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GS Paper: GS3

  • Colourful molecules of turmeric

    Researchers have come forward with some interesting findings on Turmeric.

    Turmeric

    • Turmeric has about 3% of the active component molecule called curcumin, a polyphenol diketone (and not a steroid).
    • Researchers point out that there is another molecule in turmeric called piperine, which is an alkaloid, responsible for the pungency of pepper that we use every day in our cooking, along with turmeric.
    • Piperine enhances curcumin absorption in the body. It gives turmeric its multivariate healing and protective power.

    Benefits of turmeric consumption

    • Turmeric has been known for over 4,000 years in the Indian subcontinent, West Asia, Burma, Indonesia and China, and is used as an essential part of our daily food – what the colonials called curry powder.
    • It has also been known as a medicine for ages, and to have anti-bacterial, anti-oxidant and anti-inflammatory properties.
    • Herbal medicine experts have used turmeric to treat painful symptoms of arthritis, joint stiffness, and joint pain.
    • They have also claimed that turmeric helps cure acute kidney injuries. Some of these claims need to be checked using controlled trials.

    Against COVID-19

    • Most recently, an exciting study has recently been published by a group in Mumbai which shows that turmeric aids in the treatment of COVID-19 patients.
    • The researchers did a trial of about 40 COVID-19 patients and found that turmeric could substantially reduce morbidity and mortality.

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  • Indian bond trading is in need of better market making

    Context

    The Indian market for corporate debt needs buoyancy and this has been high on the agenda of our regulator

    Background

    • The Reserve Bank of India (RBI) stopped the automatic monetization of the fiscal deficit in 1997 and made the government borrow money from the market.
    • There are primary dealers or PDs, who pick up the Centre’s bond and provide buy and sell quotes in the secondary market for government bonds and thus help ensure sufficient liquidity.
    • The PDs came to be known as market makers and are paid a commission for playing that role.

    Liquidity challenge in the corporate bond market

    • Unlike the market for government bonds,  in the case of the country’s corporate bond market, the challenge is different.
    • It’s typically remunerative for a buyer to buy a security and hold on to it till its maturity.
    • Therefore, insurance companies, provident funds, and pension funds hold such long-term paper, as they can match the tenure of their assets with liabilities.
    • But this does not add liquidity to the market, and anyone buying a corporate bond today may not find someone to sell it to tomorrow as this market has little trading depth.
    •  Even in the G-Sec market, where we assume plenty of liquidity, it is a thinly-traded market, even though the perception is that it is very liquid.

    Why do we need market makers for the corporate bond market

    • To deal with the lack of depth and liquidity in the corporate debt market, the Securities and Exchange Board of India’s (Sebi) idea of creating market makers holds immense significance.
    • The fundamental problem here is that a bond is different from a share.
    • A company’s share can be exchanged seamlessly because every share in the market is the same slice of ownership.
    • Lack of quotes for different bonds of different tenure: In the case of bonds, however, there are several issuances of a company.
    • A single financial institution or non-bank financial company could have as many as 10 issuances a year of varying maturities and interest rates, making each of them a unique instrument.
    • Company XYZ may have issued in October 2015 a bond with a face value of ₹100 that pays 6% interest and is due for redemption in 2030, which will be quoted on exchanges for trading (if it’s being traded).
    • But, in 2021, it is no longer a 15-year bond, but a 9-year paper.
    • Therefore, the security loses importance, as the market normally uses benchmarks like 5 or 10 or 15 years; and every bond drops in the pecking order once it crosses these thresholds.
    • Therefore, we need to have market makers who will offer quotes for all major securities and thereby ensure that critical bonds are still available for trading.

