The document provides information on several important economic concepts in India: 1) The National Skill Certification and Monetary Reward Scheme (STAR) provides monetary incentives to youth who complete skill training programs. 2) The National Skill Development Mission aims to standardize skill development initiatives across various ministries and sectors. 3) Nidhis are mutual benefit societies in India that are notified by the government to promote thrift and savings among members by borrowing from and lending to members.

1. Important Economic Concepts-Part-II
Source: Arthapedia.in

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National Skill Certification and Monetary Reward Scheme (STAR)
The National Skill Certification and Monetary Reward Scheme, that is branded as STAR (Standard Training
Assessment and Reward) for promotional purposes, is a scheme launched by the Government in 2013 to
motivate the youth of India to acquire a vocational skills and envisages a monetary reward that will in essence
financially help those who wish to acquire a new skill or upgrade their skills to a higher level.
Salient Features of the Scheme
All trainings will be specifically oriented for developing skills in specific growth sectors. The Scheme will
provide monetary incentives [in the range of Rs. 7500 to Rs. 15,000 each trainee depending on the nature and
duration of training] on successful completion of market-driven skill training to approximately ten lakh( 1
million) youth in a span of one year from the date of implementation of the Scheme.
The entire fund [of Rs. 1000 crore] will be shouldered by the Ministry of Finance, Government of India, and
will be affected through direct bank transfer to the beneficiaries’ accounts linked through AADHAR.
Appropriate consideration will be provided to the economically backward sections.
The monetary reward is strictly dependent on obtaining a certificate that will be issued by qualified assessors
after necessary tests have been passed. The skills are also benchmarked to National Occupational Standards that
have been developed by NSDC with the support of the Sector Skill Councils.
Implementation
The Scheme will be implemented through a Public Public Partnership mode. National Skill Development
Corporation (NSDC), a PPP institution, will be the implementing agency for this Scheme. National Skill
Development Fund (NSDF) -a 100% government-owned trust, which work in sync to fulfill the NSDC’s
strategic objectives- will do the oversight and monitor the implementation of the Scheme.
Ministry of Rural Development is contemplating to utilise this platform to skill at least one youth from each
family which had availed of 100 day employment under the under the rural job guarantee scheme - MGNREGA
National Skill Development Mission
The National Skill Development Mission was announced in the Budget Speech of 2015-16 and it aims to
consolidate the skilling initiatives spread across several Ministries and to standardize procedures and outcomes
across 31 Sector Skill Councils. For instance, currently, over 70-odd Skill Development Programmes (SDPs)
are being implemented by Government of India, each with its own norms for eligibility criteria, duration of
training, cost of training, outcomes, monitoring and tracking mechanism etc.
The Mission provides a strong institutional framework at the Centre and States for implementation of skilling
activities in the country.
Generally a "mission mode" project implies a project that has clearly defined objectives, scopes,
implementation timelines and milestones, as well as measurable outcomes and service levels.
Policy framework behind National Skill Development Mission
Recognizing the imperative need for skill development, National Skill Development Policy was first formulated
in 2009. The existing policy was reviewed in 2014-15 to take account of its progress in implementation and
emerging trends in the national and international environment. The new policy- National Skill Development and
Entrepreneurship policy of 2015 supersedes the policy of 2009 and would form the backbone of National Skill
Development Mission.

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The objective of this policy is to meet the challenge of skilling at scale (skilling large number of persons at the
same time) with speed, standard (quality) and sustainability. It aims to provide an umbrella framework to all
skilling activities being carried out within the country, to align them to common standards and link skilling with
demand centres. In addition to laying down the objectives and expected outcomes, the policy also identifies the
various institutional frameworks for reaching the expected outcomes.
Approach adopted in the policy: As per the Policy, Skills development is considered as the shared
responsibility of government, employers and individual workers, with NGOs, community based organizations,
private training organizations and other stakeholders playing a critical role.
The policy links skills development to improved employability and productivity to pave the way forward for
inclusive growth in the country. The skill strategy is complemented by specific efforts to promote
entrepreneurship to create enough opportunities for skilled workforce.
“Skill India programmes” goes alongside the “Make in India” campaign – i.e, enhancing the supply of skilled
labourers to encourage producers to undertake their manufacturing initiatives in India.
The new Policy has four thrust areas:
 It addresses key obstacles to skilling, including low aspirational value, lack of integration with
formal education, lack of focus on outcomes, low quality of training infrastructure and trainers, etc.
 Further, the Policy seeks to align supply and demand for skills by bridging existing skill gaps,
promoting industry engagement, operationalising a quality assurance framework, leverage technology and
promoting greater opportunities for apprenticeship training.
 Equity is also a focus of the Policy, which targets skilling opportunities for socially/geographically
marginalised and disadvantaged groups. Skill development and entrepreneurship programmes for women are a
specific focus of the Policy.
 In the entrepreneurship domain, the Policy seeks to educate and equip potential entrepreneurs,
both within and outside the formal education system. It also seeks to connect entrepreneurs to mentors,
incubators and credit markets, foster innovation and entrepreneurial culture, improve ease of doing business and
promote a focus on social entrepreneurship.
Organisational Structure of National Skill Development Mission
As per the Cabinet decision on 2 July 2015, the National Skill Development Mission has a three-tiered, high
powered decision making structure.
 Governing Council: At its apex, the Mission’s Governing Council, chaired by the Prime Minister,
will provide overall guidance and policy direction.
 Steering Committee: The Steering Committee, chaired by Minister in Charge of Skill
Development, will review the Mission’s activities in line with the direction set by the Governing Council.
 Mission Directorate: The Mission Directorate, with Secretary, Skill Development as Mission
Director, will ensure implementation, coordination and convergence of skilling activities across Central
Ministries/Departments and State Governments.
National Action Plan on Climate Change (NAPCC)
The Action Plan was released on 30th June 2008. It effectively pulls together a number of the government’s
existing national plans on water, renewable energy, energy efficiency agriculture and others – bundled with
additional ones – into a set of eight missions. The Prime Minister’s Council on Climate Change is in charge of
the overall implementation of the plan. The plan document elaborates on a unique approach to reduce the stress

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of climate change and uses the poverty-growth linkage to make its point. Emphasizing the overriding priority of
maintaining high economic growth rates to raise living standards, the plan “identifies measures that promote
development objectives while also yielding co-benefits for addressing climate change effectively.” It says these
national measures would be more successful with assistance from developed countries, and pledges that India’s
per capita greenhouse gas emissions “will at no point exceed that of developed countries even as we pursue our
development objectives.”
Plan in a Nutshell
The guiding principles of the plan are:
 Inclusive and sustainable development strategy to protect the poor
 Qualitative change in the method through which the national growth objectives will be achieved i.e. by
enhancing ecological sustainability leading to further mitigation
 Cost effective strategies for end use demand side management
 Deployment of appropriate technologies for extensive and accelerated adaptation, and mitigation of
green house gases
 Innovative market, regulatory and voluntary mechanisms to promote Sustainable Development
 Implementation through linkages with civil society, local governments and public-private partnerships
 International cooperation, transfer of technology and funding
National Missions
The core of the implementation of the Action plan are constituted by the following eight missions, that will be
responsible for achieving the broad goals of adaptation and mitigation, as applicable.
 National Solar Mission: The NAPCC aims to promote the development and use of solar energy for
power generation and other uses with the ultimate objective of making solar competitive with fossil-based
energy options. The plan includes: Specific goals for increasing use of solar thermal technologies in urban
areas, industry, and commercial establishments; a goal of increasing production of photo-voltaic to 1000
MW/year; and a goal of deploying at least 1000 MW of solar thermal power generation. Other objectives
include the establishment of a solar research centre, increased international collaboration on technology
development, strengthening of domestic manufacturing capacity, and increased government funding and
international support.
 National Mission for Enhanced Energy Efficiency: Current initiatives are expected to yield savings
of 10,000 MW by 2012. Building on the Energy Conservation Act 2001, the plan recommends: Mandating
specific energy consumption decreases in large energy-consuming industries, with a system for companies to
trade energy-savings certificates; Energy incentives, including reduced taxes on energy-efficient appliances; and
Financing for public-private partnerships to reduce energy consumption through demand-side management
programs in the municipal, buildings and agricultural sectors.
 National Mission on Sustainable Habitat: To promote energy efficiency as a core component of
urban planning, the plan calls for: Extending the existing Energy Conservation Building Code; A greater

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emphasis on urban waste management and recycling, including power production from waste; Strengthening the
enforcement of automotive fuel economy standards and using pricing measures to encourage the purchase of
efficient vehicles; and Incentives for the use of public transportation.
 National Water Mission: With water scarcity projected to worsen as a result of climate change, the
plan sets a goal of a 20% improvement in water use efficiency through pricing and other measures.
 National Mission for Sustaining the Himalayan Ecosystem: The plan aims to conserve biodiversity,
forest cover, and other ecological values in the Himalayan region, where glaciers that are a major source of
India’s water supply are projected to recede as a result of global warming.
 National Mission for a “Green India”: Goals include the afforestation of 6 million hectares of
degraded forest lands and expanding forest cover from 23% to 33% of India’s territory.
 National Mission for Sustainable Agriculture: The plan aims to support climate adaptation in
agriculture through the development of climate-resilient crops, expansion of weather insurance mechanisms,
and agricultural practices.
 National Mission on Strategic Knowledge for Climate Change: To gain a better understanding of
climate science, impacts and challenges, the plan envisions a new Climate Science Research Fund, improved
climate modeling, and increased international collaboration. It also encourages private sector initiatives to
develop adaptation and mitigation technologies through venture capital funds.
The NAPCC also describes other ongoing initiatives, including:
 Power Generation: The government is mandating the retirement of inefficient coal-fired power
plants and supporting the research and development of IGCC and supercritical technologies.
 Renewable Energy: Under the Electricity Act 2003 and the National Tariff Policy 2006, the central
and the state electricity regulatory commissions must purchase a certain percentage of grid-based power from
renewable sources.
 Energy Efficiency: Under the Energy Conservation Act 2001, large energy consuming industries are
required to undertake energy audits and an energy labeling program for appliances has been introduced.
Implementation
Ministries with lead responsibility for each of the missions are directed to develop objectives, implementation
strategies, timelines, and monitoring and evaluation criteria, to be submitted to the Prime Minister’s Council on
Climate Change. The Council will also be responsible for periodically reviewing and reporting on each
mission’s progress. To be able to quantify progress, appropriate indicators and methodologies will be developed
to assess both avoided emissions and adaptation benefits.
National Food Processing Mission
India cannot afford any waste of food grains, milk, poultry, fish, fruits and vegetables due to lack of adequate
processing facilities. Ministry of Food Processing Industries has launched a new scheme called National
Mission on Food Processing (NMFP) during 12th Plan (2012-13) for implementation through States / UTs. The
basic objective of NMFP is to promote the growth of food processing industries in the country, by creating a
National Mission at the Centre and State Missions in the various States/UTS. Better planning, supervision and
monitoring of various schemes is expected through this decentralised approach. Food procesors in the private

