For economy

1. Economy
1. Relationship between GVA and GDP (basic prices/ market prices/ factor
costs)
2. Competitive devaluation- effects
3. PSU mahanavratnas and navratnas
4. Power Sector in India
5. Banking licenses
6. http://www.quora.com/Should-India-push-for-Rupee-internationalization
7. Industrial Relations Bill
8. Marginal Oil Field Policy
9. Bank Boards Bureau
10. CDMA band spectrum meaning
11. The government's move to increase import duty on steel may improve the
bottomline of domestic steel manufacturers, but is likely to hit downstream
manufacturers
12. Atkinson's inequality measure
13. ANGUS DEATON- for optional
14. Why has poverty estimate by world bank dipped to 12%?
http://indianexpress.com/article/explained/meaning-urp-mrp-mmrp/
15. Inequality in India- prepare short notes from Jayati Ghosh's paper
16. India has not achieved the MDG targets of universal primary school
enrolment, women empowerment, reducing child and infant mortality, and
improving sanitation to end open defecation
17. Govind rao decentralisation article Nov. 02
18. India is number 1 in FDI
19. It seems India is a victim of its own size. It imagines that the vastness of its
internal market is sufficient to allow for the expansion of a manufacturing
sector. It is extraordinary that this delusion has persisted so long, in spite of
70 years of our economic history serving as evidence to the contrary
20. The system of conclusive land titles is based on four basic principles: One, a
single agency to handle land records (including the maintenance and
updating of the textual records, maps, survey and settlement operations,
registration of immovable property mutations, etc); second, the “mirror”
principle, which states that, at any given moment, the land records mirror the
ground reality; three, the “curtain” principle, which refers to the fact that the
record of title is a true depiction of the ownership status, mutation is
automatic following registration, there is no need of probing into past title
transactions, and title is a conclusive proof of ownership; and four, title
insurance, which refers to the fact that the title is guaranteed for its
correctness and the party concerned is indemnified against any loss arising
because of inaccuracy in this regard. At the moment, land records in India
don’t reflect any of these principles
21. There are still some segments of the industry which are subject to a number
of controls of the pre-1991 type. A typical example is the sugar industry.
Molasses are subject to a type of control which results in a subsidisation of
the liquor industry. The basic principle underlying liberalisation is of the need

2. to create competitive markets with minimal barriers to entry and should be
extended to all sectors. Pricing of natural resources has become an issue. In
the absence of competition, transparent mechanisms for fixing the prices
must be followed which will be fair to both the producers and the end users
22. The annual rate of growth of per capita income in the period between 1993-
94 and 2004-05 was 4.3 per cent and the growth rate for the period between
2004-05 and 2011-12 was 6.7 per cent. The annual decline in the poverty
ratio in percentage points (according to the Suresh Tendulkar committee’s
methodology) was 0.74 in the first period and 2.18 in the second period. In
fact, the finding that the decline in poverty was much faster in the latter
period is valid irrespective of where the poverty line is drawn. Between 2009-
10 and 2011-12, according to the Tendulkar Committee’s methodology, the
reduction in poverty ratio was 7.9 points. According to the Rangarajan
Committee’s methodology, it was 8.7 points
23. Learn GDP growth rates: In the post reform period beginning 1992-93, the
economy has grown at an average rate of 6.8 per cent. In the more recent
period, the growth rate has been even higher. Over the decade beginning
2004-05, the average annual growth rate has been 7.6 per cent. Between
2005-06 and 2010-11, the growth rate was 8.7 per cent. Contrast this with
the annual growth rate of 3.5 per cent between 1952 and 1980
24. Urea is sold at one-fourth the price of table salt today. But the excessive use
of cheap urea destroys the soil and leads to more plant vegetative growth. An
explosion of insect and pest populations is then inevitable. Indiscriminate,
unregulated sale of pesticides and spurious products is leading to an
ecological disaster
25. Food processing, essential for agricultural prosperity, never bloomed — for
instance, Punjab exports wheat but imports wheat flour
26. Capital goods policy: http://mybs.in/2S1MOl4
27. Jayanta Roy: Diversify services to boost exports:http://mybs.in/2S1LT8t
28. OECD BEPS
29. What is being crafted as a key intervention appears essentially to be another
round of financial repackaging. The discoms' debts are proposed to be
transferred to the state governments concerned, which will issue bonds
against these. The Union Cabinet is shortly expected to endorse this. If the
state defaults on servicing these bonds, the Centre would step in and
commandeer parts of financial grants/devolutions to the state. It is hoped
that this additional pressure on the finances of the states will force them to
implement tough distribution sector reforms

3. 30. The thermal power sector is operating at a decadal low of 59 per cent plant
load factor because discoms do not have the money to pay for buying more
power
31. India's overall population growth rate (at about 1.4 per cent now) is falling
more dramatically than anticipated
32. There are of course two classical shortcomings preventing India from
becoming a manufacturing power - regulatory cost and inadequate
infrastructure
33. EU migrant crisis could easily affect the flow of Indian workers to the region
34. NSDC: The corporation is, after all, the only one of its kind - a public-private
partnership (PPP) set up to promote skill development by catalysing the
creation of large and quality for-profit institutions.
The partnership model followed by NSDC has put the responsibility of
delivering skilled population essentially at the doors of the private companies
that are funded. A task of such magnitude cannot be performed by the
government or the private sector working in separate silos. In that sense,
NSDC provided a wonderful opportunity for industry to play a leadership role
in training and employing people - whether it is through imparting vocational
education, vetting the curriculum, or assessing and certifying training
programmes. All of this is also, of course, in their own interest. If Indian
companies continue to be lukewarm in their response, questions will be
asked whether they are treating skill training as a cosmetic exercise in
corporate social responsibility
35. The TPP and other mega trade agreements under negotiation such as the
Transatlantic Trade and f Partnership and the Regional Comprehensive
Economic Partnership (RCEP) are bound to challenge India's businesses in
many ways, says our commerce ministry. First, they will erode existing
preferences for Indian products in established traditional markets such as the
US and the European Union (EU), benefiting the partners to these
agreements. Second, they are likely to develop a rules architecture which will
place greater burden of compliance on India's manufacturing and services
standards for access to the markets of the participating countries.
36. TN Ninan's BS article on October 10: effects of deflation on India
37. Banking Regulations Act, enables RBI to supersede the board of directors of a
bank for upto 12 months if it feels that the board is not working in the
interest of shareholders and depositors. If such a step is taken, RBI could run
the bank by appointing an administrator till a new board is appointed. In such
a scenario, while shareholders wealth decline, depositors money stay safe.

4. More importantly, RBI watchers indicate the central bank can supersede the
board if the top management fails to deliver
38. Subsidies account for 1.6% of the total GDP, as against 2.5% in 2012
39. A key TPP agenda is to counter the might of China in the Pacific region; TPP
countries account for 40℅ of total world trade
40. World bank has revised the poverty line from $1.25 to $1.90
41. India's natural gas pricing policy
42. Integrated Power Development Scheme
43. Challenges to payment banks and SFBs might come also from PMJDY and
exisiting priority sector lending norms for existing banks
44. 2015 NPT RevCon
45. In 2014-15, subsidies accounted for 2.1% of the GDP, 2.64 times the entire
capex of the central government, and accounted for about 23% of the central
government's revenue receipts
46. Many of the new small banks will be run by MFIs, which is good because MFIs
have deep penetration and know their customers (Subir gokarn, business
standard, Sep 23)
47. Key features: National Skills Policy
---
1. India now ranks 130 out of 189 countries in the ease of doing business
2016, according to a World Bank report. The improvement in two indicators,
‘starting a business’ and ‘getting electricity,’ pushed India up the ladder
2. Data shows that although the inflation has been slowing both in rural and
urban areas of the country, there is a widening difference between the two
as rural inflation is decelerating at a much slower pace. The difference
between rural and urban inflation is most stark for fuel and transportation,
followed by core and to a lesser extent food. Rural India has some structural
disadvantages vis-a-vis urban India. Urban India is benefitting from lower
global prices while rural India, partly because of its structural ailments, is not
being able to partake with equal vigour
3. Structural bottlenecks in rural India are harsher. Transport networks are also
sparser and distribution channels are insufficient.

5. 4. World Bank report shows that between 2004-2009, 15% of India’s
population, or 40% of the poor, moved above the poverty line (reducing
poverty)
5. India joined the MCAA (Multilateral Competent Authority Agreement on
Automatic Exchange of Financial Account Information)
 54 countries are a part of it
 Bulk taxpayer information will periodically be sent by the source country
of income to the country of residence of the taxpayer
 This will help prevent international tax evasion
 AEOI (Automatic Exchange of Information) based on CRS (Common
Reporting Standards), when fully implemented, would enable India to
receive information from almost every country in the world including
offshore financial centres and would be the key to prevent international
tax evasion and avoidance and would be instrumental in getting
information about assets of Indians held abroad including through entities
in which Indians are beneficial owners
 This will help the Government to curb tax evasion and deal with the
problem of black money
6. SEBI now allows urban local bodies to issue municipal bonds
 Currently, these depend on financing from central grants and to some
extent form state governments
 These bodies are critical for urban infrastructural development
7. FMC and SEBI merger (see roles of both, what ministry they fall under etc.)
 Aim is to curb wild speculation and strengthen regulation of commodity
forward market
8. With regards to domestic MFs managing offshore funds, the government has
now done away with the 20-25 rule
 Rule: A minimum of 20 investors in an MF, and no single investor is
allowed to buy more than 25% stake in a single scheme
 On an average, there are 7-8 plans under each scheme of a mutual fund. If
the norm is applicable at the plan level, it effectively would have meant a
closure of the entire scheme at the cost of other plans which would be in
compliance with the criteria
 Previously, the applicability used to be at the plan level
9. In Indian investment jargon, what does ‘EEE’ stand for?
 EEE: Exempt, Exempt, Exempt
10. What is excise duty? Who usually bears the burden?
 Excise duty in India is a tax on products manufactured within India, for sale
within India
 The manufacturer pays the burden

