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in

NATIONAL INCOME ACCOUNTING

1) Growth Projections
a) By World Bank - Jan 2015
1.

For world
a. Global economy will grow by 3% in 2015
b. It grew by 2.6% in 2014.

2.

For India - it will catch up with china's growth rate in 2016-17

a. India's economy has recovered in the wake of the economic reform measures taken by the new
government, falling oil prices and lower interest rates.
b. And thus it will gradually reach the 7% growth rate in 2016-17
c. Whereas although china's growth rate will be high but will start tapering gently reaching 7% in 2016
and 6.9% in 2017.
d. This will be the first time in recent past India's growth rate will catch up with that of china.

b) By IMF - Jan 2015

India to beat china in growth rate in 2016 - IMF
1.

IMF projected India to grow at 6.5 per cent in 2016, overtaking China whose growth was forecast to slow
down to 6.3 per cent.

2.

This is partly a statistical inevitability: average annual growth of 9-10% has to, at some point fall to 67%.

c) By eco survey 2014-15 - Feb 2015

1.

According to eco survey of 2014-15, growth in 2015-16 will be at market prices of 8.1- 8.5 %.

2.

Reasons a. Reforms undertaken by Govt. + plan to take more reforms

b. Lower oil prices,
c. Likely monetary policy easing facilitated by lower inflation and lower inflationary expectations

Notes

d. Forecasts of a normal monsoon

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2) New Base Year 1.

On January 30, 2015 the Central Statistics Office released a new GDP series that entailed shifting the base
year from 2004-05 to 2011-12. Last time base year was shifted in 2010.

2.

Apart from shifting base year, it also deployed improved methodologies in the estimation of GDP
Then

Now

Growth rate measured in

GDP at 'factor' cost at constant

prices.

GDP at constant 'market'

prices.

Sector-wise estimates
of gross value added
(GVA) given at

Factor cost

Basic prices

The relationship between GVA at factor cost, GVA, at basic prices, and GDP (at market prices) is
given below:
GVA at basic prices = CE + OS/MI + CFC + production taxes less production subsidies
GVA at factor cost = GVA at basic prices - production taxes less production subsidies
GDP = ? GVA at basic prices + product taxes - product subsidies
(Where, CE: compensation of employees; OS: operating surplus; MI: mixed income; and, CFC:
consumption of fixed capital.
3.

New estimates for GDP growth rate for the years 2012-13 to 2014-15 according to new base year are 2012-13

5.1%

2013-14

6.9%

2014-15

7.4%

3) GDP Puzzle
1.

What happened a.

On January 30, 2015 the Central Statistics Office released a new GDP series that entailed shifting the
base year from 2004-05 to 2011-12.

b.

The economic scenario presented by the new series (with 2011-12 as base year) reveals that there was
perceptible improvement in some of the macro-aggregates of the economy in 2013-14, which got
strengthened in 2014-15. Economic growth, measured by growth in gross domestic product (GDP) at
constant market prices, estimated at 5.1 % and 6.9 % respectively during 2012-13 and 2013-14, was
higher than the corresponding figures of 4.7% and 5 % released under the 2004-05 series in May 2014.

c.

Now it puzzled economists as this high growth occurred in a year when

i.

both the savings and investment to GDP ratios were lower than the average of a number of years,

Notes

ii.

Can growth accelerate even as the rate of investment falls

The level of imports (that are generally positively associated with GDP) actually declined by 8.4
per cent in real terms.

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iii. Exports in dollar terms have grown by a meager 2.4% during April 2014-January 2015
iv.

The index of industrial production (IIP) grew by only 2.1% in April-December 2014, yet GDP
in manufacturing is projected to grow by as much as 6.7% in the entire year.

In short there was no sign of boom In short on the ground there are no visible signs of growth acceleration,
let alone of a boom as these growth rates should imply.

2.

Comments/analysis -

a.

In the end, the reason for the perplexing estimate of faster real GDP growth in 2014-15 may therefore
be purely statistical. If so, it was important while putting out such startling numbers for the CSO to
explain the statistical patterns. An explanatory volume has been promised but much confusion could have
been avoided if the CSO had come out with the details alongside the release of the advance estimates
for 2014-15. The casual release of statistics as of the GDP for 2014-15 does not, however, support the
cause of statistics.

b.

