http://www.thehindubusinessline.com/companies/pg-stops-sale-of-vicks-action-500-extra-after-govt-ban/article8356032.ece
A lot of bans etc take place but should we know what reasons, medicinal issues were underlying as this could be a pre question – also, functions of DCGI etc
Catch up on the previous links to this series:
Coming down heavily on the Reserve Bank of India (RBI) for depriving information under the RTI Act, 2005 in the name of fiduciary relationship between itself and the banks, the Supreme Court has in a landmark decision declared that RBI does not place itself in a fiduciary relationship with the Financial institutions because, the reports of the inspections, statements of the bank, information related to the business obtained by the RBI are not under the pretext of confidence or trust.
(1) Notwithstanding anything contained in this Act, there shall be no obligation to give any citizen,—
(a) information, disclosure of which would prejudicially affect the sovereignty and integrity of India, the security, strategic, scientific or economic interests of the State, relation with foreign State or lead to incitement of an offence;
(d) information including commercial confidence, trade secrets or intellectual property, the disclosure of which would harm the competitive position of a third party, unless the competent authority is satisfied that larger public interest warrants the disclosure of such information;
(e) information available to a person in his fiduciary relationship, unless the competent authority is satisfied that the larger public interest warrants the disclosure of such information;
The Supreme Court has directed all the States and Union Territories to consider the plight of Acid Attack victims and take appropriate steps with regard to inclusion of their names under the disability list. Apex court bench of Justices M.Y. Eqbal and C. Nagappan said that State shall upon itself take full responsibility for the treatment and rehabilitation of the victims of acid attack as per the Guidelines provided in Laxmi vs. Union of India.
State shall upon itself take full responsibility for the treatment and rehabilitation of the victims of acid attack as per the Guidelines.
Published with inputs from Swapnil
Catch up on the earlier articles:
Political Interference:
It is minimal because the absolute power is in the hand of IRS officers and there is no ground on which politicians can threaten them. Also, generally, they have no direct contact with politicians.
However, with changing times, more and more IRS officers are serving in departments and areas that used to exclusively be the forte of IAS officers. This widening of opportunities and exposure has made the IRS more attractive
Diversification of Career:
And of course you can always become a chief minister!
Family life: Best balance of family life and work is in IRS.
Uniform:
Ranks & Equivalent Salary Structure:
The equivalent ranks from IPS or IAS are given in table. You can check respective pay from earlier articles.
Published with inputs from Swapnil
If you haven’t read the article on inflation, read it before proceeding further
Economics | Inflation explained with real life examples
In the last article we understood, although both inflation and deflation are bad for economy, deflation is worse and policymakers always have to guard against possible deflationary tendencies. In this respect, inflation becomes a necessary evil. One of the major adverse effect of inflation is due to uncertainty it creates in the minds of investors and risk of hyperinflation. Policymakers therefore want low and stable inflation in the economy.
What that target level should be is decided either by parliament by law or informally by govt and central bank. As we saw inflation helps in labour market adjustment and as emerging economies undergo rapid transition, slightly higher inflation helps in that adjustment. For this reason. while inflation target is about 2% in developed economies, it is 4-5% in developing economies.
In India RBI and govt signed an agreement for long term inflation target of 4% with 2% range either side i.e. 2-6% inflation.
Earlier, there was no explicit target for inflation (no inflation targeting), RBI used to target multiple indicators as objectives of monetary policy
Inflation has been a perennial problem for India. As we saw inflation is due to demand supply mismatch i.e. demand for goods being higher than supply. To control inflation, monetary authority i.e. RBI formulates monetary policy.
As the name suggests it is policy formulated by monetary authority i.e. central bank which happens to be RBI in case of India.
It deals with monetary i.e money matters i.e. affects money supply in the economy.
Eg. CRR,SLR,OMO,REPO etc
What is fiscal policy then?
It is formulated by finance ministry i.e. government. It deals with fiscal matters i.e. matters related to government revenues and expenditure.
Revenue matters- tax policies, non tax matters such as divestment, raising of loans, service charge etc
Expenditure matters– subsidies, salaries, pensions, money spent on creation of capital assets such as roads, bridges etc.
Monetary policy and fiscal policy together deal with inflation.
Demand pull inflation is when people have more money to buy goods. It is easier for RBI to control as it can decrease the money supply in the economy, less money would lead to fall in prices.
