23 Compilatio - Karmayogi

ECONOMY IMPORTANT NEWS COMPILATION OF
LAST ONE YEAR
This is a humble attempt to compile some of the important concepts,news, related pyqs ,
and correlation with static concepts which were published in THE HINDU NEWSPAPER ,
Indian Express, Economic survey, PIB in last one year. No compilation can be all
exhaustive, but this is my humble attempt to include all the important topics.This is equally
important for both prelims and mains , as it covers news in depth which will be also helpful
for mains exam.
Your friend
FOUNDER KARMAYOGI IAS
ADITYA (IRON MAN)
1. Credit Suisse Crisis

Recently UBS bank agreed to buy Credit Suisse bank that involved in fraud and forgery and
collapsed eventually.
What is Credit Suisse?

•Credit Suisse is a famous investment bank headquartered in Switzerland.
•It’s been around since 1856.
•Swiss central bank has designated it one of the country’s global systemically important
banks (G-Sib).
• Credit Suisse is the 12th largest foreign bank in India and it owns assets worth Rs 20,000
crore.
Concept - Global systemically important banks (G-Sib) is a bank whose systemic risk profile is
deemed to be of such importance that the bank’s failure would trigger a wider financial crisis and
threaten the global economy.
What led to the Credit Suisse crisis?

Causes
•Fallen share price -Since the beginning of 2022, Credit Suisse’s share price has fallen
close to 60%
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•Credit default swaps (CDS) -The spreads on credit default swaps (CDS) on Credit Suisse
debt have spiked to a 14-year high — the highest since the global financial crisis of 2008.
•Risky bets -Credit Suisse has made several risky bets and ended up losing a lot of investor
money.
•Fading investor’s confidence–the falling share price eroded investor confidence, and has
made raising fresh capital costlier.
Concept- Credit Default Swaps (CDS) is an insurance instrument. If an investor who has lent
money to a firm (say Credit Suisse) is unsure about the firm’s ability to repay, the investor can buy a
CDS on Credit Suisse’s bond.
Issues -The biggest loser in the crisis are AT1 bond holders.
What is Additional Tier 1 (AT1) bonds?

•AT1 bonds are also known as “contingent convertibles,” or “CoCos”.
•They are a type of unsecured, perpetual bonds that banks issue to improve their core capital
base.
•It was introduced in the aftermath of the 2008 global financial crisis.
•AT1 are a risky bet — if a lender gets into trouble, AT1 bonds can be quickly converted
into equity or written down completely.
•They have higher risk and AT1s offer a higher yield than most other bonds.
•They are long-term and do not carry any maturity date.
•AT1 bonds are mandatory under Basel III norms.
What are the impacts on India?

•The crisis may have some impact on the Indian information Technology Industry, markets
and startups.
•The startups receiving funds from Silicon valley bank may face funding issues.
•India has implemented Basel-III norms for the banking system.
•Under this system, banks have to maintain liquidity coverage ratio, which was actually
missing from the SVB case and to some extends even in the case of Credit Suisse
•AT1 may contribute to a higher cost of capital for banks, including Indian lenders
2. SILICON VALLEY BANK CRISIS
Silicon Valley Bank collapsed with astounding speed, leaving investors on edge about whether its
demise could spark a broader banking meltdown, like the 2008 financial crisis.
SVB collapse
•Monetary Policy –The era of easy monetary policy has enabled tech companies of all sizes
to raise and deploy funds, and SVB benefited from this boom.
•Global Inflation –The recent Ukraine war fuelled global inflation levels and that led
central banks to tighten monetary policy aggressively.
•Government Bonds –SVB ploughed billions into US government bonds during the era of
near-zero interest rates.
•Interest rate hike – The Federal Reserve hiked interest rates aggressively to tame inflation.
•Fall in bond price – When interest rates rise, bond prices fall, so the jump in rates eroded
the value of SVB’s bond portfolio.
•High borrowing costs – At the same time, the Fed’s hiking sent borrowing costs higher,
meaning tech start-ups had to channel more cash towards repaying debt.
•Withdrawal of deposits– The start-ups struggled to raise new venture capital funding
which forced companies to withdraw deposits held by SVB to fund their operations and
growth.
Concept-Banks fail as they lend long term, whereas, their deposits are short term. They cannot call
back their long-term loans easily, whereas their short-term deposits have to be paid on demand.
Bridge bank is an entity to temporarily take over the liabilities and operations of a failed bank till a
buyer is found.
3. PMLA Amendments
The government has been struggling in recent years to formulate an appropriate regulatory
response to deal with the pandemic-era upsurge in advertisements soliciting investment in virtual
assets as well as reports of actual investment.
•A July 2021 online report had estimated India as being the country with the highest
number of ‘crypto owners’, which was more than threefold the number of owners of
crypto assets in the second-ranked U.S.
Amendments in the PMLA Rules
•The new clause in the rules for PMLA compliance defines “Politically Exposed Persons”
as individuals who have been “entrusted with prominent public functions by a foreign
country, including the heads of States or Governments, senior politicians, senior
government or judicial or military officers, senior executives of state-owned corporations
and important political party officials”.
•The move will bring uniformity with a 2008 circular of the Reserve Bank of
India (RBI) for KYC norms/anti-money laundering standards for banks and
financial institutions, which had defined PEPs in line with FATF norms.
•The ED is the main agency probing allegations under PMLA.
•The amended rules also have lowered the threshold for identifying beneficial owners by
reporting entities, where the client is acting on behalf of its beneficial owner, in line with the
Companies Act and Income-tax Act.
•The term ‘beneficial owner’ are those with the entitlement of more than 25% of
shares or capital or profit of the company, which has now been reduced to 10%.
•Reporting entities are now required to register details of the client if it’s a non-profit
organisation on the DARPAN portal of NITI Aayog.
•If not already registered, and maintain such registration records for a period of five
years after the business relationship between a client and a reporting entity has ended
or the account has been closed, whichever is later.
•The due diligence documentation requirements, which were until now limited to
obtaining the basic KYCs of clients such as registration certificates, PAN copies and
documents of officers holding an attorney to transact on behalf of the client, have now been
extended.
•Virtual digital assets (VDA) trade has been brought under PMLA. As of now,
cryptocurrencies are unregulated in India, though the government has taxed their
withdrawals into rupees.
•New rules mandate crypto exchanges and intermediaries dealing in virtual assets
to maintain the KYCs of their clients and report suspicious transactions to financial
intelligence units.
The new rules will make the legal position clearer for both the investigating agency as well as
people indulging in fraud via such modes of digital currency.
•It will prevent the misuse of crypto, and NFTs through money laundering and other
illegal activities.
Significance of the FATF-related changes
•The amendments assume significance ahead of India’s proposed FATF assessment, which
is expected to be undertaken later this year.
•The broader objective is to bring in legal uniformity and remove ambiguities before the
FATF assessment.
•In its recommendations, the FATF states that financial institutions should be required to
have appropriate risk-management systems to determine whether a customer or beneficial
owner is a domestic PEP or a person who is or has been entrusted with a prominent function
by an international organisation.
Concerns
•The definition of PEP, however, leaves a lot to interpretation and in the absence of clear
markers as to what rank, up to how much time after demitting office etc, would an individual
be considered a PEP, it would give the authorities too much discretion. Such discretion, if
not checked, could easily be misused and it would be best to define the ambiguities left in
this amendment.
4. SWAMIH FUND
The Special Window for Affordable and Mid-Income Housing (SWAMIH) Investment Fund I has
raised Rs 15,530 crore so far to provide priority debt financing for the completion of stressed,
brownfield and Real Estate Regulatory Authority (RERA)-registered residential projects that fall in
the affordable, mid-income housing category. SWAMIH has so far provided final approval to about
130 projects with sanctions worth over Rs 12,000 crore.
What is the SWAMIH investment fund?

The Special Window for Affordable and Mid-Income Housing (SWAMIH) Investment Fund I is a
social impact fund specifically formed for completing stressed and stalled residential projects.
The Fund is sponsored by the Ministry of Finance, Government of India, and is managed by
SBICAP Ventures Ltd., a State Bank Group company.
Since the Fund considers first-time developers, established developers with troubled projects,
developers with a poor track record of stalled projects, customer complaints and NPA accounts, and
even projects where there are litigation issues, it is considered as the lender of last resort for
distressed projects. The Fund’s presence in a project often acts as a catalyst for better collections
and sales primarily in projects that were delayed for years.
According to the Finance Ministry, SWAMIH Fund has one of the largest domestic real estate
private equity teams focused only on funding and monitoring the completion of stressed housing
projects
5. QUALIFIED STOCK BROKERS
The National Stock Exchange (NSE) issued a list of 15 designated Qualified Stock Brokers
(QSBs), including Zerodha Broking, 5paisa Capital, HDFC Securities, ICICI Securities, Anand
Rathi Share and Stock Brokers, Angel One, IIFL Securities, Kotak Securities, and Motilal Oswal
Financial Services.
Who are Qualified Stock Brokers?

SEBI defines QSBs as entities who, because of their size and scale of operations, can likely impact
investors and the securities market, as well as governance and service standards. These stock
brokers cater to the needs of a large number of investors.
Why are QSBs important?

Due to their size, trading volumes, and amount of clients’ funds handled by them, QSBs occupy a
significant position in the Indian securities market. The stock market activity is concentrated to
these designated stock brokers. The failure of such stock brokers has the potential to cause
disruption in the services they provide to large numbers of investors, causing widespread impact in
the securities market.
How are Qualified Stock Brokers designated?

A stock broker will be designated as QSB on the basis of four parameters — number of active
clients, total available assets of clients, trading volumes. and end-of-day margin obligations. All
stock brokers with a total score greater than or equal to five on these four parameters are identified
as QSBs.
The capital markets regulator said it may include more stock brokers in its list of designated QSBs
by considering additional parameters such as compliance, grievance redressal scores and proprietary
trading volumes.
The scores are to be calculated on an annual basis (financial year) and the revised list of QSBs will
be released jointly by stock exchanges, in consultation with SEBI.
6. Inflation: Hard landing, soft landing
Hard Landing- A hard landing is when the central bank of an economy hikes the rate so
aggressively to curb inflation that it leads to a recession.
"A hard landing refers to a marked economic slowdown or downturn following a period of rapid
growth. The term "hard landing" comes from aviation, where it refers to the kind of high-speed
landing that—while not an actual crash—is a source of stress as well as potential damage and
injury.
The metaphor is used for high-flying economies that run into a sudden, sharp check on their growth,
such as a monetary policy intervention meant to curb inflation. Economies that experience a hard
landing often slip into a stagnant period or even recession"
Soft Landing- "A soft landing, in economics, is a cyclical slowdown in economic growth that
avoids recession.
A soft landing is the goal of a central bank when it seeks to raise interest rates just enough to stop an
economy from overheating and experiencing high inflation, without causing a severe downturn.
Soft landing may also refer to a gradual, relatively painless slowdown in a particular industry or
economic sector,"
As can be deduced by their definitions, generally a soft landing is considered to be a more desirable
goal for economic policymakers. To achieve a soft landing, policymakers gradually raise rates in
order to curb price inflation without sacrificing jobs or unnecessarily inflicting economic pain on
people and corporations carrying debt.
However, the more dependent the economy becomes on fiscal stimulus, the more it becomes
difficult to wean off slowly for a soft landing.
7. SUGAR EXPORTS SURGING

India has become world No. 2 in sugar export, behind only Brazil.
India is the world’s largest producer and consumer of sugar .Importers of Indian Raw Sugar:
Indonesia, Bangladesh, and Saudi Arabia.
Types of Sugar:
•Raw Brown sugar: Raw sugar is what mills produce after the first crystallisation of juice
obtained from the crushing of cane. This sugar is rough and brownish in colour.
•Most of the world’s sugar trade is in ‘raws’ and they can be transported in bulk
vessels and requires no bagging or containerisation.
•Till 2017-18, India hardly exported any raw sugar.
•Refined White sugar: Raw sugar after being processed in refineries for the removal of
impurities and de-colourisation.
Advantages of Indian raw sugar in the International Market:
•Season advantage: India’s crushing is from October to April, whereas Brazilian mills
operate from April to November. Hence, importers are utilising Indian raw sugar during
Brazil’s off-season.
•Freight cost savings: India is much closer to its major sugar importers (compared to
Brazil) and therefore less freight cost.
•Indian sugar is free of dextran: Dextran is a bacterial compound formed when sugarcane
stays in the sun for too long after harvesting.
•Indian raw sugar has no dextran, as it is produced from fresh cane crushed within 12-24
hours of harvesting (compared to 48 hours or more in Brazil)
•India’s sugar has a higher % of sucrose present.
Government Policies for higher Sugar Production:

•Pricing:
•Fair and remunerative price (FRP):The FRP is the minimum price that sugar
mills have to pay to sugarcane farmers for the procurement of sugarcane.
•State-Advised Price: Although the Central government decides the FRP the state
governments can also set a State Advised price that a sugar mill has to pay to the
farmers.
•Encouraging Ethanol Production to be used in Ethanol Blending with Petrol (EBP)
Programme
•Scheme for Extending Financial Assistance to Sugar Undertakings (SEFASU)
•National Policy on Biofuels 2018
Concerns:
Lower stocks, lower production and concerns about domestic availability and food inflation have
led the government to cap India’s exports in the current sugar year. However, once the overseas
markets are lost, they are not easy to regain.
Way forward= Rangarajan committee (2012) has recommended the abolition of the quantitative
controls on the export and import of sugar, these should be replaced by appropriate tariffs.
About Sugar Industry:

•The sugar industry is the second largest agro-based industry in India after cotton.
•Employment: 50 million sugarcane farmers and around 5 lakh workers are directly
employed in sugar mills.
8. UPI
India’s real-time retail payment system Unified Payments Interface (UPI), which has allowed for
quick digital payments through apps like BharatPe and Paytm, and its equivalent network in
Singapore called PayNow, were integrated to enable faster remittances between the two countries at
a competitive rate.
Unified Payments Interface (UPI)

•UPI is a system that powers multiple bank accounts into a single mobile application (of any
participating bank).
•It does so by merging several banking features, seamless fund routing & merchant payments into
one hood.
•In other words, UPI is an interface via which one can transfer money between bank accounts
across a single window.
•It was launched in 2016, by the National Payments Corporation of India (NPCI).
Features of UPI
•Immediate money transfer through mobile device round the clock (24*7 and 365 days)
•Single mobile application for accessing different bank accounts
•Hassle free transactions as customers are not required to enter the details such as Card no, Account
number, IFSC etc.
Benefits of UPI
•For Banks
•A universal application for transaction;
•A single click Two Factor authentication;
•Safer and more secure; Enables easy transactions;
•Unique Identifier
•For Merchants
•Easier fund collection; In-App Payments (IAP)
•No risk of storing the customer's virtual address;
•Tap customers not having credit/debit cards
•For Customers
•Single application for accessing various bank accounts;
•Round the clock availability;
•One can easily raise a complaint from the mobile app directly;
•Use of Virtual ID is secure
PayNow- PayNow is a fast payment system in Singapore. It enables peer-to-peer funds transfer
service, available to retail customers through participating banks and Non-Bank Financial
Institutions (NFIs) in Singapore. It allows users to send and receive instant funds from one bank or
e-wallet account to another in Singapore by using just their mobile number, Singapore National
Registration Identity Card (NRIC)/Foreign Identification Number (FIN), or VPA.
G20 Tourists can use UPI at select Indian Airports
RBI has said that it will allow all inbound travellers to use UPI payments for their merchant
payments while they are in the country.
•The facility will be first introduced for travellers from G20 countries arriving at select international
airports.
More details
•Banks and non-banks, authorised to issue prepaid payment instruments (PPIs), can issue rupee-
denominated full-KYC PPIs to foreign nationals and NRIs visiting India.
•Such PPIs can also be issued in co-branding arrangement with entities authorised to deal in foreign
exchange under FEMA.The Foreign Exchange Management Act (FEMA) is legislation which
regulates the inflow and outflow of foreign exchange.
•The PPIs can be issued in the form of wallets linked to UPI — like Google Pay and PhonePe —
and can be used for merchant payments (P2M) only.
•Loading and reloading of such PPIs will be against receipt of foreign exchange by cash or through
any payment instrument.
9. Transfer Pricing
The Income Tax department recently conducted surveys in BBC offices located in Mumbai, Delhi,
and in different other cities in the country. According to the IT Department, the BBC has violated
“Transfer Pricing Rules”.Transfer Pricing is a practice where one company charges another (in the
same division). The parent company of both companies is the same.
What is transfer pricing?

