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GS Paper: Indian Economy

  • RBI’s latest recommendations to regulate payment aggregators in offline spaces | Explained

    Why in the news?

    The Reserve Bank of India (RBI) has floated two consultation papers seeking enhanced regulation of payment aggregators carrying out face-to-face transactions. It also seeks to strengthen the ecosystem’s safety.

    What is Payment Aggregators?

    • A payment aggregator is a payment solution or a platform provider that aggregates various payment modes such cards, UPI, net-banking, wallets and alternate credit products by partnering with various processing entities such as acquiring banks, direct banks (in case of net banking) and issuers of wallets and alt credit products on to a single platform.

    What exactly are the norms about?  

    • Extension to Offline Transactions: The existing guidelines for payment aggregators cover their activities in e-commerce and online platforms. The latest draft proposes extending these regulations to offline spaces, including proximity or face-to-face transactions.
    • Convergence on Standards: The proposed norms aim to achieve convergence on standards of data collection and storage across online and offline transactions handled by payment aggregators.
    • Elaborate Guidelines: The proposed norms are detailed and comprehensive, reflecting lessons learned from incidents such as the Paytm Payments Bank crisis.
    • Strengthening Ecosystem: RBI’s objective seems to be strengthening the payment aggregator ecosystem against opacity and ensuring compliance with regulatory standards.
    • Penalties for Non-Compliance: The Financial Intelligence Unit (FIU-IND) imposed penalties on Paytm Payments Bank for engaging in illegal activities and failing to adhere to regulatory requirements, indicating strict consequences for non-compliance with the proposed norms.

    Is registration with the RBI being made compulsory?  

    The primary focus of this guidlines is on non-bank PAs and within them, the offline extensions.

    • PA based on Bank: Banks providing physical PA services as part of their normal banking relationship would not require any separate authorisation from the RBI. They are only expected to comply with the revised instructions within three months after they are issued.
    • PA without Banking: Non-banking entities providing PA services at the point of sale (PoS), that is, offline, would have to inform RBI within 60 days (after the circular is issued), about their intent to seek authorisation.

    Does it talk about provisions for sustainability?  

    • Minimum net worth aims to ensure the sustainability of non-banking entities: While the proposed norms primarily focus on regulatory compliance and financial stability, the requirement for a minimum net worth aims to ensure the sustainability of non-banking entities providing proximity/face-to-face transaction services. This is because entities with a stronger financial base are better positioned to weather economic challenges and uncertainties, thus promoting sustainability in the long run.
    • Risk-Based Payments: Payment aggregators are required to assign risk-based payments to merchants, focusing on sustainability. This involves assessing the risk associated with each merchant and adjusting payment terms accordingly.

    What about KYC requirements?  

    • Extended Scope of KYC: The proposed regulations aim to extend the scope of Know Your Customer (KYC) requirements for merchants onboarded by payment aggregators. While KYC is already mandatory, the regulations seek to make the provisions more nuanced.
    • Document Verification for Medium Merchants: Medium merchants, with a higher annual turnover threshold, must undergo additional document verification. Payment aggregators are expected to verify one official document each of the proprietor, beneficial owner or attorney holder, and the stated business.
    • Ongoing Compliance Monitoring: Payment aggregators must ensure that transactions undertaken by their merchants are in line with their business profiles. This involves ongoing monitoring to ensure compliance with KYC requirements and business activities.

    Conclusion: 

    The proposed norms aim to achieve convergence on standards of data collection and storage across both online and offline transactions handled by payment aggregators. This helps in streamlining regulatory requirements and ensuring consistency in data management practices.

    Mains PYQ 

    Q  How can the Digital India program help farmers to improve farm productivity and income? What step has the government taken in this regard? (UPSC IAS/2015)

    With Inputs from:

    https://www.thehindu.com/business/rbi-clampdown-on-lenders-could-moderate-credit-growth-in-2024-25/article67994838.ece

    https://www.thehindu.com/business/Industry/rbi-to-introduce-offline-erupee-transactions-soon-shaktikanta-das/article67824286.ece

  • What is the outlook on the global economy? | Explained

    Why in the news? 