But supply side inflation can not be dealt with by RBI. RBI can’t build roads or change agri policies to ensure smooth movement of grains. It does not control prices of oil or other commodities. Here role of government through fiscal policy becomes important.
It’s clear from what we have learnt so far that to control inflation, RBI will have to decrease money supply or increase cost of fund so that people do not demand goods and services.
Tools available with RBI
Reserve ratio- Banks have to set aside certain percentage of reserves as cash or RBI approved assets.
They are of two types
This reserve requirement is calculated on bank’s net demand (current and savings account) and time liabilities (Fixed deposits) which is roughly equivalent to total bank deposits.
At present CRR is 4% and SLR is 21.50% . But what if RBI tomorrow raised CRR or SLR, what would be it’s impact.
Consider this-
| Total deposits | CRR (parking with RBI) No interest here | SLR (Investment in liquid assets mainly govt securities) | Amount available for lending |
| 100 | 4 | 21.50 | 74.50 |
| 100 | 5 | 21.50 | 73.50 |
| 100 | 4 | 22.50 | 73.50 |
Consider interest rate as price for a commodity called money/ cash and apply demand supply principle of less commodity, higher prices i.e less money, higher interest rates
Less money with the banks # demand for money same # apply demand supply principle # interest rate will rise # costlier for you and I to borrow money to buy car # demand for car down # apply demand supply principle # cost of car will come down
Similarly business will borrow less # less expansion of business activity # wages will come down # less money with people # less demand for goods # prices wall
Net effect is that interest rate rises and prices fall.
Money becomes costlier when interest rate rises and when RBI makes money to become costlier or dearer, it is said to be following dear money policy. As money supply decreases in the economy, i.e. contraction in money supply, it is also known as contractionary monetary policy.
Businesses postpone expansion due to high cost of credit and investment comes down in the economy which drags down growth rates and hurts employment. That’s the reason why corporates and government always clamour for policies which lead to interest rate cuts such as reduction in CRR, SLR. Investment is thus negatively correlated with higher interest rates.
2. Open market operations (OMO)– As the name indicates this refers to operations conducted by the RBI in open market i.e. RBI does not directly ask banks to do anything. In this policy, RBI buys and sells government securities in the open market to control money supply.
We talked about government security in SLR as well, what is this government security?
Govt security is a type of debt instrument on which govt pays regular interest. As chances of default on govt securities is practically zero, they are also called gilt-edges securities.
What happens when RBI sells government securities?
Consider this-
| Total deposits at present | OMO | Banks govt securities worth | Amount available for lending |
| 100 | none | 20 | 80 |
| 100 | RBI sells secuties worth 10 rs, banks buy | 20+10 | 100-(20+10) =70 |
| 100 | RBI buys govt securities worth 10rs | 20-10 | 90 |
You can clearly observe that amount available for lending has come down i.e. money supply has contracted.
money going from the banks to the RBI # less money with the banks # dear money # higher interest rates # costlier for us to borrow to buy cars # less demand for cars # prices decrease
In effect, govt securities increases with banks when RBI sells govt securities.
Doesn’t this look eerily similar to phenomenon when RBI raises SLR, only difference being then banks were forced to raise their holding of securities. This way RBI suck out liquidity from the market.
Opposite happens when RBI buy securities, it then injects liquidity in the market.
So basically to control inflation, RBI will sell securities and suck out liquidity from the market.
OMOs are used more to control temporary mismatches in liquidity due to foreign capital flow, a policy known as sterilization.
Consider this-
| Total money supply at present | Net Foreign Investment | Investors convert $ into rs to invest in INDIA
|
Eventual money supply |
| 1000 | 0 | 0 | 0 |
| 1000 | 1$ = 67rs | 67 | 1000+67=1067 |
When foreign investors invest in Indian economy, they buy rupees and sell dollars. RBI absorbs dollars and issues rupees. Net effect is that rupee supply or liquidity is increased in the economy. Higher liquidity or money supply chasing similar amount of goods will lead to inflation. RBI has to suck out excess liquidity from the market i.e. sterilize economy from capital flows.
