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Subject: Economics

  • The National Monetisation Pipeline may not help realise the best value for assets

    Context

    The Government has launched a National Monetisation Pipeline, or NMP  to sell the revenue streams of public assets over the next four years.

    About NMP

    • Financing infrastructure: As outlined in the Union Budget, the NMP aims to mobilize resources for financing infrastructure.
    • Type of assets: The pipeline mostly includes railway stations, freight corridors, airports, and renovated national highway segments amounting to ₹6-lakh crore, or 3% of GDP in 2020-21.
    • The other two methods of raising resources are: setting up a development finance institution (DFI) and raising the share of infrastructure investment in the central and State Budgets.

    Concerns

    1) Not different from Disinvestment-Privatisation (D-P)

    • Asset monetization as defined in NMP is the same as the net present value (NPV) of the future stream of revenue with an implicit interest rate (whether it is a sale or lease of the asset).
    • Missed targets: Since D-P proceeds (revenues) have seriously missed the targets almost every year, how believable are the NMP targets? And how are they likely to perform differently?
    • If the NMP attempt to shore up public finances, such distress (fire) sale would find it difficult to obtain a “fair value” for public assets.
    • Would the market not factor in the dire state of the economy in beating down the prices, as in any distress sale?
    • The NMP document seems silent on how to overcome past mistakes.

    2) PPP mode of implementation

    • The NMP outlines mainly two modes of implementing monetization: public-private partnership (PPP) and “structured financing” to tap the stock market.
    • PPP in infrastructure has been a financial disaster in India, as evident from what happened after the economic boom of 2003-08.
    • After the 2008 financial crisis, many PPP projects failed to repay bank loans leading to the piling up of non-performing assets (NPAs) of banks.
    • Further, the bulk of the lending was too politically connected to corporate houses and firms.
    •  India is still reeling from the legacy of that period without any easy and credible solutions in sight.

    3) Stock market crash threatens the success of InvIT

    • An Infrastructure Investment Trust (InvIT) is being mooted as an alternative means of raising finance from the stock market.
    • In principle, InvIT is much like a mutual fund, whose performance is largely linked to stock prices.
    • The disinvestment process began in 1991 in which the bundles of shares of public sector enterprises (PSEs) were sold by UTI in the booming secondary stock market to realize the best price.
    • However, as the market crashed in the wake of the Harshad Mehta scam, stalling and discrediting the disinvestment process for almost the entire decade.
    • Hence, it may be worth learning the lessons from the historical missteps before exploring the idea all over again by the current stock market boom
    • At present, the U.S. Fed committed to reducing its assets purchase program (known as quantitative easing), the “hot money” inflow that has fuelled Indian stock prices may dry up throwing up nasty surprises.

    Thus, it seems unwise to anchor the acutely needed investment revival strategy on a discredited PPP model or on fickle Foreign Institutional Investors (FII) investment in a frothy stock market.

    Suggestion: Monetise debt

    • With the financial system flush with liquidity with no takers for bank credit, finance the proposed investment — as envisaged in the Budget — by government borrowing.
    • With a negative 0.4% real interest rate (real interest rate is nominal interest rate minus inflation rate), domestic borrowing in home currency is a steal.
    • No Crowding out: Chances of crowding-out private investments are remote with a liquidity overhang in the market.
    • Low inflation risk: Inflation risk is also limited with little aggregate demand pressures (barring temporary bottlenecks due to localized lockdowns).
    • Rating downgrade risk:  If the debt is productively used to expand GDP (the denominator), rating downgrade risk due to the rising Debt-GDP ratio seems minimal.
    •  Moreover, rising external debt by fickle portfolio investors perhaps carries a greater risk to external instability.

    Consider the question “How the National Monetisation Pipeline seeks to implement the asset monetisation? What are the challenges in asset monetisation?”

    Conclusion

    If reviving investment demand quickly is the real goal, debt monetisation seems a better option than asset monetisation.

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  • India becomes 4th largest forex reserves holder globally

    India’s foreign exchange reserves rose by $835 million to touch a record high of $612.73 billion in the week ended July 16, 2021, the Reserve Bank of India (RBI) data showed.