6.  Both the center and the state have excise duties
11. What is Octroi?
 Octroi is a local body imposed tax in India collected on goods crossing
municipal borders
 Tax is to be paid by the trader to the civic body
 Maharashtra is the only state in India that still levies it
12. Arm’s Length Transactions and Transfer Pricing
 The arm's length principle (ALP) is the condition or the fact that the
parties to a transaction are independent and on an equal footing
 Transfer pricing is the setting of the price for goods and services sold
between controlled (or related) legal entities within an enterprise
 An example that might violate transfer pricing is sale of a house from
parents to their children (very likely to be below the market price)
13. Gold Monetization Scheme:
 India has huge amounts of gold – imports are one of the largest among the
world (something to the order of a fourth of total global circulation)
 Before the government took measures to check the inflow, about 1000
tonnes of gold came into India annually
 In 2012/13, gold imports cost about $56 billion, the second largest item
on the import bill after crude oil
 To reduce India’s import of gold (because large imports drain away
precious foreign exchange reserves and worsen current account deficit),
and to bring the already held large amounts of gold into circulation, the
government has set up a sovereign gold bond that will carry a fixed rate of
interest, and upon maturity, will give the owner the then current value of
gold
 The returns will be completely tax free
 Physical gold won’t pass hands- think of this as a paper security you buy at
the current price of gold; for the period you hold it, you get fixed interest,
and upon maturity, you get the then market price of gold
 Two potential complications: many people buy gold with cash, and may
not be able to prove ownership; and banks may not have the necessary
infrastructure for testing the purity of gold
 Read for potential reasons for failure: http://www.business-
standard.com/article/opinion/needs-more-polish-115052001584_1.html
14. Micro Units Development and Refinance Agency (MUDRA) Bank:
 Set-up announced by Budget 2015
 Initially, this will be a subsidiary of the Small Industries Development
Bank (SIDBI), and will later become and independent, full-fledged bank
 Important thing to note is that MUDRA bank will not be a lending bank,
but will refinance MFIs who are in the business of lending to small
entities

7.  It will also lay down rules and policy guidelines for micro enterprise
financing businesses, registration, accreditation, and starting of MFIs
 This will be a bank to finance the setting up of small and micro-units and
thereby encourage entrepreneurship among SC/STs and OBCs (lending will
be preferentially given to these classes)
 It will regulate and refinance all MFIs that lend to micro/ small business
entities engaged in manufacturing, trading, and services activities
 Logic is to bridge the funding gap that affects the ‘middle’ – top corporates
are funded by the banking system, bottom of the ladder is funded by MFIs,
but the middle rung of micro and small enterprises suffers funding
problems
 According to government estimates, only 4% of 5.77% crore small business
units have access to institutional finance, leaving many to rely on informal
lender
 The bank will regulate MFIs, and lend to ‘last-mile lenders’ that will
provide financing to the businesses being targeted
 Ajay Shah calls this a ‘bad idea’: `Mudra bank' is an old style socialist
initiative, which is inconsistent with all the other modern elements of
financial sector reforms
15. Broadband and telephone penetration numbers
Of the 1.25 billion people in India, only about 20% use internet (and about
half of those use social media). About 900 million people have mobiles
16. National Common Agricultural Market (APMC reform): Online National
Agricultural Market has recently been approved by the Cabinet; will provide
more options to farmers for selling their produce
 Currently, farmers are restricted to selling their produce at mandis or
market committees that charge various taxes on producers
 State APMCs are seen as extortionist monopolistic places; even if trade is
conducted outside an APMC and doesn’t utilize any APMC infrastructure,
commission is still to be paid to the APMS
 Centre has been trying for a long time to convince the states to relax their
APMC laws for over a decade, to no avail
 An online platform would be set up wherein farmers will be able to sell
and buy fruits, vegetables and other produce from across the country
 An agency would be set up to oversee online trading and to ensure that
transactions take place smoothly
 It will also focus on creating godowns and facilitating transportation of the
farm produce after the online trade
17. GDR (GDRs and black money/ extent of RBI regulation)
 GDRs are financial instruments used by domestic companies to raise funds
from abroad
 Usually denominated in foreign currency (thus, Indian companies raise
funds in $ or £ etc. via GDRs)

8.  SEBI has come across quite a few cases where GDRs have been used for
round-tripping of funds in the name of capital-raising of listed companies
from abroad (an investor ‘invests’ his money in a tax-haven company; a
domestic company then raises funds from this tax-haven by issuing GDRs
=> investor’s money is now clean and back in India)
18. India-USA standoff about DCRs for solar cell production
 The case was filed by US along with the launch of both phases of
Jawaharlal Nehru National Solar Mission (NSM), which aims at producing
20,000 mW of solar power by 2022
 The US was miffed at the Indian government urging developers of
photovoltaic projects to procure solar cells and solar modules from
domestic manufacturers only
 The US alleged that Indian authorities were asked for mandatory usage of
domestically produced solar power panels, which restricted the entry of
American imports
 The US, in its submission to the WTO, stated that India has violated GATT
by not giving national treatment to imported products, and TRIMs, which
prohibits the imposition of local content requirements
19. UPSI: Unpublished Price Sensitive Information, used in insider trading
legislation
20. Shanta Kumar Committee recommendations
 Note that the government didn’t eventually accept the recommendation
regarding cutting the % of population covered under the act
21. What is the ratio of government revenue to GDP in India?
 Gross Tax Revenue to GDP ratio: 10.7% (2012, World Bank estimate)
 Total revenue to GDP ratio: 12.8%
22. Change in GDP measurement method
 GDP calculation: factor cost v/s market price:
 India has recently moved towards calculating GDP at market prices, and
these numbers show that the Indian economy had been doing much
better in the last few years
 Internationally, GDP (MP) is the usual norm, so India has made a move in
the right direction
 GDP (MP) = C +I +G +(X-M)
 Calculation at factor cost calculate all the above quantities at prices that
the producers receive, while GDP at market prices calculates the above
quantities at prices paid by the consumers
 Because of the existence of indirect taxes and subsidies on products, there
can exist a wedge between prices paid by the consumers and those
received by the producers
 Thus, GDP (FC) = GDP (MP) – Indirect Taxes + Producer Subsidies

9. 23. Headline inflation- measure of total inflation within an economy, including
commodities such as food and energy prices
24. Minimum Alternative Tax:
 MAT is a way to make companies pay at least a minimum amount of tax
(18.5%)
 It is applicable to all companies (including foreign companies with income
sources in India) except those engaged in infrastructure and power sectors
 Reasons for MAT: The Indian Income Tax Act allows a large number of
exemptions from total income. Besides exemptions, there are several
deductions permitted from the gross total income. As a result, a lot of
companies used to show considerable book profits, and distribute large
dividends, but were able to use these exemptions to pay close to zero tax.
These came to be known as ‘zero-tax’ companies. MAT was introduced to
counter this
 Tax incentives practically bring down the corporate tax rate, and the
average effective rate is around 23%, while many large corporates that are
investing heavily find the actual rate falls to much lower levels. This is the
reason why the government levies MAT on the book profits of companies
at 18.5%, as the threshold below which the rate can’t fall
 There are rumors that the present government might scrap MAT. They
claim that the government is looking at gradually weeding out tax
exemptions and concurrently reducing the corporate tax rate, such that
MAT will become redundant
25. FFC recommendations
I. 42% of total tax revenue to be devolved to the states:
 Factors for determining which state gets what share of tax revenue:
Population (1971- 17.5% weight; 2011- 10% weight), Area (15%),
Forest Cover (7.5%), (Fiscal Capacity, measured as income distance,
which is the difference between the state’s per-capita income and the
per-capita income of the highest earning state in India (50%))
 Central transfers can be divided into the following two categories:
a. Transfers from the divisible pool of taxes (excludes cess etc.)
b. Grants-in-aid, covering grants recommended by the FC, and not the
ones that support state plans/ CCSs
c. Aside from these, center also does non-FC recommended transfers
that include grants for state-plan support, and grants to fund CCSs.
While the FC transfers are statutory and do not impinge on states’
fiscal autonomy, the other two kinds of grants described above are
tied to conditions/ sectors, and do impinge on fiscal federalism

10. What this means for the overall transfers from the center to the states is
as follows:
Transfers as % of GDP (budget 2015/16) 2013/14 2015/16
Total transfers from center to states 5.55 5.95
Tax devolution 2.81 3.71
Grants (cumulating all three kinds of grants-
non-plan, state plan support, and CCS support)
2.75 2.24
Thus, as we can see, the increase in tax devolution is not revenue neutral for
the center- that is, the decline in grants-in-aid does not cover the increase in
tax devolution. This is inevitable, given that some CCSs like MGNREGA are
constitutionally mandated and need to be funded no matter what.
II. Local governments:
 FFC has been quite generous in recommending a larger grant to local
governments (includes Panchayati Raj Institutions (PRIs) and Urban
Local Governments (ULGs). The allocation to local governments is over
twice the amount recommended by the 13th FC, and for ULGs it is
nearly three times relative to the 13th FC recommendations
 While there was a clamour by various state and local governments to
allocate at least 5% of the divisible pool to local governments, the 14th
FC has recommended a grant-in aid for local governments that is equal
to an estimated 3% of the divisible pool
 Distribution of LG grants to the states based on 2 factors: 2011
population (90% weight) and area (10%)
 Grant to each state should be divided into two; one part strictly for
gram panchayats, and the other only for municipalities; the division
should be on the basis of urban and rural population figures for the
states
 Grants for both these kinds of local bodies will be of two kinds: basic
grants (80-90%), and performance grants (10-20%) (rural-urban)
 The performance grant to urban local governments is to be given if they
fulfil three conditions – have their accounts audited, improve own
revenues, and publish service-level benchmarks
 The share of performance grants has been reduced from 35% in ThFC to
10% (urban) and 20% (rural)
 SFC to decide the sharing of grants within the state
 State and local governments should explore the possibility of issuing
municipal bonds as a source of finance
 Better accounting and reporting procedures at the LG level
26. Index of Industrial Production (IIP):
 A composite indicator that measures the short-term changes in the
volume of production of a basket of industrial goods during a given
period as compared to a base period
 In India, three major heads are manufacturing (about 80% weight),
mining, and electricity (10% each)

