Important economic concept part-i

Important Economic Concept
Part-I

RAJESH NAYAK
1. Agricultural Census
Agricultural Census, which is conducted every five years in India. It is the largest countrywide
statistical operation undertaken by Ministry of Agriculture, for collection of data on structure of
operational holdings by different size classes and social groups. Primary ( fresh data) and secondary
(already published) data on structure of Indian agriculture are collected under this operation with the
help of State Governments. The first Agricultural Census in the country was conducted with
reference year 1970-71.
Agricultural Census is carried out as a Central Sector Scheme under which 100% financial assistance
is provided to States/Union Territoriess. Agricultural Census operation is carried out in three phases.
During Phase-I, a list of all holdings with data on area, gender and social group of the holder is
prepared with the help of listing schedule. During Phase-II detailed data on tenancy, land use,
irrigation status, area under different crops (irrigated and un-irrigated) are collected in holding
schedule. Phase-III, which is called as Input Survey, relates to collection of data of input use across
various crops, States and size groups of holdings, in addition to data on agriculture credit,
implements and machinery, livestock and seeds.
2. Agricultural Labourers
A person who works on another person's land for wages in money or kind or share is regarded as an
agricultural labourer. She or he has no risk in the cultivation, but merely works on another person's
land for wages. An agricultural labourer has no right of lease or contract on land on which she/he
works.
3. Agricultural Marketing Information Network (AGMARKNET)
Agricultural Marketing Information Network (AGMARKNET) was launched in March 2000 by the
Union Ministry of Agriculture. The Directorate of Marketing and Inspection (DMI), under the
Ministry, links around 7,000 agricultural wholesale markets in India with the State Agricultural
Marketing Boards and Directorates for effective information exchange. This e-governance portal
AGMARKNET, implemented by National Informatics Centre (NIC), facilitates generation and
transmission of prices, commodity arrival information from agricultural produce markets, and web-
based dissemination to producers, consumers, traders, and policy makers transparently and quickly.
The AGMARKNET website (http://www.agmarknet.nic.in) is a G2C e-governance portal that caters
to the needs of various stakeholders such as farmers, industry, policy makers and academic
institutions by providing agricultural marketing related information from a single window. The
portal has helped to reach farmers who do not have sufficient resources to get adequate market
information. It facilitates web- based information flow, of the daily arrivals and prices of
commodities in the agricultural produce markets spread across the country. The data transmitted
from all the markets is available on the AGMARKNET portal in 8 regional languages and English. It
displays Commodity-wise, Variety-wise daily prices and arrivals information from all wholesale
markets. Various types of reports can be viewed including trend reports for prices and arrivals for
important commodities.

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Directorate of Marketing and Inspection (DMI) has liaison with the State Agricultural Marketing
Boards and Directorates for Agricultural Marketing Development in the country. Agricultural
Produce Market Committee (APMC) displays the prices prevailing in the market on the notice
boards and broadcasts this information through All India Radio etc. This information is also supplied
to State & Central Government from important markets. The statistics of arrival, sales, prices etc. are
generally maintained by APMCs.
AGMARKNET is also expected to play a crucial role in enabling e-commerce in agricultural
marketing.
4. Agricultural Regions of India
There are five agricultural regions in the country viz ;
 Rice region: This extends from the eastern part to include a very large part o the north-
eastern and south-eastern India with another strip along the western coast.
 Wheat region: This extends to most of the northern, western and central India.
 Millet-Sorghum region: This covers Rajasthan, Madhya Pradesh and the Deccan Plateau
in the centre of the Indian peninsula.
 Temperate Himalayan Region: This region is spread over Kashmir, Himachal Pradesh,
Uttarakhand and some adjoining areas. Here potatoes are as important as a cereal crops (which are
mainly maize and rice) and the tree-fruits form a large part of agricultural production.
 Plantation crops region: In Assam and the hills of Southern India tea is produced. Coffee
is produced in the hills of the western peninsular India. Rubber is grown in Kerala and some of the
North-Eastern States like Tripura. Spices grown in Kerala, parts of Karnataka and Tamil Nadu.
5. Alternative Investment Funds (AIFs)
Anything alternate to traditional form of investments gets categorized as alternative investments.
Now, what is considered as traditional may vary from country to country. Generally, investments in
stocks or bonds or fixed deposits or real estates are considered as traditional investments. However,
even with respect to investments in stocks, if the investments are in the stocks of small and medium
scale enterprises (SMEs), it gets categorized as alternative investments in many jurisdictions (For
instance, the SME exchange is called as Alternative Investment Market (AIM) in UK). Generally,
the term AIF refers to private equity and hedge funds.
In India, alternative investment funds (AIFs) are defined in Regulation 2(1)(b) of Securities and
Exchange Board of India (Alternative Investment Funds) Regulations, 2012. It refers to any
privately pooled investment fund, (whether from Indian or foreign sources), in the form of a trust or
a company or a body corporate or a Limited Liability Partnership(LLP) which are not presently
covered by any Regulation of SEBI governing fund management (like, Regulations governing
Mutual Fund or Collective Investment Scheme)nor coming under the direct regulation of any other
sectoral regulators in India-IRDA, PFRDA, RBI. Hence, in India, AIFs are private funds which are
otherwise not coming under the jurisdiction of any regulatory agency in India.
Thus, the definition of AIFs includes venture Capital Fund, hedge funds, private equity funds,

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commodity funds, Debt Funds, infrastructure funds, etc.,while, it excludes Mutual funds or
collective investment Schemes, family trusts, Employee Stock Option / purchase Schemes, employee
welfare trusts or gratuity trusts, „holding companies‟ within the meaning of Section 4 of the
Companies Act, 1956, securitization trusts regulated under a specific regulatory framework, and
funds managed by securitization company or reconstruction company which is registered with the
RBI under Section 3 of the Securitization and Reconstruction of Financial Assets and Enforcement
of Security Interest Act, 2002.
One AIF can float several schemes. Investors in these funds are large lyinstitutional, high net worth
individuals and corporates.
6. Annual Financial Statement
Annual Financial Statement is a document presented to the Parliament every year under Article 112
of the Constitution of India, showing estimated receipts and expenditures of the Government of India
for the coming year in relation to revised estimates for the previous year as also the actual amounts
for the year prior to it.
The receipts and disbursements are shown under three parts in which Government Accounts are to
be kept viz.,(i) Consolidated Fund, (ii) Contingency Fund and (iii) Public Account.
Under the Constitution, Annual Financial Statement has to distinguish expenditure on revenue
account from other expenditure. Government Budget, therefore, comprises of Revenue
Budget and Capital Budget.
The estimates of receipts and expenditure included in the Annual Financial Statement are for the
expenditure net of refunds and recoveries, as will be reflected in the accounts.
The estimates of receipts and disbursements in the Annual Financial Statement are shown according
to the accounting classification prescribed by Comptroller and Auditor General of
India under Article 150 of the Constitution, which enables Parliament and the public to make a
meaningful analysis of allocation of resources and purposes of Government expenditure.
Annual Financial Statement is essentially the Budget of the Government. In case of the Central
Government, the Budget is presented in two parts, viz., the Railway Budget pertains to Railway
Finance and the General Budget (or what is commonly known as Union Budget) relating to the
financial position of the Government of India, excluding Railways. The Railway Budget is presented
by the Railway Minister sometime in the third week of February. By convention, the General Budget
is presented to Lok Sabha by the Finance Minister on the last working day of February of each year.
A copy of the respective Budgets is simultaneously laid on the Table of Rajya Sabha.
However, these days, the term Union Budget includes not just the Annual Financial Statement but
also the policy documents associated with it like, Budget Speech, Finance Bill, Appropriation
Bill, Demand for grants, documents submitted under Fiscal Responsibility and Budget Management
Act like, macro-economic framework statement, medium term fiscal policy statement etc.
7. Appropriation
According to Article 114 of the Indian constitution, no money can be withdrawn from
the Consolidated Fund of India to meet specified expenditure except under an appropriation made by
Law. Similarly, State (sub-national) Governments can also draw from their Consolidated Funds only

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after an appropriation act is passed. Every year, after budgetary estimates are approved, an
Appropriation Bill is passed by the Parliament/state legislature and then it is presented to the
President/Governor. After the assent by the President/governor to the bill, it becomes an Act.
However, if during the course of the financial year, the funds so appropriated are found to be
insufficient, the Constitution provides for seeking approval from the Parliament or State Legislature
for supplementary grants.
Appropriation Accounts present the total amount of funds (original and supplementary) authorised
by the Parliament/State legislature in the budget vis-a-vis the actual expenditure incurred against
each head of expenditure. The Office of the Comptroller and Auditor General of India reports to the
Union and State Legislatures any discrepancies that occur between the amounts appropriated for a
particular head of expenditure and what was actually spent at the end of the financial year. These
reports provide an indication of unrealistic budget estimates made by various departments. Any
expenditure in excess of what was approved requires regularization by the Parliament/State
Legislature.
Some expenditure of Government (e.g. public debt repayments, expenditure incurred on the
Judiciary etc.) is not voted by the Legislature and such expenditure is „Charged‟ on Consolidated
Fund under Article 112 (3) of the Constitution and is called Charged Appropriation.
All other expenditure is required under Article 113 (2) of the Constitution to be voted by the
Legislature and is called voted grant.
8. ASHA (Accredited Social Health Activist)
ASHA is a woman grass root level health volunteer, who links households with health facilities. As
per norms, there should be one ASHA for every 1000 population.
She disseminates health related information and assists households to gain access to health care
facilities. She is paid on the basis of performance (incentive) for the task she undertakes.
9. Assigned Revenue
The term is used to refer to various tax/duty/cess/surcharge/levy etc., proceeds of which are
(traditionally) collected by State Government (on behalf of) local bodies viz.,
Panchayat/Municipality and (subsequently) adjusted with/assigned to them. Collection of such
revenue is governed by relevant Act(s) administered by Panchayat/Municipality.
Typical examples of assigned revenue include entertainment tax, surcharge on stamp duty, local
cess/surcharge on land revenue, lease amount of mines and minerals, sale proceeds of social forestry
plantations etc. State Finance Commissions recommend devolution of assigned revenue to local
bodies on objective criteria, which may be specified by them in specific context.
10.Association of State Road Transport Undertakings (ASRTU)
Association of State Road Transport Undertakings (ASRTU) came into existence on 13th August,
1965 with the objective of providing a forum for exchange of ideas on best practices of State Road
Transport Undertakings (SRTUs). ASRTU constitutes the backbone of mobility for the urban and
rural population across India. ASRTU plays an important role in promoting affordable mode of
public transport for socio-economic development of country. Public SRTUs are backbone of country