What RBI would do
Undertake OMOs and sell government securities.
| Total money supply before foreign investment | Net Foreign Investment | Money supply after foreign investment
|
RBI’s response | Money supply |
| 1000 | 1$ = 67rs | 1067 | Sell govt securities | Less than 1067 |
Note that I didn’t mention RBI would bring money supply to 1000 as with FDI, productive capacity would rise and to that extent goods worth say 1020 may be manufactured in INDIA and in that scenario to keep inflation stable, RBI needs to sell securities worth 20rs only. What would be the actual growth is essentially a data dependent judgement call.
When investors bring back their money, they will sell rupees and buy dollars. RBI will absorb rupees resulting in less liquidity in the market. To adjust this RBI will buy govt securities and inject liquidity in the market.
RBI uses another instrument to keep the liquidity intact, it is known as Market Stabilization Scheme (MSS).
3.Policy rates
At present bank rate is 7.75%. Bank rate is not the main tool to control money supply these days. Nowadays, RBI uses LAF ( liquidity adjustment facility) Repo rate as the main tool, to control money supply.
What’s the use of Bank rate then?
Penal rates are linked with Bank rate. For example, If a bank doesn’t maintain CRR, SLR as per the prescribed limit, penalty is prescribed as per bank rate.
It’s clear if RBI raises bank rate, costlier for banks to borrow from RBI # interest rate rises # repeat same story # costlier for you and I to borrow money to buy car # demand for car down # apply demand supply principle # cost of car will come down
It’s evident from the name that RBI uses such instruments to adjust liquidity and money supply.
#1. REPO rate – REpurcahse OBligation
Rate at which banks buy from RBI on a short term basis.
What do they have to repurchase?
On the Urjit Patel Committee’s recommendation — that the RBI stop fixing the repo rate in its quarterly reviews, and instead move to rate-setting on an ongoing basis, RBI started auctioning 7 day and 14 days term repo. In term repo, rate is market determined unlike overnight repo where RBI decides rate. Also RBI has restricted access to overnight repo to .25% on NDTL.
Clearly if RBI raises repo # costlier for banks to borrow # interest rate rises # repeat same story # costlier for you and I to borrow money to buy car # demand for car down # apply demand supply principle # cost of car will come down
#2. Reverse Repo as the name suggests is reverse of repo i.e. rate RBI pays to banks to park excess funds into RBI.
Reverse repo is linked to repo with,
Reverse repo = repo – 1
#3. Marginal Standing facility–
Penal rate at which banks can borrow money from the central bank over and above what is available to them through the rep window.
It is penal rate, hence REPO + 1
Reverse Repo + 1 = REPO; REPO + 1 = MSF
Under MSF banks can use up to 1% of securities from SLR.
Let’s recap all this. To control inflation RBI will follow dear or contractionary monetary policy to reduce money supply in the economy. It will increase reserve ratios (CRR,SLR), sell government securities under OMOs or raise various rates such as REPO, MSF, Bank rates etc.
But we see in India, even when RBI decreases rates banks don’t pass on the benefits to consumers and when banks raise interest rates when RBI raises rates, inflation does not come down. This suggest monetary policy is highly ineffective in India.
Why banks don’t pass on the benefits of rate cut to consumers?
RBI cut repo rate by 125bp last year but banks decreased lending rate only by 60bp.
Government and RBI’s response to improve monetary transmission
But why is RBI unable to control inflation even when banks immediately raise lending rates?
We have talked about quantitative tools so far but RBI also has some qualitative tools in its kitty which are not important for exams. So in brief
They are Selective tools- can affect money supply in a specific sector of economy unlike general quantitative tools which affect money supply in the whole economy.
By now we have understood that govt and corporate are more interested in low interest rates which support investment and growth while primary task of RBI is to control inflation, keeping prices stable and thus protecting purchasing power of money. This is not to say that govt and corporate do not want low inflation, they do but their primary focus lie elsewhere. It is in this context that autonomy of RBI to decide on monetary policy matters becomes so important.
At present sole authority vests with RBI governor who is advised by a technical expert committee whose advice is not binding. Government intends to replace it with a monetary policy committee (recommended by FSLRC and Urjit Patel committee and followed in many countries) with members both from within and outside RBI.
Two important questions arise-
Ideal committee would be one with RBI majority or equal members with casting vote with the governor without any veto. This along with explicit inflation target would give enough autonomy to go along with accountability.
