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Subject: Economics

  • [pib] Account Aggregator Network (AAN): A financial data-sharing system

    The Account Aggregator system in banking has been started off with eight of India’s largest banks. In this newscard, we shall learn it in a FAQ manner.

    What is an Account Aggregator?

    • An Account Aggregator (AA) is a type of RBI regulated entity (with an NBFC-AA license) that helps an individual securely and digitally access and share information from one financial institution they have an account with to any other regulated financial institution in the AA network.
    • Data cannot be shared without the consent of the individual.
    • There will be many Account Aggregators an individual can choose between.
    • Account Aggregator replaces the long terms and conditions form of ‘blank cheque’ acceptance with a granular, step by step permission and control for each use of your data.

    How would it improve an average person’s financial life?

    • India’s financial system involves many hassles for consumers today.
    • This includes sharing of physical signed and scanned copies of bank statements, stamp documents, or having to share your personal username and password to give your financial history to a third party.
    • The AAN would replace all these with a simple, mobile-based, simple, and safe digital data access & sharing process.
    • This will create opportunities for new kinds of services — eg new types of loans.
    • The individual’s bank just needs to join the Account Aggregator network.

    How is AAN different to Aadhaar eKYC data sharing?

    • Aadhaar eKYC and CKYC only allow sharing of four ‘identity’ data fields for KYC purposes (eg name, address, gender, etc).
    • Similarly, credit bureau data only shows loan history and/or a credit score.
    • The AAN allows sharing of transaction data or bank statements from savings/deposit/current accounts.

    What kind of data can be shared?

    • Today, banking transaction data is available to be shared (for example, bank statements from a current or savings account) across the banks that have gone live on the network.
    • Gradually the AA framework will make all financial data available for sharing, including tax data, pensions data, securities data (mutual funds and brokerage), and insurance data will be available to consumers.
    • It will also expand beyond the financial sector to allow healthcare and telecom data to be accessible to the individual via AA.

    Can AAs view or ‘aggregate’ personal data? Is the data sharing secure?

    • Account Aggregators cannot see the data; they merely take it from one financial institution to another based on an individual’s direction and consent.
    • Contrary to the name, they cannot ‘aggregate’ your data.
    • AAs are not like technology companies which aggregate your data and create detailed profiles of you.
    • The data AAs share is encrypted by the sender and can be decrypted only by the recipient.
    • The end to end encryption and use of technology like the ‘digital signature’ makes the process much more secure than sharing paper documents.

    Can a consumer decide they don’t want to share data?

    Yes. Registering with an AA is fully voluntary for consumers.

    • If the bank the consumer is using has joined the network, a person can choose to register on an AA, choose which accounts they want to link, and share their data.
    • A customer can reject a consent to share request at any time.
    • If a consumer has accepted to share data in a recurring manner over a period (eg during a loan period), it can also be revoked at any time later as well by the consumer.

    Duration of the data shared

    • The exact time period for which the recipient institution will have access will be shown to the consumer at the time of consent for data sharing.

    How can a customer get registered with an AA?

    • One can register with an AA through their app or website.
    • AA will provide a handle (like username) which can be used during the consent process.
    • Today, four apps are available for download (Finvu, OneMoney, CAMS Finserv, and NADL) with operational licenses to be AAs.
    • Three more have received in principle approval from RBI (PhonePe, Yodlee, and Perfios) and may be launching apps soon.
    • A customer can register with any AA to access data from any bank on the network.

    Does a customer need to pay the AA for using this facility?

    • This will depend on the AA. Some may charge a small user fee.
    • Some AAs may be free because they are charging a service fee to financial institutions.

    What new services can a customer access if their bank has joined the AA network of data sharing?

    The two key services that will be improved for an individual is access to loans and access to money management.

    • If a customer wants to get a small business or personal loan today, there are many documents that need to be shared with the lender.
    • This is a cumbersome and manual process today, which affects the time taken to procure the loan and access to a loan.
    • Similarly, money management is difficult today because data is stored in many different locations and cannot be brought together easily for analysis.
    • Through Account Aggregator, a company can access tamper-proof secure data quickly and cheaply, and fast track the loan evaluation process so that a customer can get a loan.
    • Also, a customer may be able to access a loan without physical collateral, by sharing trusted information on a future invoice or cash flow directly from a government system like GST or GeM.

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  • PLI Scheme for Textiles

    The Union Government has approved Production Linked Incentive (PLI) Scheme for Textiles.  This move is a part of the overall announcement of PLI Schemes for 13 sectors made earlier during the Union Budget 2021-22.

