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Subject: Economics

  • Air India Disinvestment

    The government has kicked off the complete disinvestment process of Air India for the second time after it failed to receive a single bid in the first attempt back in 2018.

    100% stake sale

    • Most significantly, the government will offload 100% of its stake in Air India, compared with 76% put on the block last time.
    • The government holding even a minor stake in the airline post disinvestment was seen as a huge negative for any potential buyers.
    • The buyer will have to take on Rs 23,286 crore of debt out of a total Rs 60,074 crore.
    • Compared with this, in the last attempt, a potential buyer would have to take on Rs 33,392 crore of debt and current liabilities.
    • The amount of debt being bundled with the airline in this attempt is towards the aircraft that are being sold off along with the carrier as part of the transaction.
    • The working capital and other non-aircraft debt will be retained by the government.

    Air India’s assets

    • The new owner will be taking on a fleet of 121 aircraft in Air India’s fleet and 25 planes in Air India Express’ fleet.
    • These exclude the four Boeing 747-400 jumbojet aircraft that the airline plans to transfer to its subsidiary Alliance Air, which is not a part of the current transaction.
    • However, like the last attempt, the properties currently in use by Air India, including the Nariman Point building and the company’s headquarters near Connaught Place in New Delhi will be retained by the government.

    Will the new terms attract investors?

    • Air India has a 50.64% market share in international traffic among Indian carriers.
    • The government is hopeful of attracting investors with the new sale criteria, coupled with the main benefits of the airline, which are prime slots in capacity-constrained airports across the world.
    • However, any potential investor is also expected to look at the size of the airline’s operations with reference to what those operations generate.
    • For example, both Air India and Singapore Airlines operate with a fleet of 121 aircraft, but in 2018-19 Air India posted a net loss of Rs 8,556 crore, whereas Singapore Airlines reported a net profit of Singapore $ 779.1 million (approx Rs 4,100 crore).

    What will the new investor get?

    • The most attractive proposition in acquiring Air India is the slots and landing rights that it holds at airports such at Delhi, Mumbai, London, New York, Chicago, Paris, etc.
    • These could be helpful both to airlines looking to expand into long-haul international operations, and to entities looking to set up global operations from scratch.
    • Air India currently operates to 56 Indian cities and 42 international destinations.
    • The new investor also gets hold of the ground-handling firm AI-SATS, which offers end-to-end ground handling services such as passenger and baggage handling, ramp handling, aircraft interior cleaning etc. at Bengaluru, Delhi, Hyderabad, Mangaluru and Thiruvananthapuram airports.
    • This would provide the investor with an ancillary services firm with captive use.

    Loss makers in AI

    • Several of Air India’s international and domestic routes are profit-generating, while a number of them are loss-making or witness low load factors.
    • This is a legacy problem that the airline comes with for the new promoter.
    • Additionally, while the airline comes with 121 aircraft primed as domestic and international workhorses, 18 of them are grounded for lack of funds to make them airworthy.

    How will consumers and employees be impacted?

    Consumers

    • If and when Air India is taken over by a private entity or consortium, experts believe the first move could be pruning of operations to ensure the airline inches closer to profitability.
    • This could cause Air India to cease operations on certain loss-making domestic and international routes — leading to a rise in fares.
    • It is believed that Air India’s continuous loss-making operations have skewed the market, wherein private companies have to play ball even when fares are artificially low.
    • Cutting certain routes could also impact consumers in terms of the unique offerings by Air India, such as higher baggage allowance, etc.

    Employees of AI

    • Air India’s bloated staff strength was flagged by potential investors in the last disinvestment attempt.
    • The airline has 17,984 employees, of which 9,617 are permanent staff.
    • Whether the employees will be retained by the new investor is unclear.
    • The government is expected to provide more clarity on conditions for retaining staff in the request-for-proposal stage, which will come after expressions of interest are received.

  •  [op-ed of the day] The convergence of rich nations with the rest has gone off track

    Context

    Sound policies are needed to put emerging economies back on a higher growth path and ameliorate regional inequalities.