    Forex Reserves

    India’s forex reserves cover:

    • Foreign Currency Assets (FCAs) (rose by $463 million to $568.748 billion)
    • Special Drawing Rights (SDRs) (up by $1 million at $1.548 billion)
    • Gold Reserves (up by $377 million to $37.333 billion)
    • Reserve position with the International Monetary Fund (IMF) (up by $1 million at $1.548 billion)

    (Note the descending order of the shares of various components of forex reserves. UPSC can go factual here.)

    What is Foreign Exchange Reserve?

    • Foreign exchange reserves are important assets held by the central bank in foreign currencies as reserves.
    • They are commonly used to support the exchange rate and set monetary policy.
    • In India’s case, foreign reserves include Gold, Dollars, and the IMF’s quota for Special Drawing Rights.
    • Most of the reserves are usually held in US dollars, given the currency’s importance in the international financial and trading system.
    • Some central banks keep reserves in Euros, British pounds, Japanese yen, or Chinese yuan, in addition to their US dollar reserves.

    Countries with the highest foreign reserves

    Currently, China has the largest reserves followed by Japan and Switzerland. India has overtaken Russia to become the fourth largest country with foreign exchange reserves.

    1. China – $3,349 Billion
    2. Japan – $1,376 Billion
    3. Switzerland – $1,074 Billion
    4. India – $612.73 Billion
    5. Russia – $597.40 Billion

    Why are these reserves so important?

    • All international transactions are settled in US dollars and, therefore, required to support India’s imports.
    • More importantly, they need to maintain support and confidence for central bank action, whether monetary policy action or any exchange rate intervention to support the domestic currency.
    • It also helps to limit any vulnerability due to sudden disturbances in foreign capital flows, which may arise during a crisis.
    • Holding liquid foreign currency provides a cushion against such effects and provides confidence that there will still be enough foreign exchange to help the country with crucial imports in case of external shocks.

    Initiatives taken by the government to increase forex

    • To increase the foreign exchange reserves, the Government of India has taken many initiatives like AatmaNirbhar Bharat, in which India has to be made a self-reliant nation so that India does not have to import things that India can produce.
    • Other than AatmaNirbhar Bharat, the government has started schemes like Duty Exemption Scheme, Remission of Duty or Taxes on Export Product (RoDTEP), Nirvik (Niryat Rin Vikas Yojana) scheme, etc.
    • Apart from these schemes, India is one of the top countries that attracted the highest amount of Foreign Direct Investment, thereby improving India’s foreign exchange reserves.

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  • Biofortified food can lead India from food security to nutrition security

    Context

    On August 15, Prime Minister Narendra Modi announced that, by 2024, rice provided to the poor under any government scheme — PDS, mid-day-meal, anganwadi — will be fortified.

    Need for nutrition security in India

    • 15.3 per cent of the country’s population is undernourished.
    • India has the highest proportion of “stunted” (30 per cent) and “wasted” children (17.3 per cent) below five years of age, as per the FAO’s recent publication, ‘The State of Food Security and Nutrition in the World, 2021’.
    • These figures indicate that India is at a critical juncture with respect to nutritional security.
    • Other factors: Other factors like poor access to safe drinking water and sanitation, low levels of immunization and education, especially of women, contribute equally to this dismal situation.

    India’s journey towards nutrition security

    • As per the ICAR website, they had developed 21 varieties of biofortified staples including wheat, rice, maize, millets, mustard, groundnut by 2019-20.
    • These varieties are not genetically modified.
    • These biofortified crops have 1.5 to 3 times higher levels of protein, vitamins, minerals, and amino acids compared to the traditional varieties.
    • A research team at the National Agri-Food Biotechnology Institute in Mohali has also developed biofortified colored wheat (black, blue, purple) that is rich in zinc and anthocyanins.
    • The HarvestPlus program of the Consultative Group for International Agricultural Research (CGIAR) has been working closely with ICAR, to improve the access of the poor in India to iron-rich pearl millet and zinc-rich wheat.
    • Globally, more than 40 countries have released biofortified crops, benefitting over 48 million people.
    • Leveraging science to attack the complex challenge of malnutrition, particularly for low-income and vulnerable sections of society, can be a good intervention.