    What is PLI Scheme?

    • As the name suggests, the scheme provides incentives to companies for enhancing their domestic manufacturing apart from focusing on reducing import bills and improving the cost competitiveness of local goods.
    • PLI scheme offers incentives on incremental sales for products manufactured in India.
    • The scheme for respective sectors has to be implemented by the concerned ministries and departments.

    Criteria laid for the scheme

    • Eligibility criteria for businesses under the PLI scheme vary based on the sector approved under the scheme.
    • For instance, the eligibility for telecom units is subject to the achievement of a minimum threshold of cumulative incremental investment and incremental sales of manufactured goods.
    • The minimum investment threshold for MSME is Rs 10 crore and Rs 100 crores for others.
    • Under food processing, SMEs and others must hold over 50 per cent of the stock of their subsidiaries, if any.
    • On the other hand, for businesses under pharmaceuticals, the project has to be a greenfield project while the net worth of the company should not be less than 30 per cent of the total committed investment.

    What are the incentives involved?

    • An incentive of 4-6 per cent was offered last year on mobile and electronic components manufacturers such as resistors, transistors, diodes, etc.
    • Similarly, 10 percent incentives were offered for six years (FY22-27) of the scheme for the food processing industry.
    • For white goods too, the incentive of 4-6 per cent on incremental sales of goods manufactured in India for a period of five years was offered to companies engaged in the manufacturing of air conditioners and LED lights.

    What is in the box for Textiles?

    • The PLI scheme for textiles aims to promote the production of high value Man-Made Fibre (MMF) fabrics, garments and technical textiles.
    • Any person or company willing to invest a minimum of Rs 300 crore in plant, machinery, equipment and civil works (excluding land and administrative building cost) to produce products of MMF fabrics, garments and products of technical textiles will be eligible.
    • Investors willing to spend a minimum of Rs 100 crore under the same conditions shall be eligible.

    Benefits offered

    • PLI scheme for Textiles will promote production of high value MMF Fabric, Garments and Technical Textiles in country.
    • The incentive structure has been so formulated that the industry will be encouraged to invest in fresh capacities in these segments.
    • This will give a major push to the growing high-value MMF segment which will complement the efforts of the cotton and other natural fiber-based textiles industry.
    • This will help to generate new opportunities for employment and trade, resultantly helping India regain its historical dominant status in global textiles trade.

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    Back2Basics: India’s textile sector

    • The textile industry in India traditionally, after agriculture, is the only industry that has generated huge employment for both skilled and unskilled labour.
    • The domestic textiles and apparel industry contributes 5% to India’s GDP, 7% of industry output in value terms, and 12% of the country’s export earnings.
    • The textile industry continues to be the second-largest employment generating sector in India. It offers direct employment to over 35 million in the country.
    • India is first in global jute production and shares 63% of the global textile and garment market. India is second in global textile manufacturing and also second in silk and cotton production.
    • 100% FDI is allowed via automatic route in textile sector.

  • How India’s food systems must respond to the climate crisis

    Context

    This month, the UN Secretary-General will convene the Food Systems Summit. There is a proposal to have an International Panel on Food and Nutritional Security (IPFN) — an “IPCC for food,” similar to the panel on climate change.

    Issues with India’s agriculture?

    • What is a food system? According to the Food and Agriculture Organisation (FAO), food systems encompass the entire range of actors involved in the production, aggregation, processing, distribution, consumption and disposal of food products.
    • Effects of Green Revolution: The Green Revolution succeeded in making India food sufficient, however, it also led to water-logging, soil erosion, groundwater depletion and the unsustainability of agriculture.
    • Deficit mindset: Current policies are still based on the “deficit” mindset of the 1960s.
    • Biased policies: The procurement, subsidies and water policies are biased towards rice and wheat.
    • Three crops (rice, wheat and sugarcane) corner 75 to 80 per cent of irrigated water.
    • Lack of diversification: Diversification of cropping patterns towards millets, pulses, oilseeds, horticulture is needed for more equal distribution of water, sustainable and climate-resilient agriculture.

