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  • Tackling the inflation

    Context

    Expectations that commodity and oil prices would cool down in 2022 as the pandemic ebbed were belied by the Russia-Ukraine conflict, which exacerbated existing pressures. Fresh lockdowns in China are also extending the pandemic-induced supply-chain bottlenecks.

    Challenges for central banks

    • Systemically important central banks that viewed the consistent uptick in inflation as transitory — caused by post-pandemic supply shocks — are now finding it hard to bottle the genie.
    • Inflation in the time of weak growth: What central banks like even less is having to deal with rising inflation in times of weak growth.
    • Because the primary tool they have to fight it — the interest rate hike — can be recessionary.

    Inflation in India

    • CPI inflation averaged 6.3 per cent in the January-March 2022, above the RBI’s target range of 2-6 per cent.
    • The RBI forecasts inflation for April-June at 6.3 per cent.
    • One more quarter over the 6 per cent mark, and the central bank would owe the government an explanation.
    • Factors driving inflation: Fiscal 2021-In fiscal 2021, inflationary pressures came largely from food and, to some extent, core which excludes fuel and food.
    • Fiscal 2022- In fiscal 2022, crude prices hardened to emerge as the new driver. Core inflation firmed up further.
    • But the drop in food inflation offset this, so overall inflation was lower at 5.5 per cent compared with 6.2 per cent the previous year.

    Understanding inflation in fiscal 2023

    • What makes this fiscal worrying is, all three-fule, food and core are firmly pointing in the same direction — up.
    • Fuel inflation, in double digits for a year now, shows no signs of easing.
    • Energy prices have risen sharply across the board — from crude oil to coal and natural gas.
    • The cut in excise duties on petrol and diesel in November 2021 is insufficient to bring down fuel inflation, in the event crude prices stay above $90 per barrel this fiscal.
    • Food inflation: Food is the most volatile component and biggest mover of CPI inflation, given that it occupies 39 per cent weight in the average consumption basket.  
    • On the positive side, India looks set to enjoy a fourth successive year of normal monsoon and still has good buffer stocks of rice and wheat.
    • What is certain, though, is the rising cost of food production.
    • Prices of fertilisers, pesticides, diesel and animal feed are all surging.
    • Already pricey edible oils are set to get even costlier, with Indonesia’s recent ban on refined palm oil exports adding pressure.
    • No wonder then, food inflation is expected to rise.
    • Core inflation: Core inflation, a barometer of demand pressures, will continue to climb despite an environment of weak demand due to the persistence of supply shocks.
    • For producers, the bump-up in international prices across energy and metal commodities since the war has brought more pain.
    • But a weak and uneven demand recovery means producers had limited ability to pass on cost pressures to consumers.
    • Such pass-through has been partial, at best.
    • For most goods, CPI inflation has been much lower than the corresponding WPI last fiscal.
    • The pattern of recovery is also uneven across different segments, with contact-intensive services lagging formal manufacturing.
    • But contact-based services will catch up sooner or later, as restrictions become a thing of the past.
    • The last time we saw such broad-basing of inflationary pressures was after the Global Financial Crisis.
    • The difference this time around is consumer demand, which remains weak and will limit the extent of pass-through.

    Conclusion

    Forecasting inflation in such uncertain times is fraught with risk. The RBI has predicted ~5.7 per cent consumer inflation this fiscal, while professional forecasters see it at 5.6 per cent. The odds currently favour a higher inflation print, and a rate hike in June.

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  • 28th April 2022 | Nikaalo Prelims- Environment Test 2: Environment; Biodiversity; Climate Change

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  • 28th April 2022 | Prelims Daily with Previous Year Questions

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  • In news: Balochistan Freedom Movement

    The Baloch Liberation Army (BLA), one of the most prominent militant groups operating against Pakistani, has claimed a suicidal attack on Chinese citizens in Karachi.

    Who are the BLA fighters?

    • The BLA announced itself in 2005 with a rocket attack on a paramilitary camp in Balochistan Kohlu during a visit by then President Pervez Musharraf.
    • It is a nationalist militant group that has been waging an insurgency for Baloch self-determination and a separate homeland for the Baloch people.

    Rise of Baloch nationalism

    • While the BLA’s armed insurgency is about two decades old, demands of Baloch nationalists for political autonomy and threats of secession date back to 1947.
    • The Khan of Kalat (who claimed sovereignty over the four princely states of Kalat, Lasbela, Kharan and Makran) held out for independence, and the Pakistan Army forced his accession in March 1948.
    • Between 1973 and 1977, the Zulfikar Ali Bhutto-led government sent in the Pakistan Army to crush a leftist guerilla war inspired by the liberation of Bangladesh.
    • The tribal sardars of Balochistan, who had been at the forefront of Baloch nationalism, and were co-opted by the state in the late 1970s, grew rebellious again.
    • The insurgency gathered momentum from 2006, after the Pakistan Army killed the Bugti sardar, Nawab Akbar Khan Bugti, who had been also been a chief minister and governor of the province.