    Challenges in securing nutrition security

    • Access to nutritious food is only one of the determinants of nutrition.
    • Other factors like poor access to safe drinking water and sanitation, low levels of immunization and education, especially of women, contribute equally to this dismal situation.
    • Need for a multi-pronged approach: In the long run, India needs a multi-pronged approach to eliminate the root cause of this complex problem.

    Way forward: Multi-pronged approach

    1) Focus on mother’s education

    • There is a direct correlation between a mother’s education and the well-being of children.
    • Targeted programs for improving the educational status of girls and reducing school dropout rates need to be promoted.
    • The Global Nutrition Report (2014) estimates that every dollar invested in a proven nutrition program offers benefits worth 16 dollars.

    2) Scale-up innovation in biofortified food by supporting policies

    • Innovations in biofortified food can alleviate malnutrition only when they are scaled up with supporting policies.
    • This would require increasing expenditure on agri-R&D and incentivizing farmers by linking their produce to lucrative markets through sustainable value chains and distribution channels.
    • The government can also rope in the private sector to create a market segment for premium-quality biofortified foods.
    •  For instance, trusts run by the TATA group are supporting different states to initiate fortification of milk with Vitamin A and D. 

    3) National awareness drive

    • A national awareness drive on the lines of the “Salt Iodisation Programme” launched by the government in 1962 can play an important role at the individual and community levels to achieve the desired goals of poshan for all. 
    • Branding, awareness campaigns, social and behavioral change initiatives, can promote the consumption of locally available, nutrient-dense affordable foods among the poor and children.

    Consider the question” Access to nutritious food is only one of the determinants of nutrition, and fortified food can play important role in this direction. Suggest the other measures to ensure nutrition safety in India.” 

    Conclusion

    Biofortified food is a step in the right direction, however, other factors should also be given equal attention in securing national security in India.

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  • Poultry Farm Establishment Rules

    Small and marginal poultry farmers in India will now have to take measures similar to their bigger counterparts to prevent environmental pollution, according to new guidelines issued recently by Central Pollution Control Board (CPCB).

    What are the new guidelines?

    (A) Establishment

    • Consent to Operate: The new guidelines state that for establishing and operating a medium-sized poultry farm of 25,000-100,000 birds, a farmer will have to obtain a certificate of Consent. Permission will be valid for 15 years.
    • Designated Authority: This will have to be taken from the State Pollution Control Board or Committee under the Water Act, 1974, and the Air Act, 1981. The Animal Husbandry Department will be responsible for implementing the guidelines at the state and district level.
    • Location: A farm should be set up 500 metres away from a residential area, 100 metres from rivers, lakes, canals, and drinking water sources, 100 metres from national highways, and 10-15 metres from village footpaths and rural roads.

    (B) Operational directives

    • Ventilated farms: The guidelines state that the poultry farm should have a ventilated room to reduce the gaseous pollution from the birds.
    • Wastewater management: Also, care should be taken so that poultry feces do not mix with running water or any other pesticide.
    • Manure generation: Farmers of small- and medium-sized poultry farms will have to arrange for manure. After use, the water from a poultry farm must be collected in a tank. The guidelines suggest using it in horticulture.
    • Disposal of deads: Emphasis has also been given to the daily removal of birds that die, through burial, without harming the environment. Burial should be done three metres above the groundwater level.

    (C) Large/ Small Farmer

    The new guidelines have defined who is a ‘large’ or ‘small’ poultry farmer in India.

    • Those who have 5,000-25,000 birds are small farmers.
    • Those who have more than 25,000 and less than 100,000 birds are medium farmers.
    • Those who have more than 100,000 birds are large farmers.

    Why need such regulation?

    • Poultry, hatchery and piggery were considered ‘green’ by the Central Pollution Control Board (CPCB) in its guidelines of 2015.
    • This meant they were exempt from the air, water, and environmental protection laws.
    • Gaseous emissions and waste are major problems in poultry farming.
    • The feces of poultry birds emit gaseous ammonia, hydrogen sulfide, and methane, all of which produce odors.

    Poultry sector of India

    • According to the 20th Livestock Census 2020, there are 851.8 million poultry birds in India.
    • About 30 percent (250 million) of this is ‘backyard poultry’ or small and marginal farmers.
    • According to the 19th Livestock Census, the number of such farmers is about 30 million.
    • Chickens, turkeys, ducks, geese, etc, are reared in poultry farms for meat and eggs. Chickens that are reared for eggs are called ‘laying hens’ or ‘layers’. Those reared for meat are called ‘broilers’.