    The International Monetary Fund (IMF) released its latest Global Financial Stability Report warning about the risks to the Global Financial System.

    What is the IMF’s worry about Inflation?

    • Premature Investor Enthusiasm: The IMF believes that investors may be overly optimistic about the end of high inflation and the subsequent lowering of interest rates by central banks. This enthusiasm could be premature.
    • Stalled Inflation: The IMF highlights that inflation may have stalled in some major advanced and emerging economies. Core inflation in the most recent three months has been higher than in the previous three months, indicating a potential slowdown in the decline of inflation.
    • Geopolitical Risks: The IMF warns that geopolitical risks, such as ongoing conflicts in West Asia and Ukraine, could disrupt aggregate supply and lead to higher prices. This could counteract efforts to lower inflation and deter central banks from lowering interest rates.
    • Potential Impact on Central Bank Action: The IMF suggests that if these risks persist, central banks may delay or refrain from lowering interest rates as expected by investors, which could have consequences for asset prices and investor losses.

    How it will impact the Indian Market?

    • Strong Fund Flows: Emerging markets like India have experienced strong inflows of foreign capital, driven by optimism surrounding potential interest rate cuts by central banks.
    • Vulnerability: If central banks in Western countries signal a prolonged period of high interest rates, investors may withdraw funds from emerging markets like India, putting pressure on their currencies.
    • Depreciation of the Indian Rupee: The Indian rupee has already been depreciating, reaching a new low against the U.S. dollar. This trend could continue if capital outflows accelerate.
      • In response to currency depreciation and capital outflows, the RBI may intervene by curbing liquidity and raising interest rates. However, this could slow down the economy.
    • Potential Effects on Financial System: A severe outflow of capital could have implications for India’s financial system, potentially exacerbating the depreciation of the rupee and causing instability.

    Private Credit Market Scenario:

    • The private credit market globally grew to $2.1 trillion last year, indicating its significant size and importance in the financial landscape.
    • The IMF is concerned about the unregulated private credit market, where non-bank financial institutions lend to corporate borrowers. Troubles in this market could potentially affect the broader financial system.
    • India has also witnessed the growth of a small private credit market, particularly with the rise of Alternative Investment Funds (AIFs).

    Conclusion: The IMF’s concerns over premature investor optimism on inflation and risks from geopolitical tensions highlight potential challenges for India’s financial stability. Vigilance over capital flows and regulation of the private credit market are essential safeguards.

    Mains PYQ:

    Q The World Bank and the IMF, collectively known as the Bretton Woods Institutions, are the two inter-governmental pillars supporting the structure of the world’s economic and financial order. Superficially, the World Bank and the IMF exhibit many common characteristics, yet their role, functions and mandate are distinctly different. Elucidate.

  • On the fall in Household Savings

    Why in the news? 

    The sharp reduction in Household Net Financial Savings and the rise in Household Debt burden are a cause for concern for growth and economic stability.

    BACK2BASICS:

    What are household financial savings?

    • Household financial savings refer to currency, bank deposits, debt securities, mutual funds, pension funds, insurance, and investments in small savings schemes. The total of these savings is referred to as gross household financial savings.

    What is Household Debt?

    • Household debt is all household liabilities (including non-profit institutions serving households) that require payments of interest or principal by households to creditors at a fixed date in the future.
    • Debt is calculated as the sum of the following liability categories: loans (primarily mortgage loans and consumer credit) and other accounts payable.

     

    What are the present reasons behind the Lower Financial savings?

    • Increased borrowing or reduced gross financial savings are the primary drivers of lower net financial savings.
    • Lower net financial savings due to increased borrowing for consumption or investment can stimulate aggregate demand and output.
    • Higher interest rates can lead to increased interest payments by households, reducing their net financial savings.

