Union Budget : 2016-17

• Farmers and Agriculture Welfare
  
  
  
  
  
• Rural Sector
  
  
  
  
  
• Social Sector
  
  
  
  
  
• Education
  
  
  
  
  
• Skills and Job Creation
  
  
  
  
  
• Infrastructure
  
  
  
  
  
• Financial Sector
  
  
  
  
  
• Governance
  
  
  
  
  
• Fiscal Discipline
  
  
  
  
  
• Tax Reforms
  
  
  
  
  

Foreign Portfolio Investment

• In economics, foreign portfolio investment is the entry of funds into a country where foreigners make purchases in the country’s stock and bond markets, sometimes for speculation.
• It is a usually short term investment (sometimes less than a year, or with involvement in the management of the company), as opposed to the longer term Foreign Direct Investment partnership (possibly through joint venture), involving transfer of technology and "know-how".
• Foreign Portfolio Investment (FPI): passive holdings of securities and other financial assets, which do NOT entail active management or control of the securities's issuer
• FPIs bring together all the three investment categories — foreign institutional investors (FIIs), their sub-accounts and qualified foreign investors (QFIs).
• The Central Board of Direct Taxes has notified that the new class of investors, FPIs, would be treated as FIIs under the Income Tax Act, 1961

Jan 2014

• The government has said that foreign portfolio investors (FPIs) will attract uniform tax rate across categories. 
• It will be beneficial to QFI. 
• Under the new norms, FPIs have been divided into three categories as per their risk profile and the KYC (Know Your Client) requirements, and other registration procedures would be much simpler for FPIs compared to the current practices.

MNREGA

• MNREGA will help implement direct benefit transfers.
• MNREGA has brought momentum in the financial inclusion of our rural population. More than four crore accounts have been opened in banks while more than that have been opened in post offices. These accounts will assist us in reaching the incentives of the Direct Benefit Transfer Scheme to the rural population

Quantitative Easing

Definitions

1. Quantitative easing is an occasionally used monetary policy, which is adopted by the government to increase money supply in the economy.
2. QE is nothing but the open market operation.
3. An unconventional monetary policy in which a central bank purchases government securities or other securities from the market in order to lower interest rates and increase the money supply.
   

Effects

• Quantitative easing increases the money supply by flooding financial institutions with capital in an effort to promote increased lending and liquidity.
• This strategy loses effectiveness when interest rates approach zero, forcing banks to try other strategies in order to stimulate the economy.
• However, if the money supply increases too quickly, quantitative easing can lead to higher rates of inflation.

BitCoins

BitCoin

What is BitCoins ? 

Started in 2008 , bitcoin is a form of digital currency,money that exists in the form of computer code.It do not have any central issuing authority.These virtual currency can be stored in electronic wallets and can be traded on online exchange and converted into cash.It is open source and peer-to-peer network introduced by pseudonymous Satoshi Nakamoto.It uses a public-key cryptography for security hence also called cryptocurrency.

• Within four years of coming into existence, bitcoin has become the world’s most expensive currency and its per unit value soared past $ 1,200 level or about Rs. 63,000 recently, although the prices have now slipped below Rs. 50,000 level.

Latest : 

University of Cumbria became first to accept bitcoins in tution fees.

How it works ? 

Users send payments through broadcasting digitally signed agreements that transfer ownership of bitcoins.A decentralised network of computer (operator or Miners) verifies and timestamps all transaction through proof-of-work system.These operators are awarded with

Credit Risk Guarantee Fund

• The Government has approved the establishment of a Credit Risk Guarantee Fund Trust (CRGFT) for low income housing, with an initial corpus of Rs.1000 Crore. The Credit Risk Guarantee Fund Trust has been registered on 1st May, 2012 and the Credit Risk Guarantee Fund Scheme has been launched on 31st October, 2012.
• Under the Scheme, the Trust will provide guarantee to lending agencies for housing loans extended by them to persons belonging to the Economically Weaker Sections / Low Income Groups upto Rs. 5 Lakh, without any third party guarantee or collateral security. 
• The lending institutions eligible to avail benefit of the Guarantee cover under the Scheme are Scheduled Commercial Banks, Regional Rural Banks, Urban Co-operative Banks, Non Banking Financial Companies-Micro Finance Institutions (NBFC-MFIs), Apex Co-operative Housing Finance Societies registered under the State Co-operative Societies Act and Housing Finance Institutions registered with National Housing Bank (NHB).