With dodgy GDP numbers, what can one make of the government's annual scrutiny of the economy?

Notes

d.

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2) Monetary Policy/ Banking

1) Urjit Patel Committee - submitted its report in Jan 2014
The Expert Committee headed by RBI Deputy Governor Urjit R Patel submitted its report in Jan 2014, to
Revise and Strengthen the Monetary Policy Framework.
The main recommendations of committee are as follows:1.

RBI should adopt the new Consumer Price Index (CPI) as the measure of the nominal anchor (Base/
Target) for policy framework.

2.

The nominal anchor or the target for inflation should be set at 4 per cent with a band of +/- 2 per cent
around it.

3.

The monetary policy regime must shift away from the current approach to one that is centered on the
nominal anchor new CPI only.

4.

Inflation from the current level of 10 per cent to be brought down to 8 per cent over a period not
exceeding the next 12 months and to 6 per cent over a period not exceeding the next 24 month period
before formally adopting the recommended target of 4 per cent inflation with a band of +/- 2 per cent.

5.

The committee asked the Central Government to ensure that the fiscal deficit as a ratio to Gross
Domestic Product is brought down to 3.0 per cent by 2016-17.

6.

That the monetary policy decision-making should be vested with a Monetary Policy Committee (MPC).
It went on to recommend that the Governor of the RBI should be the Chairman of the MPC. The term
of office of the MPC could be three years, without prospect of renewal.

7.

All fixed income financial products should be treated on a par with bank deposits for the purposes of
taxation and Tax Deduction at Source.

8.

The RBI should introduce a remunerated standing deposit facility, which would effectively empower it
with unlimited sterilization capability. As a buffer against outflows, the RBI's strategy should be to build
an adequate level of foreign exchange reserves.

2) BASE RATE - new guidelines

Notes

a)

RBI ASKS banks to review minimum lending rate every quarter 1.

The Reserve Bank of India, on Jan 19, 2015 asked banks to notify the Base Rate, or the minimum
lending rate, at least once in every three months based on the cost of funds, a move seen as a nudge
to lenders to pass on the changes in the policy rate to borrowers.

2.

The direction comes soon after the RBI cut the repo rate by 0.25 percentage point, the first reduction
in 20 months, to boost credit and economic growth.

3.

Banks have in the past shown reluctance to pass on the benefits of rate cut, but have been proactive
in raising the benchmark lending rate soon after the repo rate (the rate at which the RBI lends to
banks) is hiked.

4.

At present, the review of the Base Rate does not have a fixed schedule.

5.

The new guidelines will come into effect from February 19.

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b) RBI asks banks to review methodology 1.

Further, the RBI said it had been decided to allow banks to review the Base Rate methodology after
three years from the date of its finalization instead of the current periodicity of five years. This has
been done to provide banks greater operational flexibility.

2.

"Accordingly, banks may change their Base Rate methodology after completion of prescribed period
with the approval of their board of directors/ALCO," it said.

3) Rajan warns against 'Appellate Raj' - Feb 2015

a.

The comments assume significance in the wake of the high-profile

b.

FSLRC has suggested creating a single appellate authority for all financial sector watchdogs, including the
RBI.

c.

This proposal, which was aimed at providing checks and balances for decisions made by the regulators,
has been hanging fire for a long time due to opposition from various quarters, including the RBI.

d.

In a veiled attack on this suggestions made by FSLRC, RBI Governor Raghuram Rajan said the country
should not end up in 'Appellate Raj' after escaping the 'License Permit Raj.' "If we create a multiple
appellate process against the government or regulatory action that is slow and undiscriminating, we
contain government access but also risk halting necessary government actions. "If the government or the
regulator is less effective in preparing its case than private parties, we ensure that the appellate process
largely biases justice towards those who have the resources to use it, rather than rectifying the miscarriage
of justice," he said.

4) P.J. Nayak committee - (Committee for Review of Governance of Boards of Banks in India)
a.

Its report was released in May 2014.

b.

Criticized the way in which the PSB's are now being governed i.

c.

