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Subject: Economics

  • India’s 1991 Crisis and the RBI Governor’s Role

    S. Venkitaramanan, former Governor of the RBI

    Central Idea

    • S. Venkitaramanan, former Governor of the Reserve Bank of India (RBI), passed away, leaving behind a legacy of significant contributions.
    • His tenure is marked by crucial interventions during India’s economic crises and a commitment to open dialogue and innovative policies.

    Navigating the Balance of Payments Crisis

    • Economic Turbulence in 1990: India faced a severe balance of payments crisis due to reduced remittances and increased oil prices.
    • Critical Measures: Under Venkitaramanan’s leadership, the RBI took bold steps, including pledging gold reserves, to avert a default on international payments.
    • Impact of Gold Pledging: This move, though criticized domestically, was crucial in maintaining India’s international credibility and financial stability.

    Role in Economic Reforms

    • Import Compression Strategy: Venkitaramanan initiated a program of import compression, significantly reducing the current account deficit.
    • Foundation for Future Reforms: These measures laid the groundwork for the economic reforms introduced by the Narasimha Rao government and Dr. Manmohan Singh.

    Challenges and Controversies

    • The Harshad Mehta Scam: Venkitaramanan’s tenure was marred by the securities scandal involving Harshad Mehta, overshadowing his earlier achievements.
    • Public Perception: Despite his significant contributions, the public memory often overlooks his role in steering India through economic turmoil.

    Remarkable Openness and Inclusivity

    • Engagement with Diverse Opinions: Venkitaramanan was known for his openness to different viewpoints, engaging with economists and critics alike.
    • Innovative Approach to Policy Making: His willingness to consider varied perspectives contributed to more inclusive and effective economic policies.

    Legacy in the RBI and Beyond

    • Establishment of the Development Research Group: Venkitaramanan’s vision led to the creation of this group, aiming to foster interaction between the RBI and independent economists.
    • Influence on Current Economic Policies: His belief in relying on India’s intellectual resources continues to influence the RBI’s approach, though challenges like inflation management persist.

    Conclusion

    • Enduring Impact: S. Venkitaramanan’s tenure as RBI Governor was marked by courageous decisions and a commitment to intellectual openness.
    • Remembering His Contributions: While his term had its challenges, his role in safeguarding India’s economy and fostering a culture of dialogue and research within the RBI remains a significant part of his legacy.
    • Inspiration for Future Leaders: His approach to economic policy and management continues to serve as an inspiration for current and future leaders in the field.

  • Virtual Digital Asset Regulation: Global Perspectives and Challenges

    Central Idea

    • The Financial Intelligence Unit India (FIU IND) issued notices to offshore virtual digital asset service providers (VDA SPs) for non-compliance with the Prevention of Money Laundering Act, 2002 (PMLA).
    • A request was made to the Ministry of Electronics and Information Technology to block URLs of these entities.

    About Virtual Digital Assets (VDAs)

    • Digital Value: Virtual Digital Assets are digital forms of value like cryptocurrencies and tokens. They are secured using cryptography and blockchain technology.
    • Intangible and Digital: These assets exist only in digital form and can be used for transactions, investments, or as a store of value.
    • Decentralized: They usually operate independently of central authorities, which makes them attractive but also prone to risks like money laundering. This has led to calls for regulation and oversight.

    Premise of Non-Compliance with PMLA

    • Regulatory Changes in 2023: VDA SPs were brought under anti-money laundering and counter-terrorism financing regulations in March 2023.
    • Mandatory Compliance: These regulations required VDA SPs to register, verify client identities, and maintain records of financial transactions.
    • Non-Registration Issue: Non-compliant entities continued to serve Indian users without registration, evading the AML and CFT framework.

    Purpose of PMLA Compliance

    • Monitoring Financial Transactions: The PMLA aims to track financial transactions to prevent money laundering and terror financing.
    • Selective Compliance Advocacy: Legal experts suggest that FIU IND should enforce compliance only on entities fitting the March 2023 notification parameters.
    • KYC Benefits: Adherence to KYC mandates is seen as beneficial for VDA SPs, addressing concerns about anonymity and unlawful use of crypto assets.

    Global Efforts and Indian Enforcement

    • India’s Global Advocacy: India’s enforcement aligns with its global efforts for cryptocurrency regulation, including proposed frameworks by the IMF and the Financial Stability Board.
    • G-20 Influence: India’s role in the G-20 has been pivotal in advocating for global cryptocurrency regulation.