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sector and co-operative sector will be encouraged and incentivised to increase capital outlay, use new
technology , upgrade skills etc. Self help groups will be encouraged to become viable commercial entities. The
other objectives are to raise the standards of food safety and hygiene to the globally accepted norms; to facilitate
food processing industries to adopt HACCP and ISO certification norms; to augment farm gate infrastructure,
supply chain logistic, storage and processing capacity and to provide better support system to organized food
processing sector. State food processing missions have been created to implement the schemes.
National Food Security Mission (NFSM)
The National Food Security Mission (NFSM) was launched in 2007-08 with a view to enhancing the production
of rice, wheat, and pulses by 10 million tonnes, 8 million tonnes, and 2 million tonnes respectively by the end of
the Eleventh Plan (viz. March 2012). The Mission aims to increase production through area expansion and
productivity; create employment opportunities; and enhance the farm-level economy (i.e. farm profits) to
restore confidence of farmers. The approach is to bridge the yield gap in respect of these three crops through
dissemination of improved technologies and farm management practices while focusing on districts which have
high potential but relatively low level of productivity at present.
The NFSM has three components (i) National Food Security Mission - Rice (NFSM-Rice); (ii) National Food
Security Mission - Wheat (NFSM-Wheat); and National Food Security Mission - Pulses (NFSM Pulses).
To achieve the envisaged objectives, the Mission is mandated to adopt following strategies:
 Speedy implementation of programmes through active engagement of all the stakeholders at various
levels.
 Promotion and extension of improved technologies i.e., seed, Integrated Nutrient Management including
micronutrients (like iron, cobalt, copper etc), soil amendments, Integrated Pest Management (IPM) and
resource conservation technologies along with capacity building of farmers.
 Flow of fund would be closely monitored to ensure that interventions reach the target beneficiaries on
time.
 The proposed interventions would be integrated with the targets fixed for each identified district in the
existing District Plan (formulated as a part of national Five Year Plans).
 Constant monitoring and concurrent evaluation for assessing the impact of the interventions for a result
oriented approach by the implementing agencies.
The NFSM is presently being implemented in 476 identified districts of 17 States of the country. 20 million
hectares of rice, 13 million hectares of wheat and 4.5 million hectares of pulses are included in these districts
that roughly constitute 50% of cropped area for wheat and rice. For pulses, an additional 20% cropped area
would be created. Total financial implications for the NFSM will be Rs.48824.8 million during the XI Plan
(2007-08 – 2011-12). Beneficiary farmers will contribute 50% of cost of the activities / work to be taken up at
their / individual farm holdings.
National Small Savings Fund
Small Saving schemes have been always an important source of household savings in India. Small savings
instruments can be classified under three heads. These are: (i) postal deposits [comprising savings account,
recurring deposits, time deposits of varying maturities and monthly income scheme(MIS)]; (ii) savings
certificates [(National Small Savings Certificate VIII (NSC) and Kisan Vikas Patra (KVP)]; and (iii) social
security schemes [(public provident fund (PPF) and Senior Citizens‘ Savings Scheme(SCSS)].

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A “National Small Savings Fund” (NSSF) in the Public Account of India has been established with effect from
1.4.1999. A new sub sector has been introduced called “National Small Savings Fund” in the list of Major and
Minor Heads of Government Accounts. All small savings collections are credited to this Fund. Similarly, all
withdrawals under small savings schemes by the depositors are made out of the accumulations in this Fund. The
balance in the Fund is invested in Central and State Government Securities. The investment pattern is as per
norms decided from time to time by the Government of India.
The Fund is administered by the Government of India, Ministry of Finance (Department of Economic Affairs)
under National Small Savings Fund (Custody and Investment) Rules, 2001, framed by the President under
Article 283(1) of the Constitution. The objective of NSSF is to de-link small savings transactions from the
Consolidated Fund of India and ensure their operation in a transparent and self-sustaining manner. Since NSSF
operates in the public account, its transactions do not impact the fiscal deficit of the Centre directly. As an
instrument in the public account, the balances under NSSF are direct liabilities and constitute a part of the
outstanding liabilities of the Centre. The NSSF flows affect the cash position of the Central Government.
Nidhi(Mutual Benefit Society)
Nidhi in the Indian context / language means “treasure”. However, in the Indian financial sector it refers to
any mutual benefit society notified by the Central / Union Government as a Nidhi Company. They are created
mainly for cultivating the habit of thrift and savings amongst its members.
The companies doing Nidhi business, viz. borrowing from members and lending to members only, are known
under different names such as Nidhi, Permanent Fund, Benefit Funds, Mutual Benefit Funds and Mutual Benefit
Company.
Nidhis are more popular in South India and are highly localized single office institutions.They are mutual
benefit societies, because their dealings are restricted only to the members; and membership is limited to
individuals. The principal source of funds is the contribution from the members. The loans are given to the
members at relatively reasonable rates for purposes such as house construction or repairs and are generally
secured. The deposits mobilized by Nidhis are not much when compared to the organized banking sector.
Regulatory framework
Nidhi’s are companies registered under section 620A of the Companies Act, 1956(Section 406 of the
new Companies Bill 2012, as passed by Lok Sabha) and is regulated by Ministry of Corporate
Affairs (MCA).Even though Nidhis are regulated by the provisions of the Companies Act, 1956, they are
exempted from certain provisions of the Act, as applicable to other companies, due to limiting their operations
within members. The detailed rules of operation for Nidhi companies have been put in place with effect from 1
April 2014 vide notification dated 31 March 2014.
Nidhis are also included in the definition of Non- Banking Financial companies or (NBFCs) which operate
mainly in the unorganized money market. However, since 1997, NBFCs have been brought increasingly under
the regulatory ambit of the Indian Central Bank, RBI. Non-banking financial entities partially or wholly
regulated by the RBI include:
 NBFCs comprising equipment leasing (EL), hire purchase finance (HP), loan (LC), investment (1C)
(including primary dealers (PDs)) and residuary non-banking (RNBC) companies;
 mutual benefit financial company (MBFC), i.e. nidhi company;
 mutual benefit company (MBC), i.e. potential nidhi company; i.e., A company which is working on the
lines of a Nidhi company but has not yet been so declared by the Central Government; has minimum net
owned fund(NOF) of Rs.10 lakh, has applied to the RBI for certificate of registration and also to

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Department of Company Affairs (DCA) for being notified as Nidhi company and has not contravened
directions/ regulations of RBI/DCA.
 miscellaneous non-banking company (MNBC), i.e. chit fund company.
Since Nidhis come under one class of NBFCs, RBI is empowered to issue directions to them in matters relating
to their deposit acceptance activities. However, in recognition of the fact that these Nidhis deal with their
shareholder-members only,RBI has exempted the notified Nidhis from the core provisions of the RBI Act and
other directions applicable to NBFCs. As on date (February 2013) RBI does not have any specified regulatory
framework for Nidhis.
“Nidhi is a company formed with the exclusive object of cultivating the habit of thrift, savings and functioning
for the mutual benefit of members by receiving deposits only from individuals enrolled as members and by
lending only to individuals, also enrolled as members, and which functions as per Notification and Guidelines
prescribed by the DCA. The word Nidhi shall not form part of the name of any company, firm or individual
engaged in borrowing and lending money without incorporation by DCA and such contravention will attract
penal action.”
Non-Resident Indian Deposits (NRI Deposits)
Foreign Exchange Management (Deposit) Regulations, 2000 permits Non-Resident Indians (NRIs) to have
deposit accounts with authorized dealers and with banks authorized by the Reserve Bank of India (RBI). These
accounts include:
1. Foreign Currency Non-Resident (Bank) account (FCNR(B) account)
2. Non-Resident External account (NRE account)
3. Non-Resident Ordinary Rupee account (NRO account)
FCNR(B) accounts can be opened by NRIs and Overseas Corporate Bodies (OCBs) with an authorized dealer.
The accounts can be opened in the form of term deposits. Deposits of funds are allowed in Pound Sterling, US
Dollar, Japanese Yen and Euro. Rate of interest applicable to these accounts are in accordance with the
directives issued by RBI from time to time.
NRE accounts can be opened by NRIs and OCBs with authorized dealers and with banks authorized by RBI.
These can be in the form of savings, current, recurring or fixed deposit accounts. Deposits are allowed in any
permitted currency. Rate of interest applicable to these accounts are in accordance with the directives issued by
RBI from time to time.
NRO accounts can be opened by any person resident outside India with an authorized dealer or an authorized
bank for collecting their funds from local bonafide transactions in Indian Rupees. When a resident becomes an
NRI, his existing Rupee accounts are designated as NRO. These accounts can be in the form of current, savings,
recurring or fixed deposit accounts.
There were two more NRI deposit accounts in operation, viz. Non-Resident (Non-Repatriable) Rupee Deposit
Account and Non-Resident (Special) Rupee Account. An amendment to Foreign Exchange Management
(Deposit) Regulations, in 2002, discontinued the acceptance of deposits in these two accounts from 1st April
2002 onwards.
Repatriation of funds in FCNR(B) and NRE accounts is permitted. Hence, deposits in these accounts are
included in India’s external debt outstanding. While the principal of NRO deposits is non-repatriable, current
income and interest earning is repatriable. Account-holders of NRO accounts are permitted to annually remit an
amount up to US$ 1 million out of the balances held in their accounts. Therefore, deposits in NRO accounts too
are included in India’s external debt.

