[Current Affairs] Jan-Week2: Economy-Sovereign Gold Bonds, Interest Rate futures, Land Bank, PM Fasal Bima

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Economic Survey
  1. New Investment Products
    1. #1: Sovereign Gold bond 2016
    2. #2: Interest rate futures (IRF) contract
  2. Banking, Finance
    1. Urjit Patel gets reappointment
    2. Payment Banks and NPA
    3. International Economy
    4. Chinese Yuan Devaluation
    5. Canada India FTA stalled because
  3. Fiscal Policy- taxation and subsidy
    1. Black Money report
    2. No Pahal above 10 lakh
  4. Agriculture
    1. Land Bank Model Act
    2. Pradhan Mantri Fasal Bima Yojana
  5. Labour reforms
  6. Sectors of Economy: misc

Here are the economic developments in 2016, January week2

New Investment Products

#1: Sovereign Gold bond 2016

Who issues this? Reserve Bank India on behalf of the Government of India.
When First round completed in 2015, November. 2nd round comes in 2016- Jan-Feb.
Who can buy? Resident Indian entities including individuals, HUFs, trusts, Universities, charitable institutions.
Where to buy? Banks, post offices, Stock Holding Corporation of India Limited (SHCIL). RBI can designate more agents. All these distributors will get 1% commission on bond’s subscription amount.
How to pay? Upto Rs.20,000 in cash. Otherwise DD, Cheque, Netbanking.
Benefits?
  • To Government; reduce the demand for physical gold and associated problems of black money and current account deficit; household savings turned to investment. It’ll help Government’s market borrowing program, the money thus raised can be used in infra-building and social-welfare schemes.
  • To investor: 2.75 % per annum , payable on a half yearly basis. On maturity, the investor will get the equivalent rupee value of the quantum of gold invested at the then prevailing price of gold.
  • To investor: he can pledge these bonds as collateral for getting loans. The loan to value ratio (LTV) will be same as the LTV for ordinary gold loan decided by RBI.
Amount?
  • Each unit has 1 gm. Its price in rupees is fixed on basis of weekly price average of India Bullion and Jewellers Association (IBJA) for 999 purity gold.
  • Minimum investment 2 gms
  • Maximum investment 500 gms per person per year
Form? Available in both paper form and demat form.
Tenor? 8 years. Can exit after 5th year.
KYC Same as gold.
Tax?
  • Interest on gold bond- taxable yes.
  • If sold to other party- capital gains tax norms similar to physical gold.

Sovereign Gold bond, Gold Monetization

#2: Interest rate futures (IRF) contract

  • it is a contract between a buyer and a seller.
  • They agree to give future delivery of any interest-bearing asset such as government bonds. Participants in this game: Banks, primary dealers, mutual funds, insurers, FIIs, corporates, brokers and retail investors trade in this product.
  • Topic in News because BSE launched new IRF contracts that give 7.79 per cent yield on government bonds.

Banking, Finance

Urjit Patel gets 2nd Attempt term

  1. A Deputy Governor of RBI can be appointed for a period of five years or till the age of 62.
  2. RBI has four Deputy Governors, two are from outside, a commercial banker and an economist while two others are promoted from within its ranks (those recruited via Grade “B” Officer exam).
  3. The present Dy. Governors are H.R. Khan, S.S.  Mundra, R. Gandhi and Urjit Patel.
  4. Although Urjit Patel’s term was expiring but they couldn’t find a suitable replacement, hence Patel’s term renewed for another 3 years, he’ll oversee the Monetary policy related matters.

Payment Banks and NPA

  1. Earlier, FINO Paytech got payment bank license from RBI. RBI regulations allow universal banks to invest up 30 per cent in payments bank. So, ICICI bank planning to partner FINO. On the other hand, Indian Post’s payment bank will be operational by 2017, March
  2. SBI chief says banks alone are not responsible for NPAs. In pre-subprime crisis, companies were bidding aggressively for various infrastructure contracts. But later on, they were unable to complete the project or repay the loans. So, even Government and regulators who gave them clearance- are responsible for Bank’s NPA