Indian Economic Agencies

Regional Rural Bank

• Regional Rural Banks (RRBs) were established under Regional Rural Banks Act, 1976 (the RRB Act) to create an alternative channel to the 'cooperative credit structure and to ensure sufficient institutional credit for the rural and agriculture sector. RRBs are jointly owned by the Government of India, the concerned State government and sponsor banks.

NABARD

• NABARD is set up as an apex Development Bank (Est. in 12 July 1982) with a mandate for facilitating credit flow for promotion and development of agriculture, small-scale industries, cottage and village industries, handicrafts and other rural crafts. 
• It also has the mandate to support all other allied economic activities in rural areas, promote integrated and sustainable rural development and secure prosperity of rural areas. In discharging its role as a facilitator for rural prosperity NABARD is entrusted with
• Providing refinance to lending institutions in rural areas 
• Bringing about or promoting institutional development and 
• Evaluating, monitoring and inspecting the client banks.

Economics June 2013

1. India’s trade deficit widened to a seven month high of $20.1 billion in May as gold imports continue to surge while exports declined by over a percent.
2. Reserve Bank on Monday kept the key interest rates unchanged citing elevated food inflation, rupee depreciation and uncertainty over foreign fund inflows. Key short term lending rate (repo rate) kept unchanged at 7.25 per cent;Cash reserve ratio unchanged

MSME Sector

Classification of MSME 

MSME sector are classified into 2 classes with the following criteria:

1. Manufacturing or production enterprises

Enterprises	Investment in plant & machinery
Micro Enterprises	< Rs.25 lacs
Small Enterprises	> Rs.25 lacs and < Rs.5 crores
Medium Enterprises	> Rs.5 crores and < Rs.10 crores

2. Service enterprises

Enterprises	Investment in equipments
Micro Enterprises	< Rs.10 lacs
Small Enterprises	> Rs.10 lacs and < Rs.2 Crores
Medium Enterprises	> Rs.2 Crores and < Rs.5 Crores

Contribution of MSME sector to Indian Economy

Nobel Prize 2013

Economics :

Economics Nobel Prize : Shared by Eugene Fama, Robert Shiller and Lars Peter Hansen. Their work ranges from the foundations of modern finance (Fama) to defects in the mainstream models (Fama and Shiller) and improvements in statistical methodology (Fama and Hansen).

Nobel Prize 2013

Medicine

• The 2013 Nobel Prize in Physiology or Medicine is awarded to Dr. James E. Rothman, Dr. Randy W. Schekman and Dr. Thomas C. Südhof for their discoveries of machinery regulating vesicle traffic, a major transport system in our cells.

Economics - Oct 2013

1. Economics Nobel Prize : Shared by Eugene Fama, Robert Shiller and Lars Peter Hansen. Their work ranges from the foundations of modern finance (Fama) to defects in the mainstream models (Fama and Shiller) and improvements in statistical methodology (Fama and Hansen).
   
   [caption id="" align="aligncenter" width="636"] Economics Nobel Prize 2013[/caption]

EPCG Scheme

History

• The Export Promotion Capital Goods (EPCG) scheme was one of the several export-promotion initiatives launched by the government in the early '90s. The basic purpose of the scheme was to allow exporters to import machinery and equipment at affordable prices so that they can produce quality products for the export market.


• The import duty on capital goods — like all other items — was high during that period, inflating the cost of capital goods nearly 50%, so the government allowed exporters to import capital goods at only 25% import duty. For waiver of the remaining portion of import duty, exporters were supposed to undertake an 'export obligation' (a promise to export) which was worked out on the basis of the duty concession obtained.


• Exporters were given eight years to carry out their commitment to export. Once the 'export obligation' was fulfilled, the owner of the capital goods concerned could sell them or transfer them to another facility. Till the promised export materialised, the owners of the machinery or equipment were barred from even moving the goods concerned out of their manufacturing unit.

Did liberalisation of imports have an impact on EPCG?

• Gradual reduction in import duties, particularly in the case of capital goods, has been rendering EPCG scheme less attractive. However, till last year, EPCG was preferred by many since the exemption also included 4% special additional duty of customs (SAD) which has been abolished now.

Two windows

• The first change was the introduction of two windows — the first one attracting 15% duty while the second one attracted 25%. Those who preferred to pay higher duty under the second window had a lower export obligation. In '95, the government offered duty-free imports under the first window while the duty under the second was 15%. This was the first time duty-free imports were made available under EPCG.