    The theory of convergence

    • The theory of convergence is one of the most powerful and noblest ideas in economics.
      • What is it? It is the concept that other things being equal, poorer economies should catch up with richer ones so that inequality between the rich and the poor attenuates, and conceivably even disappears over time.
    • Capital is more productive in poor economies: The premise driving convergence is that capital (whether physical or human) is more productive in poor economies than rich ones due to what economists call “diminishing marginal productivity”.
      • In layman’s terms, a small amount of investment yields a greater increase in output where there is less capital than where there is more.
      • Lesser the development more the development: Even more simply, the rate of return on investment is inversely related to the level of economic development.
    • Experience of Japan and Germany after WW 2: The experience of advanced economies gave economists reason to be optimistic that convergence occurs according to the script.
      • Thus, the devastated economies of Europe, along with Japan, quickly caught up with the advanced economies that had not been ravaged by World War II, most notably, the US.
      • Germany and Japan closing the gap: At the end of the war, with their capital stocks destroyed, Germany and Japan were much poorer than the US; by the 1960s, they had closed the gap.

    Globalisation and the unfulfilled hopes of convergence

    • Replication of the rise of Japan and Germany? At one time, it appeared that the same play was at work between emerging economies and advanced economies.
      • Rise of India and China: Economies such as China and India, as well as others, were far outstripping the growth rates of the US and other rich economies,
      • Hope of closing gap: India and China gave hope that at least the more rapidly growing of the emerging economies would close the gap with the rich world within decades rather than centuries.
    • Adoption of technology at low cost: There was presumed to be an additional powerful force working toward convergence.
      • Poorer economies are, almost by definition, far away from the technological frontier at which the richest economies operate.
      • There is thus ample room to absorb newer technologies at relatively low cost and in a relatively short span of time, without encountering slowing growth like the rich economies,
      • In simpler terms, it is difficult and costly to innovate the latest Apple iPhone, but relatively easy to reverse engineers at least some of Apple’s technology.

    Reality: Convergence is faltering

    • Recent evidence suggests that convergence is faltering.
    • World Bank report of retarding convergence: A recent World Bank report documents a worrying slowdown in productivity growth in emerging economies, significantly retarding convergence.
      • Lower productivity: The report’s calculations suggest that emerging economies have 14% lower productivity than they would have had if previous trends of high productivity growth were maintained.
      • Lower commodity exports: For commodity exporters, this is a whopping 19%.
    • The silver lining for faltering economies: According to the World Bank, the main driver of falling productivity are-
      • Insufficient investment in physical and human capital.
      • Insufficient mobility of machines and workers from less productive to more productive sectors of the economy.
    • India’s case: The Indian case clearly bears this out, with languishing investment and unfinished productivity-enhancing reforms, especially in the country’s labour market, being the key culprits behind the sharp slowdown in growth.

    Way forward

    • Repair financial systems: Governments, including India’s, need to do the heavy lifting of repairing damaged financial systems overladen with bad debt.
    • Restore fiscal rectitude.
    • Inflation focused monetary policy: Ensure that monetary policy remains focused on stable inflation rather than being excessively loose as a risky substitute for structural reforms.
    • Reforms: Press ahead with unfinished reforms to capital, land and labour markets.
    • Address the regional disparities: There is a further critical dimension in the case of large multi-region economies such as India.
      • Not only has convergence been faltering between nations, but it has also been faltering between the richer and poorer regions of large nations such as India.

    Conclusion

    The data does not present an epistle of despair, but of hope. The pursuit of sensible and conventional sound economic policies ought to put emerging economies as a group back on a higher growth trajectory. Convergence may yet end up being a parable of promise rather than a fable of folly.

     

  • [op-ed of the day] Food for Expediency

    Context

    A substantial rise in consumer food price inflation to 14.12% in December 2019, the highest ever in the past six years, has driven the retail price inflation in this country.