    Issues with various elements of India’s food system

    1) Changes needed in India’s agriculture

    • The narrative of Indian agriculture has to be changed towards more diversified high-value production, better remunerative prices and farm incomes.
    • Inclusive: It must be inclusive in terms of women and small farmers.
    • Similarly, women’s empowerment is important particularly for raising incomes and nutrition.
    • Women’s cooperatives and groups like Kudumbashree in Kerala would be helpful.
    • Small farmers require special support, public goods and links to input and output markets.
    • Better remunerative prices: Farmer producer organisations help get better prices for inputs and outputs for small-holders.
    • The ITC’s E-Choupal is an example of technology benefiting small farmers.
    • Innovation: One of the successful examples of a value chain that helped small-holders, women and consumers is Amul (Anand Milk Union Ltd) created by Verghese Kurien.
    • Such innovations are needed in other activities of food systems.

    2) Hunger and malnutrition in India

    • The NFHS-5 shows that under-nutrition has not declined in many states even in 2019-20. Similarly, obesity is also rising.
    • A food systems approach should focus more on the issues of undernutrition and obesity.
    • Safe and healthy diversified diets are needed for sustainable food systems.
    • The EAT-Lancet diet, which recommends a healthy and sustainable diet, is not affordable for the majority of the population in India.
    • Animal-sourced foods are still needed for countries like India. For instance, per capita consumption of meat is still below 10 kg in India as compared to 60 to 70 kg in the US and Europe.

    3) Ensuring sustainability of food system

    • Estimates show that the food sector emits around 30 per cent of the world’s greenhouse gases.
    • Sustainability has to be achieved in production, value chains and consumption.
    • How to achieve sustainability? Climate-resilient cropping patterns have to be promoted.
    • Instead of giving input subsidies, cash transfers can be given to farmers for sustainable agriculture.

    4) Health and social protection

    • Food systems also need health infrastructure.
    • The Covid-19 pandemic has exposed the weak health infrastructure in countries like India.
    • Inclusive food systems need strong social protection programmes.
    • India has long experience in these programmes. Strengthening India’s National Rural Employment Guarantee Act, public distribution system (PDS), nutrition programmes like ICDS, mid-day meal programmes, can improve income, livelihoods and nutrition for the poor and vulnerable groups.

    5) Role of non-agriculture

    • Some economists like T N Srinivasan argued that the solution for problems in agriculture was in non-agriculture.
    • Reduce pressure on agriculture: Therefore, labour-intensive manufacturing and services can reduce pressure on agriculture.
    • Income from agriculture is not sufficient for smallholders and informal workers.
    • Strengthening rural MSMEs and food processing is part of the solution.

    Conclusion

    India should also aim for a food systems transformation, which can be inclusive and sustainable, ensure growing farm incomes and nutrition security.

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  • Green hydrogen, a new ally for a zero carbon future

    Context

    The forthcoming 26th UN Climate Change Conference of the Parties (COP26) in Glasgow from November 1-12, 2021 is to re-examine the coordinated action plans to mitigate greenhouse gases and climate adaptation measures.

    How Green hydrogen as a fuel can be a game changer?

    • Hydrogen is the most abundant element on the planet, but rarely in its pure form which is how we need it.
    • High energy density: It has an energy density almost three times that of diesel.
    • ‘Green hydrogen’, the emerging novel concept, is a zero-carbon fuel made by electrolysis using renewable power from wind and solar to split water into hydrogen and oxygen.
    • Best solution to remain under 1.5° C: The International Energy Agency (IEA) forecasts the additional power demand to be to the tune of 25%-30% by the year 2040.
    • Thus, power generation by ‘net-zero’ emission will be the best solution to achieve the target of expert guidelines on global warming to remain under 1.5° C.
    • Untapped potential: Presently, less than 0.1% or say ~75 million tons/year of hydrogen capable of generating ~284GW of power, is produced.

    Challenges: Production and storage cost

    • The challenge is to compress or liquefy the LH2 (liquid hydrogen); it needs to be kept at a stable minus 253° C.
    • This leads to its ‘prior to use exorbitant cost’.
    • The ‘production cost’ of ‘Green hydrogen’ has been considered to be a prime obstacle.
    • The production cost of this ‘green source of energy’ is expected to be around $1.5 per kilogram (for nations having perpetual sunshine and vast unused land), by the year 2030; by adopting various conservative measures.

    Experiments in India

      • The Indian Railways have announced the country’s first experiment of a hydrogen-fuel cell technology-based train by retrofitting an existing diesel engine; this will run under Northern Railway on the 89 km stretch between Sonepat and Jind.
    • The project will not only ensure diesel savings to the tune of several lakhs annually but will also prevent the emission of 0.72 kilo tons of particulate matter and 11.12-kilo tons of carbon per annum.