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NORKA
A large number of Indians work abroad and remit much of their earnings back into the country to take care of
their families or to acquire assets. Kerala is a state where non residents contribute significantly to the state’s
resources. Keeping this important revenue channel in mind, the Government of Kerala launched the department
of Non-resident Keralites' Affairs (NORKA) in 1996 to redress the grievances of Non-resident Keralites.
NORKA is the first of its kind formed in an Indian state.
NORKA makes efforts to solve the grievances raised in petitions for remedial action on threats to the lives and
property of those who are left at home, tracing of missing persons abroad, compensation from sponsors,
harassment from sponsors, cheating by recruiting agents, educational facilities for children of NRKs,
introduction of more flights, etc. It provides assistance to stranded Keralites through follow up action initiated
on all the petitions.
NORKA has established NORKA Roots that acts as an interface between the Non-Resident Keralites and the
Government of Kerala. Some important objectives are creation of a heritage village for parents of non residents,
cultural exchange programmes, promotion of Malayalam language, employment mapping, maintaining a data
base etc.
Out of pocket expenditure
Households, in general, avail healthcare services from public as well as private health care facilities, depending
on their accessibility and affordability to these facilities. In Public Health Institutions, Government incurs
expenditure for providing healthcare infrastructure as well as payment of salaries for medical staff, while in
private sector hospitals, the service providers charge directly from households for their services. Although the
services provided by Public Health Institutions, particularly Primary Health Centres / Government hospitals are
accessible to the public, mostly free of cost, in practice, there are various instances, where households have to
pay ‘out of pocket expenditure’. The expenses that the patient or the family pays directly to the health care
provider, without a third-party (insurer, or State) is known as ‘Out of Pocket Expenditure’ (OOP). These
expenses could be medical as well as non-medical expenditure. Out of Pocket Medical expenditure could be
payments towards doctor’s fees, medicine, diagnostics, operations, charges for blood, ambulance services etc,
while non-medical expenditure include money spent towards travelling expenses, lodging charges of escort,
attendant charges, etc.
Out-of-pocket expenditure (OOP) on healthcare forms a major barrier to health seeking behaviour. The poor
sections do not have any form of financial protection and are forced to make OOP payments when they fall sick.
Often, these households have to resort to borrowings or sell assets to meet this expenditure. In literature,
Catastrophic Out of Pocket Expenditure is defined as that level of out of pocket expenditure which exceeds
some fixed proportion of household income or household’s capacity to pay. As per National Health Accounts
(NHA) of India (2004-05), 71.13% of Total Health Expenditure in India is considered to be ‘Out of Pocket
Expenditure’ by the individuals / households. NHA takes into account only ‘out of pocket’ towards medical
expenditure.
Participatory Notes (PNs)
A Participatory Note (PN or P-Note) in the Indian context, in essence, is a derivative instrument issued in
foreign jurisdictions, by a SEBI registered Foreign Institutional Investor (FII) or its sub-accounts or one of its
associates, against underlying Indian securities. The underlying Indian security instrument may be equity, debt,
derivatives or may even be an index. Further, a basket of securities from different jurisdictions can also be
constructed in which a portion of the underlying securities is Indian securities or indices.
PNs are also known as Overseas Derivative Instruments, Equity Linked Notes, Capped Return Notes, and
Participating Return Notes etc. In January 2014 when the Indian securities market regulator,SEBI issued the

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new Regulations for Foreign Portfolio Investors, participatory notes got formally defined under the tag
"Offshore Derivative Instrument" (ODIs) in Section 2(1)(j) of the said regulation. As per this definition,
participatory notes or ODIs are issued by selected foreign portfolio investors (which is a broad category also
including FIIs. Hence, Regulation excludes certain category of Foreign portfolio investors, like individuals,
from issuing the PNs) against securities held by it that are listed or proposed to be listed on any recognized
stock exchange in India.
The investor in PN does not own the underlying Indian security, which is held by the FII who issues the PN.
Thus the investors in PNs derive the economic benefits of investing in the security without actually holding it.
They benefit from fluctuations in the price of the underlying security since the value of the PN is linked with the
value of the underlying Indian security. The PN holder also does not enjoy any voting rights in relation to
security/shares referenced by the PN.
Regulation of PNs
PNs are market instruments that are created and traded overseas. Hence, Indian regulators cannot ban the issue
of PNs. However, they can only be regulated, and they are indeed being regulated by the securities market
regulator in India, SEBI. When a PN is traded on an overseas exchange, the regulator in that jurisdiction would
be the authority to regulate that trade.
Participatory Notes have been used by FIIs since FIIs were permitted to invest in the Securities Market. They
were not specifically dealt with under the regulations until 2003. According to Regulation 15(A) of
the Securities and Exchange Board of India (SEBI) Regulations, 1995, which was inserted later in 2004 and
further amended in 2008 with the objective of tightening regulations in this regard, PNs can be issued only to
those entities which are regulated by the relevant regulatory authority in the countries of their incorporation and
are subject to compliance of "Know Your Client" norms. Down-stream issuance or transfer of the instruments
can also be made only to a regulated entity. Further, the FIIs who issue PNs against underlying Indian securities
are required to report the issued and outstanding PNs to SEBI in a prescribed format.
In addition, SEBI can call for any information from FIIs under Regulation 20(A) of the SEBI (FII) Regulations
concerning off-shore derivative instruments issued by it, as and when and in such form as SEBI may require.
In order to monitor the investment through these instruments, SEBI, vide circular dated October 31, 2001,
advised FIIs to submit information regarding issuance of derivative instruments by them, on a monthly basis.
These reports require the communication of details such as name and constitution of the subscribers to PNs,
their location, nature of Indian underlying securities etc.
FIIs cannot issue PNs to non-resident Indians (NRIs) and those issuing PNs are required to give an undertaking
to the effect.
SEBI has also mandated that Qualified Foreign Investors shall not issue PNs.
SEBI in consultation with the Government had decided in October 2007, to place certain restrictions on the
issue of Participatory Notes (PNs) by FIIs and their sub-accounts. This decision was taken with a view to
moderate the surge in foreign capital inflows into the country and to address the know-your-client concerns for
the PN holders. However, it was found that such restrictions were ineffective. Therefore, SEBI in October 2008
reviewed its earlier decision and decided to remove these restrictions in the light of the above factors. Rather
more attention is given to effective disclosures.
Poverty, Poverty Line, Below and Above poverty line (APL, BPL)
In India, Planning Commission estimates the number and proportion of people living below the poverty line at
national and State levels, separately for rural and urban areas. It makes poverty estimates based on a large
sample survey of household consumption expenditure carried out by the National Sample Survey Organization

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(NSSO) after an interval of approximately five years. The Commission has been estimating the poverty line and
poverty ratio since 1997 on the basis of the methodology spelt out in the report of the Expert Group on
'Estimation of Number and Proportion of Poor' (popularly known as Lakdawala Committee Report).
Poverty is a social as well as a multidimensional phenomenon. According to the World Bank, “poverty is
pronounced deprivation in wellbeing.” Amartya Sen in his capability approach perhaps gave the broadest
meaning to well-being. According to him well-being comes from a capability to function in society. Poverty
arises when people lack key capabilities due to inadequate income or education, or poor health, or insecurity, or
low self-confidence, or a sense of powerlessness, or the absence of rights such as freedom of speech.
The Human Development Report (2010) pioneered the Multidimensional Poverty Index (MPI) which is
grounded in the capability approach and an innovative effort to complement the income based poverty indices.
It includes an array of dimensions from participatory exercises among poor communities and an emerging
international consensus. The MPI shows the share of population that is multidimensionally poor adjusted by the
intensity of deprivation in terms of living standards, health and education.
Pradhan Mantri Jan-Dhan Yojna (PMJDY)
Pradhan Mantri Jan-Dhan Yojna (PMJDY) is a programme for financial inclusion to cover all unbanked
households in India, whether in urban or rural area, and aims at providing affordable financial services like
savings & deposit accounts, banking services, remittance, credit, insurance, pension etc. Financial
inclusion broadly means the delivery of financial services at affordable costs to sections of disadvantaged and
low-income groups. The Scheme was announced by the Prime Minister- Shri Narendra Modi - in his
independence day speech on 15 August, 2014 and was launched by him on 28 August 2014. (In Hindi, Pradhan
Mantri stands for Prime Minister, Jan for people, Dhan means money /wealth and yojna means plan or scheme)
The mission mode objective of the PMJDY consists of 6 pillars. During the 1st year of implementation
under Phase I (15 August, 2014- 14 August, 2015), three Pillars namely
1. universal access to banking facilities
2. financial literacy Programme and
3. endowing basic banking accounts after satisfactory operation for six months, with
 an overdraft facility of Rs. 5000 at a rate of interest of 12% per annum,
 RuPay Debit card with inbuilt accident insurance cover of Rs 1 lakh and
 issuance of Kisan Credit Card (KCC) as RuPay Kisan Card, will be implemented.
To get benefit of Accidental Insurance Cover of Rs. 1 lakh, RuPay Debit Card must be used at least once in 45
days and this is available to beneficiaries in the age group of 18-70. Electronic Transfer of subsidies (direct
benefit transfer) under various schemes of Government would also be enabled.
Phase II of PMJDY, beginning from 15 August 2015 upto 15 August, 2018 will address
1. creation of Credit Guarantee Fund for coverage of defaults in overdraft A/Cs
2. micro insurance and
3. Unorganized sector Pension schemes like Swavlamban. In addition, in this phase coverage of
households in hilly, tribal and difficult areas would be carried out. This is the phase where the hitherto
uncovered areas comes in. Moreover, this phase would focus on coverage of remaining adults in the households
and students.
Life insurance cover of Rs.30000/- will be available to all account-holders (with Rupay Card) in the age group