According to panel the governance at the 26 public sector banks (PSBs) suffered due to several
'externally imposed constraints' like

Govt's stake > 50%

dual regulation by the RBI and the Finance Ministry, and

external vigilance by agencies such as the CVC, RTI and CAG

Recommendations - (i) w.r.t (with respect to) PSBs, (ii) w.r.t private banks
i.

w.r.t PSB's

Ownership of PSBs '

- All PSBs should be incorporated under the Companies Act, 2013.
- Govt. holdings
The government should transfer its holdings in PSBs to a Bank Investment Company
(BIC).

Notes

It would be setup in the nature of a sovereign wealth fund that would hold equity stakes
in banks

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If the government reduces its holding below 50% (i.e. privatization of banks) then it will
remove the above mentioned constraints.

Detail

Role of

In Phase 1

A Bank Boards Bureau comprising former senior

bankers should advise on all board appointments.

W.r.t bank board's bureau

In Phase 2

BIC should take over the process.

Bank investment company (BIC)

In Phase 3

BIC should delegate these powers to PSBs' boards.

PSB board

ii.

Board appointments in PSBs ' The process of board appointments in PSBs needs to be
professionalized in a three-phase process.

Ultimate aim is to confer greater autonomy for the PSBs to enable them to function on commercial
lines.

Private sector banks' (holdings)

1

Promoters (25%)
The promoters should be permitted to hold up to 25% stake in a private sector bank (currently, 15%).

Authorized bank investors (ABIs) (15-20%)

-

It proposes creation of new category of investors to be known as ABIs

It would be diversified in nature i.e. made up of various funds. i.e. pension, mutual, hedge funds
etc

They should be allowed to hold 15 - 20% stake in a private sector bank without regulatory
approval.

Other investors (10%)

-

Other investors can hold up to 10% stake.

5) Challenged faced by Public sector banks

1.

Recapitalization a.

Banks require a humongous amount of money to stay capitalized - some Rs.2.4 lakh crore - and meet
the international regulatory norms conforming to Basel III requirements.

b.

The government, which has been making budgetary allocations, will not be in a position to do so.

c.

So, the challenge is to find non-government sources for the options are
i.

Privatization of PSBs (which is ruled out) or

ii.

Demonstrating a more commercial orientation.

Professionalization of bank boards

3.

Rising NPAs

Notes

2.

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6) Payment and Settlement Systems (Amendment) Bill 2014

1.

The Payment and Settlement Systems Act 2007 (PSS Act) was enacted with a view to providing sound
legal basis for the regulation and supervision of payment systems in India by the RBI.

2.

For establishing a legal framework for regulation of trade repositories and legal entity identifier issues,
amendments have been considered necessary to make the PSS Act more effective.

3.

The proposed amendments will provide finality to the determination of the payment obligations and
settlement instructions between a central counter party (the system provider) and system participants in
the event of insolvency, dissolution, or winding up of a central counter party.

4.

The Bill has been passed by the Lok Sabha in the winter Session of 2014 and is currently pending in the
Rajya Sabha.

7) Bifurcating top posts in PSBs

1.

On 31st Dec, 2014, Govt. divided the post of Chairman and Managing Director in 4 PSBs banks and
appointed MDs/CEOs as part of management reforms.
a.

2.

These 4 banks are - Vijaya Bank, Indian Overseas Bank, United Bank of India and Oriental Bank
of Commerce.

Why a. Role of chairman and MD/CEO are different

i.

Chairman is the custodian of governance, while

ii. MD/CEO is the custodian of assets and responsible for efficiency of running of the organisation.
b. When the same person holds both positions, it leads to confusion and some time even to sacrifices.
c. will bring in transparency and accountability, professionalism
d. In the U.S., more than 50 per cent of enterprises follow this and this practice is followed all over the
world.
3.

Note - it was not recommended by P.J. Nayak committee; it was recommended by RBI in general.

8) Post Office as banks

1.

Post offices have moved closer to becoming banks.

2.

In Jan 2015, Govt. allowed certain eligible branches to branches to issue ATM cards to their account
holders and also account statements instead of giving out passbooks, as most private sector banks do.

3.

These facilities will be available to the branches that are working on core banking.

9) Merger of kotak and ING Vysya (Nov 2014)

1.