    Way forward for India

    • India is the world’s fourth-largest energy-consuming country (behind China, the United States and the European Union), according to the IEA’s forecast, and will overtake the European Union to become the world’s third energy consumer by the year 2030.
    • It is high time to catch up with the rest of the world by going in for clean energy, decarbonising the economy and adopting ‘Green hydrogen’ as an environment-friendly and safe fuel for the next generations.

    Conclusion

    In order to achieve the goal of an alternative source of energy, adopting a multi-faceted practical approach to utilise ‘Green hydrogen’ offers a ray of hope.

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  • Issues related to MSP

    The Centre has increased the Minimum Support Price (MSP) for various crops ahead of the upcoming rabi season harvest.

    Answer this PYQ from CSP 2018

    Q.Consider the following:

    1. Areca nut
    2. Barley
    3. Coffee
    4. Finger millet
    5. Groundnut
    6. Sesamum
    7. Turmeric

    The Cabinet Committee on Economic Affairs has announced the Minimum Support Price for which of the above?

    (a) 1, 2, 3 and 7 only

    (b) 2, 4, 5 and 6 only

    (c) 1, 3, 4, 5 and 6 only

    (d) 1, 2, 3, 4, 5 and 7

     

    [wpdiscuz-feedback id=”s9utkt7b32″ question=”Please leave a feedback on this” opened=”1″]Post your answers here.[/wpdiscuz-feedback]

    What is the Minimum Support Price (MSP) system?

    • MSP is a form of market intervention by the Govt. of India to insure agricultural producers against any sharp fall in farm prices.
    • MSP is price fixed by GoI to protect the producer – farmers – against excessive falls in price during bumper production years.

    Who announces it?

    • MSP is announced at the beginning of the sowing season for certain crops on recommendations by Commission for Agricultural Costs and Prices(CACP) and announced by Cabinet Committee on Economic Affairs (CCEA) chaired by the PM of India.

    Why MSP?

    • The major objectives are to support the farmers from distress sales and to procure food grains for public distribution.
    • They are a guaranteed price for their produce from the Government.
    • In case the market price for the commodity falls below the announced MSP due to bumper production and glut in the market, government agencies purchase the entire quantity offered by the farmers at the announced MSP.

    Historical perspective

    • Till the mid-1970s, Government announced two types of administered prices:
    1. Minimum Support Prices (MSP)
    2. Procurement Prices
    • The MSPs served as the floor prices and were fixed by the Govt. in the nature of a long-term guarantee for investment decisions of producers, with the assurance that prices of their commodities would not be allowed to fall below the level fixed by the Government, even in the case of a bumper crop.
    • Procurement prices were the prices of Kharif and rabi cereals at which the grain was to be domestically procured by public agencies (like the FCI) for release through PDS.
    • It was announced soon after harvest began.
    • Normally procurement price was lower than the open market price and higher than the MSP.

    Crops Covered

    1. Government announces minimum support prices (MSPs) for 22 mandated crops and fair and remunerative prices (FRP) for sugarcane.
    2. The mandated crops are 14 crops of the kharif season, 6 rabi crops and two other commercial crops.
    3. The list of crops is as follows:
    • Cereals (7) – paddy, wheat, barley, jowar, bajra, maize and ragi
    • Pulses (5) – gram, arhar/tur, moong, urad and lentil
    • Oilseeds (8) – groundnut, rapeseed/mustard, toria, soyabean, sunflower seed, sesamum, safflower seed, and nigerseed
    • Raw cotton
    • Raw jute
    • Copra
    • De-husked coconut
    • Sugarcane (Fair and remunerative price)
    • Virginia flu cured (VFC) tobacco

    Exception for Sugar

    • The pricing of sugarcane is governed by the statutory provisions of the Sugarcane (Control) Order, 1966 issued under the Essential Commodities Act (ECA), 1955.
    • Prior to the 2009-10 sugar season, the Central Government was fixing the Statutory Minimum Price (SMP) of sugarcane, and farmers were entitled to share profits of a sugar mill on a 50:50 basis.
    • As this sharing of profits remained virtually unimplemented, the Sugarcane (Control) Order, 1966 was amended in October 2009 and the concept of SMP was replaced by the Fair and Remunerative Price (FRP) of sugarcane.