12. RAJESH NAYAK
of 18-59 who are the breadwinners of the family and are opening a bank account for the first time, except
Government servants (both retired and serving) and their family members, income tax payees, and beneficiaries
of Aam Admi Bima Yojana (another life insurance scheme).
Overdraft facility upto Rs.5000/- will be available to only one person in the family (preferably lady of the
house).
In case people are already holding bank accounts, they need not open another bank account to avail of benefits
under PMJDY. However, accident cover benefits are available through the RuPay Card. Hence, the existing
account holders need to submit an application to the concerned branch to enable them to get a RuPay Debit
Card in order to avail of the benefits of insurance / accident covers under PMJDY. Micro credit limit of Rs.
5000/- as overdraft, can also be extended in existing bank accounts on application, depending on the satisfactory
conduct of the account.
For the implementation of the Scheme, RBI has enabled creation of small accounts, whereby people who do not
have officially valid documents or Aadhaar Numbers can still get bank accounts opened by submitting 2 copies
of signed photographs at the bank branch. However, these accounts will be called small accounts and shall
normally be valid for 12 months and shall be continued subject to showing of proof that he/she has applied for
any of the officially valid document within 12 months of opening of such ‘Small Account’’. These accounts
have certain limitations such as balance at any point of time should not exceed Rs. 50,000/-, total credit in one
year should not exceed Rs. 1 lakh and total withdrawal should not exceed Rs. 10,000/- in a month.
PMJDY also aims at providing Mobile Banking, offering basic banking facilities like money transfer, bill
payments, balance enquiries, merchant payments etc. on a simple GSM based mobile phone, without the need to
download application on a phone as required at present in the Immediate Payment Service (IMPS) based Mobile
Banking. Transactions can be performed on basic phone handsets. Charges, as applicable by the Telecom
Operator (not more than Rs.1.50 per transaction as mandated by TRAI) may be applicable.
PMJDY is a scheme that brings together all other previous initiatives in this regard - like Kisan credit card,
Business correspondent model of expanding financial access, micro insurance, micro pension (Swavlamban)
etc. - with a wider scope and targeting both rural as well as urban households.
Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY)
Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) is an insurance scheme for the age group of 18-50
covering both natural and accidental death risk of Rs. 2 lakh for a premium of Rs. 330 per year (less than Rs.
1/day). i.e. it will cover all the savings account holders of the age group 18-50 for death due to any cause.
This scheme is offered through LIC of India or other Life Insurance companies that are willing to offer life
insurance on similar terms.
The scheme was launched in simultaneous functions held at 115 venues across the country on 9 May 2015. This
is different from the Pradhan Mantri Suraksha Bima Yojna (PMSBY) scheme launched on the same day
covering all the savings account holders of the age group 18 to 70 for accidental disability or death of Rs.2 Lakh
for a premium of just Rs. 12 per year (i.e. Rs 1/month as premium).
Pradhan Mantri Suraksha Bima Yojna (PMSBY)
Pradhan Mantri Suraksha Bima Yojna (PMSBY) is an insurance scheme covering accidental death risk of
Rs.2 Lakh for a premium of just Rs. 12 per year (i.e. Rs 1/month as premium). It will cover all the savings
account holders of the age group 18 to 70 for accidental disability or death.
Under PMSBY, the risk coverage will be Rs. 2 lakh for accidental death and full disability and Rs. 1 lakh for
partial disability.

13. RAJESH NAYAK
Public sector general insurance companies or other general insurance companies that are willing to offer
insurance coverage to individuals on similar terms would offer and administer this scheme. The scheme is
delivered through banks including regional rural banks as well as cooperative banks.
The scheme was launched in simultaneous functions held at 115 venues across the country on 9 May 2015. This
Scheme is different from the Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY)launched on the same
day, which cover both natural and accidental death risk of Rs. 2 lakh for a premium of Rs. 330 per year for the
age group of 18-50 (less than Rs. 1/day).
Price Stabilisation Fund (PSF)
Price Stabilisation Fund (PSF) refers to any fund constituted for the purpose of containing extreme volatility in
prices of selected commodities. The amount in the fund is generally utilised for activities aimed at bringing
down/up the high/low prices say for instance, procurement of such products and distribution of the same as and
when required, so that prices remain in a range.
Many countries use such dedicated funds for stabilisation of major petroleum product prices, particularly if they
are importers. Some countries use such funds for stabilising not just commodity prices but a variety of key
macroeconomic variables such as the exchange rate (which is nothing but the price of the domestic currency
expressed in terms of an external currency), benchmark stock indices etc. The operational details of such funds
vary from country to country.
India first created a price stabilisation fund for some export oriented plantation crops in 2003, and this ceased to
exist in 2013. Another fund was created in 2015 for perishable agricultural and horticultural commodities, but
initially limited to support potato and onion prices only.
PSF mechanism is apart from the Minimum Support Price (MSP) based initiatives already existing in the
country for certain agricultural goods. The MSP system has some price tempering properties, but it is from the
perspective of the growers / farmers and becomes operative when prices fall below the cost of production. The
output thus procured by the Government at MSP is later distributed at affordable rates through the public
distribution system.
Another parallel to PSF are the Consumer Federations (known commonly as Consumerfeds) which undertake
distribution of consumer goods at reasonable and affordable rates. They undertake bulk procurement of
consumer goods, essential goods, medicines etc. (including their imports if required), and supply to affiliated
and/or other Co-operatives Societies and arrange for proper storage, packing, grading and transport of such
goods. While tempering the prices of such goods, these entities save the public from the exploitation by retail /
middleman and continually operate throughout the year irrespective of the movement in the market prices of
these goods. Some consumerfeds establish and run manufacturing and processing units for production of
consumer goods in collaboration with other entities or directly by itself.
In contrast to MSP and consumer fed operations, a PSF is generally conceived to be operative in both directions
of price movement, subject to prices crossing some threshold level.
Price stabilisation Fund announced in 2015
A Price Stabilization Fund of Rs. 500 Crore for agricultural commodities was announced in the Union Budget
2014-15 with a view to mitigate volatility in the prices of agricultural produce.
Accordingly, the Government of India, on 27 March 2015, approved the creation of a Price Stabilization Fund
(PSF) with a corpus of Rs.500 crores as a Central Sector Scheme, to support market interventions for price
control of perishable agri-horticultural commodities during 2014-15 to 2016-17. Initially the fund is proposed to
be used for market interventions for onion and potato only.

14. RAJESH NAYAK
Procurement of these commodities will be undertaken directly from farmers or farmers’ organizations at farm
gate/mandi and made available at a more reasonable price to the consumers. Losses incurred, if any, in the
operations will be shared between the Centre and the States. Hence, the PSF Scheme of 2015 is focused more at
consumers.
PSF Scheme provides for advancing interest free loan to State Governments/Union Territories (UTs) and
Central agencies to support their working capital and other expenses they might incur on procurement and
distribution interventions for such commodities. Hence, the actual utilisation of the fund depends on the
willingness of the state governments / union territories to avail of such loans for these purposes. Further, the
actual detection of the period when support is required and the deployment of price support measures are left to
the states.
For this purpose, the States will have to set up a ‘revolving fund’ (a fund which is constantly replenished and
not limited by the fiscal year considerations) to which Centre and State will contribute equally (50:50). The
ratio of Centre-State contribution to the State level corpus in respect of North-East States will, however, be
75:25. Central Agencies will set up their revolving fund entirely with the advance from the Centre.
The Price Stabilization Fund will be managed centrally by a Price Stabilization Fund Management Committee
(PSFMC) which will approve all proposals from State Governments and Central Agencies. The PSF will be
maintained as a Central Corpus Fund by Small Farmers Agribusiness Consortium (SFAC), a society promoted
by Ministry of Agriculture for linking agriculture to private businesses and investments and technology. SFAC
will act as Fund Manager. Funds from this Central Corpus will be released in two streams, one to the State
Governments/UTs as a onetime advance to each State/UT based on its first proposal and the other to the Central
Agencies. The Central Corpus Fund has already been established by SFAC in 2014-15.
The one time advance to the States/UTs based on their first proposal along with matching funds from the
State/UT will form a State/UT level revolving fund, which can then be used by them for all future market
interventions to control prices of onions and potatoes based on approvals by State Level Committee set up
explicitly for this purpose.
Public Debt
Article 292 of the Indian Constitution states that the Government of India can borrow amounts specified by the
Parliament from time to time. Article 293 of the Indian Constitution mandates that the State Governments in
India can borrow only from internal sources. Thus the Government of India incurs both external and internal
debt, while State Governments incur only internal debt.
As per the recommendations of the 12th Finance Commission, access to external financing by the States for
various projects is facilitated by the Central Government, which provides the sovereign guarantee for these
borrowings. From April 1, 2005, all general category states borrow from multi-lateral and bilateral agencies (
World Bank, ADB etc.) on a back-to-back basis viz. the interest cost and the risk emanating from currency and
exchange rate fluctuations are passed on to States. In the case of special category states ( North-eastern states,
Himachal, Uttarakhand and J&K), external borrowings of state governments are given by the Union
Government as 90 per cent loan and 10 per cent grant.
This note explains the coverage of the ‘Public Debt’ of the Central Government of India.
In India, total Central Government Liabilities constitutes the following three categories;
[i] Internal Debt.
[ii] External Debt.
[iii] Public Account Liabilities.