•Transfer pricing is an accounting practice that represents the price that one division in a
company charges another division for goods and services provided.
•In such transactions, one party transfers to another goods or services, for a price known as transfer
price.
•This may be arbitrary and dictated, with no relation to cost and added value, diverge from the
market forces.
•Hence, the expression “transfer pricing” generally refers to prices of transactions between
associated enterprises which may take place under conditions differing from those taking place
between independent enterprises.
Understanding transfer pricing
•Suppose a company A purchases goods for 100 rupees and sells it to its associated company B in
another country for 200 rupees, who in turn sells in the open market for 400 rupees.
•Had A sold it direct, it would have made a profit of 300 rupees. But by routing it through B, it
restricted it to 100 rupees, permitting B to appropriate the balance.
•The transaction between A and B is arranged and not governed by market forces. The profit of 200
rupees is, thereby, shifted to the country of B.
•The goods is transferred on a price (transfer price) which is arbitrary or dictated (200 hundred
rupees), but not on the market price (400 rupees).
What effect does transfer pricing have?
•The parent company — or a specific subsidiary — tends to produce insufficient taxable income or
excessive loss on a transaction.
•Profits accruing to the parent can be increased by setting high transfer prices to siphon profits from
subsidiaries domiciled in high-tax countries, and low transfer prices to move profits to subsidiaries
located in low-tax jurisdiction.
What is the “arm’s length arrangement” that the BBC has allegedly violated?
•Section 92F of the Income Tax Act, 1961 defines arm’s length price as a price which is applied
or proposed to be applied in a transaction between persons other than associated enterprises,
in uncontrolled conditions.
•ie., the price a division or subsidiary of a company pays to buy goods or services from another
division or subsidiary should be the same as the market rate — as if the two entities were unrelated.
•This is the rule the BBC has allegedly violated.
10. PROPOSED CHANGES IN ANGEL TAX
Context: According to a proposal made in the Finance Bill, 2023, foreign/angel investors may be
required to pay the “angel tax,” which was previously only supposed to be paid for investments
raised by resident Indian investors.
What exactly is the proposed change?
•The Finance Bill 2023, has proposed to amend Section 56(2) VII B of the Income Tax Act.
•According to the clause (introduced in 2012 and commonly known as the ‘angel tax’),
equity investments from residents for the issuance of shares at a price above their face value
are treated as income for unlisted businesses like start-ups.
•For instance, if a start-up share has a fair market value of Rs 10 per unit and is sold
to an investor for Rs 20 during a subsequent funding round, the difference of Rs 10
would be taxable as income (at 30%).
•By subscribing to shares of a closely held company at a price over the shares’ fair
market value, it aims to prevent the creation and use of unaccounted money.
•However, with the latest amendment, the government has proposed to also include foreign
investors in the ambit.
Why are start-ups concerned?
•According to a PwC India report, funding for India’s start-ups dropped by 33% to $24
billion in 2022 as compared to the previous year.
•Foreign investors are a key source of funding for start-ups and have played a big role in
increasing the valuation.
•For instance, Tiger Global has invested in over a third of the start-ups that have
turned unicorns (valuation of at least $1 billion).
•The proposed amendment will accelerate flipping overseas, as foreign investors may not
want to deal with additional tax liability.
Related PYQ
What does venture capital mean?
1.Short-term capital provided to industries
2.A long-term start-up capital provided to new entrepreneurs
3.Funds provided to industries at times of incurring losses
4.Funds provided for the replacement and renovation of industries
11. T+1 SETTLEMENT CYCLE

Context:
•After China, India will become the second country in the world to start the ‘trade-plus-one’
(T+1) settlement cycle in top-listed securities from January 27.
•This is for bringing operational efficiency, faster fund remittances, share delivery, and ease for
stock market participants.
Trade Settlement:
•Trade settlement is a two-way process wherein the purchased securities are delivered to the
buyer, and the seller receives cash.
•As one buys or sells financial securities, the actual transfer of ownership occurs on the settlement
date.
What Is T+1 (T+2, T+3)?
•T+1 (T+2, T+3) are abbreviations that refer to the settlement date of security transactions.
•The "T" stands for transaction date, which is the day the transaction takes place.
•The numbers 1, 2, or 3 denote how many days after the transaction date the settlement—or the
transfer of money and security ownership—takes place.
•For determining the T+1 (T+2, T+3) settlement date, the only days counted are those on which the
stock market is open.
Decoding T+1 settlement plan
•The T+1 settlement cycle means that trade-related settlements must be done within a day, or 24
hours, of the completion of a transaction.
•For example, under T+1, if a customer bought shares on Wednesday, they would be credited to the
customer’s demat account on Thursday. This is different from T+2, where they will be settled on
Friday.
•As many as 25 large-cap and top mid-cap stocks, including Nifty and Sensex stocks, will come
under the T+1 settlement.
•Until 2001, stock markets had a weekly settlement system. The markets then moved to a rolling
settlement system of T+3, and then to T+2 in 2003. T+1 is being implemented despite opposition
from foreign investors. The United States, United Kingdom and Eurozone markets are yet to move
to the T+1 system.
What are the benefits of T+1?
Boost to Digital Journey: Seamless transactions
•In the T+1 format, if an investor sells a share, she will get the money within a day, and the
buyer will get the shares in her demat account also within a day.
•The shorter trade settlement cycle that is set to be implemented augurs well for the Indian equity
markets from a liquidity perspective, and it shows how well we have grown on the digital
journey to ensure seamless settlements within 24 hours.
Operational Efficiency
•This will also help in getting the funds in the bank account within 24 hours of the sale of shares.
The shift will boost operational efficiency as the rolling of funds and stocks will be faster.
Makes Markets Safer
•A T+1 settlement cycle frees up the capital required to collateralize that risk.
•A shortened settlement cycle also reduces the number of outstanding unsettled trades at any point
of time, and thus decreases the unsettled exposure to Clearing Corporation by 50 percent.
•The narrower the settlement cycle, the narrower the time window for a counterparty insolvency/
bankruptcy to impact the settlement of a trade.
Note: If bankruptcy is filed, settlements are impacted. A shorter settlement cycle will reduce this
impact.
•Further, the capital blocked in the system will get proportionately reduced with the number of
outstanding unsettled trades at any point in time.
•Systemic risk depends on the number of outstanding trades and concentration of risk and becomes
critical when this magnitude of outstanding transactions increases. Thus, in this era of increasing
trade volumes, a shortened settlement cycle will help in reducing systemic risk.
SYSTEMIC RISK
Systemic risk refers to the risk of a breakdown of an entire system rather than
simply the failure of individual parts. In a financial context, it denotes the risk of a
cascading failure in the financial sector, caused by linkages within the financial
system, resulting in a severe economic downturn.
Why are foreign investors opposed?

•Foreign investors were against SEBI’s T+1 proposal, and had written to the regulator and the
Finance Ministry about the operational issues faced by them, as they operate from different
geographies.
•Among the issues raised by them were time zone difference, information flow process, and
foreign exchange problems.
Note: In 2020, SEBI had deferred the plan to halve the trade settlement cycle to one day (T+1)
following opposition from foreign investors.
12. SEBI
Context:
•Madhabi Puri Buch has been appointed Sebi chairperson for a term of three years.
Securities and Exchange Board of India (SEBI):
•About: The Securities and Exchange Board of India (SEBI) is a statutory body established
under the SEBI act of 1992.
•Formation: It was formed in response to prevent malpractices in the capital markets that were
negatively impacting people’s confidence in the market.
•Objective: Its primary objective is to protect the interest of the investors, preventing malpractices,
and ensuring the proper and fair functioning of the markets.
Functions of SEBI:
SEBI has many functions, they can be categorized as:
•Protective functions: To protect the interests of the investors and other market participants. It
includes – preventing insider trading, spreading investor education and awareness, checking for
price rigging, etc.
•Regulatory functions: These are performed to ensure the proper functioning of various activities
in the markets. It includes – formulating and implementing code of conduct and guidelines for all
types of market participants, conducting an audit of the exchanges, registration of intermediaries
like brokers, investment bankers, levying fees, and fines against misconduct.
•Development functions: These are performed to promote the growth and development of the
capital markets. It includes – Imparting training to various intermediaries, conducting research,
promoting self-regulation of organizations, facilitating innovation, etc.
Powers of SEBI:
•To perform its functions and achieve its objectives, SEBI has the following powers:
•To change laws relating to the functioning of the stock exchange
•To access record and financial statements of the exchanges
•To conduct hearing and give judgments on cases of malpractices in the markets.
•To approve the listing and force delisting of companies from any exchanges.
•To take disciplinary actions like fines and penalties against participants who involve in
malpractice.
•To regulate various intermediaries and middlemen like brokers.
Members:
The SEBI is managed by its members, which consists of the following:
•The chairman is nominated by the Union Government of India.
•Two members, i.e., Officers from the Union Finance Ministry.
•One member from the Reserve Bank of India.
•The remaining five members are nominated by the Union Government of India, out of them at least
three shall be whole-time members.
Related PYQ
Q.Consider the following statements:
1. In India credit rating agencies are regulated by the Reserve Bank of India.
2. The rating agency popularly known as ICRA is a public limited company.
3. Brickwork Ratings is an Indian credit rating agency.
Which of the statements given above are correct?
[A] 1 and 2 only
[B] 2 and 3 only
[C] 1 and 3 only
[D] 1, 2 and 3
Credit Rating Agencies form an essential part of the financial markets. They are regulated by
SEBI and not by RBI under the powers derived from the Securities and Exchange Board of
India (Credit Rating Agencies) Regulations, 1999.
13. Sovereign Green Bonds

Context- The Reserve Bank of India (RBI) recently auctioned its maiden sovereign green
bonds worth₹8,000 crore.
What is it?
Governments issue sovereign green bonds to raise money for projects that deal with the
environment or the climate. Investors, however, could require clarification on issues like interest
rates, liquidity, and trading.
According to the World Bank, a green bond is a debt security that is issued to raise money for
initiatives that are relevant to the environment or the climate. Governments offer sovereign green
bonds to raise money for these kinds of initiatives.
The first-ever Green Bond was issued by the World Bank in 2008. Ever since its issuance, the Green
Bond Market experienced an insane spike.
Green bonds, popularly known as climate bonds, are fixed interest-bearing financial instruments
issued by any sovereign entity / inter-governmental organisation /corporation. The proceeds of these
bonds are used only for environmentally conscious, climate-resilient projects.
14. Drone insurance
Context- The nascent drone insurance market in India is seeing a flurry of activity. After HDFC
Ergo, ICICI Lombard, Bajaj Allianz, and Tata AIG, public sector New India Assurance has
launched its unmanned aircraft system insurance.
What’s on offer?
Insurance players are now offering drone coverage within the framework set by the Insurance
Regulatory and Development Authority of India (IRDAI).
What is covered under drone insurance?

The policy is designed to cover fixed wing, rotor wing and hybrid UAS that can be controlled
remotely (with pilot intervention) or autonomous drones (without pilot intervention).
The insurance protection offered for the damage to the drone and payload it carries will provide
coverage for the replacement or repair, accidental loss of or damage to the UAS arising from the
risks covered, including disappearance if the UAS is unreported after the commencement of Flight.
Third-party liability coverage will cover legal liabilities like bodily damage or property damage
claims to third parties arising out of the usage and operation of drones, Bajaj Allianz said.
How big is the drone market in India?

A recent EY – FICCI report, ‘Making India the drone hub of the world,’ indicated that drones and
allied component industries can boost India’s manufacturing potential by approximately $23 billion
by 2030. The report emphasised the need for innovative and competitive manufacturing capabilities
and a strong action plan to help India become a global hub for drone manufacturing by 2030.
It also highlighted the importance of generating a strong demand, increasing manufacturing,
drawing investments and facilitating exports.
What are the regulations in the sector?

The Director General of Civil Aviation (DGCA) initially offered coverage to drones within a visual
line of sight (VLOS) and during the day. However, the regulator changed the guidelines to offer
coverage beyond VLOS. Insurance regulator IRDAI asked insurers to offer drone insurance
coverage in February 2021.
15. DIGITAL RUPEE

Context- The Reserve Bank of India (RBI) has announced the launch of the first retail digital Rupee
(e₹-R) pilot on December 1, 2022.
What Is Digital Rupee?
A digital currency is any currency that is available entirely in electronic form. Currencies’ electronic
types already predominate a large number of nations’ financial systems. Digital currency, however,
is exclusively exchanged through virtual means and does not leave a computer network.
The three major varieties of digital currency are cryptocurrency, central bank digital currency
(CBDCs) and stablecoins.
Legal Tender: CBDC will be considered as a medium of payment and legal tender by all three
parties – citizens, government bodies, and enterprises. Being government-recognised, it can be
freely converted to any commercial bank’s money or notes.
The underlying technology of cryptocurrency and the digital rupee system will be blockchain
technology. However, cryptocurrencies like bitcoin or ethereum are ‘private’ in nature. Digital rupee
on the other hand, will be issued and controlled by the RBI. E-rupee would move away from the
competitive ‘mining’ of private cryptocurrencies to an algorithm-based process.
Objective
•CBDC seems to be a natural next step in the evolution of official coinage (from metal-
based money, to metal-backed banknotes, to physical fiat money)
•The prime reasons for exploring CBDC’s use case entail
•fostering financial inclusion
•Reducing costs associated with physical cash management
•Introducing a more resilient and innovative payments system.
•More importantly, it would provide the general populace an alternative to unregulated
cryptocurrencies and their associated risks.
•The e₹ can be converted to any commercial bank money or cash. It would be a fungible
legal tender for which holders need not have a bank account – hence, strengthening the
cause of financial inclusion.
•Issuing CBDC allow central banks to more effectively satisfy public policy goals, including
operational efficiency, financial stability, monetary policy effectiveness, and financial
integrity.
Types
•On the basis of usage and the functions performed by the digital rupee and considering the
different levels of accessibility, CBDC can be demarcated into two broad categories —
general purpose (retail) (CBDC-R) and wholesale (CBDC-W).
•Retail CBDC is an electronic version of cash primarily meant for retail
transactions. It will be used by all — private sector, non-financial consumers and
businesses.
•Wholesale CBDC is designed for restricted access to select financial institutions.
It has the potential to transform the settlement systems for financial transactions
undertaken by banks into government securities (G-Sec) segment, inter-bank market
and capital market more efficiently and securely in terms of operational costs, use of
collateral and liquidity management.
How it will work?

Users will be able to transact with e₹-R through a digital wallet offered by the participating
banks and stored on mobile phones and devices, according to the RBI.
•Transactions can be both person to person (P2P) and person to merchant (P2M).
•Payments to merchants can be made using QR codes displayed at merchant
locations.
What Are The Advantages Of Digital Rupee?

Here are some of the advantages of digital currency:
Faster Mode of Payment

Digital currency can make your payments much faster than current means like automated clearing
houses or wire transfers that take days for financial institutions to confirm a transaction.
Cheaper Global Transfers

At times global transactions can get very expensive. Individuals are charged high fees to move
funds from one nation to another, especially when it includes currency conversions. Digital assets
could interrupt this market by making the transaction cost-effective and quick.
24/7 Availability
Digital currency transactions work at the same speed i.e. 24 hours a day and seven days a week. On
the other hand, existing money transfers frequently take more time during weekends and outside
normal working hours because banks are shut and cannot confirm transactions.
No Manufacturing Required
Physical currencies have many requirements such as the establishment of physical manufacturing
facilities. Whereas, in digital currencies, no such expense is involved. Also, digital currencies are
immune to soiling or physical defects that are present in physical currency.
Well-organized Government Payments

If the government developed a central bank of digital currency, it could send payments like child
benefits and food stamps, and tax refunds to people instantly, rather than trying to figure out prepaid
debit cards or mail them a check.
What Are The Disadvantages Of Digital Rupee?

Here’s a list of some drawbacks of digital rupee:
Options
The crypto popularity is a downside. According to the head of Sidley’s FinTech and Blockchain
group Lilya Tessler, across different blockchains, there are several digital currencies being created
with their own limitations.
It will take a certain amount of time to decide which digital currencies in certain cases might be
appropriate to use.It also includes whether a few are designed to scale for mass adoption.
Costly Transaction
Crypto uses blockchain technology where computers must resolve complex equations to validate
and record transactions. This in turn takes a significant amount of electricity, the more the
transaction the more the expense.
However, this would probably not exist for the central bank of digital currencies as complex
consensus processes are not required and CBDC would likely oversee it.
Steep Learning Curve

On the part of the user, digital currencies require work to learn fundamental tasks like how to open a
digital wallet and securely store digital assets. For the wide adoption of digital currencies, the
system needs to be simplified.
Issues of Cybersecurity
The digital currency has made people constantly worry about cybersecurity and facing many threats
due to less secure methods to store this money. Cyberattacks are probably increasing and can also
threaten digital currency users with virtual theft.
Do We Need the Digital Rupee?