    International Regulatory Landscapes

    • Dubai’s VARA Model: Dubai’s Virtual Assets Regulatory Authority (VARA) provides a comprehensive licensing framework, emphasizing consumer protection and AML-CFT compliance.
    • EU’s MiCA Regulation: The Markets in Crypto-Assets Regulation (MiCA) in the EU focuses on transparency, disclosure, and supervision, requiring service providers to be authorized.
    • U.S. Regulatory Framework: The U.S. lacks a comprehensive nationwide framework but covers digital assets under existing regulations like the Bank Secrecy Act.

    Considerations in Regulating Virtual Digital Assets (VDAs)

    • Policy Options by BIS: The Bureau for International Settlements (BIS) outlines three policy options: outright ban, containment, and regulation.
    • Challenges of an Outright Ban: An outright ban may be unenforceable due to the pseudo-anonymous nature of crypto markets.
    • Containment Strategy: Containment involves controlling flows between crypto and traditional financial systems but may not address inherent vulnerabilities.
    • Regulatory Motivations: The motivation to regulate varies, with the need to ensure regulatory benefits outweigh costs.
    • Focus Areas for Emerging Markets: Emerging market economies (EMEs) need to define regulatory authority, scope of regulation, and fill data gaps to understand technology interconnections.

    Conclusion

    • Balancing Act: Regulating virtual digital assets presents a complex balancing act between innovation, consumer protection, and financial stability.
    • Global Coordination: The varied approaches across jurisdictions highlight the need for global coordination and harmonization in VDA regulations.
    • India’s Proactive Stance: India’s recent actions reflect a proactive stance in aligning with global standards while addressing local concerns.
    • Future Challenges: As the virtual asset landscape evolves, regulators worldwide will continue to face challenges in adapting their frameworks to ensure effective oversight without stifling innovation.

  • The woes of pensioners and PF members

    EPFO Pension: EPFO issues FAQs on pension, but no clarity on computation | India News - Times of India

    Central idea 

    The EPFO’s recent clarification on the 2022 Supreme Court verdict regarding higher PF pension has sparked concerns among pensioners due to ambiguity in pension computation methods. Challenges include discrepancies for pre-2014 and post-2014 retirees, with a demand for increased minimum monthly pension.

    Key Highlights:

    • The EPFO’s clarification on the 2022 Supreme Court verdict on higher PF pension has raised concerns among pensioners and PF members.
    • The Court approved higher pension payments with certain conditions, including amendments to the pensionable salary cap and contribution rules.
    • The clarification introduces ambiguity by tying pension computation to the “date of commencement of pension.”

    Key Challenges:

    • Pre-2014 retirees choosing pension post-amendments receive lower pensions due to the calculation based on the average pay of 60 months.
    • Post-2014 retirees face ambiguity and discrepancies in the revised pension amounts, seeking clarity through a worksheet.
    • Lack of incorporation of interest rate component in pension calculations.
    • Long-standing demand to increase the minimum monthly pension beyond ₹1,000, with calls for linking it to the cost of living index.

    Key Terms:

    • EPFO: Employees’ Provident Fund Organisation
    • EPS: Employees’ Pension Scheme
    • Pensionable salary cap: ₹15,000/month
    • Amendments (2014): Raised pensionable salary cap, altered contribution rules, and changed computation basis.
    • Date of commencement of pension: Controversial factor in pension calculation.

    Key Quotes:

    • “There is also a demand for incorporating the component of interest rate… the pension amount would at least see a rise of ₹2,300 per month.” – MP M. Shanmugam
    • “The government’s contributions should increase… to achieve a durable social security system for contributors to the economy.”

    Key Statements:

    • The clarification’s reliance on the “date of commencement of pension” has created confusion and dissatisfaction among pensioners.
    • Ambiguity in post-2014 retirees’ pension calculations prompts the need for a clearer worksheet.

    Way Forward:

    • Address concerns by revisiting the pension computation methodology.
    • Consider increasing the minimum monthly pension, as demanded by various stakeholders.
    • Enhance government contributions to ensure a robust social security system.
    • Provide clear guidelines and a comprehensive worksheet for post-2014 retirees to understand and verify their pension calculations.

  • Arvind Panagariya appointed as Sixteenth Finance Commission chief

    Central Idea

    • The Centre has appointed Arvind Panagariya, a renowned trade economist and former Niti Aayog vice chairman, as the chairman of the Sixteenth Finance Commission.

    Who is Arvind Panagariya?