    Suggestions

    • Provide waivers: Playing market maker will involve a cost and hence there should be certain waivers provided to them on trading fees.
    • Preferential access: They can be given preferential access to new issuances, so as to build up an inventory.
    • Waiver of mark-to-market: The mark-to-market (MTM) rules could be waived for a specified period, as valuation differences can affect their profit and loss accounts.
    • Capital at lower cost: Capital can be made available at a lower cost to market makers, as they require funding for the same.
    • Fifth, trade among market makers can be awarded benefits in terms of fees or easier taxes on gains made.
    • Create bond index: We need to have tradable-bond indices that reflect the price movements of a basket of bonds that they track.
    • Made public, such indices will provide appropriate arbitrage opportunities for investors to come in, and this should generate liquidity in the market for these bonds.

    Consider the question “Why bond market in India lacks the depth as compared to equity markets. What are the factors responsible for this? Suggest the way forward.”

    Conclusion

    Market makers are a way out. While success cannot be guaranteed, the idea should be adopted nonetheless, as with credit default swaps. It’s a work-in-progress. Let’s speed it up.

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    Back2Basics: Automatic monetization of deficit

    • The monetization of deficit was in practice in India till 1997, whereby the central bank automatically monetized government deficit through the issuance of ad-hoc treasury bills.
    • Two agreements were signed between the government and RBI in 1994 and 1997 to completely phase out funding through ad-hoc treasury bills.
    • And later on, with the enactment of the FRBM Act, 2003, RBI was completely barred from subscribing to the primary issuances of the government from April 1, 2006.

  • RBI, IRDAI nod must for FDI in bank-led insurance

    Applications for foreign direct investment in an insurance company promoted by a private bank would be cleared by the RBI and IRDAI to ensure that the 74% limit of overseas investment is not breached.

    What does one mean by Insurance?

    • Insurance is a contract, represented by a policy, in which an individual or entity receives financial protection or reimbursement against losses from an insurance company.
    • The company pools clients’ risks to make payments more affordable for the insured.
    • Insurance is a capital-intensive business so has to maintain a solvency ratio. The solvency ratio is the excess of assets over liabilities.
    • Simply put, as an insurance company sells more policies and collects premiums from policyholders, it needs higher capital to ensure that it is able to meet future claims.
    • In addition, insurance is a long gestation business. It takes companies 7-10 years to break even and start becoming profitable.

    Types of Insurance

    Insurance sector of India

    • The insurance regulator, the Insurance Regulatory and Development Authority of India (IRDAI), mandates that insurers should maintain a solvency ratio of at least 150 percent.
    • The insurance industry of India has 57 insurance companies 24 are in the life insurance business, while 34 are non-life insurers.
    • Among the life insurers, Life Insurance Corporation (LIC) is the sole public sector company.
    • In addition to these, there is a sole national re-insurer, namely the General Insurance Corporation of India (GIC Re).
    • Other stakeholders in the Indian Insurance market include agents (individual and corporate), brokers, surveyors, and third-party administrators servicing health insurance claims.
    • In India, the overall market size of the insurance sector is expected to be $280 billion in 2020.

    Recent developments

    The chronological order of events:

    1. Nationalization of life (LIC Act 1956) and non-life sectors (GIC Act 1972)
    2. Constitution of the Insurance Regulatory and Development Authority of India (IRDAI) in 1999
    3. Opening up of the sector to both private and foreign players in 2000
    4. Increase in the foreign investment cap to 26% from 49% in 2015
    5. Increase in FDI limit from 49% to 74% in March 2020

    Issues with India’s insurance sector

    Insurance is considered a sensitive sector as it holds the long-term money of people. Various attempts were made in the past to open up the sector but without much success.

    • Lower insurance penetration due to various economic reasons such as poverty, etc.
    • Domination of the Public Sector ex. LIC
    • Trust issues in private insurances due to insolvency of private players
    • Saving habits of the public

    Significance of the recent amendment

    • The current amendment is an enabling amendment that gives companies access to foreign capital if they need it.
    • It is an important shift instance as the increase in the FDI cap means insurance companies can now be foreign-owned and -controlled as against the current situation wherein they are only Indian-owned and -controlled.
    • The move is expected to increase India’s insurance penetration or premiums as a percentage of GDP, which is currently only 3.76 percent, as against a global average of more than 7 percent.