    Why it is gaining momentum now?

    • The Pakistan Army’s operations against Baloch nationalists over the last two decades have seen hundreds of disappearances, and other alleged human rights violations.
    • Baloch nationalists also see the sudden influx of jihadist groups in the province as a move by the Pakistan security establishment to counter their nationalist demands.
    • In 2012, the US Congress convened a hearing on Balochistan and supported the demand for a free Baloch land.
    • In a significant shift in policy, back then in 2016, PM Modi had made a reference to the Baloch freedom struggle in his Independence Day speech.

    Why Balochistan matters?

    • Balochistan borders Afghanistan and Iran.
    • The people are mostly tribal with secular principles and are admirers of ties with India.
    • With gas, oil, copper and gold deposits, it is the most resource-rich of Pakistan’s four provinces.
    • It makes up half of Pakistan’s area, but has only 3.6% of its population.
    • Pakistan alleges that the insurgency is backed by India.
    • This is the region where a former Indian Navy officer Kulbhushan Jadhav was abducted from Iran and charged for espionage supporting Baloch activism in Pakistan.
    • Many Baloch activists had been seeking asylum and has applied for Indian citizenship. New Delhi neither confirmed nor deny the reports.

    Why did BLA target the Chinese now?

    • The BLA claimed it attacks Chinese nationals because Beijing ignored warnings not to enter deals and agreements regarding Balochistan before the province had been “liberated”.
    • Baloch people see China-Pakistan Economic Corridor (CPEC) as neo-colonist move against their sovereignty.
    • Among China’s major projects in Balochistan is the port of Gwadar, strategically located near the Strait of Hormuz – a crucial oil shipping route in the Arabian Sea.
    • The security of its nationals in Pakistan has become a major issue for Beijing, especially since it launched the CPEC.
    • Such attacks has literally stalled the work in progress of CPEC projects making it a sheer failure.

    Significance of recent events

    • It is rare that the BLA deployed female suicide bombers. Recent attack was done by a highly educated lady and mother of two.
    • This is also the first time that a non-jihadist ethno-nationalist group has deployed a woman suicide bomber in the manner of Sri Lanka’s LTTE.
    • According to security experts familiar with the Baloch insurgency, it marks a worsening security situation in Pakistan.
    • As the training camps are alleged by Pakistan to be in Afghanistan, the incident may also be a pointer to Pakistan’s loss of control over the Talibans.

     

     

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  • State of (un)employment in India

    Data from the Centre for Monitoring Indian Economy (CMIE) shows that India’s labour force participation rate (LFPR) has fallen to just 40% from an already low 47% in 2016.

    What is LFPR?

    • Before understanding LFPR, we need to define the labour force itself.
    • According to the CMIE, the labour force consists of persons who are of age 15 years or older, and belong to either of the following two categories:
    1. are employed
    2. are unemployed and are willing to work and are actively looking for a job
    • There is a crucial commonality between the two categories — they both have people “demanding” jobs.
    • This demand is what LFPR refers to. While those in category 1 succeed in getting a job, those in category 2 fail to do so.
    • Thus, the LFPR essentially is the percentage of the working-age (15 years or older) population that is asking for a job; it represents the “demand” for jobs in an economy.
    • It includes those who are employed and those who are unemployed.
    • The Unemployment Rate (UER), which is routinely quoted in the news, is nothing but the number of unemployed (category 2) as a proportion of the labour force.

    What is the significance of LFPR in India?

    • Typically, it is expected that the LFPR will remain largely stable.
    • As such, any analysis of unemployment in an economy can be done just by looking at the UER.
    • But, in India, the LFPR is not only lower than in the rest of the world but also falling. This, in turn, affects the UER because LFPR is the base (the denominator) on which UER is calculated.
    • The world over, LFPR is around 60%. In India, it has been sliding over the last 10 years and has shrunk from 47% in 2016 to just 40% as of December 2021.
    • This shrinkage implies that merely looking at UER will under-report the stress of unemployment in India.
    • Recent trend suggests that not only that more than half of India’s population in the working-age group is deciding to sit out of the job market, but also that this proportion of people is increasing.

    How is it under-reported?