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and thus ASRTU is committed to provide all necessary help to them in their production, quality
monitoring and to address to their common problems.
11.Atal Pension Yojana (APY)
Atal Pension Yojana is a pension scheme for the unorganized sector that provides a defined
pension, depending on the contribution and the period of contribution. Government contributes 50%
of the beneficiaries‟ premium limited to Rs.1,000 each year, for five years, in the new accounts
opened before 31st December 2015.
The Scheme focuses on the unorganized sector where nearly 400 million employees representing
more than 80 per cent of all employees are engaged. Atal Pension Yojana would provide a fixed
minimum pension Rs.1000 to Rs.5000 per month starting from the age of 60. The amount of pension
will depend on the monthly contribution by the employee and the age at which the employee
subscribes to the scheme. In any case, the individual will have to subscribe under Atal Pension
Yojana for a minimum of 20 years.
The scheme is aimed at those who are not members of any statutory social security scheme and who
are not Income Tax payers.
The pension would also be available to the spouse on the death of the subscriber and thereafter, the
pension corpus would be returned to the nominee. The minimum age of joining APY is 18 years and
maximum age is 40 years. The benefit of fixed minimum pension would be guaranteed by the
Government.
The scheme was launched in simultaneous functions held at 115 venues across the country on 9 May
2015. The most significant part of this Scheme is co-contribution by government of Rs.1000/- per
annum or 50% of the total contribution whichever is lower, for the first 5 years if one joins the
scheme before the end of the first year of its launch, that is 31 December, 2015.
12.AYUSH
AYUSH signifies a combination of alternative system of Medicine, which was earlier known as
Indian System of Medicine. AYUSH includes Ayurveda, Yoga and Naturopathy, Unani, Siddha and
Homeopathy. The objective of AYUSH is to promote medical pluralism and to introduce strategies
for mainstreaming the indigenous systems of medicine. In India, at the Union Government level,
AYUSH activities are coordinated by Department of AYUSH under Ministry of Health & Family
Welfare. Most of these medical practices originated in India and outside, but got adopted in India in
the course of time.
Ayurveda is more prevalent in the states of Kerala, Maharashtra, Himachal Pradesh, Gujarat,
Karnataka, Madhya Pradesh, Rajasthan, Uttar Pradesh, Delhi, Haryana, Punjab, Uttarkhand, Goa and
Orissa.
The practice of Unani System could be seen in some parts of Andhra Pradesh, Karnataka, Jammu &
Kashmir, Bihar, Maharashtra, Madhya Pradesh, Uttar Pradesh, Delhi and Rajasthan.
Homoeopathy is widely practiced in Uttar Pradesh, Kerala, West Bengal, Orissa, Andhra Pradesh,
Maharashtra, Punjab, Tamil Nadu, Bihar, Gujarat and the North Eastern States and the Siddha
system is practiced in the areas of Tamil Nadu, Pondicherry and Kerala.

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In September 2009 Sowa Rigpa system of medicine was also recognized as a traditional system of
medicine. Sowa Rigpa, commonly known as „Amchi‟ is one of the oldest surviving system of
medicine in the world, popular in the Himalayan region of India. In India this system is practiced in
Sikkim, Arunachal Pradesh, Darjeeling (West Bengal), Lahoul and Spiti (Himachal Pradesh) and
Ladakh region of Jammu & Kashmir.
The Department of Ayurveda, Yoga & Naturopathy, Unani, Siddha and Homoeopathy (AYUSH),
Ministry of Health and Family Welfare has been accorded the status of a Ministry with effect from
09.11.2014 by the Cabinet Secretariat.
National AYUSH Mission (NAM) launched on 15 September 2014 as part of 12th Plan envisages
better access to AYUSH services through increase in number of AYUSH Hospitals and
Dispensaries, ensuring availability of AYUSH drugs and trained manpower.
13.‘Back-to-Back’ Loans
State Governments in India cannot access external sources of finance directly. The 12th Finance
Commission recommended the transfer of external assistance to State Governments in India by the
Union Government on a „Back-to-Back‟ basis. This recommendation was accepted by the
Government of India for general category states and the arrangement came into effect from April 1,
2005. For special category states ( Northeastern states, Uttarakhand, Himachal and J&K), external
borrowings are in the form of 90 per cent grant and 10 per cent loan from the Union Government.
Passing loans on „Back-to-Back‟ basis to State Governments implies that States would face identical
terms and conditions (including concessional interest rates, grace period and maturity profile,
commitment charges and amortization schedules) on account of their access to finance from bilateral
and multilateral sources, as is faced by the Union Government.
This arrangement entails exposure of States to uncertain movements in international rates of interest
(as multilateral agencies viz. IBRD benchmark their interest rates to a reference rate viz. the LIBOR)
and currency exchange rates. As per the „Back-to-Back‟ loan transfer arrangement, states would
have to face currency risk since principal repayments and interest payments on such loans to external
agencies are designated in foreign currencies. In case of adverse exchange rate movement(s) larger
rupee provisions may be required to meet debt service obligations that may negatively impact the
fiscal health of the state concerned.
14.Backwardness
As a consequence of amalgamation of regions at varying levels of socioeconomic development &
different political and administrative structures, the modern state has inherited regional imbalances
that still persist. The backwardness of states is measured to understand the extent of these regional
imbalances. Some of the attempts to define or measure backwardness in India are mentioned below:
Measuring backwardness of Districts at the national level - 2003-04
Concept of Backwardness also came up in the context of a scheme for backward districts, called
Backward Districts Initiative – Rashtriya Sam Vikas Yojana (RSVY) – (A Tenth Plan Initiative).
The Rashtriya Sam Vikas Yojana (RSVY) was being implemented in 147 districts since 2003-04.
The list of districts covered under the RSVY may be seen here. The Scheme was aimed at focused
development programmes for backward areas which would help reduce imbalances and speed up

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development. The identification of backward districts within a State was made on the basis of an
index of backwardness comprising three parameters with equal weights to each:
 value of output per agricultural worker;
 agriculture wage rate; and
 percentage of SC/ST population of the districts.
This Scheme later (2006-07) got subsumed in the Backward Regions Grant Fund program, the
guidelines of which may be seen here. BRGF consists of two components - (a) Districts Component
covering 270 districts, and (b) State Component-which covers special plan for West Bengal, Bihar
and the Kalahandi Bolangir-Koraput (KBK) Region of Odisha and Bundelkhand packages for UP &
MP. The implementing Ministry for the BRGF districts component is the Ministry of Panchayati
Raj. This Scheme was also proposed for closure from December 2009 as most of the districts have
claimed their total allocation of Rs.45 crore each. As such there is no proposal under consideration
of the Government to extend RSVY to other districts of the country. However, a special
development package of Rs. 850.00 crore has been provided to the state of Andhra Pradesh from
BRGF (State component) during 2014-15.Pursuant to the recommendations of 14th Finance
Commission for higher untied tax devolution to states, the scheme followed a natural death since
2015-16. Hence, the ongoing projects under BRGF for addressing Intra-State inequality may be
supported by the States out of their own funds, including received under the recommendations of
14th Finance Commission.
However, the Parliamentary Standing Committee on Finance in its report in April 2015 (on
the Demand for Grants of Ministry of Finance) had disagreed with this view in their report and were
of the view that such subsuming of specific schemes designed with a special purpose / focus to uplift
living standards in backward and under-developed areas / regions with chronic poverty is not
desirable. According to the Committee, Central budgetary support and an element of hand-holding
by way of special central assistance is therefore still required to bring about social and economic
development in such areas, which are lagging far behind in socioeconomic indices and which also
face extraordinary challenges.In this regard the Committee desired that the recommendations of
Raghuram Rajan's Report on backwardness of States (Committee for Evolving a Composite
Development Index of States) may be considered and appropriately implemented.
Measuring backwardness of states - 2013
Government in May 2013, decided to constitute an Expert Committee under the chairmanship of Dr.
Raghuram Rajan to measure backwardness of the Indian States by evolving a Composite
Development Index of States for guiding devolution of funds from central government to such
backward states. The committee submitted its report in September 2013.
The Committee proposed a general method for allocating funds from the Centre to the states based
both on a state‟s development needs as well as its development performance. Towards this,
committee created a multi-dimensional index based on certain measures which correspond to the
multi dimensional approach to defining poverty outlined in the Twelfth Plan. Need is based on a
simple index of (under) development computed as an average of the following ten sub-components:
 monthly per capita consumption expenditure
 education

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 health
 household amenities
 poverty rate
 female literacy
 percent of SC-ST population
 urbanization rate
 financial inclusion
 connectivity
Improvements to a state‟s development index over time (that is, a fall in underdevelopment) is taken
as the measure of performance. Less developed states rank higher on the index, and would get larger
allocations based on the need criteria, with allocations increasing more than linearly to the most
underdeveloped states.
The Committee recommended that States that score 0.6 and above on the Index may be classified as
“Least Developed”; States that score below 0.6 and above 0.4 may be classified as “Less
Developed”; and States that score below 0.4 may be classified as “Relatively Developed”. The
“Least Developed” states effectively subsume what is now “special category” state.
Using the index, the Committee has identified the “Least Developed” states as Arunachal Pradesh,
Assam, Bihar, Chhattisgarh, Jharkhand, Madhya Pradesh, Meghalaya, Odisha, Rajasthan and Uttar
Pradesh. Government as on date has not taken any decision on the recommendations of the
Committee.
15.Banking Correspondent (BC)
Banking Correspondents (BCs) are individuals/entities engaged by a bank in India (commercial
banks, Regional Rural Banks (RRBs) and Local Area Banks (LABs)) for providing banking services
in unbanked / under-banked geographical territories. A banking correspondent works as an agent of
the bank and substitutes for the brick and mortar branch of the bank.
BCs engage in
 identification of borrowers;
 collection and preliminary processing of loan applications including verification of primary
information/data;
 creating awareness about savings and other products and education and advice on managing
money and debt counselling;
 processing and submission of applications to banks;
 promoting, nurturing and monitoring of Self Help Groups/ Joint Liability Groups/Credit
Groups/others;
 post-sanction monitoring;
 follow-up for recovery,
 disbursal of small value credit,
 recovery of principal / collection of interest
 collection of small value deposits