The most important reason for launching a digital rupee by the RBI is to push India forward in the
virtual currency race. And, of course, due to the growing importance of cryptocurrency.
•With blockchain technology, the digital rupee will increase efficiency and transparency.
•Blockchain will also enable real-time tracking and ledger maintenance.
•The payment system will be available to wholesale and retail customers 24/7.
•Indian buyers can pay without a middle man.
•Lower transaction cost.
•Real-time account settlements.
•You don’t have to open a bank account to transact with a digital rupee.
•Fast cross-border transactions.
•No risk of volatility, as the RBI, will back it.
•Compared to currency notes, the digital rupee will be mobile forever.
Related PYQ
Which one of the following statements correctly describes the meaning of legal
tender money ?
[A] The money which is tendered in courts of law to defray the fee of legal cases
[B] The money which a creditor is under compulsion to accept in settlement of his claims
[C] The bank money in the form of cheques drafts, bills of exchange, etc.
[D] The metallic money in circulation in a country
With reference to digital payments, consider the following statements:

1.BHIM app allows the user to transfer money to anyone with a UPI-enabled bank
account.
2.While a chip-pin debit card has four factors authentication, BHIM app has only two
factors of authentication.
Which of the statements given above is/are correct?
[A] 1 only
[B] 2 only
[C] Both 1 and 2
[D] Neither 1 nor
17. Loan Write off
Banks wrote off more than Rs 10 lakh crore in loans over the last five years, according to RBI under
the Right to Information (RTI) Act.
•They have been able to recover only 13% of the $123.86 billion they wrote off.
•Public sector banks write-offs accounted for 72.78% includes SBI, PNB and BOB.
•Private sector banks accounted for 27.2% includes ICICI (highest reduction), Axis Bank,
HDFC Bank.
About Loan Write Offs:
•A loan is an asset on the balance sheet of a bank, lent out of depositor’s money.
•Writing off a loan essentially means it will no longer be counted as an asset.
•The bank writes off a loan after the borrower has defaulted on the loan repayment and
there is a very low chance of recovery.
•The lender then moves the defaulted loan, or NPA, out of the assets side and reports the
amount as a loss.
•After the write-off, banks are supposed to continue their efforts to recover the loan using
various options and make provisioning as well.
•Significance:
•By writing off loans, a bank can reduce the level of non-performing assets (NPAs) on its
books.
•Amount so written off reduces the bank’s tax liability.
•Due to low chances of recovery from written-off loans, it raises questions about the assets
or collateral against which the banks lent funds to these defaulters.
Related PYQ
What is the importance of the term “Interest Coverage Ratio” of a firm in India?
1.It helps in understanding the present risk of a firm that a bank is going to give loan to.
2.It helps in evaluating the emerging risk of a firm that a bank is going to give loan to.
3.The higher a borrowing firm’s level of Interest Coverage Ratio, the worse is its ability to
service its debt.
Select the correct answer using the code given below:
a.1 and 2 only
b.2 only
c.1 and 3 only
d.1, 2 and 3
The interest coverage ratio is a debt and profitability ratio used to determine how easily a firm can
pay or cover the interest on its outstanding debt.
This ratio measures how many times a company can cover its current interest payment with its
available earnings.
In simple terms, the interest coverage ratio of a firm is the ratio of a firm’s profit after tax to its
interest expense.
18. NON PERFORMING ASSETS

Context: Probing the links between twin balance sheet crisis and external commodity shocks
could lead to a better understanding of the problem of resolving Non Performing Assets.
Definition of NPAs:
•Non-Performing Assets: In most cases, debt is classified as non-performing, when the loan
payments have not been made for a minimum period of 90 days.
•Twin balance sheet crisis: A twin balance sheet is a scenario where banks are under severe
stress and the corporates are overleveraged to the extent that they cannot repay their loans.
Categories of Non-Performing Assets (NPAs)
Based upon the period to which a loan has remained as NPA, it is classified into 3 types:
Substandard Assets: An asset which remains as NPAs for less than or equal to 12 months.
Doubtful Assets: An asset which remained in the above category for 12 months.
Loss Assets: Asset where loss has been identified by the bank or the RBI, however, there may be
some value remaining in it. Therefore, loan has not been not completely written off.
Reasons for rise in NPAs:

•Governance issues: Poor management in public sector banks stemming from government
ownership has been cited as the major causes of the NPA crisis.
•Wrong narrative: The government ownership does not explain the improvement in
performance that public sector banks saw throughout the 2000s.It is improbable that
governance improved suddenly (late 2000s) and dwindled subsequently (2011-18).
•Distinct business models: A careful examination of the data gives overwhelming evidence
that a large fraction of the difference between NPAs in the public and private sector banks
arose due to differences in their business models.
•Price decline: The rise in NPAs from 2011 onwards coincides with the fall in international
commodity prices.
•No NPA stress despite pandemic: It is because of the commodity price boom in the last
two years that despite the worst kind of economic crisis due to Covid-19, hardly any stress
in the banking sector during the pandemic is heard.
•Statistics: According to the Reserve Bank of India’s latest financial stability report, gross
non-performing loans (GNPAs) of the banking system have declined from 7.4 per cent in
March 2021 to a six-year low of 5.9 per cent in March 2022.
Impacts of rise in NPAs:
•Lenders suffer a lowering of profit margins.
•Stress in banking sector causes less money available to fund other projects, therefore,
negative impact on the larger national economy.
•Higher interest rates by the banks to maintain the profit margin.
•Redirecting funds from the good projects to the bad ones.
•As investments got stuck, it may result in it may result in unemployment.
•Investors do not get rightful returns.
•Balance sheet syndrome of Indian characteristics that is both the banks and the corporate
sector have stressed balance sheet and causes halting of the investment-led development
process.
•NPAs related cases add more pressure to already pending cases with the judiciary.
Government’s Initiatives to tackle NPAs:

Lok Adalats – 2001
•They are helpful in tackling and recovery of small loans however they are limited up to 5
lakh rupees loans only by the RBI guidelines issued in 2001. They are positive in the sense
that they avoid more cases into the legal system.
Compromise Settlement – 2001
•It provides a simple mechanism for recovery of NPA for the advances below Rs. 10 Crores.
It covers lawsuits with courts and DRTs (Debt Recovery Tribunals) however wilful default
and fraud cases are excluded.
SARFAESI Act – 2002
•The Securitization and Reconstruction of Financial Assets and Enforcement of Security
Interest (SARFAESI) Act, 2002 – The Act permits Banks / Financial Institutions to recover
their NPAs without the involvement of the Court, through acquiring and disposing of the
secured assets in NPA accounts with an outstanding amount of Rs. 1 lakh and above.
Mission Indradhanush – 2015
•The Indradhanush framework for transforming the PSBs represents the most
comprehensive reform effort undertaken since banking nationalization in the year 1970 to
revamp the Public Sector Banks (PSBs) and improve their overall performance.
Insolvency and Bankruptcy code Act-2016
•It has been formulated to tackle the Chakravyuaha Challenge (Economic Survey) of the exit
problem in India.
•The aim of this law is to promote entrepreneurship, availability of credit, and balance the
interests of all stakeholders by consolidating and amending the laws relating to
reorganization and insolvency resolution of corporate persons, partnership firms and
individuals in a time-bound manner and for maximization of value of assets of such persons
and matters connected therewith or incidental thereto.
Bad Banks – 2017
•A bad bank is a corporate structure that isolates illiquid and high-risk assets or non-
performing loans held by a bank or a financial organisation. It is also referred to as Asset
Management Company (AMC).
•The concept of a bad bank originated at the Pittsburgh headquartered Mellon Bank in 1988.
The idea and discussions over bad bank have been in place since 2015 when former RBI
Governor Raghuram Rajan started a debate on bad bank as a possible solution to the
problem of NPAs.
•Afterwards, former Interim Finance Minister put forth the idea of National ARC on a
recommendation of the Committee headed by Sunil Mehta. The Economic Survey 2017
also propounded to create a Public Sector Asset Rehabilitation Agency (PARA).
National Asset Reconstruction Company Ltd:
•National Asset Reconstruction Company Ltd.(NARCL), India’s first-ever Bad Bank, was
set up in 2021, and RBI has recently granted the same under the SARFAESI Act 2002.
•If the bad bank is unable to sell the bad loan or has to sell it at a loss, then the government
guarantee will be invoked.
•To manage assets with the help of market professionals and turnaround experts, the
Government will also set up India Debt Resolution Company Ltd. (IDRCL) along with
NARCL. The IDRCL is a service company or an operational entity wherein public sector
banks (PSBs) and PFIs will hold a maximum of 49% stake and the rest will be with private-
sector lenders. When the assets are sold, with the help of IDRCL, the commercial banks will
be paid back the rest.
Way Forward:
•There must be a sunset clause to the resolution process through Bad Banks. It is
quintessential to develop time-bound strategies for the resolution of assets, or else the bad
bank will be reduced to a mere parking space of bad loans.
•Bad Banks should have a suitable mechanism in place that can facilitate funding for
maintaining the quality of assets till their resolution.
•Banks have to accept losses on loans (or ‘haircuts’). They should be able to do so without
any fear of harassment by the investigative agencies.
•The Indian Banks’ Association has set up a six-member panel to oversee resolution plans
of lead lenders. To expedite resolution, more such panels are required.
•An alternative is to set up a Loan Resolution Authority, if necessary, through an Act of
Parliament. Also, the government must infuse at one go whatever additional capital is
needed to recapitalise banks — providing such capital in multiple instalments is not helpful.
•The pandemic has hit the economy hard and has exposed the vulnerabilities of our banking
system.
19. ‘friendshoring’ and other global trade buzzwords
1. ‘Friendshoring’ - is a growing trade practice where supply chain networks are focused on
countries regarded as political and economic allies.
Essentially friendshoring refers to the rerouting of supply chains to countries perceived as
politically and economically safe or low-risk, to avoid disruption to the flow of business.
The practice has stoked concern within the international community about the possibility of further
geo-political fragmentation and deglobalization of the world’s economy – the decline of
interdependence between nations, global institutions and enterprises.
The US government, for example, has stressed its intention to obtain components and raw materials
from ‘friendly’ countries with shared values to increase security of domestic production.
2. Nearshoring
This describes the process of a company relocating business operations to a nearby country, often
with a shared border. “Nearshoring ensures faster speed to market and quicker transit from
manufacturers to customers”,
E.g. - Mexico and Canada are America’s top two trading partners, according to Visual Capitalist. In
2021, they made up more than $1.2 trillion of the US’ total trade.
3. Reshoring
Also known as inshoring or onshoring, reshoring is when a business transfers operations back to its
home country. This can be an attractive solution for companies whose supply chains have been
disrupted by geo-political events, according to Manufacuring.Net.
According to research by the Capgemini Research Institute, 89% of the executives it surveyed in 15
countries in 2022 regard supply chain disruption as the greatest short-term risk to their organization.
It’s report also revealed that 72% of organizations are looking to reshore (or nearshore) production
bases closer to sources of demand.
4. Offshoring
Moving business operations to another country is commonly known as offshoring. This can reduce
labour costs and ensure the ready provision of certain skills. It may also mean greater proximity to
certain raw materials.
Offshoring is not the same thing as outsourcing, where work is contracted out to an external
organization. It’s when a company relocates some of its existing operations abroad.
20. Vostro and Nostro Accounts

The Reserve Bank of India (RBI) has allowed the opening of nine Special Vostro Accounts with two
Indian lenders — UCO and IndusInd Bank — to facilitate overseas trade in rupee.
About Vostro account
•It is an account that a domestic bank holds for a foreign bank in the domestic bank’s
currency — which, in the case of India, is the rupee.
•In the case of trade with Russia, payments in rupee for the export and import of goods will
go to these Vostro accounts. The owners and beneficiaries of this money will be the
exporters and importers in both the countries.
•The banks will keep the record of money transferred.
What led to creation of the Vostro accounts?

•In July , the RBI put in place a mechanism to settle international trade in rupees “in order to
promote growth of global trade with emphasis on exports from India and to support the
increasing interest of the global trading community in the rupee”.
•The central bank’s move has come in the wake of increasing pressure on the Indian
currency in the wake of Russia’s invasion of Ukraine and sanctions by the US and the EU.
Additional Concept-
There are two kinds of accounts: Vostro and Nostro
•Both Vostro and Nostro are technically the same type of account, with the difference
being who opens the account and where.
•So, if an Indian bank like the SBI wants to open an account in the United States, it will get
in touch with a bank in the US, which will open a Nostro account and accept payments for
SBI in dollars.
•The account opened by the Indian bank in the US will be a Nostro account for the
Indian bank, while for the US bank, the account will be considered a Vostro account.
•Literally, Nostro means ‘ours’ and Vostro means ‘yours’ in Latin. Therefore, the
accounts opened by IndusInd and UCO are Vostro, and the ones opened by Russia’s
Sberbank and VTB Bank are Nostro accounts
21. CCI’s Fine on Google

The Competition Commission of India has imposed a fine of Rs 1.36 billion on Google.
What is Competition Commission of India?
•CCI was formed under The Competition Act (Amendment) 2007 by the union government,
consisting of a Chairperson and 6 Members.
•The Act follows the philosophy of modern competition laws.
•The Act prohibits anti-competitive agreements, abuse of dominant position by enterprises
and regulates combinations (acquisition, acquiring of control and M&A), which causes or
likely to cause an appreciable adverse effect on competition within India.
•It is the duty of the Commission to eliminate practices having adverse effect on
competition, promote and sustain competition, protect the interests of consumers and ensure
freedom of trade in the markets of India.
•The Commission is also required to give opinion on competition issues on a reference
received from any statutory authority.
Why google has been fined?
•Google was fined a Rs 135.86-crore for "search bias" and abusing its "dominant position".
•The order came on complaints filed back in 2012 by Bharat Matrimony.com and Consumer
Unity & Trust Society (CUTS).
•Bharat Matrimony.com claimed that its rival, Shaadi.com, was more prominently displayed,
even when “Bharat Matrimony” was searched.
•Google has been found “search biased” by displaying search results which were harmful to
competitors and, indirectly, to users, thereby abusing its dominant market position.
•The fine imposed amounts to 5 per cent of the average revenue generated in India by
Google and its subsidiaries between 2012 and 2015.
•It is perfectly acceptable for a mall or a store to display in-house brands more prominently,
but this would not be acceptable in case of e-market due to dominance.
What are the difficulties in governing google?
•Google arguably performs a public service by providing a search engine platform that
aggregates data freely accessed by users.
•But that platform is also a marketplace, where businesses bid for keywords and compete to
place ads.
•Google remains a de facto monopolyin cyberspace, both globally and in India, with respect
to these two functions.
•Google is itself a service provider, it offers a basket of services (and also partners with
specific businesses) similar to those offered by its clients.
•Thus regulating digital advertisements and search-related marketplaces through laws and
principles that govern more conventional businesses is difficult.
•There is no proper mechanisms to solve the issues arising in the cyber space, a year is
equivalent to generations in the cyber space.
22. Surety Bonds
Context :Indian banks raise $2 billion via infrastructure bonds.Also Government launched the first-
of-its-kind ‘Surety Bond Insurance’ for the infrastructure sector.
What is Surety Bond?

 A surety bond is a kind of risk transfer tool for the Principal and protects the Principal from
losses that may cause in case the contractor fails to perform their contractual duties.
 The product gives the principal a contract of guarantee that contractual terms and other
business deals will be concluded in accordance with the mutually agreed terms.
 In case the contractor does not fulfil the terms then the Principal can claim surety bonds to
recover the losses.
Who is Principal in bond agreement?

