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  • [Prelims Spotlight] Important Schemes Regarding MSME Sectors

     

    Prelims Spotlight is a part of “Nikaalo Prelims 2020” module. This open crash course for Prelims 2020 has a private telegram group where PDFs and DDS (Daily Doubt Sessions) are being held. Please click here to register.

    3 April 2020

    Credit Guarantee Trust Fund for Micro and Small Enterprises (CGTMSE)

    What is CGTMSE?

    • CGTMSE is a fund which provides a guarantee for loans given to MSEs i.e. in case borrowers fails to give back loans, the bank will get their money from this fund.
    • It is a Central Government program to promote MSMEs.
    • Government has increased corpus of fund from Rs 2500 crore to Rs 7500 crore
    • Now loans given by NBFCs can also be covered under this fund

    Udyami Mitra’ portal

    • Small Industries Development Bank of India (SIDBI) has revamped its Udyami Mitra with enhanced features.
    • The portal was launched to improve the accessibility of credit for the MSMEs.
    • It helps MSMEs for submission of loan applications which can be picked up by multiple lenders.
    • It aims at bringing in transparency in the processing of loans by the banks.
    • Now non-banking finance companies and small finance banks are being on-boarded on the platform for enhancing the flow of credit to MSMEs.
    • Under the new capitalisation plan, banks will have to compete for loans through the revamped udyamimitra portal.

    A Scheme for Promotion of Innovation, Rural Industry and Entrepreneurship (ASPIRE)

    • ASPIRE has been launched on 16.03.2015 with an objective to set up a network of technology centres, incubation centres to accelerate entrepreneurship and also to promote start-ups for innovation and entrepreneurship in the rural and agriculture-based industry with a fund of Rs.210 crores.
    • The planned outcomes of ASPIRE are setting up Technology Business Incubators (TBI), Livelihood Business Incubators (LBI) and creation of a Fund of Funds for such initiatives with SIDBI.

    Prime Ministers Employment Generation Programme, PMEGP

    • Khadi and Village Industries Commission (KVIC) is a nodal implementation agency at the national level.
      At State and district level, State offices of KVIC, Khadi and Village Industries Boards (KVIBs) and District Industry Centres (DIC) are the implementing agencies.

    Objectives

    • To generate continuous and sustainable employment opportunities in Rural and Urban areas of the country
    • To provide continuous and sustainable employment to a large segment of traditional and prospective artisans, rural and urban unemployed youth in the country through setting up of micro-enterprises.
    • To facilitate the participation of financial institutions for higher credit flow to the micro sector.

    Eligibility

    • Individuals above 18 years of age
    • VIII Std. pass required for the project above Rs.10.00 lakhs in manufacturing and above Rs. 5.00 lakhs for Service Sector
    • Self Help Groups and Charitable Trusts
    • Institutions registered under Societies Registration Act- 1860
    • Production-based Co-operative Societies

    Salient features of the scheme

    • The Scheme is implemented through KVIC and State/UT Khadi & V.I. Boards in Rural areas and through District Industries Centres in Urban and Rural areas in ratio of 30:30:40 between KVIC / KVIB / DIC respectively.
    • No income ceiling for setting up projects.
    • Assistance under the Scheme is available only to new units to be established.
    • Existing units or units already availed any Govt. Subsidy either under State/Central Govt. Schemes are not eligible.
    • Any industry including Coir Based projects excluding those mentioned in the negative list.
    • Per capita investment should not exceed Rs. 1.00 lakhs in plain areas and Rs. 1.50 lakhs in Hilly areas.
    • The maximum project cost of Rs. 25.00 lakhs in the manufacturing sector and Rs. 10.00 lakhs in Service Sector.
    Credit Linked Capital Subsidy Scheme (CLCSS) -CLCSS aims at facilitating technology up-gradation of Micro and Small Enterprises (MSEs) by providing 15% capital subsidy (limited to maximum Rs.15 lakhs) for purchase of Plant & Machinery.

    -Maximum limit of eligible loan for calculation of subsidy under the scheme is Rs.100 lakhs. Presently, more than 1500 well established/improved technologies under 51 sub-sectors have been approved under the Scheme.