    Implication of Higher Debt Burden on the Indian Market: The rise in household debt burden has two concerns for the macroeconomy. 

    • Debt Repayment and Financial Fragility: Household debt sustainability depends on the gap between the interest rate and income growth rate. 
      • Suppose households fail to meet their debt repayment commitments. In that case, it reduces the income of the financial sector and deteriorates their balance sheets, which in turn can have a cascading effect on the macroeconomy.
    • Scheduled Commercial Banks Lending vs. Growth Rate of GNS: The weighted average lending rate registered a sharp rise in the last two years, particularly due to the tight monetary policy stance of the RBI and the sharp rise in the call money rate during this period.
    • Impact on Consumption Demand: Reducing household wealth can lead to lower consumption expenditure as households may attempt to preserve their wealth by increasing their savings.

    • Reduced Higher household debt: Higher household debt can also reduce consumption expenditure in at least two ways.
      • If higher household leverage is perceived as an indicator of higher default risk, then it may induce banks to indulge in credit rationing and reduce credit disbursement. The consequent reduction in credit disbursement can adversely affect consumption.
      • Higher debt can reduce consumption expenditure by increasing the interest burden, not to mention the effect of higher interest rates on consumption expenditure.
    • Low household Financial wealth: Recent trends in the Indian economy indicate a decline in household financial wealth relative to GDP, alongside an increase in household leverage (debt to net worth ratio). 
      • The financial wealth/net worth of the household is the difference between the stock of financial assets and liabilities.

    Macroeconomic Implication:

    • Implications of the Procyclical Leverage: Given that both the flow indicator of liabilities to disposable income and the debt to net worth show an increasing trend, where households are vulnerable.
    • Fall in the Household Savings: The policy mantra of higher interest rates to counter inflation by reducing macroeconomic output and employment can leave households with an increasing level of debt in their balance sheets and potentially push the households into a debt trap.
      • The implications of high-interest rates on debt burden can hurt the consumption of the households and consequently aggregate demand.

    Suggestive measures:

    • Promote sustainable borrowing: Policymakers need to address the growing vulnerabilities of households by implementing measures to promote sustainable borrowing practices and reduce reliance on debt.
    • Prioritizes production and employment: Additionally, the policies aimed at fostering a more balanced economy that prioritizes production and employment alongside financial activities may be necessary to ensure long-term economic stability and growth.

    Conclusion: The change in the composition of the asset side of the household balance sheet towards financial assets indicates some degree of financialization of the economy which moves from a production-based economy to a monetary or financial exchange-based economy making the 5 trillion dollar economy both jobless and fragile. 

    Mains PYQ:

    Q The public expenditure management is a challenge to the Government of India in the context of budgetmaking during the post-liberalization period. Clarify it.(UPSC IAS/2019)

  • [pib] Net Direct Tax collections exceed 2023-24 target

    Why in the news?

    • India’s net direct tax collections witnessed a remarkable growth of 17.7% in the fiscal year 2023-24, reaching ₹19.58 lakh crore.
      • This performance indicates a strong revenue stream for the government.

    Direct Tax Collections Trends in this Fiscal

    • Notably, Personal Income Taxes (PIT) played a pivotal role in driving the surge, accounting for 53.3% of the total tax kitty, up from 50.06% in the previous year.
    • Conversely, the contribution of corporate taxes dipped to 46.5% from 49.6% in the preceding fiscal.
    • While gross corporate tax collections increased, net tax receipts from Corporates, adjusted for refunds, experienced a slight decline.

    What Is Net of Tax?

    The term net of tax refers to the amount left after adjusting for the effects of taxes. Net of tax can be a consideration in any situation where taxation is involved. In the financial industry, ‘gross’ and ‘net’ are two key terms that refer to before and after paying certain expenses.

    It’s Significance:

    • Individuals and businesses often analyze before and after-tax values to make investment and purchasing decisions.
    • Net tax is also an important part of expense analysis when reviewing annual tax filings and the net income of businesses.