    Discrepancies in the fiscal deficit

    • Policy dilemma for the RBI: Though the CPI was at 14.12% in December but with the core inflation rate still not overshooting the Reserve Bank of India’s (RBI) medium-term target of 4(+/- 2)%.
      • Speculations hover as to whether the RBI monetary policy committee will go for another rate cut in the coming month.
      • This is a policy dilemma for the central bank
      • Why is the dilemma? The dilemma is because the moot issues regarding the government’s key economic estimates, such as the fiscal deficit, largely remain unresolved.
    • Discrepancies flagged by the CAG: The CAG has stated that the current figures on deficit have been kept at a 1.5% to 2% low by not including the government’s off-budget borrowings from public accounts, such as the National Small Savings Fund (NSSF).
      • According to media reports, such off-budget expenditure of the current government stands at ₹1.5 lakh crore in 2019–20.
      • The major portion of off budged expenditure on food subsidy: About three-fourths of the incremental off-budget expenditure is on account of under-recoveries in food subsidies of the Food Corporation of India (FCI).
    • Low allocation but high expenditure on food subsidy: For instance, the 2019–20 Union Budget had provisioned food subsidy at₹1.84 lakh crore.
      • While the overdue of the FCI is already at₹1.86 lakh crore.
      • For these burgeoning overdue, FCI’s ­off-budget borrowings from the NSSF have been on the rise.

    Excessive stock by the government and rising inflation

    • Issue of supply management: The issues of agricultural supply management are relegated to the background by the standard causality argument of “crop damages” caused by excessive rains and that the inflation will ease out once the new harvest comes in.
      • This argument can hold some water for horticulture crops like onions that saw an almost 200% rise in price in November and December.
      • Unable to explain inflation in wheat and other cereals: This argument may not find traction in explaining the price inflation of wheat and other cereals.
    • holding the excessive cereal stock: With the government currently stocking much higher quantities of cereals at the FCI than the buffer norms.
      • 45.8 million tonnes of wheat as against the buffer norm of 27.5 million tonnes and nearly double the amount of rice vis-à-vis the buffer norm of 13.5 million tonnes.
      • India is now a cereal surplus economy.
      • Why then the inflation in cereal prices? Is this artificially created by the government through its irrational stocking practice?
      • Some fundamental concerns are triggered at this juncture.
    • Concerns with excess stocks
      • First-Higher stock means higher subsidy bill-With the economic costs of the FCI being 12 times or more than the allocation cost of the grains through the public distribution system-higher stocks would imply higher subsidy bills.
      • Second–No benefit of the stock: In tandem with the first, ad hoc releasing of the stocks will not bring about any major changes in the situation.
      • Third–Hiding fiscal deficit from the public: In this context, off-budget borrowing can serve various politically expedient purposes.
      • It has enabled the government to showcase a consistently low share (below 1%) of subsidies in national income.
      • Thereby diverted the public attention from two critical facts: the FCI’s tipping financials and the country’s (grossly) underestimated fiscal deficit.

    Conclusion

    The government must recall that the “illusion” of this acceptable limit of inflation potentially rests upon the savings of the common consumers, which is being unduly misemployed by the government.

     

  • Forex Reserves of India

    India’s foreign exchange reserves rose by $943 million to touch a lifetime high of $462.16 billion according to the latest data from the RBI.

    Forex reserves of India

    • They are holdings of cash, bank deposits, bonds, and other financial assets denominated in currencies other than Indian rupee.
    • The reserves are managed by the Reserve Bank of India for the Indian government and the main component is foreign currency assets.
    • They act as the first line of defense for India in case of economic slowdown, but acquisition of reserves has its own costs.
    • They facilitate external trade and payment and promote orderly development and maintenance of foreign exchange market in India.
    • They act as a cushion against rupee volatility once global interest rates start rising.

    Composition of Forex

    • Reserve Bank of India Act and the Foreign Exchange Management Act, 1999 set the legal provisions for governing the foreign exchange reserves.
    • RBI accumulates foreign currency reserves by purchasing from authorized dealers in open market operations.
    • The Forex reserves of India consist of below four categories:
    1. Foreign Currency Assets
    2. Gold
    3. Special Drawing Rights (SDRs)
    4. Reserve Tranche Position

    What is Reserve tranche?

    • Reserve tranche is a portion of the required quota of currency each member country must provide to the International Monetary Fund (IMF) that can be utilized for its own purposes.

    What are Special Drawing Rights?

    • The SDR is an international reserve asset, created by the IMF in 1969 to supplement its member countries’ official reserves
    • The SDR is neither a currency nor a claim on the IMF.
    • Initially SDR was defined as equivalent to 0.888671 grams of fine gold, which at the time, was also equivalent to one U.S. dollar.
    • After the collapse of the Bretton Woods system, the SDR was redefined as a basket of currencies.
    • This basket Includes five currencies—the U.S. dollar, the euro, the Chinese renminbi, the Japanese yen, and the British pound sterling.