    Back2Basics: Rabi and Kharif Crops

    Rabi Crops Kharif Crops
    ·         Rabi crops are sown at the end of monsoon or the beginning of winter. They are also known as winter crops. ·         Kharif crops are sown at the beginning of the rainy season and are also known as monsoon crops.
    ·         Flowering requires a long day length. ·         Flowering requires a short day length.
    ·         These crops need a warm climate for seed germination and cold climate for growth. ·         These crops require a lot of water and hot weather to grow. They depend on rainfall.
    ·         Unseasonal rainfall can damage Rabi crops. ·         Kharif crops depend on rainfall patterns.
    ·         The harvesting months are March and April. ·         These crops are harvested in September and October
    ·         Examples: Mustard, wheat, cumin, coriander etc. ·         Examples: Rice, bajra, groundnut.

    Zaid Crops

    • The wide range of crops that grow in the short season between Kharif and Rabi crop seasons are known as Zaid crops. These are the months of March till July.
    • Examples: Pumpkin, cucumber, bitter gourd etc.

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  • The economic reforms — looking back to look ahead

    Context

    The economic reforms, so far, have been more focused on the technical nature of the economy than the system, process and people. The fundamentals need to be set right with a focus on human capital, technology readiness and productivity.

    Benefits and limits of economic reforms of 1991

    • Economic reforms of 1991 — and from time to time, subsequent interjections for liberalisation of economy and trade — have enabled some credible gains for the country.
    • Benefits: Foreign exchange reserves (over $600 billion), sustained manufacturing contribution in GDP, increased share in global exports (from 0.6% in the 1990s to 1.8%), robust software exports, and sustained economic growth in the range of 6%-8% are clear indicators of its success.
    • Limits: Primary drivers of the economy — human capital, technology readiness, productivity, disposable income, capital expenditure, process innovation in setting up businesses, and institutional capacity — have not got enough recognition.

    Issues affecting the Indian economy

    1) Lack of Human resource capital formation

    • The human resource capital (HRC) formation, a good determinant of labour productivity, has been missing over the entire period of reforms.
    • The HRC rank for India stands at 103; Sri Lanka is at 70, China at 34, and South Korea at 27, as brought out by the Global Human Capital Report, 2017.
    • Factors responsible for low HRC: The lack of quality education, low skilled manpower, and inadequacies in basic health care have resulted in low HRC.

    2) Low disposable income

    • The World Bank database on GDP for 2019 indicates the low per capita GDP in India, at $2,104 (at $6,997 in PPP terms, ranked 125th globally) against the world average of $11,429 (at $17,678 in PPP terms).
    • Low per capita GDP has direct links to low per capita family income.
    • Low wages: The report by Deloitte (Global Manufacturing Competitiveness Index in 2016) reflects that the hourly wages in India have been $1.7; they are $38, $24, $20.7, and $3.3 for the United States, Japan, South Korea, and China, respectively.
    • Low wages have a direct bearing on the disposable income of families, affecting demand.

    3) Low R&D expenditure

    • India’s research and development expenditure stand at 0.8% of GDP, for other fast-emerging economies such as South Korea, it is (4.5%), China (2.1%), and Taiwan (3.3%).
    • Reduced technology readiness: This low expenditure is resulting in lower capacity for innovation in technologies and reduced ‘technology readiness’, especially for manufacturing.

    4) Low labour productivity: Result of low HRC and lack of technology readiness

    • The lack of HRC and low technology readiness have impacted labour productivity adversely.
    • World Bank publication of 2018 indicates that India’s labour productivity in manufacturing is less than 10% of the advanced economies including Germany and South Korea, and is about 40% of China.
    • Low productivity has unfavourable consequences for competitiveness, manufacturing growth, exports and economic growth.

    5) Long time and more cost in setting up a business

    • There are difficulties in acquiring land for businesses, inefficient utilization of economic infrastructure, and in providing business services.
    • This results in a long time and more cost in setting up enterprises, resulting in a loss of creative energy of entrepreneurs.