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 sale of micro insurance/ mutual fund products/ pension products/ other third party products
and
 receipt and delivery of small value remittances/ other payment instruments.
The banks in India may engage the following individuals/entities as BCs.
 Individuals like retired bank employees, retired teachers, retired government employees and
ex-servicemen, individual owners of kirana (small shops) / medical /Fair Price shops, individual
Public Call Office (PCO) operators, agents of Small Savings schemes of Government of
India/Insurance Companies, individuals who own petrol pumps, authorized functionaries of well-run
Self Help Groups (SHGs) which are linked to banks, any other individual including those operating
Common Service Centres (CSCs);
 NGOs/ Micro Finance Institutions set up under Societies/ Trust Acts or as Section 25
Companies ;
 Cooperative Societies registered under Mutually Aided Cooperative Societies Acts/
Cooperative Societies Acts of States/Multi State Cooperative Societies Act;
 Post Offices;
 Companies registered under the Indian Companies Act, 2013 with large and widespread
retail outlets
 Non-banking Finance Companies (NBFCs) were not allowed to be appointed as Business
Correspondents (BCs) by banks. However, since June 2014 banks have been permitted to engage
non-deposit taking NBFCs (NBFCs-ND) as BCs, subject to certain conditions:
While a BC can be a BC for more than one bank, at the point of customer interface, a retail outlet or
a sub-agent of a BC shall represent and provide banking services of only one bank.
The banks will be fully responsible for the actions of the BCs and their retail outlets / sub agents.
Banking Correspondent in India, in all sense of the term, is equivalent to what is known as
"Correspondent Banking" in Brazil (Generally, the term correspondent bank refers to a bank which
functions as an agent of another bank in a foreign jurisdiction. However, Brazil uses this term for
domestic agency services by individuals / entities). In some countries BC model is known as "Agent
Banking".
16.Base Effect
The base effect refers to the impact of the rise in price level (i.e. last year‟s inflation) in the previous
year over the corresponding rise in price levels in the current year (i.e., current inflation): if the price
index had risen at a high rate in the corresponding period of the previous year leading to a high
inflation rate, some of the potential rise is already factored in, therefore a similar absolute increase in
the Price index in the current year will lead to a relatively lower inflation rates. On the other hand, if
the inflation rate was too low in the corresponding period of the previous year, even a relatively
smaller rise in the Price Index will arithmetically give a high rate of current inflation.
17.Base Rate
The base rate, introduced with effect from 1st July 2011 by the Reserve Bank of India, is the new
benchmark rate for lending operations of banks. It is a tool which will help in bringing more
transparency in lending operations of banks.

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Base rate is defined as the minimum interest rate of a bank below which it is not viable to lend.It
replaces the benchmark prime lending rate (BPLR), the interest rate which commercial banks
charged their most credit worthy customer.
Base rate includes all those elements of the lending rates that are common across all categories of
borrowers.
Banks are free to choose any benchmark to arrive at the base rate. The interest on all categories of
loans is determined with respect to the base rate except the following loans; (a) DRI advances ( that
is Differential rate of interest scheme whereby banks offer financial assistance at concessional rates)
(b) loans to banks‟ own employees (c) loans to banks‟ depositors against their own deposits. Base
rate is to be reviewed at least once in a quarter and has to be disclosed to the public. Each bank
arrives at its base rate separately. Banks are free to choose any methodology to arrive at the base rate
which is consistent , appropriate and transparent.
18.Basic Road Statistics of India (BRSI)
The Basic Road Statistics of India is a premier publication on the road sector providing
comprehensive information on different categories of road in the country, at the National, State and
Local (municipalities and panchayat) levels. It is brought out regularly every year by Transport
Research Wing (TRW) of the Ministry of Road Transport & Highways. It is vital to have
comprehensive data on road infrastructure to assist in policy planning and investment decision. The
latest publication „Basic Road Statistics of India‟ provides detailed data spread over 11 Sections
comprising of a Section each on Road Length (Total and Surfaced) All India and State-wise,
National Highways, State Highways, Other Public Works Department Roads, Zilla Parishad Roads,
Village Panchayat Roads, CD/Panchayat Samiti Roads, Urban Roads, Project Roads, Plan Outlay
and Expenditure on Roads and Miscellaneous information on National Highways & PMGSY.
Annexed tables list out major terms and definitions relevant to the road sector.
19.Basic Port Statistics of India (BPSI)
The Basic Port Statistics of India is a premier publication which is brought out every year by
Transport Research Wing. It intends to provide comprehensive and analytical descriptions of the
different facets of the maritime transport activity. It highlights the volume and composition of
seaborne trade across the major ports (12) and minor ports (199) of India in the backdrop of global
and domestic macro developments. The major ports in India are administered by the central shipping
ministry while minor ports are administered by relevant department or ministries of the coastal
states.
20.Bid Rigging
Bid rigging is a widely known term across the world. Bidding, as a practice, is intended to enable the
procurement of goods or services on the most favourable terms and conditions. Invitation of bids is
resorted to both by Government (and Government entities) and private bodies (companies,
corporations, etc.). But the objective of securing the most favourable prices and conditions may be
negated if the prospective bidders collude or act in concert. Such collusive bidding called “bid
rigging” contravenes the very purpose of inviting tenders and is inherently anticompetitive. If bid
rigging takes place in Government tenders, it is likely to have severe adverse effects on its purchases
and on cost effectiveness of public spending and wastes public resources. It is therefore important
that the procurement process is highly competitive and not affected by practices such as collusion,

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bid rigging, fraud and corruption. All over the world, bid rigging or collusive bidding is treated with
severity in the law as reflected by the presumptive approach.
Collusive bidding or bid rigging may occur in various ways by which firms coordinate their bids on
procurement or project contracts. Origin of bid rigging is as old as system of procurement. However,
an apt codification on the same may be the Sherman Act, 1890 of the United States, which is
considered the first codified law to look into agreements leading to bid rigging. Governments are
most often the target of bid rigging. Bid rigging is one of the most widely prosecuted forms of
collusion. Bid rigging may take various forms such as bid suppression, complimentary bidding, bid
rotation, and sub contracting etc.
21.Bio-fuels
Bio-fuels are environment friendly fuels derived from renewable bio-mass resources. In India, a
definition of bio-fuels is provided in the National Bio-fuel Policy of 2009. As per that definition,
„biofuels‟ are those liquid or gaseous fuels produced from biomass resources and used in place of, or
in addition to, diesel, petrol or other fossil fuels for transport, stationary, portable and other
applications. In this context, 'biomass resources' refer to the biodegradable fraction of products,
wastes and residues from agriculture, forestry and related industries as well as the biodegradable
fraction of industrial and municipal wastes.
Three broad categories of bio-fuels are identified in India:
1. „bio-ethanol‟: ethanol produced from biomass such as sugar containing materials, like sugar cane,
sugar beet, sweet sorghum, etc.; starch containing materials such as corn, cassava, algae etc.; and,
cellulosic materials such as bagasse, wood waste, agricultural and forestry residues etc.;
2. „biodiesel‟: a methyl or ethyl ester of fatty acids produced from vegetable oils, both edible and
non-edible, or animal fat of diesel quality; and
3. other biofuels: biomethanol, bio CNG, biosynthetic fuels etc.
Bio-fuels provide a strategic advantage to promote sustainable development and to supplement
conventional energy sources in meeting the rapidly increasing requirements associated with high
economic growth for transportation fuels.
The Indian approach to bio-fuels is somewhat different from the current international approaches
since it is based solely on non-food feedstocks to be raised on degraded or wastelands that are not
suited to agriculture, thus avoiding a possible conflict of fuel vs. food security.
Further, the Ministry of Road Transport & Highways has started the initiative of promoting vehicles
which are fueled with clean fuels like Bio-Ethanol, Bio-CNG, Bio-Diesel, Electric Batteries, etc. The
specifications for test reference fuel for Bio-Ethanol fuel vehicles and emission for Bio-Ethanol Fuel
Vehicles, have been notified by the Ministry. In July 2015, the Ministry notified norms for the use of
Bio-CNG for testing and exhaust emission for vehicles running on Bio-CNG and the related norms.
With this notification, the vehicle manufacturers can manufacture, sell and get the vehicles fueled by
Bio-CNG in the country.
22.Broad Based Fund
Broad based fund means a fund established or incorporated outside India, which has at least 20
investors with no single individual investor holding more than 49 percent of the shares or units of the