    UDYAM SAKHI

    It is a network for nurturing social entrepreneurship creating business models revolving around low-cost products and services to resolve social inequities.

    Mission

    • Udyam Sakhi seeks to encourage women entrepreneurs and to aid, counsel, assist and protect their interests. It also preserves free competitive enterprise and to maintain and strengthen the overall economy of our nation.
    • The Udyam Sakhi helps Indian women to start, build and grow businesses. It recognises that women entrepreneur in the industry is critical to economic recovery and strength, in building the nation’s future, and to helping India compete in today’s global marketplace.
    Samadhan Portal The portal aims at empowering micro and small entrepreneurs across country to directly register their cases relating to delayed payments by Central Ministries, Departments, CPSEs, State Governments. The Samadhaan portal will give information about pending payment of MSEs with individual CPSEs/Central Ministries, State Governments, etc.

    The CEO of PSEs and Secretary of Ministries concerned will also be able to monitor cases of delayed payment under their jurisdiction and issue necessary instructions to resolve the issues.

    The portal will facilitate monitoring of delayed payment in more effective manner. The information on portal will be available in public domain, thus exerting moral pressure on defaulting organisations. The MSEs will also be empowered to access portal and monitor their cases.

    Zero Defect, Zero Effect

    • ZED Scheme aims to rate and handhold all MSMEs to deliver top quality products using clean technology.
    • It will have sector-specific parameters for each industry.
    • ZED Scheme is meant to raise quality levels in unregulated MSME sector which is an engine of growth for the Indian economy.
    • The scheme will be the cornerstone of the Central Government’s flagship Make in India programme, which is aimed at turning India into a global manufacturing hub, generating jobs, boosting growth and increase incomes.

    National Schedule Caste and Schedule Tribes (SC/ST) Hub

    • Ministry of  Micro, Small and Medium Enterprises (MSME) is implementing a scheme of  National Schedule Caste and Schedule Tribes (SC/ST) Hub.
    • The Hub is set up to provide professional support to SC/ST entrepreneurs to fulfil the obligations under the Central Government Public Procurement Policy for Micro and Small Enterprises Order 2012, adopt applicable business practices and leverage the Stand-Up India initiatives.
    • The functions of Hub include collection, collation and dissemination of information regarding SC/ST enterprises and entrepreneurs, capacity building among existing and prospective SC/ST entrepreneurs through skill training and EDPs, vendor development etc.
    • Four special subsidy schemes/programmes have been approved under National SC/ST Hub namely
      • Single Point Registration Scheme
      • Special Marketing Assistance Scheme (SMAS)
      • Performance & Credit Rating Scheme and
      • Special Credit Linked Capital Subsidy Scheme.

    SFURTI

    • As per the revised guidelines, the following schemes are being merged into SFURTI:
    1. The Scheme for Enhancing Productivity and Competitiveness of Khadi Industry and Artisans
    2. The Scheme for Product Development, Design Intervention and Packaging (PRODIP)
    3. The Scheme for Rural Industries Service Center (RISC) and
    4. Other small interventions like Ready Warp Units, Ready to Wear Mission, etc.

    Objectives of Scheme

    • To organize the traditional industries and artisans into clusters to make them competitive and provide support for their long term sustainability and economy of scale;
    • To provide sustained employment for traditional industry artisans and rural entrepreneurs;
    • To enhance the marketability of products of such clusters by providing support for new products, design intervention and improved packaging and also the improvement of marketing infrastructure;
    • To equip traditional artisans of the associated clusters with the improved skills and capabilities through training and exposure visits;
    • To make provision for common facilities and improved tools and equipment for artisans to promote optimum utilization of infrastructure facilities;
    • To strengthen the cluster governance systems with the active participation of the stakeholders, so that they are able to gauge the emerging challenges and opportunities and respond to them in a coherent manner;
    • To build up innovated and traditional skills, improved technologies, advanced processes, market intelligence and new models of public-private partnership s, so as to gradually replicate similar models of cluster-based regenerated traditional industries
    • To look for setting up of multi-product cluster with an integrated value chain and a strong market-driven approach for viability and long term sustainability of the cluster;
    • To ensure convergence from the design stage with each activity of the cluster formation and operations thereof.
    • To develop specific product lines out of the currently offered diversified basket of heterogeneous products based on the understanding of the target consumer segment. A brand unification exercise also needs to be done to maximize the value.