    Way forward

    • Investment in human capital and technology: First, to attract large investment in manufacturing and advanced services, at a basic level, investment in human capital and technology is a prerequisite.
    • Technology readiness: The reports by McKinsey and the World Economic Forum on advanced manufacturing suggest that Industry 4.0 will be defined by new technologies such as robotics, 3-D printing, artificial intelligence (AI), the Internet of things (IoT), etc.
    • Consequently, efforts for technology readiness are very essential to stay competitive.
    • It demands enhancing public research and development expenditure to 2% of GDP over the next three years.
    • Strategies to enhance per capita income: There is a need to work on strategies to enhance per capita income by more wages for workers through higher skills and enhancing minimum wages, besides improving the social security net.
    • Promote business-centric approach: Using insights from the work of Nobel laureate (1993) Douglass C. North, it is necessary to build the capacity of public institutions to create a good environment for business and industry.
    • Policy reforms should lay an emphasis on process innovation and promote a business-centric approach to create a friendly ecosystem and for efficient internal supply chain management to integrate with the global supply chain.
    • Innovative nature in public policymaking: The future of the economy should be particularly viewed in the backdrop of a significant and irreversible shift in terms of reliance on the global supply chain as a result of the knowledge-intensive nature of businesses and exponential effects caused by advanced technologies under Industry 4.0, since the 2010s.
    • Therefore, the strategies adopted since the 1990s till now may not ensure adequate returns and call for innovative approaches in public policymaking.

    Consider the question “The economic reforms, so far, have been more focussed on the technical nature of the economy than the system. This resulted in fundamental deficiencies. Suggest the way forward to deal with these deficiencies.”

    Conclusion

    In sum, it necessitates a systemic approach for policy reforms for setting the economic fundamentals right and to achieve higher growth.

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  • Govt. mulls allowing local sales by SEZ units sans import tag

    The government is considering a proposal to allow producers in Special Economic Zones (SEZs) to sell their output to the domestic market without treating them as imports.

    What are SEZs?

    • A Special Economic Zone (SEZ) is an area in which the business and trade laws are different from the rest of the country.
    • SEZs are located within a country’s national borders, and their aims include increasing trade balance, employment, increased investment, job creation, and effective administration.
    • To encourage businesses to set up in the zone, financial policies are introduced.
    • These policies typically encompass investing, taxation, trading, quotas, customs, and labor regulations.
    • Additionally, companies may be offered tax holidays, where upon establishing themselves in a zone, they are granted a period of lower taxation.

    SEZs in India

    • The SEZ policy in India first came into inception on April 1, 2000.
    • The prime objective was to enhance foreign investment and provide an internationally competitive and hassle-free environment for exports.
    • The idea was to promote exports from the country and realizing the need for a level playing field must be made available to the domestic enterprises and manufacturers to be competitive globally.
    • Subsequently, the SEZ Act 2005, was enacted to provide the umbrella legal framework, covering all important legal and regulatory aspects of SEZ development as well as for units operating in SEZs.

    Who can set up SEZs? Can foreign companies set up SEZs?

    • Any private/public/joint sector or state government or its agencies can set up an SEZ.
    • Yes, a foreign agency can set up SEZs in India.

    What is the role of state governments in establishing SEZs?

    • State governments will have a very important role to play in the establishment of SEZs.
    • A representative of the state government, who is a member of the inter-ministerial committee on private SEZ, is consulted while considering the proposal.
    • Before recommending any proposals to the ministry of commerce and industry (department of commerce), the states must satisfy themselves that they are in a position to supply basic inputs like water, electricity, etc.

    Are SEZs controlled by the government?

    • In all SEZs, the statutory functions are controlled by the government.
    • The government also controls the operation and maintenance function in the central government-controlled SEZs. The rest of the operations and maintenance are privatized.

    Are SEZs exempt from labor laws?

    • Normal labor laws are applicable to SEZs, which are enforced by the respective state governments.
    • The state governments have been requested to simplify the procedures/returns and for the introduction of a single-window clearance mechanism by delegating appropriate powers to development commissioners of SEZs.

    Who monitors the functioning of the units in SEZ?

    • The performance of the SEZ units is monitored by a unit approval committee consisting of a development commissioner, custom, and representative of the state government on an annual basis.

    What are the special features for business units that come to the zone?

    • Business units that set up establishments in an SEZ would be entitled to a package of incentives and a simplified operating environment.
    • Besides, no license is required for imports, including second-hand machinery.

    How do SEZs help a country’s economy?

    • SEZs play a key role in the rapid economic development of a country.
    • In the early 1990s, it helped China and there were hopes that the establishment in India of similar export-processing zones could offer similar benefits – provided, however, that the zones offered attractive enough concessions.
    • Traditionally the biggest deterrents to foreign investment in India have been high tariffs and taxes, red-tapism, and strict labor laws.
    • To date, these restrictions have ensured that India has been unable to compete with China’s massively successful light-industrial export machine.

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  • Crypto is not currency, must regulate it as asset: Former RBI DG

    Former RBI Deputy Governor R. Gandhi made a case for treating and regulating crypto as a separate asset class with a view to enabling governments around the world to effectively deal with illegal activities associated with virtual currencies.