    What does this mean for Indian insurance companies?

    • India has more than 60 insurance companies specializing in life insurance, non-life insurance, and health insurance.
    • The number of state-owned firms is only six and the remaining are in the private sector.
    • A higher FDI limit will help insurance companies access foreign capital to meet their growth requirements.

    How does this impact Indian promoters of insurance companies?

    • Most of the Indian promoters of insurance companies are either Indian business houses or financial institutions like banks.
    • Many entered into the insurance space when they were financially strong but are now struggling to cater to the constant need to infuse capital into their insurance joint ventures.
    • Over the years, the sector has seen large-scale consolidation and exits of many promoters.
    • A higher FDI cap will mean that more promoters could now completely exit or bring down their stakes in their insurance joint ventures.

    What higher does FDI mean for policyholders?

    • Higher FDI limits could see more global insurance firms and their best practices entering India.
    • This could mean higher competition and better pricing of insurance products.
    • Policyholders will get a wide choice, access to more innovative products, and a better customer service and claims settlement experience.

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    Back2Basics: Foreign Direct Investment

    • An FDI is an investment in the form of controlling ownership in a business in one country by an entity based in another country.
    • It is thus distinguished from a foreign portfolio investment by a notion of direct control.
    • FDI may be made either “inorganically” by buying a company in the target country or “organically” by expanding the operations of an existing business in that country.
    • Broadly, FDI includes “mergers and acquisitions, building new facilities, reinvesting profits earned from overseas operations, and intra company loans”.
    • In a narrow sense, it refers just to building a new facility, and lasting management interest.

    FDI in India

    • Foreign investment was introduced in 1991 under Foreign Exchange Management Act (FEMA), driven by then FM Manmohan Singh.
    • There are two routes by which India gets FDI.

    1) Automatic route: By this route, FDI is allowed without prior approval by Government or RBI.

    2) Government route: Prior approval by the government is needed via this route. The application needs to be made through the Foreign Investment Facilitation Portal, which will facilitate the single-window clearance of the FDI application under the Approval Route.

    • India imposes a cap on equity holding by foreign investors in various sectors, current FDI in aviation and insurance sectors is limited to a maximum of 49%.
    • In 2015 India overtook China and the US as the top destination for Foreign Direct Investment.

  • Liberalizing Trade in Agriculture Machinery

    Context

    On July 15, the Centre issued a notification moving power tillers (PT) and their components from the “free” to “restricted” category indicating a clear intent to provide protection to the domestic industry.

    How heterodox opening policies affects farming

    Heterodox opening policies, being open on the export side while being closed on the import side, have long-term unintended consequences.

    • Productivity loss: One impact of heterodox policies is subpar mechanisation and productivity loss in agriculture.
    • India’s mechanisation coverage is around 40-45 per cent, compared to 90 per cent in developed countries.
    • At present, only Punjab, Haryana and western UP have mechanisation rates between 70 and 80 per cent whereas in eastern and southern states it is between 35 and 45 per cent, with even smaller coverage in North-Eastern states.
    • Comparatively high tariffs on agricultural machinery, placement under restricted trade hits the cog in the wheel of mechanisation.
    • Uncertainty and lower trade: A shift to restricted category and frequently changing tariffs engenders uncertainty and lowers trade.
    • Disincentivise innovation: Such policies also disincentivises domestic machine manufacturers to invest and innovate — the perils of protection.

    What India can learn from Bangladesh on farm mechanisation

    • Starting lower, Bangladesh overtook India in mechanisation by 2006.
    • A perfect example of orthodox opening in the late 1980s, Bangladesh removed import bans on Power Tiller and other machinery like diesel engines.
    • By 1995, PT were made duty free and credit support was provided for purchases.
    • Studies have credited PT in increasing the rice yield in Bangladeh, which grew 2.1 per cent annually from 1990, compared to 1.6 per cent between 1960 and 1989.