    According to the 20th Livestock Census, Tamil Nadu (120 million), Andhra Pradesh (107 million), Telangana (79 million), West Bengal (77 million), Maharashtra (74 million), Karnataka (59 million crores), Assam (46 million) and Kerala (29 million) have the highest poultry populations.

    Try answering this PYQ:

    Consider the following statements:

    1. Agricultural soils release nitrogen oxides into environment.
    2. Cattle release ammonia into environment.
    3. Poultry industry releases reactive nitrogen compounds into environment.

    Which of the statements given above is/are correct?

    (a) 1 and 3 only

    (b) 2 and 3 only

    (c) 2 only

    (d) 1, 2 and 3

     

    [wpdiscuz-feedback id=”gv4dtzo9jr” question=”Please leave a feedback on this” opened=”1″]Post your answers here.[/wpdiscuz-feedback]

     

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  • Why is there a push for Asset Monetization?

    Finance Minister has recently announced the framework for the National Monetization Pipeline (NMP) and its process is under discussion.

    What is Asset Monetization?

    • Asset Monetization involves the creation of new sources of revenue by unlocking of the value of hitherto unutilized or underutilized public assets.
    • Internationally, it is recognized that public assets are a significant resource for all economies.
    • Many public sector assets are sub-optimally utilized and could be appropriately monetized to create greater financial leverage and value for the companies and of the equity that the government has invested in them.
    • This helps in the accurate estimation of public assets which would help in the better financial management of government/public resources over time.

    What is the National Monetization Pipeline?

    • The NMP names a list of public assets that will be leased to private investors.
    • Only brown-field assets, which are assets that are already operational, are planned to be leased out under the NMP.
    • So, to give an example, an airport that is already operational may be leased out to an investor.
    • Assets that are yet to be developed, such as an undeveloped piece of land, for example, may not be leased out.
    • Importantly, there won’t be any transfer of ownership from the government to the private sector when assets are leased out.
    • The government only plans to cede control over its assets for a certain period of time, after which the assets must be returned to the government unless the lease is extended.

    Will NMP help the economy?

    • Better control and utilization: Economists generally believe that scarce assets are better managed and allocated by the private sector than by the government. So to the extent that the NMP frees assets from government control, it can help the economy.
    • Freeing Capital: The government believes that leasing out public assets to private investors will help free capital that is stuck in these assets.
    • Infra generation: The government can use this money, in turn, to build fresh infrastructure under the National Infrastructure Pipeline (NIP).
    • Economic boost: In fact, the proceeds from the NMP are expected to account for about 14% of the total outlay for infrastructure under the NIP. The government believes all this spending will boost economic activity.
    • A perfect model: Analysts also believe that the government has now through the NMP found the right model for infrastructure development.
    • Source of finance: The government, they say, is best suited to tackle the ground-level challenges in building infrastructure, while the private sector can operate and offer indirect finance to these projects through the NMP.

    For example, say the government has invested thousands of crores in a road project. It may take the government decades to recover its investment through the annual toll revenues.  Instead, the government can recover a good chunk of its investment by leasing out the right to collect toll for the next 30 years to a private investor.

    What are the risks?

    • Political lobbying: The allocation of assets owned by governments to private investors is often subject to political influence, which can lead to corruption. In fact, many in the Opposition allege that the NMP will favour a few business corporations that are close to the government.
    • Burden of opportunity cost: The expected boost to economic activity due to higher government spending may also need to be weighed against the opportunity costs. For one, the money that the government collects by leasing out assets comes from the pockets of the private sector. So higher government spending will come at the cost of lower private spending.
    • Legal uncertainties: The NMP also does not address the various structural problems such as legal uncertainty and the absence of a deep bond market that hold back private investment in infrastructure.
    • Sheer Privatization: There are also concerns that the leasing of airports, railways, roads and other public utilities to private investors could lead to higher prices for consumers. If the government merely cedes control of public utilities to private companies without taking steps to foster greater competition, it can indeed lead to poor outcomes for consumers.
    • Policy compulsion: The government’s past disinvestment projects such as the sale of Air India did not catch the fancy of investors owing to the stringent conditions set by the government. In the case of Air India’s sale, the buyers were supposed to possess a certain minimum net worth and stay invested in the airline for at least three years.