The principal is the party being required to obtain the surety bond by
the obligee. When filling out a surety bond application, you are the
principal. The obligee requires the principal to obtain a surety bond to
ensure they uphold their end of the agreement.
Benefits:
 The surety is provided by an insurance company which acts as a security arrangement for
infrastructure projects and insulates the contractor as well as the principal.
 The availability of both liquidity and capacity will definitely be boosted; such products
stand to strengthen the sector.
 It will lead to more prosperity, increased employment opportunities, and increased social
connectivity.
How is it different from a Bank guarantee?
 Unlike a bank guarantee, the surety bond Insurance does not require large collateral from the
contractor, thus, it frees up significant funds for the contractor, which they can utilize for the
growth of the business.
 The product will also help in reducing the contractors’ debts to a large extent by addressing
their financial worries.
 The insurance product aims to facilitate the growth of upcoming infrastructure projects in
the country.
Related PYQ
With reference to `IFC Masala Bonds’, sometimes seen in the news, which of the statements given
below is/are correct?
1. The International Finance Corporation, which offers these bonds, is an arm of the World Bank.
2. They are the rupee-denominated bonds and are a source of debt financing for the public and
private sector.
Select the correct answer using the code given below.

A 1 only
B 2 only
C Both 1 and 2
D Neither 1 nor 2
Masala Bonds are rupee-denominated bonds, i.e, the funds would be raised from overseas
market in Indian rupees. These bonds are issued in Indian currency rather than local currency.
Indian corporates usually issue Masala Bonds to raise funds from foreign investors. As it is pegged
into Indian currency, if the rupee rates fall, investors bear the risk.
The first Masala bond was issued in 2014 by IFC for the infrastructure projects in India.The
International Finance Corporation, which offers these bonds, is an arm of the World Bank.
23. Digital Banking Units (DBUs)
Context-In order to deepen the financial inclusion, Prime Minister Narendra Modi has inaugurated 75 Digital
Banking Units across 75 districts.
What are Digital Banking Units (DBUs)?

•DBUs will be brick-and-mortar outlets set up by scheduled commercial banks, housing a
certain minimum digital infrastructure for
Delivering digital banking products and services
Servicing existing financial products and services digitally
•Criteria for opening DBUs- The criteria for opening DBUs in tier 1 to tier 6 centres,
without having the need to take permission from the RBI in each case include
Commercial banks (other than regional rural banks, payment banks and local area
banks)
Past digital banking experience
•Services provided- Saving bank accounts, current accounts, fixed and recurring deposit
accounts, digital kits, mobile and Internet banking, debit and credit cards, mass transit
system cards, UPI QR codes, BHIM Aadhaar and point of sale (PoS).
•Other services include making applications for and onboarding customers for identified
retail, MSME or schematic loans.
•Mode of provision- In DBU, the products and services will be offered to customers in 2
modes.
Self Service Mode
Digital Assistance Mode
Concept-The RBI’s Digital Payments Index (RBI-DPI) which aims to capture the extent of
digitisation of payments has also seen growth of over 46% since March 2020.
Are digital banks and Digital Banking Units (DBUs) the same?
•Digital Banks are distinct from Digital Banking Units (DBUs).
•Functions- Digital banking is defined as the present and future electronic banking services
provided by a licensed bank for the execution of banking and financial transactions over
digital channels.
•A DBU is defined as a fixed point business unit/hub housing digital infrastructure for
delivering digital banking products and services.
•The DBU guidelines state DBUs will be treated as banking outlets that are essentially
redefined branches to account for the use of technology.
•Balance Sheet/Legal Personality- DBUs do not have legal personality and are not licensed
under Banking Regulation Act, 1949.
•Digital Banks will have a balance sheet and legal personality & are proposed to be duly
licensed banks Banking Regulation Act.
•Level of Innovation/Competition- DBUs improve existing channel architecture by
offering regulatory recognition to digital channel. However, they are silent on competition.
•In contrast, a licensing and regulatory framework for Digital banks is more enabling along
competition/innovation dimensions.
How are DBUs different from other banks?

•Traditional banks- DBUs will provide banking services including cash deposit &
withdrawal 24 x 7.
•Services shall be provided digitally.
•People not having connectivity or computing devices can do banking transactions from
DBU in a paperless mode.
•Bank staff will be available to help and guide users for banking transactions in assisted
mode.
•It will help in providing digital financial literacy and create awareness for adopting digital
banking.
•Neo-banks- Neo-banks exist solely online without any physical branches independently or
in partnership with traditional banks.
What is the significance of DBUs?

•Further financial inclusion
•Enhance banking experience for citizens
•Provision of maximum services with minimum infrastructure
•Simplify the banking procedure
•Provide a robust and secure banking system
•Make the banking system transparent
•Ensure that banking services reach the last mile
•Enable customers to have cost-effective digital banking
•Spread digital financial literacy.
24. Nobel Prize in Economics 2022
Introduction
The Nobel Prize in Economics 2022 has been awarded to American Economists Ben Bernanke,
Douglas W. Diamond and Philip H. Dybvig. They have been awarded the Nobel for their research
on banks and financial crises. Their works laid the groundwork for most of the research undertaken
in the field of banking.
Their research is still used to show the importance of banks in keeping the economy running
smoothly, the role of bank failures in exacerbating the financial crises and the need to make the
banks stronger during such crises. Their work has had a big impact on how the financial markets are
regulated and how financial crises are dealt with or can be avoided.
Important Takeaways
Bank Failure exacerbated the Crisis: Ben Bernanke looked at the Great Depression of the 1930s,
which started in the US but transformed to a global crises that lasted for almost 4 years. He argued
that bank failures in the 1930s were not just a result of the Depression but also a factor in
exacerbating the crisis itself. He argued that failures of banks resulted in inability to channelise
savings to investments that could have revived the economy faster. Until Bernanke’s work, bank
failures were seen as a ‘consequence’ of the financial crisis. He proved otherwise that bank failures
were the ’cause’ of the financial crisis.
Role of ‘Bank Runs’: Bernanke also showed the ‘Bank Runs’ as the main reason for turning of a
normal recession into economic crisis. Bank Run refers to a situation when depositors are worried
about bank’s sustainability and rush to get their deposits withdrawn from the bank. If lot of
depositors withdraw the deposits at the same time, Bank won’t have enough reserves to cover all
withdrawal leading to liquidity crisis and eventually insolvency/bankruptcy.
Role of the State: Bernanke also showed that role of the State becomes vital in averting the crisis.
Powerful measures by Government are required to prevent bank runs. The deposit insurance
provisions (where a certain amount of one’s deposits in a bank are insured) is a critical tool towards
building trust and preventing bank runs.
Model proposed by Economists
The economists also proposed potential solutions to averting potential bank crises e.g., measures
like deposit insurance and ‘lender of last resort’ policy. Deposit Insurance (by Government) can
instil confidence among depositors. When depositors are sure that Government has guaranteed
protection of their money, they do not rush to withdraw their deposits from banks thus forestalling
bank runs. Most countries now have plans in place to protect bank deposits.
Important Concepts:
Asset-Liability Mismatch-
Deposits are liability for banks (i.e., banks have to pay deposits back to depositors when
demanded). Deposits are also principal source of funding for banks, which they use to lend money
to others. The range of maturity period of deposits is short to medium term (few days to 1-2 years,
sometimes up to 5 years). Banks are obligated to pay back the deposit (plus interest) at the time of
maturity.
Loans by banks are an asset for them (i.e., banks will receive the loan back from borrower). The
maturity period of loans is generally longer compared to deposits. In some cases, like loans for
infrastructure projects, the term of loan can be as long as 20 years or more.
Thus there is a difference in the terms of deposits and loans. A situation in which a large number of
long-term loans are provided from funds with substantially shorter maturities is referred to as
having an asset-liability mismatch. Banks keep a certain proportion of deposits as a reserve to
meet such demands of withdrawal of deposits. However, a situation may arise where the reserves
set aside may not be enough to meet the withdrawal needs. This may lead to shortage of money to
pay back to depositors leading to short liquidity issues.
Interest Rate Risk: Shorter-term deposits are repriced faster than loans. If interest rates rise, the
bank must pay a greater rate on maturing and new deposits. However, the loans cannot be repriced
quickly. As a result, Banks may have to pay more on deposit interests than they earn from interest
income from loans.
Liquidity Risk: When loans and deposits have varying maturities, liquidity difficulties may occur.
Banks must repay deposits (with interest) at maturity. But they can’t recall loans for repayment.
Banks will be unable to service their depositors if they do not acquire fresh deposits or roll over
existing accounts. In an emergency, they may pay high interest to raise money.
Prompt Corrective
Action or PCA is a
framework under which
banks with weak
financial metrics are put
under watch by the RBI.
The Reserve Bank has specified certain regulatory trigger points, as a part of prompt corrective
action (PCA) Framework, in terms of three parameters, i.e. capital to risk weighted assets ratio
(CRAR), net non-performing assets (NPA) and Return on Assets (RoA), for initiation of certain
structured and discretionary actions in respect of banks hitting such trigger points.
The Reserve Bank of India (RBI) has introduced the prompt corrective action (PCA) framework for
non-banking financial companies (NBFCs).
25. BAKING SYSTEM LIQUIDITY
For the first time Liquidity in the banking system has moved into deficit mode after remaining in surplus
mode for almost 40 months for the first time since May 2019.
What is Banking System Liquidity?

Liquidity in the banking system refers to readily available cash that banks need to meet short-
term business and financial needs.
On a given day, if the banking system is a net borrower from the RBI under Liquidity
Adjustment Facility (LAF), the system liquidity can be said to be in deficit and if the banking
system is a net lender to the RBI, the system liquidity can be said to be in surplus.
The LAF refers to the RBI’s operations through which it injects or absorbs liquidity into or
from the banking system.
What has Triggered this Deficit?

The change in the liquidity situation has come due to advance tax outflows. This also increases
the call money rate temporarily above the repo rate.
Call money rate is the rate at which short term funds are borrowed and lent in the money
market.
Banks resort to these types of loans to fill the asset liability mismatch, comply with the statutory
CRR (Cash Reserve Ratio) and SLR (Statutory Liquidity Ratio) requirements and to meet the
sudden demand of funds. RBI, banks, primary dealers etc are the participants of the call money
market.
Besides, there is the continuous intervention of the RBI to stem the fall in the rupee against the
US dollar.
The deficit in the liquidity situation has been caused by an uptick in bank credit, intervention
of the RBI into the forex market, and also incremental deposit growth not keeping pace with
credit demand.
How can a Tight Liquidity Condition Impact Consumers?

A tight liquidity condition could lead to a rise in the government securities yields and
subsequently lead to a rise in interest rates for consumers too.
RBI may increase Repo Rate, which can lead to a higher cost of funds.
Banks will increase their repo-linked lending rates and the marginal cost of funds-based
lending rate (MCLR), to which all loans are linked to. This rise will result in higher interest
rates for consumers.
The MCLR is the minimum interest rate that a bank can lend at.
Way Forward
RBI’s actions will depend upon the nature of the liquidity situation. If the current liquidity deficit
situation is temporary and is largely on account of advance tax flow, the RBI may not have to act,
as the funds should eventually come back into the system.
However, if it is long-term in nature then the RBI may have to take measures to improve the
liquidity situation in the system.
Important concepts
( Learn the concept and avoid redundant data from the above image)
Related PYQ
If the RBI decides to adopt an expansionist monetary policy, which of the following would it
not do? (2020)
1.Cut and optimize the Statutory Liquidity Ratio
2.Increase the Marginal Standing Facility Rate
3.Cut the Bank Rate and Repo Rate
Select the correct answer using the code given below:
(a) 1 and 2 only
(b) 2 only
(c) 1 and 3 only
(d) 1, 2 and 3
Ans: (b)
Concepts
Expansionary monetary policy,or easy monetary policy, is when a central bank uses its tools to
stimulate the economy. It increases the money supply, lowers interest rates, and increases demand.
It boosts economic growth.
Statutory Liquidity Ratio (SLR) is a monetary policy tool that the Reserve Bank of India (RBI)
uses to assess the liquidity at the banks’ disposal. It is the minimum percentage of deposits that a
commercial bank has to maintain in the form of cash, gold or other securities. It is basically
the reserve requirement that banks are expected to keep before offering credit to customers.
Raising SLR makes banks park more money in government securities and reduce the level of cash
in the economy. Doing the opposite helps maintain cash flow in the economy. Reducing SLR
leaves more liquidity with banks, which in turn can fuel growth and demand in the economy.
Marginal standing facility (MSF) is a window for scheduled banks to borrow overnight from
the RBI in an emergency situation when interbank liquidity dries up completely. With the increase
of MSF Rate, cost of borrowing increases for banks resulting in reduced available resources to
lend.
Repo Rate, or repurchase rate, is the key monetary policy rate of interest at which the central
bank or the Reserve Bank of India (RBI) lends short term money to banks, against the
collateral of government and other approved securities under the liquidity adjustment facility
(LAF). Bank Rate is the interest rate which the RBI charges on its long-term lendings.Under
expansionary monetary policy, RBI reduces repo rate and bank rate to increase liquidity in the
banking sector.
26. WINDFALL TAX

Context- The government has slashed windfall gains tax on exports of diesel and aviation turbine
fuel (ATF), while marginally increasing the levy on domestic crude oil in its 16th fortnightly
revision of the duties, as per notifications issued by the Finance Ministry.
What is windfall gains tax and why was it imposed?
It is a term used to describe cesses under the ambit of central excise imposed on fuel exports and
domestic crude oil production to tax super-normal profits of fuel exporters and oil producers.
Tax on ATF exports nil, does this mean Govt has scrapped windfall gains tax on ATF?
Technically, reducing the duty to zero does not mean the levy has been scrapped or abolished. The
provision for SAED on ATF exports still remains and if ATF margins in the international market
improve substantially, the government could hike the SAED on ATF exports.
27. INDO PACIFIC ECONOMIC FRAMEWORK

The Indo-Pacific Economic Framework, launched by United States President Joe Biden is being
joined by 12 other countries including India.
What it IPEF?
•The Indo-Pacific Economic Framework for Prosperity (IPEF) aims to reassert U.S.
economic engagement and to provide a U.S.-led alternative to China’s economic statecraft in
the region.
•The 12 countries other than the U.S. are India, Australia, Brunei, Indonesia, Japan, South
Korea, Malaysia, New Zealand, Philippines, Singapore, Thailand, and Vietnam (Taiwan is
not part of it).
•They together account for 40% of the world’s GDP.
•US officials have emphasised that IPEF is not a free trade agreement but one that will offer
flexibility.
•The negotiations will be along four main pillars.
Trade
Supply chain resiliency
Clean energy and decarbonisation
Tax and anti-corruption
What about India and the IPEF?
•India is committed to a free, open, and inclusive Indo-Pacific region and believes that
deepening economic engagement among partners is crucial for continued growth, peace, and
prosperity.
•India is keen to collaborate with partner countries under the IPEF and work towards
advancing regional economic connectivity, integration and boosting trade and investment
within the region.
•India (Lothal, the world’s oldest commercial port) has been a major centre in the trade
flows of the Indo-Pacific region for centuries.
•India’s main concern is on the issue of data localization for which a Bill that envisages a
framework for localising Indian data and the establishment of a Data Protection Authority
has been introduced.
What aspects to the IPEF need further scrutiny?

•U.S. officials have made it clear that it is neither a free trade agreement nor will it discuss
tariff reductions or increasing market access, raising questions about its utility.
•Much will depend on how inclusive the process is and there must be more clarity on its
framework.
•The four pillars also raise question on whether there is enough common ground among the
countries to set standards together, or be open to issues that vary for each country.
•The U.S.’s statement that the IPEF is essentially focused on “American workers” also raises
questions on protectionist global trends.
•Already three ASEAN countries, Cambodia, Laos and Myanmar, have decided to stay out
of the framework’s launch.
•Given the fact that the U.S.’s previous initiatives (the Blue Dot Network and the Build
Back Better Initiative) have made little headway in changing the region’s infrastructural
needs, the IPEF faces a credibility challenge.
28. COFFEE ACT
What is the News?
The Ministry of Commerce and Industry is planning to replace the Coffee Act, 1942 with the new Coffee (Promotion
and Development Bill), 2022.
Note: Karnataka is the biggest producer of coffee in India.

What is the Coffee Board Act,1942?
The Coffee Act, 1942 was first introduced during World War II in order to protect the struggling Indian coffee
industry from the economic downturn caused by the war.
The Act empowered the Coffee Board to control the production, marketing and sale of coffee in the domestic as well
as international market.
The act introduced a pooling system where each planter was required to distribute their entire crop to a surplus pool
managed by the Board, apart from the small quantities that were allowed for domestic use and seed production.
What were the earlier amendments made to the Act?