15. RAJESH NAYAK
Public Debt in India includes only Internal and External Debt incurred by the Central Government. Internal
Debt includes liabilities incurred by resident units in the Indian economy to other resident units, while External
Debt includes liabilities incurred by residents to non-residents.
The major instruments covered under Internal Debt are as follows:
 Dated Securities: Primarily fixed coupon securities of short, medium and long term maturity which
have a specified redemption date. These are the single-most important component of financing the fiscal deficit
of the Central Government (around 91 % in 2010-11) with average maturity of around 10 years.
 Treasury-Bills: Zero coupon securities that are issued at a discount and redeemed in face value at
maturity. These are issued to address short term receipt-expenditure mismatches under the auction program of
the Government. These are primarily issued in three tenors, 91,182 and 364 day.
 14 Day Treasury Bills.
 Securities issued to International Financial Institutions: Securities issued to institutions viz. IMF,
IBRD, IDA, ADB, IFAD etc. for India’s contributions to these institutions etc.
 Securities issued against ‘Small Savings’: All deposits under small savings schemes are credited to
the National Small Savings Fund (NSSF). The balance in the NSSF (net of withdrawals) is invested in special
Government securities.
 Market Stabilization Scheme (MSS) Bonds: Governed by a MoU between the GoI and the RBI,
MSS was created to assist the RBI in managing its sterilization operations. GoI borrows under this scheme from
the RBI, while proceeds from such borrowings are maintained in a separate cash account with the latter and is
used only for redemption of T-bills /dated securities raised under this scheme.
Public Debt Management of the Union Government in India
Objectives of Public Debt Management in India
The overall objective of the Central Government’s debt management policy, as laid out by the Central
Government's status paper in November 2010 is to “meet Central Government’s financing needs at the lowest
possible long term borrowing costs and also to keep the total debt within sustainable levels. Additionally, it
aims at supporting development of a well-functioning and vibrant domestic bond market”.
Apart from this declared objectives, timely availability of resources for Government is ensured in a non-
disruptive manner for the market. Various institutional arrangements are also put in place accordingly.
India is not formally using the IMF / World Bank Medium Term Debt Strategy and Debt Sustainability
Analysis. Many countries across the globe follow / target Medium Term Public Debt Strategy specifying the
debt targets to be met and the strategies for achieving the same. In India, such a framework / document is not in
existence. However, in the Medium Term Fiscal Policy Statement laid before the Parliament, a two year target
for outstanding liabilities is incorporated. In the Fiscal Policy Strategy Statement laid before the Parliament,
Government outlines the prudent debt management strategies so as to ensure that the public debt remains within
sustainable limits and does not crowd out private borrowing for investment.

16. RAJESH NAYAK
As per the Fiscal Policy Strategy Statement of 2012-13 the public debt management policy of the Government
is driven by the principle of gradual reduction of public debt to GDP ratio. This is with the objective of further
reducing the debt servicing risk and to create fiscal space for developmental expenditure. On the financing side,
the Government policy focuses on the following principles
i. greater reliance on domestic borrowings over external debt,
ii. preference for market borrowings over instruments carrying administered interest rates,
iii. consolidation of the debt portfolio and
iv. development of a deep and wide market for Government securities to improve liquidity in secondary
market.
Finance Minister in his Budget Speech for 2010-11 had indicated his intention to bring out a status paper giving
detailed analysis of the government’s debt situation and a road map for curtailing the overall public debt.
Accordingly, a paper was brought out in November 2010, titled Government Debt: Status and Road Ahead with
detailed analysis on status of Central Government debt. At the same time, it also charts out a well calibrated
roadmap for reduction in the overall debt as percentage of GDP for the general government during the period
2010-11 to 2014-15.
Public Debt Management Agency (PDMA)
Public Debt Management Agency (PDMA) is a specialized independent agency that manages the internal and
external liabilities of the Central Government in a holistic manner and advises on such matters in return for a
fee. In other words, PDMA is the Investment Banker or Merchant Banker to the Government. PDMA manages
the issue, reissue and trading of Government securities, manages and advises the Central Government on
its contingent liabilities and undertakes cash management for the central government including issuing and
redeeming of short term securities and advising on its cash management.
PDMA was proposed to be established in India through the Finance Bill, 2015. As a corollary of the decision to
create a PDMA, the RBI or the Central Bank in India was given the task of inflation targeting under a monetary
policy framework agreement. However, the creation of PDMA was put on hold due to the difference of opinion
on the matter and the relevant clauses were dropped from the Finance Bill, 2015 while the latter was passed.
PDMA is considered to be set up with the objective of "minimising the cost of raising and servicing public
debt over the long-term within an acceptable level of risk at all times, under the general superintendence of the
central government". This will guide all of its key functions, which include managing the public debt, cash and
contingent liabilities of Central Government, and related activities.
Need for PDMA
The need for PDMA was felt due to the following reasons:
 Fragmented jurisdiction in public debt management: Before the creation of PDMA, the central Bank
or RBI used to manage the market borrowing programmes of Central and State Governments. On the other
hand, external debt was managed directly by the Central Government. Establishing a debt management office
would consolidate all debt management functions in a single agency and bring in holistic management of the
internal and external liabilities.
 Some functions that are crucial to managing public debt were not carried out. For instance, no
agency used to undertake cash and investment management and information relating to contingent and other
liabilities were not consolidated. Hence, there was no comprehensive picture of the liabilities of the Central
Government, which impeded informed decision making regarding both domestic and foreign borrowing.

17. RAJESH NAYAK
 An autonomous PDMA can be the catalyst for wider institutional reform, including building a
government securities market, and bring in transparency about public debt.
 It is considered as an internationally accepted best practice that debt management should be
disaggregated from monetary policy, and taken out of the realm of the central bank. Most advanced economies
have dedicated debt management offices. Several emerging economies, including Brazil, Argentina, Colombia,
and South Africa, have restructured debt management in recent years and created an independent agency for the
same. The sources of these conflict of interest in RBI managing the Government debt, as listed out in the 2008
report of the Government are as under:
 There is a severe conflict of interest between setting the short term interest rate (i.e. the task
of monetary policy) and selling bonds for the government. If the Central Bank tries to be an effective debt
manager, it would lean towards selling bonds at high prices, i.e. keeping interest rates low. This leads to an
inflationary bias in monetary policy.
 Where the Central Bank also regulates banks, as in India, there is a further conflict of
interest. If the Central Bank tries to do a good job of discharging its responsibility of selling bonds, it has an
incentive to mandate that banks hold a large amount of government paper. This bias leads to flawed banking
regulation and supervision, so as to induce banks to buy government bonds, particularly long-dated government
bonds. Having a pool of captive buyers undermines the growth of a deep, liquid market in government
securities, with vibrant trading and speculative price discovery. This, in turn, hampers the development of the
corporate bond market - the absence of a benchmark sovereign yield curve makes it difficult to price corporate
bonds.
 If the Central Bank administers the operating systems for the government securities markets,
as the RBI currently does, this creates another conflict, where the owner/ administrator of these systems is also a
participant in the market.
Features of PDMA as outlined in the Finance Bill, 2015
Structure & Administration
 PDMA is a body corporate to be run on the grants or loans received from the Central Government
and from other sources as may be prescribed by the central government.
 PDMA is headed by a chief executive officer (CEO) and he has powers of only general direction and
control in respect of all administrative matters of PDMA.
 PDMA can set advisory councils if it wishes to do so
 PDMA is empowered to create by-laws
 The Board of Directors include nominee directors of the Central Government and RBI.
 Being an agency of the Government, the Central Government has the right to terminate the services
of a Member of the Board even before the expiry of her tenure on grounds of moral turpitude, unsound mind,
insolvency and for abuse of position.
 Further, Central Government is empowered to issue directions on Policy to PDMA and latter is
bound by that.
 Members and employees of the PDMA or any other person who has been delegated any function by
PDMA shall be deemed to be "public servants" within the meaning of Section 21 of the Indian Penal Code.
 PDMA can establish offices either in India or abroad

18. RAJESH NAYAK
 Accounts of PDMA are audited by the Comptroller and Auditor General of India (CAG) and the
CAG audited report and annual report are to be laid in Parliament.
 Legal protection is given for actions taken in good faith
 PDMA is given exemption from all kinds of taxes for all its operations
Functions
 collecting and publishing information about public debt, including borrowings by the central
government.
 issue of government securities (in demat or electronic form) and maintenance and management of
the registry of holders (which would actually be maintained by the Depositories) and making payments to them;
However, the terms and conditions of G-Secs would be prescribed to the PDMA and hence, central government
would be liable to meet the obligations arising from the financial transactions authorized by it and undertaken
by the PDMA.
 purchasing, re-issuing and trading in G-Secs
 Managing Contingent liabilities of the Central Government including developing ways for its
measurement, reduction in quantum and cost of such liabilities.
 advising central Government on its contingent liabilities
 Undertaking Cash management of the Central Government including acquiring information about its
cash assets, predicting the future cash requirements and issuing and redeeming such short term securities
required to meet the cash requirements etc.
 Advising central Government on management of cash assets
Relationship of RBI with central Government after the removal of debt management functions (as
contained in Finance Bill 2015)
The Constitution of India gives the executive branch of the Government the powers to borrow upon the security
of the Consolidated Fund of India. Reserve Bank as an agent of the Government (both Union and the States)
implemented the borrowing program. The Reserve Bank draws the necessary statutory powers for debt
management from Section 21 of the Reserve Bank of India Act, 1934. While the management of Union/Central
Government's public debt is an obligation for the Reserve Bank, the Reserve Bank undertakes the management
of the public debts of the various State Governments by agreement. The procedural aspects in debt management
operations were governed by the Government Securities Act, 2006 and rules framed under the Act. The debt
management functions comprised of formulation of a calendar for primary issuance, deciding the desired
maturity profile of the debt, size and timing of issuance, designing the instruments and methods of raising
resources, etc. taking into account government's needs, market conditions, and preferences of various segments
while ensuring that the entire strategy is consistent with the overall macro-economic policy objectives. Reserve
Bank also undertakes the conduct of auctions and manages the registry and depository functions.
All these functions will be transferred to PDMA in respect of the central government. As per the Finance Bill
2015 RBI was required by law to provide all necessary information and assistance to the effective functioning
of PDMA.
With the creation of PDMA, RBI is given the explicit task of inflation targeting and reducing its earlier focus on
multiple objectives like growth, financial stability, monetary management, debt management etc.
RBI may still be managing the borrowing requirements of the state governments as per the agreement it has
entered into with them earlier.
Though debt management is taken out of RBI, it would continue to function as the banker to the Government.
As a banker to the Government, the RBI would perform the same functions for the Government as a

