwithconst ructi
on.

Mar
ketSi
ze

Theser
vicessect
ori
sthekeydr
iverofI
ndi
a’
seconomi
cgr
owt
h.Thesect
orhas
cont
ributed55.65percentofI
ndi
a’
sGr
ossValueAddedatcur
rentpr
icei
nQ12018-
19
and empl oy
ed 28.
6 percentofthet
otalpopul
ati
on.Netservi
ceexpor
tsst
ood at
US$18. 7bil
li
oninQ12018-19(
P).

NikkeiI
ndi
aServicesPur chasingManagers'I
ndex(PMI)stoodat51.
5i nAugust2018.
Duringt
hesamemont h,businesssent
imentsofser
vicepr
ov i
der
swererecor
dedtobeat
thei
rstr
ongestl
evelssinceJanuary2015.

I
nvest
ment
s

Someofthedevel
opmentsandmaj
ori
nvest
ment
sbycompani
esi
ntheser
vicessect
or
i
nther
ecentpastar
easfoll
ows:

Leisureand busi
nesst
rav
eland t
our
ism spendi
ng areexpect
ed t
oincreaset
o Rs
14,127.1bil
li
on(US$216.
9bil
li
on)andRs806. 4bill
i
on( US$12.4bi
ll
ion)in2018,
respecti
vel
y.

I
ndi
a’
sear
ningsf
rom medi
cal
tour
ism coul
dexceedUS$9bi
l
li
onby2020.

Indi
anhealt
hcar
ecompani
esareent
eri
ngint
omergerandacqui
sit
ionswi
thdomest
ic
andfor
eigncompani
est
odri
vegrowt
handgai
nnewmarkets.

Gov
ernmentI
nit
iat
ives

TheGov er
nmentofIndiarecognisesthei
mpor tanceofpr omoti
nggrowthinserv
ices
sectorsandprovi
dessev er
alincenti
vesi
nwi dev ar
iet
yofsectorssuchashealt
hcar e,
touri
sm, education, engineeri
ng, communi cati
ons, t r
anspor
tat
ion, i
nfor
mation
technology,
banki
ng,f
inance,management,amongot hers.

Pri
meMi ni
sterNarendraModihasstatedthatIndia'
spri
orit
ywi l
lbetoworkt
owards
tr
adefaci
li
tat
ionagreement(
TFA)forserv
ices,whichisexpectedtohel
pint
hesmooth
movementofprofessi
onal
s.

TheGover
nmentofI
ndi
ahasadopt
edaf
ewi
nit
iat
ivesi
nther
ecentpast
.Someoft
hese
areasf
oll
ows:

UndertheMi d-
Term Revi
ewofForeignTradePoli
cy(2015-
20),theCent
ralGover
nment
i
ncreasedincent
ivesprov
idedunderSer
vicesExport
sfrom I
ndiaScheme( SEI
S)byt
wo
percent.

Gover
nmentofIndi
aiswor ki
ngtoremov
emanyt r
adebar
ri
erstoser
vicesandt
abl
eda
dr
aftl
egal
textonTradeFacil
i
tat
ioni
nServi
cest
otheWTOin2017.

RoadAhead

Servi
cessect
orgrowthisgover
nedbybothdomest i
candglobalf
actor
s.TheI ndi
an
faci
l
iti
esmanagementmarketi
sexpect
edtogrow at17percentCAGRbetween2015
and2020andsurpasstheUS$19bil
l
ionmarksupport
edbyboomingrealest
ate,ret
ail
,
andhospi
tal
it
ysector
s.
Thei mplementat
ionoftheGoodsandSer v
icesTax(GST)hascreatedacommon
nati
onalmarketandreducedtheoveral
ltaxburdenongoods.I
tisexpect
edt oreduce
costsinthel
ongrunonaccountofavail
abil
i
tyofGSTinputcr
edi
t,whi
chwil
lresul
tinthe
reduct
ioninpri
cesofser
vices.

ExchangeRat
eUsed:
INR1=US$0.
015asonMar
ch30,
2018