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fund. If the broad based fund has institutional investor(s), then it is not necessary for the fund to have
20 investors. Further, if the broad based fund has an institutional investor who holds more than 49
percent of the shares or units in the fund, then the institutional investor must itself be a broad based
fund.
In India, the following entities proposing to invest on behalf of broad based funds, are eligible to be
registered as FIIs:
(1).Asset Management Companies (2).Investment Manager/Advisor (3).Institutional Portfolio
Managers (4).Trustee of a Trust and (5).Bank
24. Cabinet Committee
In a parliamentary democracy, a Cabinet Minister with the title of Prime Minister is the Executive
head of the Government, while the Head of State is a largely ceremonial monarch or president. The
Executive branch of the Government has sole authority and responsibility for the daily
administration of the State bureaucracy.
The Prime Minister selects the team of Ministers in the Cabinet and allocates portfolio. In most
cases, the Prime Minister sets up different Cabinet Committees with select members of the Cabinet
and assigns specific functions to such Cabinet Committees for smooth and convenient functioning of
the Government.
A Cabinet Committee can be either set up with a broad mandate or with a specific mandate. Many a
times, when an activity/agenda of the Government acquires prominence or requires special thrust, a
Cabinet Committee may be set up for focussed attention. In all areas delegated to the Cabinet
Committees, normally the decision of the Cabinet Committee in question is the decision of the
Government of the day. However, it is up to the Prime Minister to decide if any issue decided by a
Cabinet Committee should be re-opened or discussed in the full Cabinet.
The Parliament of India (Sansad / ) is the federal and supreme legislative body of India. It
consists of two houses – the Lower House – House of the People called Lok Sabha ( क )and
the Upper House- Council of States called Rajya Sabha.( ).
Though the political party /coalition that have the absolute majority ( i.e at least one seat more than
50 percent of total seats contested and decided) in Lok Sabha forms the Government, the Prime
Minister and the members of the Cabinet can be from either House of Parliament. In 1961,
the Government of India Transaction of Business Rules (TBR), 1961 were framed, which inter-alia
prescribed the procedure in which the Executive arm of the Government would conduct its business
in a convenient and streamlined manner.
In terms of the TBR, 1961, inter-alia, there shall be “Standing Committees of the Cabinet” as set out
in the First Schedule to the TBR, 1961, with the functions specified therein. The Prime Minister
may, from time to time, amend the Schedule by adding to or reducing the numbers of such
Committees or by modifying the functions assigned to them. Every Standing Committee shall
consist of such Ministers as the Prime Minister may from time to time specify. Conventionally,
while Ministers with Cabinet rank are named as „members‟ of the Standing Committees of the
Cabinet, Ministers of State, irrespective of their status of having „Independent Charge‟ of a

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Ministry/Department, and others „with rank of‟ a Cabinet Minister or Minister of State are named as
„special invitees‟.
The Second Schedule to TBR 1961, lists the items of Government business where the full Cabinet,
and not any Standing Committee of the Cabinet should take a decision. However, to the extent there
is a commonality between the cases enumerated in the Second Schedule and the cases set out in the
First Schedule, the Standing Committees of the Cabinet shall be competent to take a final decision in
the matter, except in cases where the relevant entries in the respective Schedules themselves
preclude the Committees from taking such decisions. Also, any decision taken by a Standing
Committee may be reviewed by the Cabinet.
25. Existing Cabinet Committees
As on 20th March 2013 there are 10 (ten) Standing Committees of the Cabinet. These are the
Appointments Committee of the Cabinet (ACC), the Cabinet Committee on Accommodation(CCA),
the Cabinet Committee on Economic Affairs (CCEA) , the Cabinet Committee on Parliamentary
Affairs, the Cabinet Committee on Political Affairs (CCPA), the Cabinet Committee on Prices
(CCP), the Cabinet Committee on Security (CCS), the Cabinet Committee on World Trade
Organisation Matters (CCWTO), the Cabinet Committee on Investment (CCI), and the Cabinet
Committee on Unique Identification Authority of India related issues (CCUID).
While three of the Cabinet Committees, the ACC, CCA and the Cabinet Committee on
Parliamentary Affairs deal with internal housekeeping and functioning of the Government, three
Cabinet Committees have very limited mandates, i.e, CCP is for regulating prices of essential
commodities, CCWTO is for matters relating to WTO, and CCUID is for matters relating to UID.
Prominent Cabinet Committees whose functioning is of general interest are the Cabinet Committee
on Economic Affairs (CCEA), the Cabinet Committee on Investment (CCI), the Cabinet Committee
on Political Affairs (CCPA), and the Cabinet Committee on Security (CCS).
The latest Cabinet Committee is that on investment. On 2 January 2013, the Government has set up
the Cabinet Committee on Investments (CCI) with the Prime Minister as the Chairman to expedite
decisions on approvals/clearances for implementation of projects. This is expected to improve the
investment environment by bringing transparency, efficiency and accountability in accordance of
various approvals and sanctions.
Reconstitution of Cabinet Committees in June 2014
On 10th June 2014, the new Government headed by Prime Minister Shri Narendra Modi decided to
discontinue the following four Standing Committees of the Cabinet:
1. Cabinet Committee on Management of Natural Calamities: The functions of this Committee will
be handled by the Committee under the Cabinet Secretary whenever natural calamities occur.
2. Cabinet Committee on Prices: The functions of this Committee will be handled by the Cabinet
Committee on Economic Affairs.
3. Cabinet Committee on World Trade Organisation Matters: The functions of this Committee will
be handled by the Cabinet Committee on Economic Affairs and, whenever necessary, by the full
Cabinet.

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4. Cabinet Committee on Unique Identification Authority of India related issues: Major decisions in
this area have already been taken and the remaining issues will be brought to the Cabinet Committee
on Economic Affairs.
On 19th June 2014 the Government reconstituted six Committees of the Cabinet i.e. Appointments
Committee of the Cabinet, Cabinet Committee on Accommodation, Cabinet Committee on
Economic Affairs, Cabinet Committee on Parliamentary Affairs, Cabinet Committee on Political
Affairs and Cabinet Committee on Security.
26. Capital Budget
Under Article 112 of the Constitution of India, the Annual Financial Statement has to distinguish
expenditure of the Government on revenue account from other expenditures. Government Budget,
therefore, comprises of Revenue Budget and Capital Budget.
Capital Budget consists of capital receipts and capital payments.
The capital receipts are loans raised by Government from public, called market loans, borrowings by
Government from Reserve Bank and other parties through sale of Treasury Bills, loans received
from foreign Governments and bodies, disinvestment receipts and recoveries of loans from State and
Union Territory Governments and other parties.
Capital payments consist of capital expenditure on acquisition of assets like land, buildings,
machinery, equipment, as also investments in shares, etc., and loans and advances granted by Central
Government to State and Union Territory Governments, Government companies, Corporations and
other parties.
27. Cash based Accounting System Versus Accrual Accounting System
The Indian Government accounts are prepared on a cash based accounting system. This system
recognizes a transaction when cash is paid or received. However it does not give a realistic account
of government's financial position because it lacks an adequate framework for accounting for assets
and liabilities, and depicting consumption of resources. Moreover capital expenditure (expenditure
on the creation of new assets) under the cash system is brought to account only in the year in which a
purchase or disposal of an asset is made. This is not an effective way to track assets created out of
public money. The present system does not reflect accrued liabilities arising from the gap between
commitments and transactions of government on the one hand and payments made. The Twelfth
Finance Commission recommended introduction of accrual accounting in Government. Government
has accepted the recommendation in principle and asked Government Accounting Standards
Advisory Board (GASAB) in the office of the Comptroller and Auditor General of India to draw a
roadmap for transition from cash to accrual accounting system and to prepare an operational
framework for its implementation. So far twenty one State Governments have agreed in principle to
introduce accrual accounting.
28. Cash Reserve Ratio (CRR)
Cash Reserve Ratio refers to the fraction of the total Net Demand and Time Liabilities (NDTL) of a
Scheduled Commercial Bank held in India, that it has to maintain as cash deposit with the Reserve
Bank of India (RBI). The requirement applies uniformly to all banks in the country irrespective of an

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individual bank‟s financial situation or size. In contrast, certain countries e.g. China stipulates
separate reserve requirements for „large‟ and „small‟ banks.
As per the RBI Act 1934, all Scheduled Commercial Banks (that includes public and private sector
banks, foreign banks, regional rural banks and co-operative banks) are required to maintain a cash
balance on average with the RBI on a fortnightly basis to cater to the CRR requirement. With effect
from December 28, 2002 all banks are required to maintain a minimum of 70 per cent of the required
average daily CRR on all days of the fortnight. Non Bank Financial Corporations (NBFCs) are
outside the purview of this reserve requirement.
Traditionally, the amount held to cater to the CRR requirement was stipulated to be no lower than 3
percent and no higher than 20 percent of the total NDTL held in India. However, the RBI
(amendment) Act, 2006 provides for removal of the floor and ceiling with respect to setting the CRR
and authorizes the RBI to set the ratio in keeping with the broad objective of maintaining monetary
stability in the economy.
Presently, banks are not paid any interest on behalf of the RBI for parking the required cash. If a
bank fails to meet its required reserve requirements, the RBI is empowered to impose apenalty by
charging a penal interest rate.
Historically, the CRR was mooted as a regulatory tool. However, over the years and especially after
the liberalization of the Indian economy in the early 1990s, with the economy experiencing
substantial inflows of capital exerting stress on the leverage of the central bank to manipulate
liquidity conditions in the domestic money market, the CRR assumed importance as one of the
important quantitative tools aiding in liquidity management. In contrast to the Liquidity Adjustment
Facility (LAF), which aids liquidity management on a daily basis via changes in repo and reverse-
repo rates, changes in the CRR is aimed at the same in the medium term.
A country that uses the CRR aggressively to control domestic liquidity and target the monetary roots
of inflation is China.
29. Central Plan Assistance
Financial assistance provided by Government of India to support State‟s Five Year/intervening
annual plans is called Central Plan Assistance (CPA) or Central Assistance (CA).
CPA or CA primarily comprises of the following:
CPA is provided, as per scheme of financing applicable for specific purposes, approved by Planning
Commission. It is released in the form of grants and/or loans in varying combinations, as per terms
& conditions defined by Ministry of Finance, Department of Expenditure.
Central Assistance in the form of ACA is provided also for various Centrally Sponsored
Schemes viz., Accelerated Irrigation Benefits Programme, Rashtriya Krishi Vikas Yojana etc. and
SCA is extended to states and UTs as additive to Special Component Plan (renamed Scheduled
Castes Sub Plan) and Tribal Sub Plan. Funds provided to States under Member of Parliament Local
Area Development Scheme @ Rs.5 crore per annum per MP also count as CA.
The term Plan Grants generally comprise of 'Block Grants‟ which consists of Normal Central
Assistance (NCA), Backward Regions Grant Fund (BRGF)- Scheme (State Component), Additional