What happened a. In nova 2014, ING Vysya Bank merged with Kotak Mahindra Bank (KMB) run by Uday Kotak in an
all-stock deal.

Notes

b. Dutch giant ING Bank has an equity stake of around 43% in ING Vysya Bank; Kotak has a stake of
40% in KMB. Kotak will call the shots in the merged entity.

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10) Gyan Sangam

1.

2.

What is it a.

A two-day Gyan Sangam or Bankers' Retreat was arranged by the Finance Ministry in Pune in Jan
2015.

b.

It was an interaction of ministry officials, RBI Governor and heads of PSBs in an informal setting
to prepare a blueprint for banking reforms.

Outcome a.

It concluded without any major announcement related to reforms.

b.

Some of the salient features such as

i.

PM's assurance of no political interference on decision making by respective banks,

ii.

Bankers' suggestions to the government for creating Bank Boards Bureau (BBB) structure and
then move to BIC structure (in line with Nayak committee recommendation),

iii. fully empower banks on HR decisions,

iv.

3.

Strengthen/improve legal framework for NPA recovery etc, have long term positive impact on
sector and economy if implemented by the government.

c.

The conclave ended without any big bang announcement related to consolidation (widely rumored
by markets) and government left it to the respective bank boards to take the decision.

d.

One of the commitments by banks to the government is to "Reorient portfolios for small PSU banks
to differentiate, focus on specific niches to build capabilities and to optimize capital", which in our
view is difficult to implement.

Comment a.

This interaction among them in an informal way is a novel idea that is to be welcomed.

b.

As a management tool, a meeting away from the pressures of day-to-day work is meant to unfreeze
the established behaviour patterns and enable the divergent shareholders - the government, owner,
regulators and the banks themselves - to open a healthy dialogue.

c.

It is naive to think that the Gyan Sangam will spur change anymore than what finance ministers, past
and present, have been able to do. Nevertheless, it ought to be viewed as a good beginning.

d.

Suggestions, if implemented, can play a big role in transforming PSU Banks.

11) Center Adopts New Criteria for Capital Infusion into Banks
(Feb 7)
1.

Notes

2.

2 efficiency criteria are

a.

Weighted average of return on assets (ROA) for all PSBs for last 3 years

b.

Return on equity for last financial year

Based on these 2 criteria banks are rewarded.

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12) Budget 2015

1.

Capital infusion of public sector banks a.

Finance Minister set aside only Rs 7,940 crore in 2015-16 for recapitalization of PSU banks.

b.

He justified it by saying that capital will now be infused only on the basis of performance. In other
words, only those banks that are more profitable and efficient can line up for capital.

13) SMALL BANKS and PAYMENTS BANK

(Niche banks or Differentiated)

a) Meaning of niche or differentiated banks i.

ii.

At present ' universal banking model

At present, in India we are following largely universal banking model

In this a single bank caters to all sectors by performing all banking activities like infra finance,
lending to rural people, insurance etc.

Demand to shift to differentiated model '

Over the years Govt. and RBI have discussed the idea of making a shift to differentiated model
of banking

Differentiated banks exist in developed markets, wherein they undertake specific banking activities
such as retail, infrastructure financing and rural banking etc, depending on the core expertise
of the organization.

b) Small banks and payment banks i.

ii.

Timeline

In January 2014, Nachiket Mor Committee mooted the idea of these differentiated banks as a
means to further inclusion.

In budget of July 10, 2014, Finance minister announced that RBI will create a framework for
licensing small banks and other differentiated banks.

In late November 2014, RBI released rules for setting up these banks. The last date for receiving
applications for opening these banks has recently been extended to February 2, 2015.

Objective of these two is financial inclusion '

Small banks for credit need; payment bank for remittance need.

To meet 'credit' and 'remittance' needs of small businesses, unorganized sector, low income
households, farmers and migrant work force". (IMPT)

14) Bharatiya Mahila Bank

a.

Key facts When launched ' 2013 (Nov)

Notes

i.

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ii.

HQ ' Delhi

iii. Head ' Usha Anantha-Subramanian.

b.

How is it a Mahila bank i.

Remember that the bank is neither completely run by women, and nor is it exclusively for women.

ii.