11.  Manufacturing is sub-divided into production goods and user-based
goods (subdivided into basic, capital, intermediate, and consumer)
27. What is the ‘Peter Pan Syndrome’?
 Technology adoption is lower when there is greater corruption, but
higher when there is better enforcement and auditing
 Corruption and lower enforcement reduces adoption of productivity-
enhancing technology among retailers in India
 Firms tend to remain small to avoid transparency, a result of more
technology, and thus avoid the risk of getting slapped with higher taxes
and more regulation
28. What is the extent of India’s forex reserves?
 About 383 billion dollars
 Forex reserves = Foreign Currency Assets (FCAs) + SDRs + Reserve
Tranche Positions (RTPs); FCAs are the biggest component
 Reserve Tranche Position: Difference between an IMF member
country’s quota (quota = SDR (payable in specified currencies) + own
currency) and IMF’s holdings of its currency; the country can draw upon
this in times of need, so these count as forex
29. Differences between WPI and CPI
 There are only a few countries that use WPI to calculate inflation rates.
Many nations have already shifted to using CPI
 WPI measures general level of price changes either at the level of the
wholesaler or at the producer while CPI takes into account of consumer
prices and the retail margins
 WPI is said to result an erroneous measure while CPI will describe
actual cost of living and inflation rate more accurately
 WPI does not include the services sector at all; the services sector
produces about 60% of India’s GDP!
30. New FTP:
 Consolidation of all previous export incentive schemes under two:
Merchandise Exports from India Scheme (MEIS), and Services Exports from
India Scheme (SEIS)
 Under MEIS, the main sectors to be provided support include: processed,
packaged agricultural and food items, agricultural and
village industry goods
 SEIS will be available to ‘service providers located in India’ as against
‘Indian service providers’
 In a big relief for exporters, all scrips issued under MEIS and SEIS and the
goods imported against these scrips will be fully transferable. This means
that scrips issued under export from India schemes can now be used for
payment of customs duty for import of goods, payment of excise duty on
domestic procurement of inputs or goods, and payment of service tax

12.  The FTP will not be reviewed annually, but only after 2.5 years, thus
guaranteeing stability to exporters
 Ambitiously aims to bump up exports to about $900 billion (from around
$400 billion today, merchandise + services together)
 However, India’s exports in the last 11 months (till February) grew only by
0.88%! There appears to be a secular stagnation in global growth that
stacks the odds against us building an export-oriented economy
 The acknowledgment that India is being left out of global mega trade
agreements such as the Trans-Pacific Partnership indicates that the
government is taking those developments seriously. Not only does India
risk losing export markets if those agreements come through, but it will
also be left out of new trade paradigms that these agreements are
introducing such as the focus on harmonising sub-national regulations on
intellectual property, environment and labour.
 Hence, the focus on improving the domestic environment by streamlining
schemes and developing competitive products is appropriate
31. What are the 8 core industries? What % of the industrial output do they
account for?
8 core industries are Coal, crude oil, natural gas, petroleum refinery products,
fertilizers, steel, cement, and electricity. They together contribute about 40%
to industrial production (38% exact)
32. SECC findings:
 25 crore households in the country; 18 crore rural; 11 crore deprived
 25% rural families have no literate adult over 25 years old
 33% rural families are landless, depend on manual labour
 53% rural families are SCs/STs
 Only 5 % of rural poor have finished high school; 3% have graduated
college
 Only 8% of Indians are graduates
33. India’s economy is now over $2 trillion; India is still in the lower-middle
income category, however ($1,610 per capita; middle income: $4,000-
$12,000)
34. RBI's strategic debt restructuring (SDR) scheme
 Majority stake (51%) for banks in stressed companies
 The decision on invoking the SDR by converting the whole or part of the
loan into equity shares should be taken by the JLF as early as possible but
within 30 days from the review of the account
 Faster conversion of debt into equity
 Bringing in a new promoter
35. 49% foreign stake in insurance includes both FDI and FPIs
(FDI gives the investor ownership as well as management right; FPI only gives

13. the investor ownership, no management rights)
36. RBI Interest Subvention Scheme for farmers
 Farmers paying their existing loans on time can avail new loans at
discounted rates
 The benefit of interest subvention will be available to small and marginal
farmers having Kisan Credit Card for a further period of up to six months
post-harvest on the same rate as available to crop loan
37. Sugar woes in India
 Government sets high sugarcane prices (especialy the UP government) =>
high input prices for sugar mills
 Banks are not willing to advance working capital to private mills , fearing
defaults and a rise in NPAs
 This has been accompanied with a glut in sugar production from Brazil
 As a result, arrears of Rs. 20,000 crores have piled up; government has
provided subsidy for Rs. 6,000 crore, mill owners saying its nowehere near
enough
38. Brent is the leading global price benchmark for Atlantic basin crude oils
 It is used to price two thirds of the world's internationally traded crude oil
supplies
 Brent is also an acronym for the differing layers of an oil field: Broom,
Rannoch, Etieve, Ness, and Tarbat
 Brent oil is considered a more sour commodity than WTI, though both
crudes are considered sweet oils. This is generally based on the sulfur
content of the underlying fuel, with 0.5% being a key benchmark. When
oil has a total sulfur level greater than half a percent, it is considered
sour, while a content less than 0.5% indicates that an oil is ‘sweet’. Brent
has a sulfur level of about 0.37%
 Sour oil is more prevalent than its sweet counterpart
39. Capital Goods Policy
 Would help the industry in acquiring foreign technologies and also
develop them within the country
 Imports continue to address 35 to 40 per cent of domestic demand with
the proportion being significantly higher in "critical components" segment
for each subsector
 Indian share in global exports in the capital goods sector is still low,
ranging between 0.1 and 0.6 per cent, across various sub-sectors. In
contrast, share of global exports for China ranges between 7.7 and 16.3
per cent depending on the sub sector
 The scheme was launched under the 'Make in India' initiative and it
provides support to the industry to acquire technology, set up
technology development centres in collaboration with institutes, and
create common infrastructure for the capital goods industry

14.  Currently, capital goods are 12% of our manufacturing output. They can be
increased to 20% by 2022 according to the vision of the policy
 A robust capital goods sector will fire up the manufacturing sector, as
there is a direct correlation between them
40. Goldilocks economy: An economy that is not so hot that it causes inflation,
and not so cold that it causes a recession. Thus, sustains moderate economic
growth
41. Trans Pacific Partnership
 Among other things, the TPP seeks to lower trade barriers such as tariffs,
establish a common framework for intellectual property, enforce
standards for labour law and environmental law, and establish an investor-
state dispute settlement mechanism
 TPP is considered by the United States government as the companion
agreement to TTIP (the Transatlantic Trade and Investment Partnership), a
broadly similar agreement between the United States and the European
Union
 Brunei, Chile, NZ, Australia, Singapore, USA, Peru, Vietnam, Malaysia,
Mexico, Canada, Japan
 These countries together account for about 29% of global trade
 China is not a member of TPP
 For the US, a great attraction of the TPP is that it will enforce tighter
intellectual-property rules on other countries. Such rules tend to have an
uncertain impact on innovation while generating substantial rents for US
patent and copyright holders
42. Transatlantic Trade and Investment Partnership
 The Transatlantic Trade and Investment Partnership (TTIP) is a
proposed free trade agreement between the European Union and
the United States
 Economic relations between US and EU are quite free, but also tense, and
there are frequent trade disputes between the two economies, many of
which end up before the World Trade Organization
 There are a number of trade conflicts between the two powers, but both
depend on the other's economic market and disputes only affect 2% of
total trade
 A free trade area between the two would represent potentially the largest
regional free-trade agreement in history, covering 46% of world GDP
 Topics under discussion include three broad areas: Market access; Specific
regulation; and broader rules and principles and modes of co-operation
 With tariffs between the United States and the EU already low, 80 percent
of the potential economic gains from the TTIP agreement depend on
reducing the conflicts of duplication between EU and U.S. rules on those
and other regulatory issues, ranging from food safety to automobile parts
Perhaps most worrisome are the Investor-State Dispute Settlement (ISDS)

15. provisions of the two agreements. These provisions establish a separate judicial
track, outside a country’s own legal system, that allows firms to sue governments for
apparent violations under trade treaties
43. Regional Comprehensive Economic Partnership (RCEP):
 Proposed FTA between the ten member states ASEAN (TIMM-BC-PSLV:
Brunei, Myanmar, Cambodia, Indonesia, Laos, Malaysia,
Philippines, Singapore, Thailand, Vietnam) and the six states with which
ASEAN has existing FTAs (Australia, China, India, Japan, South
Korea and New Zealand)
 RCEP countries account for 40% of world trade
 RCEP will cover trade in goods, trade in services, investment, economic
and technical co-operation, intellectual property, competition, dispute
settlement and other issues
 Principle of ASEAN centrality; India is a big supporter of the overall
framework
 Difference between RCEP and East Asia Free Trade Agreement (EAFTA)
and the Comprehensive Economic Partnership in East Asia (CEPEA): RCEP
is not working on a pre-determined membership
 EPW article: in dropbox folder under Trade (To Read)
44. India's IPR laws, draft IPR policy
 Sitharaman gave few details of the draft policy, which is not yet publicly
available, but said it “focusses on stronger enforcement of IPR by
increasing the manpower strength in IP offices and reducing the pendency
of IPR filings”
 Ministry administering the IPR: Department of Industrial Policy and
Promotion (DIPP), and Ministry of Commerce and Industry
 IPR in India is under various laws -
1. Patent Act, 1970
2. Geogrpahical Indicators act
3. Trademarks act
4. Copyrights act
 India's IPR regime is fully TRIPS compliant
45. WTO: Singapore Issues
 1996; from the very beginning, developed countries have wanted an
agreement on non-agriculture related trade issues, such as government
procurement, trade facilitation, competition etc.
 These issues are known as the ‘Singapore Issues’
 Developed countries want developing countries to relax their control
around these issues; developing countries don’t want to negotiate unless
they get some concession on agricultuiral front (market access, developed
countries slashing their farm subsidies etc.)
 Talks repeatedly broke down on these issues, until the July Package was
announced in Geneva in 2004 (under the Doha Round)