To follow the story of Monetary Policy Committee and Autonomy of RBI, click here
#1. With reference to inflation in India, which of the following statements is correct?
#2. Which one of the following is likely to be the most inflationary in its effect?
#3. A rise in general level of prices may be caused by
Select the correct answer using the codes given below.
#4. With reference to Indian economy, consider the following:
Which of the above is/are component/components of Monetary Policy?
#5. When the Reserve Bank of India reduces the Statutory Liquidity Ratio by 50 basis points, which of the following is likely to happen?
#6. Supply of money remaining the same when there is an increase in demand for money, there will be
#7. If the interest rate is decreased in an economy, it will
#8. In the context of Indian economy; which of the following is/are the purpose/purposes of ‘Statutory Reserve Requirements’?
#9. An increase in the Bank Rate generally indicates that the
#10. The Reserve Bank of India (RBI) acts as a bankers‘ bank. This would imply which of the following?
Select the correct answer using the codes given below:
#11. Which of the following is/are long term policy tools
Select the correct response
#12. Which of the following measures would result in an increase in the money supply in the economy?
Other articles to understand basics of economics-
Respected CD team,
As we all know, hardly any time is left for CSP.
So can we not get a few new things from your side, like quizzes?
You guys are doing tremendous work with explainers and B2B. But I personally feel a lot very scared, demotivated and lost at times.
I hope it is not too much to ask for. March has almost reached its end 😛 four months to go.
I’ll be very grateful if you guys post a strategy for how to proceed in these four months,post some quality questions on polity geography history and environment.
This is all I’m asking for. 🙂
I hope others will agree on this. 🙂
Yours obediently
Simran. 🙂
This post continues from the series on International Relations for IAS Prep. Read the essential posts here –
If you haven’t read part one of Bretton Woods institution, click here to read that first
World Bank is a vital source of financial and technical assistance to developing countries around the world. This is not only a bank in the ordinary sense but a unique partnership to reduce poverty and support development.
When? 1944
Headquarter: Washington, D.C.
Publications- global economic prospects, Ease of doing business index
There are 2 goals for the world to achieve by 2030 –
World Bank Group is not just World bank but comprises of 5 institutions managed by their member countries
These 5 institutions are as follows –
Except for ICSID, India is member of other four groups<We don’t like external interference such as arbitration in our decision making process, hence not the member of ICSID>
<India is one of the founder members of IBRD, IDA and IFC>
So, we will discuss this 3 institutions in detail, as are important for India –
IBRD provides loans and other assistance primarily to middle income and poor but credit worthy countries at interest rates slightly lower than that offered by other financial institutions but with long term maturity<countries which have the capacity to repay the loan amount with interest>
Members: 188
Origins: IBRD as the name suggest was created in 1944 to help Europe reconstruct/ rebuild after World War II. To be a member of IBRD, a country has t join IMF first.
Main function:
Other functions of IBRD Bank –
Before granting or guaranteeing a loan, the Bank considers the following matters –
How is IBRD financed?
IDA is the part of the World Bank that helps the world’s poorest countries
When? 1960
Aim: To reduce poverty by providing loans (called “credits”) and grants for programs that boost economic growth, reduce inequalities, and improve people’s living conditions.
Main Functions of IDA:
Structure of lending and credits by IDA
Borrowers of IDA
Roadmap ahead for IDA
India has exceeded IDA’s per capita income threshold of 1260$ and is thus technically not eligible to tap IDA window but India campaigned to extend the tenure of India’s concessional loans by several more years (till 2022), given the country’s high poverty levels and WB decided to continue it’s IDA concessional lending in view of 300m people living below poverty line.