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Central Assistance (ACA) for Externally Aided Projects (EAPs), Special Central Assistance (SCA),
Special Plan Assistance (SPA), etc.
Since 2015-16, pursuing the recommendations of the 14th Finance Commission, Some of the
schemes like NCA, SCA (untied), SPA, Additional Central Assistance for Other Projects (ACAOP),
Other ACA, SCA for Hill Areas Development Programme (HADP/WGDP), SCA under Backward
Regions Grant Fund (BRGF), National e-governance Plan (Mission mode project) and ACA for Left
wing Extremism (LWE) Affected Districts have been discontinued or subsumed under higher
devolution of taxes.
30. Central Sector and Centrally Sponsored Schemes
In India‟s developmental plan exercise we have two types of schemes viz; central sector and
centrally sponsored scheme. The nomenclature is derived from the pattern of funding and the
modality for implementation.
Under Central sector schemes, it is 100% funded by the Union government and implemented by the
Central Government machinery. Central sector schemes are mainly formulated on subjects from the
Union List.In addition, the Central Ministries also implement some schemes directly in States/UTs
which are called Central Sector Schemes but resources under these Schemes are not generally
transferred to States.
Under Centrally Sponsored Scheme (CSS) a certain percentage of the funding is borne by the States
in the ratio of 50:50, 70:30, 75:25 or 90:10 and the implementation is by the State Governments.
Centrally Sponsored Schemes are formulated in subjects from the State List to encourage States to
prioritise in areas that require more attention. Funds are routed either through consolidated fund of
States and or are transferred directly to State/ District Level Autonomous Bodies/Implementing
Agencies. As per the Baijal Committee Report, April, 1987, CSS have been defined as the schemes
which are funded directly by Central Ministries/Departments and implemented by States or their
agencies, irrespective of their pattern of financing, unless they fall under the Centre's sphere of
responsibility i.e., the Union List.
Conceptually both CSS and Additional Central Assistance (ACA) Schemes have been passed by the
Central Government to the State governments. The difference between the two has arisen because of
the historical evolution and the way these are being budgeted and controlled and release of funds
takes place. In case of CSS, the budgets are allocated under ministries concerned themselves and the
entire process of release is also done by them.
Subsequently, the 14th Finance Commission (FFC) substantially enhanced the share of the States in
the Central divisible pool from the current 32 % to 42 %, which is the biggest ever increase in
vertical tax devolution. Such tax devolution is untied and can be spent as desired by the States.
Consequent to this substantially higher devolution and resultant reduced fiscal space for the Center,
the Finance Minister, Shri Arun Jaitley, while presenting the Union Budget 2015-16, said that many
schemes on the State subjects were to be delinked from Central support. However, he said that
Centre decided to continue to contribute to such schemes representing national priorities, especially
those targeted at poverty alleviation. Further, the schemes mandated by legal obligations and those
backed by Cess collection would be fully provided for by the Central Government. Thus, Union
Budget 2015-16 changed the contours of the central sector and centrally sponsored schemes as
follows:

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 As per the Budget 2015-16, centre has decided to support fully those schemes which are
targeted to the benefits of socially disadvantaged group.
 In case of some Centrally Sponsored Schemes, the Centre-State funding pattern will
undergo a change with States to contribute higher share. Details of changes in sharing pattern will
have to be worked out by administrative Ministry/Department.
 In the Union Budget 2015-16, there are 31 Schemes to be fully sponsored by the Union
Government, 8 Schemes have been delinked from support of the Centre and 24 Schemes will now be
run with the changed sharing pattern.
31. Charged Expenditure
______________________________________________________________________________
In India's democratic system, the government cannot spend from the Consolidated Fund unless the
expenditure is voted in the lower house of Parliament or State Assemblies. However according to
Article 112 (3) and Article 202 (3) of the Constitution of India, the following expenditure does not
require a vote and is charged to the Consolidated Fund. They include salary, allowances and pension
for the President as well as Governors of States, Speaker and Deputy Speaker of the House of
People, the Comptroller General of India and Judges of the Supreme and High Courts. They also
include interest and other debt related charges of the Government and any sums required to satisfy
any court judgment pertaining to the Government.
32. Chit Funds / Chitty / Kuri/ Miscellaneous Non-banking Company
Chit funds are essentially saving institutions. They are of various forms and lack any standardised
form. Chit funds have regular members who make periodical subscriptions to the fund. The periodic
collection is given to some member of the chit funds selected on the basis of previously agreed
criterion. The beneficiary is selected usually on the basis of bids or by draw of lots or in some cases
by auction or by tender. In any case, each member of the chit fund is assured of his turn before the
second round starts and any member becomes entitled to get periodic collection again.
Chit funds are the Indian versions of Rotating Savings and Credit Associations found across the
globe.
Regulatory framework
Chit fund business is regulated under the Central Act of Chit Funds Act, 1982 and the Rules framed
under this Act by the various State Governments for this purpose. Central Government has not
framed any Rules of operation for them. Thus, Registration and Regulation of Chit funds are carried
out by State Governments under the Rules framed by them.
Functionally, Chit funds are included in the definition of Non- Banking Financial Companies by RBI
under the sub-head miscellaneous non-banking company(MNBC). But RBI has not laid out any
separate regulatory framework for them.
Cheating by Chit Fund company through fraudulent schemes is an offence under the Prize Chits and
Money Circulation Schemes (Banning) Act, 1978. The power to investigate and prosecute lies with
the State Governments.
For better identification of Chit Fund Companies, Rule 8(2)(b)(iii) of Companies (Incorporation)
Rules, 2014 framed under the Companies Act, 2013, provides that if the company‟s main business is

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that of a chit fund, its incorporation will not be allowed unless its name is indicative of that financial
activity, viz., Chit Fund
33. Clean Development Mechanism (CDM)
The Clean Development Mechanism (CDM) refers to a market mechanism for achieving greenhouse
gas emissions reduction and is defined in Article 12 of the Kyoto Protocol - an international treaty
for emissions reductions. CDM allows an industrialized/developed country with an emission-
reduction or emission-limitation commitment under the Kyoto Protocol (called as Annex I Party or
Annex B Party of the original Kyoto Protocol signed in 1997) to implement an emission-reduction
project in any of those developing countries (which may otherwise be not financially capable of
undertaking such projects), thereby earning them tradable Certified Emission Reduction (CER)
credits, each equivalent to one tonne of CO2. The saleable CERs earned from such projects can be
counted towards meeting the prescribed Kyoto targets.
CDM is one of the three market-based mechanisms set up under Kyoto Protocol, the other two being
- Joint Implementation and emissions trading or commonly called as carbon trading [which provides
for trading of (a) spare emission units available with any entity (savings from the assigned or
permissible emission levels), (b) CERs created from CDM activities, (c) an emission reduction
unit (ERU) generated by a Joint Implementation project and (d) removal units (RMU) created on the
basis of land use, land-use change and forestry (LULUCF) activities such as reforestation]
CDM helps developing countries to achieve development without compromising on sustainable
aspects while it gives developed countries a flexible mechanism for achieving emissions reductions.
On the other hand, JI helps developed countries to refashion their development strategies through
technology transfer.
34. Clean Energy Cess - Carbon Tax of India
Clean Energy Cess is a kind of carbon tax and is levied in India as a duty of Excise under section 83
(3) of the Finance Act, 2010 at the rate of Rs.100 per tonne on Coal, Lignite and Peat (goods
specified in the Tenth Schedule to the Finance Act, 2010) in order to finance and promote clean
environment initiatives, funding research in the area of clean environment or for any such related
purposes.
This was introduced, with effect from 1 July 2010, though the Union Budget 2010-11, on coal
produced in India or imported to India. This is in line with the principle of "polluter pays", which is
the basic guiding criteria for pollution management.
In many countries carbon taxes are levied also on other fossil fuels like petroleum, natural gas etc.
However, in India this is applied only on coal and its variants - lignite and peat. In any case,
subsequent to the global financial crisis of 2008, many countries have either abolished or reduced or
postponed their decisions on such carbon taxes.
The cess would apply to the gross quantity of raw coal, lignite or peat raised and dispatched from a
coal mine. No deduction from this quantity is be allowed for loss, if any, on account of washing of
coal or its conversion into any other product/form prior to its dispatch from the mine. At the same
time, cess would not be chargeable on washed coal or any other form provided the appropriate cess
has been paid at the raw stage. Thus, if appropriate cess has not been paid at the raw stage, then the
products would attract clean energy cess.

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Since Clean Energy Cess is being levied as a duty of excise, it would also apply to imported coal,
including washed coal by virtue of Section 3(1) of the Customs Tariff Act in the form of additional
duty of customs. Since imported coal would not satisfy the condition regarding payment of
appropriate cess at the raw stage, Clean Energy Cess would apply to all forms of imported coal.
In the State of Meghalaya, coal is mined under traditional and customary rights vested on the local
tribes. The mines operated by these tribes are not subjected to the provisions of laws that regulate the
operation of coal mines. Hence, full exemption from Clean Energy Cess is being provided to coal
produced in the State of Meghalaya under such rights.
Usage of the fund raised through Clean energy cess
The fund raised through the cess is being used for the National Clean Energy Fund for funding
research and innovative projects in clean energy technologies or renewable energy sources to reduce
dependence on fossil fuels. Thus, projects aiming at reduction of emissions with innovative
technologies from different sectors get considered under this funding mechanism.
The details of cess collected for each year is available in the Receipt Budget Document issued
alongside Union Budget under the Budget head 5.07.04 (under excise duty).
35. Collective Investment Scheme (CIS)
A Collective Investment Scheme (CIS), as its name suggests, is an investment scheme wherein
several individuals come together to pool their money for investing in a particular asset(s) and for
sharing the returns arising from that investment as per the agreement reached between them prior to
pooling in the money. The term has broader connotations and includes even mutual funds.
36. Commodities Transaction Tax (CTT)
Commodities transaction tax (CTT) is a tax similar to Securities Transaction Tax (STT), levied in
India, on transactions done on the domestic commodity derivatives exchanges.
Globally, commodity derivatives are also considered as financial contracts. Hence CTT can also be
considered as a type of financial transaction tax.
The concept of CTT was first introduced in the Union Budget 2008-09 (para 179 of the Budget
Speech).The Government had then proposed to impose a commodities transaction tax (CTT) of
0.017% (equivalent to the rate of equity futures at that point of time).
Like all financial transaction taxes, CTT aims at discouraging excessive speculation, which is
detrimental to the market andto bring parity between securities market and commodities market such
that there is no tax / regulatory arbitrage. (Futures contracts are financial instruments and provide for
price risk management and price discovery of the underlying asset (commodity / currency/ stocks /
interest). It is therefore essential that the policy framework governing is uniform across all the
contracts irrespective of the underlying to minimize the chances of regulatory arbitrage.) The
proposal of CTT also appears to have stemmed from the general policy of the Government to widen
the tax base.
37. Compensatory Afforestation
Compensatory Afforestation (CA) refers to afforestation and regeneration activities carried out as a
way of compensating for forest land diverted to non-forest purposes. Here "non-forest purpose"
means the breaking up or clearing of any forest land or a portion thereof for-