    • Panagariya is a professor at Columbia University.
    • He served as the first vice chairman of the Niti Aayog from 2015 to 2017, succeeding the Planning Commission.

    About Finance Commission

    • Establishment: The Finance Commission (FC) of India was established by the President in 1951 under Article 280 of the Indian Constitution.
    • Purpose: Its primary role is to define and regulate the financial relations between the central government and the individual state governments.
    • Legislative Framework: The Finance Commission (Miscellaneous Provisions) Act, 1951, further outlines the qualifications, appointment, disqualification, term, eligibility, and powers of the Finance Commission.
    • Composition: Appointed every five years, the FC comprises a chairman and four other members.
    • Evolution: Since the First FC, changes in India’s macroeconomic landscape have significantly influenced the Commission’s recommendations.

    Constitutional Provisions

    • Article 268: Facilitates the levy of duties by the Centre, with collection and retention by the States.
    • Article 280: Outlines the FC’s composition, qualifications for members, and its terms of reference. It mandates the FC to recommend the distribution of net tax proceeds between the Union and States and the allocation among States. It also addresses the financial relations between the Union and States and the devolution of unplanned revenue resources.

    Key Functions of the Finance Commission

    • Tax Devolution: Recommends how net tax proceeds should be distributed between the Center and States.
    • Grants-in-Aid: Determines the principles governing these grants to States.
    • Augmenting State Funds: Advises on measures to enhance the States’ Consolidated Funds to support local bodies and panchayats, based on State Finance Commissions’ recommendations.
    • Other Financial Functions: Addresses any other financial matters referred by the President.

    Members of the Finance Commission

    • Structure and Standards: The Finance Commission (Miscellaneous Provisions) Act, 1951, provides a structured format and global standards for the FC.
    • Qualifications and Powers: Specifies rules for members’ qualifications, disqualification, appointment, term, eligibility, and powers.
    • Composition: The Chairman is chosen for their experience in public affairs. The other members are selected based on their judicial experience, knowledge of government finances, administrative and financial expertise, or special economic knowledge.

    Challenges for the 16th Finance Commission

    • Overlap with GST Council: The coexistence with the GST Council, a permanent constitutional body, presents a new challenge.
    • Conflict of Interest: Decisions by the GST Council on tax rates could impact the FC’s revenue-sharing calculations.
    • Feasibility of Recommendations: While the Centre often adopts the FC’s suggestions on tax devolution and fiscal targets, other recommendations may be overlooked.

    Major Outstanding Recommendations

    • Fiscal Council Creation: The 15th FC proposed a Fiscal Council for collective macro-fiscal management, but the government has shown reluctance.
    • Non-Lapsable Fund for Internal Security: Though the Centre agreed ‘in principle’ to establish this fund, its implementation details are pending.

  • Analyzing the Slowdown in India’s Core Sector

    Central Idea

    • India’s eight core sectors experienced a significant slowdown, growing by 7.8% in November, down from 12% in October.

    About Core Industries in India

    • The main or key industries constitute the core sectors of an economy.
    • In India, eight sectors are considered the core sectors.
    • These sectors are in decreasing order of their weightage: Refinery Products> Electricity> Steel> Coal> Crude Oil> Natural Gas> Cement> Fertilizers.

    About Index of Eight Core Industries

    • The monthly Index of Eight Core Industries (ICI) is a production volume index.
    • ICI measures the collective and individual performance of production in selected eight core industries viz. Coal, Crude Oil, Natural Gas, Refinery Products, Fertilizers, Steel, Cement and Electricity.
    • Before the 2004-05 series six core industries namely Coal, Cement, Finished Steel, Electricity, Crude petroleum and Refinery products constituted the index basket.
    • Two more industries i.e. Fertilizer and Natural Gas were added to the index basket in the 2004-05 series. The ICI series with base 2011-12 will continue to have eight core industries.

    The components covered in these eight industries for compilation of the index are as follows:

    1. Coal – Coal Production excluding Coking coal.
    2. Crude Oil – Total Crude Oil Production.
    3. Natural Gas – Total Natural Gas Production.
    4. Refinery Products – Total Refinery Production (in terms of Crude Throughput).
    5. Fertilizer – Urea, Ammonium Sulphate (A/S), Calcium Ammonium Nitrate (CAN), Ammonium chloride (A/C), Diammonium Phosphate (DAP), Complex Grade Fertilizer and Single superphosphate (SSP).
    6. Steel – Production of Alloy and Non-Alloy Steel only.
    7. Cement – Production of Large Plants and Mini Plants.
    8. Electricity – Actual Electricity Generation of Thermal, Nuclear, Hydro, imports from Bhutan.