    Trade-Related Entrepreneurship Development Assistance Scheme (TREAD) Women entrepreneurship programme

    • There is a provision of Govt of India Grant up to 30% of Loan/credit sanctioned subject to a maximum ceiling of 30 Lakhs to NGOs as appraised by Lending Institutes/Banks for undertaking capacity building activities such as Training, counselling, participation in exhibitions, the establishment of new SHGs etc and other components as approved by Bank/Steering Committee.
    • The non-farming activities taken up by women are Tailoring, Handicrafts, Embroidery, Toy making, Readymade garments, Candle making, Agarbatti making, paper cup and plate making, Masala powder making, Saree weaving, Coir mat making, Pickles making, Readymade garments, basketry and brooms making, Jute bag making etc.
    • The focus of the scheme is to promote self-employment and income generation activities for women mostly from SHG groups in the non-farm sector.

  • The battle to set oil prices

    Context

    The global economy, grappling with the COVID-19 pandemic, is now facing an energy war, with crude oil prices crashing in the international market.

    Developments that contributed to the fall in oil prices

    • First, Crude oil prices tanked, as the Organisation of the Petroleum Exporting Countries (OPEC) and its alliance partners failed to reach any consensus on cutting back production to levels that would enable prices to remain stable.
    • Second, the U.S., as the largest oil producer today, has stayed away from the OPEC-plus arrangement, hoping that production cuts by OPEC-plus countries will help it increase its market share.
    • Russia refused any production cuts, unleashing an energy war with Saudi Arabia. There has been a spectacular fall of around 30% in crude oil prices.
    • The International Energy Agency (IEA) has scaled down global demand for oil, a move not taken by the energy watchdog since 2009.
    • COVID-19 Factor: Demand for oil had already weakened owing to the global economic slowdown, and this weakening has become more pronounced due to the COVID-19 pandemic, which has hit China’s economy and reduced consumption by the world’s largest importer.

    The US-Russia oil war

    • Denying market share to the US oil producer: Russia’s decision to reject any production cuts is driven directly by its strategy of denying market share to American shale oil producers.
    • Shale oil companies can sustain in high prices only: The American shale oil producers rely on higher prices in the range of $50-$60 to remain profitable because of higher production costs.
    • At $31 per barrel, not more than five American shale oil producers can remain profitable.
    • Sanctions on Rosneft: Russia also remains resentful of sanctions imposed on Rosneft, which is building the gas pipeline project Nord Stream 2 across the Baltic Sea, carrying Siberian gas to Germany, a major consumer.
    • Delay in completion of the pipeline: This pipeline was delayed due to opposition from Denmark’s environmental activists and could not be completed before the U.S. sanctions kicked in.
    • Moscow has accused Washington of using geopolitical tools for commercial reasons.
    • The energy war over prices is Russia’s revenge, to cripple the American shale oil industry.
    • Russia’s signal to Saudi Arabia: Russia is also signalling to Saudi Arabia that its American patrons can do little to protect its oil interests and it would be prudent for Saudi Arabia to reach some understanding with Russia.
    • Both Saudi Arabia and Russia depend heavily on oil revenues — upwards of 80% of export revenues accrue from crude oil.
    • Russia and Saudi Arabia fighting for market share: Both are also fighting to retain market share.
    • Impact on India: It has been reported that Saudi Arabia has agreed to supply crude oil at lower rates to refiners in India and China, two primary customers, but refused to supply to other refiners in Asia. This will have an impact on India’s oil procurement from the U.S.

    The benefits to importing countries

    • Why the price drop matters to India? Lower crude oil prices are not necessarily bad news for oil importing countries like India, which is the world’s third-largest importer of crude oil and the fourth largest importer of LNG.
    • Collateral adverse consequences: There are, however, collateral adverse consequences like the battering of the stock markets worldwide.
    • Impact on the global economy: The global economy, already impacted by President Donald Trump’s trade war with China and other countries, including India, and the COVID-19 pandemic, may find lower energy costs helpful in overall growth.