Through a series of amendments, the Coffee Board’s authority was reduced and in 1996, the pooling system was
abolished and coffee growers were allowed to directly sell to processing firms.
Since liberalization, the Coffee Board plays more of an advisory role and aims at increasing production, promoting
further export and supporting the development of the domestic market.
What is the purpose of the Coffee (Promotion and Development Bill), 2022?
The Bill seeks to replace the Coffee Act, 1942 as many of its provisions have become redundant and are impediments
to the coffee trade.
Key Provisions of the Bill

The Bill is now primarily concerned with promoting the sale and consumption of Indian coffee, including through e-
commerce platforms, with fewer government restrictions.
It promotes ease of doing business by simplifying documentation and procedures, including replacing the existing
five-year validity of Registration cum Membership Certificate (RCMC) with a one-time exporter registration.
The Bill also brings in a one-time registration of curing units. (Curing is a process that prepares coffee beans for the
market).
29. NATIONAL LOGISTIC POLICY

The Government has launched a National Logistics Policy (NLP) 2022, aiming to achieve ‘quick last-
mile delivery', end transport-related challenges.
What is Logistics?
Logistics encompasses planning, coordinating, storing, and moving resources —people, raw
materials, inventory, equipment, etc., from one location to another, from the production points to
consumption, distribution, or other production points.
About:
The policy focuses on key areas such as process re-engineering, digitisation, and multi-
modal transport.
It is a crucial move as high logistics cost impacts the competitiveness of domestic goods in
the international market.
The need for a national logistics policy was felt since the logistics cost in India is high as
compared to other developed economies.
Goals:
Logistics costs have to be cut by half to be near global benchmarks by 2030 by reducing the
cost of logistics from 14-18% of GDP to global best practices of 8%.
Countries like the US, South Korea, Singapore, and certain European nations have such a low
logistics cost-to-GDP ratio.
The current cost is 16% of GDP.
Being the 5th largest economy in the world, India aims to be among the top 10 in the LPI
(Logistics Performance Index) by 2030. It has to match the pace of South Korea.
In 2018, India was ranked 44th in the LPI.
Creating data-driven Decision Support Systems (DSS) to enable an efficient logistics
ecosystem.
The policy’s target is to ensure that logistical issues are minimised, exports grow manifold,
and small industries and the people working in them benefit significantly.
Key Building Blocks:
Digital Integration System: It will lead to seamless and faster work-flow, making logistics
significantly more efficient.
Unified Logistics Interface Platform: It aims to collapse all logistics and transport sector
digital services into a single portal, thereby freeing manufacturers and exporters from the
present tyranny of long and cumbersome processes.
Ease of Logistics Services: E-Logs, a new digital platform, will allow industry to directly take
up operational issues with government agencies for speedy resolution.
Comprehensive Logistics Action Plan: The Comprehensive Logistics Action Plan comprising
integrated digital logistics systems, standardisation of physical assets, benchmarking service
standards, human resource development, capacity building, development of logistics parks, etc.
What is the Significance of the Policy?

PM Gati Shakti will get further boost and complementarity with the launch of the National
Logistics Policy.
The Policy will help make the sector an integrated, cost-efficient, resilient, and sustainable
logistics ecosystem in the country as it covers all bases of the sector along with streamlining
rules and addressing supply-side constraints.
The policy is an endeavor to improve the competitiveness of Indian goods, enhance economic
growth and increase employment opportunities.
30. YIELD CONVERSION

Concept-Bond yield is the amount of return an investor realizes on a bond. Required yield
refers to the amount of yield a bond issuer must offer to attract investors.
•The money that investors earn is called yield.
•Investors do not have to hold bonds to maturity. Instead, they may sell them for a higher or lower
price to other investors, and if an investor makes money on the sale of a bond, that is also part of its
yield.
Yield Curve
•A yield curve is a graphical presentation of the term structure of interest rates, the
relationship between short-term and long-term bond yields. It is plotted with bond yield on the
vertical axis and the years to maturity on the horizontal axis.
•The slope of the yield curve provides an estimate of expected interest rate fluctuations in the future
and the level of economic activity.
•A yield curve tells us about the relative cost of short-term and long-term debt.
Inverted yield curve

•An inverted yield curve is just opposite of the normal yield curve (therefore, it is also called
abnormal yield curve).
•When the yield for shorter maturities is higher than the yield for longer maturities, the yield
curve slopes downward and the graph looks inverted.
•An inverted yield curve is unusual; it reflects bond investors’ expectations for a decline in
longer-term interest rates, typically associated with recessions.
•As evident by the blue curve in the chart above, it occurred in 2000 during the dot com bubble.
Normal yield curve
•In general, long-term yields are typically higher than short-term yield due to the higher risk
involved in long-term investment. Since this is the most common shape of the yield curve, it is
called the normal yield curve.
•The short-term yields are heavily influenced by central banks such as US Federal Reserve and
the long-term yields are a function of the expected short-term interest rates in future and the
market’s assessment of the inherent risk.
•Normal yield curve typically exist when an economy is neither in a recession nor there is any
major risk of overheating.
•The normal shape of the yield curve is upward sloping, i.e. short term yields (yields of short term
bonds) are lower than long term yields.
How did Indian G-sec yields invert recently?
•The G-sec yield curve became inverted at the Friday weekly auction last week against the similar
phenomenon in the US. and RBI accepting banks’ demand for higher yield at the auction for the
medium-term G-Sec.
•But there was good demand for the longer-term G-Sec from insurance companies and provident
funds at a relatively lower yield.
•At the last auction, the cut-off yield of the 2036 paper came in at 7.4527 per cent, while that of the
2062 paper came in at 7.3822 per cent. So, the yield curve became inverted.
What does it imply?
•Experts say yield curve inversion could denote an impending economic recession or slowdown.
•However, this phenomenon may be short-lived once the demand for medium papers from banks
increases.
•Currently, banks are demanding higher yields for medium-term G-Secs as a hedge against the
likelihood of the rate-setting panel going in for a rate hike at its next meeting to tackle the sticky
core inflation. However, after a year or so, the expectation is that there could be rate cuts to support
the economy.
•Twenty-nine countries, including the US, Canada, Germany, Singapore and France, have a ‘ totally
inverted yield curve’.
What steps is RBI taking to correct the curve?
•The central bank will try to ensure that the yield curve slopes upwards as the tenor of G-Secs
increases.
•Due to banks’ risk aversion for medium-term G-Secs, RBI, in consultation with the government,
announced a revised calendar for March for the auction of Government of India Treasury Bills,
increasing the demand for these securities.
•The government will be borrowing ₹1.95-lakh crore next month via T-Bills against ₹1.45-lakh
crore notified in the earlier calendar.
31. Vehicle Insurance in India

Context-The Insurance Information Bureau of India released its annual report (Motor Annual
Report 2018-19).
Insurance Information Bureau (IIB) was promoted by Insurance Regulatory Development
Authority of India (IRDAI) as a single platform to meet the needs of the insurance industry, in
2009.
Key findings :
Nearly 57% of the total vehicles on the road were uninsured as of March 2019, up from 54% in
March 2018.
The bulk of uninsured vehicles are two-wheelers, with the numbers being as high as 66%.
Reasons: Weak enforcement by traffic police in states, lack of follow-up by insurers and rising
cost of third-party covers has resulted in a larger number of vehicle owners not renewing their
motor insurance policy.
Important points to remember for Prelims

According to the Motor Vehicles Act, 2019, it is mandatory for all vehicles to be insured
with third-party vehicle insurance policy.
Third-party insurance is essentially a form of liability insurance purchased by an insured

(first-party) from an insurer (second party) for protection against the claims of another (third
party). The first party is responsible for their damages or losses, regardless of the cause of
those damages.
Data-The accidents, as well as accident-related deaths in the period 2010-2018, dropped

drastically compared with the previous decades, despite the very high rate of growth of
automobiles.
Important Global Initiative
Related Global initiatives:
Brasilia Declaration on Road Safety (2015):

The declaration was signed at the second Global High-Level Conference on Road Safety held
in Brazil. The first conference was held in Russia (2009).
Through the Brasilia Declaration, countries plan to achieve the Sustainable Development
Goal 3.6 i.e. to half the number of global deaths and injuries from road traffic accidents by
2030.
The United Nations has also declared 2010-2020 as the decade of action for Road Safety.
Mains specific
Way Forward
India is one of the largest auto markets in the world with over 20 million vehicles sold
annually. It is also among the countries with the highest number of road accidents and fatalities.
In this scenario, it is very risky and dangerous when more than half the vehicles in the country are
uninsured.
Insurance will definitely not reduce the death and accidents however it will reduce the loss and
will help in post accident recovery.
There is a need for complementary thrust to spread awareness and improve financial
literacy, particularly the concept of insurance, and its importance.
Another area that necessitates regulatory scrutiny is that of application of technology in
insurance.
The regulator needs to exercise vigilance on three other aspects.
It must ensure that insurance is not denied to lower-income people who make up the bulk of
the population and have the most need for protection.
It should insist that insurers facilitate a simple online process for direct buying of insurance
products, bypassing intermediaries.
It should ensure that players do not overcharge or add hidden costs.
32. GST COUNCIL

About-The GST Council is a joint forum of the Centre and the states. It was set up by the
President as per Article 279A (1) of the amended Constitution.
Members: The members of the Council include the Union Finance Minister (chairperson), the
Union Minister of State (Finance) from the Centre. Each state can nominate a minister in-
charge of finance or taxation or any other minister as a member.
Functions:
The Council, according to Article 279, is meant to “make recommendations to the Union and
the states on important issues related to GST, like the goods and services that may be subjected
or exempted from GST, model GST Laws”.
It also decides on various rate slabs of GST. For instance, an interim report by a panel of
ministers has suggested imposing 28 % GST on casinos, online gaming and horse racing.
Supreme court Judgement

Supreme Court stated that the recommendations of the GST Council are not binding.
The court said Article 246A of the Constitution gives both Parliament and state legislatures
“simultaneous” power to legislate on GST and recommendations of the Council “are the product
of a collaborative dialogue involving the Union and States”.
33. GIG ECONOMY

What is the Gig Economy?
A gig economy is a free market system in which temporary positions are common and
organisations contract with independent workers for short-term engagements.
According to a report by Boston Consulting Group, India’s gig workforce comprises 15 million
workers employed across industries such as software, shared services and professional services.
According to a 2019 report by the India Staffing Federation, India is the fifth largest in flexi-
staffing globally, after the US, China, Brazil and Japan.
What is the Potential of India's Gig Sector?

An estimated 56% of new employment in India is being generated by the gig economy
companies across both the blue-collar and white-collar workforce.
While the gig economy is prevalent among blue-collar jobs in India, the demand for gig
workers in white-collar jobs such as project-specific consultants, salespeople, web designers,
content writers and software developers is also emerging.
The gig economy can serve up to 90 million jobs in the non-farm sectors in India with a
potential to add 1.25% to the GDP over the "long term".
As India moves towards its stated goal of becoming a USD 5 trillion economy by 2025, the gig
economy will be a major building block in bridging the income and unemployment gap.
Prelims Related concept
What are the Different Collar Jobs?

Blue-Collar Worker: It is a member of the working class, who performs manual labour and
earns an hourly wage.
White-Collar Worker: It is a salaried professional, typically referring to general office workers
and management.
Gold-Collar Worker: It is used to refer to highly-skilled knowledge people who are highly
valuable to the company. Example: Lawyers, doctors, research scientists, etc.
Grey-Collar Worker: It refers to the balance of employed people not classified as white or blue-
collar.
Although grey-collar is something used to describe those who work beyond the age of
retirement. Example: Firefighters, police officers, health care professionals, Security Guards, etc.
Green-Collar Worker: It is a worker who is employed in the environmental sectors of the
economy.
Example: People working in alternative energy sources like solar panels, Greenpeace, World
Wide Fund for nature, etc.
Pink-Collar Worker: It is employed in a job that is traditionally considered to be women’s work
and is often low-paid.
Scarlet-Collar Worker: It is a term often used to refer to people who work in the pornography
industry, especially women entrepreneurs in the field of internet pornography.
Red-Collar Worker: Government workers of all types.
Open-Collar Worker: It is a worker who works from home, especially via the internet.
34. G7 Summit
The G7 or Group of Seven is an informal conference of the top industrialized nations, as stated by
IMF. The G7 was established as an intergovernmental organization in 1975. The group meets once a
year to talk about topics like international security, energy policy, and global economic governance.
The G7 countries are the UK, Canada, France, Germany, Italy, Japan, and the US.
it should be noted that the G7 does not have any written constitution but, has legally binding annual
summits.
The 47th G7 Summit was held in the United Kingdom. Germany presided over the G7 Summit in 2022,
while Japan will host the 49th G7 Summit in 2023.
The G7 has no permanent staff or office and is not founded on a treaty. It is run through a yearly rotation of
the member states holding the presidency, with the presiding state determining the group’s priorities and
hosting and running its G7 summit.
48th G7 Summit 2022
The 48th G7 Summit was held in June 2022 in the Bavarian Alps, in Germany where it assumed
its Presidency on 1st June 2022. The seven G7 countries are Italy, Canada, Germany, Japan, the
United States, the United Kingdom, and France.
•‘Progress towards an equal world’ served as the main theme of Germany’s seventh G7
presidency, which it hosted in 2022.
•India, Senegal, Argentina, Indonesia, and South Africa were invited to the 2022 G7
Summit as partner nations by the German Chancellor.
•The WTO, UN, WHO, IMF, and World Bank were among the international organizations
that attended the G7 summit.
Both the European Council President and the commission president represent the European Union
in all Global discussions.
35. FPIs’ Market Exit
What is the issue?

With the rising inflation and monetary policy tightening in the US, the capital outflows are likely to
continue, putting pressure on the Indian currency.
Why is capital flowing out?

•Capital flight is a phenomenon characterized by large outflows of assets/ capital from a
country due to political or economic instability, resulting in negative economic
consequences to that country.
•Foreign portfolio investors (FPIs), which own around 19.5% of the market capitalisation,
have pulled out Rs 42,000 crore in June so far.
•Reasons for capital flight
1.The tightening of monetary policy by the US Fed
2.Rate hiking by other central banks, including in Britain and the Eurozone
3.An appreciating dollar
4.Concerns regarding the possibility of a recession in the US
5.Rising inflation
Data: Holding of FPIs in companies listed on NSE as on March 31, 2022 show a decrease of 3.36%
from December 31, 2021, due to the sustained sell-off since October 2021.
What is the status of FPIs in India?
•Foreign Portfolio Investment (FPI) involves an investor buying foreign financial assets that
involves fixed deposits, stocks, and mutual funds.
•FPIs are the largest non-promoter shareholders in the Indian market and their investment
decisions have a huge bearing on the stock prices and overall direction of the market.
•The US accounts for a major chunk of FPI investments as of May 2022, followed by
Mauritius and Singapore, according to data available from the National Securities
Depository Ltd (NSDL).
•Securities and Exchange Board of India (SEBI) operates the FPIs.
•Recently, SEBI has introduced the Foreign Portfolio Investors Regulations, 2019.
•FPIs also need to follow the Income-tax Act, 1961 and Foreign Exchange Management Act,
1999.
How do FPIs operate?