• Since the purpose of the scheme was to allow exporters compete internationally, it was decided to allow them to buy machinery at internationally-competitive rates. The pent-up demand for imported machinery had peaked at this point and the domestic industry's initial trouble with competing imports had come to an end. Thereafter, the government even reduced the import duty on capital goods under the second window to 10% while the first remained duty-free. Subsequently, the policy was changed in '00 to merge the two windows into one — import capital goods by paying 5% and undertake uniform export commitment.

Economics - Sep 2013

Swapping foreign currency

• The Reserve Bank of India allowed banks to swap funds mobilised through foreign currency deposits to attract overseas funds.


• It has been decided accordingly to offer such a window to the banks to swap the fresh foreign currency non-resident (banks) FCNR(B) dollar funds, mobilised for a minimum tenor of three years and over at a fixed rate of 3.5 per cent per annum for the tenor of the deposit.


• The RBI has decided that the current overseas borrowing limit of 50 per cent of the unimpaired Tier I capital will be raised to 100 per cent and that the borrowings mobilized under this provision can be swapped with RBI at the option of the bank at a concessional rate of 100 basis points below the ongoing swap rate prevailing in the market. These schemes will be open up to November 30, 2013, which coincides with when the relaxations on NRI deposits expire.

Swap Funds

• In finance, a swap is a derivative in which counterparties exchange cash flows of one party's financial instrument for those of the other party's financial instrument.


• Swaps were first introduced to the public in 1981 when IBM and the World Bank entered into a swap agreement

Types of Swaps 

Interest Rate Swap

• The most common type of swap is a “plain Vanilla” interest rate swap. It is the exchange of a fixed rate loan to a floating rate loan. The life of the swap can range from 2 years to over 15 years. The reason for this exchange is to take benefit from comparative advantage.


• Some companies may have comparative advantage in fixed rate markets, while other companies have a comparative advantage in floating rate markets.


• A swap has the effect of transforming a fixed rate loan into a floating rate loan or vice versa.


• In this only INTEREST on predetermined principal at predetermined rate (variable or fixed) is exchanged / swap.


• For example, party B makes periodic interest payments to party A based on a variable interest rate of LIBOR +70 basis points. Party A in return makes periodic interest payments based on a fixed rate of 8.65%.

Currency Swaps

• A currency swap involves exchanging principal and fixed rate interest payments on a loan in one currency for principal and fixed rate interest payments on an equal loan in another currency.


• Just like interest rate swaps, the currency swaps are also motivated by comparative advantage.


• Currency swaps entail swapping both principal and interest between the parties, with the cashflows in one direction being in a different currency than those in the opposite direction.

Credit Default Swaps

• A credit default swap (CDS) is a contract in which the buyer of the CDS makes a series of payments to the seller and, in exchange, receives a payoff if an instrument, typically a bond or loan, goes into default (fails to pay).


• Less commonly, the credit event that triggers the payoff can be a company undergoing restructuring, bankruptcy or even just having its credit rating downgraded.


• CDS contracts have been compared with insurance, because the buyer pays a premium and, in return, receives a sum of money if one of the events specified in the contract occur. Unlike an actual insurance contract the buyer is allowed to profit from the contract and may also cover an asset to which the buyer has no direct exposure.

News : 17 June 2013

1. Britain spied on foreign politicians and officials participating in two G20 meetings in London in 2009 by using “ground-breaking” intelligence capabilities to get an edge during the high-stakes financial talks , according to documents uncovered by U.S. whistleblower Edward Snowden and obtained by the Guardian.


2. India’s trade deficit widened to a seven month high of $20.1 billion in May as gold imports continue to surge while exports declined by over a per cent


3. Search engine giant Google on Monday launched a new ad format ‘Product Listing Ads’ in India to provide users information like images, price and brands of products, which will help people shop better both online and offline.


4. The Union government should withdraw the Insurance Bill that envisaged enhancement of foreign direct investment in the insurance sector from 26 per cent to 49 per cent, the All India Insurance Corporation Employees Association (AIIEA) has demanded.


5. The Foreign Investment Promotion Board (FIPB) on Friday deferred a decision on the Rs. 2,000-crore Jet-Etihad deal and sought clarity on control and ownership.


6. The Great Indian Bustard, one of the critically endangered flying bird species in the world, will soon be tracked by satellite by the Wildlife Institute of India (WII) to understand the movement of this rare bird and its preferred habitat,primarily in Gujarat and Rajasthan.


7. China's Tianhe 2 - worlds fastest computer.Speed : 33.86 petaflops (1000 trillion calculations) per second on a benchmarking test.Second being in US : TITAN having speed of 17.59 petaflops per second.