19. RAJESH NAYAK
commercial bank performs for its customers. It would maintain accounts of the Government; receive deposits
from, and make advances to the Government; provide foreign exchange resources to the Government for
repaying external debt or purchasing foreign goods or making other payments.
Contrary views: why central bank should continue to do debt management functions in India
Creation of a PDMA was a matter of intense debate in India. Many, at some phase even RBI, believed that debt
management functions should be continued with RBI for the following reasons.
 Historically RBI had been managing the debt at a lower cost while keeping the interest rate in line
with the requirements of the economy.
 Theoretical formulations can conjecture conflicts of interest; the validity of assumptions need to be
tested by evaluation of experience/performance and on that count, conflict of interest cannot be established with
regard to Reserve Bank.
 The FRBM Act, 2003 which precluded the Reserve Bank from participating in the primary auction
of the Government bonds has resolved the conflict of interest with the monetary policy. Monetary signalling in
India is now done by the repo rate (policy rate) under the liquidity adjustment facility (LAF) and not the bond
yields. On the other hand, Government’s ownership of majority stake in public sector banks (which own 70 per
cent of banking sector assets) could be a source of conflict of interest with its role as debt manager, either
directly or through an agency controlled by it.
 Commercial Banks hold more G-Secs than what is warranted under Statutory Liquidity Ratio
(SLR). In India, at present, SLR is more of a prudential requirement than a captive quota for G-Secs.
 The size and dynamics of government market borrowing has a much wider influence on interest rate
movements and systemic liquidity. An autonomous PDMA, driven by specific objectives exclusively focusing
on debt management alone, may not be able to manage this complex task involving various trade-offs. It may
even be compelled to issue more short term debts and enlarge the space for foreign investors making economy
more vulnerable to the risk of capital flight.
 The significant impact of the Government borrowing on the broader interest rate structure in the
economy and, therefore, on the monetary transmission process in financial markets, makes it a critical
component of the macroeconomic management framework. Overall coordination by RBI hence becomes
important.
 It may not be true that what has been practiced in some other countries would come true for India.
The institutional arrangements for debt management must take into view the country specific context and
requirements. The experience of debt management offices in the Euro area (especially Greece, Portugal and
Ireland) has been less than satisfactory and has resulted in creating financial instability in the entire Euro Zone.
Qualified Foreign Investors (QFIs)
The Qualified Foreign Investor (QFI) is sub-category of Foreign Portfolio Investor and refers to any foreign
individuals, groups or associations, or resident, however, restricted to those from a country that is a member
of Financial Action Task Force (FATF) or a country that is a member of a group which is a member of FATF
and a country that is a signatory to International Organization of Securities Commission’s (IOSCO) Multilateral
Memorandum of Understanding (MMOU).
QFI scheme was introduced by Government of India in consultation with RBI and SEBI in the year 2011,
through a Union Budget announcement.
The objective of enabling QFIs is to deepen and infuse more foreign funds in the Indian capital market and to
reduce market volatility as individuals are considered to be long term investors, as compared to institutional
investors.

20. RAJESH NAYAK
QFIs are allowed to make investments in the following instruments by opening a demat account in any of the
SEBI approved Qualified Depository Participant (QDP):
 Equity and Debt schemes of Indian mutual funds,
 Equity shares listed on recognized stock exchanges,
 Equity shares offered through public offers
 Corporate bonds listed/to be listed on recognized stock exchanges
 G-Securities, T-Bills and Commercial Papers
QFIs do not include FIIs/Sub-accounts/ Foreign Venture Capital Investor (FVCI).
Need and context for allowing QFIs
Uptill 2011, foreign investors, including foreign nationals, institutions, funds and other entities, invested into
India:
 Either as FII/ sub-account of an FII
 Or, by buying into an offshore exchange listed fund (ETF)-which has a back to back cover into an
FII /sub-account
 Or, through instruments such as Participatory Notes issued by FII against an Indian security-stock or
Index.
 Or by investing in Depository receipts issued by Indian companies such as ADR /GDR
Benefits of QFI Scheme
QFIs access to equity market is expected to broad base the market while enhancing the capital flows into India.
More importantly, since QFIs are the diversified set of heterogeneous investors, QFIs participation is expected
to help dampen the volatility in Indian equity market that arises due to sudden inflows or off-loading done by
FIIs. The direct participation route offered through the QFI scheme was expected to reduce the transaction cost
and complexity hitherto persisting due to large number of intermediaries. It would also bring in better
transparency while reducing the need for usingparticipatory notes route. QFIs access to Equity market is also
expected to help harnessing the investment potential remaining untapped in various sectors.
Present Status of QFIs
QFIs, have now been merged in to Foreign Portfolio Investors (FPI), when the FPI regulations were introduced
in 2014.
The existing QFIs may continue to buy, sell or deal in securities for a period of one year from the date of
commencement of FPI Regulations i.e. till January 06, 2015 or until it obtains a certificate of registration as
FPI, whichever is earlier.
Rajiv Gandhi Equity Savings Scheme (RGESS)
Rajiv Gandhi Equity Saving Scheme (RGESS), is a tax saving scheme announced in the Union Budget 2012-
13 (para 35) and expanded in the subsequent budget 2013-14 (vide para 61 & 144), designed exclusively for the
first time retail / individual investors in securities market, who invest up to Rs. 50,000 in a year and whose
annual income is below Rs. 12 lakh (around US$ 22333). The investor would get a 50% deduction of the
amount invested from the taxable income for that year. This benefit is available for the first three consecutive
years for the new investor. Thus the investor can invest a total of Rs. 1.5 lakh in equity / RGESS eligible mutual
fund Schemes and can claim a deduction of Rs. 75000 spread over three years.

21. RAJESH NAYAK
The Scheme is named after the former Prime Minister of India Shri. Rajiv Gandhi. The broad provisions of the
Scheme and the income tax benefits under it have already been incorporated as a new Section -80CCG- of the
Income Tax (IT) Act, 1961, as amended by the Finance Act, 2012 . This means that the allowed tax deduction
will be over and above the Rs. 1.5 Lakh limit permitted under Section 80 C of the IT Act, making it thus
attractive for the middle class investors.
Objective of the Scheme
The Scheme intends to encourage the flow of savings and improve the depth of domestic capital markets, as
stated in the Budget Speech by the then Finance Minister Shri Pranab Mukherjee. However, it also aims to
promote an ‘equity culture’ in India. This is also expected to widen the retail investor base in the Indian
securities markets and further the goal of financial stability and financial inclusion.
Investment Options under the Scheme
Under the Scheme, those stocks listed under the BSE 100 or CNX 100, or those of public sector undertakings
which are Navratnas, Maharatnas and Miniratnas would be eligible. Follow-on Public Offers (FPOs) of the
above companies would also be eligible under the Scheme. IPOs of PSUs, which are getting listed in the
relevant financial year and whose annual turnover is not less than Rs. 4000 cr for each of the immediate past
three years, would also be eligible.
Rashtriya Krishi Vikas Yojana
The RKVY (National Agriculture Development Programme/Rashtriya Krishi Vikas Yojana) was devised by the
Ministry of Agriculture with the aim of achieving 4% annual growth in the agriculture sector during the
Eleventh Plan period (2007-08 to 2011-12). The main objective of the Scheme is to incentivize States to
increase public investment in Agriculture and allied sectors by providing 100% Central Government grants for
State Agricultural Plans. The States, under RKVY, are required to prepare the Agriculture Plans for their
districts based on agro-climatic conditions, availability of technology and natural resources.
The Scheme is an incentive scheme; wherein there are no automatic allocations. The eligibility of a state for the
RKVY is contingent upon the state maintaining or increasing the State Plan expenditure for Agricultural and
Allied sectors. Each state needs to ensure that the baseline share of agriculture in its total State Plan expenditure
is at least maintained, and upon its doing so, it will be able to access the RKVY funds. The base line would be a
moving average and the average of the previous three years will be taken into account for determining the
eligibility under the RKVY, after excluding the funds already received.
Rashtriya Swasthya Bima Yojana (RSBY)
RSBY is a cashless Smart Card based health insurance scheme for BPL families in the unorganised sector
launched in 2007-08 and became fully operational in April 2008. It provides health insurance cover of Rs.
30,000/- for a family of five on a floater basis covering all pre-existing diseases, hospitalization expenses,
maternity benefit etc. The ambit of the scheme has been expanded to include MGNREGA workers, railway
porters, construction workers etc. The premium under the scheme is borne by the Central and the State
Government in the ratio of 75:25 (90:10 in case of J&K and NE States). The beneficiary pays Rs. 30 at the time
of enrollment. The uniqueness of the scheme lies in the fact that it provides inter-operability throughout the
country to facilitate use by migrant labour.
RSBY has made available state of the art health facility to the poorest of the poor who can choose between
public and private health service provider. The ILO and UNDP have selected the scheme as one of the eighteen
successful social protection floor schemes in the world. A number of delegations from countries like