It will focus predominantly on women, (women entrepreneurs and SHG's)

It will accept deposits from both, but it will give loan predominantly to women.

It would design special products tailor made to the needs of women.

iii. it will be staffed largely by women

c.

Function -

i.

aim -

ii.

To promote financial inclusion among women's.

It would design special products tailor made to the needs of women.

Targets to achieve by 2020 '

Have 770 branches (covering Tier II and III cities, rural areas and unbanked areas)

To touch Rs. 60,000 crore total business (deposits plus advances)

Why launched ' According to Finance Minister in Nov 2013 -

i.

Only 26 % of women in India have bank accounts

ii.

Per capita credit/loan for women is currently 80 % lower than that for men. It is because

Since fewer women have bank accounts, fewer women get bank loans.

Also they are unable to offer collateral for borrowings given that property is invariably held in the
name of the father, husband or son.

e.

View of critics -

i.

Why to create a new one; use existing ' They only need to have a mahila bank mindset

ii.

How will it achieve its objectives

Commercially viable ' (network dillema)

-

Notes

10

Firstly the bank needs to be commercially viable. The initial year or two will largely determine
if the concept of the BMB will be a success.

Network dilemma '

-

If the bank is to be commercially viable, it needs an extensive network in the cities where it can
attract deposits, but its lending focus has to be in the rural areas where women are marginalised.

How does it solve this network dilemma?

In the initiall years its focus is on capital cities only, not in rural area.

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Posting in rural areas '

-

Then there is challenge of of motivating the staff to serve in rural areas where financial exclusion
is the most.

15) White label ATMs

These are ATM's owned by non - bank entities which provide services to all bank customers.

Why called as white label ' because they don't have any label of any bank.

Timeline - in 2013, 1st white label ATM was inaugurated in the country by Tata communications
payment solutions (TCPS) under the brand name INDICASH.

As of Feb 2014, following 4 companies have got the license

Advantage -

It will help in financial inclusion as now more ATM's can be installed in semi urban and rural areas.
(i.e. tier 2 and tier 3 cities)

Installing an ATM is expensive, so it will help small banks who will leverage the service.

16) PM Jan Dhan Yojana

Launched on 28 August 2014.

The Yojana envisages universal access to banking facilities with at least one basic bank account for each
household, financial literacy, access to credit and insurance.

The beneficiaries will receive a RuPay Debit Card having inbuilt accident insurance cover of Rs1 lakh.

In addition, there is a life insurance cover of ` 30,000 to those who opened their bank accounts for the
first time between 15 August 2014 and 26 January 2015 and meet other eligibility conditions of the
Yojana.

Achievements -

The Yojana has entered the Guinness World Records for opening most bank accounts during the
week starting 23August 2014 as part of the financial campaign.

As on 28 January 2015, 12.31 crore bank accounts have been opened covering 99.7% per cent of
the households that were outside the banking system against the original target of 7.5 crore accounts
that Prime Minister Narendra Modi had set for achieving by January 26, 2015.

Of these 12.3 crore, 7.36 crore are in rural areas and 4.95 crore in urban areas.

67.5 % of the accounts as on 28 January 2015 are with zero balance.

17) Financial Inclusion - An Overview

a.

Present status Despite this wide network of bank branches spread across the length and breadth of the country,
banking has still not reached a large section of the population. The extent of financial exclusion is
staggering.

Notes

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b.

Supporting stats -

Branch coverage - Out of the 6 lakh habitations in the country, only about 36,000 plus has a
commercial bank branch. (Dec 2012)

Bank accounts ' only 40 % of adult population across the country has bank accounts. (Out of
these large no. are only saving accounts, thus not having credit facilities).

Services - The proportion of people having any kind of life insurance cover is 10 %; having nonlife insurance cover is 0.6%

Imbalances within
-

Regional imbalances ' rural - urban divide; NE and eastern India excluded

Gender imbalances;

Backwards groups like SCs, Tribals, OBCs, minorities, informal sector

Reason

Demand side - (people side)

-

Self exclusion

Notes

Religious reasons ' Islamic law prohibits charging of interest

Previous bad experience

Lack of trust

Financial illiteracy

Lack of access to technology

Supply side - (Govt. side reasons)

-

12

infra

physical - Lack of banks due to geography and infra constraint + banks attitude

telecom/internet penetration - rural-urban divide exists

Even if bank is there then no account opened due to identity issue

Even if opened then no loan etc due to

High cost of transaction,

Delay,

Appropriate design of products,

Legal and bureaucratic hurdles; KYC norms (cumbersome documentation)

Lack of collateral

Failure of RRBs and cooperatives

In poverty, thus not bankable; less profit

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c.