  • [op-ed snap] Budgeting for jobs, skilling and economic revival

    Context

    With the unemployment rate at 6.1 (2017-18), not just the future of the economy, the future of the country’s youth depends on the Budget.

    Unemployment and other indicators of the economy

    • Unemployment in urban youth: The unemployment rate for urban youth in the 15-29 years category is alarmingly high at 22.5%.
      • These figures, however, are just one of the many problems, as pointed out by the Periodic Labour Force Survey.
    • The decline in labour force participation: The Labour Force Participation Rate has come down to 46.5% for the ‘15 years and above’ age category.
      • It is down to 37.7% for the urban youth. Even among those employed, a large fraction gets low wages and are stuck with ‘employment poverty’.
    • The decline in investment: The aggregate investment stands at less than 30% of the GDP, a rate much lower than the 15-year average of 35%.
    • The decline in capacity utilisation: The capacity utilisation in the private sector is down to 70%-75%.

    Where the Budget should focus to reduce rural employment?

    • Revive demand: The Budget should also focus on reviving demand to promote growth and employment.
      • PM-KISAN and MGNREGA: Schemes like PM-KISAN and Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) are good instruments to boost rural demand.
      • Unutilised fund: a significant proportion of the budgetary allocation for PM-KISAN will go unutilised.
    • Why income transfers through such schemes matter?
      • Spend most of their income: Farmers and landless labourers spend most of their income. This means that income transfers to such groups will immediately increase demand.
      • Consumes a wide range of goods: Further, rural India consumes a wide range of goods and services; so, if allocation and disbursement are raised significantly, most sectors of the economy will benefit.
      • Immediate result: And such transfer will have the immediate payoff.
    • Allocate to irrigation and infrastructure projects
      • How allocation could matter: Rural unemployment can be reduced by raising budgetary allocation for irrigation projects and rural infrastructures like roads, cold storage and logistical chains.
      • These facilities, along with a comprehensive crop insurance scheme, can drastically increase agricultural productivity and farmers’ income.
      • The decrease in wastage and reduction in inflation shocks: Moreover, by integrating farms with mandis, such investments will reduce wastage of fruits and vegetables, thereby leading to a decrease in the frequency of inflationary shocks and their impact.

    Where the Budget should focus to reduce urban unemployment?

    • Focus on construction and related activities: In urban areas, construction and related activities are a source of employment for more than five crore people.
      • Second only to agriculture: Across the country, the sector’s employment figures are second only to those of the agriculture sector.
      • Construction as the backbone of other sectors:  These projects, along with infrastructure, support 200-odd sectors, including core sectors like cement and steel.
    • Problems with the construction sector:
      • Construction sector at a halt due to legal disputes: Due to the crisis in the real estate and infrastructure sectors, construction activities have come to a grinding halt.
      • At present, many real-estate projects are caught up in legal disputes-between home-buyers and developers; between lenders and developers; and between developers and law enforcement agencies like the Enforcement Directorate.
      • Unsold inventories: The sector has an unsold inventory of homes, worth several lakh crores.
      • Multiple authority as regulator and problem in liquidation: Multiple authorities -the Real Estate Regulatory Authority (RERA); the National Company Law Tribunal (NCLT); and the many consumer courts -have jurisdiction over disputes.
      • Consequently, restructuring and liquidation of bad projects are very difficult, and in turn, is the main source of the problem of NPA faced by the NBFCs.
    • What should be done to increase the demand in the construction sector?
      • Raise the tax exemption limit: To revive demand for housing, the Budget can raise the limit for availing tax exemption on home loans.
      • Use the bailout fund: The ₹25,000-crore fund set up by the centre to bailout 1,600 housing projects should be put to use immediately.
      • The funds should be used to salvage all projects that are 80% complete and not under the liquidation process under the NCLT.
      • Single adjudication authority: Several additional measures can also help. For example, there should be a single adjudication authority.
      • NIP and its significance: The ₹102-lakh-crore National Infrastructure Pipeline (NIP) programme is a welcome step. If implemented successfully, it will boost the infrastructure investment over the next five years by 2%-2.5% of the GDP annually.