    Types of Direct Taxes:

    • Income Tax: Depending on an individual’s age and earnings, income tax must be paid. Various tax slabs are determined by the Government of India which determines the amount of Income Tax that must be paid.
      • The taxpayer must file Income Tax Returns (ITR) on a yearly basis. Individuals may receive a refund or might have to pay a tax depending on their ITR. Huge penalties are levied in case individuals do not file ITR.
    • Wealth Tax: The tax must be paid on a yearly basis and depends on the ownership of properties and the market value of the property. In case an individual owns a property, wealth tax must be paid and does not depend on whether the property generates an income or not.
      • Corporate taxpayers, Hindu Undivided Families (HUFs), and individuals must pay wealth tax depending on their residential status.
      • Payment of wealth tax is exempt for assets like gold deposit bonds, stock holdings, house property, commercial property that have been rented for more than 300 days, and if the house property is owned for business and professional use.
    • Estate Tax: It is also called an Inheritance Tax and is paid based on the value of the estate or the money that an individual has left after his/her death.
    • Corporate Tax: Domestic companies, apart from shareholders, will have to pay corporate tax. Foreign corporations who make an income in India will also have to pay corporate tax. Income earned via selling assets, technical service fees, dividends, royalties, or interest that is based in India are taxable. The below-mentioned taxes are also included under Corporate Tax:
      • Securities Transaction Tax (STT): The tax must be paid for any income that is earned via taxable security transactions.
      • Dividend Distribution Tax (DDT): In case any domestic companies declare, distribute, or are paid any amounts as dividends by shareholders, DDT is levied on them. However, DDT is not levied on foreign companies.
      • Fringe Benefits Tax: Companies that provide fringe benefits for maids, drivers, etc., Fringe Benefits Tax is levied on them.
      • Minimum Alternate Tax (MAT): For zero-tax companies that have accounts prepared according to the Companies Act, MAT is levied on them.
    • Capital Gains Tax: It is a form of direct tax that is paid due to the income that is earned from the sale of assets or investments. Investments in farms, bonds, shares, businesses, art, and home come under capital assets.
      • Based on its holding period, tax can be classified into long-term and short-term. Any assets, apart from securities, that are sold within 36 months from the time they were acquired come under short-term gains.
      • Long-term assets are levied if any income is generated from the sale of properties that have been held for a duration of more than 36 months.

    PYQ:

    [2014] The sales tax you pay while purchasing a toothpaste is a

    (a) Tax imposed by the Central Government

    (b) Tax imposed by the Central Government but collected by the State Government

    (c) Tax imposed by the State Government but collected by the Central Government

    (d) Tax imposed and collected by the State Government

  • Why have private investments dropped? | Explained

    Why in the news? 

    The failure of private investment, as measured by private Gross Fixed Capital Formation (GFCF) as a percentage of gross domestic product (GDP) at current prices, to pick up pace has been one of the major issues plaguing the Indian economy.

    What is GFCF?

    • GFCF refers to the growth in the size of fixed capital in an economy.
    • Fixed capital refers to things such as buildings and machinery, for instance, which require investment to be created.
    • So private GFCF can serve as a rough indicator of how much the private sector in an economy is willing to invest.
    • Overall GFCF also includes capital formation as a result of investment by the government.

    Why does it matter?

    • GFCF matters because fixed capital, by helping workers produce a greater amount of goods and services each year, helps to boost economic growth and improve living standards.
    • In other words, fixed capital is what largely determines the overall output of an economy.

    What is the trend seen in private investment in India?

    • Pre-liberalization (1950s to early 1990s): Private investment remained relatively stable, hovering around or slightly above 10% of GDP. Public investment, however, steadily increased during this period.
    • Liberalization (early 1990s onwards): Economic reforms in the early 1990s improved private sector confidence, leading to a significant uptick in private investment. Public investment, although still significant, began to decline relative to private investment.
    • Post-global financial crisis (late 2000s to present): Private investment continued to grow until the global financial crisis of 2007-08, reaching around 27% of GDP. However, from around 2011-12 onwards, private investment began to decline, hitting a low of 19.6% of GDP in 2020-21.

