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GS Paper: GS3-12.Effects of liberalization on the economy, changes in industrial policy and their effects on industrial growth

  • Forex Reserves of India

    India’s foreign exchange reserves rose by $943 million to touch a lifetime high of $462.16 billion according to the latest data from the RBI.

    Forex reserves of India

    • They are holdings of cash, bank deposits, bonds, and other financial assets denominated in currencies other than Indian rupee.
    • The reserves are managed by the Reserve Bank of India for the Indian government and the main component is foreign currency assets.
    • They act as the first line of defense for India in case of economic slowdown, but acquisition of reserves has its own costs.
    • They facilitate external trade and payment and promote orderly development and maintenance of foreign exchange market in India.
    • They act as a cushion against rupee volatility once global interest rates start rising.

    Composition of Forex

    • Reserve Bank of India Act and the Foreign Exchange Management Act, 1999 set the legal provisions for governing the foreign exchange reserves.
    • RBI accumulates foreign currency reserves by purchasing from authorized dealers in open market operations.
    • The Forex reserves of India consist of below four categories:
    1. Foreign Currency Assets
    2. Gold
    3. Special Drawing Rights (SDRs)
    4. Reserve Tranche Position

    What is Reserve tranche?

    • Reserve tranche is a portion of the required quota of currency each member country must provide to the International Monetary Fund (IMF) that can be utilized for its own purposes.

    What are Special Drawing Rights?

    • The SDR is an international reserve asset, created by the IMF in 1969 to supplement its member countries’ official reserves
    • The SDR is neither a currency nor a claim on the IMF.
    • Initially SDR was defined as equivalent to 0.888671 grams of fine gold, which at the time, was also equivalent to one U.S. dollar.
    • After the collapse of the Bretton Woods system, the SDR was redefined as a basket of currencies.
    • This basket Includes five currencies—the U.S. dollar, the euro, the Chinese renminbi, the Japanese yen, and the British pound sterling.

  • Specialized Supervisory and Regulatory Cadre (SSRC)

    The RBI has decided to recruit 35% of the specialised supervisory and regulatory cadre from the market while the remaining 65% will be recruited via internal promotions.

    Specialized Supervisory and Regulatory Cadre (SSRC)

    • The SSRC will comprise officers in Grade B to Executive Director level.
    • In Nov. last year RBI decided to reorganize its regulation and supervision departments.
    • It merged the three regulatory departments (department of banking, non-banking and cooperative bank) into one and did likewise for the three supervisory departments.
    • As a result, there is only one supervisory department which looks after supervision of banks, NBFCs and cooperative banks and only one regulatory department for these three.
    • The move is aimed at dealing more effectively with potential systemic risk that could come about due to possible supervisory arbitrage and information asymmetry.

  • InvITs and REITs

     

    Markets regulator SEBI has put in place a framework for the rights issue of units by listed REIT and InvITs.

    What are InvITs and REITs?

    Infrastructure Investment Trusts (InvIT)

    • An Infrastructure Investment Trust (InvITs) is like a mutual fund, which enables direct investment of small amounts of money from possible individual/institutional investors in infrastructure to earn a small portion of the income as return.
    • InvITs work like mutual funds or real estate investment trusts (REITs) in features.
    • InvITs can be treated as the modified version of REITs designed to suit the specific circumstances of the infrastructure sector.
    • They are similar to REIT but invest in infrastructure projects such as roads or highways which take some time to generate steady cash flows.

    Real Estate Investment Trusts (REIT)

    • A REIT is roughly like a mutual fund that invests in real estate although the similarity doesn’t go much further.
    • The basic deal on REITs is that you own a share of property, and so an appropriate share of the income from it will come to you, after deducting an appropriate share of expenses.
    • Essentially, it’s like a group of people pooling their money together and buying real estate except that it’s on a large scale and is regulated.
    • The obvious pitch for a REIT is that it enables individuals to generate income and capital appreciation with money that is a small fraction of what would be required to buy an entire property.
    • However, the resemblance to either mutual funds or to owning property ends there.
    • According to Indian regulation on REITs, these are meant to primarily own finished and rented out commercial properties –– 80 per cent of the investments must be in such assets. That excludes a real estate that is under development.