    Way forward

    If productivity in agriculture and incomes of farmers were to go up significantly, Indian agriculture must hit the mechanisation frontier.

    • Liberal and Stable trade policies: Liberal and stable trade policies will increase access, competition will expand varieties and bring down the prices.
    • New trade economics teaches us that farmers would be successful in trading or accessing markets only when highly productive, which beckons large scale and intensive mechanisation.
    • Credit support: Bangladesh also shows the role of complementary policies such as credit support.
    • Once the farmers achieve sufficiently high productivity, they can access markets and even integrate with global value chains (GVC) if allowed by policy as intended in the Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020.

    Conclusion

    Liberal trade in machinery presents an opportunity to access distant and international markets. The key is to be both ways open.

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  • What India’s informal sector needs right now

    Context

    Informal sector workers suffered far more from the national lockdown in 2020 than their formal sector counterparts.

    Significance of informal sector

    • India’s large informal sector, which employs around 80 per cent of the labour force and produces about 50 per cent of GDP.
    • Of the 384 million employed in the informal sector, half work in agriculture, living mostly in rural India, and the other half are in non-agricultural sectors.
    • Of those, about half live in rural India and the remaining in urban areas.
    • Ignoring problems in the informal sector can be costly as it can lead to job and wage losses, higher inflation and even risk the livelihood of migrant workers.

    Impact of pandemic on informal sector workers

    • Informal sector workers suffered far more from the national lockdown in 2020 than their formal sector counterparts.
    • Such disruptions can be inflationary too.
    • India was one of the few countries with high inflation throughout pandemic-stricken 2020.
    • The 40 per cent in the informal non-agricultural sector is the most affected by the pandemic.
    • These workers are most vulnerable as they have borne the brunt of the economic disruption that the pandemic has unleashed.

    Impact on the informal sector

    • Nominal GDP growth has been a good indicator of the formal sector corporate sales.
    • But during the pandemic and also during events like demonetisation, formal corporate sales have exceeded nominal GDP growth.
    • This means that some demand, which was previously supplied by the informal sector, began to be supplied by the formal sector.
    • Several surveys over this time also show a rise in urban unemployment and self-employment, with the latter category seeing the highest earnings loss.

    Way forward

    • Formalisation on the back of policy changes: While traditionally associated with efficiency gains, if it comes at the cost of putting small informal firms out of business.
    • Formalisation that comes only on the back of external pressure or leads to deep distress in the informal sector, may not be sustainable.
    • By contrast, formalisation that happens on the back of policy changes that help small and informal firms grow over time into medium or larger formal sector firms is more sustainable.
    • Social welfare scheme: We need protection for informal sector workers via social welfare schemes so that the disruption they are facing does not lead to a permanent fall in demand.
    • There is a case for remaining generous with programmes such as the rural MGNREGA scheme for longer.
    • India doesn’t have an MGNREGA equivalent urban social welfare scheme.
    • Reforms: Steps to promote reforms that are needed to help small businesses grow are critical.
    • For example, lowering the regulatory burden associated with growing firms.

    Conclusion

    Bringing the informal sector to the forefront of policy decisions can lead to a significant payoff for the entire economy for years to come.

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  • Sugarcane Pricing in India

    Earlier this month, the Supreme Court issued notices to States and major sugar producers to develop a mechanism to ensure that farmers are paid on time.

    Who determines Sugarcane prices?

    Sugarcane prices are determined by the Centre as well as States.

    1. The Centre announces Fair and Remunerative Prices which are determined on the recommendation of the Commission for Agricultural Costs and Prices (CACP) and are announced by the Cabinet Committee on Economic Affairs, which is chaired by Prime Minister.
    2. The State Advised Prices (SAP) are announced by key sugarcane producing states which are generally higher than FRP.

    Minimum Selling Price (MSP) for Sugar

    • The price of sugar is market-driven & depends on the demand & supply of sugar.
    • However, with a view to protecting the interests of farmers, the concept of MSP of sugar has been introduced since 2018.
    • MSP of sugar has been fixed taking into account the components of Fair & Remunerative Price (FRP) of sugarcane and minimum conversion cost of the most efficient mills.