    Recent data: Sector-Wise Growth Details

    • Decline in ICI: The ICI witnessed a 3.34% drop from October, marking its lowest since March 2023.
    • Sector-Specific Trends: Notably, only refinery products and coal showed month-on-month growth, with significant year-on-year increases.
    • Steel Production: Growth in steel production hit a 13-month low at 9.1%.
    • Crude Oil and Fertilizer: Crude oil saw a contraction, while fertilizer production growth decelerated.
    • Natural Gas and Electricity: Both natural gas output and electricity generation growth slowed down considerably in November.

    Comparative Analysis with Previous Year

    • Year-on-Year Comparison: The core sectors had a 5.7% growth in November 2022.
    • Influence of Base Effects: Last year’s high growth in certain sectors like cement significantly influenced this year’s comparative figures.

    Economic Insights and Projections

    • Bank of Baroda’s Perspective: The slowdown in fertilizer growth aligns with the end of the rabi sowing season, as per the bank’s chief economist.
    • IIP Forecast: The core sectors are expected to contribute to an IIP growth of 7%-8%.
    • Economists’ View: Experts predict a continued slowdown in core sector growth due to strong base effects from the previous fiscal year.

    Future Expectations and Challenges

    • India Ratings and Research Predictions: A slowdown in core sector growth is anticipated in the coming months, influenced by the strong base effect.
    • Broader Economic Impact: This slowdown is indicative of larger economic challenges, potentially affecting future policy and market expectations.

    Conclusion

    • Economic Resilience Test: The trends in India’s core sectors underscore the challenges in sustaining growth amid diverse economic conditions.
    • Need for Strategic Economic Planning: Addressing these slowdowns will require astute economic planning and possibly new strategies to boost growth in these key sectors.

  • India’s stationary course in the shipping value chain

    Jal Marg Vikas Project (JMVP) - Objectives & Components | UPSC

    Central idea 

    The article explores the contrasting trajectories of China and India in the maritime industry, emphasizing China’s dominance in shipbuilding and India’s focus on seafaring labor and ship management. It underscores the missed opportunities for India in shipbuilding, leading to a decline in its global maritime standing. The absence of a strategic focus on shipbuilding and the decline of state-owned enterprises pose challenges for India’s maritime growth.

    Key Highlights:

    • The Yangtze River, deeply embedded in China’s history, serves as a blend of tradition, culture, and modern commerce, symbolized by the Three Gorges project.
    • China’s maritime success, highlighted by its dominance in shipbuilding, stands in contrast to India’s focus on seafaring labor and ship management.
    • India, once ahead in maritime endeavors, faces challenges as its shipbuilding capabilities lag, impacting the overall growth of the shipping industry.

    Key Challenges:

    • India’s maritime industry confronts limitations in shipbuilding, ownership, and financing, contributing to a decline in its global standing.
    • The absence of a strategic focus on shipbuilding, coupled with the decline of the state-owned Shipping Corporation of India, has hindered India’s maritime progress.

    Key Terms:

    • Three Gorges project: A monumental hydropower initiative on the Yangtze River, symbolizing China’s modern engineering achievements.
    • Seafarer: An individual engaged in maritime activities, such as navigation, on vessels like ships and boats.

    Ministry of Ports, Shipping and Waterways on X: "Infrastructure development under Jal Marg vikas project will provide enhanced connectivity and provide access to global markets to Indian farmers, MSMEs and businessmen, giving

    Key Quotes:

    • “China, by 2020, was making half of all ships in the world,” a stark contrast to India’s negligible share in shipbuilding.
    • “Indian seafarers and their management companies contribute an estimated $6 billion in foreign exchange annually.“
    • “India’s Maritime India Vision 2030 lacks a clear plan for shipbuilding and owning,” hindering its growth in the maritime industry.

    Key Statements:

    • The article underscores the transformative significance of the Three Gorges project, symbolizing China’s advancement in modern engineering.
    • India’s historical lead in maritime activities has been overshadowed by its limited involvement in shipbuilding and related sectors.

    Key Examples and References:

    • The Three Gorges project exemplifies China’s commitment to modern infrastructure and technological prowess.
    • The decline of the state-owned Shipping Corporation of India serves as a reference point for India’s challenges in sustaining its maritime industry.