22. RAJESH NAYAK
Bangladesh, Nigeria, Ghana, Vietnam, Cambodia, Nepal and Maldives have visited India to study the scheme
and some have even taken a decision to implement a variant in their own country.
The Unorganized workers social Security Act, 2008 came into operation w.e.f 31 December 2008 and it
encompasses ten social security schemes benefitting the unorganized workers including the RSBY.
In pursuance of a policy decision of the Government, the Labour and Employment Ministry who was hitherto
handling the RSBY scheme transferred the same to the Ministry of Health and Family Welfare with effect from
1 April 2015.
Regulatory Impact Analysis (RIA)
The OECD defines Regulatory Impact Analysis (RIA) as "a systemic approach to critically assessing the
positive and negative effects of proposed and existing regulations and non-regulatory alternatives".
RIA is an empirical methodology aimed at designing targeted regulations to achieve reasonable policy aims
with the minimum burden on those affected. The technique involves analytically examining potential impacts
arising from government action and communicating this information to decision makers in terms of positive
(benefits) or negative (costs) effects. This allows decision markers to consider the full range of benefits and
costs that will be associated with the proposed regulatory change and take informed policy decision.
Need for RIA
Economic and financial regulations aim to achieve social goals, provide consumer protection and help improve
economic performance by promoting competition. However, they do end up creating unintended and often
unavoidable barriers to trade and could be considered as unnecessary burdens to business. Thus, whenever a
new regulation in put in place or an existing regulation is reviewed, it is desirable to assess and understand the
alternatives available, the costs of compliance and enforcement, potential impact of new or changed regulation
and whether it would achieve the desired objectives. In essence, to ensure the welfare of the regulated some
relevant questions on these lines need to be posed and answered to make any new regulation or revised
regulation a success.
RIA is a tool that helps do this. RIA facilitates understanding of the impact of regulatory actions and enables
integration of multiple policy objectives, improves transparency and consultation, and enhances accountability
of governments and regulators. It not only brings the actions of decision-makers under public scrutiny and
highlights how their decisions impact society as a whole, but also mandates greater information sharing by
them.
The methods used by policymakers to reach decisions on regulation have been classified into five categories, by
the OECD, viz., expert, consensus, political, benchmarking and empirical. RIA is part of the empirical approach
to decision-making. RIA meets the following criteria for good policy-making, according to the OECD:
1. Improve understanding of benefits and costs of regulatory action: RIA is an evidence-based
approach to decision-making, and often draws on economic empirical evidence in assessing benefits and costs.
2. Integrate multiple policy objectives: RIA can be used as an integrating framework to identify and
compare the linkages and impacts between economic, social and environmental regulatory changes.
3. Improve transparency and consultation: RIA is closely linked to processes of public consultation,
which enhances the transparency of the RIA process, provides quality control for impact analysis, and improves
the information provided to decision-makers.
4. Improve government/regulators’ accountability: RIA can improve the involvement and
accountability of decision-makers by reporting on the information used in decision-making and demonstrating
how the decision impacts on society.

23. RAJESH NAYAK
Rupay Debit Card
RuPay Debit Card is an indigenous domestic debit card introduced in May 2014 by National Payment
Corporation of India (NPCI) - a section 25 company set up by RBI and 10 commercial banks in India. This card
is accepted at all ATMs (for cash withdrawal) and at most of the point of sale (PoS) machines (for making
cashless payment for purchases) in the country. It is the Indian version of Visa or MasterCard. As part
of Pradhan Mantri Jan-Dhan Yojna (PMJDY), RuPay card is distributed and it also provides accidental
insurance cover upto Rs.1 lakh without any charge to the customer (However NPCI pays the premium @ Rs.
0.47/card). To get benefit of Accidental Insurance Cover, RuPay Debit Card must be used at least once in 45
days.
“RuPay” is coined from two terms - Rupee and Payment.
RuPay has been conceived to fulfill RBI’s vision to offer a domestic, open-loop, multilateral system which will
allow all Indian banks and financial institutions in India to participate in electronic payments (including e-
commerce). Transaction and customer data related to RuPay card transactions will reside in India. Since the
transaction processing will happen domestically, it would lead to lower cost of clearing and settlement for each
transaction and hence is suited for targeting under-penetrated/untapped consumers segments in rural areas that
do not have access to banking and financial services.
RuPay cards are considered more economical for banks to offer it to their customers. It offers complete inter-
operability between various payments channels and products. NPCI currently offers varied solutions across
platforms including ATMs, mobile technology, cheques etc. and is nurturing RuPay cards across these
platforms. RuPay e-Commerce solution was launched on 21 June, 2013. RuPay is well poised to support
issuance of credit and prepaid cards by banks in India and thereby supporting the growth of retail electronic
payments in India.
Rupee Denominated Debt
Rupee denominated debt refers to that part of India’s total external debt that is denominated in India’s domestic
currency, the Rupee.
In contrast to foreign currency denominated external debt, in case of rupee denominated debt the currency
risk (the risk arising from appreciation or depreciation of the nominal exchange rate) is borne by the creditor
and not by the borrower. The contractual liability (principal and interest that is designated to be paid by the
borrower as agreed upon in the debt contract) is settled in foreign currency. Accordingly, the borrower always
pays back the foreign currency equivalent of the rupee denomination valued at the spot exchange rate prevailing
at that point in time. Thus, if the domestic currency appreciates vis-à-vis the foreign currency, the creditor
stands to gain vis-à-vis the borrower since he receives more dollars per unit of Rupee.
In India rupee denominated debt comprises the following categories;
(a) Rupee Debt; Includes the outstanding defense and civilian state credits extended to India by the erstwhile
Union of Soviet Socialist Republics (USSR). The repayment is primarily through exports of goods to Russia.
(b) Rupee denominated Non-Resident Indian (NRI) Deposits including the Non-Resident (External) Rupee
Account (NR(E)RA) and Non-Resident Ordinary Rupee (NRO) account.
(c) Foreign Institutional Investors (FII) investment in Government Treasury-Bills and dated securities (with
such investments subject to a ceiling of US$ 10 billion annually); and
(d) FII investment in corporate debt securities (with such investments subject to a ceiling of US$ 40 billion
annually).

24. RAJESH NAYAK
The Quarterly Reports on India’s external debt published by the Ministry of Finance and the RBI as well as the
Annual Status Report on India’s external debt (published by the Ministry of Finance) available in the
website http://www.finmin.nic.in contain information on India’s rupee denominated external debt.
At end-March 2011, 19.5 percent of India’s total external debt and 12.4 percent of India’s sovereign external
debt is denominated in rupees. The difference in the two figures is accounted for by the fact that the former
encompasses all the four categories ((a) to (d)) listed above while the latter takes into account only (a) and (c).
Sagar mala
Sagar mala is an initiative floated by the Government of India to evolve a model of port led development which
will transform India’s coastline as gateways of India’s prosperity. The concept of Sagar mala was first
announced in 2003. However it didn’t take off. The concept has been reintroduced now and the Ministry of
Shipping is the nodal point for implementing the project. (In Hindi, Sagar refers to Ocean and mala refers to
garland /necklace)
The initiative aims at integrating three things-the development of ports, industrial clusters and hinterland and
efficient evacuation systems through road, rail, inland and coastal waterways. The Sagar mala initiative,
therefore, focuses on
 Modernisation of port infrastructure- transforming the existing ports to world class ports and
development of new ports;
 Efficient evacuation system by improving hinterland linkages through rail, road and water; and
 Encouraging coastal economic development by promoting port based SEZs and ancillary industries.
To realise the objectives of Sagar Mala, two broad strategies have been outlined: development of coastal
economic regions and promotion of coastal shipping.
A coastal economic region will be identified as a region along the length of the state’s coast (300-500 km) and
10-30 km inland and into the sea. This is to widen the span of economic activity in the region. Sagar mala
envisages formation of ten coastal economic regions along the coastline.
Policy initiatives are also outlined for encouragement of coastal shipping by provision of green channel,
incentives for use and simplification of procedures.
Sagar mala initiative would encourage coastal shipping and inland waterways as main carriers of people and
goods which is very essential to improve India’s sea borne traffic. With a coastline of 7,500 km, India’s
seaborne traffic is only 950 million tonnes whereas China has a seaborne traffic of 9 billion tonnes with a
coastline of 15,000km.
A detailed note on Sagar mala has been floated by the Ministry of Shipping which can be viewed here.
Implementation
The Union Cabinet chaired by the Prime Minister, Shri Narendra Modi gave its ‘in-principle’ approval for the
concept and institutional framework of Sagarmala Project on 25 March 2015.A National Sagarmala Apex
Committee (NSAC) is envisaged for overall policy guidance and high level coordination, and to review various
aspects of planning and implementation under the chairmanship of the Minister of Shipping, with Cabinet
Ministers from stakeholder Ministries and Chief Ministers/Ministers incharge of ports of maritime states as
members. Sagarmala Coordination and Steering Committee (SCSC) will be constituted under the chairmanship
of the Cabinet Secretary and with Secretaries of the respective stakeholder Ministries as members to provide
coordination between various ministries, state governments and agencies connected with implementation and
review the progress of implementation of the National Perspective Plan, Detailed Master Plans and projects.

25. RAJESH NAYAK
This Committee will also examine financing options available for the funding of projects, the possibility of
public-private partnership in project financing/construction/ operation.
At the Central level, Sagarmala Development Company (SDC) will be set up under the Companies Act, 1956 to
assist the State level/zone level Special Purpose Vehicles (SPVs), as well as SPVs to be set up by the ports, with
equity support for implementation of projects to be undertaken by them.
Sansad Adarsh Gram Yojana (SAGY)
Sansad Adarsh Gram Yojana (SAGY) is a village development project launched by Government of India in
October 2014, under which each Member of Parliament will take the responsibility of developing physical and
institutional infrastructure in three villages by 2019. The goal is to develop three Adarsh Grams or model
villages by March 2019, of which one would be achieved by 2016. Thereafter, five such Adarsh Grams (one per
year) will be selected and developed by 2024. (Sansad refers to Parliament, Adarsh refers to model, Gram refers
to village and Yojna means Scheme)
The Project was launched on the occasion of birth anniversary of Lok Nayak Jai Prakash Narayan and is
inspired by the principles and values of Mahatma Gandhi. It aims to provide rural India with quality access to
basic amenities and opportunities.
The Scheme has a holistic approach towards development. It envisages integrated development of the selected
village across multiple areas such as agriculture, health, education, sanitation, environment, livelihoods etc. Far
beyond mere infrastructure development, SAGY aims at instilling and nurturing values of national pride,
patriotism, community spirit, self-confidence people’s participation, dignity of women, etc. in the people.
The scheme is implemented through Members of Parliament (MPs) with District Collector being the nodal
officer. The MP would be free to identify a suitable gram panchayat for being developed as Adarsh Gram, other
than his/her own village or that of his/her spouse. Gram Panchayat, which has a population of 3000-5000 in
plain areas and 1000-3000 in hilly, tribal and difficult areas, would be the basic unit for development.
A village development plan would be prepared for every identified gram panchayat with special focus on
enabling every poor household to come out of poverty. The constituency fund, MPLADS, would be available to
fill critical financing gaps. The outcomes include 100% immunization, 100% institutional delivery, reduced
infant mortality rate, maternal mortality rate, reduction in malnutrition among children etc.
If each MP adopts three villages, the scheme will be able to develop 2,379 gram panchayats over the next five
years. (The Lok Sabha has 543 MPs and the Rajya Sabha 250, of which 12 are nominated. There are 2,65,000
gram panchayats in India. )
Prior to this, a scheme called Pradhan Mantri Adarsh Gram Yojana (PMAGY) was launched in March, 2010 on
a pilot basis, for the integrated development of 1000 villages each with more than 50% scheduled caste (SC)
population. Under this Scheme, each village would be able to avail gap funding of Rs.10 lakh over and above
the allocations under Rural Development and Poverty Alleviation Schemes. The scheme was being
implemented in five States of the Country viz Assam (100-villages), Bihar (225-villages), Himachal Pradesh
(225-villages), Rajasthan (225-villages) and Tamil Nadu (225-villages). The expected time-frame for
implementation of the pilot phase was 3 years. Expansion of the scheme was to be based on successful
implementation of the pilot phase. PMAGY also focuses on basic needs- housing, sanitation, water supply,
electricity, communications, banking, infrastructure connectivity, health care, nutrition etc. and aims for
convergence of existing programs in these sectors.
Sarathi
Sarathi is a software package introduced in 2011 by National Informatics Centre and Ministry of Road
Transport & Highways for the creation of a complete computerized database of driving licenses, conductors’