    Basis of price determination

    • With the amendment of the Sugarcane (Control) Order, 1966, the concept of Statutory Minimum Price (SMP) of sugarcane was replaced with the Fair and Remunerative Price (FRP)’ of sugarcane in 2009-10.
    • The cane price announced by the Central Government is decided on the basis of the recommendations of the Commission for Agricultural Costs and Prices (CACP).
    • This is done in consultation with the State Governments and after taking feedback from associations of the sugar industry.

    Try this PYQ:

    Q.The Fair and Remunerative Price (FRP) of sugarcane is approved by the:

    (a) Cabinet Committee on Economic Affairs

    (b) Commission for Agricultural Costs and Prices

    (c) Directorate of Marketing and Inspection, Ministry of Agriculture

    (d) Agricultural Produce Market Committee

     

    [wpdiscuz-feedback id=”vewzy6vmxu” question=”Please leave a feedback on this” opened=”1″]Post your answers here.[/wpdiscuz-feedback]

    What is FRP?

    • FRP is fixed under a sugarcane control order, 1966.
    • It is the minimum price that sugar mills are supposed to pay to the farmers.
    • However, states determine their own State Agreed Price (SAP) which is generally higher than the FRP.

    Factors considered for FRP:

    • The amended provisions of the Sugarcane (Control) Order, 1966 provides for fixation of FRP of sugarcane having regard to the following factors:

    a) cost of production of sugarcane;

    b) return to the growers from alternative crops and the general trend of prices of agricultural commodities;

    c) availability of sugar to consumers at a fair price;

    d) price at which sugar produced from sugarcane is sold by sugar producers;

    e) recovery of sugar from sugarcane;

    f) the realization made from the sale of by-products viz. molasses, bagasse, and press mud or their imputed value;

    g) reasonable margins for the growers of sugarcane on account of risk and profits.

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  • Places in news: Cattle Island on Hirakud Reservoir

    The Odisha Forest and Environment Department is all set to begin ‘Island Odyssey’ and ‘Hirakud Cruise’ ecotourism packages for tourists to islands inside the reservoir.

    Cattle Island

    • ‘Cattle island’, one of three islands in the Hirakud reservoir, has been selected as a sight-seeing destination.
    • When large numbers of people were displaced from their villages when the Hirakud dam was constructed on the Mahanadi river in 1950s, villagers could not take their cattle with them.
    • They left their cattle behind in deserted villages.
    • As the area started to submerge following the dam’s construction, the cattle moved up to Bhujapahad, an elevated place in the Telia Panchayat under Lakhanpur block of Jharsuguda district.
    • Subsequently named ‘Cattle island’, it’s surrounded by a vast sheet of water.

    Other islands

    • Then there is an “island of bats”, also within the reservoir, just 1 km away from the Debrigarh ecotourism project.
    • It is the habitat of hundreds of bats.
    • Tourists also get a magnificent view of the sunset from the reservoir. ‘Sunset island’ is one of the three stops on the unique boat ride.

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  • Emergency award

    Context

    The judgment delivered by the Supreme Court in the legal tussle between Amazon and the Future Group has laid the foundation for recognition and enforcement of emergency awards under the Indian arbitration law.

    What is an emergency award?

    • It is an award rendered by an emergency arbitrator, appointed prior to the formal constitution of an arbitral tribunal by an arbitral institution.
    • It is a recent mechanism introduced by arbitral institutions to encourage parties to seek urgent interim relief from an arbitral institution rather than from a court.
    • Many leading arbitral institutions such as SIAC, ICC, and LCIA have provisions for the appointment of an emergency arbitrator.
    • As far as India is concerned, the 246th Law Commission Report had recommended an amendment in the Arbitration and Conciliation Act, 1996 (‘Indian Arbitration Act’) to grant statutory recognition to an emergency award.
    • Some of the indigenous arbitral institutions though, such as the Delhi International Arbitration Centre, have made provisions for emergency arbitration.