16.  ‘July Package’ covers agriculture, non-agricultural market access, services,
and trade facilitation
46. WTO: Transparency Mechanism
 Since the Cancun meeting (2003), the US, EU, and China are increasingly
relying on bilateral and regional route to pursue their trade interests
 Recognizing the rise of PTAs, the WTO has finally taken a step towards
rationalizing its approach towards them. A start has been made with the
setting up of the ‘transparency mechanism’, whereby member countries
are bound to disclose details of their PTAs for the WTO’s scrutiny
 However, while a step in the right direction, this mechanism for now
simply remains an information disclosure mechanism, and nothing else
47. WTO: TFA
 WTO negotiations have been happening in five working groups. Some
important topics under negotiation are: market access,
development issues, WTO rules, and trade facilitation
 Bali Package focused on addressing a small portion of the Doha
programme, principally, bureaucratic ‘red-tape’, by means of the ‘Trade
Facilitation Agreement’
 The only binding target is reforming customs bureaucracies and formalities
to facilitate trade
 No developed country undertook legal promises to reduce agricultural
subsidies
 India agreed to be a part of this in 2013, but Modi government vetoed it,
fearing loss of negotiation power in WTO and also more imports
48. WTO: Domestic Support- Amber, Blue, and Green Boxes
 ‘Green box’ roughly translate into a green ‘go’ signal, and amber could be
considered a cautionary light, there is no red box. Instead, the WTO has
invented a ‘blue box’ which is used for what the organization considers
production-limiting programs
 To further complicate matters, you could consider yourself ticketed for
running a red light if the amber box subsidies exceed pre-set reduction
commitment levels. In addition, there are exemptions for many of the
boxes, including those designed to help make developing countries more
trade competitive
Green box
 Policies not restricted by the trade agreement because they are not
considered trade distorting
 These green box subsidies must be government-funded — not by charging
consumers higher prices, and they must not involve price support. They
tend to be programs that are not directed at particular products, and they
may include direct income supports for farmers that are decoupled from
current production levels and/or prices

17. Amber box
 Agriculture's amber box is used for all domestic support measures
considered to distort production and trade
 As a result, the trade agreement calls for 30 WTO members, including the
United States, to commit to reducing their trade-distorting domestic
supports that fall into the amber box
 U.S. agricultural subsidies listed as changing production and/or changing
the flow of trade include commodity-specific market price supports, direct
payments and input subsidies
Blue box
 Any support payments that are not subject to the amber box reduction
agreement because they are direct payments under a production limiting
program
 The blue box is an exemption from the general rule that all subsidies
linked to production must be reduced or kept within defined minimal
levels. It covers payments directly linked to acreage or animal numbers,
but under schemes which also limit production by imposing production
quotas or requiring farmers to set aside part of their land
 Opponents of the blue box want it eliminated because the payments are
only partly decoupled from production, or they want an agreement in
place to reduce the use of these subsidies. Others say the blue box is an
important tool for supporting and reforming agriculture, and for achieving
certain ‘non-trade' objectives, and argue that it should not be restricted as
it distorts trade less than other types of support
49. WTO 'peace clause'
 Article 13 of the WTO: Domestic support measures and export subsidies of
a WTO Member that are legal under the provisions of the Agreement on
Agriculture cannot be challenged by other WTO Members on grounds of
being illegal under the provisions of any another WTO agreement
 The Peace Clause expired in 2004. It is now possible, therefore,
for developing countries and nations favoring free trade in agricultural
goods, such as the Cairns Group, to use the WTO dispute
settlement mechanism in order to challenge, in
particular, U.S. and EU export subsidies on agricultural products
50. Name 5 different ‘types’ of patents
Copyright, Geographic Indication, Trademark, Patent, Industrial Designs
51. Section 3(d) of the Indian Patents Act
 One unique provision of the Indian Patent Act is embodied in Section 3,
clause (d). This provision prevents patenting of minor improvements in
chemical and pharmaceutical entities unless the invention results in the
enhancement of known efficacy of that substance
 This is TRIPS compliant

18.  This provision is a safeguard for public health purposes and sets a higher
threshold for granting pharmaceutical patents. In January, Gilead Sciences
(a US company) was denied a patent by the Indian Patent Office for its
drug Sofosbuvir that cures Hepatitis C, owing to application of Section
3(d)
 Section 3(d) has been extremely contentious since its introduction in
2005. The transnational pharmaceutical industry regards it as establishing
an unacceptably high barrier to patenting, as do many foreign
governments. But many observers, including the United Nations
Programme on HIV/AIDS and civil society groups, defend 3(d) and point to
India as a model for developing countries attempting to use TRIPS
flexibilities to promote public health
 In 2013, pharma giant Novartis lost a six-year legal battle after the Indian
supreme court ruled that small changes to its leukaemia drug Glivec did
not deserve a new patent
 This gives a clear distaste in India for ‘evergreening’- the practise of big
pharma firms to make small changes to drugs whose licenses are about to
expire, simply to renew their licenses. In such cases, India has started
giving out ‘compulsory licenses’
 The best thing is that India broke no TRIPS laws; it’s decision is valid under
TRIPS, but so far countries had just been too scared to try it
52. Tax Administration Reform Commission
 May 2014: TARC headed by Parthsarathi Shome, gave report
 Abolish Revenue Secretary post. It is manned by Generalist IAS officer.
Taxation requires subject specialization over finance, banking, commerce
etc.
 Merge CBDT and CBEC=> Central board of direct and indirect taxes.
Businessmen who evade indirect taxes, evade direct tax as well. Merger
will help track them more effectively
 Replace PAN with CPAN (Common Permanent Account). Same number be
used for DEMAT, EPFO, custom-Excise passbook, service tax ID, VAT TIN
no. and so on. That way tax evasion difficult
 Treat tax payers as customers. 10% of Department budget be spent on
customer services. Separate ombudsman to “teach” lesson to rude IT
officials
 Customs department crucial role in tracking international
money/gold/diamond transactions. Empower them with ICT technology,
RFID for Real time tracking of shipping containers
 Additional: Adopt Direct Tax Code, Abolish Wealth tax. Because juntaa
deliberately undervaluing their property on paper, to evade wealth tax=>
real estate black money game begins from here
53. National Payments System (RuPay):
 RuPay card is India’s answer to the two most dominant market transaction
processing players in the world Visa, MasterCard, AmEx owned by Visa
Inc., MasterCard Inc. and American Express Co. respectively

19.  India is now the sixth country in the world to have domestic payment
gateway system
 Having our own domestic card payment network which helps in electronic
money transfers will help both banks (between 200-250 member banks)
and consumers in the following ways: lesser processing fee, faster
transactions, no entry fee for banks joining the network
 Downsides: no international acceptance yet, only debit cards available
(not credit cards)
54. Apprentices act:
 Skill-building initiative
 From the point of view of employer they think that the rules laid down in
the Apprentice Act are stringent for them, one of the major reason
according to them for not providing apprenticeship on a large basis is that
the penal provision of imprisonment of 6 months and others makes them
apprehension of prosecution
 It takes on the minimum age requirement of apprentice that is 14 years of
age usually but the Bill increased the apprenticeship for the designated
trades related to hazardous Industrial work to 18 years of age
 The central government will designate how many apprentice an employer
will hold and this will be regulated by (Central Apprentice Council). Earlier
states did’t accept apprentices from other state but this bill has opened
the scope now for the people of other states too
 Now, there can be multiple employers, who can provide apprenticeship
either through agency or by coming together, which is a great boost for
the workers as well as the employers. The arrangement for the practical
training must be there with the employers and the assent of advisor,
which was necessary earlier, has been removed in the new bill passed. The
syllabus of apprentice will be approved by central government through
(CAC), the bill limits the provision for training in designated trade
 Penal provisions regarding imprisonment of the employer has been
removed by this amendment. Employers have been provided with the
privilege of deciding the holidays, leaves and the hours of work at the time
of apprenticeship
 Going by the statistics projected by the government there were only
4.98% of apprentice of around only 2 lakhs seats were there but after the
amendments around 24 lakhs apprentice seats will be created
55. Labour, skills etc.:
 Unorganised Workers’ Social Security Act, 2008
 National Commission for Enterprise in the unorganized sector report,
2005
 Framework of revival and rehabilitation of MSMEs
 Skills ministry report on sector wise human resources
 National Rural Livelihoods Mission (Aajeevika)
 Draft Skills Policy

20. 56. Financial Sector: Committees
Comittee Subject Recommendations
Nayak Governance in
bank boards
Government owns majority shares in PSBs, thus have the
power to appoint its Board of Directors. This sometimes leads
to sycophants being appointed, and thus bank governance
suffers. Recommendations:
* Set up a ‘Bank Investment Company’ that will be the majority
shareholder (on behalf of the government) in all PSBs
* This BIC will recommend appoints of board directors and
CMDs
* Before BIC is approved by Parliament, set up the Bank Boards
Bureau (BBB)
Gopalkrishna Capacity
building in banks
and non-banks
Field-level details, such as recruitment of staff etc.
Urijit Patel Inflation * RBI’s job should be to focus on inflation only )(via CPI)
* RBI should improve accountability by forming an MPC
* Government should focus on fiscal consolidation
Vishwanathan Bankruptcy
reform
1. Early recognition of financial distress in company and timely
intervention by the government to rescue the organization
2. Liquidate un-viable company as soon as possible
3. Allow secured creditors to apply for the rescue of the
company (earlier it was filled after the company have been
defaulted by 50 per cent of its outstanding debt)
4. Unsecured creditors representing 25 per cent of the debt be
allowed to initiate rescue proceedings against the debtor
company
Parthasarathi
Shome
GARR guidelines General Anti-Avoidance Rules:
 People adopt various methods so that they can reduce their
total tax liability. The methods adopted to reduce their tax
liability can be broadly put into four categories: Tax Evasion,
Tax avoidance, Tax Mitigation, and Tax Planning. GAAR
provides to curb tax avoidance
 GAAR empowers the Revenue Authorities to deny the tax
benefits of transactions or arrangements which do not have
any commercial substance or consideration other than
achieving the tax benefit. GAAR is intended to target tax
evaders, especially Indian companies and investors trying to
route investments through Mauritius or other tax havens in
order to avoid taxes. GAAR provides discretionary powers to
revenue authorities to tax impermissible avoidance
arrangements. The arrangements as a whole or aim part
may be disregarded and tax benefit denied
GS Bajpai National
Pension System
Current NPS rules for the private sector allow a maximum
exposure to equity of 50% and only through index funds that
replicate either the BSE’s Sensex or the National Stock
Exchange’s Nifty 50 index. Index funds mimic movements in the
index to which they are linked. This form of investment is called
passive investment. For government sector employees, equity