26. RAJESH NAYAK
licenses, driving school licenses and fees. Since State Transport Departments adhere to State-specific
regulations, besides Central Motor Vehicle Rules, Sarathi has been customized State-wise.
Sarathi envisages improved information availability of licenses, improved service delivery and access, plugging
revenue leakages and enhancing transparency in the system. For the citizens, Sarathi offers a system of online
license application submission and processing, application status tracking, fees payment and online renewal of
licenses.
The database of Sarathi can be a useful tool for curbing traffic offences. This, in turn, would reduce the socio-
economic cost of road accidents in India which has been estimated at 3 per cent of Gross Domestic Product by
Planning Commission (Page 963, Tenth Five Year Plan, Volume II).
Securities Transaction Tax (STT)
Securities Transaction Tax (STT) is a type of financial transaction tax levied in India on transactions done on
the domestic stock exchanges. The rates of STT are prescribed by the Central / Union Government through
its Budget from time to time. In tax parlance, this is categorised as a direct tax.
The STT came into effect from October 1, 2004 pursuant to the enactment of the Finance Act, 2004 and
notification of Securities Transaction Tax Rules, 2004 by the Government of India.
With charging of STT, long term capital gains tax was made zero and short term capital gains tax was reduced
to 10% (subsequently, changed to 15% since 2008). (See Income Tax Department’s tax payers’ information
series on capital gains tax)
The STT framework was subsequently reviewed by the Central Government in the year 2005, 2006, 2008,
2012and 2013. The STT rates were revised upwards in the year 2005 and 2006 while it was reduced for certain
segments in 2012 and 2013.The STT provisions were altered in the year 2008 such that for professional traders
(brokers),STT came to be treated as an expense which can be deducted from the income instead of treating the
same as an advance tax paid. (The 2004 STT provisions provided that the STT payments of professional traders,
whose “business income” arising from purchase and sale of securities could be set off against their total tax
liability.)
As on date, STT is not applicable in case of preference shares, Government securities, bonds, debentures,
currency derivatives, units of mutual fund other than equity oriented mutual fund, and gold exchange traded
funds and in such cases, tax treatment of short-term and long-term gains shall be as per normal provisions of
law. Transactions of the shares of listed companies on the floor of the stock exchange or otherwise, mandated
under the regulatory framework of SEBI, such as takeover, buyback, delisting offers etc also does not come
under STT framework. The off-market transactions of securities (which entails changes in ownership records at
depositories) also does not attract STT.
In India, STT is collected for government of India by the stock exchanges.
Skewflation
Economists usually distinguish between inflation and a relative price increase. ‘Inflation’ refers to a sustained,
across-the-board price increase, whereas ‘a relative price increase’ is a reference to an episodic price rise
pertaining to one or a small group of commodities. This leaves a third phenomenon, namely one in which there
is a price rise of one or a small group of commodities over a sustained period of time, without a traditional
designation. ‘Skewflation’ is a relatively new term to describe this third category of price rise.
In India, food prices rose steadily during the last months of 2009 and the early months of 2010, even though the
prices of non-food items continued to be relatively stable. As this somewhat unusual phenomenon stubbornly
persisted, and policymakers conferred on how to bring it to an end, the term ‘skewflation’ made an appearance

27. RAJESH NAYAK
in internal documents of the Government of India, and then appeared in print in the Economic Survey 2009-
10, Government of India, Ministry of Finance.
The skewedness of inflation in India in the early months of 2010 was obvious from the fact that food price
inflation crossed the 20% mark in multiple months, whereas wholesale price index (WPI) inflation never once
crossed 11%. It may be pointed out that the skewflation has gradually given way to a lower-grade generalized
inflation, with the economy in the middle of 2011 inflating at around 9% with food and non-food price
increases roughly at the same level.
Given that other nations have faced similar problems, the use of this term picked up quickly, with
the Economist magazine (January 24, 2011), in an article entitled ‘Price Rises in China: Inflated Fears,’
wondering if China was beginning to suffer from an Indian-style skewflation.
The distinction between these different kinds of inflation is important because they call for different kinds of
policy response from the government. Usually, a high inflation, and in particular core inflation, is taken as a
sign of aggregate demand outstripping aggregate supply and is met with monetary and fiscal policy tightening.
On the other hand, a relative price increase is often treated as the market’s natural response to exogenous
demand and supply shocks and many economists would argue that they are best left with no government
intervention. Such relative-price signals are the market’s way of informing consumers and producers what to
consume less and what to produce more. To impair these signals does more damage than good.
In terms of policy, skewflation does not fall into either of the above categories neatly. Given that it is sector
specific, it is not evident that it calls for monetary or fiscal policy action. On the other hand, given its sustained
nature, it is not possible for government to ignore it, since cause stress to consumers.
It is possible to argue that a small amount of skewflation, for instance, up to 2% per annum, centred in the food
and non-tradeable sector, is a natural concomitant of high growth in an emerging economy (see Economic
Survey 2010-11, Government of India, Ministry of Finance). This is because, as we know from the study of
empirical patterns, the purchasing power parity of poor nations tends to catch up with industrialized nations
during periods of rapid growth in the former countries. So a small skewflation, usually of up to 2%, may be
natural for an economy growing rapidly. However, if such inflation rises to higher levels, government is forced
to think of a policy cocktail, consisting of aggregate demand tightening, along with measures to improve the
production and supply of goods.
Smart City
The concept of Smart City emerged in India with the launch of “Smart City Mission” in 2015 as part of
fulfilling the announcement made in Union Budget 2014-15. The Budget outlined the vision of developing 'one
hundred Smart Cities', as satellite towns of larger cities and by modernizing the existing mid-sized cities.
In a nutshell, smart cities are those cities which harness the potential of technology in developing city
infrastructure and in enhancing the quality of life for city dwellers. No precise definition for smart city has been
developed but a set of core features have been identified.
 adequate water supply,
 assured electricity supply,
 sanitation, including solid waste management,
 efficient urban mobility and public transport,
 affordable housing, especially for the poor,
 robust IT connectivity and digitalization,
 good governance, especially e-Governance and citizen participation,

28. RAJESH NAYAK
 sustainable environment,
 safety and security of citizens, particularly women, children and the elderly, and
 health and education.
Some of its other features are mixed use of land, transit oriented development (i.e., developing commercial and
residential plots in the same area to reduce use of vehicles or to increase the use of public transport), last mile
connectivity through para transport (autos, disabled friendly vehicles etc.) housing solutions for the poor,
pedestrian / cyclist friendly design of streets, preservation of open spaces and ecological balances, green
buildings which reduce energy consumption, mobile and e-governance etc.
The smart city proposal can be linked to other development schemes like Atal Mission for Rejuvenation and
Urban Transformation of 500 cities AMRUT, Swachh Bharat Mission (SBM), National Heritage City
Development and Augmentation Yojana (HRIDAY), Digital India, Skill development, Housing for All,
construction of Museums funded by the Culture Department and other programs connected to social
infrastructure such as Health, Education and Culture.
For North Eastern and Himalayan States, the area proposed to be developed will be one-half of what is
prescribed for any of the alternative models - retrofitting, redevelopment or greenfield development.
The Mission relies on visionary leadership of local governments, public-private partnership and citizen
participation.
Selection of 100 Smart Cities: Smart City aspirants are selected through a ‘City Challenge Competition’. Each
state has to shortlist a certain number of smart city aspirants as per the norms (based on population and number
of statutory towns in the state) and prepare smart city proposals as per their imagination for further evaluation
by Center for grant of funds. This is intended to link financing with the ability to vision and develop a city.
Implementation: An Apex Committee (AC), headed by the Secretary, MoUD and comprising representatives
of related Ministries and organisations and stakeholders will approve the Proposals for Smart Cities Mission,
monitor their progress and release funds.
Smart City Action Plans will be implemented by Special Purpose Vehicles (SPV) to be created for each city and
state governments will ensure steady stream of resources for SPVs.
Sovereign Guarantee
Sovereign Guarantee is a promise by the Government to discharge the liability of a third person in case of his
default.
Sovereign Guarantees are contingent liabilities of the Central and State Governments that come into play on the
occurrence of an event covered by the guarantee.
The guarantee cover of the Government of India (GoI) is limited only to the payment of principal and normal
interest in case of default. GoI is not be liable to pay any penal interest/any other charges. Further, in view of
the quasi-sovereign nature of the borrowings, it is stipulated that the interest payable should compare with yield
on G-securities of comparable maturity with a small spread. The guarantee once given would not be transferable
to any other agency. In case of default, the lending agency has to invoke the Guarantee within a time limit of 45
to 90 days of the default. In case the guarantee is not invoked within that stipulated period, the guarantee would
cease to exist for that portion of the tranche/loan/liability for which guarantee has not been invoked.
Legal Provisions
Article 292 of the Constitution of India extends the executive power of the Union to the giving of guarantees on
the security of the Consolidated Fund of India, within such limits, if any, as may be fixed by Parliament. Similar
powers are given to States under Article 293.