    Problems with National Infrastructure Pipeline

    • Problems of 60% investment: The problem is that more than 60% of the planned investment is expected from the private sector and the States.
      • Regulatory certainty a must for the private sector: The government does not seem to realise that for private investment, regulatory certainty is as important as the cost of capital.
      • Regulatory hurdles: Many infrastructure projects are languishing due to regulatory hurdles and contractual disputes between construction companies and government departments.
      • The reason behind the non-availability of private capital: As a result of the regulatory hurdles infrastructure investment has come to be perceived as very risky.
      • This is the major reason behind the non-availability of private capital for infrastructure.
    • Role to be played by the Centre: This is a scenario, where the private sector has very little appetite for risky investments and State finances are shaky due to low GST collection.
      • Responsibility of the Centre: The onus is on the Centre to ensure that the programme does not come a cropper. The budgetary support to infrastructure will have to be much more than the NIP projection at 11% of the GDP.

    Way forward to revive the economy

    • Focus on completing the incomplete projects:
      • Bidding a lengthy process: Bidding and contracting for new roads, highways, railway tracks and urban development projects is a lengthy process.
      • This is also the reason why several infrastructure-linked Ministries like those for civil aviation and roads have not been able to spend money allocated to them in the current fiscal year.
      • Completing the projects a priority: Therefore, rather than earmarking budgetary support for new projects, the focus should be on projects that are currently under implementation so as to complete them as soon as possible.
      • Funding should be front-loaded: That is, funding should be front-loaded. In addition to creating employment, timely completion of infrastructure projects will help increase the competitiveness of the economy.
    • Address the distress in SMEs: The distress among Small and Medium Enterprises (SMEs) is another area of concern.
      • GST anomaly and stuck money: For many products produced by these enterprises, the GST rates are higher for inputs than the final goods. Due to this anomaly, around ₹20,000 crore gets stuck with the government annually in the form of input tax credits.
      • This has increased cost of doing business for SMEs, which employ over 11 crore people.
    • Fill the vacancies in the Government jobs: According to some estimates, there are more than 22 lakh vacancies in various government departments.
      • Focus on vocational training program: The government needs to provide affordable and good quality vocational training programmes.
      • To stop the demographic dividend from becoming a national burden, there is a need to invest heavily in skilling of the youth.
      • Besides, the Budget should give tax incentives to companies and industrial units to encourage them to provide internships and on-site vocational training opportunities.

     

  • Specialized Supervisory and Regulatory Cadre (SSRC)

    The RBI has decided to recruit 35% of the specialised supervisory and regulatory cadre from the market while the remaining 65% will be recruited via internal promotions.

    Specialized Supervisory and Regulatory Cadre (SSRC)

    • The SSRC will comprise officers in Grade B to Executive Director level.
    • In Nov. last year RBI decided to reorganize its regulation and supervision departments.
    • It merged the three regulatory departments (department of banking, non-banking and cooperative bank) into one and did likewise for the three supervisory departments.
    • As a result, there is only one supervisory department which looks after supervision of banks, NBFCs and cooperative banks and only one regulatory department for these three.
    • The move is aimed at dealing more effectively with potential systemic risk that could come about due to possible supervisory arbitrage and information asymmetry.

  • [op-ed snap] Where demand has gone

    Context

    That India is in the midst of a serious economic slowdown is no longer in question. The debates are now mostly about what to do about it.

    Where is the GDP growth coming from?

    Fall in consumption expenditure in absolute terms: The leaked National Sample Survey (NSS) consumer expenditure data -shows that real monthly per capita expenditure has in fact fallen in absolute terms between 2011-12 and 2017-18.