    Key Facts and Data:

    • China, contributing to 50% of global ship production by 2020, reflects its dominance in the shipbuilding sector.
    • Indian seafarers and their management companies collectively contribute an estimated $6 billion in foreign exchange annually.

    Critical Analysis:

    • The critical analysis emphasizes the missed opportunities for India in the shipbuilding sector and the resultant impact on its overall maritime growth.
    • The decline of the state-owned Shipping Corporation of India is presented as a significant factor influencing India’s maritime capabilities.

    Way Forward:

    • The article suggests that India should strategically prioritize shipbuilding to enhance its global maritime presence, emphasizing economic and strategic benefits.
    • An integrated approach to shipbuilding would not only contribute to economic growth but also strengthen India’s naval capabilities, enhancing its geopolitical standing.

  • Rise in Participatory Notes Investment

    Central Idea

    • Indian capital markets witnessed a significant increase in investments through participatory notes (P-notes), reaching ₹1.31 lakh crore by the end of November.

    What are Participatory Notes?

    Details
    Nature of Instrument Offshore derivative instruments with Indian shares as underlying assets.
    Issuers Issued by registered Foreign Institutional Investors (FIIs) to overseas investors.
    Purpose To allow foreign investors to invest in Indian stock markets without direct registration.
    Anonymity Provide anonymity for foreign investors; beneficiary details are not disclosed to Indian regulators.
    Regulatory Oversight Governed by the Securities and Exchange Board of India (SEBI).
    Compliance FIIs issuing P-Notes are required to adhere to KYC norms and other regulatory standards.
    Controversies Associated with risks of money laundering and contributing to market volatility.
    Regulatory Reforms SEBI has tightened norms over time, including enhanced KYC and disclosure requirements.
    Economic Impact Significant source of foreign portfolio investment; influences market sentiment and foreign investor behavior.
    Impact of Regulatory Changes Changes in regulations have affected the flow of investments through P-Notes.

    Correlation with FPI Flows

    • P-Notes and FPI Trends: The investment through P-notes typically mirrors the trends in foreign portfolio investor (FPI) flows.
    • Global Risk Influence: In times of global risk, investment through P-notes tends to increase, and the opposite occurs when the risk subsides.

    Factors Influencing the Recent Increase

    • U.S. Treasury Bond Yields: The decline in U.S. treasury bond yields is believed to have redirected FPIs’ attention to the Indian market for potentially higher returns.
    • IPO Attraction: The listing of Initial Public Offerings (IPOs) in India has also been a factor in attracting foreign investors back to the market.

  • There is no substitute for an industrial policy

    Make In India Registration

    Central idea 

    Make in India (MII) represents a departure from India’s historical self-sufficiency approach, prioritizing global competitiveness. The article critiques potential protectionist tendencies within MII, emphasizing the need for job creation and competitiveness. The efficacy of MII in delivering on promises, particularly in labor-intensive sectors, is a key focus for evaluating its impact.

    Key Highlights:

    • Make in India (MII) diverges significantly from India’s historical self-sufficiency approach, focusing on global competitiveness rather than isolation.
    • The article critiques potential protectionist tendencies within MII, drawing attention to historical pitfalls of reckless protection in the 1970s and 1980s.
    • The piece discusses the critical need for MII to deliver on promises, particularly in creating a competitive manufacturing sector, and emphasizes the importance of job creation for India’s abundant labor force.

    Key Challenges:

    • Concerns are raised about the implementation of MII, especially in sectors where tariff duties are increased for protection, potentially leading to negative consequences.
    • The article questions the efficacy of MII in comparison to its objectives, urging a closer examination of its impact on job creation and competitiveness.

    Key Terms:

    • Make in India (MII): A policy initiative launched in 2014 to transform India into a global manufacturing and design hub.
    • License Raj: A regulatory system in India during the pre-1991 era that required businesses to obtain licenses for various activities, leading to bureaucracy and inefficiency.
    • Production-Linked Incentive (PLI): A scheme aimed at attracting investments in key sectors and cutting-edge technology to enhance efficiency in the manufacturing sector.

    Key Phrases:

    • “MII is very different from self-sufficiency, and we should move on from this baseless comparison.”
    • “Every country that has ‘taken off’ before us has been export competitive.”
    • “Devising an industrial policy for mass job creation in India is the touchstone against which success ought to be gauged.”

    Key Quotes:

    • “Job creation for our abundant factor, especially women, is key, and that is only possible with labor-intensive manufacturing.”
    • “In the absence of high frequency data on PLI, either on value added or jobs generated, a moral compass to shape a better world ought to be employed in abundant measure.”