    Why need InvITs and REITs?

    • Infrastructure and real estate are the two most critical sectors in any developing economy.
    • A well-developed infrastructural set-up propels the overall development of a country.
    • It also facilitates a steady inflow of private and foreign investments, and thereby augments the capital base available for the growth of key sectors in an economy, as well as its own growth, in a sustained manner.
    • Given the importance of these two sectors in the country, and the paucity of public funds available to stimulate their growth, it is imperative that additional channels of financing are put in place.

    What did SEBI rule?

    • SEBI said the issuer will have to disclose objects of the issue, related-party transactions, valuation, financial details, review of credit rating and grievance redressal mechanism in the placement document.
    • The SEBI had first notified REITs and InvIT Regulations in 2014, allowing setting up and listing of such trusts which are popular in some advanced markets.

  • [pib] National Startup Advisory Council

    The Union Government has notified the structure of the National Startup Advisory Council to advice on measures needed to build a strong ecosystem for nurturing innovation and startups in the country.

    National Startup Advisory Council

    • The Council will be chaired by Minster for Commerce & Industry.
    • It will consist of the non-official members, to be nominated by Central Government, from various categories like founders of successful startups, veterans and persons capable of representing interests of incubators and accelerators etc.
    • The term of the non-official members of the Startup Advisory Council will be for a period of two years.
    • The nominees of the concerned Ministries/Departments/Organisations, not below the rank of Joint Secretary to the Government of India, will be ex-officio members of the Council.
    • Joint Secretary, Department for Promotion of Industry and Internal Trade will be the Convener of the Council.

    Various functions

    • The Council will suggest measures to foster a culture of innovation amongst citizens and students in particular, promote innovation in all sectors of economy across the country
    • It will also suggest measures to facilitate public organizations to assimilate innovation with a view to improving public service delivery, promote creation, protection and commercialization of intellectual property rights.
    • It would suggest making it easier to start, operate, grow and exit businesses by reducing regulatory compliances and costs, promote ease of access to capital for startups, and incentivize domestic capital for investments into startups.
    • It would also mobilize global capital for investments in Indian startups, keep control of startups with original promoters and provide access to global markets for Indian startups.

  • [pib] APNA UREA – SonaUgle

     

    APNA UREA – SonaUgle

    • The Union Minister for Chemicals and Fertilizers launched the “APNA UREA – SonaUgle” brand of Hindustan Urvarak & Rasayan Limited (HURL).
    • HURL is Joint Venture Company promoted by the three Maharatna Companies i.e. Coal India Limited (CIL), NTPC Limited (NTPC) and Indian Oil Corporation Limited (IOCL) as the lead promoters with FCIL and HFCL as other two partners.
    • The commissioning of the HURL’s three Units in the states of UP, Bihar and Jharkhand will open forward and backward linkages for business activity in the Eastern part of India.
    • It will be instrumental in opening new avenues for the generation of income and employment in the Eastern part of our country.

  • Telecommunication Consumers Education and Protection Fund (TCEPF)

    The Telecom Regulatory Authority of India (TRAI) has informed that telecom service providers will need to deposit all unclaimed money of consumers, including excess charges and security deposit, in the Telecommunication Consumers Education and Protection Fund (TCEPF).

    Telecommunication Consumers Education and Protection Fund (TCEPF)

    • The TCEPF Regulations, 2007 have been amended to provide the basic framework for depositing unclaimed money of consumers by service providers, maintenance of the TCEPF and other related aspects.
    • Any unclaimed / unrefundable amount belonging to consumers in the TCEP fund will be utilized for the welfare measures of the consumers.
    • With this amendment, service providers will deposit any unclaimed consumer money of any form such as excess charges, security deposit, plan charges of failed activations, or any amount belonging to a consumer, which service providers are unable to refund to consumers.

    Why such move?

    • The TRAI observed that there is a need to bring clarity among service providers in depositing money which they are unable to refund to the consumers.
    • While some service providers were depositing money only on account of excess billing revealed in the audit, others were depositing unclaimed money such as security deposits and plan charges of failed activations.