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 the cultivation of tea, coffee, spices, rubber, palms, oil-bearing plants, horticultural crops or
medicinal plants;
 any purpose other than reafforestation;
but does not include any work relating or ancillary to conservation, development and management of
forests and wildlife, namely, the establishment of check-posts, fire lines, wireless communications
and construction of fencing, bridges and culverts, dams, waterholes, trench marks, boundary marks,
pipelines or other like purposes.
CA is one of the most important conditions stipulated by the Central Government while approving
proposals for de-reservation or diversion of forest land for non-forest use. The compensatory
afforestation is an additional plantation activity and not a diversion of part of the annual plantation
programme.
Elements of Schemes for Compensatory Afforestation
The scheme for compensatory afforestation should contain the following details:-
 Details of equivalent non-forest or degraded forest land identified for raising compensatory
afforestation.
 Delineation of proposed area on a suitable map.
 Agency responsible for afforestation.
 Details of work schedule proposed for compensatory afforestation.
 Cost structure of plantation, provision of funds and the mechanism to ensure that the funds
will be utilised for raising afforestation.
 Details of proposed monitoring mechanism.
38. Concession Agreement
In India, the term concession agreement is often used in the context of public private
partnership projects (PPP).
The contractual arrangement entered between a public entity and a private entity in a PPP project,
whereby the obligations of both the parties are clearly specified, is called a concession agreement.
39. Consolidated Fund of India
This term derives its origin from the Constitution of India.
Under Article 266 (1) of the Constitution of India, all revenues ( example tax revenue from personal
income tax, corporate income tax, customs and excise duties as well as non-tax revenue such as
licence fees, dividends and profits from public sector undertakings etc. ) received by the Union
government as well as all loans raised by issue of treasury bills, internal and external loans and all
moneys received by the Union Government in repayment of loans shall form a consolidated fund
entitled the 'Consolidated Fund of India' for the Union Government.
Similarly, under Article 266 (1) of the Constitution of India, a Consolidated Fund Of State ( a
separate fund for each state) has been established where all revenues ( both tax revenues such as
Sales tax/VAT, stamp duty etc..and non-tax revenues such as user charges levied by State
governments ) received by the State government as well as all loans raised by issue of treasury bills,
internal and external loans and all moneys received by the State Government in repayment of loans
shall form part of the fund.

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The Comptroller and Auditor General of India audits these Funds and reports to the Union/State
legislatures when proper accounting procedures have not been followed.
40. Consumer Price Index
Consumer Price Index is a measure of change in retail prices of goods and services consumed by
defined population group in a given area with reference to a base year. This basket of goods and
services represents the level of living or the utility derived by the consumers at given levels of their
income, prices and tastes. The consumer price index number measures changes only in one of the
factors; prices. This index is an important economic indicator and is widely considered as a
barometer of inflation, a tool for monitoring price stability and as a deflator in national accounts.
Consumer price index is used as a measure of inflation in around 157 countries. The dearness
allowance of Government employees and wage contracts between labour and employer is based on
this index. The formula for calculating Consumer Price Index is Laspeyre‟s index which is measured
as follows;
41. Consumer Price Index(Urban) and Consumer Price Index(Rural)
The CPI(IW) and CPI(Al & RL) pertain to specific segment of population. Since these indices do
not cover all segments of population, it is difficult to ascertain the true variations in the price level .
To overcome this problem, a new index with a wider coverage is now being computed, CPI(Urban)
and CPI(Rural) by Central Statistics Office under Ministry of Statistics and Programme
Implementation.
42. Consumer Price Index for Industrial Workers CPI(IW)
This index is the oldest among the CPI indices as its dissemination started as early as in 1946. The
history of compilation and maintenance of Consumer Price Index for Industrial workers owes its
origin to the deteriorating economic condition of the workers post first world war which resulted in
sharp increase in prices. As a consequence of rise in prices and cost of living, the provincial
governments started compiling Consumer Price Index. The estimates were however not satisfactory.
In pursuance of the recommendation of Rau Court of enquiry, the work of compilation and
maintenance was taken over by government in 1943. Since 1958-59, the compilation of CPI(IW) has
been started by Labour Bureau ,an attached office under Ministry of Labour & Employment.
Consumer Price Index Numbers for Industrial workers measure a change over time in prices of a
fixed basket of goods and services consumed by Industrial Workers. The target group is an average
working class family belonging to any of the seven sectors of the economy- factories, mines,
plantation, motor transport, port, railways and electricity generation and distribution ..
43. Contingency Fund of India
This term derives its origin from the Constitution of India.
The Contingency Fund of India established under Article 267 (1) of the Constitution is in the nature
of an imprest (money maintained for a specific purpose) which is placed at the disposal of the
President to enable him/her to make advances to meet urgent unforeseen expenditure, pending
authorization by the Parliament. Approval of the legislature for such expenditure and for withdrawal
of an equivalent amount from the Consolidated Fund is subsequently obtained to ensure that the
corpus of the Contingency Fund remains intact. The corpus for Union Government at present is Rs

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500 crore (Rs 5 billion) and is enhanced from time to time by the Union Legislature. The Ministry of
Finance operates this Fund on behalf of the President of India.
Similarly, Contingency Fund of each State Government is established under Article 267(2) of the
Constitution – this is in the nature of an imprest placed at the disposal of the Governor to enable
him/her to make advances to meet urgent unforeseen expenditure, pending authorization by the State
Legislature. Approval of the Legislature for such expenditure and for withdrawal of an equivalent
amount from the Consolidated Fund is subsequently obtained, whereupon the advances from the
Contingency Fund are recouped to the Fund. The corpus varies across states and the quantum is
decided by the State legislatures.
44. Core inflation
Core Inflation is also known as underlying inflation, is a measure of inflation which excludes items
that face volatile price movement, notably food and energy. In other words, Core Inflation is nothing
but Headline Inflation minus inflation that is contributed by food and energy commodities. To
understand the concept in a better way we can say that food and fuel prices may go up in the short
run due to some disturbance in the agriculture sector or oil economy. However, over the long term
they tend to revert back to their normal trend growth. On the other hand, prices of other commodities
do not fluctuate as regularly as food and fuel – as such increase in their prices could be taken
relatively to be much more of a permanent nature. If this is so, then it follows logically for Central
Banks to target only core inflation, as it reflects the demand side pressure in the economy. In
practice too, the Reserve Bank of India (RBI) and Central Banks around the World always keep an
eye on the core inflation. Whenever core inflation rises, Central Banks increase their key policy rates
to suck excess liquidity from the market and vice versa. It is, therefore, a preferred tool for framing
long-term policy.
45. Cropping seasons of India- Kharif & Rabi
The agricultural crop year in India is from July to June. The Indian cropping season is classified into
two main seasons-(i) Kharif and (ii) Rabi based on the monsoon. The kharif cropping season is from
July –October during the south-west monsoon and the Rabi cropping season is from October-March
(winter). The crops grown between March and June are summer crops. Pakistan and Bangladesh are
two other countries that are using the term „kharif‟ and „rabi‟ to describe about their cropping
patterns. The terms „kharif‟ and „rabi‟ originate from Arabic language where Kharif means autumn
and Rabi means spring.
The kharif crops include rice, maize, sorghum, pearl millet/bajra, finger millet/ragi (cereals), arhar
(pulses), soyabean, groundnut (oilseeds), cotton etc. The rabi crops include wheat, barley, oats
(cereals), chickpea/gram (pulses), linseed, mustard (oilseeds) etc.
46. Debt Consolidation and Relief Facility (DCRF)
The Twelfth Finance Commission (TFC) had recommended a Debt Consolidation and Relief Facility
(DCRF) during its award period (01.04.2005 to 31.03.2010) to States.
This facility provided for (i) Consolidation of central loans from Ministry of Finance contracted till
31.3.2004 and outstanding as on 31.3.2005 for a fresh tenure of twenty years at an interest rate of
7.5% per annum and (ii) Debt waiver to states based on their fiscal performance. The facility is
subject to the condition that states enact their Fiscal Responsibility and Budgetary Management

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(FRBM) Acts as recommended by the Commission. Under the scheme, twenty-six states out of
twenty eight states (except Sikkim and West Bengal), which had enacted their Fiscal Responsibility
and Budget Management Acts, had availed of the facility of consolidation of their loans. Those
states which had improved their fiscal performance could also get their eligible debt waived.
The Thirteenth Finance Commission (FC-XIII) has extended the DCRF, limited to consolidation of
their loans only, to the states of Sikkim and West Bengal during 2010-15, provided these states put
in place their FRBM Acts as stipulated by FC-XIII. Sikkim and West Bengal have now enacted their
Fiscal Responsibility Legislations.
47. Deemed Export Benefit Scheme
Deemed Export Scheme, which has been in operation for more than two decades, is largely an Indian
concept. Deemed Exports refers to those transactions in which goods supplied do not leave country,
and payment for such supplies is received either in Indian rupees or in foreign exchange. The
Deemed export benefit include rebate on duty chargeable on imports or excisable material used in
the manufacture of goods which are supplied to the eligible projects.
„Deemed Export Benefit‟ Scheme benefits are availed of by units in Power, Petroleum refinery,
fertilizer and Nuclear Power Projects. They are also availed by supply of goods to projects financed
by multi-lateral or bilateral agencies.
The policy aims to create a level playing field for the domestic industry vis-à-vis direct import by
providing duty free inputs or exemption/refund of duty paid on goods manufactured in India.
Deemed Export Scheme is primarily an instrument for import substitution. It helps in creating
manufacturing capability, value addition and employment opportunities in country
48. Deficit Measurement in India
There are different measures of deficits in macroeconomics and each type of deficit measure carries
a different macroeconomic meaning. The broad measures of deficit (which have been and/or are
being) reported by the government in India, may be classified, either in terms of the „nature of
transactions or on the basis of the „means of financing‟ them.
The chart below elucidates a list of different types of deficits that have been and are being used in
India.
I. Meaning of different measures of deficit
(a) Fiscal Deficit Gross Fiscal Deficit is defined as the excess of total expenditure of the government
over the total non-debt creating receipts.
Fiscal deficit can be either „gross‟ or „net‟. The Central government makes capital disbursements as
loans to the different segments of the economy. In the developing countries, a large part goes as
loans to other sectors-States and local Governments, public sector enterprises and the like. Net fiscal
deficit can be arrived at by deducting net domestic lending from gross fiscal deficit .
(b) Budget Deficit Also referred to as simply „budget deficit‟ is that part of the government‟s deficit
which is financed through short-term borrowings. These short-term borrowings may be from the RBI
or from other sources.