•The intent of investing in foreign markets is to diversify the portfolio and get some
handsome return on investments.
•Foreign Portfolios increase the volatility thus leading to increased risk.
•In times of global uncertainty, foreign investors embrace a risk-off trade, meaning they
move money from risky assets such as equities and add more of bonds and gold.
•When interest rates rise in the US and other advanced economies, they withdraw money
from emerging markets such as India and invest in the bonds in their domestic markets.
How does the capital flight affect the markets and the rupee?
•Capital market- The pullout is dampening sentiment in equity and forex markets.
•The impact of FPI selling on markets is visible with increase in volatility and declining
equity prices.
•Forex- India’s foreign exchange reserves have fallen $596.45 billion as on June 10, 2022,
mainly due to the dollar appreciation and FPI withdrawals.
•Depreciation- The rupee has plunged 7.3% to an all-time low of 78.30/32 against the
dollar.
•If the rupee does not strengthen, FPI outflows will continue, which is another negative.
•Inflation- Lower rupee against the dollar keeps import bills higher, pushing inflation even
higher than it is now.
•Indians abroad- Travellers and students studying abroad will have to shell out more rupees
to buy dollars from banks.
•Fuel price- People are directly impacted by the rupee fall as fuel prices shoot up.
•DII inflow- The retail flow and domestic institutional investors (DIIs) inflow is weakening
now, and the markets could weaken further if the FPI outflows continue.
36. Rise in Bond Yield

Yields are rising on government securities or bonds in the United States and India.
•This has triggered concern over the negative impact on other asset classes, especially stock
markets, and even gold.
What are bonds?
•A bond is a debt investment.
•Corporates or governments issue bonds directly to investors, instead of obtaining loans
from a bank.
•This is to raise money and finance a variety of projects and activities.
•The investor buys the bonds and loans money to the entity and in turn receives fixed
interest.
•This is for a defined period of time (till maturity date) and a variable or fixed interest rate
(coupon rate).
How are bond prices, bond yields and interest rates related?
•Price - Face value is the money amount the bond will be worth at its maturity.
•It is also the reference amount the bond issuer uses when calculating interest payments.
•The issuance price of a bond is typically set at par, usually $100 or $1,000 face value per
individual bond.
•But a bond's price changes on a daily basis, just like that of any other publicly-traded
security.
•The actual market price of a bond depends on various factors including:
1.the credit quality of the issuer
2.the length of time until expiration
3.the coupon rate compared to the general interest rate environment at the time
•Interest rates – The price of a bond primarily changes in response to changes in interest
rates in the economy.
•For instance, say the investors get a better return in corporate bond either due to rise in their
rate or due to fall in rate of government's bond.
This would make the corporate bond much more attractive.
Investors in the market will bid up the price of the bond until it trades at a premium
that equalizes the prevailing interest rate environment.
•Yield- In simple terms, yield is the amount of return that an investor will realize on a bond.
•If the investor holds the bond to maturity, s/he will be guaranteed to get the principal
amount back plus the interest.
•However, a bond does not necessarily have to be held to maturity by the investors.
•Instead, investors may sell them for a higher or lower price to other investors.
•The bond prices and yields generally move in opposite directions.
•This is because, as a bond's price increases, its yield to maturity falls.
•E.g. for a bond purchased with a par (face) value of $100, and a 10% annual coupon rate,
its yield would be 10% (10/100 = 0.10)
•If the bond price fall to $90, the yield would become 11% (10/90 = 0.11).
How have bond yields moved in the recent past?
•During the first half of 2020-21, bond yields were mostly below 6% due to effective yield
management by the RBI.
•However, this changed after the Budget, when the government upped its borrowing
programme for the current fiscal. It has announced an aggressive borrowing plan for FY22.
•The yield on 10-year bonds in India moved up from the recent low of 5.76% to 6.20%.
•This was also in line with the rise in US yields. Bond yield in the US, which was at 0.31%
in March 2020, touched 1.40% recently.
•The development has led to concerns in the stock market.
•Notably, benchmark Sensex fell 2,300 points in the past week.
What is the significance?
•There are over Rs 70.55 lakh crore of outstanding government securities (G-Secs).
•The government is also planning to borrow more from the market through G-Secs.
•So, the movement of yields in the coming months becomes significant.
What caused the recent rise in bond yields?
•The major factors affecting the yield are -
i.the monetary policy of the RBI, especially the course of interest rates
ii.the fiscal position of the government
iii.government’s borrowing programme
iv.global markets, economy, and inflation
•With the pandemic’s impact, Finance Minister has pegged the fiscal deficit for 2021-22 at
6.8% of GDP.
i.The original target was 3.5%.
•The government aims to bring it back to below 4.5% by 2025-26.
•A fall in interest rates makes bond prices rise and bond yields fall and vice versa.
•In short, a rise in bond yields means interest rates in the monetary system have fallen.
•In other words, the returns for investors (those who invested in bonds and government
securities) have declined.
How has the rise in yield affected stock markets?
•The sudden rise in domestic and global bond yields recently moderated the enthusiasm of
equity market participants around the world.
•Traditionally, when bond yields go up, investors start reallocating investments.
•They shift away from equities into bonds, as they are much safer.
•As bond yields rise, the opportunity cost of investing in equities goes up.
•Equities become less attractive.
•Also, a rise in bond yields raises the cost of capital for companies.
•This, in turn, compresses the valuations of their stocks.
How will the borrowing programme and economy be impacted?
•When bond yields rise, the RBI has to offer higher cut-off price/yield to investors during
auctions.
•This means borrowing costs will increase.
And this happens at a time when the government plans to raise Rs 12 lakh crore
from the market.
•However, RBI is expected to stabilise yields through open market operations and operation
twists.
•Also, government borrowing costs are used as the benchmark for pricing loans to
businesses and consumers.
•So, any increase in yields will be transmitted to the real economy.
Will high yields impact the flow of FPI funds?
•Traditionally, when bond yields rise in the US, FPIs (foreign portfolio investment) move
out of Indian equities.
•Also, it has been seen that when the bond yield in India goes up, it results in capital
outflows from equities and into debt.
•A higher return on treasury bonds in the US leads investors to move their asset allocation
from more risky emerging market equities or debt to the US Treasury.
•So, a continued rise in yields in developed markets may put more pressure on Indian equity
markets.
•India will likely witness an outflow of funds.
•Even a rise in domestic bond yields would see allocation moving from equity to debt.
Related PYQ
With reference to Convertible Bonds, consider the following statements:

1. As there is an option to exchange the bond for equity, Convertible Bonds pay a
lower rate of interest.
2. The option to convert to equity affords the bondholder a degree of indexation to
rising consumer prices.
Which of the statements given above is/are correct?
[A] 1 only
[B] 2 only
[C] Both 1 and 2
[D] Neither 1 nor 2
Convertible Bond- A convertible bond is a type of debt security that provides an investor with a
right or an obligation to exchange the bond for a predetermined number of shares in the issuing
company at certain times of a bond’s lifetime. It is a hybrid security that possesses features of both
debt and equity.
Convertible bonds tend to offer a lower coupon rate or rate of return in exchange for the value of
the option to convert the bond into common stock. Investors will generally accept a lower coupon
rate on a convertible bond, compared with the coupon rate on an otherwise identical regular bond,
because of its conversion feature. This enables the issuer to save on interest expenses, which can be
substantial in the case of a large bond issue.
The option to convert to equity affords the bondholder a degree of indexation to rising consumer
prices as equity prices can differ widely from the given interest and the difference in that can be
used as a hedge for the inflation.
37.ETHANOL BLENDING
Context: India has achieved its 10% sugarcane-extracted ethanol blending in petrol target, ahead of
schedule.
About-
Blending ethanol to a certain extent with petrol that makes it burn fewer fossil fuels while running
vehicles is called ethanol blending.
The Department of Food and Public Distribution (DFPD) is the nodal agency for the promotion of
fuel-grade ethanol-producing distilleries in the country.
In the current vehicle, ethanol added to petrol has no impact. Since ethanol contains oxygen, it aids
in more complete combustion, lowers emissions, and improves the fuel’s environmental
performance.
Ethanol is an agricultural byproduct, mainly obtained from the processing of sugar. It can also be
obtained from other sources such as rice husk or maize.
By 2023, all vehicles will be E20 (20% ethanol in petrol) material compatible, as committed by the
auto industry. Therefore, in order to carry or store fuel that contains 20% ethanol, the fuel points,
plastics, rubber, steel, and other components in cars would need to be compatible.
Importance of Ethanol Blending

India is one of the world’s biggest oil-importing nations.
NITI Aayog said that India’s net import of petroleum was 185 million tonnes at a cost of $55 billion
in 2020-21 and a successful ethanol blending program can save $4 Billion per annum.
Ethanol blending will help bring down India’s share of oil imports (almost 85%) which saves a
considerable amount of foreign exchange.
The requirement of ethanol as an output will help increase farmers’ income.
India’s Aim
India’s aim is to increase the ethanol blending to the ratio of 20% originally by 2030 but NITI
Aayog in advanced the deadline to 2025.
Opening new opportunities for farmers to raise their income. Here farmers can sell their products as
well as gain extra income from residues as well.
Reduce environmental damages caused by fuel because of non-proper combustion and stop farmers
from burning their stubble which means lesser air pollution and sell it for ethanol production.
Different Generation Biofuel

The government has augmented procurement of Biofule produced from other sources besides
molasses, which is known as first-generation ethanol (1G). First-generation ethanol is produced
from crops directly from the fields, such as cereals, maize, sugar beet, sugarcane, rapeseed, etc.
Ethanol can be extracted from materials other than molasses such as rice straw, wheat straw, corn
stover, corn cobs, bamboo, and woody biomass, which is known as second-generation Biofuel
sources or 2G. Thus, second-generation biofuels are produced from residual and waste products.
Additionally, the government has introduced the “Pradhan Mantri JI-VAN (Jaiv Indhan- Vatavaran
Anukool fasal awashesh Nivaran) Yojana” to provide viability gap funding to give the country’s 2G
ethanol capacity a jumpstart and draw investment to this industry.
Third Generation Biofuels: These are produced from micro-organisms like algae.Example-
Butanol Micro-organisms like algae can be grown using land and water unsuitable for food
production, therefore reducing the strain on already depleted water sources. One disadvantage is
that fertilizers used in the production of such crops lead to environmental pollution.
Fourth Generation Biofuels:In the production of these fuels, crops that are genetically
engineered to take in high amounts of carbon are grown and harvested as biomass.The crops are
then converted into fuel using second generation techniques. The fuel is pre-combusted, and the
carbon is captured. Then the carbon is geo-sequestered, meaning that the carbon is stored in
depleted oil or gas fields or in unmineable coal seams.Some of these fuels are considered carbon
negative as their production pulls out carbon from the environment.
Major Types of Biofuels

 It is derived from corn and sugarcane using fermentation process.
 A litre of ethanol contains approximately two thirds of the energy provided by a
Bioethanol litre of petrol.
 When mixed with petrol, it improves combustion performance and lowers the
emissions of carbon monoxide and sulphur oxide.
 It is derived from vegetable oils like soybean oil or palm oil, vegetable waste oils,
and animal fats by a biochemical process called “Transesterification.”
Biodiesel
 It produces very less or no amount of harmful gases as compared to diesel.
 It can be used as an alternative for to conventional diesel fuel.
 It is produced by anaerobic decomposition of organic matter like sewage from
animals and humans.
Biogas  Major proportions of biogas are methane and carbon dioxide, though it also has
small proportions of hydrogen sulfide, hydrogen, carbon monoxide and siloxanes.
 It is commonly used for heating, electricity and for automobiles.
 It is produced in the same way as bioethanol, i.e., through the fermentation of
starch.
Biobutanol  The energy content in butanol is the highest among the other gasoline
alternatives. It can be added to diesel to reduce emissions.
 It serves as a solvent in textile industry and is also used as a base in perfumes.
 Biohydrogen, like biogas, can be produced using a number of processes such as
Biohydrogen pyrolysis, gasification or biological fermentation.
 It can be the perfect alternative for fossil fuel.
38. WPI
What is WPI?
•The wholesale price index is an index that measures and tracks the changes in the price of
goods in the stages before the retail level.
•WPI is used as a measure of inflation in some economies.
•WPI includes three components viz,
Manufactured products - 64.2%
Primary articles - 22.6%
Fuel and power - 13.1%
•Instead of the earlier 2004-05, base year for the WPI will be 2011-12.
•The number of items covered in the new series of the WPI has increased from 676 to 697.
What are the issues with WPI?
•Following the Urjit Patel Committee recommendations, the RBI Act has been amended and
flexible inflation targeting (FIT) has been put in place with CPI inflation as the nominal
anchor.
•Under the FIT, as the RBI has been mandated to achieve price stability measured in terms
of CPI inflation, the use of WPI inflation has been completely done away with.
•All projections relating to inflation are currently done in terms of CPI.
•As of now, WPI is predominantly used for converting GDP/GVA at current prices to
the same at constant prices.
•In fact, the GDP deflator (often argued as the true indicator of inflation), which is defined
as a ratio of GDP at current prices to GDP at constant prices multiplied by 100, closely
tracks WPI inflation.
•The sharp decline in the GDP deflator and the dramatic decline in WPI inflation coincided.
This contributed significantly to real GDP growth in India.
•Also, separate services sector input/output price indices are required to deflate services
sector GDP for which WPI is anyway not appropriate.
•One of the striking features of the new WPI series is that the item level averaging is being
done by using geometric mean. This is as per international best practice.
•The geometric mean itself has significantly moderated WPI inflation, besides other factors
such as change in the composition of basket.
•Moderation of WPI as per revised base has pushed up real GDP considerably during
recent years.
•Exclusion of excise duty from the computation of WPI has also partly contributed to lower
WPI inflation during recent years, which in turn has pushed real GDP up to some extent.
What could be done?
•A better way to estimate GDP accurately is to deflate input and output prices through
separate indices, popularly known as double deflation.
•When output prices move relatively faster than the input prices, the single deflation method
overestimates GDP/GVA and vice versa.
•In order to ensure accuracy, it is high time to discard the single deflation method to
estimate GDP/GVA by using WPI as a deflator.
Related PYQ
39. Exchange Rate
What is exchange rate?
•An exchange rate is the value of one nation's currency versus the currency of another nation or
economic zone.
•Typically, exchange rates can be free-floating or fixed.
•A free-floating exchange rate rises and falls due to changes in the foreign exchange market.
•A fixed exchange rate is pegged to the value of another currency.
•The rupee’s exchange rate vis-a-vis a particular currency, say the US dollar, tells us how many rupees
are required to buy a US dollar.
Currency depreciation is a fall in the value of a currency in terms of its exchange rate versus
other currencies. It can occur due to factors such as economic fundamentals, interest rate
differentials, political instability, or risk aversion among investors.
How is the exchange rate determined?

•Supply and demand of the currency- In a free-market economy, the exchange rate is decided by the
supply and demand for rupees and dollars.
•For instance, if the Indians demand more dollars in comparison to Americans demanding the rupee, the
exchange rate will fall or weaken for rupee and rise or strengthen for dollar.
•Central bank intervention-In India, the exchange rate is not fully determined by the market.
•From time to time, the RBI intervenes in the foreign exchange market to ensure that the rupee price
does not fluctuate too much or that it doesn’t rise or fall too much all at once.
What determines the rupee’s demand and supply?

•The rupee’s demand and supply vis-a-vis other currencies is best understood by looking at India’s
Balance of Payment (BoP).
•The balance of payments (BOP) is a statement of all transactions made between entities in one country
and the rest of the world over a defined period.
•It summarizes all transactions that a country's individuals, companies and government bodies complete
with individuals, companies and government bodies outside the country.
•The balance of payments includes the
Current account
Capital account
•Current account- It refers to all transactions that are related to current consumption including a
nation's net trade in goods and services, its net earnings on cross-border investments, and its net
transfer payments.
•Capital account- It refers to transactions for investment purposes and consists of a nation's
transactions in financial instruments and central bank reserves.
The sum of all transactions recorded in the balance of payments should be zero; however,
exchange rate fluctuations and differences in accounting practices may hinder this in practice.
How does the rupee’s exchange rate fluctuate?

•Crude oil prices- When crude oil prices go up sharply, India would need more dollars to buy crude oil
in the international market.
•That would weaken the rupee because India’s demand for dollars would have gone up while the world’s
demand for the rupee stayed the same.
•This would show up as a trade deficit as well as the current account deficit in the BoP table.
•US central bank’s interest rates- If the US central bank raises its interest rates, global investors who
had been putting their money in India would consider taking it out and investing in the US.
•Again, the rupee would weaken and such a transaction would be recorded in the capital account.
What is the RBI’s role in this?

•The most important thing about the BoP is that the balance of payment always balances i.e., a deficit in
the current account must be balanced by a surplus in the capital account, or vice versa.
•RBI plays a crucial role in balancing the massive fluctuations.
•To soften the rupee’s fall, the RBI would sell in the market some of the dollars it has in its forex
reserves.
•This will soak up a lot of rupees from the market, thus moderating the demand-supply gap between
rupee and dollars.
What will be the impact of a weaker rupee?