21. exposure is limited to 15%.
The report of the Bajpai committee recommends moving from
this directed investment regime to one that leaves the choice
of investment of pension assets to the subscriber
1. Pension fund investments must be liberalized so that the
pensioner has the provision of investing it in other options and
not limited by one
2. It also mentions that the government fund must be handled
and taken care of by private managers and investor other than
government investors solely
3. The investing rules and regulations must be eventually be
same for both private and government
4. This may be implemented in six years to come after proper
'wait and watch' scrutiny
57. Financial Sector: Priority Sector Lending:
 Priority Sector Lending is an important role given by the Reserve Bank of India
(RBI) to the banks for providing a specified portion of the bank lending to few
specific sectors like agriculture or small scale industries
 This is essentially meant for an all round development of the economy as
opposed to focusing only on the financial sector
 Typically, these are small value loans to farmers for agriculture and allied
activities, micro and small enterprises, poor people for housing, students for
education and other low income groups and weaker sections
Lending norms:
 For local banks, both the public and private sectors have to lend 40% of their
net bank credit, or NBC, to the priority sector as defined by RBI, foreign banks
have to lend 32% of their NBC to the priority sector
 Shadow banking- pros and cons; RBI’s recent move to tighten regulatory
norms: The shadow banking system is a term for the collection of non-bank
financial intermediaries that provide services similar to traditional commercial
banks, but are outside the regulatory net. Activities of formal baking
institutions outside regulatory net are also a part of shadow banking
 NPAs in Indian banking sector:
 Estimates, effects, remedial measures
 What criteria is the government now following for re-infusion of capital into
PSBs?
 Problems faced by the banking sector: recapitalization, consolidation,
professionalization of bank boards and their management; Basel III
requirements
 PSBs performed quite well after the bank reforms in 1993, till about 2010.
After that, their finances deteriorated for 2 reasons- they got into
infrastructure financing in a big way, and CEOs selections went wrong in
many places. Now, the government must help by adequate capital infusion,

22. rather than insisting on banks improving their performance before they can
access capital
 NBFCs and the Microfinance industry
58. Defense Sector:
 http://www.thehindu.com/opinion/lead/drdo-and-indias-defence-
spending/article7279102.ece
 http://www.thehindu.com/opinion/op-ed/integration-of-the-armed-
forces/article7282983.ece
 Defense procurement policy
 FDI in defense manufacturing
 http://www.business-standard.com/article/opinion/a-big-step-forward-
115060700766_1.html
 http://www.thehindu.com/opinion/op-ed/fighting-without-
equipment/article7306306.ece
59. Energy sector in India (national level government bodies, unbundling etc.)
60. Animal rearing- Deep Sea fishing (EPW article on dropbox)
61. Food Safety in India
62. Pulse production in India
63. China's stock market crash
64. Revise economic survey
48. SBI and ICICI have been designated ‘Systematically Important Banks’; will be
required to maintainhighr level of capital as compared to other banks
49. Some indicators of the ‘strong fundamentals’ that everyone bandies about:
healthy financial system, transparency, strong banks, sober national balance
sheets, reasonable current account deficit etc.
50. Railway has recently said that private operators will be allowed to maintain
and operate ‘branch lines’ and ‘hill lines’; however, Bibek Debroy points out
that these are historically unremunerative lines
51. While the popular narrative depicts the fall in oil prices as good for oil
importing nations such as India, the flipside could be that in such countries,
the price of goods related to oil falls so much that there is a widespread
deflation!
52. The problems of dropped calls in India is getting aggravated because of high
auction prices; these left operators with little investible surplus to improve
infrastructure
53. Average size of landholdings in India is 1.15 hectares
54. Railway sector (India spends 0.3% of GDP on Railways, 1.5% on highways)
55. Changes in base rates: now banks have to calculate these based on marginal
cost of lending; banks with larger share of term deposits will be worst hit (see
BS article, saved on desktop)

23. 56. System of Rice Intensification
57. The gross NPA of banks as a % of gross advances increased to 4.6% from 4.5%
between September 2014 and March 2015; overall stressed advances stand
at around 11% of total advances: need to rework the bankruptcy code, and
aim for quick capacity building in banks to ensure NPA-likely loans are not
advanced to begin with
58. Even though India is facing a rare 2-year drought, food inflation is likely to
remain low, because of timely warnings given by IMD, and also because
global supplies are ample and prices low; our buffer stocks are also at record
high levels
59. After OROP, 53% of our defence spending will be on personnel
60. Export/ GDP ratio is about 15%; CAD is about -1.5%. While this is much better
than the -4% levels seen in 2012 and 2013, one must be mindful that this isn't
the result of an improving exports/ GDP ratio, but of curbs on gold imports
and the fall in oil prices
61. Trade deficit: -7%; net 'invisibles' (software exports + transfers) = +5.6% =>
CAD = -1.4%
62. Key thing to note about capital formation in agriculture: the share of private
sector in agri GCF used to be around 60% in 1980s; rose to 80-85% in 1990s,
and is stuck there still. Implies that public GCF is minuscule, and this has
adverse implications for 'heavy' capital works in agri
63. During the 'boom' phase, India's exports had grown at 20% p.a.; after the
2008 crisis hit, they turned negative 20% in 2009-10
64. In 1980s and early 1990s, services exports used to be about 20-25% of total
exports; now, they're routinely around 40%
65. SSIs: What the small entrepreneurs need is not protection but institutional
support to fund modernisation and technology upgradation, infrastructural
support, and adequate working capital finance from the banking sector
66. Current installed wind energy capacity is 23GW; target for 2022 is 60GW
67. Previously, SEBI used to regulate securities market, and the FMC,
commodities market. Now, FMC has been merged with SEBI. This is due to
previously seen turf wars, FMCs regulatory failures (like the multi billion
dollar scam 2 years ago), and FMC so far being toothless and lacking statutory
powers (meant that it acted more or less as an appendage of the Ministry of
Consumer Affairs)
68. Household savings have decline to only 28% in 2015 (from a peak of 36% in
2005)
69. India has spent more on gold imports in the last 10 years than all FII (debt
and equity) inflows combined

24. 70. ECBs have implications for monetary stability as they add to the country's
overall external debt and future repayment liability. However, given domestic
capital constraints, an attempt is now being made to liberalize the ECB policy
within the overall calibrated stance of gradual opening up of the capital
account
71. An exclusive economic zone (EEZ) is a sea zone prescribed by the United
Nations Convention on the Law of the Sea over which a state has special
rights regarding the exploration and use of marine resources, including
energy production from water and wind. It stretches from the baseline out to
200 nautical miles (nmi) from its coast.
Infrastructure
1. India’s 3 phase nuclear power programme:
 The Indian nuclear power programme, launched in 1954, envisaged a
three-stage development of nuclear power generation from the
country’s uranium and thorium resources.
 Stage-I: construction of Natural Uranium, Heavy Water Moderated and
Cooled Pressurised Heavy Water Reactors (PHWRs). Spent fuel from
these reactors is reprocessed to obtain Plutonium
 Stage-II: construction of Fast Breeder Reactors (FBRs) fuelled by
Plutonium produced in stage-I. These reactors would also breed U-233
from Thorium (Kalpakkam reactor is a Fast-Breedor Reactor in Chennai)
 Stage-III: power reactors using U-233 / Thorium as fuel
2. Debroy Panel recommendations on Railway Privatization:
 Proposed separation of activities like running of hospitals, schools,
catering, real estate development, manufacturing of locomotives,
coaches and wagons from the core business of running trains
 Establishment of an independent regulator — Railway Regulatory
Authority of India
 Evolve a statutory rail regulator, scrap the Rail Budget and make room
for more players in an open access’ regime which turns the Railways
into just another train-service provider in the country (like what exists in
the UK)
3. National Waterway 4: Vijayawada to Pondicherry; trial run later this year by
IWAI
4. Solar energy: India’s stated target for solar energy generation by 2020 is 100
GW; current installed capacity is about 2,600 MW. Achieveing the target will
require an estimated $150 billion p.a., most of which will need to come from
the developed world (such as USA- in this context the dispute over PV cells
with WTO can’t do any good)

25. 5. 2G, 3G Spectrum sales: target was Rs. 82,000 crore, but eventually mopped
up over 1 lakh crore; the auctions are conducted by the Department of
Telecommunications (DoT)
6. TAPI pipeline: Turkmenistan, Afghanistan, Pakistan, India pipeline to
transport natural gas from the Caspian sea to India via Afghanistan and
Pakistan
 Also known as Trans-Afghanistan pipeline
 It is being funded by the ADB
 GAIL India may become a part of the TAPI project
7. EPC v/s PPP
 EPC: Engineering, Procurement, and Construction
 Under an EPC contract, the contractor designs the installation,
procures the necessary materials and builds the project, either
directly or by subcontracting part of the work
 Guaranteed price, time for completion, cap on liability, performance
guarantee etc.
 PPP: Public-Private Participation
 An arrangement between the public and private sectors with clear
agreement for delivery of public infrastructure and/or public services.
 The private sector contractors are long term providers of services
combining Design, Build, Finance, Operation & Maintenance and To
deliver services needed by public sector
 Examples are BOT, DBFOT (Design, Build, Finance, Operate, Transfer)
 It is believed that EPC will minimise, if not eliminate, the time and cost
over-runs characteristic of the extant item rate contracts. Further, this
will enable a faster roll-out of projects with least costs and greater
efficiency while minimizing the potential for excessive discretion
8. India-based Neutrino Observatory
9. Food Security: http://www.insightsonindia.com/2015/06/02/6-food-safety-
laws-in-india-is-said-to-be-one-of-top-challenges-faced-by-the-food-
processing-industry-in-india-critically-examine-why/
10. BS Article July 09 (Infrastructure)
1. NBFCs are usually distinguished from banks by their inability to take deposits
from the public. NBFC cannot accept demand deposits;they do not form part
of the payment and settlement system and cannot issue cheques drawn on
itself;deposit insurance facility of Deposit Insurance and Credit Guarantee
Corporation is not available to depositors of NBFCs, unlike in case of banks
2. Aerial seeding is a technique of sowing seeds using helicopters and
aeroplanes to scatter them. Aerial reforestation has been usually done to