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Normally, short-term borrowings from the RBI are through the net issuance of short-term treasury
bills (that is, ad-hoc and ordinary treasury bills) and by running-down the central government‟s cash
balances held by the RBI.
(c) Monetized deficit Also known as the „net reserve bank credit to the government‟, it is that part of
the government deficit which is financed solely by borrowing from the RBI.
Since borrowings from the RBI can be both short-term and long-term, therefore, monetized deficit is
the sum of the net issuance of short-term treasury bills, dated securities (that is, long-term borrowing
from the RBI) and rupee coins held exclusively by the RBI, net of Government‟s deposits with the
RBI.
This is different from the Traditional Budget deficit in two ways-
1. Traditional Budget deficit includes 91-day treasury bills held by both, the RBI and non-RBI
entities whereas Monetized deficit includes 91-day Treasury Bills held only by the RBI.
2. Traditional Budget deficit includes only short-term sources of finance whereas Monetized
deficit includes long-term securities also.
3. (d) Primary Deficit Gross Primary deficit is defined as gross fiscal deficit minus net interest
payments. Net primary deficit, is gross primary deficit minus net domestic lending.
4. (e) Revenue deficit Revenue deficit is defined as the difference between revenue
expenditure and revenue receipts.
5. (f) Effective revenue Deficit Introduced in 2011-12, it is defined as revenue deficit minus
that revenue expenditure (in the form of grants), which goes into the creation of Capital Assets.
(g) Other measures of deficit Apart from these, there are various other types of measures of deficit
that are widely used internationally, like the Consolidated Public Sector Deficit, which is the
excess of expenditure over revenue for all the government entities; Operational Deficit, which is
the „inflation-corrected‟ deficit and is defined as Consolidated Public Sector Deficit minus inflation
rate times the debt stock; Structural deficit which removes the effects of temporary movements in
the variables from their long-run values, thereby providing an idea of the long-run position of the
country after removing the impact of temporary shocks; and others.
49. Depository Receipts
A Depository Receipt (DR) is a financial instrument representing certain securities (eg. shares,
bonds etc.) issued by a company/entity in a foreign jurisdiction. Securities of a firm are deposited
with a domestic custodian in the firm‟s domestic jurisdiction, and a corresponding “depository
receipt” is issued abroad, which can be purchased by foreign investors. DR is a
negotiable security (which means an instrument transferrable by mere delivery or by endorsement
and delivery) that can be traded on the stock exchange, if so desired.
DRs constitute an important mechanism through which issuers can raise funds outside their home
jurisdiction. DRs are issued for tapping foreign investors who otherwise may not be able to
participate directly in the domestic market. It is perceived as the beginning point of connecting with
the foreign investors (i.e. a stage before the actual listing the shares /securities in a foreign stock
exchange) or a way of introducing the company to a foreign investor. For investors, depository
receipt is a way of diversifying the risk, by getting exposure to a foreign market, but without the

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exchange rate risk as they are foreign currency denominated. Further, they feel more safe to invest
from their home location.
Depending on the location in which these receipts are issued they are called as ADRs or American
Depository Receipts (if they are issued in USA on the basis of the shares/securities of the domestic
(say Indian) company), IDR or Indian Depository Receipts (if they are issued in India on the basis
of the shares/securities of the foreign company; Standard Chartered issued the first IDR in India) or
in general as GDR or Global Depository Receipt.
Thus, ADR or GDR are issued outside India by a foreign depository on the back of an Indian
security deposited with a domestic Indian custodian in India (means a custodian or keeper of
securities- an Indian depository, a depository participant, or a bank- and having permission from the
securities market regulator, SEBI, to provide services as custodian).
„Depository Receipt’ means a foreign currency denominated instrument, whether listed on an
international exchange or not, issued by a foreign depository in a permissible jurisdiction on the
back of eligible securities issued or transferred to that foreign depository and deposited with a
domestic custodian and includes ‘global depository receipt’ as defined in section 2(44) of the
Companies Act, 2013.”
As per the Companies Act, 2013 "Global Depository receipt" means any instrument in the form of a
depository receipt created by a foreign depository outside India and authorised by a company
making an issue of such depository receipts while the "Indian Depository Receipt” means any
instrument in the form of a depository receipt created by a domestic depository in India and
authorised by a company incorporated outside India;
In India any company - whether private limited or public limited or listed or unlisted - can issue
DRs. However listed DRs enjoy some tax benefits.
ADR /GDR issues based on shares of a company are considered as part of Foreign Direct Investment
(FDI) in India, though it is an indirect way of holding shares.
Types of DRs
DRs are generally classiﬁed as under:
 Sponsored: Where the Indian issuer enters into a formal agreement with the foreign
depository for creation or issue of DRs. A sponsored DR issue can be further classiﬁed as:
 Capital Raising: The issuer issues new securities which are deposited with a domestic
custodian. The foreign depository then creates DRs abroad for sale to foreign investors. This
constitutes a capital raising exercise, as the proceeds of the sale of DRs go to the Indian issuer.
 Non-Capital Raising: In a non-capital raising issue, no fresh underlying securities are
issued. Rather, the issuer gets holders of its existing securities to deposit these securities with a
domestic custodian, so that DRs can be issued abroad by the foreign depository. This is not a capital
raising exercise for the Indian issuer, as the proceeds from the sale of the DRs go to the holders of
the underlying securities.
 Unsponsored: Unsponsored DRs are where there is no formal agreement between the
foreign depository and the Indian issuer. Any person other than the Indian issuer may, without any
involvement of the issuer, deposit the securities with a domestic custodian in India. A foreign
depository then issues DRs abroad on the back of such deposited securities. This is not a capital

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raising exercise for the Indian issuer, as the proceeds from the sale of the DRs go to the holders of
the underlying securities.
Based on whether a DR is traded in an organised market or in the over the counter (OTC) market,
the DRs can be classified as listed or unlisted.
 Listed: Listed DRs are traded on organised exchanges. The most common example of this
are American Depository Receipts (ADRs) which are traded on the New York Stock Exchange
(NYSE).
 Unlisted: Unlisted DRs are traded over the counter (OTC) between parties. Such DRs are
not listed on any formal exchange.
International experience
The most common DR programs internationally are:
 ADRs: DRs issued in United States of America (US) by foreign firms are usually referred to
as ADRs. These are further classified based on the detailed rules under the US securities laws. The
classification is based on applicable disclosure norms and consists of:
 Level 1: These programs establish a trading presence in the US but cannot be used for
capital raising. They may only be traded on OTC markets, and can be unsponsored.
 Level 2: These programs establish a trading presence on a national securities exchange in
the US but cannot be used for capital raising.
 Level 3: These programs can not only establish a trading presence on a national securities
exchange in the US but also help raise capital for the foreign issuer.
 Rule 144A: This involves sale of securities by a non-US issuer only to Qualified
Institutional Buyers (QIBs) in the US.
 Global Depository Receipts (GDRs): GDR is a collective term for DRs issued in non-US
jurisdictions and includes the DRs traded in London, Luxembourg, Hong Kong, Singapore.
Regulatory Regime for Depository Receipts in India
In India, the issue of Depository receipts were regulated by the “The Issue of Foreign Currency
Convertible Bonds and Ordinary Share (through Depository Receipt Mechanism) Scheme 1993
issued by the Ministry of Finance. The 1993 Scheme was formulated at a time when India‟s capital
markets were substantially closed to foreign capital and the domestic financial system was not well
developed. In the last two decades, the equity market has developed sophisticated market
infrastructure with active participation by both domestic and foreign investors and capital controls
have been eased substantially. In this period many aspects of the Indian legal and regulatory system
have evolved with substantial changes. These developments warranted a fresh look at the Scheme
governing the issue of Depository Receipts (DRs). Accordingly, based on the recommendations of
the MS Sahoo committee, Hon‟ble Finance Minister had announced in the 2014-15 Budget
Speech that he propose to “Liberalize the ADR/GDR regime to allow issuance of depository receipts
on all permissible securities”. Accordingly “The Depository Receipts Scheme, 2014" was formulated
and implemented from December 15, 2014.
50. Dumping