International Economy

Chinese Yuan Devaluation

  • China devalues yuan for the third time. Watch lecture video  ML5/P4 for more
  • Impact: Chinese goods will become even cheaper, and given the low demand within China- they may get dumped in India, further increasing our trade deficit.
  • So, India wants to offset this trade deficit (and current account deficit), by bringing Chinese (capital) investment in mega industrial parks of Gujarat and Maharashtra. Besides, such devaluation can trigger a wave of currency devaluations among the Asian tigers — South Korea, Singapore and Taiwan. Then it’ll result into a crisis similar to that of 1997

Canada India FTA stalled because

Canada-India free trade agreement (FTA) also known as Comprehensive Economic Partnership Agreement (CEPA), is put on backburner because

  • differences over  Investor-State Dispute Settlement (ISDS) mechanism. Canada knows Taarikh-pe-taarikh pattern of Indian judiciary, hence wants that investors be directly allowed to approach international tribunals. India doesn’t agree.
  • Canada wants MFA-forward treatment i.e. if tomorrow India grants more tax/duty-exemptions to another country, then all those benefits will be given to Canada also. But India reluctant because each FTA is inked on the basis of a unique relationship with the partner country and automatically extending all such benefits to Canada will lead to imbalances and conflicts.
  • Canada wants ‘Ratchet’ provision i.e. benefits arising from future liberalisation of India’s domestic policies are automatically extended to Canada, and vice-versa. But India fears its policy-freedom will be lost in the process.
  • Given all these differences, Canada understood this congregation will not reach Kashi, hence shifted its attention to USA led TransPacific Partnership (TPP), where India is not a member.

Fiscal Policy- taxation and subsidy

GFI’s Black Money report

Think-tank Global Financial Integrity (GFI)’s latest report on illicit financial flows (IFFs) says

  • average 3.3 lakh crore black money goes of India each year.
  • Major contributor is-MNCs doing Transfer pricing to avoid taxes. Tax-avoidance is legal but robs India of its rightful tax claim.
  • Tech companies register parent company in tax-haven. And then its subsidiary companies in India. So, whatever profit is made, most of them is transferred to parent company in the name of loan payment or royalty fees. So, Indian subsidary claims it as ‘cost of production’, hence no tax liability.
  • For this trick, Google has used Bermuda.  Amazon uses Luxembourg. Microsoft uses Bermuda. Pepsi uses Mauritius. Pfizer uses Cayman Islands.
Tax-treaties: Two Models
UN model OECD model
for ‘taxing income at the ‘source country’. 3rd world benefits, because raw material and production happens there. In the, residents of a country would be taxed on their worldwide income, while non-residents would be taxed only on their domestic income. In other words, if MNCs doing something in India via FDI, the profit flows back to parent country without paying tax to Indian government
India’s most Double Taxation Avoidance Agreements are based on OECD model. Hence despite increase in FDI flows or GDP production in absolute terms, our revenue is not increasing
In last budget, Government came up with place of effective management (PoEM) norms to curb this, but more needs to be done.

No Pahal above 10 lakh

  • 2013: PAHAL [Pratyaksh Hanstantrit Labh] launched to give Direct LPG subsidy in beneficiary’s account. 2016 to be celebrated as Year of LPG. Government says no LPG subsidies for those families with taxable income of more than Rs. 10 lakh.
  • But, hardly 3% of Indian population pays tax, most of the income is underreported. So this is unlikely to reduce the subsidy burden of government.
  • Solution? Instead of taxable income, we should identify the parameters such as car ownership, air-conditioners in the home to identify the wealthy people and stop subsidy to them. earlier, government tried to do this via, social economic and caste census (SECC) but the data is unreliable and unauthentic.”

Agriculture

Land Bank Model Act

  • Since Land Acquisition amendment bill is not working out, the NITI Aayog has proposed a model land leasing law for the states. Because states are empowered to enact land related laws under State and Concurrent Lists of the Constitution.
  • Under this model law, a public agency will be created to maintain a land bank. Farmer can give their land to this land bank- subsequently, small fragments will be combined into large clusters and leased out to big farmers.
  • The subsequent land consolidation and farm mechanization will improve per hectre yield, boosting Agro-GDP and food security, while small farmer who loaned his land, can explore employment in non-farm sector.