    • Imagine that there are just 100 people in the working-age group but only 60 ask for jobs — that is, the LFPR is 60% — and of these 60 people, 6 did not get a job. This would imply a UER of 10%.
    • Now imagine a scenario when the LFPR has fallen to 40% and, as such, only 40 people are demanding work. And of these 40, only 2 people fail to get a job.
    • The UER would have fallen to 5% and it might appear that the economy is doing better on the jobs front but the truth is starkly different.
    • The truth is that beyond the 2 who are unemployed, a total of 20 people have stopped demanding work.
    • Typically, this happens when people in the working-age get disheartened from not finding work.

    So, what is the correct way to assess India’s unemployment stress?

    • When LFPR is falling as steadily and as sharply as it has done in India’s case, it is better to track another variable: the Employment Rate (ER).
    • The ER refers to the total number of employed people as a percentage of the working-age population.
    • By using the working-age population as the base and looking at the number of people with jobs, the ER captures the fall in LFPR to better represent the stress in the labour market.

    ER trends in India

    • If one looks at the ER data (Chart 1), it becomes clear that while India’s working-age population has been increasing each year, the percentage of people with jobs has been coming down sharply.
    • Looking at the absolute numbers makes the stress even more clear.
    • In December 2021, India had 107.9 crore people in the working age group and of these, only 40.4 crore had a job (an ER of 37.4%).
    • Compare this with December 2016 when India had 95.9 crore in the working-age group and 41.2 crore with jobs (ER 43%).
    • In five years, while the total working-age population has gone up by 12 crore, the number of people with jobs has gone down by 80 lakh.

    Why is India’s LFPR so low?

    • The main reason for India’s LFPR being low is the abysmally low level of female LFPR.
    • According to CMIE data, as of December 2021, while the male LFPR was 67.4%, the female LFPR was as low as 9.4%.
    • In other words, less than one in 10 working-age women in India are even demanding work.
    • Even if one sources data from the World Bank, India’s female labour force participation rate is around 25% when the global average is 47%.

    Why do so few women demand work?

    • One reason is essentially about the working conditions — such as law and order, efficient public transportation, violence against women, societal norms etc — being far from conducive for women to seek work.
    • The other has to do with correctly measuring women’s contribution to the economy.
    • There are methodological issues in formally capturing women’s contribution to the economy since a lot of women in India are exclusively involved within their own homes.
    • Lastly, it is also a question of adequate job opportunities for women.

    How do people who leave the labour force survive?

    • Households with more than one working member often witness this phenomenon.
    • The fall in the LFPR since 2016 has been accompanied by a fall in the proportion of households where more than one person is employed.
    • The fall in LFPR has largely been the result of the additional person employed in a typical household losing a job.

     

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  • SC Ruling on Sedition Law

    The Supreme Court has fixed May 5 for final hearing of the petitions challenging the constitutionality of the sedition law and made it clear that it will not brook any delay in the form of requests for adjournment.

    What is the Sedition Law?

    • Section 124A of the Indian Penal Code lays down the punishment for sedition. The IPC was enacted in 1860, under the British Raj.
    • The then British government in India feared that religious preachers on the Indian subcontinent would wage a war against the government.
    • Particularly after the successful suppression of the Wahabi/Waliullah Movement by the British, the need was felt for such law.
    • Throughout the Raj, this section was used to suppress activists in favor of national independence, including Tilak and Mahatma Gandhi, both of whom were found guilty and imprisoned.

    What is Sedition?

    • The Section 124A defines sedition as:

    An offence committed when “any person by words, either spoken or written, or by signs, or by visible representation, or otherwise, brings or attempts to bring into hatred or contempt, or excites or attempts to excite disaffection towards the government established by law in India”.

    • Disaffection includes disloyalty and all feelings of enmity.
    • However, comments without exciting or attempting to excite hatred, contempt or disaffection, will not constitute an offense.
    • Sedition is a non-bailable offense.
    • Punishment under Section 124A ranges from imprisonment up to three years to a life term with/without a fine.

    Sedition as a cognizable offense

    • Sedition was made a cognizable offense for the first time in history in India during the tenure of Prime Minister Indira Gandhi in 1973, that is, arrest without a warrant was now permissible.
    • In 1962 the Supreme Court of India interpreted the section to apply only if there is, say, “incitement to violence” or “overthrowing a democratically elected government through violent means”.

    Is it constitutionally valid?

    • Violative of FRs: Two high courts had found it unconstitutional after Independence, as it violated the freedom of speech and expression.
    • Reasonable restrictions: The Constitution was amended to include ‘public order’ as one of the ‘reasonable restrictions’ on which free speech could be abridged by law.
    • Kedar Nath Case: Thereafter, the Supreme Court, in Kedar Nath Singh v. State of Bihar (1962) upheld its validity.
    • Limited use: At the same time, it limited its application to acts that involve “intention or tendency to create disorder” or incitement to violence.
    • Strong criticism doesn’t amount to sedition: Thus, even strongly worded remarks, as long as they do not excite disloyalty and enmity, or incite violence, are not an offence under this section.