Negative impacts
•Inflation- The biggest impact of a weakening rupee is on inflation, given India imports more than 80%
of its crude oil, which is India’s biggest import.
•Imports- A depreciation of the domestic currency results in higher import costs for the country.
•India is also heavily dependent on other countries for fertilizers and edible oils and the country’s
fertilizer subsidy bill is already set to hit a record high of as much as Rs 1.9 trillion this fiscal.
•Forex reserves- India’s foreign exchange reserves have fallen below $600 billion for the first time in a
year as the RBI intervened in the forex market to defend the rupee.
•Foreign education- Foreign travel and overseas education becomes costlier.
•Interest- The interest burden would increase on foreign currency denominated debt.
•Investor confidence- A large and rapid devaluation may scare off international investor and makes
investors less willing to hold government debt
Positive impacts
•Exports- Exports become cheaper, more competitive to foreign buyers providing a boost for domestic
demand.
•Local industry- Travel to India gets cheaper and local industry may benefit.
•Remittance- Those working abroad can gain more on remitting money to their homeland.
•Current account deficit-It assists in reducing the current account deficit.
Related PYQ
With reference to the Indian economy, consider the following statements:
1. An increase in Nominal Effective Exchange Rate (NEER) indicates the appreciation of rupee.
2. An increase in the Real Effective Exchange Rate (REER) indicates an improvement in trade
competitiveness.
3. An increasing trend in domestic inflation relative to inflation in other countries is likely to cause
an increasing divergence between NEER and REER.
Which of the above statements are correct?
[A] 1 and 2 only
[B] 1 and 2 only
[C] 1 and 3 only
[D] 1, 2 and 3
The indices of Nominal Effective Exchange Rate (NEER) and Real Effective Exchange Rate
(REER) are used as indicators of external competitiveness.
NEER is the weighted average of bilateral nominal exchange rates of the home currency in terms of
foreign currencies. An increase in Nominal Effective Exchange Rate (NEER) indicates the
appreciation of rupee.
REER is the weighted average of nominal exchange rates adjusted for relative price differential
between the domestic and foreign countries.
An increase in a nation’s REER is an indication that its exports are becoming more expensive and
its imports are becoming cheaper. Means, it is losing its trade competitiveness.
A real effective exchange rate (REER) is the NEER adjusted by relative prices or costs, typically
captured in inflation differentials between the home economy and trading partners. A nation’s
nominal effective exchange rate (NEER) when adjusted for inflation in the home country, equals its
real effective exchange rate (REER). Higher the inflation higher will be divergence (difference
between) NEER and REER.
40.FRONT RUNNING
Context:Recently, there was a case of front-running in the mutual fund business.So, concerned
about the prospect of similar activities occurring in the future, the Securities and Exchange Board
of India (Sebi) is expected to take harsh action, which might include action against top fund house
employees.
What is front-running?
•Front-running is a dubious market practice in which a dealer, trader or employee gets wind
of a big order for buying or selling shares that will be placed by a fund or big investor and
gets ‘in front’ of the trade.
•Large orders usually move a stock’s price.
•By buying shares just before the big order hits the market and selling them once the price
moves up, the front-runner pockets illegal gains from his advance knowledge.
Concerns associated:
Front-running by insiders can adversely impact investors in a fund by bidding up the prices they get
to buy stocks or hammering down the prices at which they get to sell.
Are regulations in place to prevent such practices?

Yes, SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities
Market) Regulations, 2003 clearly define front-running and characterises it as a fraudulent and
unfair practice. SEBI has invoked this section many times to pass orders against front-runners.
Proposed actions by SEBI:

•On the primary market front, the regulator is keen on enhancing disclosure and
compliance requirement for listing of new-age technology companies.
•For the secondary market participants, it is keen on enhancing awareness around
responsible investing as lot of new customers are going for speculative trading.
What more should be done to prevent it?
Surveillance mechanisms of stock exchanges are most useful to uncover instances of front-
running.
Surveillance software that tracks real-time trades in the market is well-equipped to spot similar
trading patterns between big investors and individuals, which forms the basis for front-running
investigations by the regulator.
SEBI will also need to consider more stringent punishments for information carriers and
front-runners when investigations find hard evidence of wrongdoing.
The Centre has argued that it cannot reduce taxes on petrol and diesel as it has to bear the burden of payments
with respect to oil bonds issued by the previous UPA government.
41. OIL BONDS

What are oil bonds?
•Oil bonds are special securities issued by the government to oil marketing companies instead of cash
subsidy.
•These bonds are typically of a long-term tenure like 15-20 years and oil companies are paid interest.
•Governments resort to such instruments when they are in danger of breaching the fiscal deficit target.
•These types of bonds are considered to be ‘below the line’ expenditure in the Union budget and do not
have a bearing on that year’s fiscal deficit, but they do increase the government’s overall debt.
•The interest payments and repayment of these bonds become a part of the fiscal deficit calculations in
future years.
How has India’s fuel pricing regime evolved in recent years?

•Before the complete deregulation of fuel prices, oil marketing companies faced a huge financial burden
as the selling price of fuels in India was lower than the international market price.
•The story of dismantling oil prices started from 1997 when the government thought of moving from an
administered price mechanism of cost-plus pricing to market-determined consumer prices for fuels.
•The Nirmal Singh Committee made recommendations in 1996 and it was decided that the oil pricing
mechanism would be dismantled gradually from 1997 till 2002.
•Full dismantling as oil prices were announced in 2002.
•From 2004, oil prices started moving up, and the government restored the cost-plus pricing system to
protect consumers.
•The government subsidised the prices for transport fuels, LPG and kerosene through a mechanism to
provide for oil marketing companies’ under-recoveries.
•Between 2005 and 2010, the UPA government issued oil bonds to the companies amounting to Rs 1.4
lakh crore to compensate for the losses.
What is the current issue with oil bonds?

•Prices of petrol and diesel are climbing steeply and the Centre has been under pressure to cut the high
taxes on fuel.
•The price of petrol has been increased 39 times and decreased once in 2021-22, while that of diesel
has been increased 36 times and decreased twice.
•The government has so far been reluctant to cut taxes as excise duties on petrol and diesel are a major
source of revenue.
•It pointed out that the bonds issued by the UPA government have weakened the financial position of the
oil marketing companies and added to the government’s fiscal burden now.
•The government has to repay a principal amount of Rs 10,000 crore this year in addition to Rs 10,000
crore paid annually as interest over the last decade.
•Budget documents show that such bonds will be up for redemption over the next few years till 2026.
42. MONETARY POLICY

Monetary policy
•It is the macroeconomic policy laid down by the central bank-RBI.
•Monetary policy is a set of tools that a nation's central bank has available to promote sustainable
economic growth by controlling the interest rate and the overall supply of money that is
available to the nation's banks, its consumers, and its businesses.
•It is the demand side economic policy that is used by the government of a country to achieve
macroeconomic objectives like inflation, consumption, growth and liquidity.
•In India, monetary policy of the Reserve Bank of India is aimed at managing the quantity of
money in order to meet the requirements of different sectors of the economy and to increase
the pace of economic growth.
•The RBI implements the monetary policy through open market operations, bank rate policy,
reserve system, credit control policy, moral persuasion and through many other instruments.
•Using any of these instruments will lead to changes in the interest rate, or the money supply in the
economy.
Types of Monetary Policy
Expansionary Monetary Policy
•This is a monetary policy that aims to increase the money supply in the economy by decreasing
interest rates, purchasing government securities by central banks, and lowering the reserve
requirements for banks.
•An expansionary policy lowers unemployment and stimulates business activities and consumer
spending.
•The overall goal of the expansionary monetary policy is to fuel economic growth. However, it can
also possibly lead to higher inflation.
Contractionary Monetary Policy
•The goal of a contractionary monetary policy is to decrease the money supply in the economy.
•It can be achieved by raising interest rates, selling government bonds, and increasing the reserve
requirements for banks.
•The contractionary policy is utilized when the government wants to control inflation levels.
Objectives of Monetary Policy
•The primary objectives of monetary policies are the management of inflation or unemployment,
and maintenance of currency exchange rates - Fixed vs. Pegged Exchange Rates.
•Foreign currency exchange rates measure one currency's strength relative to another.
•The strength of a currency depends on a number of factors such as its inflation rate, prevailing
interest rates in its home country, or the stability of the government, to name a few..
Inflation
•Monetary policies can target inflation levels. A low level of inflation is considered to be healthy for
the economy. If inflation is high, a contractionary policy can address this issue.
43. STANDING DEPOSIT FACILITY

The Standing Deposit Facility, proposed by the RBI and under examination by the Centre, is viewed
as a strong tool to suck out the surplus liquidity.
What is it?
•This concept, first recommended by the Urjit Patel committee report in 2014, may soon
become part of the central bank’s toolkit to manage liquidity.
•Standing deposit facility is a remunerated facility that will not require the provision of
collateral for liquidity absorption.
•Banks, at different points in time, may be short of funds or flush with money.
•When they need money for the short-term, they borrow from the RBI (Repo Rate) for
which they pledge government securities.
•When banks have excess funds they lend it to the RBI at the reverse repo rate that is lower
than the repo rate. Here too, government securities act as collateral.
Why the facility is introduced now?
•The demonetisation exercise has left banks flush with funds.
•The past two months, banks have been lending left, right and centre to the RBI under the
reverse repo window.
•And with the RBI increasing the reverse repo rate by 25 basis points to 6 per cent in the
April policy, banks now earn more on these funds.
•The worry is there may be only so much (limited) collateral to go around.
•Collateral may become a constraining factor if the central bank runs out of securities to
absorb liquidity under the reverse repo window.
•Enter the Standing Deposit Facility. This will allow the RBI to absorb surplus funds
from banks without collateral.
•Banks too continue to earn interest (though possibly lower than the existing reverse repo
rate). In effect, it will empower the RBI to suck out as much liquidity as needed.
Why is it important?
•Liquidity plays a key role in transmission of policy rates.
•In a falling rate cycle, pass-through of rate cuts will happen quickly if there is sufficient
liquidity, as banks will be able to lower deposit rates comfortably.
•The reverse holds true now. Excess liquidity has led to short-term market rates slipping
below the RBI’s policy repo rate.
•Now, RBI would want to keep a tight leash on rates. The RBI would want its key policy
rate i.e., the repo rate, to be the operational rate.
•The RBI’s management of rates impacts the rates on your deposits and loans.
•The immediate fallout of excess liquidity in the past few months has been the sharp cuts in
bank deposit rates.
•If the RBI curbs excess liquidity and halts the fall in short-term rates, then the depositors
can breathe a sigh of relief.
44. The Standing Deposit Facility, proposed by the RBI and under examination by the Centre, is viewed as a
strong tool to suck out the surplus liquidity.
What is it?
•This concept, first recommended by the Urjit Patel committee report in 2014, may soon become
part of the central bank’s toolkit to manage liquidity.
•Standing deposit facility is a remunerated facility that will not require the provision of collateral
for liquidity absorption.
•Banks, at different points in time, may be short of funds or flush with money.
•When they need money for the short-term, they borrow from the RBI (Repo Rate) for which they pledge
government securities.
•When banks have excess funds they lend it to the RBI at the reverse repo rate that is lower than the
repo rate. Here too, government securities act as collateral.
Why the facility is introduced now?
•The demonetisation exercise has left banks flush with funds.
•The past two months, banks have been lending left, right and centre to the RBI under the reverse repo
window.
•And with the RBI increasing the reverse repo rate by 25 basis points to 6 per cent in the April policy,
banks now earn more on these funds.
•The worry is there may be only so much (limited) collateral to go around.
•Collateral may become a constraining factor if the central bank runs out of securities to absorb
liquidity under the reverse repo window.
•Enter the Standing Deposit Facility. This will allow the RBI to absorb surplus funds from
banks without collateral.
•Banks too continue to earn interest (though possibly lower than the existing reverse repo rate). In effect,
it will empower the RBI to suck out as much liquidity as needed.
Why is it important?
•Liquidity plays a key role in transmission of policy rates.
•In a falling rate cycle, pass-through of rate cuts will happen quickly if there is sufficient liquidity, as
banks will be able to lower deposit rates comfortably.
•The reverse holds true now. Excess liquidity has led to short-term market rates slipping below the RBI’s
policy repo rate.
•Now, RBI would want to keep a tight leash on rates. The RBI would want its key policy rate i.e., the repo
rate, to be the operational rate.
•The RBI’s management of rates impacts the rates on your deposits and loans.
•The immediate fallout of excess liquidity in the past few months has been the sharp cuts in bank deposit
rates.
•If the RBI curbs excess liquidity and halts the fall in short-term rates, then the depositors can breathe a
sigh of relief.
44. Capital expenditure:

• Context: ES reported trends in India’s capex.
• Over the years, the Centre's Capex has steadily increased from 1.7% of GDP (FY09 to FY20) to
2.5% of GDP in FY22.
• To prioritise spending on Capex, the Centre incentivized the state governments through interest-
free loans and increased borrowing limits.
•Government's strategy of focusing on Capex-led growth will keep the growth interest rate
differential positive, resulting in a more sustainable debt to GDP ratio in the medium run.
45. Paramparagat Krishi Vikas Yojana (PKVY):
• Organic farming is being promoted through FPOs.
• To facilitate organisation of FPOs, the Small Farmers’ Agribusiness Consortium (SFAC) was
mandated by the Department of Agriculture and Cooperation, Ministry of Agriculture, Govt. of
India, to support the State Governments in the formation of
Farmer Producer Organizations (FPOs).
46. Primary Agricultural Credit Societies (PACS):
• Context: Budget has announced Rs 2,516 crore for computerisation of 63,000 PACS over the next
five years, with the aim of bringing greater transparency and accountability in their operations.
• PACS are village level cooperative credit societies that serve as the last link in a three tier
cooperative credit structure headed by the State Cooperative Banks (SCB) at the state level.
• Credit from the SCBs is transferred to the district central cooperative banks, or DCCBs, that
operate at the district level. The DCCBs work with PACS, which deal directly with farmers. Provide
short term to medium term funds and other input services, like seed, fertilizer, pesticide distribution,
etc. to member farmers.
• Chairpersons of PACS participate in electing the office-bearers of DCCBs.
• SCBs and DCCBs are connected to the Core Banking Software (CBS), PACS are not.
• These are refinanced by NABARD through 352 District Central Cooperative Banks (DCCBs) and
34 State Cooperative Banks (StCBs).
• As per NABARD survey, Maharashtra has maximum number of PACS active ~ 20,000.
47. CAPITAL GAIN TAX
Context: Conversion of gold into electronic gold receipt and vice versa will not be treated as capital
gains.
• Any profit or gain that arises from the sale of a ‘capital asset’ is known ‘income from capital
gains’.
• Such capital gains are taxable in the year in which the transfer of the capital asset takes place. This
is called capital gains tax.
• Under the Income Tax Act, gains from the sale of capital assets, both movable and immovable, are
subject to ‘capital gains tax’. Movable personal assets such as cars, apparel, furniture are excluded
from this tax.
• Two types — long term or short term.
Equity shares or units of equity-oriented mutual funds held for more than 12 months are considered
long-term, while house property held for 24 months is considered a long-term capital asset.
What all is included in capital assets?
Land, building, house property, vehicles, patents, trademarks, leasehold rights, machinery, and
jewellery are a few examples of capital assets. This includes having rights in or in relation to an
Indian company. It also includes the rights of management or control or any other legal right.
What all is not included in capital assets?
1. Any stock, consumables or raw material, held for the purpose of business or profession
2. Personal goods such as clothes and furniture held for personal use
3. Agricultural land in rural(*) India
4. 6½% gold bonds (1977) or 7% gold bonds (1980) or National Defence gold bonds (1980) issued
by the central government
5. Special bearer bonds (1991)
6. Gold deposit bond issued under the gold deposit scheme (1999) or deposit
certificates issued under the Gold Monetisation Scheme, 2015
48. TAX RECEIPTS IN BUDGET
GST>Corporation>Income>Excise>Customs>Service (2022-23 revised) and (2023-24)
49. Startup India Seed Fund Scheme
• The term seed capital refers to the type of financing used in the formation of a startup.
• Funding is provided by private investors—usually in exchange for an equity stake in the company
or for a share in the profits of a product.
• Much of the seed capital a company raises may come from sources close to its founders including
family, friends, and other acquaintances.
Eligibility Criteria for Startup Recognition:(DPIIT)
• Incorporated as a private limited company or registered as a partnership firm or a limited liability
partnership
• Turnover should be less than INR 100 Crores in any of the previous financial years
• An entity shall be considered as a startup up to 10 years from the date of its incorporation
• Should be working towards innovation/ improvement of existing products, services and processes
and should have the potential to generate employment/ create wealth.
• An entity formed by splitting up or reconstruction of an existing business shall not be considered a
"Startup".
50 Agriculture related issues in news:

• Agri export and trade related.
• India in 2021-22 shipped out an all-time-high 21.21 million tonnes (mt) of rice. (Here non basmati
>> basmati rice).
• Further, sugar has shown the largest growth in export (surge of 45%).
• Import of Vegetables oil, cotton (this year turned net importer of cotton) and cashew imports were
cause of concerns.
• Weak correlation of India’s Agri export with world food price index (FAO).
• Production related: India’s cotton production has declined from the high of 398 lakh bales in
2013-14 to a 12- year low of 307.05 lakh bales in 2021-22.
• Recent updates: WEF has launched AI4AI (AI for Agriculture Innovation) initiative and Food
Innovation Hubs in collaboration with India’s agriculture ministry and some state governments.
• Farming technique in news: Terrace Farming: method of growing crops on sides of hills or
mountains by planting on graduated terraces built into the slope.
• Though labour-intensive, the method has been employed effectively to maximize arable land area
in variable terrains and to reduce soil erosion and water loss.
• Weed management: Weed management in vegetable cropping systems typically consists of crop
rotation, manual weeding, weed mats, herbicides, and cultivation. Ex: Weed management of
Sorghum — inclusion of cotton crop in rotation.
• Stale seedbed technique: weed management practice in which weed seeds just below the soil
surface are allowed to germinate and then killed prior to planting the cash crop while minimizing
soil disturbances. This is also used in weed management of rice crop in India.
Bio fortification of crops: Bio fortification of essential micronutrients into crop plants can be
achieved through three main approaches, namely transgenic, conventional, and agronomic,
involving the use of biotechnology, crop breeding, and fertilization strategies, respectively.
• Transgenic-based approach has advantages that a useful gene once discovered, can be utilized for
targeting multiple crops.
• Golden Rice was an important breakthrough in this direction as an effective source of provitamin
A (beta-carotene) with a significant potential to reduce disease burden by expressing genes
encoding PSY and carotene desaturase.
Old Scheme in news:

• Agri Infra Fund (AIF): provide a medium - long term debt financing facility for investment in
viable projects for post-harvest management Infrastructure and community farming assets through
interest subvention and financial support.
• From ES-22: government investment in agriculture has declined from 5.4 per cent in 2011-12 to
4.3 per cent in 2020-21, private investment was at a high of 9.3 per cent.
51. Purchasing Managers Index:

• A survey-based measure that asks the respondents about changes in their perception about key
business variables as compared with the previous month.
• IIP (as opposed to PMI) shows the change in production volume in major industrial subsectors like
manufacturing, mining and electricity. Similarly, the IIP also gives use based (capital goods,
consumer goods etc) trends in industrial production.
• It covers broader industrial sector compared to PMI.
• For India, the PMI Data is published by Japanese firm Nikkei but compiled and constructed by
Markit Economics (for the US, it is the ISM). A manufacturing PMI and a services PMI are
prepared and published by the two.
52. New Market-Based Economic Dispatch (MBED)

• India is developing a new electricity market model called the MBED mechanism.
• MBED is a way forward to deepen power markets in line with the Centre’s ‘One Nation, One
Grid, One Frequency, One Price’ formula.
• Currently, the electricity grid is divided into state-wise autonomous control areas managed by the
State Load Dispatch Centers (SLDCs), which in turn are supervised by Regional Load Dispatch
Centers (RLDCs) and the National Load Dispatch Centre (NLDC).
• The MBED model wants to change this by having a central market operator in charge of all the
electricity
53. Open Network for Digital Commerce (ONDC):
 Network based on open protocol and will enable local commerce across segments, such as
mobility, grocery, food order and delivery, hotel booking and travel, among others, to be discovered
and engaged by any network-enabled application.
 It is an initiative of the Department for Promotion of Industry and Internal Trade (DPIIT) under
the Ministry of Commerce and Industry.
 It seeks to democratise digital or electronic commerce, moving it from a platform-centric model
to an open-network.
54. IMF’s Extended Fund Facility (EFF):

 EFF was established to provide assistance to countries experiencing serious payment imbalances
because of structural impediments or slow growth and an inherently weak balance-of-payments
position.
 IMF aids: When a country faces serious medium-term balance of payments problems because of
structural weaknesses that require time to address.
55. G20 Sustainable Finance Roadmap:

 The G20, under Italy’s 2021 Presidency, has re-established and elevated the G20 Sustainable
Finance Working Group (SFWG) with the goal of scaling up sustainable finance that supports the
objectives of the 2030 Agenda and goals of the Paris Agreement.
The Roadmap is a multi-year document that will help inform the broader G20 agenda on climate
and sustainability, future work plans of the SFWG, and other relevant international work.
56. Digital Single Market:

• A market characterized by ensuring the free movement of people, services and capital and
allowing individuals and businesses to seamlessly access and engage in online activities irrespective
of their nationality or place of residence.
• European Union is working on first DSM strategy. Further, G-20 is also pushing for one such
arrangement identified under Osaka Track.
• The terms Digital Services Act and Digital Markets Act are both part of it and builds on EU e-
Commerce Directive of the year 2000.
• Similarly, eIDAS (electronic Identification, Authentication and trust Services) is also sometimes
mentioned in news. It is an EU regulation on electronic identification and trust services for
electronic transactions in the European Single Market.
57. Self reliant India Fund (SRIF):
• Fund is Rs.10,000 crore fund launched by the Indian Government.
• It is a SEBI-registered category-II Alternative Investment Fund (AIF) that was launched by the
Indian Government to provide growth capital to MSME Sector.
• SRIF will provide Rs 5000cr to MSMEs to give impetus to the industry.
58. Twin Transition:

• A twin transition basically means including digital/technological improvements with the
Environmental sustainability goals. E.g. using carbon capture technology, and adopting a circular
development model.
• Just Transition means greening the economy in a way that is as fair and inclusive as possible to
everyone concerned, creating decent work opportunities and leaving no one behind.
• A Just Transition involves maximizing the social and economic opportunities of climate action,
while minimizing and carefully managing any challenges.
59. National Anti-profiteering Authority (NAA):

• Context: Anti-profiteering complaints would now be dealt with by the Directorate General of
Anti-profiteering (DGAP) which will then submit a report to the Competition Commission of India
(CCI) from December 1 as the extended tenure of the National Anti-profiteering Authority ends on
November this year.
• Initially, NAA was set up for two years till 2019 but was later extended till November 2021.
National Anti-profiteering Authority (NAA) is a statutory body set up in November 2017 under the
Goods and Services Tax (GST) law to check unfair profiteering activities by registered suppliers.
• The Authority’s core function is to ensure that the benefits of a reduction in GST rates on goods
and services and of the input tax credit are passed on to consumers by way of a reduction in prices.
• It can take suo moto action even without a complaint from a citizen.
• Actions that could be taken by NAA: Make company refund the money to the consumer alongwith
interest @ 18% p.a. or Order company to deposit the refund amount in the Consumer Welfare Fund
(in case the buyer is not identifiable) or Impose monetary penalty equivalent to amount involved in
undue profiteering and Cancel registration \ of the assessee.
• CCI was established to enforce the law under the Competition Act, of 2002. It consists of a
chairperson and six members appointed by the central government.
• The Commission is tasked with the job of eliminating anti-competitive practices, protecting the
interest of consumers and ensuring free trade.
60. Quality Council of India:
• QCI was established as a National body for Accreditation in 1996.
• Set up through a PPP model - GOI + (ASSOCHAM) + (CII) + (FICCI)
• Set up as non profit organisation under Societies Registration Act XXI of 1860.
• Nodal Ministry — Department of Industrial Policy and Promotion (MoCI)
• Governed by a Council of 38 members with equal representations of government, industry and
consumers.
• Chairman of QCI is appointed by the PrimeMinister on the recommendation of the industry to the
government.
61. Infrastructure Status to Data Centres:

• Data centre with a minimum capacity of 5 MW of IT load will be eligible for infrastructure status.
• A data centre is a building, a dedicated space within a building, or a group of buildings used to
house computer systems and associated components.
• Giving ‘Infrastructure status’ enables get easier access to institutional credit at lower rates and for
a longer time.
62. Status of India’s Forex:

• Forex are assets held on reserve by RBI in foreign currencies, which can include bonds, treasury
bills and other government securities.
• Most foreign exchange reserves are held in US dollars.
• SDR is an international reserve asset, created by the IMF in 1969 to supplement its member
countries’ official reserves.
• The SDR is neither a currency nor a claim on the IMF. Rather, it is a potential claim on the freely
usable currencies of IMF members. SDRs can be exchanged for these currencies.
• The value of the SDR is calculated from a weighted basket of major currencies, including the US
dollar, the euro, the Japanese yen, the Chinese yuan, and the British pound.
• The interest rate on SDRs or (SDRi) is the interest paid to members on their SDR holdings.
63. EASE Reforms:
• Associated with banking sector.
• As a part of the Enhanced Access & Service Excellence (EASE) reforms, the government is
planning to leverage Regional Rural Banks (RRBs) to expand their portfolio by adding new
segments.
• Regional Rural Banks (RRBs): set up on the basis of the recommendations of the Narasimham
Working Group (1975) and legislation of the Regional Rural Banks Act,1976 was passed.
• The first RRB “Prathama Grameen Bank” was set up on 2nd October, 1975.
• RRBs are required to provide 75% of their total credit as priority sector lending.
• Stakeholders: equity held by the Central Government, concerned State Government and the
Sponsor Bank in the proportion of 50:15:35.
• Objective: was to provide credit and other facilities to the small and marginal farmers, agricultural
labourers, artisans and small entrepreneurs in rural areas.
64. Financial Sector Legislative Reforms Commission

(FSLRC):
• It was constituted by the Ministry of Finance in March 2011, was asked to comprehensively
review and redraw the legislations governing India’s financial system.
• According to the FSLRC, the current regulatory architecture is fragmented and is fraught with
regulatory gaps, overlaps, inconsistencies and arbitrage. To address this, the FSLRC submitted its
report to the Ministry of Finance on March 22, 2013, containing an analysis of the current
regulatory architecture and a draft Indian Financial Code to replace the bulk of the existing financial
laws.
• It recommended a United financial agency (UFA) — Regulation and supervision of all non-bank
and payments related markets.
65. Solar Energy Corporation of India Limited (SECI):

• It was set up in 2011 to facilitate the implementation of Jawaharlal Nehru National Solar Mission
(JNNSM) and to achieve the targets set forth by it.
• SECI was initially incorporated as a section 25 company (Not-for-profit) under the Companies
Act, 1956. In the year 2015, it was converted into a Section-3 company.
• SECI is a Schedule- A Central Public Sector Undertaking (CPSU).
• It is the only CPSU dedicated to the development of RE sector in India and its scope of activities
covers all RE sources.
• SECI is a Category-1 licensee for trading of power on pan-India basis. It is the power procurement
intermediary for projects being set up through its tenders, procuring power from developers and
selling to Discoms though long term PPAs/PSAs.
• Recently, the Ministry of Power, through amendments to the Electricity Rules, 2005, permitted
government-owned intermediary procurers like SECI or NTPC Vidyut Vitaran Nigam (NVVN) to
sell excess power from central pools to open access consumers.
66. Green Fins Hub:

• Recently, United Nations Environmental Programme (UNEP), along with the UKbased charity
Reef-World Foundation, launched the Green Fins Hub.
• Green Fins Hub is a global digital platform for diving and snorkelling operators worldwide.
• Sustainable Blue Economy Finance Initiative is a UN-convened global community focused on the
intersection between private finance and ocean health, supporting the implementation of the
Sustainable Blue Economy Finance Principles.
• The Sustainable Blue Economy Finance Principles are the foundational keystone to invest in the
ocean economy.
67. Network for Greening the Financial System (NFGS):

• RBI joined Central Banks and Supervisors Network for Greening the Financial System (NGFS) as
a Member in April, 2021.
• It was launched at the Paris One Planet Summit on December 12, 2017. So India is not a founding
member.
• NGFS is a group of central banks and supervisors willing to share best practices and contribute to
the development of environment and climate risk management in the financial sector, while
mobilising mainstream finance to support the transition towards a sustainable economy.
Important Prelims concept in news
68.GDP VS GVA GAP
Recently in Indian Economy the gap between GDP and GVA has increased
• This is because GDP is calculated at Market Prices and GVA is calculated at Basic Prices
• GDP lags behind GVA if tax collections are low and subsidies are high in an economy.
• [GDP] = [GVA] +[Net Taxes] - [Net Subsidies].
69. GLASS CLIFF

A term which relates to the phenomenon of promoting women/minorities to higher leadership
positions during times of crisis with an aim to blame them if things don't improve.
70. DATA-BALANCE OF PAYMENT

• For FY22 India had a trade surplus in services but a deficit in merchandise goods
• For FY23 India’s combined exports have crossed $ 750 billion
• India remained largest recipient of Remittances with the figure touching $100 billion.
71. ‘5 Pran’ Given by PM Modi on 15th August 2022

1. Become a developed nation by 2047
2. Shed Colonial Mindset
3. Take pride in our roots
4. Work for Unity of Nation
5. Sense of Duty among citizens
72. Circular Trading

Fraudulent practice of availing Input Tax Credit in the GST system by generating fake invoices.
73. G24
The Intergovernmental Group of Twenty-Four on International Monetary Affairs and Development,
or (Group of 24 (G-24)) was established in 1971 in order to help coordinate the positions of
developing countries on international monetary and development finance issues, as well as and to
ensure that their interests are adequately represented in negotiations on international monetary
matters. Though originally named after the number of founding Member States, it now has 28
Members.
74. India’s external debt

External debt ($613 bn)
Long-term debt >> Short-term debt
Acc to denomination
USD (55%) > INR (30%) > SDR (6%) > Yen (5%)
75. Financial Services Institutions Bureau (FSIB)
Bank Boards Bureau replaced by FSIB
• It will work under Department of Financial Services, Ministry Of Finance
• It will recommend appointment, transfers and termination of top posts in Public sector banks,
insurance companies and other Financial institutions.
76. IIP
NSO, MoSPI
IIP weights (based on type of goods):
Primary goods (34%) > intermediate goods (17%) > consumer non-durables (15%) > consumer
durables (13%) > capital goods (8%)
IIP weights (based on sector):
Manufacturing (77%) > Mining (14%) > Electricity (8%).
77. Index of Eight Core Industries

Economic Advisor to DPIIT, Min of Commerce
weights: Refinery products > Electricity > Steel > Coal > Crude Oil > Natural Gas > Cement >
Fertilizers
78. Account Aggregator (AA) System

AA are entities that help individuals digitally access and share financial information and
services from multiple vendors
• It enables consent based data sharing, provides all financial services like credit, insurance etc
under one platform.
• It is regulated by RBI under the NBFC-AA licence.
79.Cost Inflation Index (CII)

• It is released by Income Tax Department
• Based on CPI (urban)
• Helps taxpayers compute their long term capital gains tax.
80. FDI In India
• Top Sources of FDI in India : Singapore > Mauritius > UAE > USA
• Top recipient states: Karnataka > Maharashtra > Delhi
• India is the 7th topmost recipient of FDI in the world. Top 3 FDI receivers are: USA, China and
Hong.

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ECONOMY IMPORTANT NEWS COMPILATION OF

LAST ONE YEAR

1. Credit Suisse Crisis

What is Credit Suisse?

What led to the Credit Suisse crisis?

What is Additional Tier 1 (AT1) bonds?

What are the impacts on India?

2. SILICON VALLEY BANK CRISIS

What is the SWAMIH investment fund?

5. QUALIFIED STOCK BROKERS

Who are Qualified Stock Brokers?

Why are QSBs important?

How are Qualified Stock Brokers designated?

6. Inflation: Hard landing, soft landing

7. SUGAR EXPORTS SURGING

Government Policies for higher Sugar Production:

About Sugar Industry:

Unified Payments Interface (UPI)

What is transfer pricing?

10. PROPOSED CHANGES IN ANGEL TAX

What exactly is the proposed change?

11. T+1 SETTLEMENT CYCLE

Why are foreign investors opposed?

13. Sovereign Green Bonds

14. Drone insurance

What is covered under drone insurance?

How big is the drone market in India?

What are the regulations in the sector?

15. DIGITAL RUPEE

How it will work?

What Are The Advantages Of Digital Rupee?

Faster Mode of Payment

Cheaper Global Transfers

Well-organized Government Payments

What Are The Disadvantages Of Digital Rupee?

Steep Learning Curve

Do We Need the Digital Rupee?

With reference to digital payments, consider the following statements:

18. NON PERFORMING ASSETS

Reasons for rise in NPAs:

Government’s Initiatives to tackle NPAs:

19. ‘friendshoring’ and other global trade buzzwords

20. Vostro and Nostro Accounts

What led to creation of the Vostro accounts?

21. CCI’s Fine on Google

22. Surety Bonds

What is Surety Bond?

Who is Principal in bond agreement?

Select the correct answer using the code given below.

What are Digital Banking Units (DBUs)?

How are DBUs different from other banks?

What is the significance of DBUs?

25. BAKING SYSTEM LIQUIDITY

What is Banking System Liquidity?

What has Triggered this Deficit?

How can a Tight Liquidity Condition Impact Consumers?

26. WINDFALL TAX

27. INDO PACIFIC ECONOMIC FRAMEWORK

What aspects to the IPEF need further scrutiny?