26. repopulate forest land after some type of disaster since the 1930s.Aerial
seeding is an alternative to other seeding methods where terrain is extremely
rocky or at high elevations or otherwise inaccessible.AP recently started use
of this technique.
3. The National Investment & Manufacturing Zones (NIMZs) are an important
instrumentality of the National manufacturing policy. The NIMZs are
envisaged as integrated industrial townships with:
 state of the art infrastructure
 land use on the basis of zoning
 clean and energy efficient technology
 necessary social infrastructure
 skill development facilities etc.
NIMZs also aim to provide a productive environment for persons
transitioning from the primary to the secondary and tertiary sectors.
4. The National Manufacturing Policy (NMP) has the objective of enhancing the
share of manufacturing in GDP to 25% and creating 100 million jobs over a
decade. The NMP provides for promotion of clusters and aggregation,
especially through the creation of national investment and manufacturing
zones (NIMZ).
5. Railways require renewal of tracks, more railway bridges, better signalling
and rolling out of accident-proof coaches and engines. Railways Ministry has
planned an investment of Rs. 8.5 lakh crore in the next five years. Since, all
investments could not come from fares or freight, additional funds will be
raised through prudential borrowing from institutions such as the LIC, the
World Bank and other multilateral agencies, which would be repaid in the
next 30-40 years through an increase in revenues
6. The government has accepted Justice AP Shah Panel’s recommendations
on not levying MAT on Foreign Institutional Investors
7. AIIB:Reflecting regional character of the Bank, its regional members will be
the majority shareholders, holding approximately 75% of shares. India is the
second largest shareholder in the Bank after China. China, India and Russia
are the three largest shareholders. The voting shares are based on the size of
each member country’s economy and not contribution to the bank’s
authorised capital.
8. Government has approved the auction of 69 small oilfields to private/ foreign
companies, giving a unified license (unlike before) for exploration of any kind
of hydrocarbon.
 Until now, profit-sharing mechanism was followed. It encouraged
investors to take higher exploration risks, and in the event of success,
the costs could be recovered. This mechanism meant that the

27. government had to scrutinise the various costs incurred by the private
companies, which often led to delays and disputes
 The newrevenue-sharing and royalty-sharing mechanism will be
benchmarked against the prevailing market price of oil. If the
company sells at below this price, then the sharing will still have to be
done at the market price. If the company manages to sell at a higher
price than the market rate, then the sharing will be based on this
higher price
9. Yuan devaluation: little potential benefits to India-Petroleum products and
jewellery account for roughly 30% of India’s exports. In contrast, over 40% of
China’s exports are mechanical and electronic goods. Further, unlike India,
where agricultural products account for 10% of exports, China exports little
or no agricultural produce. This lack of product overlap reduces potential
gains or losses on account of fluctuations in the value of the yuan
10. Currently, 50% of India’s energy comes from coal based sources, and only 2%
from nuclear sources. Deals such as with Australia for uranium imports are
likely to be quite helpful in this regard
11. Aerobic rice cultivation: growing rice plant as irrigated crop like cultivating
maize and wheat in aerobic condition, where oxygen is plenty in soil
 No puddling, transplanting and no need of frequent irrigation, which reduce
labour usage more than 50%, compared to irrigated rice
 Throughout the growing season, aerobic rice field is kept under unsaturated
condition and field is irrigated by surface or sprinkler system to keep soil wet
 Therefore, water productivity is reported to be higher in aerobic rice
 From environmental point of view, emission of methane is lower
substantially in aerobic rice
 High weed infestation is the major constraint for aerobic rice and cost
involved in weed control is higher
 Poorly managed field may cause partial to complete failure of crop, which
might happen due to weeds and micronutrient non-availability
12. The focus of the World Bank Doing Business report is on eight key areas: The
setting up of a business, allotment of land and obtaining construction permit,
complying with environment procedures, complying with labour regulations,
obtaining infrastructure-related utilities, registering and complying with tax
procedures, carrying out inspections and enforcing contracts
13. Gujarat’s model of irrigation reform inlcudes water harvesting, drip
irrigation, conservation of water resources through micro irrigation network
and setting up or creating village pond, check dams and ‘boribandh’ (sand
bag) dams so that water actually reaches the farmers in all areas within the
state

28. 14. India is the only country to have a specific cell of its kind inside the Pentagon.
This cell is called the India Rapid Reaction Cell, and it works on all the
initiatives that are ongoing under (India-US) DTTI (Defence Trade and
Technology Initiative). The cell looks at ways to transform bilateral defence
relationship without any bureaucratic obstacles, move away from the
traditional buyer-seller dynamic to a more collaborative approach, explore
new areas of technological collaboration and expand the U.S.-India business
ties.
15. According to a new report by McKinsey, India’s gross domestic product (GDP)
could see a jump of about 60% by 2025 if the gender inequality issue in
society is resolved and more women are allowed to join the workforce. In
India, the share of regional GDP generated by women is only 17%. The gap in
labour force participation partly reflects the unequal sharing of household
responsibilities between men and women. Around 75% of the world’s unpaid
work is undertaken by women, including the vital tasks that keep households
functioning such as child care, caring for the elderly, cooking and cleaning
16. World Bank’s poverty estimates say that India’s poverty ratio is only 12%,
based on a PPP poverty line of $1.9/ day. Indian authorities have derided this
estimate, saying that PPP is okay for comparing GDP across countries, but not
poverty. The consumption basket that the World Bank uses is also
inappropriate for India, as it includes elements such as pasta, wine, mineral
water etc.
17. A good example of continuing protectionism: imposition of steel duties to
curb imports
18. A The e-commerce sector in India is projected to cross $80 billion by 2020,
and grow further to $300 billion by 2030. This growth will mainly be driven by
growing adoption of smartphones and increasing Internet penetration
19. According to CRISIL Ratings, around 7,500 km of highway projects in India—
5,100 km under construction and 2,400 km operational — awarded between
FY10 and FY12 on a build, operate, transfer (BOT) basis — are at high risk
20. To cut pilferage in the public distribution system (PDS), the Karnataka state
government has decided to set up biometric system-based point of sales
(POS) machines in all fair price ration shops across the State
21. Alcohol and tobacco industries will soon have to pay more taxes towards an
additional ‘sin tax’ under the proposed GST structure
22. After the increased devolution to the states through the 14th Finance
Commission, the CMs’ panel has now also recommended classifying all
central schemes into three categories — core, core- of- core and optional.

29.  In the first, the fund- sharing pattern between the Centre and states would
be 60: 40 for general category states. For the eight Northeastern and three
Himalayan states, this ratio would be 90: 10
 All core- of- core schemes would be fully funded by the Centre
 In schemes categorised as optional, the fund- sharing pattern between the
Centre and states would be 50: 50 for general category states and 80: 20 for
Northeastern and hilly states
 Funds for the optional schemes would be allocated to states as a lump sum
and states would be free to choose which optional scheme they want to
adopt. According to the panel’s report, the NITI Aayog would frame the
criteria for lump sum allocations and would monitor the implementation of
all the schemes
23. The Scheme of Mega Food Parks aims at providing a mechanism to link
agricultural production to the market by bringing together farmers,
processors and retailers so as to ensure maximizing value addition,
minimizing wastages, increasing farmers’ income and creating employment
opportunities particularly in rural sector. The Scheme has a cluster based
approach based on a hub and spokes model. It includes creation of
infrastructure for primary processing and storage near the farm in the form
of Primary Processing Centres (PPCs) and Collection Centres (CCs) and
common facilities and enabling infrastructure at Central Processing Centre
(CPC).
24. The 7th Pay Commission will lead to an increase of 0.65% points in the ratio
of expenditure on to GDP. The salary hikes are expected to boost sales of
affordable homes and consumer durables, which in turn will drive demand in
the economy.
25. By signing the Kuala Lumpur declaration on the establishment of the
AEC, ASEAN leaders have declared the establishment of an EU-style regional
economic bloc, ASEAN Economic Community (AEC). The AEC envisages a
single market with a free flow of goods, capital and skilled labour across
borders in the highly competitive economic region. This community could
give India greater access to a market with a combined GDP of $2.57 trillion.
The grouping is also seen as a huge middle-class market that Indian industries
and services can take advantage of.
26. An Advaned Pricing Agreement, usually for multiple years, is signed between
a taxpayer and the tax authority (CBDT) on an appropriate transfer pricing
methodology for determining the price and ensuing taxes on intra-group
overseas transactions.
27. The International Monetary Fund has admitted China’s yuan into its
benchmark currency basket. To meet the IMF’s criteria, Beijing has
undertaken a flurry of reforms in recent months, including better access for

30. foreigners to Chinese currency markets, more frequent debt issuance and
expanded yuan trading hours.
From the other document
Indian Economy
 Land use pattern in India:
 Forest Area: 23%
 Gross area sown: 59.4%
 Area under non-agricultural uses, such as housing, industry, offices, roads,
railways etc.: 8% (7% in 1997; Pangaria says that this one percent rise has led
to manifold increase in per-capita income, and hasn’t come at the expense of
net sown area, which in fact has grown!)
 Make in India:
 Focus should be on building competitive advantage and global scale in
sectors where we have a large domestic market and certain inherent
capabilities
Five priority industries:
 Defence: We are the world’s leading arms importer. Localising what we buy
as a condition for all defence deals along with a willingness to allow majority
foreign ownership can turbocharge our local defence industry
 Electronics Hardware: India imports $45 billion of mobile phones, computers
and communications hardware; by 2020, this is projected to grow to $300
billion and exceed our oil import bill. This is unsustainable. We have to create
policy incentives to create a local electronic hardware-manufacturing
ecosystem. Since most component suppliers, Original Equipment
Manufacturers and Original Design Manufacturers are Chinese, this will
necessarily imply incentivising Chinese companies to establish factories in
India
 Construction: India will invest a trillion dollars over the coming years in
improving infrastructure. We need to create incentives that not only spur
investment in manufacturing materials such as cement and steel but also
construction equipment, locomotives, power generation equipment and so
on. Everything we install should be made in India
 Healthcare: India’s generic pharmaceutical industry is world class. We must
not concede on intellectual property rights that neutralise our advantage.
India is also exceedingly good at frugal innovation in medical devices such as