    • 8 % decline in a rural area: In rural areas, consumption expenditure decreased by 8.8 per cent.
    • 2% decline in an urban area: While in urban areas it increased by 2 per cent, leading to an all India decline of 3.7 per cent.
    • Where is the growth coming from: If average consumer expenditure is down, then where is the GDP growth coming from?
      • Consumer expenditure contribution: After all, according to National Accounts Statistics (NAS) consumer expenditure is around 60 per cent of the GDP.
      • And given the other contributors to GDP-investment and government spending- are not growing spectacularly, consumer expenditure should be growing rather than decreasing.
      • So, to get an overall 5 per cent growth rate, consumer expenditure should be growing at higher than 5 per cent.
    • NSS vs. NAS- a genuine puzzle: How can consumption expenditure be going down in absolute terms according to the NSS estimates and be growing at more than 5 per cent according to the NAS?
      • Variation in data a norm: That these two types of estimates of consumption expenditure do not match is well-known, and that is the case in other countries as well.
      • The discrepancy at alarming proportions: In the 1970s, consumer expenditure according to NSS estimates was around 90 per cent of consumer expenditure according to NAS, but in 2017-18 it was only 32.3 per cent.
      • Data from two different countries: It is as if we are looking at data from two different countries.
      • One where the consumption expenditure growth is positive and propping up the GDP growth rate and the other where it is actually falling.

    A few inferences that pertain to the state of the economy and the policy options.

    • Reasons for the discrepancy between NSS data and NAS data.
    • First- Presence of large informal sector:
      • 50% contribution to GDP: Informal sector accounts for nearly half of the GDP and employs 85 per cent of the labour force.
      • Guesswork on performance: In national income accounts, growth in the informal sector is estimated by extrapolating from the performance of the formal sector. Which is largely guesswork.
    • Second- Making effects of the expansionary policy less pronounced:
      • Expansionary fiscal policy more effective than appear to be: Because of the presence of the informal sector, expansionary fiscal policy will be more effective than what would appear from official statistics, as a big part of its impact will be felt in the informal sector.
      • Why is it so? The reason is that a big segment of the population is located in the informal sector; they are poorer and tend to spend a much higher fraction of their income on consumption.
      • This group has been seriously affected by the economic slowdown.
    • Third-Results of expansionary policy would be apparent after a delay
      • Apparent effects of policy much worse than what it would be: The effect of an expansionary policy on the budget deficit will look much worse than what it would be since the estimates of its effect on income expansion and tax collection will be largely based on the formal sector.
      • Informal sector boosting the formal sector: Some of the income generated in the informal sector will boost demand in the formal sector through consumer demand for mass-consumption items (for instance, biscuits, as opposed to automobiles).
      • Good medium-term pictures: Therefore, in the medium term, once the engine of the economy starts moving, the income expansion and deficit numbers will look better.
    • Final-Tax cuts will achieve little
      • Only 3-5% population affected: The tax cut will affect barely 3-5 per cent of the adult population.
      • Contribution of taxes in GDP: Income tax revenues amount to around 5 per cent of the GDP and corporate income taxes around 3.3 per cent.
      • Rich tends to save more: Most of the tax is paid by the richest among these groups (the top 5 per cent taxpayers contribute 60 per cent of individual income tax revenue), and the rich tend to spend a smaller fraction of their income (and save more).
      • Little impact on GDP: Irrespective of the number of people affected, and even if they spend the entire increase in their income as a result of the tax cut, the overall economic impact will be small relative to the GDP.
      • The futility of tax cut: Therefore, a tax cut for the rich would be less effective in raising spending compared to an equivalent amount being given to poorer groups who spend a much higher fraction of their incomes.

    Conclusion

    The government should not underestimate the role of the informal sector in the economy. To get the engine of the economy revving, an expansionary fiscal policy that harnesses the energy of the informal sector to boost aggregate demand is the order of the day.

     

     

  • World Employment and Social Outlook: Trends 2020

    The report World Employment and Social Outlook: Trends 2020 (WESO) was recently released.

    About the Report

    • The WESO report is an initiative of the International Labour Organization (ILO).
    • ILO forecasts that unemployment will rise by about 2.5 million this year.
    • The ILO is a UN agency whose mandate is to advance social justice and promote decent work by setting international labour standards.
    • The report analyses key labour market issues, including unemployment, labour underutilization, working poverty, income inequality, labour income share and factors that exclude people from decent work.

    Highlights of the report

    • Global unemployment is projected to increase by around 2.5 million in 2020.
    • The number of people unemployed around the world stands at some 188 million.
    • In addition, 165 million people do not have enough paid work, and 120 million have either given up actively searching for work or otherwise lack access to the labour market.
    • In total, more than 470 million people worldwide are affected, the report said.
    • Almost half a billion people are working fewer paid hours than they would like or lack adequate access to paid work.
    • Not enough new jobs are being generated to absorb new entrants to the labour market.