    Why has private investment fallen?

    • Low private consumption expenditure: Some economists attribute the decline in private investment to low private consumption expenditure. They argue that businesses need confidence in future demand to invest in fixed capital, and boosting consumption expenditure can help stimulate private investment.
    • Structural problems and policy uncertainty: Other economists argue that structural issues and policy uncertainty are core reasons behind the fall in private investment. They point to unfavourable government policies and policy uncertainty as major factors affecting private investment.

    Conclusion: To address the decline in private investment, India needs policies promoting consumer confidence and stable, conducive business environments. Balancing pro-growth fiscal measures with structural reforms can stimulate investment, fostering economic growth and prosperity.

    Mains PYQ 

    Q Explain the meaning of investment in an economy in terms of capital formation. Discuss the factors to be considered while designing a concession agreement between a public entity and private entity.(UPSC IAS/2020)

  • Special Rupee Vostro Account (SRVA)

    Why in the news?

    India has simplified the payment mechanism for traders importing pulses from Myanmar, requiring them to use the Rupee/Kyat direct payment system through the Special Rupee Vostro Account (SRVA) through the Punjab National Bank.

    International Transactions Settlement Mechanism:

    [1] Vostro Accounts:

    • Named from the Latin word “vostro,” meaning “yours.”
    • Represents a domestic bank’s account held by a foreign bank in the local currency (e.g., INR in India).
    • Allows foreign banks to manage local currency transactions on behalf of their clients.
    • For example, a foreign bank holding an account in an Indian bank in Indian Rupees (INR) for facilitating transactions within India.

    [2] Nostro Accounts:

    • Derived from the Latin word “nostro,” meaning “ours.”
    • Refers to a foreign bank’s account held by a domestic bank in the foreign currency (e.g., USD in the United States).
    • Enables domestic banks to handle foreign currency transactions for their clients.
    • For instance, an Indian bank holding an account in a U.S. bank in U.S. Dollars (USD) to facilitate international transactions in the U.S. currency.

    [3] Loro Accounts:

    • From the Italian word “loro,” meaning “their.”
    • Represents an account held by one foreign bank in another foreign bank’s currency.
    • Facilitates interbank transactions between two foreign banks without converting currencies into a domestic currency.
    • For example, if a bank in India holds an account in a bank in the United States in USD (U.S. Dollars) to facilitate transactions between those two banks.

    What is Special Rupee Vostro Account (SRVA)?

    Information
    Definition Domestic banks hold INR accounts for foreign banks, promoting direct trade in rupees.
    Purpose
    • Complements existing currency systems, allowing INR-based settlements.
    • Reduces reliance on foreign currencies, mitigating economic shocks.
    • Aims to elevate INR’s global status and facilitates trade with sanctioned countries.
    Framework Components
    • All exports and imports invoiced in INR.
    • Exchange Rate is Market-determined.
    • Final trade settlements takes place in INR.
    Functioning
    • Indian banks open SRVA accounts for foreign banks.
    • INR used for import payments and export receipts.
    Compliance
    • Enables advance payments for Indian exporters, complying with Foreign Exchange Management Act (FEMA), 1999.
    • Correspondent bank should not from a country mentioned in the updated Financial Action Task Force (FATF) Public Statement on High Risk & Non-Co-operative jurisdictions
    Purpose of the Arrangement
    • Reduces demand for foreign currencies, increasing INR use in trade.
    • Mitigates economic shocks by minimizing reliance on foreign exchange.
    • Aims to boost INR’s global acceptance and facilitates trade with sanctioned nations.

     

    How are the SRVA different from the already existing Rupee Vostro Account?

    • The settlement of International trade through Indian Rupees (INR) is an additional arrangement to the existing system of settlement.
    • SRVA requires prior approval (of RBI) before opening unlike Rupee Vostro account.