    Benefits for India

    • From a high of $147 per barrel in 2008, crude oil prices have fallen to around $24 per barrel and may even go further southwards.
    • How much the price drop matter for India? India, with 80% of its energy requirements met by imports from the international market, stands to save ₹10,700 crores for every $1 drop in prices.
    • Non-oil related factors: While this may help manage the current account deficit, fiscal deficit and inflation, there are non-oil related collateral factors that can cause countervailing adverse economic impact.

    How long Russian and Saudi Arabia can sustain the war?

    • Can Russia and Saudi Arabia sustain the energy war for long?
    • Saudi Arabia’s production cost is the cheapest in the world and it can ramp up production to around 12 million barrels a day.
    • By offering discounts, it can undercut other producers, including Russia.
    • Domestic considerations also matter.

    Conclusion

    There is no doubt that India will benefit from lower oil prices if the cost of fuel at the pump is passed on to consumers. It will reduce transportation costs and boost demand. The consumer, however, may not benefit much since the government may choose to use this financial windfall for other purposes, like bailing out banks which have been hollowed out by NPAs to leading Indian companies.

  • Still no bullseye, in volume and value

    Context

    Based on the latest estimates released by the Stockholm International Peace Research Institute (SIPRI) in the period between 2009-13 and 2014-18, Indian defence imports fell even as exports increased.

    What are the factors responsible for the shift?

    • Make in India initiative: The first is the ‘Make in India’ initiative, as part of which a number of components from Indian private and public sector enterprises have been prioritised by the government.
    • Delay by vendors in supplying equipment: The second set of factors is extraneous to India in the form of delays in supplying equipment by vendors and the outright cancellation of contracts by the Indian government or at least a diminution of existing contracts.

    How ‘Make in India’ made the difference?

    • DPP’s measures to build India’s defence industry: Under the ‘Make in India’ initiative, the Defence Procurement Procedure (DPP) lays out the terms, regulations and requirements for defence acquisitions as well as the measures necessary for building India’s defence industry.
    • It created a new procurement category in the revised DPP of 2016 dubbed ‘Buy Indian Indigenously Designed, Developed and Manufactured’ (IDDM).
    • Earmarking projects for MSMEs: The ‘Make’ procedure has undergone simplification “earmarking projects not exceeding ten crores” that are government-funded and ₹3 crores for Micro, Small and Medium Enterprises (MSMEs) that are industry-funded.
    • Technology transfer to private companies: In addition, the government has also introduced provisions in the DPP that make private industry production agencies and partners for technology transfers.
    • The growing share of SMEs in the defence market: Small and Medium Enterprises (SMEs) until 2016 accounted for a 17.5% share of the Indian defence market.
    • According to the government of India data for the financial year 2018-19, the three armed services for their combined capital and revenue expenditures sourced 54% of their defence equipment from Indian industry.
    • Four companies among the top 100: Among arms producers, India has four companies among the top 100 biggest arms producers of the world.
    • It is estimated, according to SIPRI, their combined sales were $7.5 billion in 2017, representing a 6.1% jump from 2016.
    • All four of these companies are public sector enterprises and account for the bulk of the domestic armament demand.
    • The largest Indian arms producers are the Indian ordnance factories and the Hindustan Aeronautics Limited (HAL), which are placed 37th and 38th, respectively, followed by Bharat Electronics Limited (BEL) and Bharat Dynamics Limited (BDL).