    Why in news?

    • After quite a lot of debate over the years, people have fully understood that crypto cannot be a currency because the fundamental element of a currency that it should be a legal tender is missing in this case.
    • The general consensus among many policymakers is that it should be deemed as an asset, not as a currency, not as a payment instrument, and not as a financial instrument as there is no clear identified issuer.

    What are Cryptocurrencies?

    • A cryptocurrency is a digital asset designed to work as a medium of exchange wherein individual coin ownership records are stored in a ledger existing in a form of a computerized database.
    • It uses strong cryptography to secure transaction records, control the creation of additional coins, and verify the transfer of coin ownership.
    • It typically does not exist in physical form (like paper money) and is typically not issued by a central authority.
    • Cryptocurrencies typically use decentralized control as opposed to centralized digital currency and central banking systems.

    How does it work?

    • Cryptocurrencies work using a technology called the blockchain.
    • Blockchain is a decentralized technology spread across many computers that manage and record transactions.

    What is Blockchain Technology?

    • Simply, blockchain is a decentralized, distributed, and public digital ledger.
    • Blockchains are a new type of network infrastructure (a way to organize how information and value move around on the internet) that creates ‘trust’ in networks by introducing distributed verifiability, auditability, and consensus.
    • Blockchains create trust by acting as a shared database, distributed across vast peer-to-peer networks that have no single point of failure and no single source of truth.
    • No individual entity can own a blockchain network, and no single entity can modify the data stored on it unilaterally without the consensus of its peers.

    Also read

    Cryptocurrency and Regulation of Official Digital Currency Bill, 2021

    Back2Basics: Legal Tender Money

    • A legal tender is a coin or a banknote that is legally tenderable for discharge of debt or obligation.
    • Coin of any denomination not lower than one rupee shall be legal tender for any sum not exceeding one thousand rupees.
    • Fifty paise (a half rupee) coins shall be legal tender for any sum not exceeding ten rupees.
    • While anyone cannot be forced to accept coins beyond the limits mentioned above, voluntarily accepting coins for amounts exceeding the limits mentioned above is not prohibited.
    • Every banknote issued by the Reserve Bank of India unless withdrawn from circulation shall be legal tender at any place in India.
    • ₹1 notes issued by the Government of India are also Legal Tender.

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  • Consequences of asset monetisation on ordinary citizens

    Context

    In the Budget for 2021-22, the Finance Minister had announced the Government’s decision to monetise operating public infrastructure assets. The National Monetisation Pipeline (NMP) was unveiled, which shows that the Government intends to raise ₹6-lakh crore over the next four years by monetising several “core assets”.

    Four issues with NMP

    1)  Assets transferred would be performing assets and not idle asset

    • Strategic and significant asset: The Government has identified “performing assets” to transfer to private entities and these are both strategic and significant.
    • These include over 26,700 kilometres of highways, 400 railway stations, 90 passenger trains etc.
    • Moreover, existing public sector infrastructure in telecoms, power transmission and distribution and petroleum, petroleum products and natural gas pipelines are included in the NMP.
    • Under the NMP, the Government intends to lease or divest its rights over these assets via long-term leases against a consideration that can be upfront and/or periodic payments.

    2) Consequences for ordinary citizens

    • There are two dimensions about the impact on common citizens.
    • Public as a stakeholder: The assets have all been created through substantial contribution by the tax-paying public, who have stakes in their operation and management.
    • Double taxation: These assets have, until now, been managed by the Government and its agencies,  which operate in public interest.
    • Therefore, charges borne by the public for using these assets have remained reasonable.
    • With private companies getting the sole responsibility of running all these assets, prices of these services will go up, as resutl the citizens of this country would be double-taxed.
    • First, they paid taxes to create the assets, and would now pay higher user charges.
    • Concern: Therefore, as the Government prepares to transfer “performing assets” to the private companies, it has the responsibility to ensure that user charges do not price the consumers out of the market.

    3) Are there other avenues to plug the revenue gap?

    • Increase tax revenue: One possibility was to increase the tax revenue, for at 17.4% in 2019-20, India’s tax to GDP ratio was relatively low, as compared to most advanced nations.
    • Improvements in tax compliance and plugging loopholes have long been emphasised as the surest way to improve tax revenue, but little has been done, as the following example shows.
    • Since 2005-06, the Government has been providing data on the profits declared and taxes paid by companies that file their returns electronically.
    • Data shows that India’s large companies have been exploiting the loopholes for reporting lower profits and to escape the tax net.