    What lies ahead?

    • The success of the NMP will depend on the demand for brown-field government assets among private investors.
    • Many analysts also believed that the government was expecting buyers to pay too much for a debt-ridden Air India.
    • The pricing of assets and the terms of sale will thus determine the level of interest that private investors show for assets leased under the NMP.
    • In the past, doubts have been raised about the allocation of airports and other assets to certain private business groups (say Adani Group).
    • So the process that the government adopts this time to allocate assets may come under scrutiny. There is likely to be a demand for an open, competitive auction of assets.

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  • Agrarian reforms should go beyond meeting demands of the agitating farmers

    Context

    The farmers’ agitation in India has attracted worldwide attention and support.

    Story of land reforms in India

    • Being a state subject, various states implemented reforms with varying degrees of effectiveness and equity.
    • Objectives: The objectives were the same: Abolition of feudal landlordism, conferment of ownership on tenants, fixing land ceilings, distribution of surplus land, increasing agricultural productivity and production, etc.
    • However, owing to manipulations in land records, much surplus land was not available for distribution among the landless tillers.
    • Less than one per cent of the total land in the country was declared as surplus.
    • The relevant criteria for land entitlement should have been employment and main source of income.

    Change in social structure after land reforms

    • The ex-tenants, after getting land made use of several programmes —Green Revolution technology, bank nationalisation and priority sector lending, urbanisation and expanding urban markets.
    • They cornered a disproportionate share of various subsidies.
    • The tenant-turned-capitalist farmers formed political parties, which produced strong state-level leaders, who controlled state-level planning, fiscal policies and politics.
    • In place of a strong Centre and weak states, came a weak Centre and strong states.
    • Rich farmers have formed strong power blocs, with unquestioned clout and bargaining power, not only in north-western India but also in states like Maharashtra.

    Need for agrarian reforms

    • Farmers are seeking legal safeguards against market fluctuations, especially against any downward pressure on agricultural prices.
    • While they welcome every rise in prices, they demand legal protection against price falls, a legitimate stance.
    • Even as agricultural prosperity must be promoted,it should not be just shared between farmers (especially rich ones) and urban consumers, but by all.
    • Farm workers, in particular, must benefit from it.

    Reforms for farmworkers

    • Agricultural land should be pooled and equally distributed among farm households.
    • Non-farm households should not be permitted to hold farmland.
    • Land reforms should be a central subject; while agriculture can remain a state subject.
    • Such a programme will empower and enrich marginalised and excluded individuals and social groups.
    • It should be the kernel of a justiciable universal property right that must form an integral/inalienable part of Article 21 (Right to Life) of the Constitution.

    Conclusion

    The right to life is hollow without a right to livelihood. Through an effective land reforms programme, let’s build a prosperous India based on equity and justice.

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  • Asset monetisation — execution is the key

    Context

    The government has announced an ambitious programme of asset monetisation. It hopes to earn ₹6 trillion in revenues over a four-year period.

    About Asset monetisation

    • Unlike in privatisation, no sale of government assets is involved.
    • The government parts with its assets — such as roads, coal mines — for a specified period of time in exchange for a lump sum payment.
    • Asset monetisation will happen mainly in three sectors: roads, railways and power.
    • Other assets to be monetised include: airports, ports, telecom, stadiums and power transmission.
    • Two important statements have been made about the asset monetisation programme.
    • The focus will be on under-utilised assets.
    • Monetisation will happen through public-private partnerships (PPP) and Investment Trusts.

    Challenges

    1) Investors would prefer property utilised assets over underutilised assets

    • Suppose an asset is not being used adequately because it has not been properly developed or marketed well enough.
    • A private party may judge that it can put the assets to better use.
    • It will pay the government a price equal to the present value of cash flows at the current level of utilisation.
    • This is a win-win situation for the government and the private player.
    • The government gets a ‘fair’ value for its assets.
    • The private player gets its return on investment.
    • Increase in efficiency: The economy benefits from an increase in efficiency.
    • Monetising under-utilised assets thus has much to commend it.
    • However, in case of an asset that is being properly utilised, the private player has little incentive to invest and improve efficiency.
    • It simply needs to operate the assets as they are.
    • The private player may value the cash flows assuming a normal rate of growth.
    •  The cost of capital for a private player is higher than for a public authority.
    • The higher cost of capital for the private player could offset the benefit of any reduction in operating costs.
    • The government earns badly needed revenues but these could be less than what it might earn if it continued to operate the assets itself.
    • There is no improvement in efficiency.
    • The benefits to the economy are likely to be greater where under-utilised assets are monetised.
    • However, private players will prefer well-utilised assets to assets that are under-utilised.
    • That is because, in the former, cash flows and returns are more certain.