Largest global development institution focused exclusively on the private sector in developing countries
When? 1956
Members: 184
Objectives of the IFC
Focus Areas –
Let’s take a look at India-IFC ties
IFC also issue India’s first masala bonds to tap in foreign funding in local currency. similar IFC also issued first green masala bonds to raise investments to deal with climate change. Want to know what is masala bond, click here to read more
Reforms
| Name | Main Function | Comment |
| IBRD (WB) | Infrastructure loan to poor middle income but credit worthy countries at just below market rates | India founder member, largest recipient of loan |
| IDA | Soft loan at virtually zero rate for poverty eradication to poorest countries | India founder largest recipient, has crossed the per capita threshold for funding but will continue to receive IDA funds |
| IFC | Private sector arm of WB group, supports private enterprises in developing countries | India founder, IFC launched India’s offshore masala bond |
| MIGA | Provide guarantee to investors against non-commercial political risk | India not founding member |
| ICSID | Resolve disputes through arbitration and conciliation | India not a member |
#1. Which one of the following groups of items is included in India’s foreign-exchange reserves? (IAS pre 2013)
#2. ‘BioCarbon Fund Initiative for Sustain- able Forest Landscapes’ is managed by the (IAS pre 2015)
(a) Asian Development Bank
(b) International Monetary Fund
(c) United Nations Environment Programme
(d) World Bank
#3. The price of any currency in international market is decided by the (ias pre 2012)
Which of the statements given above are correct?
#1. The World Bank and the IMF, collectively known as the Bretton Woods Institutions, are the two inter-governmental pillars supporting the structure of the world’s economic and financial order. Superficially, the World Bank and the IMF exhibit many common characteristics, yet their role, functions and mandate are distinctly different. Elucidate. (IAS mains 2013)
#2. Does India Need the World Bank?
What did I do to the nations GDP?
– a question from quora! For fun
Buy your copy from this link – https://www.instamojo.com/civilsdaily/civilsdigest-ed-3-apr-2016/
The offline release is slated to happen next week via Unique Publishers. We will let you know when that happens.
In this section, we will deal with the issue which is of critical importance to the growth of every economy – Governance and Ease of Doing Business
Take a look at overall approach of govt. towards Governance and Ease of Doing Business. Want to read the story of Ease of Doing Business, click here
Govt. has set up a task force to look into the rationalisation of human resources in various ministries. A comprehensive review and rationalisation of autonomous bodies is also under process.
Govt has approved creation of buffer stock of pulses through procurement at Minimum Support Price and at market price through Price Stabilisation Fund, in order to deal with the problem of abrupt increase in prices of pulses <Despite recent cooling down of food inflation, sudden spurt in prices of onions, pulses etc is a common feature of Indian agriculture. What are the reasons? Enumerate steps taken by the govt along with suggestions to remedy the problem. Answer in the comments.>
Want to understand intricacies of inflation, CPI, WPI, PPI etc, click here
Govt. will take several measures to ensure targeted disbursement of govt. subsidies and financial assistance to the actual beneficiaries:
Update- Lok Sabha has already passed the Aadhar bill which was introduced as money bill. <Enumerate the salient provisions of Aadhar bill? Does it come into conflict with privacy and thus violative of fundamental right to privacy? Was govt right in introducing it as money bill? What are the implications of bills being introduced as money bill? Answer in the comments>
Criticism– No big bang reform measures announced
PS: Please click on the green hyperlinked text to read more about the concepts. Revise and revise & feel free to ask pertinent questions.
Published with inputs from Pushpendra | Image: Finmin
In this section, we will deal with the issue which is of critical importance to the growth of every economy – Fiscal Discipline
Before, you know about fiscal position of the country. For a better understanding, do read our Budget Deficits Explained
Fiscal Deficit: The fiscal deficit in RE 2015-16 and BE 2016-17 have been retained at 3.9% and 3.5% of GDP respectively
Revenue Deficit: Govt. has improved upon the Revenue Deficit target from 2.8% to 2.5% of GDP in RE 2015-16.
Govt has constituted a committee to examine the Seventh Pay Commission Report and give its recommendations.
Follow our story on Seventh Pay Commission here.
The total expenditure in the Budget for 2016-17 has been projected at Rs 19.78 lakh crore, consisting of Rs 5.50 lakh crore under Plan and Rs 14.28 lakh crore under Non-Plan.< Keep in mind, our non-Plan expenditure is higher than Plan expenditure>
Various committees have questioned the merit in having Plan and Non-Plan classification of govt expenditure. Govt. has decided that the classification will be done away with from fiscal 2017-18 and it will give greater focus to Revenue and Capital classification of govt expenditure.
Quality of Expenditure: Every new scheme being sanctioned by govt will have a sunset date and outcome review, in order to improve the quality of govt expenditure
PS: Please click on the green hyperlinked text to read more about the concepts. Revise and revise & feel free to ask pertinent questions.
Published with inputs from Pushpendra | Image: Finmin