Consequence - (or importance of financial inclusion)

Poor People -

Will help in poverty alleviation; can start business

even farm loan waivers benefit only those who have bank accounts

Social security benefits i.e. pensions etc.

People go to money lenders, end up in debt and commit suicide.

Banks -

To a limit urban area is saturated as there is huge competition. Now more accounts can be
generated from rural areas only, which are unbanked.

Govt. -

Will cut down leakages/corruption in transferring funds to poor.

Growth rate ' can achieve growth rate of 9%.

Inclusive growth agenda can be pursued only when there is financial inclusion.

Growth of sectors depends on it - Agriculture, MSME, and Housing.

18) RUPAY
(Card payment network)
a.

b.

Definition '

RuPay is short for Rupee payment

India's own CARD PAYMENT NETWORK (like visa, MasterCard)

Developed by National Payments Corporation of India (NPCI)

Operational from April 2013; dedicated to the nation in May 2014

Why

c.

So that dependency on international card scheme like Visa and MasterCard is minimized.

Present status '

As of may 2014, the total number of cards issued as on date is 17 Million and is growing at a rate
of about 3 Million per month.

A variant of the card called 'Kissan Card' is now being issued by all the Public Sector banks in
addition to the mainstream debit card which has been issued by 43 banks.

19) Jeevan Pramaan

Launched in Nov 2014.

It is an "Aadhar-based Digital Life Certificate" for pensioners.

The move would benefit over a crore pensioners.

Notes

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Earlier the pensioner had to submit a physical Life Certificate in November each year, in order to ensure
continuity of pension being credited into his account. But now no such need.

20) Insurance Bill

1.

2.

Background a.

In 2008, Insurance laws (amendment) bill, 2008 was introduced by UPA Govt. to increase FDI from
26% to 49% in insurance. The bill was introduced in RS but couldn't be passed there.

b.

Now BJP came to power and in Dec 2014 promulgated an ordinance on similar lines to bill (i.e.
instead of trying to pass that pending bill it went for a new bill/ordinance).

c.

In March 2015 the ordinance was passed by both the houses and became an act. Subsequently the
bill was withdrawn.

Provisions a.

It amends the Insurance Act 1938, the General Insurance Business (Nationalization) Act 1972, and
the IRDA Act 1999.

b.

Enhances the FDI in an Indian insurance company from 26 to 49 % with the safeguard of Indian
ownership and control.

c.

i.

ownership and control shall remain at all times in the hands of resident Indian entities,

ii.

Proposals up to 26% shall be allowed on the automatic route, proposals above 26% and up to
49% shall require FIPB approval.

Agents i.

Agents no longer have to go to the IRDA for a license. From now on, agents will be appointed
by the insurance companies directly

ii.

An individual can't be an agent for more than one life insurance company, or one general, or
Health Insurance Company. This is meant to eliminate conflict of interest.

iii. Scrapping of commission cap - The Insurance Act of 1938 specified limits on the commission
that could be paid to agents. Bit it scraps that.
d.

Increase Penalties by IRDA i.

Allows IRDA to impose stiffer penalties for selling policies without registration with the IRDA
and other fraudulent activities.

ii.

The bill provides for imprisonment up to 10 years for

iii. If the regulator finds out that there has been a violation of regulations in the appointment of
the agent, it can penalize the agent with fine up to ?10,000. The insurance company can be held
liable to pay penalty up to ? 1 crore.
e.

Capital requirements - insurer has to have net owned funds of at least rupees five thousand crore in
order to register the insurance company.

f.

Claim rejection period -

Notes

i.

14

It allow the insurer to challenge a policyholder for mis-representation of facts or a fraud, only
in the first three years of the policy (earlier it could be challenged even after 3 years). Therefore,

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policyholders can now be assured that an insurance company will not reject claims once they
complete three years on a policy.
g.