    Why the controversy now?

    • Frequent use: In recent times, the resort to this section is seen as disturbingly frequent.
    • Curbing dissent: Activists, cartoonists and intellectuals have been arrested under this section, drawing criticism from liberals that it is being used to suppress dissent and silence critics.
    • Misuse for propaganda: Authorities and the police who invoke this section defend the measure as a necessary step to prevent public disorder and anti-national activities.
    • Irrelevance: Many of them have also been detained under the National Security Act and UAPA.

    What is being debated about it?

    • Demand for its scrapping: Liberals and rights activists have been demanding the scrapping of Section 124A.
    • Provision is outdated: It is argued that the provision is “overbroad”, i.e., it defines the offence in wide terms threatening the liberty of citizens.
    • Various calls for its reconsideration: The Law Commission has also called for a reconsideration of the section.
    • Tyranny of the law: It has pointed that Britain abolished it more than a decade ago and raised the question of whether a provision introduced by the British to put down the freedom struggle should continue to be law in India.
    • Doctrine of severability: Some argue that a presumption of constitutionality does not apply to pre-constitutional laws as those laws have been made by foreign legislature or bodies.

    Way forward

    • India is the largest democracy in the world and the right to free speech and expression is an essential ingredient of democracy.
    • The sedition law should not be abolished as some measures are needed to check communal violence & insurgency activities like Naxals.
    • The definition of sedition should be narrowed down, to include only the issues pertaining to the territorial integrity of India as well as the sovereignty of the country.
    • Section 124A should not be misused as a tool to curb free speech.

     

    Try answering this PYQ:

    Q.With reference to Rowlatt Satyagraha, which of the following statements is/are correct?

    1. The Rowlatt Act was based on the recommendations of the ‘Sedition Committee’.
    2. In Rowlatt Satyagraha, Gandhiji tried to utilize the Home Rule League.
    3. Demonstrations against the arrival of Simon Commission coincided with Rowlatt Satyagraha.

    Select the correct answer using the code given below:

    (a) 1 only

    (b) 1 and 2 only

    (c) 2 and 3 only

    (d) 1, 2 and 3

     

    Post your answers here.

    Also read

    [Burning Issue] Should sedition law be scrapped?

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  • State Taxes on Fuels

    PM has said that fuel prices were too high in some States ruled by other parties and they were not passing on the benefits of the Centre’s excise duty cut to the people.

    Why are states reluctant?

    • The reluctance to reduce excise duty and VAT on fuel stems from the fact that it constitutes an important source of revenue for both the Union government and the states.
    • Excise duty on fuel makes up about 18.4 per cent of Centre’s gross tax revenues.
    • Petroleum and alcohol, on an average, account for 25-35 per cent of the own tax revenue of states

    Present taxation of Fuels

    What is Excise Duty?

    • Excise duty is a form of tax imposed on goods for their production, licensing and sale.
    • It is the opposite of Customs duty in sense that it applies to goods manufactured domestically in the country, while Customs is levied on those coming from outside of the country.
    • At the central level, excise duty earlier used to be levied as Central Excise Duty, Additional Excise Duty, etc.
    • Excise duty was levied on manufactured goods and levied at the time of removal of goods, while GST is levied on the supply of goods and services.

    Purview of excise duty

    • The GST introduction in July 2017 subsumed many types of excise duty.
    • Today, excise duty applies only on petroleum and liquor.
    • Alcohol does not come under the purview of GST as exclusion mandated by constitutional provision.
    • States levy taxes on alcohol according to the same practice as was prevalent before the rollout of GST.
    • After GST was introduced, excise duty was replaced by central GST because excise was levied by the central government.
    • The revenue generated from CGST goes to the central government.

    Types of excise duty in India

    Before GST, there were three kinds of excise duties in India.

    (1) Basic Excise Duty

    • Basic excise duty is also known as the Central Value Added Tax (CENVAT).
    • This category of excise duty was levied on goods that were classified under the first schedule of the Central Excise Tariff Act, 1985.
    • This duty applied on all goods except salt.

    (2) Additional Excise Duty

    • Additional excise duty was levied on goods of high importance, under the Additional Excise under Additional Duties of Excise (Goods of Special Importance) Act, 1957.
    • This duty was levied on some special category of goods.

    (3) Special Excise Duty

    • This type of excise duty was levied on special goods classified under the Second Schedule to the Central Excise Tariff Act, 1985.
    • Presently the central excise duty comprises of a Basic Excise Duty, Special Additional Excise Duty and Additional Excise Duty (Road and Infrastructure Cess) on auto fuels.