    Reasons for falling imports

    • Cancellation of contracts: Indian defence acquisitions have also fallen due to the cancellation of big-ticket items. For instance the India-Russia joint venture for the development of the advanced Su-57 stealth Fifth Generation Fighter Aircraft (FGFA).
    • India cancelled involvement in 2018 due to rising dissatisfaction in delays with the project as well as the absence of capabilities that would befit a fifth-generation fighter jet.
    • Reduction in order: In 2015, the Modi government also reduced the size of the original acquisition of 126 Rafale Medium Multi-Role Combat Aircraft (MMRCA) from Dassault to 36 aircraft, which is also responsible for significantly driving down the import bill.
    • Delay by suppliers: That apart, the delays in the supplies of T-90 battle tanks, and Su-30 combat aircraft from Russia and submarines from France, in 2009-13 and 2014-18, also depressed imports.
    • Industrial model at odds with the global trend: India’s defence model faces challenges despite the positive trends generated by ‘Make in India’.
    • SMEs still face stunted growth because India’s defence industrial model is at odds with global trends in that it tends to create disincentives for the private sector.
    • Governments, including the incumbent, have tended to privilege Defence Public Sector Units (DPSUs) over the private sector, despite ‘Make in India’.
    • Undermining the private sector: This model is highly skewed, undermining the growth of private players and diminishes the strength of research and development.

    The rise in Indian defence export

    • Considerable rise between 2012 and 2019: The period between 2012 and 2019 saw Indian defence exports experiencing a considerable jump sourced from Indian public and private sector enterprises.
    • In the last two fiscal years, 2017-18 and 2018-19, exports have witnessed a surge from ₹7,500 crore to ₹11,000 crores, representing a 40% increase in exports.
    • Measures introduced by the government: The sharpest rise in defence export products can be attributed to the measures introduced by the government which in 2014, delisted or removed several products that were restricted from exports.
    • It dispensed with the erstwhile No Objection Certificate (NOC) under the DPP restricting exports of aerospace products, several dual-use items and did away with two-thirds of all products under these heads.
    • According to the Ministry of Commerce and the Industry, Export-Import Data Bank export of defence items in the aerospace category has witnessed an increase in value.
    • Small naval crafts account for the bulk of India’s major defence exports. However, the export of ammunition and arms remain low.
    • As a percentage of total Indian trade, defence-related exports for the fiscal years 2017-18 and 2018-19 were 8 and 0.73%, respectively.

    Conclusion

    From a volume and value standpoint, Indian defence exports, while showing a promising upward trend, still remain uncompetitive globally. It is likely that Indian defence exports will take several years before they are considered attractive by external buyers. But green shoots are emerging in a sector that has long been devoid of any dynamism and Indian policymakers should make the most of the opportunities this represents.

  • Get ready for upcoming 3rd Full Length Prelims Test (Special Focus on Latest Acts/Schemes/Policies Part 1) on 4th April – sample questions highlighting our methodology

    Click here to enrol for the Prime Prelims TS

    Dear students,

    31st May 2020 is the D-day for all civil service aspirants.

    “Give me six hours to chop down a tree and I will spend the first four sharpening the axe.”

    This quote by Abraham Lincoln clearly sums up how one should prepare for that day. So before entering the battlefield alone should have enough practice. Our Prime Prelims Test series which shall enrich you to acquaint yourself with the pattern of CSE-2020, assess your abilities, rectify your mistakes and make you confident to appear on the examination day.

    Our Prime Prelims Test Series follows the same approach as that adopted by UPSC. Our team of experts is quite enriched with the UPSC pattern and focal point of the questions and hence creates more chances for the aspirants to crack civil service examination by appearing our Test Series.

    The key philosophy of our prelims TS is Evidence-based question making: The 3600 questions you face in our mocks have their relevance established in UPSC’s trend analysis. We focus on themes that are important as per UPSC so that we maximize your chances of questions overlap with the actual UPSC Prelims.

    Nothing speaks more than the facts itself rather than a mere jargon. Here is a list of 5 sample questions from the upcoming test which will help you in identifying the standards and approach we follow. (you can skip this if you want to attempt these directly in the test). 

    Noone but only you can assess how it will help you in being the top percentile of aspirants. You have to practice ruthlessly and civils Daily provides you with a platform to hone your skills.

     

    Q.1) Which of the following are the components of VANBANDHU KALYAN YOJANA?

    1. Improving the quality of education
    2. Protection of tribal culture and heritage
    3. Skill upgradation and capacity building

    Select the correct option from the codes given below:

    a. 1 and 2 only

    b. 2 and 3 only

    c. 1 and 3 only

    d. All of them

     

    Q.2) Which of the following are core focus areas of Inclusive India Initiative?