    What is the tussle between Amazon and Future Group about?

    • In August 2020, Biyani Group and the Reliance Industries Group decided to amalgamate Future Retail Ltd. (FRL) with Reliance Industries and complete disposal of its retail assets in favor of the Group.
    • However, prior to the said transaction, Amazon had invested an amount of Rs 1,431 crores in Future Coupons Pvt. Ltd. (FCPL) based on rights granted to FCPL with regard to FRL.
    • So, Amazon initiated arbitration against the Biyani Group, including FRL, under Singapore International Arbitration Centre (SIAC) Rules.
    • Amazon made an application seeking urgent interim reliefs under SIAC rules and the appointment of an emergency arbitrator.
    • The emergency arbitrator appointed, made an award in favor of Amazon in October 2020, restricting the Biyani Group from proceeding ahead with the disputed transaction.
    • However, the Biyani Group proceeded with the disputed transaction, construing the emergency award as a nullity.

    Issue of enforcement of the emergency award in India

    • Amazon filed an application before the Delhi High Court for enforcement of the award.
    • The court had the task of answering two novel legal questions —
    • 1) Whether the emergency award is an interim order under section 17(1) of the Indian Arbitration Act,
    • 2) Whether it can be enforced under section 17(2).
    • The Delhi High Court gave judgment in March 2021 against the Biyani Group.
    • The case eventually reached the Supreme Court.
    • Party autonomy: The Supreme Court judgment emphasized party autonomy in arbitration, which includes the right of the parties to choose institutional rules as the governing rules of arbitration.
    • Once chosen, the parties are bound by such rules.
    • The Supreme Court also held that the Indian Arbitration Act does not prohibit the parties from agreeing to a provision providing for an emergency arbitrator.
    • The Supreme Court also held that the term “during the arbitral proceedings” is wide enough to encompass emergency arbitration proceedings.
    • The Court ultimately held the emergency award to be an interim order under section 17(1) of the Indian Arbitration Act and enforceable under section 17(2).

    Significance of the judgment for arbitration in India

    • This judgment has contributed to the development of Indian arbitration law.
    • In the broader scheme of things, it is a victory for Indian arbitration and a sigh of relief for arbitral institutions.

    Conclusion

    The judgment is a reaffirmation of the fact that India is gradually stepping towards being an “arbitration-friendly” jurisdiction.

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  • Getting the perfect haircut from the IBC

    Understanding the role of IBC 2016

    • For reasons sometimes a company may experience stress, that is, is unable to repay the debt in time — implying that it has assets less than claims against it.
    • So, when a company has inadequate assets, the claim of an individual creditor may be consistent with its assets while claims of all creditors put together may not.
    • In such a situation, creditors may rush to recover their claims before others do, triggering a run on the company’s assets.
    • The IBC provides for reorganisation that prevents a value-reducing run on the company.
    • It aims to rescue the company if its business is viable or close it if its business is unviable, through a market process.
    • Restructuring: The claims of creditors are restructured, which may be paid to them immediately or over time.
    •  In case of closure, the assets of the company are sold, and proceeds are distributed to creditors immediately as per the priority rule.
    • Reorganisation by financial creditor: The IBC entrusts the responsibility of reorganisation to financial creditors as they have the capability and the willingness to restructure their claims.

    Why so much variation in haircut?