    Present taxation of Fuels

    • Currently, taxes on petroleum products are levied by both the Centre and the states.
    • While the Centre levies excise duty, states levy value-added tax (VAT).
    • For instance, VAT on petroleum products is as high as 40% in Maharashtra, contributing over ₹25,000 crores annually.
    • By being able to levy VAT on these products, the state governments have control over their revenues.
    • When a national GST subsumed central taxes such as excise duty and state levies like VAT on July 1, 2017, five petroleum goods – petrol, diesel, ATF, natural gas and crude oil – were kept out of its purview.

     

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  • Centre enhances Subsidy for Non-Urea Fertilizers

    With urea and fertilizer prices shooting up in the wake of Russia’s invasion of Ukraine, the Union Cabinet approved an enhancement in subsidies on non-urea fertilisers for the upcoming Kharif crop, to ₹60,939 crore.

    What is the news?

    • The government fixes the retail price of urea and subsidises producers based on the difference between costs and the fixed selling price.
    • It pays a subsidy to non-urea fertiliser makers on the basis of nutrient-based rates.
    • The increase in the prices of Di-ammonium phosphate (DAP) and its raw material is in the range of about 80%.

    Fertilizer Subsidy in India

    • Subsidy as a concept originated during the Green Revolution of the 1970s-80s.
    • Fertiliser subsidy is purchasing by the farmer at a price below MRP (Maximum Retail Price), that is, below the usual demand-and-supply-rate, or regular production and import cost.

    How is the subsidy paid and who gets it?

    • The subsidy goes to fertiliser companies, although its ultimate beneficiary is the farmer who pays MRPs less than the market-determined rates.
    • From March 2018, a new so-called direct benefit transfer (DBT) system was introduced, wherein subsidy payment to the companies would happen only after actual sales to farmers by retailers.
    • With the DBT system, each retailer — there is over 2.3 lakh of them across India — now has a point-of-sale (PoS) machine linked to the Department of Fertilizers’ e-Urvarak DBT portal.

    How does this system work?

    • A popular example of how this system works is that of the neem coated urea fertiliser.
    • Its MRP (Maximum Retail Price) is fixed by the government at Rs. 5922.22 per tonne.
    • The average cost of domestic production is at Rs 17,000 per tonne. The difference is footed by the centre in the form of subsidy.
    • This fertiliser has high Nitrogen content and is cheaper than usual fertilizers.
    • While this may be perceived as a good thing, excess of Nitrogen can disrupt the NPK (Nitrogen, Phosphorus and Potassium) balance in the soil.

    What about non-urea fertilizers?

    • The non-urea fertiliser is decontrolled or fixed by the companies.
    • The non- urea fertilizers are further divided into two parts, DAP (Diammonium Phosphate) and MOP (Muriate of Phosphate).
    • The government pays a flat per tonne subsidy to maintain the nutrition content of the soil, and ensure other fertilizers are economical to use.

    Issues with such subsidies

    • A flawed subsidy policy is harmful not just for the farmer, but to the environment as well.
    • Indian soil has low Nitrogen use efficiency, which is the main constituent of Urea.
    • Consequently, excess usage contaminates groundwater.
    • The bulk of urea applied to the soil is lost as NH3 (Ammonia) and Nitrogen Oxides. The WHO has prescribed limits been breached by Punjab, Haryana and Rajasthan.
    • For human beings, “blue baby syndrome” is a common side ailment caused by Nitrate contaminated water.

    Try answering this PYQ:

    Q.What are the advantages of fertigation in agriculture? (CSP 2020)

    1.Controlling the alkalinity of irrigation water is possible.
    2. Efficient application of Rock Phosphate and all other phosphatic fertilizers is possible.
    3. Increased availability of nutrients to plants is possible.
    4. Reduction in the leaching of chemical nutrients is possible.

    Select the correct answer using the code given below:
    (a) 1, 2 and 3 only

    (b) 1,2 and 4 only

    (c) 1,3 and 4 only

    (d) 2, 3 and 4 only

     

    Post your answers here.

     

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  • SSLV ‘development flights’ likely in 2022

    The Indian Space Research Organisation (ISRO) is hoping to have all three development flights planned for its ‘baby rocket’ — the Small Satellite Launch Vehicle (SSLV) — in 2022 itself.

    What is SSLV?