    1. Inclusive Education
    2. Inclusive Employment
    3. Inclusive Community Life

    Select the correct answer from the codes given below:

    a. 1 and 2 only

    b. 2 and 3 only

    c. 1 and 3 only

    d. All of them

     

    Q.3) Which of the following are the components of Sagarmala Programme?

    1. Coastal Employment Zone
    2. Coastal Community Development
    3. Port Connectivity Enhancement

    Select the correct answer from the codes given below:

    a. 1 and 2 only

    b. 2 and 3 only

    c. 1 and 3 only

    d. All of them

     

    Q.4) The ‘National Quality Renaissance Initiative (NQRI)’ aims to:

    a. measure and improve pollution level of major capital cities of India

    b. improve quality control and accreditation of higher education institutions which is central to enhancing the quality

    c. bring together the famous scholars and litterateurs and create a national database of their works

    d. monitor the new government buildings and structures being created with climate-resilient technologies

     

    Q.5) Which of the following is the most likely consequence of implementing the ‘Unified Payments Interface (UPI)’?

    a. Mobile wallets will not be necessary for online payments.

    b. Digital currency will totally replace the physical currency in about two decades.

    c. FDI inflows will drastically increase.

    d. Direct transfer of subsides to poor people will become very effective.

  • 2 April 2020 | Nikaalo Prelims Quiz- September 2019 CA

    [WpProQuiz 414]

  • Lockdown And UPSC Aspirants – 7 Simple Tips To Stay Productive

     

    Though UPSC aspirants are used to isolation, the present lockdown has impacted efficiency in general and left many UPSC aspirants confused as to how to utilize their time most effectively. Get Practical insights regarding practices that not only help you to keep your senses together but also aid your preparation process.

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  • Pull out all the stops

    Context

    Though there is coherence in India’s response to the Covid-19, still there is more that needs to be done.

    Sense of coherence in India’s response

    • Since last week, a sense of coherence is settling over India’s response to the COVID-19 outbreak.
    • The national lockdown, the incomes and credit support, and the three-month debt moratorium announced by the government and the RBI are the needed first steps to contain the outbreak on the one hand and lessen the economic impact on the other hand.

    Uncertainty in two important factors

    • Several laundry lists of measures have already been proffered by many, however, these are not of much help.
    • Uncertainty: Given the extreme uncertainty clouding how long and intensely social distancing policies will need to be pursued, the attendant economic impact and, crucially, how quickly and strongly the recovery can take place.
    • 1. The answer to the first depends on how much the outbreak tests the capacity of the already-stretched public health system.
    • Extending the social distancing policy: If the lockdown does not slow the spread of the virus to a rate that the healthcare system can handle, then the social distancing policies, in some form or another, will need to be extended.
    • Destruction of demand: The longer such containment measures last, the larger will be the destruction to (of) demand and the bigger the collapse in output and incomes.
    • 2. Then, there is the question about the pace and strength of the recovery.
    • Much will depend on how much damage the eventual output loss inflicts on households’ and corporates’ balance sheets.
    • Lower consumption: For example, even if a worker starts earning once the lockdown is lifted if one has incurred large debts in the interim, one’s consumption demand will naturally be much lower than before the crisis.
    • The same holds for corporates, both big and small.
    • No help from global demand: What makes the situation worse is that there is not likely to be much help coming from global demand.
    • Growth estimates: It is now expected global growth would decline to 5 per cent (annualised) in 1H20 (first half 2020), considerably more than during the global financial crisis, and rebound only partially in 2H20, leaving global GDP 2.5 percentage points below its pre-crisis level at the end of this year.

    How the uncertainty makes policy response calibration difficult?

    • Difficulty in assessing economic damage: Given these extreme uncertainties, it is very hard to assess the economic damage with any degree of conviction.
    • In fact, in last week’s policy review, the Monetary Policy Committee refrained from providing any projections for future growth and inflation, breaking from its normal practice.
    • So, if the outlook is so uncertain, how does one calibrate the policy response?
    • 1. Under-support the economy: One can easily under-support the economy, which could prolong the slowdown.
    • 2. Or over-support the economy, which could end up stoking inflation (as it did in 2010-13 when the massive monetary and fiscal easing during the global financial crisis was not withdrawn quickly) or creating asset price bubbles.