31. low cost X-ray and ECG machines. We have a real shot at being a world leader
in innovation and manufacturing in this space
 Agro-Industries: We are one of the largest agricultural nations. A third of
what we grow just rots and spoils. Investing in agro-industries such as food
processing and establishing a reliable cold chain would make a huge
difference in terms of rural employment and food security
 Coal India’s divestment:
 10% of the stake in CIL has been sold off to investors
 Most has been taken by institutional investors, led by insurance firms; a lot
by LIC (this means one arm of the government is buying another, in effect)
 Budget 2015 analysis:
 Ajay Shah’s article is a must-read:
http://ajayshahblog.blogspot.in/2015/03/interpreting-bjp-2015-budget.html
 Asset sales to fund investments:
 As against public borrowing, these mitigate long-run inflationary pressures
because they add to production capacity, boost the aggregate supply, and do
not add to the total demand potential of the economy (which would happen
if investments were funded by borrowing from the public)
 ‘Balance Sheet Syndrome with Indian Characteristics’ –see Economic Survey
Volume 01
 Pharmaceutical market in India (important because of Dilip Shanghvi now
being the richest man in India):
 World’s third largest in terms of volume
 The lack of patent protection (willingly introduced in the 1960s) made the
Indian market undesirable to the multinational companies that had
dominated the market, and while they streamed out, Indian companies
carved a niche in both the Indian and world markets with their expertise in
reverse-engineering new processes for manufacturing drugs at low costs
 Although some of the larger Indian companies have taken baby steps towards
drug innovation, the industry as a whole has been following this business
model until the present
 As it expands its core business, the industry is being forced to adapt its
business model to recent changes in the operating environment. The first and
most significant change was the 1 January 2005 enactment of an amendment
to India’s patent law that reinstated product patents for the first time since
1972. The legislation took effect on the deadline set by the WTO’s Trade-
Related Aspects of Intellectual Property Rights (TRIPS) agreement, which

32. mandated patent protection on both products and processes for a period of
20 years. Under this new law, India will be forced to recognize not only new
patents but also any patents filed after 1995
 Indian companies achieved their status in the domestic market by breaking
these product patents, and it is estimated that within the next few years,
they will lose $650 million of the local generics market to patent-holders
 Challenges: Big firms in the west, such as Pfizer, spend more just on research
than the entire revenue of Indian firms. This disparity is too great to be
explained by cost differentials, and it comes when advances in genomics have
made research equipment more expensive than ever. The drug discovery
process is also further hindered by a dearth of qualified molecular biologists.
Due to the disconnect between curriculum and industry, pharma in India also
lack the academic collaboration that is crucial to drug development in the
West
 Secular Stagnation Theory:
 Larry Summers in 2013 suggested that it’s possible that the current low-
growth phase being seen in many developed economies is here to stay
 Usually, policy makers use low interest rates as a tool to stimulate demand,
but rates are already rock-bottom
 Summers also proposed that it might not be possible to achieve higher
growth without risking financial crises- thus, one could now have economic
growth or financial stability, but not both
 India’s defense procurement:
 Despite its stated ‘make in India’ campaign, India recently bought a
substantial fleet of 36 Rafale fighter jets from France for USD
 The BJP government has liberalized FDI in defence to 49% by the automatic
route, and 75 to 100% in cases where substantial technology transfer is
involved
 However, since defence FDI liberalization in 2001, FDI inflows in the sector
have only about to about $5 billion, in overall FDI flows of $335 billion
 This is because it is lucrative for foreign manufacturers to sell to India from
their own plants abroad, as India’s repeat orders are few and far between, so
making in India doesn’t make sense
 Also, the assumption that FDI will necessarily lead to technology transfer is
misplaced. The current offsets policy (which mandates that about 30% of all
spending in defence deals has to be done in India) views things in financial
terms (money spent locally, jobs created etc.); instead, the focus should be
on developing the capability of Indian scientists to independently develop
and manufacture sophisticated military hardware

33.  Impact of falling oil prices on India’s economy:
 The implications for India are, on balance, hugely positive:
 It has saved approximately $40 billion in reduced import costs; inflationary
pressures have eased; the subsidy outgo has reduced and growth has got a
boost
 Flipside: Indian companies have substantive investment, trading and financial
interests in Venezuela, Russia, Nigeria and the Gulf. Were Venezuela to
renege on its debt, Russia to sink deeper into recession, Nigeria to impose
capital controls, Iran to suffer a political upheaval and the Gulf countries to
cut back on public expenditure, the returns on these investments would be at
risk, remittances from Indian workers would slow down, and our strategic
and trading relationships may have to be reviewed
 At the sectoral level, it will be increasingly difficult to attract risk capital into
oil and gas exploration. This is because most oil companies have pared down
their exploration budgets. The government is reportedly planning to
announce a new licensing round for bidding. If so, and if it is keen to attract
international companies, it will have to abandon all thoughts of replacing the
current cost-recovery production-sharing model (where companies have first
call on production to recover costs) with a revenue-sharing model (where
revenues are shared with the government even before costs have been
recovered)
 New Urea Policy:
 India’s annual urea production (there are about 35 manufacturing units) has
stagnated at 22 mt and the country has had to import about 8 mt to meet
domestic demand
 According to the new incentive structure for domestic urea units, the
Centre would reimburse the fixed cost incurred by the domestic units that
produce 100 per cent more than their reassessed capacity along with a
part of the variable cost
 However, this incentive would have to be less than the import parity price
of urea or whichever is less
 The assessment for the energy consumed would be based on a combination
of the previous new pricing scheme and average energy consumed in last
three years, and incentive will be given to domestic manufacturers with
their annual energy consumption to lower the carbon footprint
 Alongside, transportation of P and K fertilizers will be made free
 The government says the new urea policy will increase annual production
by 2 mt and cut the yearly subsidy bill by Rs 4,800 crore
 Alongside this, the government has also reduced the restrictions on
production of neem-coated urea

34.  Using neem coated urea will not only increase crop yields but also lower
input cost to farmers
 It will also reduce imports of precious fertilizers as well as reduce ground
and soil pollution
 Presently India is using only 60 lakh mt neem coated urea which can be
increased to full demand of 310 lakh MT in the country
 Coated urea is costly by 5% compared to plain prilled urea but it
reduces Nitrogen loss by more than 10%, thereby incurring a net
savings of Rs. 13.5 per bag for farmers
 Due to higher nitrogen use efficiency, the use of nitrogen coated urea
can also eliminate import of urea resulting in huge foreign exchange
savings. Presently, India is importing about 71 lakh MT urea
 Additionally, farmers will also get advantage of better yield, less pest
attack due to less use of urea which will also ensure better NPK use ratio
and balanced use of fertilizers
 SPI, GNH, HDI:
 GNH: Gross National Happiness
 The phrase was coined as a signal of commitment to building an economy
that would serve Bhutan's culture based on Buddhist spiritual values
instead of the western material development represented by GNP
 4 pillars of GNH: sustainable development, preservation and promotion of
cultural values, conservation of natural environment, and establishment
of good governance (no economic criterion)
 Proposed policies in Bhutan must pass a GNH review based on a GNH
impact statement that is similar in nature to the Environmental Impact
Statement required for development in the U.S.
 Like many psychological and social indicators, GNH is somewhat easier to
state than to define with mathematical precision
 From an economic perspective, critics state that because GNH depends on
a series of subjective judgments about well-being, governments may be
able to define GNH in a way that suits their interests
 India’s rank: 111
 SPI: Social Progress Index
 Combines three dimensions – Basic Human Needs, Foundations of
Wellbeing, and Opportunity (no economic indicator)
 Each dimension comprises four components, which are each composed of
between three and five specific outcome indicators
 Two key features of the Social Progress Index are the complete exclusion
of economic variables and the use of outcome measures rather than
inputs

35.  India’s rank: 101 out of 133 ranked countries; behind Bangladesh,
Honduras etc.
 HDI: Human Development Index
 A composite statistic of life expectancy, education, and per capita
income indicators
 Developed by Pakistani economist Mahbub-ul-Haq
 Has been criticized on a number of grounds including alleged ideological
biases towards egalitarianism and so-called "Western models of
development", failure to include any ecological considerations, lack of
consideration of technological development or contributions to the human
civilization, focusing exclusively on national performance and ranking, lack
of attention to development from a global perspective, measurement
error of the underlying statistics, and on the UNDP's changes in formula
which can lead to severe misclassification in the categorization of 'low',
'medium', 'high' or 'very high' human development countries
 India’s rank: 135
 Using Indian Post to further financial inclusion:
 India Post has a network of over 1.5 lakh branches across India, a reach that
far exceeds all the PSBs combined. Of the 1.5 lakh branches, about 1.4 are in
rural areas, compared to the combined 23,000 rural branches of the public
sector banks
 Of the three main building blocks of financial inclusion — cash storage,
disbursing payments, and giving credit — India Post has already shown that it
is quite capable of handling the first two
 In the longer run, for India Post to play a bigger role in the fulfilment of the
government’s social objectives, the following steps can be taken: First, one of
the smaller and healthier PSBs could be merged with Indian Post so that the
latter acquires a banking licence and a trained workforce
 Second, incentives could be offered to the present workforce to sit for the
banking exams
 Third, banking exams could be made a requirement for a percentage of the
new recruits; and, finally, the banking division of the post office could be
brought under the RBI’s regulatory purview
 This move could free public sector banks from being yoked to social sector
objectives and allow them to become competitive and function freely in the
highly cut-throat banking sector
 Taxation in India:
 Union subjects (ICE-ICE-CT: Income, Customs, Excise – Inheritance, Capital
gains, Estates- Corporation, Transportation by air, rail, or sea)