    PYQ:

    [2015] Convertibility of rupee implies:

    (a) being able to convert rupee notes into gold

    (b) allowing the value of rupee to be fixed by market forces

    (c) freely permitting the conversion of rupee to other currencies and vice versa

    (d) developing an international market for currencies in India

  • Why has India allowed FIIs to invest in its Green Bonds? | Explained

    Why in the News? 

    On April 5 the Reserve Bank of India (RBI) greenlighted investments in the country’s Sovereign Green Bonds (SGrBs) by Foreign Institutional Investors (FIIS).

    • These are the investors such as insurance companies, pension funds, and nation-states’ sovereign wealth funds.

    What is the Sovereign Green Bond?

    • It is a type of bond issued by a government to finance projects and expenditures that have a positive environmental impact and are aligned with sustainability goals.
    • These bonds are specifically earmarked for funding green projects, assets, and expenditures that contribute to environmental sustainability and climate objectives.

    Why has India allowed FIIs to invest in its Green Bonds?

    • For attracting Foreign Investments: By allowing FIIs to invest in green bonds, India attracts foreign capital into its green projects.
    • For Widening the Pool of Capital: Allowing FIIs to invest in India’s green projects expands the sources of funding available for the country’s ambitious climate goals, including achieving net zero emissions by 2070 and increasing the share of non-fossil fuel-based energy sources to 50%.
    • For Meeting Climate Commitments: Prime Minister Narendra Modi pledged at COP26 in Glasgow in 2021 to reduce India’s carbon emission by 45% and increase the share of renewable energy in the country’s energy mix.
    • For Diversification of Investments: FIIs are looking to diversify their portfolios and seek opportunities in green investments due to regulatory support, particularly in developed countries.
      • India’s Sovereign Green Bonds Framework (2022), addresses concerns about greenwashing by providing a credible framework for green investments.

    Limitation For Govt. of India:

    • Limited credibility of projects: The absence of specific regulations for green bonds leaves investors unable to assess the financial risk associated with the projects.
    • Higher costs of issuing: The high cost of issuing green bonds in India poses a challenge for the market. Green bonds are initially costly but provide long-term cost savings.
    • Greenwashing may not be resolved: Greenwashing, which is the deceptive promotion of a company’s eco-friendly image, is prevalent in the green bond industry. Some bonds are labeled as “green” despite not meeting the specified criteria.

    Way Forward:

    • Establish Clear Regulations: The government should establish clear and stringent regulations for green bonds, outlining specific criteria for eligible projects.
    • Enhance Project Credibility: Implement mechanisms for independent verification and certification of green projects to ensure their credibility.
    • Lower Issuance Costs: Explore options to reduce the issuance costs of green bonds, such as providing incentives or subsidies to issuers.

    BACK2BASICS:

    About India’s Sovereign Green Bonds Framework:

    • It was first announced in the Union Budget 2022-23, where the proceeds of these green bonds will be issued for mobilizing resources for green infrastructure.
    • It was aimed to mobilize Rs 16,000 crore through the issuance of Green Bonds in the fiscal ending of March 2023.

    How they are issued?

    • The Finance Ministry will, each year, inform the RBI about spending on green projects for which the funds raised through these bonds will be used.
    • Green Bonds will be issued through a Uniform Price Auction (a public sale in which a fixed number of similar things are sold at the same price).

    What is the Eligibility for Repurchase Transactions (Repo)?

    • SGrBs will be eligible for Repurchase Transactions (Repo).
    • SGrBs will also be reckoned as eligible investments for Statutory Liquidity Ratio (SLR)

     

    Mains PYQ 

    Q Explain the purpose of the Green Grid Initiative launched at the World Leaders Summit of the COP26 UN Climate Change Conference in Glasgow in November 2021. When was this idea first floated in the International Solar Alliance (ISA)?

  • India could face ‘Imported Inflation’: Asian Development Bank (ADB)

    Why in the News?

    The Asian Development Bank recently issued a cautionary note for India’s susceptibility to imported inflation due to potential rupee depreciation amidst escalating interest rates in the West.