    • The SSLV is a small-lift launch vehicle being developed by the ISRO with payload capacity to deliver:
    1. 600 kg to Low Earth Orbit (500 km) or
    2. 300 kg to Sun-synchronous Orbit (500 km)
    • It would help launching small satellites, with the capability to support multiple orbital drop-offs.
    • In future a dedicated launch pad in Sriharikota called Small Satellite Launch Complex (SSLC) will be set up.
    • A new spaceport, under development, near Kulasekharapatnam in Tamil Nadu will handle SSLV launches when complete.
    • After entering the operational phase, the vehicle’s production and launch operations will be done by a consortium of Indian firms along with NewSpace India Limited (NSIL).

    Vehicle details

    (A) Dimensions

    • Height: 34 meters
    • Diameter: 2 meters
    • Mass: 120 tonnes

    (B) Propulsion

    • It will be a four stage launching vehicle.
    • The first three stages will use Hydroxyl-terminated polybutadiene (HTPB) based solid propellant, with a fourth terminal stage being a Velocity-Trimming Module (VTM).

    SSLV vs. PSLV: A comparison

    • The SSLV was developed with the aim of launching small satellites commercially at drastically reduced price and higher launch rate as compared to Polar SLV (PSLV).
    • The projected high launch rate relies on largely autonomous launch operation and on overall simple logistics.
    • To compare, a PSLV launch involves 600 officials while SSLV launch operations would be managed by a small team of about six people.
    • The launch readiness period of the SSLV is expected to be less than a week instead of months.
    • The SSLV can carry satellites weighing up to 500 kg to a low earth orbit while the tried and tested PSLV can launch satellites weighing in the range of 1000 kg.
    • The entire job will be done in a very short time and the cost will be only around Rs 30 crore for SSLV.

    Significance of SSLV

    • SSLV is perfectly suited for launching multiple microsatellites at a time and supports multiple orbital drop-offs.
    • The development and manufacture of the SSLV are expected to create greater synergy between the space sector and private Indian industries – a key aim of the space ministry.

    Back2Basics:

     

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  • [Prelims Spotlight] Important Financial Institutions in News

    Dear Aspirants,

    This Spotlight is a part of our Mission Nikaalo Prelims-2022

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    Important Financial Institutions

    28 Apr 2022

    Development Finance Institutions

    The Need of DFIs

    Classification of DFIs

    All India DFIs Special DFIs Investment Institutions Refinance Institutions State Level DFIs
    Industrial Finance Corporation of India

    Industrial Development Bank of India

    Small Industries Development Bank of India (SIDBI)

    ICICI

    ICICI ceased to be a DFI and converted into a Bank on 30 March 2002.

    IDBI was converted into a Bank on 11 October 2004.

    		 EXIM Bank

    IFCI Venture Capitalist Fund

    Tourism Finance Corporation of India.

    IDFC.

    		 LIC

    Union Trust of India.

    General Insurance Corporation.

    		 National Housing Board.

    NABARD.

    		 State Financial Corporation.

    State Industrial Development Corporations.

    All India Development Finance Institutions

    IFCI ICICI IDBI SIDBI
    IFCI was the first DFI to be setup in 1948. It was setup in January 1995. The IDBI was initially set up as a Subsidiary of the RBI. In February 1976, IDBI was made fully autonomous. SIDBI was setup as a subsidiary of IDBI in 1989.
    With Effect from 1 July 1993, IFCI has been converted into Public Limited Company. With effect from April 2002, ICICI has been converted into a Bank. The IDBI was designated as apex organisation in the field of Development Financing. However, it was converted in a bank wef Oct 2004. The SIDBI was designated as apex organisation in the field of Small Scale Finance.The Union Budget of 1998-99 proposed the delinking of SIDBI from IDBI.
    The key function of IFCI was; granting long-term loans(25 years and above); Guaranteeing rupee loans floated in open markets by industries; Underwriting of shares and debentures; Providing guarantees for industries. The key functions of ICICI were; to provide long term or medium term loans or equity participation; Guaranteeing loans from other private sources; providing consultancy services to industry. The key functions of IDBI were; it provides refinance against loans granted to industries; it subscribed to the share capital and bond issues of other DFIs; it also acted as the coordinator of DFIs at all India level. The key function of SIDBI was; to provide assistance to small scale units; initiating steps for technological up gradation and modernization of SSIs; expanding the marketing channel for the Small Scale Industries product; promotion of employment creating SSIs.
    IFCI was a public sector DFI. The ICICI differed from IFCI and IDBI with respect to ownership, management and lending operation. ICICI was a Private sector DFI. It was a Public sector DFI.