8.  The Foreign Ministers of Egypt and Ethiopia met in Addis Ababa on Monday in the hope of defusing tensions over a huge dam Ethiopia is building on the Blue Nile River.Egypt and Ethiopia began a sharp exchange of words after Ethiopia last month started to divert Nile waters as part of the construction of its massive $4.2 billion hydro-electric project dubbed the Grand Ethiopian Renaissance Dam.


9. Iranian president-elect Hassan Rouhani will take office in Aug 2013.


10. The single-seater Solar Impulse plane, attempting a record-breaking trip across the U.S., made a smooth landing in Washington.The Swiss-made 63-meter-wide aircraft set down at Dulles International Airport.

Commitees and members

• Competition Commision of India : Ashok Chawla
• Expert Committee on Road Map for coal sector reforms : T.L. Shankar Committee
• Commitee for Direct Tax Code and GAAR : Parthasarathi Shome
• Suggest Amendments to Criminal Law(existing laws on safety of women) : Shri Justice (Retd) JS Verma.
• Chief Justice of Punjab and Haryana High Court Mukul Mudgal : Walmart probe committee
• Commitee for sugar deregulation  : C. Rangarajan
• K. Kasturirangan (Member, Planning Commission) :  Western Ghat 
• Financial Sector Legislative Reforms Commission  (FSLRC), headed by former Justice B. N. Srikrishna
• Financing of Infrastructure sector : Deepak Parekh
• Illegal Mining in Odisha : Justice M B Shah Commision 
• 1.NBFC : A C Shah Committee.
  2.Final Accounts : A Ghosh Committee.
  3.Job Criteria In Bank Loans (Approach) : BD
  Thakar Committee.
  4.Modalities Of Implementation Of New 20 Point
  Programme: A Ghosh Committee.

General Figures

• India lost $123 million in black money during 2001-2010 , a US based organisation said.But China lost $2.74 trillion in the same period.
• India 2012 :
  Repo rate unchanged at 8 percent.Reverse repo stays at 7 percent.Cash reserve ratio stays at 4.25 percent.
• 3rd quarter Monetary policy of RBI : Repo rate : 7.75 % and CRR = 4%
• For 2011-12 : 

High Net-Worth Individual

As per Knight Frank’s Wealth Report 2013:
India with 122 billionaires stood at 5th position in the list of to 10 countries with highest number of High Net-Worth Individual (HNWI).


Top 5 countries are:

1. US
2. China
3. Germany
4. UK
5. India

Who is a High Net-Worth Individual (HNWI)?
The most commonly quoted figure for membership in the high net worth “club” is $1 million in liquid financial assets. An investor with less than $1 million but more than $100,000 is considered to be “affluent”, or perhaps even “sub-HNWI”. The upper end of HNWI is around $5 million, at which point the client is then referred to as “very HNWI”. More than $50 million in wealth classifies a person as “ultra HNWI”.

SEBI Amendment Bill 2013

The SEBI (Amendment) Bill, 2013, seeks to include the criterion of appointing a retired High Court judge having held the position for 7 years for heading the Tribunal.

As per the existing criteria, only a serving or retired Supreme Court judge or Chief Justice of a High Court can head the Tribunal, but the Government is finding it difficult to fill the slot.    

Commodity Transaction Tax

Commodities Transaction Tax (CTT)

• Proposed in Finance Bill, 2013 for enhancing financial resources.
• A tax which shall be levied on non-agricultural commodities futures contracts at the same rate as on equity futures that is at 0.01% of the price of the trade.
• CTT would tax trading of non-farm commodities like gold, silver and non-ferrous metals such as copper and energy products like crude oil and natural gas in India.
• Here both parties—buyer & seller of contract—will be taxed depending on the amount of contract size.
• Similar to the Securities Transaction Tax (STT) levied on the purchase and sale of equities in the stock market.
• So far, commodity transactions have been exempted from any levy.
• Agricultural commodities have been left out of CTT.

What are the Advantages of levying CTT?

• It will open up new resources for the augmentation of government finances.
• CTT would generate revenues of around Rs.45 billion to government.
• It is also aimed at bringing transparency in the commodity exchange market.

What could be the disadvantages of CTT?

• CTT has been opposed by the experts and the PMEAC had also suggested against levying such a tax.
• CTT will increase the transaction cost because traders already pay brokerage, deposit margin, brokerage, stamp duty and transaction charges.