    What is Imported Inflation?

    • Imported inflation refers to the increase in the prices of goods and services within a country caused by a rise in the cost or price of imports.
    • This phenomenon occurs when factors such as a depreciating currency, higher import costs, or increased international prices lead to elevated expenses for imported goods and services.
    • Consequently, producers may adjust their prices upward to offset these higher costs, resulting in inflationary pressures within the domestic economy.
    • This idea connects with the theory of cost-push inflation, which means that when input costs go up, it can cause prices for final products to go up too.

    Reason behind the imported inflation:

    • Capital Flows: Increased interest rates in Western economies attract foreign investors seeking higher returns, leading to capital outflows from countries like India and potentially depreciating the Indian rupee.
      • When a currency depreciates, local consumers require more of their domestic currency to procure foreign goods, consequently elevating import prices.
    • Borrowing Costs: Indian businesses and the government may face higher borrowing costs for infrastructure projects and investments if they raise funds in foreign currency-denominated international markets.
    • Inflationary Pressures: Capital outflows can pressure the Indian rupee, causing imported inflation as the cost of imported goods rises due to currency depreciation.
    • Trade Competitiveness: Exchange rate fluctuations from Western interest rate changes affect India’s trade competitiveness, impacting exports, imports, and domestic consumption.

    Back2Basics: Asian Development Bank (ADB)

    Information
    Establishment Established in 1966 as a result of the Conference on Asian Economic Cooperation held by the United Nations Economic Commission for Asia and the Far East.
    Headquarters Manila, Philippines
    Official Status Official United Nations Observer
    Objectives
    • Reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth, and regional integration.
    • Providing Loans, technical assistance, and Grants.
    • Offering “hard” loans on commercial terms primarily to middle income countries and “soft” loans with lower interest rates to poorer countries.
    • Providing direct financial assistance to private sector companies for projects with clear social benefits.
    • Maximizing development impact through policy dialogues, advisory services, and co-financing operations.
    Membership
    • 67 members, with 48 from the Asia and Pacific region.
    • Admits members of the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP) and non-regional developed countries.
    Funding
    • Japan and United States hold the largest proportion of shares at 15.607%.
    • China holds 6.444%, India holds 6.331%, and Australia holds 5.786%.
    Sources
    • Bond issues on the world’s capital markets.
    • Members’ contributions and retained earnings from lending operations.
    • Repayment of loans.

     

    PYQ:

    [2021] With reference to Indian economy, demand-pull inflation can be caused/increased by which of the following?​

    1. Expansionary policies​
    2. Fiscal stimulus​
    3. Inflation-indexing wages​
    4. Higher purchasing power​
    5. Rising interest rates​

    Select the correct answer using the code given below.

    (a) 1, 2 and 4 only

    (b) 3, 4 and 5 only

    (c) 1, 2, 3 and 5 only

    (d) 1, 2, 3, 4 and 5

  • India Initiates Review of Asean Trade Pact to Boost Domestic Manufacturing

    Why in the news?

    The review aims to address concerns such as the inverted duty structure, which puts local manufacturers at a disadvantage.

    Trade deficit issue with ASEAN 

    • High trade deficit: The trade deficit between India and the Association of Southeast Asian Nations (ASEAN) has been a significant issue, with the deficit widening to USD 43.57 billion in the last fiscal from USD 25.76 billion in 2021-22 and just USD 5 billion in 2010-11
    •  Review AITIGA:This has led to a review of the ASEAN-India Trade in Goods Agreement (AITIGA) by 2025, aiming to address concerns about trade barriers, abuse of the agreement, and the growing trade gap between India and the ASEAN region

    ASEAN-India Trade in Goods Agreement (AITIGA)

    • The ASEAN-India Trade in Goods Agreement (AITIGA) is a trade agreement between the ten member states of ASEAN and India, signed in 2009 and implemented in 2010. The agreement aims to establish a free trade area between the parties, covering trade in physical goods and products, and progressively eliminating duties on 76.4 percent of goods. 