    Investment Institutions

    Union Trust of India Life Insurance Company General Insurance Corporation
    The UTI was setup on Nov 1963 after Parliament passed the UTI Act. LIC was set up in 1956 after the insurance business was nationalised. The GIC was formed by the central government in 1971.
    The objective of UTI was to channel the savings of people into equities and corporate debts. The flagship scheme of the UTI was called Unit Scheme 64. The objective of LIC is to provide assistance in the form of term loans; subscription of shares and debentures;resource support to financial institutions and Life insurance coverages. The GIC had four subsidiaries; National Insurance Co; New India Assurance; Oriental Insurance; and United India Insurance.
    In 2002, the Union Cabinet had decided to split UTI into UTI 1 and UTI 2 as a result of the prolonged crisis in UTI. The General Insurance Nationalisation Amendment Act, 2002, has delinked the GIC from its four subsidiaries.

    Commercial Banks

    • Organised under the Banking Companies Act, 1956
    • They operate on a commercial basis and its main objective is profit.
    • They have a unified structure and are owned by the government, state, or any private entity.
    • They tend to all sectors ranging from rural to urban
    • These banks do not charge concessional interest rates unless instructed by the RBI
    • Public deposits are the main source of funds for these banks

    What are cooperative banks?

    • Cooperative banks are financial entities set up on a co-operative basis and belonging to their members.
    • This means that the customers of a cooperative bank are also its owners. They are registered under the States Cooperative Societies Act and they come under the RBI regulation under two laws:
    • Banking Regulations Act, 1949
    • Banking Laws (Cooperative Societies) Act, 1955
    • They aim to promote savings and investment habits among people, especially in rural areas.
    • These banks are broadly classified under two categories – Rural and Urban.
    • The rural cooperative credit institutions can be further classified into:
    • Short-term cooperative credit institutions
    • Long-credit institutions

    The short-term credit institutions can further be sub-divided into:

    • State cooperative banks
    • District Central Cooperative banks
    • Primary Agricultural Credit Societies

    Long-term institutions can either be:

    • State Cooperative Agricultural and Rural Development Banks (SCARDBs), or
    • Primary Cooperative Agriculture and Rural Development Banks (PCARDBs)
    • Urban Cooperative Banks (UCBs) can be further classified into scheduled and non-scheduled.
    • The scheduled and unscheduled can either be operating in a single state or multi-state

    Regional Rural Banks (RRBs)

    • RRBs have Scheduled Commercial Banks operating at the regional level in different states of India. They are recognized under the Regional Rural Banks Act, 1976 Act.
    • They have been created with a view of serving primarily the rural areas of India with basic banking and financial services.
    • However, RRBs may have branches set up for urban operations and their area of operation may include urban areas too.
    • The area of operation of RRBs is limited to the area covering one or more districts in the State.

    Their functions

    RRBs also perform a variety of different functions. RRBs perform various functions in the following heads:

    • Providing banking facilities to rural and semi-urban areas
    • Carrying out government operations like disbursement of wages of MGNREGA workers, distribution of pensions etc.
    • Providing Para-Banking facilities like locker facilities, debit and credit cards, mobile banking, internet banking, UPI etc.
    • Small financial banks etc.

    About NABARD

    • NABARD is an apex development financial institution in India, headquartered at Mumbai with regional offices all over India.
    • It is India’s specialised bank in providing credit for Agriculture and Rural Development in India.
    • The Bank has been entrusted with “matters concerning policy, planning and operations in the field of credit for agriculture and other economic activities in rural areas in India”.
    • It was established on the recommendations of B.Sivaraman Committee on 12 July 1982 to implement the NABARD Act 1981.
    • NABARD supervises State Cooperative Banks (StCBs), District Cooperative Central Banks (DCCBs), and Regional Rural Banks (RRBs) and conducts statutory inspections of these banks.

    About National Housing Bank

    • NHB is an All India Financial Institution (AIFl), set up in 1988, under the National Housing Bank Act, 1987.
    • The National Housing Policy, 1988 has envisaged the setting up of NHB as the Apex level institution for housing.
    • It is an apex agency established to operate as a principal agency to promote housing finance institutions both at local and regional levels.
    • It aims to provide financial and other support incidental to such institutions and for matters connected therewith.

    EXIM Bank

    • EXIM stands for Export-Import
    • Export-Import Bank of India is a wholly-owned Govt. of India entity
    • Established in 1982
    • HQ : New Delhi
    • Aim : financing, facilitating and promoting foreign trade of India.
    • The EXIM bank extends Line of Credit (loC) to overseas financial institutions, regional development banks, sovereign governments and other entities abroad.
    • Thus the EXIM Banks enables buyers in those countries to import developmental and infrastructure, equipment’s, goods and services from India on deferred credit terms.
    • The bank also facilitates investment by Indian companies abroad for setting up joint ventures, subsidiaries or overseas acquisitions.