  • Punjab’s new Right to Business Bill

    The Punjab Cabinet this week gave its approval to a Punjab Right to Business Bill, 2020, a law aimed at ensuring ease of doing business for the Micro, Small and Medium Enterprises (MSME) sector.

    Punjab Right to Business Bill, 2020

    • Under the law, an MSME unit can be set up after ‘In-Principle’ approval from the District Bureau of Enterprise, headed by the Deputy Commissioner, working under the guidance of the State Nodal Agency, headed by the Director, Industries.
    • Approval for units in approved Industrial Parks will be given in three working days.
    • For new enterprises outside approved Industrial Parks, the decision on the Certificate shall be taken by the District Level Nodal Agency within 15 working days, as per the recommendations of the Scrutiny Committee.

    What is the timeframe for unit owners to comply?

    • Unit owners will have three and a half years after setting up the unit to obtain seven approvals from three departments: the sanction of building plans; issuance of completion/occupation certificate for buildings; registration of new trade licences.
    • The industries involving hazardous processes will have to obtain a Fire NOC and get approval for the factory building plan before setting up the unit.
    • All units will have to get environmental clearance from the Pollution Control Board beforehand.

    Why was a law needed, rather than an executive order?

    • According to the government, the Act will have overriding powers over various Acts of different departments that make approvals necessary before the setting up of small and medium units.
    • This purpose could not have been achieved by an executive order.
    • How the law actually works on the ground remains to be seen, however.

  • HSN Code

     

    No imports will be allowed without HSN code into the country clarified the Union Minister of Commerce & Industry.

    What is HSN Code?

    • HSN code stands for “Harmonized System of Nomenclature”.
    • This system has been introduced for the systematic classification of goods all over the world.
    • HSN code is a 6-digit uniform code that classifies 5000+ products and is accepted worldwide.
    • It was developed by the World Customs Organization (WCO) and it came into effect from 1988.
    • The main purpose of HSN is to classify goods from all over the World in a systematic and logical manner. This brings in a uniform classification of goods and facilitates international trade.

  • [op-ed snap] Mining deep

    Context

    The government eased the regulations for coal mining in India.

    What does the opening mean?

    • Removal of restrictions: Until now there were restrictions on who could bid for coal mines.
    • Only those in power, iron and steel and coal washery business could bid for mines.
    • The bidders needed the prior experience of mining in India.
    • Who can buy now?: The move will open up the coal mining sector completely, enabling anyone with finances and expertise to bid for blocks and sell the coal freely to any buyer of their choice.

    Benefits of opening

    • More value extraction: The restrictions limited the potential bidders to a select circle of players and thus limited the value that the government could extract from the bidding.
    • Now the Government can extract more value from the auction of the blocks.
    • Development of coal market: Second, end-use restrictions inhibited the development of a domestic market for coal.
    • Job creation: Large investment will create jobs in the sector.
    • Increase in Demand: It will also set off demand in critical sectors such as mining equipment and heavy commercial vehicles.
    • Technology infusion: The country may also benefit from an infusion of sophisticated mining technology, especially for underground mines, if multinationals decide to invest.
    • Ease on Current account: In value terms, coal imports touched $26.18 billion in 2018-19, up from $15.76 billion in 2016-17.
    • This surge in coal imports, along with oil and electronics imports, has exerted pressure on the country’s current account in recent years.

    Why the move matters

    • 70 % of energy production in India is coal-based.
    • Until now Coal India was the only commercial miner in the country for more than four decades accounting for 82 per cent of the coal production in the country.
    • The productivity of coal is still an issue in the country. Coal is a very crucial raw material that is used in the power sector and also in cement and metal sectors.

    Way forward

    The relaxation in regulations, along with previous initiatives such as allowing 100 per cent foreign direct investment through the automatic route in commercial coal production, can aid in boosting coal production in the country and help reduce imports.

    Coal India Limited (CIL) has to be nurtured even as private players are welcomed.

  • Changes in Industrial Policy and its effect on growth

    1. Industrial development in India
    2. Industrial Policy in India and its effects on growth
    3. Public sector undertakings in India
    4. Privatisation of the Public Sector Enterprises