    What is the way out in such a situation?

    • Don’t try to calibrate: The way out is not to even try calibrating policies under such extreme uncertainty but to let the size of the support be determined endogenously by the extent and nature of the economic damage.
    • Falling back of first principles: This requires falling back on first principles. We know that the economic damage could be very large.
    • Delay in recovery: We also know that if the damage to households’ and firms’ balance sheets is substantial, then the recovery could be delayed and weakened.
    • Give extensive income support: This calls for extensive income support through existing government Jan Dhan and Mudra accounts to households and SMEs, and temporary tax cuts or deferments to the larger corporates.
    • Tax cuts needed: It also needs substantial cuts in indirect taxes (GST) when social distancing is relaxed.

    Problems with RBI measures

    • RBI providing support: The RBI has begun to provide support via its liquidity facility (TLTRO) and regulatory forbearance that allows banks to offer a debt moratorium to their customers for the next three months.
    • But both these measures work through banks.
    • The problem of bank turning risk-averse: Given that banks have turned substantially risk-averse because of the restructuring and bad debt problems of the last few years, the RBI likely needs to start providing liquidity directly to corporates, as recently announced by the US Fed.
    • At the same time, any debt moratorium will reduce profit and, in turn, capital, banks might be reluctant to extend it to all their customers.
    • Accommodate capital shortfall in the bank: Consequently, the RBI also needs to change regulations to accommodate possible shortfalls in bank capital because of the debt moratorium.

    What should be the scope and size of the policy support?

    • Support should be based on the extent of the damage: The scope and size of such policy support need to be determined by the extent of the economic damage, and not by perceived limits about what India can afford or those imposed by existing institutional arrangements and practices.
    • It is quite possible that the size of the economic damage ends up requiring support that widens the fiscal deficit substantially.
    • India clearly does not have the fiscal space to provide any material economic support when measured against standard benchmarks of fiscal prudence.
    • Directly funding the budget deficit: The market is on edge, and fears of eventual large government borrowing has spiked long-term interest rates despite large cuts in short-term rates by the RBI, which are likely to delay and weaken the recovery.
    • Any large bond auction by the government, even if it is offset by the RBI through open market operations, is not likely to calm market nerves and bring down lending rates.
    • The government should invoke “natural disaster” clause: What is needed is for the government to invoke the “escape” or the “natural disaster” clause in the fiscal responsibility act (FRBM) that allows the RBI to directly fund the budget deficit without having to go through market auctions.

    Conclusion

    Such a proposal is likely to raise the hackles of any fiscal conservative and there is the natural question about how rating agencies might react. As long as the government credibly commits to reversing the action as soon as the crisis is over, rating agencies and fiscal conservatives alike will likely treat this kindly, as it is a response to a crisis caused not by poor economic policies, but by an act of nature.

  • Telemedicine/Telehealth as a tool to fight COVID-19

     

    The Medical Council of India and the NITI Aayog have developed new guidelines released on March 25, 2020 for registered medical practitioners to deliver consultations to patients via telemedicine.

    Telemedicine

    • Telemedicine involves the use of telecom and virtual technology to deliver health care outside of traditional health-care facilities.
    • It is the essential delivery of health care services where distance is a critical factor — comes in.
    • At least one doctor is needed for a population of 1,000, according to WHO guidelines.
    • Telemedicine, thus, holds significance for countries like India that have low doctor-to-patient ratios.

    About the guidelines

    • The guidelines aim to empower registered doctors to reach out to patients safely using technologies for the exchange of valid information.
    • This information can be used for diagnosis, treatment and prevention of disease and injuries, research and evaluation and for continuing the education of healthcare providers.
    • The guidelines have empowered medical practitioners. They have, however, also imposed many restrictions.
    • Registered medical practitioners, for instance, have to take the patient’s consent.
    • If the patient denies her consent, however, the practitioner cannot insist that the patient to go in for telemedicine.

    How telemedicine can help against COVID-19?