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When goods are exported to another country at a price which is less than what it is sold for in the
home country or when the export price is less than the cost of production in the home country, then
those goods have been dumped.
Home Market Price – Export Sales Price = Margin of dumping
The Department of Commerce in the Union Ministry of Commerce and Industry has an Anti-
dumping Unit which investigates cases where the domestic industry (domestic producers) provide
evidence that dumping has taken place by producers abroad. They also defend cases where
allegations of dumping are brought against Indian exporters by foreign governments.
There is a well-established process which is followed where questionnaires are sent to all
stakeholders and evidence is collected in a time-bound fashion to either prove or disprove that
dumping has taken place.
If the good is alleged to be dumped from a non-market country ( a country where there are
considerable distortions to the market through government subsidies ) then the Anti –dumping cell
will calculate what the “normal” price of the product should be in the home market. The normal
price will reflect the market price of the product had it been produced in the exporting country
without these subsidies. If necessary, the price of such a commodity in a similar market ( say a
neighbouring country at the same level of development as the exporting country) will be considered
as the normal price.
If there is evidence of dumping then the Government of India will levy an anti-dumping duty on that
commodity for a period of five years and will review the need for continuation of duty thereafter.
51. E-Biz
eBiz is one of the integrated services projects and part of the 31 Mission Mode Projects
(MMPs) under the National E-Governance Plan (NEGP) of the Government of India launched in
2006.
It aims to create a business and investor friendly ecosystem in India by making all business and
investment related regulatory services across Central, State and local governments available on a
single portal. Process of applying for Industrial License & Industrial Entrepreneur Memorandum are
made online on 24X7 basis through eBiz Portal.In February 2015 eleven Central Government
Services were added to eBiz portal. These services are required for starting a business in the country
- four services from Ministry of Corporate Affairs, two services of Central Board of Direct Taxes,
two services of Reserve Bank of India and one service each from Directorate General of Foreign
Trade, Employees‟ Provident Fund Organisation and Petroleum & Explosives Safety Organisation.
Prior to e-biz, a business-user availed these services either from the portal of respective
Ministry/Department or by physical submission of forms. With the integration of these services on
eBiz portal, he/she can avail all these services 24*7 online end-to-end i.e., online submission of
forms, attachments, payments, tracking of status and also obtain the license/permit from eBiz portal.
As on date, a total of 14 Central Services have been integrated through the e-Biz Platform.
The focus of eBiz is to improve the business environment in the country by enabling fast and
efficient access to Government-to-Business (G2B) services through an online portal. This will help
in reducing unnecessary delays in various regulatory processes required to start and run businesses.

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The vision of eBiz is to be the entry point for all individuals, businesses and organizations (local and
international) who would like to do business or have any existing business in India by creating a
one-stop-shop of convenient and efficient online G2B services to the business community, by
reducing the complexity in obtaining information and services related to starting businesses in India,
and dealing with licenses and permits across the business life-cycle.
This project aims at creating an investor-friendly business environment in India by making all
regulatory information – starting from the establishment of a business, through its ongoing
operations, and even its possible closure - easily available to the various stakeholders concerned. In
effect, it aims to develop a transparent, efficient and convenient interface, through which the
government and businesses can interact in a timely and cost effective manner, in the future.
eBiz is being implemented by Infosys Technologies Limited (Infosys) under the guidance and aegis
of Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce & Industry,
Government of India.
52. E-gold/ silver / metals
“e-gold” refers to electronic mode of holding gold and is essentially a financial instrument traded in
spot exchanges in India that enables its investors to invest their funds into gold in smaller
denominations and hold it in „demat‟ form” (i.e, in electronic form). Investors buying E-Gold and E-
Silver can liquidate the same or convert into physical gold. Such e-contracts are also available for a
few metals like copper, zinc, platinum, lead etc.
For eg. the contract specifications for e-gold at the spot exchange -National Spot Exchange
Limited (NSEL) may be seen here.
Such commodity contracts are also meant for retail investors who prefer investing in commodity
stocks with a view to gain benefits from the volatility in the respective commodities.
53. Eco-mark
Eco-mark is a voluntary labelling scheme for easily identifying environment friendly products. The
Eco-mark scheme defines as an environmentally friendly product, any product which is made, used
or disposed of in a way that significantly reduces the harm it would otherwise cause the
environment. The definition factors in all aspects of the supply chain, taking a cradle-to-grave
approach, which includes raw material extraction, manufacturing and disposal.
What sets eco-mark apart from other labels is that not only does the product have to meet strict
environmental requirements, but it also has to meet strict quality requirements.
The scheme is one of India‟s earliest efforts in environmental standards, launched in 1991, even
before the 1992 Rio Summit in which India participated. The scheme was launched by theMinistry
of Environment and Forests, and is administered by the Bureau of Indian Standards (BIS), which
also administers the Indian Standards Institute (ISI) mark quality label, a requirement for any
product to gain the Eco-mark label.
54. Effective Revenue deficit
Effective Revenue deficit is a new term introduced in the Union Budget 2011-12. While revenue
deficit is the difference between revenue receipts and revenue expenditure, the present accounting
system includes all grants from the Union Government to the state governments/Union

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territories/other bodies as revenue expenditure, even if they are used to create assets. Such assets
created by the sub-national governments/bodies are owned by them and not by the Union
Government. Nevertheless they do result in the creation of durable assets.
According to the Finance Ministry, such revenue expenditures contribute to the growth in the
economy and therefore, should not be treated as unproductive in nature.
In short, Effective Revenue Deficit is the difference between revenue deficit and grants for creation
of capital assets. Effective Revenue Deficit signifies that amount of capital receipts that are being
used for actual consumption expenditure of the Government.
Effective revenue deficit has now become a new fiscal parameter and same is targeted to be
eliminated by the 31st of March 2015 and keep it at that level in the future, as per the Amendments
made in 2012 to Fiscal Responsibility and Budget Management Act.
However, the 14th Finance Commission observed that the concept of effective revenue deficit is not
recognised in the standard government accounting process. Under the Constitution, there are only
two categories of expenditure- expenditure on the revenue account and other expenditure which is
broadly expressed as capital expenditure. Hence, according to the Commission, the artificial carving
out of the revenue account deficit into effective revenue deficit to bring out that portion of grants
which is intended to create capital asset at the recipient level leads to an accounting problem and
raises the moral hazard issue of creative budgeting. The Commission recommend that the Union
Government should consider making an amendment to the FRBM Act to omit the definition of
effective revenue deficit from 1 April 2015.
55. Equalization
The concept of „equalization‟ is considered to be a guiding principle for fiscal transfers as it
promotes equity as well as efficiency in resource use. Equalization transfers aim at providing
citizens of every state a comparable standard of service provided their revenue effort is also
comparable. In other words, equalization transfers neutralize deficiency in fiscal capacity but not in
revenue effort. Under such an approach, transfers are determined on normative criteria in contrast to
gap filling based on projected historical trend of revenue and expenditure.
Twelfth Finance Commission made use of the concept and recommended „Equalisation Grants‟ to
achieve partial equalization of expenditure of services in two sectors, namely education and health
across different states. Since full equalisation of expenditure would have required steep step up in
grants, the Commission restricted itself to partial equalization. The grants were fixed on the basis of
two-stage normative measure of equalisation. In the first stage, states with low expenditure
preference (i.e. states which had lower expenditure on education/health as proportion of total
revenue expenditure) were identified and benchmarked to average expenditure on education/health
(as proportion of adjusted total revenue expenditure) incurred by respective groups, i.e., special and
general category states. In the second stage, states which had lower per capita expenditure than the
group average, even after adjustment made in first stage, were identified and grants to the extent of
15 per cent of the difference between per capita expenditure of the state on health and average per
capita expenditure of the group and to the extent of 30 percent of the difference between per capita
expenditure of the state on health and average per capita expenditure of the group were provided.
56. Escrow Account

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An escrow account in simple terms is a third party account. It is a separate bank account to hold
money which belongs to others and where the money parked will be released only under fulfilment
of certain conditions of a contract. The term escrow is derived from the French term “escroue”
meaning a scrap of paper or roll of parchment, an indicator of the deed that was held by a third party
till a transaction is completed. An escrow account is an arrangement for safeguarding the seller
against its buyer from the payment risk for the goods or services sold by the former to the latter. This
is done by removing the control over cash flows from the hands of the buyer to an independent
agent. The independent agent, i.e, the holder of the escrow account would ensure that the
appropriation of cash flows is as per the agreed terms and conditions between the transacting parties.
Escrow account has become the standard in various transactions and business deals. In India escrow
account is widely used in public private partnership projects in infrastructure. RBI has also permitted
Banks (Authorised Dealer Category I) to open escrow accounts on behalf of Non Resident
corporates for acquisition / transfer of shares/ convertible shares of an Indian company.
57. Finance Bill or Finance Act
Finance Bill is a secret bill introduced every year in Lok Sabha (Lower chamber of the Parliament)
immediately after the presentation of the Union Budget, to give effect to the financial proposals of
the Government of India for the immediately following financial year. Rule 219 of the Rules of
Procedure of Lok Sabha defines a Finance Bill to also include a Bill that gives effect to
supplementary (additional) financial proposals for any period.
The Finance Bill is presented at the time of presentation of the Annual Financial Statement before
Parliament, in fulfillment of the requirement of Article 110 (1)(a) of the Constitution, detailing the
imposition, abolition, remission, alteration or regulation of taxes proposed in the Budget. It is
through the Finance Act that amendments are made to the various Acts like Income Tax Act 1961,
Customs Act 1962 etc.
In short, Finance Bill can be considered as an umbrella Act. However, being an Act of the
Parliament, the various chapters of Finance Act independently also exist and is hence enforceable.
For instance, a Commodity Transaction Tax was imposed through Chapter VII of the Finance Act of
the year 2013. Similarly the service tax was introduced throughChapter V of the Finance Act of
1994.
When the proposals are introduced to the Parliament it is called as a Finance Bill. Once it is passed
by the Parliament and assented to by the President, Finance Bill becomes the Finance Act for that
year. (For instance, Union Budget 2015-16 for the Financial Year starting from April 2015 to March
2016, would be presented in February 2015 and would be accompanied by Finance Act, 2015
indicating the year (2015) in which the Act is passed.)
In election years there would usually be two Finance Bills – one by the outgoing Government
presented alongwith its interim budget or votes on account and another by the new Government
which is titled as Finance Bill (No. 2) of that year.
Finance Bill Vs Appropriation Bill
While the Finance Bill generally seeks approval of the Parliament for raising resources through
taxes, cess etc., an Appropriation Bill seeks Parliament's approval for the withdrawal from
the Consolidated Fund of India to meet the approved expenditures of the Government. For more
details on Appropriation Bill see here.

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