Pradhan Mantri Fasal Bima Yojana

  • will replace National Agricultural Insurance Scheme (NAIS) and modified NAIS
  • farmer will pay only the fraction of insurance premium- for Kharif crop (2%),  Rabi crops (1.5%),  cash, commercial and horti. Crops (5%)
  • for remaining amount, 50:50 sharing between Union and State.
  • Remote sensing and smartphone app for quick settlement of claims during natural calamity
  • new Crop Insurance Scheme is in line with One Nation – One Scheme theme.  It incorporates the best features of all previous schemes and at the same time, all previous shortcomings/weaknesses have been removed.

FCI wage-scam

  • Food Corporation of India (FCI) pays Rs. 4.5 lakh monthly wage to its laborers, which is more than the salary of the President of India but less than Delhi’s coaching class.
  • This happens because ‘sarkaari’ labourers outsource their work to privately hired proxy workers and fudge the overtime hours. Even Supreme court is shocked.

Labour reforms

  1. Labour reform: government thinking of following
    1. employers will have to set up a separate fund for Severance pay and to re-skill and rehabilitate the affected workers upon closure of factory.
    2. no worker can go on strike/gherao etc. without giving two weeks’ notice to the employer.
  2. Payment of Bonus (Amendment) Act, 2015 notified:
    1. All employees earning upto Rs.  21,000 a month will be entitled to bonus. (Earlier limit was Rs.10,000- means, now more employees covered in bonus act).
    2. This law will retrospectively come into effect from April 1, 2014. So, employers unhappy because they’ll have to pay bonus for previous year as well.

Sectors of Economy: misc

  1. Government to setup Mofussil call centers across various small towns in India with total capacity of 48000. This will provide opportunities to educated rural youth wanting to pursue career in BPO industry.
  2. Government will soon allot funds for Atal Innovation Mission (AIM) and Self-Employment and Talent Utilisation (SETU) scheme. SETU will help start-up companies by strengthening the incubator. It’ll also setup ‘tinkering labs’ where ideas can be shaped into prototypes before they are ripe for funding.

next parts (1) history and Polity developments (2) Environment and Science Tech developments in Week2, January 2016.

Mrunal recommends

22 Comments on “[Current Affairs] Jan-Week2: Economy-Sovereign Gold Bonds, Interest Rate futures, Land Bank, PM Fasal Bima”

  1. mrunal is back…jai ho

  2. Thank you very much sir.

  3. Thank u boss if u have time than plz update study plan of RAS

  4. thank you sir … you re really above everything … \,,/

  5. Sir plz upload PDF versions also for your current affairs so that they can be downloaded and read anywhere

  6. Thanks mrunal sir !! was eagerly waiting….

  7. Dear Mrunal…PM Fasal Bima Yojna…What about Bataidars?…Plz elaborate if possible

  8. thank u so much sir, jst saw @ML5/P4 lecture, all doubt cleared…. :) __/\__ thanks a lott………

  9. sir ,

    just one humble request , will you continue you your efforts i.e current affairs section ” CONTINUOUSLY ” coz it hurts very badly wen u leave in-between ??

  10. thank u sir….

  11. sir If you will back and continue ..i am sure half of the bogus site with hell lot of copy paste with unnecessary innovative(which seems lucrative but no use) will phase out…plz continue…you explain exactly where we doubted ,,what exactly needed to understand certain topics ..Thanks

  12. Will our economics classes resume this year again like last year?

  13. 5 years for rbi deputy governor how is it possible Patel was appointed in 2013 , please post soncerly don’t loose your credibility .

  14. Sir please upload pdf version also so that they can be downloaded

    1. you can save it as pdf using chrome browser.follow these steps
      select the content>right click>print>save as pdf

  15. You were one of the reason, I started the preparation.
    Glad to see you back.

    Thank you for all the lucid explanation and your efforts !

  16. Sir,
    Payment of Bonus (Amendment) Act, 2015 – It will be effective from 1st April 2015. Is n’t it?

  17. @PAHAL, If we link any purchase/ any service with PAN/Aadhar. the we can identify people whose income >10 lakhs,,

  18. Thanks sir

  19. Shukriya sir..

  20. Now RBI is providing 2.5% commission for sale of such bonds. Please add that point too.

  21. Is gold monetization different frm sovereign gold bond ?

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