    Data on working poverty

    • Currently working poverty (defined as earning less than USD 3.20 per day in purchasing power parity terms) affects more than 630 million workers, or one in five of the global working population.
    • Inequalities related to gender, age and geographical location continue to plague the job market, with the report showing that these factors limit both individual opportunity and economic growth.
    • Some 267 million young people aged 15-24 are not in employment, education or training, and many more endure substandard working condition.

  • InvITs and REITs

     

    Markets regulator SEBI has put in place a framework for the rights issue of units by listed REIT and InvITs.

    What are InvITs and REITs?

    Infrastructure Investment Trusts (InvIT)

    • An Infrastructure Investment Trust (InvITs) is like a mutual fund, which enables direct investment of small amounts of money from possible individual/institutional investors in infrastructure to earn a small portion of the income as return.
    • InvITs work like mutual funds or real estate investment trusts (REITs) in features.
    • InvITs can be treated as the modified version of REITs designed to suit the specific circumstances of the infrastructure sector.
    • They are similar to REIT but invest in infrastructure projects such as roads or highways which take some time to generate steady cash flows.

    Real Estate Investment Trusts (REIT)

    • A REIT is roughly like a mutual fund that invests in real estate although the similarity doesn’t go much further.
    • The basic deal on REITs is that you own a share of property, and so an appropriate share of the income from it will come to you, after deducting an appropriate share of expenses.
    • Essentially, it’s like a group of people pooling their money together and buying real estate except that it’s on a large scale and is regulated.
    • The obvious pitch for a REIT is that it enables individuals to generate income and capital appreciation with money that is a small fraction of what would be required to buy an entire property.
    • However, the resemblance to either mutual funds or to owning property ends there.
    • According to Indian regulation on REITs, these are meant to primarily own finished and rented out commercial properties –– 80 per cent of the investments must be in such assets. That excludes a real estate that is under development.

    Why need InvITs and REITs?

    • Infrastructure and real estate are the two most critical sectors in any developing economy.
    • A well-developed infrastructural set-up propels the overall development of a country.
    • It also facilitates a steady inflow of private and foreign investments, and thereby augments the capital base available for the growth of key sectors in an economy, as well as its own growth, in a sustained manner.
    • Given the importance of these two sectors in the country, and the paucity of public funds available to stimulate their growth, it is imperative that additional channels of financing are put in place.

    What did SEBI rule?

    • SEBI said the issuer will have to disclose objects of the issue, related-party transactions, valuation, financial details, review of credit rating and grievance redressal mechanism in the placement document.
    • The SEBI had first notified REITs and InvIT Regulations in 2014, allowing setting up and listing of such trusts which are popular in some advanced markets.

  • [pib] National Startup Advisory Council

    The Union Government has notified the structure of the National Startup Advisory Council to advice on measures needed to build a strong ecosystem for nurturing innovation and startups in the country.

    National Startup Advisory Council

    • The Council will be chaired by Minster for Commerce & Industry.
    • It will consist of the non-official members, to be nominated by Central Government, from various categories like founders of successful startups, veterans and persons capable of representing interests of incubators and accelerators etc.
    • The term of the non-official members of the Startup Advisory Council will be for a period of two years.
    • The nominees of the concerned Ministries/Departments/Organisations, not below the rank of Joint Secretary to the Government of India, will be ex-officio members of the Council.
    • Joint Secretary, Department for Promotion of Industry and Internal Trade will be the Convener of the Council.

    Various functions

    • The Council will suggest measures to foster a culture of innovation amongst citizens and students in particular, promote innovation in all sectors of economy across the country
    • It will also suggest measures to facilitate public organizations to assimilate innovation with a view to improving public service delivery, promote creation, protection and commercialization of intellectual property rights.
    • It would suggest making it easier to start, operate, grow and exit businesses by reducing regulatory compliances and costs, promote ease of access to capital for startups, and incentivize domestic capital for investments into startups.
    • It would also mobilize global capital for investments in Indian startups, keep control of startups with original promoters and provide access to global markets for Indian startups.