The Ordinance amends the definition of an Indian insurance company to include the health insurance
business.

21. Fiscal Health

a)

Present status 1.

Fiscal Deficit
a.

4.1 % for 2014-5

b.

Fiscal roadmap as mentioned in budget-2015 i.

Earlier the target for fiscal consolidation (based on the Vijay Kelkar committee's roadmap)
was to achieve centers fiscal deficit at 3% by 2016-7. But the fin min has delayed the target
by 1 year to achieve FD of 3% by 2017-8.

ii.

Accordingly, the revised targets under FRBM Act for fiscal deficit targets for the next 3
years are
Year

Fiscal deficit target

Revenue deficit target

2015-16

3.9%

2.8%

2016-17

3.5%

2.4%

2017-18

3 %

2%

iii. Finance minister defended his decision stating that as long as the extra borrowings went
towards financing capital (and not revenue) expenditures like infra funding instead of revenue
expenditure then there is no harm of running a higher fiscal deficit.
b)

Reason for such high deficit

Use all points of existing notes i.e. problem w.r.t our budgetary process, tax reforms pending, high subsidies
etc.
1.

High expenditure
a. Total expenditure
i.

Close unnecessary schemes

1.

ii.

b.

I.E. multiple schemes like MPLADS, MLALADS which are a financial burden are without
yielding effective output should either demand or remove efficiency.

Overlapping schemes '

1.

For a single sector we have multiple schemes

2.

E.g. for reducing IMR we have 10 + schemes and thus each is allocated some amount. So
this leads to more allocation and differentiated allocation.

Quality of expenditure - consumption instead of investment

High Subsidy Bill

Notes

i.

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ii.
c.

2.

There are many populist measures; it needs to be reduced

Inefficient delivery of services ' leakages

i.

At present our service delivery is inefficient. We spent huge amount to deliver services to
people. Former PM Rajiv Gandhi famously remarked that to only 16 paisa of Rs. 1 reaches the
people.

ii.

So by using e - governance and other measures we can reduce our useless expenditure.

Low revenue
a.

Tax revenue- its low

i. Our tax base is low
ii. Reform measures like GST, DTC are still pending

b.

Non - tax revenue ' its low

i. Many PSU's are loss making or even if they are earning profit then their potential is underutilized
because of lack of autonomy
ii. Either reconstruct them so that they become profit - making and earn revenue OR wind them up
so as otherwise Govt. will continue to pump huge amount into them without any output e.g. AIR
INDIA.

3.

Consequence -

a.

FD are to be bridged by market borrowing or by printing more money or higher taxes

b.

If Govt. borrows more then

c.

Corporate sector is crowded out - they are left with inadequate funds to raise due to increase Govt.
borrowing

Also interest rates will be high as supply of money is less and demand more

If funding is by printing currency then

d.

It leads to inflation which further leads to less savings, less investment

By increasing taxes in the long run

This means future generation has to carry the burden of the past

and instability

e.

E.g. - sovereign debt crisis in Europe and fiscal woes of US were the result of unsustainable high FD

4.

Solution -

a)

What needs to be done 1. Aim at fiscal deficit of 3% which is sustainable

Notes

2. Eliminating revenue deficit so that over the cycle, borrowing is only for capital formation.

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b)

How -

Expenditure o Expenditure control should be consolidated

o Improving quality of expenditure - Switch from public consumption to public investment,

I.e. reduce revenue expenditure or that which is unproductive; which doesn't promote investment.

E.g. reduce subsidies

o

Focus on eliminating leakages and improving targeting in the provision of subsidies. (to be done by
JAM number trinity (It is another name for Technology enabled Direct Benefit Transfers))

Revenue side o

PSUs -

Should earn more profit

Disinvestment
o

c)

Auctions by competitive bidding of coal blocks and spectrum

Steps by Govt. -

Fin min took some austerity measures in late 2014 for reducing expenditure (fiscal deficit) 1.

Expenditure Management Commission - It was constituted in Sept 2014 with the task of looking into
various aspects of expenditure reforms to be undertaken by Govt. It submitted its interim report in Jan
2015.