    2) Valuation challenges

    • It is very difficult to get the valuation right over a long-term horizon, say, 30 years.
    •  For a road or highway, growth in traffic would also depend on factors other than the growth of the economy.
    • . If the rate of growth of traffic turns out to be higher than assessed by the government in valuing the asset, the private operator will reap windfall gains.
    • Alternatively, if the winning bidder pays what turns out to be a steep price for the asset, it will raise the toll price steeply.
    • The consumer ends up bearing the cost.
    • It could be argued that a competitive auction process will address these issues and fetch the government the right price while yielding efficiency gains.
    • But that assumes, among other things, that there will be a large number of bidders for the many assets that will be monetised.

    3) Life of the returned asset may not be long

    • There is no incentive for the private player to invest in the asset towards the end of the tenure of monetisation.
    • The life of the asset, when it is returned to the government, may not be long.
    • In that event, asset monetisation virtually amounts to sale.
    • Monetisation through the PPP route is thus fraught with problems.

    Way forward: InvIT route

    • Infrastructure Investment Trusts (InvIT) are mutual fund-like vehicles in which investors can subscribe to units that give dividends.
    •  Monetisable assets will be transferred to InvITs.
    • The sponsor of the Trust is required to hold a minimum prescribed proportion of the total units issued.
    • InvITs offer a portfolio of assets, so investors get the benefit of diversification.
    • In the InvIT route to monetisation, the public authority continues to own the rights to a significant portion of the cash flows and to operate the assets.
    • So, the issues that arise with transfer of assets to a private party — such as incorrect valuation or an increase in price to the consumer — are less of a problem.

    Key takeaways

    • Low cost of capital for public authority: In general, due to the low cost of capital for public authority, the economy is best served when public authorities develop infrastructure and monetise these.
    • InvIT route: Monetisation through InvITs is likely to prove less of a problem than the PPP route.
    • Monetise under utilised assets: We are better off monetising under-utilised assets than assets that are well utilised.
    • Monitoring authority should be set up: To ensure proper execution, there is a case for independent monitoring of the process.
    • The government may set up an Asset Monetisation Monitoring Authority staffed by competent professionals.

    Consider the question “How asset monetisation is different from privatisation? What are the challenges in asset monetisation? Suggest the ways forward.”

    Conclusion

    Government must pay attention to the challenges in asset monetisation and use it in the proper way to increase the efficiency in the economy.

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  • Govt’s clarifications on CSR Expenditure

    The Ministry of Corporate Affairs has clarified that companies have to ensure that funds transferred to implementing agencies are actually utilized for them to be counted towards mandatory CSR expenditure.

    What is Corporate Social Responsibility (CSR)?

    • CSR is a type of business self-regulation that aims to contribute to the societal goals of a philanthropic, activist, or charitable nature by engaging in or supporting volunteering or ethically-oriented practices.
    • It rests on the ideology of “give and take” i.e. to take scarce resources from the environment for running a business, and in turn to contribute towards economic, social, and environmental development.

    CSR in India

    • India is the first country in the world to make corporate social responsibility (CSR) mandatory, following an amendment to the Companies Act, 2013 in April 2014.
    • Businesses can invest their profits in areas such as education, poverty, gender equality, and hunger as part of any CSR compliance.

    All companies with a net worth of Rs 500 crore or more, a turnover of Rs 1,000 crore or more, or net profit of Rs 5 crore or more, are required to spend 2 per cent of their average profits of the previous three years on CSR activities every year.

    What is the recent clarification?

    • The MCA has clarified that excess Corporate Social Responsibility (CSR) expenditure prior to FY21 cannot be set off against future CSR expenditure requirements.
    • Corporate donations to government schemes cannot be counted as CSR.
    • The ministry has also clarified that companies have to ensure that funds transferred to implementing agencies are actually utilized for them to be counted towards mandatory CSR expenditure.