    • Where the company does not have adequate assets, realisation for financial creditors, through a rescue, may fall short of their claims known as haircut.
    • The IBC process yields a zero haircut (100% recovery of claimed amount) in one case and 100 per cent haircut (i.e. 0% recovery) in another.
    • Factors: It depends on several factors, including the nature of business, business cycles, market sentiments, and marketing effort.
    • It critically depends on at what stage of stress, the company enters the IBC process.
    • If the company has been sick for years, and its assets have depleted significantly, the IBC process may yield a huge haircut or even liquidation.
    • A haircut is typically the total claims minus the amount of realisation/amount of the claims.
    • But this formulation may not tell the complete story.
    • The realisation often does not include the amount that would be realised from equity holding post-resolution, and through the reversal of avoidance transactions and the insolvency resolution of guarantors — personal and corporate.
    • It also does not include realisations made in other accounts.
    • The amount of claim often includes NPA, which may be completely written off, and the interest on such NPA.
    • These understate the numerator and overstate the denominator, projecting a higher haircut.

    Significance of IBC

    • A haircut should be seen in relation to the assets available and not in relation to the claims of creditors.
    • The market offers a value in relation to what a company brings on the table, not what it owes to creditors.
    • Value maximisation: So, the IBC maximises the value of existing assets, not of assets that probably existed earlier.
    • Market determined value: The IBC enables and facilitates market forces to resolve stress as a going concern.
    • Resolution applicants, who have many options for investment, including in stressed companies, compete to offer the best value.
    • If the best value offered by the market is not acceptable to creditors, the company is liquidated.
    • Maximum realisation: In addition to rescuing the company, the IBC realises, of the available options for creditors, the highest in percentage terms.

    Conclusion

    It is a tool in the hands of stakeholders to be used at the right time, in the right case, in the right manner.

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    Back2Basics: Avoidable Transactions in IBC 2016

    • The UNCITRAL Legislative Guide on Law of Insolvency defines avoidance proceedings as “provisions of the insolvency law that permit transactions for the transfer of assets or the undertaking of obligations prior to insolvency proceedings to be cancelled or otherwise rendered ineffective and any assets transferred, or their value, to be recovered in the collective interest of creditors.”
    • It is very important for the Resolution Professional (RP) or the liquidator to identify such transaction and file applications to avoid it so that creditors can collect their claims.
    • The Insolvency and Bankruptcy Code, 2016 (IBC) contains four types of avoidable transactions- preferential, undervalued, defrauding creditors and extortionate transactions.
    • Usually, the avoidable transactions should be made within the prescribed relevant time or look back period.
    • Look back period is the relevant time up to which an RP or a liquidator can go back to scrutinize an expected avoidable transaction.

  • Government Securities Acquisition Programme (GSAP 2.0)

    The Reserve Bank of India (RBI) has announced that it will conduct an open market purchase of government securities of ₹25,000 crore under the G-sec Acquisition Programme (G-SAP 2.0).

    Answer this PYQ in the comment box:

    Q.Consider the following statements:

    1. The Reserve Bank of India manages and services the Government of India Securities but not any State Government Securities.
    2. Treasury bills are issued by the Government of India and there are no treasury bills issued by the State Governments.
    3. Treasury bills offer are issued at a discount from the par value.

    Which of the statements given above is/are correct?

    (a) 1 and 2 only

    (b) 3 Only

    (c) 2 and 3 only

    (d) 1, 2 and 3

     

    [wpdiscuz-feedback id=”69022k3vkm” question=”Please leave a feedback on this” opened=”1″]Post your answers here:[/wpdiscuz-feedback]

    What are Government Securities?

    • These are debt instruments issued by the government to borrow money.
    • The two key categories are:
    1. Treasury bills (T-Bills) – short-term instruments which mature in 91 days, 182 days, or 364 days, and
    2. Dated securities – long-term instruments, which mature anywhere between 5 years and 40 years

    Note: T-Bills are issued only by the central government, and the interest on them is determined by market forces.

    Why G-Secs?

    • Like bank fixed deposits, g-secs are not tax-free.
    • They are generally considered the safest form of investment because they are backed by the government. So, the risk of default is almost nil.
    • However, they are not completely risk-free, since they are subject to fluctuations in interest rates.
    • Bank fixed deposits, on the other hand, are guaranteed only to the extent of Rs 5 lakh by the Deposit Insurance and Credit Guarantee Corporation (DICGC).

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