    4) Efficiency issue

    • According to NITI Aayog, the “strategic objective of the Asset Monetisation programme is to unlock the value of investments in public sector assets by tapping private sector capital and efficiencies”.
    • The NITI Aayog objective assumes that public sector enterprises are inefficient, which is contrary to the reality.
    • In 2018-19, while 28% of these enterprises were loss-making, the corresponding figure for large companies was 51%.

    Consider the question “How asset monetisation is different from the privatisation? What are the issues with the National Manetisation Pipeline that seeks to monetise the assets?”

    Conclusion

    The government should address the issues mention here associated with the roll out of the National Monetisation Pipeline to make it a success.

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  • New Code for Creditors (CoC) under IBC

    The insolvency regulator has called for public comments on a proposal to introduce a code of conduct for Committees of Creditors (CoC), of companies undergoing insolvency proceedings under the Insolvency and Bankruptcy Code (IBC).

    Before proceeding, try this PYQ first:

    Q. Which of the following statements best describes the term ‘Scheme for Sustainable Structuring of Stressed Assets (S4A)’, recently seen in the news? (CSP 2017)

     

    (a) It is a procedure for considering the ecological costs of developmental schemes formulated by the Government.

    (b) It is a scheme of RBI for reworking the financial structure of big corporate entities facing genuine difficulties.

    (c) It is a disinvestment plan of the Government regarding Central Public Sector Undertakings.

    (d) It is an important provision in ‘The Insolvency and Bankruptcy Code’ recently implemented by the Government.

     

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    About IBC

    • The IBC, 2016 is the bankruptcy law of India that seeks to consolidate the existing framework by creating a single law for insolvency and bankruptcy.
    • It is a one-stop solution for resolving insolvencies which previously was a long process that did not offer an economically viable arrangement.
    • The code aims to protect the interests of small investors and make the process of doing business less cumbersome.

    Key features

    Insolvency Resolution: The Code outlines separate insolvency resolution processes for individuals, companies, and partnership firms. The process may be initiated by either the debtor or the creditors. A maximum time limit, for completion of the insolvency resolution process, has been set for corporates and individuals.

    1. For companies, the process will have to be completed in 180 days, which may be extended by 90 days, if a majority of the creditors agree.
    2. For startups (other than partnership firms), small companies, and other companies (with assets less than Rs. 1 crore), the resolution process would be completed within 90 days of initiation of request which may be extended by 45 days.

    Insolvency regulator: The Code establishes the Insolvency and Bankruptcy Board of India, to oversee the insolvency proceedings in the country and regulate the entities registered under it. The Board will have 10 members, including representatives from the Ministries of Finance and Law, and the RBI.

    Insolvency professionals: The insolvency process will be managed by licensed professionals. These professionals will also control the assets of the debtor during the insolvency process.

    Bankruptcy and Insolvency Adjudicator: The Code proposes two separate tribunals to oversee the process of insolvency resolution, for individuals and companies:

    1. National Company Law Tribunal: for Companies and Limited Liability Partnership firms; and
    2. Debt Recovery Tribunal: for individuals and partnerships

    What is the recent development?

    Ans. Code of conduct for Committees of Creditors (CoC)

    • A CoC is to be composed of financial creditors to the Corporate Debtor (CD) — or operational creditors in the absence of unrelated financial creditors.
    • Under the IBC, CoC is empowered to take key decisions, including decisions on haircuts for creditors, that are binding on all stakeholders, including those dissenting.
    • The CoC is also empowered to seek and choose the best resolution plan for a corporate debtor from the market, and its role is vital for a timely and successful resolution for a CD.
    • The IBBI noted that a code of conduct for CoCs would promote transparent and fair working on the part of CoCs.

    What are the issues that the code of conduct is seeking to address?

    • Several cases in which certain lenders have withdrawn funds from a CD undergoing insolvency proceeding and contributed to delays in the insolvency process.
    • Delays in resolution are seen as contributing to the loss of value in corporate debtors and have become a key criticism of the IBC, with over 75 percent of proceedings having crossed the 270-day timeline.
    • The IBBI highlighted cases in which representatives of lenders have had to seek approval from seniors for decisions such as an appointment of resolution professionals.
    • IBBI has recommended that a code of conduct require that members of the CoC nominate representatives with sufficient authorization to participate in meetings and make decisions during the process.
    • The regulator also highlighted cases where lenders have withdrawn funds from a corporate debtor during insolvency or liquidation proceedings.

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