    Impact of the move

    • This clarification may impact donations to state government schemes which are often done for the sake of managing relationships with the government.

    Earlier changes

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  • [pib] Bharat Series (BH-series) for Vehicles

    The Ministry of Road Transport & Highways has rolled out a new series for vehicles registration ‘BH’ to avoid re-registration of vehicles while moving to another state.

    Bharat series (BH-series)

    • There was a procedure of re-registration of a vehicle while moving to another state.
    • A vehicle bearing BH registration mark shall not require assignment of a new registration mark when the owner of the vehicle shifts from one State to another.
    • Format of Bharat series (BH-series) Registration Mark –

    Registration Mark Format:

    1. YY BH #### XX
    2. YY – Year of first registration
    3. BH- Code for Bharat Series
    4. ####- 0000 to 9999 (randomized)
    5. XX- Alphabets (AA to ZZ)

    Why such move?

    • Station relocation occurs with both Government and private sector employees.
    • Such movements create a sense of unease in the minds of such employees with regard to transfer of registration from the parent state to another state.
    • Under section 47 of the Motor Vehicles Act, 1988, a person is allowed to keep the vehicle for not more than 12 months in any state other than the state where the vehicle is registered.

    Who can get this BH series?

    • BH-series will be available on voluntary basis to Defense personnel, employees of Central Government/ State Government/ Central/ State PSUs and private sector companies/organizations.
    • The motor vehicle tax will be levied for two years or in multiple of two.
    • This scheme will facilitate free movement of personal vehicles across States/UTs of India upon relocation to a new State/UT.
    • After completion of the fourteenth year, the motor vehicle tax shall be levied annually which shall be half of the amount which was charged earlier for that vehicle.

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  • How to read the state of the economy

    Context

    GDP growth estimates range from a high of 11 per cent, as per the government, to 9.5 per cent as per RBI. The variation is stark. So, what should one look at to evaluate the state of the economy?

    Things to consider while evaluating the economy

    • First, since the economy contracted by 7.3 per cent in 2020-21, all numbers will be exaggerated in the upward direction.
    • Second, beware of interpretations based on single-month data.
    • Cumulative numbers are better at times, but can be misleading too.
    • Third, what is more important is how things will play out during September-December as this is the festival-cum-harvest season which engenders spending normally.
    • Several indicators are used as leading signals of the economy, but here, too, we need to be careful.
    • PMIs for manufacturing and services tell us if we are better off than the previous month.
    • But that is not how data is normally presented as we usually talk of year-on-year growth.
    • But it is an early signal for sure. The IIP and core sector numbers will be influenced by base numbers and come with a lag.

    Indicators to look at as signs of recovery

    • Credit growth: Bank credit is a good indicator of whether companies are producing more as all activity requires working capital.
    • Here, the picture is not good as growth is (-) 0.4 per cent as of July end, indicating that activity has not picked up yet.
    •  Therefore, credit growth is in the negative territory.
    • Investment:  Debt issuances are lower in the first four months at around Rs 1.25 lakh crore, which is half of the Rs 2.57 lakh crore mobilised last year.
    • Therefore, the investment scenario is still one where companies are watchful.
    • There is surplus capacity in industry with utilisation rate being at 69.4 per cent in March 2021.
    • Rural demand: Rural demand is an integral part of the story and presently progress on the kharif crop is satisfactory.
    • A good crop is also necessary to generate spending power besides augmenting supplies in the market as well as food processing industry.
    • The second wave has pushed back rural households with more expenditure on health care.
    • Employment generation: Employment generation is a trigger for higher income and spending and while the battle between CMIE and EPFO data remains unresolved, the market will finally reveal if people have more money.

    Inflation concern

    • Inflation is high and though there is a view that it is transient.
    • Several households, who are living on a fixed income have witnessed a double whammy in the form of lower returns on deposits and cumulative inflation of 6 per cent last year, and a similar number this year.

    Conclusion

    Investment will trail consumption and while the Centre has a good capex plan, it is only one piece in the overall puzzle. The private sector must get involved and with the banks being hesitant, the road can get longer.

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