36.  State subjects (LSV-LSV-EMP: Land, Stamp, Vehicles- Luxury (entertainment,
gambling, betting, amusement etc.), Sales, VAT (service tax) – Electricity,
Minerals, Professions)
 Minimum Alternative Tax:
 MAT is a way to make companies pay at least a minimum amount of tax
(18.5%)
 It is applicable to all companies (including foreign companies with income
sources in India) except those engaged in infrastructure and power sectors
 Reasons for MAT: The Indian Income-Tax Act allows a large number of
exemptions from total income. Besides exemptions, there are several
deductions permitted from the gross total income. As a result, a lot of
companies used to show considerable book profits, and distribute large
dividends, but were able to use these exemptions to pay close to zero tax.
These came to be known as ‘zero-tax’ companies. MAT was introduced to
counter this
 Tax incentives practically bring down the corporate tax rate, and the average
effective rate is around 23%, while many large corporates that are investing
heavily find the actual rate falls to much lower levels. This is the reason why
the government levies MAT on the book profits of companies at 18.5%, as the
threshold below which the rate can’t fall
 There are rumors that the present government might scrap MAT. They claim
that the government is looking at gradually weeding out tax exemptions and
concurrently reducing the corporate tax rate, such that MAT will become
redundant
 Summary article here
 General Anti Avoidance Rules (GARR):
 GARR is an anti-tax avoidance rule which prevents tax evaders from routing
investments through tax havens like Mauritius, Luxemburg, Switzerland
 Investors had maintained that the ambiguous language used in the draft of the
GAAR could lead to the misuse of the rule
 People adopt various methods so that they can reduce their total tax liability.
The methods adopted to reduce their tax liability can be broadly put into four
categories: Tax Evasion, Tax avoidance, Tax Mitigation, and Tax Planning. GAAR
provides to curb tax avoidance
 GAAR empowers the Revenue Authorities to deny the tax benefits of
transactions or arrangements which do not have any commercial substance or
consideration other than achieving the tax benefit. GAAR is intended to target
tax evaders, especially Indian companies and investors trying to route
investments through Mauritius or other tax havens in order to avoid taxes.
GAAR provides discretionary powers to revenue authorities to tax

37. impermissible avoidance arrangements. The arrangements as a whole or aim
part may be disregarded and tax benefit denied
 It was first mooted in 2011, but even in Budget 2015, it has been deferred to
2017, given concerns of some investors who claim that the language used in
the rules might be detrimental to profits
 Goods and Services Tax:
 Read:
http://www.thehindu.com/opinion/op-ed/gst-good-for-business-snag-for-
federalism/article7279180.ece
 Originally recommended by the task force of the 13th Finance Commission,
which pegged the uniform tax rate at 12% (answer why this rate)
 Deliberation conducted by the Empowered Committee of State Finance
Ministers (who set up a Joint Working Group; members: Joint Secretaries of
Dept. of Revenue (Union FinMin) and all Finance Secretaries of the States,
Convenors: Advisor to the Union Finance Minister, Member-Secretary of the
Empowered Committee)
 Why the single rate?: Eliminates production inefficiencies, ensures no single
good is taxed disproportionately
 Consumption tax
 Value-Added Tax => (Output tax – Input tax) is paid to the government (tax
paid only on value added). VAT also follows the destination principle; hence,
the GST will not apply for export goods, but will apply to import goods. Also, at
every step of the production process, the producers get tax credits, while the
end consumer gets no tax credit
 Dual system: Will be imposed both by the center and the state, and will
replace all existing indirect taxes such as excise, sales, service taxes
 Benefits:
 Reduction in the number of taxes at the Central and state levels
 Cut in effective tax rate for many goods by removal of the current cascading
effect of taxes
 Reduction of transaction costs for taxpayers through simplified tax compliance
 Increased tax collections due to wider tax base and better compliance
 Unification of India into a single market, eliminating the need for border check
posts to collect taxes on goods produced in one jurisdiction but sold in another
 Good for consumer states
 Controversies:
 Both center and the states want certain high tax-revenue generating goods
(like petroleum, alcohol etc.) removed from the ambit of GST => reduces tax
base
 Some calculations of the revenue-neutral tax rate (post removal of certain
goods) are as high as 27% => incentive for evasion => little improvement in
compliance

38.  In the currently proposed dual structure, the tax might just be reduced to a
renaming of the existing Central Excise Tax and States’ VAT/ sales tax
 Transaction costs: government will need to make e-infrastructure (‘GST
Network’)
 Attention-diversion cost: other reforms sidelined
 Compromises India’s federal structure by not allowing states to set their own
rates => restricts the ability of states to determine the level of spending on
public goods and services locally
 Bad for states that produce a lot but don’t consume much
 Given that this is a Constitutional Amendment Bill, this cannot be passed via a
Joint Sitting
 Read Pangaria’s article
 In view of the impending changes with the introduction of GST, adequate
compensation to ULGs for their loss of income will need to be ensured. The
past experience has not been very good in this regard. Many state
governments, on abolition of octroi (a tax on entry of goods within the city
limits) and in some cases even property tax, had promised compensatory
grants to ULGs with an annual increase to maintain the buoyancy. However,
compensation to local bodies has remained static and is often not released in
time
 GST Council: This will be the decision making body that will bring any changes
required to the GST Act. It will be composed of the Center and all the states,
with the center holding 33% of the voting rights, and the states, 67%. To get
any changes approved in the operation of GST, 75% or more votes will need to
affirm it. That is, the center has a de-facto veto, whereas a minimum of 12
states will need to come together to block any changes that they don’t agree
with
 Black Money:
 Estimates by old CBI chief: $500bn; by Swiss authorities: $2bn
 SIT instituted by Supreme Court in 2011 under MC Joshi (then chief of CBDT)
 Recommends harsher sentences for tax offenders, potentially even making tax
avoidance above Rs. 50 lakh a criminal offense (currently it is a civil offence)
 Key observations/ recommendations:
 Increase punishment under Prevention of Corruption Act and the Income Tax
Act
 Taxation is a highly specialised subject. Based on domain knowledge, set up all-
India judicial service and a National Tax Tribunal
 Like the USA Patriot Act, India should insist on entities operating in India to
report all global financial transactions above a threshold limit

39.  Consider introducing an amnesty scheme with reduced penalties and immunity
from prosecution to the people who bring back black money from abroad
 Device specific regulations to check large scale possession and transportation
of cash, and curb large-scale ‘unreported’ cash dealings
 See the bill under ‘Constitution’ (GS2)
 Important: For recent SIT’s recommendations, see
http://www.insightsonindia.com/2015/05/13/7-a-recently-set-up-special-
investigative-team-sit-on-black-money-has-recommended-several-measures-
to-tackle-the-issue-of-black-money-circulation-in-its-three-separate-reports-
comment-on-the-impor/
 SEBI has come across quite a few cases where GDRs have been used for round-
tripping of funds in the name of capital-raising of listed companies from
abroad
 Undisclosed Foreign Income and Assets (Imposition of Tax) Bill, 2015
 Also known as “black money’ bill
 Provides for separate taxation of any undisclosed foreign income and assets;
such income will now not be taxed under the Income Tax Act
 It will apply to all residents of India
 Tax rate will be a flat 30%
 Proposes very stringent punishments; to the tune of 90% of the value of
undisclosed assets/ income, to three years of rigorous imprisonment
 Liberalized Remittance Scheme:
 The limit for individual remittances abroad has been raised to $250,000 p.a.
 There can be some concern about domestic investors investing more in foreign
equity markets; however, right now Indian stock market is giving high returns,
so might not be a cause for worry
 Micro Units Development and Refinance Agency (MUDRA) Bank:
 Set-up announced by budget 2015
 Initially, this will be a subsidiary of the Small Industries Development Bank
(SIDBI), and will later become and independent, full-fledged bank
 Important thing to note is that MUDRA bank will not be a lending bank, but
will refinance MFIs who are in the business of lending to small entities
 It will also lay down rules and policy guidelines for micro enterprise financing
businesses, registration, accreditation, and starting of MFIs
 This will be a bank to finance the setting up of small and micro-units and
thereby encourage entrepreneurship among SC/STs and OBCs (lending will be
preferentially given to these classes)

40.  It will regulate and refinance all MFIs that lend to micro/ small business
entities engaged in manufacturing, trading, and services activities
 Logic is to bridge the funding gap that affects the ‘middle’ – top corporates are
funded by the banking system, bottom of the ladder is funded by MFIs, but the
middle rung of micro and small enterprises suffers funding problems
 According to government estimates, only 4% of 5.77% crore small business
units have access to institutional finance, leaving many to rely on informal
lender
 The bank will regulate MFIs, and lend to ‘last-mile lenders’ that will provide
financing to the businesses being targeted
 Ajay Shah calls this a ‘bad idea’: `Mudra bank' is an old style socialist initiative,
which is inconsistent with all the other modern elements of financial sector
reforms
 Restructuring Public Sector Banks (The Hindu, May 16):
 PSBs account for over 70% of all troubled assets in India’s banking sector
 3 sets of issues: governance (composition and functioning of the board),
management (selection of the CEO), and operational (resolution of NPAs,
infusion of capital by the government)
 Governance: Bank Boards Bureau (BBB) will be set up, and it will select CEOs,
Directors, and Chairmen. BBB will contain 3 former bankers, 2 eminent
professionals, and the DoFS Secretary. The government must let this BBB
function independently
 Management: It has been decided that the office of the CMD will be split into
two different offices; this might lead to turf wars, and the actual independent
director being under the thumb of the political appointee
 Operations: The PSBs performed quite well after the bank reforms in 1993, till
about 2010. After that, their finances deteriorated for 2 reasons- they got into
infrastructure financing in a big way, and CEOs selections went wrong in many
places. Now, the government must help by adequate capital infusion, rather
than insisting on banks improving their performance before they can access
capital