    International Financial Services Centres

    • IFSCs are intended to provide Indian corporates with easier access to global financial markets, and to complement and promote further development of financial markets in India.
    • An IFSC enables bringing back the financial services and transactions that are currently carried out in offshore financial centres by Indian corporate entities and overseas branches/subsidiaries of financial institutions (FIs) to India.
    • This is done by offering business and regulatory environment that is comparable to other leading international financial centres in the world like London and Singapore.
    • The first IFSC in India has been set up at the Gujarat International Finance Tec-City (GIFT City) in Gandhinagar.

    Banks Board Bureau

    • Banks Board Bureau is an autonomous body of Union Government of India
      It is tasked to improve the governance of Public Sector Banks, recommend the selection of chiefs of government-owned banks and financial institutions and to help banks in developing strategies and capital raising plans
    • It will have three ex-officio members and three expert members in addition to Chairman
    • Financial services secretary, deputy governor of the Reserve Bank of India and secretary- public enterprises are BBB’s ex-officio members

    Non-Banking Financial Companies

    • A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 engaged in the business of loans and advances, acquisition of shares/stocks/bonds/debentures/securities issued by Government or local authority or other marketable securities of a like nature, leasing, hire-purchase, insurance business, chit business but does not include any institution whose principal business is that of agriculture activity, industrial activity, purchase or sale of any goods (other than securities) or providing any services and sale/purchase/construction of immovable property.
    • A non-banking institution which is a company and has a principal business of receiving deposits under any scheme or arrangement in one lump sum or in instalments by way of contributions or in any other manner is also a non-banking financial company (Residuary non-banking company).

    NBFCs are doing functions similar to banks. What is the difference between banks & NBFCs?

    NBFCs lend and make investments, and hence their activities are akin to that of banks; however, there are a few differences as given below:

    1. NBFC cannot accept demand deposits;
    2. NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on itself.
    3. Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs, unlike in case of banks.
    4. Unlike Banks which are regulated by the RBI, the NBFCs are regulated by multiple regulators; Insurance Companies- IRDA, Merchant Banks- SEBI, Micro Finance Institutions- State Government, RBI and NABARD.
    5. The norm of Public Sector Lending does not apply to NBFCs.
    6. The Cash Reserve Requirement also does not apply to NBFCs.

    Classification and Categorization of NBFCs

    Asset Finance Company AN AFC is a company which is a financial institution whose principle business is the financing of physical assets such as automobiles, tractors, machines etc.
    Investment Company AN IC is any company which is a financial institution carrying on its principle business of acquisitions of securities.
    Loan Company LC is a financial institution whose primary business is of providing finance by making loans and advances.
    Infrastructure Finance Company IFC is an NBFC which deploys 75% of its total assets in infrastructure loans and has a minimum net owned fund of Re 300 Crore.
    Systematically Important Core Investment Company CIC is an NBFC carrying on the business of acquisition of shares and securities. CIC must satisfy the following conditions:It holds not less than 90% of its Total Assets in the form of investment in equity shares, preference shares, debt or loans in group companies;

    Its investments in the equity shares (including instruments compulsorily convertible into equity shares within a period not exceeding 10 years from the date of issue) in group companies constitutes not less than 60% of its Total Assets;

    (c) it does not trade in its investments in shares, debt or loans in group companies except through block sale for the purpose of dilution or disinvestment;

    (d) it does not carry on any other financial activity referred to in Section 45I(c) and 45I(f) of the RBI Act, 1934 except investment in bank deposits, money market instruments, government securities, loans to and investments in debt issuances of group companies or guarantees issued on behalf of group companies.

    (e) Its asset size is ₹ 100 crore or above and

    (f) It accepts public funds
    Infrastructure Debt Fund NBFC IDF NBFC primary role is to facilitate long term flow of debt into infrastructure projects. Only Infrastructure Finance Companies can sponsor IDF.
    Micro Finance NBFC MFI NBFC is a non-deposit taking NBFC having not less than 85% of its assets in the nature of qualifying assets which satisfy the following criteria:a) loan disbursed by a NBFC-MFI to a borrower with a rural household annual income not exceeding ₹ 1,00,000 or urban and semi-urban household income not exceeding ₹ 1,60,000;

    b. loan amount does not exceed 50,000 in the first cycle and 1,00,000 in subsequent cycles;

    c. total indebtedness of the borrower does not exceed 1,00,000;

    d. tenure of the loan not to be less than 24 months for the loan amount in excess of 15,000 with prepayment without penalty;

    e. loan to be extended without collateral;

    f. aggregate amount of loans, given for income generation, is not less than 50 per cent of the total loans given by the MFIs;

    g. loan is repayable on weekly, fortnightly or monthly instalments at the choice of the borrower

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