    • Telemedicine can help bridging the gap between people, physicians and health systems, enabling everyone, especially symptomatic patients, to stay at home and communicate with physicians through virtual channels.
    • It thus helps reducing the spread of the virus to mass populations and the medical staff on the frontlines.
    • It can help provide routine care for patients with chronic diseases who are at high risk if exposed to the virus.

    Limitations

    • The out-of-hospital management is has not been yet established in India. Perhaps a ‘crisis-based’ evolution of telemedicine can help find local testing centers and also manage the flow of patients seeking a test.
    • However, for a smaller subset of higher risk patients, the clinical course may not be consistent with conventional telemedicine.
    • These patients often present with a more serious condition require rapid hospitalization.
    • Telemedicine hasn’t traditionally been used in response to public health crises. Many health practitioners are not equipped to deliver care in this way.
    • Another issue is access to broadband – some hospitals struggle with running a quality connection within their facilities and now we are faced with taking this to potential new areas of care, such as an outside tent.

  • Counter-cyclical Capital Buffers (CCyB)

    The RBI has announced that banks need not activate countercyclical capital buffers (CCyB) amid slowdown due to COVID-19 outbreak.

    What is Countercyclical Capital Buffer (CCyB)?

    • A capital buffer is a mandatory capital that financial institutions are required to hold in addition to other minimum capital requirements.
    • CCyB is the capital to be kept by a bank to meet business cycle related risks. It is aimed to protect the banking sector against losses from changes in economic conditions.
    • Banks may face difficulties in phases like recession when the loan amount doesn’t return.
    • To meet such situations, banks should have own additional capital. This is an important theme of the Basel III norms.

    CCyB framework in India

    • The framework on CCyB was put in place by the RBI in terms of guidelines issued in 2015 wherein it was advised that the CCyB would be activated as and when the circumstances warranted.
    • The framework envisages the credit-to-GDP gap as the main indicator, which is used in conjunction with other supplementary indicators.
    • It requires banks to build up a buffer of capital in good times, which may be used to maintain flow of credit to the real sector in difficult times.
    • The buffer was also meant to restrict the banking sector from indiscriminate lending in the periods of excess credit growth, which have often been associated with the building up of system-wide risk.

  • Ways and Means Advances (WMA)

     

    The RBI has raised the Ways and Means Advances, or WMA, limit by 30% for all States and UTs to enable them to tide over the crisis caused by COVID-19 outbreak.

    What are Ways and Means Advances?

    • The RBI gives temporary loan facilities to the centre and state governments as a banker to the government.  This temporary loan facility is called WMA.
    • It is a mechanism to provide to States to help them tide over temporary mismatches in the cash flow of their receipts and payments.
    • It was introduced on April 1, 1997, after putting an end to the four-decade-old system of adhoc (temporary) Treasury Bills to finance the Central Government deficit.
    • Under Section 17(5) of RBI Act, 1934, the RBI provides Ways and Means Advances (WMA) to the central and State/UT governments.

    How is WMA availed?

    • This facility can be availed by the government if it needs immediate cash from the RBI.
    • The WMA is to be vacated after 90 days.
    • The interest rate for WMA is currently charged at the repo rate.
    • The limits for WMA are mutually decided by the RBI and the Government of India.

    Types of WMA

    There are two types of WMA — (1) Normal and  (2) Special :

    • Special WMA or Special Drawing Facility is provided against the collateral of the government securities held by the state.
    • After the state has exhausted the limit of SDF, it gets normal WMA. The interest rate for SDF is one percentage point less than the repo rate.
    • The number of loans under normal WMA is based on a three-year average of actual revenue and capital expenditure of the state.

    Back2Basics

    How the govt. meets temporary cash needs?

    The fund deficit or cash-flow mismatches of the Government are largely managed through:

    1. Issuance of Treasury Bills
    2. Getting temporary loans from the RBI called Ways and Means Advances (WMA) and
    3. Issuance of Cash Management Bills (CMBs)
    • Treasury Bills are short term (up to one year) borrowing instruments of the Government of India which enable investors to park their short term surplus funds while reducing their market risk.
    • CMBs are short term bills issued by the central government to meet its immediate cash needs. The bills are issued by the RBI on behalf of the government having a maturity of less than 90 days.

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