    The trade deficit between India and the ASEAN region is primarily due to the following reasons:

    • Tariff disparities: India’s tariffs were much higher than partner countries, leading to a significant reduction in tariffs for partner countries, which in turn caused India’s imports to grow faster than exports. This imbalance has been widening since 2010-11, the year India entered into an agreement with ASEAN
    • Non-tariff barriers and regulations: India’s exports to ASEAN have been affected due to non-reciprocity in FTA concessions, non-tariff barriers, import regulations, and quotas. These factors have hindered India’s ability to fully benefit from the FTA
    • Routing of goods from third countries: There have been concerns about the routing of goods from third countries, such as China, to ASEAN countries with minimum value addition and then being imported into India, misusing the India-ASEAN FTA. This practice has contributed to the growing trade deficit
    • Limited market access for Indian products: India’s exports of products such as textile clothing, footwear, food products, and minerals don’t have a significant place in ASEAN imports, while there is a higher dependence on products such as vegetables, fuels, chemicals, and metals from ASEAN, which are essential commodities

     Conclusion 

    India’s review of the ASEAN-India Trade in Goods Agreement aims to tackle the widening trade deficit by addressing tariff disparities, non-tariff barriers, and the misuse of the agreement, crucial steps toward fostering fair and balanced trade relations.

    Mains question for practice 

    Q Discuss the factors contributing to high  deficit between India and ASEAN. 

     

  • What is Consumer Confidence Survey?

    Why in the news?

    • The latest Consumer Confidence Survey conducted by the Reserve Bank of India in March 2024 reveals a significant boost in consumer confidence, particularly regarding future expectations.
    • It says consumer confidence has hit highest level in nearly 5 years.

    What is Consumer Confidence Survey (CCS)?

    • The RBI conducts a bi-monthly Consumer Confidence Survey to measure consumers’ perceptions of the prevailing economic situation.
    • It was started in 2015 with surveys in 13 major cities.
    • The survey is conducted across various cities and measures consumer confidence on parameters such as the economy, employment, price, income, and spending.
    • The survey consists of questions regarding consumers’ sentiments over various factors in the current situation and future.

    Here are a few parameters that help aggregate overall confidence:

    1. Spending: The consumer is asked about the willingness to spend on major consumer durables, purchasing vehicles, or real estate. This measures the overall spending scenario on necessities as well as luxuries for the next quarter.
    2. Employment: The consumer is asked about current and future ideas on employment situations, joblessness, job security, which reflects the sentiments of the current or expected employment in the country.
    3. Inflation: The consumer is asked about interest rates and levels of prices of all goods, tracking the price expected by consumers and their spending on basic necessities.

    Components of CCS:

    1. Current Situation Index (CSI): It measures overall consumer sentiment regarding the present economic situation.
    2. Future Expectations Index (FEI): It analyses consumer sentiment for the next 12 months.

    CSI and FEI are calculated based on people’s views about the economy, their income, spending, job opportunities, and prices compared to the previous year and expectations for the year ahead.

    Key Highlights of the recent report

    • Future Expectations Index (FEI) has climbed by 2.1 points to reach 125.2, marking its highest level since mid-2019, indicating heightened optimism among consumers for the year ahead.
    • Current Situation Index (CSI) has surged by 3.4 points to reach 98.5, marking its highest level since mid-2019.

    PYQ:

    [2018] As per the NSSO 70th Round “Situation Assessment Survey of Agricultural Households”, consider the following statements-

    1. Rajasthan has the highest percentage share of agricultural households among its rural households.

    2. Out of the total agricultural households in the country, a little over 60 percent belong to OBCs.

    3. In Kerala, a little over 60 percent of agricultural households reported to have received maximum income from sources other than agricultural activities.

    Which of the statements given above is/are correct?

    (a) 2 and 3 only

    (b) 2 only

    (c) 1 and 3 only

    (d) 1, 2 and 3