    Critical Analysis:

    • The article critically examines the potential protectionist aspects of MII, drawing parallels with historical challenges.
    • It highlights the importance of job creation, especially in labor-intensive sectors, as a crucial metric for evaluating the success of MII.
    • The absence of high-frequency data on PLI is emphasized, calling for a balance between data interpretation and moral considerations in policymaking.

    Way Forward:

    • The article suggests that industrial policies, including the National Industrial Policy (NIP), should prioritize labor-intensive sectors to promote mass job creation.
    • It emphasizes the need for MII to continue focusing on excelling in labor-intensive manufacturing for the overall betterment of India’s economic landscape.

  • Youth Unemployment in India: A Persistent Challenge

    Central Idea

    • In 1932, M Visvesvaraya highlighted the issue of unemployment among educated individuals in India.
    • Ninety years later, the issue of youth unemployment remains a significant concern, despite official data indicating a decrease in the overall unemployment rate.

    Unemployment Trends: Data Analysis

    • Official Statistics: According to the Periodic Labour Force Survey (PLFS), the unemployment rate decreased from 6.1% in 2017-18 to 3.2% in 2022-23.
    • Disparities in Experience: Despite the overall reduction, young, highly educated workers face the highest unemployment rates, indicating a structural problem in the Indian economy.

    Educational Attainment and Unemployment

    • Higher Education and Unemployment: Individuals with higher education have consistently faced higher unemployment rates since the 1990s.
    • Trends Over Time: Unemployment rates for graduates have fluctuated, reaching 17% in 2017-18 and then dropping to 13% in 2022-23.

    Youth Unemployment

    • Young Graduates: The unemployment rate for young workers (aged 18 to 29) with graduate degrees has been notably high, with significant long-term unemployment spells.
    • Increasing Share of Graduates: The proportion of graduates in the labor force has risen from 5% in 1993-94 to around 15% in 2022-23, impacting overall unemployment rates.

    Challenges and Implications

    • Growing Concern: The increasing share of educated workers in the labor force, coupled with high unemployment rates among them, points to a deepening problem.
    • Need for Analysis: Understanding the causes of unemployment among the highly educated is crucial, whether it’s the education system’s failure to impart relevant skills or the economy’s inability to create sufficient jobs.

    Conclusion

    • Serious Issue: Youth unemployment in India is a critical issue that needs comprehensive analysis and action.
    • Harnessing Demographic Dividend: Effective measures are required to ensure that the aspirations of the youth are met and the potential of India’s demographic dividend is fully realized.
    • Policy Focus: Addressing youth unemployment requires targeted policies that focus on skill development, job creation, and aligning education with market needs.

  • RBI enhances Digital Payment Security with CoFT through Banks

    Central Idea

    • The Reserve Bank of India (RBI) has expanded the scope of card-on-file tokenisation (CoFT) services to include card-issuing banks and institutions, enhancing the security of digital payments.
    • Previously, tokenisation services were primarily provided through merchants. The RBI’s recent notification marks a significant shift in this approach.

    Understanding CoFT and Its Importance

    • Card-on-File (CoF) Concept: Traditionally, merchants stored customer card details (CoF) on their platforms, posing risks to financial data security.
    • Tokenisation Solution: To mitigate data breach risks, the RBI introduced tokenisation, where a unique token replaces actual card details at the merchant’s end.
    • Regulatory Measures: In March 2020, RBI mandated that payment aggregators and merchants should not store actual card data, aiming to minimize system vulnerabilities. The deadline for compliance was extended to December 2021 following industry requests.

    Implementation of CoFT by Card Issuers

    • Channels for Token Generation: Customers can generate CoFT tokens through mobile and internet banking, offering a convenient and secure method for digital transactions.
    • Consent and Authentication: Token generation requires explicit customer consent and Additional Factor of Authentication (AFA) validation, ensuring user control and security.
    • Flexibility for Cardholders: Cardholders have the flexibility to tokenise their cards at any time and select specific merchants for maintaining tokens.
    • Token Issuance: The tokens can be issued either by the card network, the issuer, or both, providing multiple layers of security.

    Impact and Adotion of CoFT

    • Enhancing Safety and Convenience: CoFT aims to secure card data without compromising the convenience of card transactions.
    • Implementation Timeline: The RBI introduced CoFT in 2021, with full rollout from October 1, 2022.
    • Usage Statistics: Since its implementation, over 56 crore tokens have been created, facilitating transactions worth over ₹5 lakh crore.