2.

Overall of subsidy
a.

Also taking various steps to overhaul food and petroleum subsidies.

b.

W.r.t petroleum

c.

i.

Prices of diesel were deregulated

ii.

Modified DBT to LPG (PAHAL) was launched in nova 2014

Formulation of new urea policy is in progress.

3.

Ban on first-class air travel for Govt. officials,

4.

Curbs on meetings in 5-star hotels,

5.

Embargo on purchase of vehicles,

6.

Freeze on new appointments.

Statistics - (budget estimates for the 2015-6)

Expenditure a.

Non-Plan expenditure - 13,12,200 crore.

b.

Plan expenditure - 4,65,277 crore

Notes

1.

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c.
2.

Receipts a.

b.
3.

Total Expenditure - 17,77,477 crore.

Gross Tax receipts are estimated to be 14,49,490 crore.

i.

Devolution to the States is estimated to be `5,23,958.

ii.

Share of Central Government will be `9,19,842.

Non Tax Revenues for the next fiscal are estimated to be `2,21,733 crore.

Deficits - as % of GDP
a.

Fiscal deficit - 3.9%

b.

Revenue Deficit - 2.8%

c.

Effective revenue deficit - 2%

d.

Primary deficit - 0.7%

GST - (Goods and service tax bill)

1.

Notes

2.

18

Introduction
a.

Goods and Services Tax (GST) is a proposed uniform, pan-India tax on goods and services which will
subsume into one levy almost all indirect taxes imposed by the Centre and the States.

b.

Being a federal polity, GST will be implemented concurrently by the central and state governments
as the Central GST and the State GST respectively.

c.

Being a value added tax it aims to have a seamless transfer of goods and services across the country.
i.e. Let there be no tax on tax.

Advantages of GST a.

It will increase transparency as large number of hidden levies will be replaced by a single transparent
tax.

b.

Tax base will be widened in it and thus will lead to greater revenue mobilization.

c.

GST will be eliminate the cascading effects (taxes are added to prices and tax levied on this higher
prices at next level of taxation) of the various taxes.

d.

Due to increased transparency and reduced complexities, tax evasion will be difficult.

e.

Also having a uniform tax across India with input credit is also likely to remove the tax bottlenecks
in transactions that span two or more states. This would help India evolve from a fragmented market
structure to a single national market.

f.

A uniform rate will also remove tax arbitrage, currently used by States against each other. This will
allow the better governed States to compete more equally, while acting as an incentive for others to
improve infrastructure and ease of doing business.

g.

Differentiation between goods and services is removed, and tax credit is available across this distinction.

h.

Some estimates suggest that introduction of GST will lead to GDP rising by 1-1.5%.

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3.

4.

Earlier attempts
a.

In 2000, Vajpayee Government started discussion on GST by setting up an empowered committee

headed by Asim Dasgupta, It was given the task of designing the GST model and overseeing the IT
back-end preparedness for its rollout.

b.

Later on the P. Chidambram the then Union Finance Minister made an announcement during the
central budget of 2007-2008 that it would be introduced from April 1, 2010 and that the Empowered
Committee of State Finance Ministers, on his request, would work with the Central Government to
prepare a road map for introduction of GST in India. However their efforts went in vain due to
stringent oppositions by state.

c.

Recently the NDA Govt. has taken the onus of rolling it out by April 2016. For this the Govt.
introduced the constitution (122nd amendment) bill, 2014 in Dec in the winter session. The bill be
subsequently taken in the next session of the parliament while asserting that concerns of all states
have been take care of in the new measure.

Present bill a.

About the taxes

i.

It enables the Centre and States to concurrently tax goods and services across the supply chain

ii.

An integrated GST will be levied on goods and services on inter- state transactions.

iii. Exemptions - The Bill, adhering to the demands of States has made some exemptions

b.

c.

1.

All goods and services, except alcoholic liquor for human consumption, will be brought
under the purview of GST.

2.

Petroleum and petroleum products have also been constitutionally brought under GST.
However, it has also been provided that petroleum products shall not be subject to the levy
of GST till notified at a future date on the recommendation of the GST Council. The
present taxes levied by the States and the Centre on petroleum and petroleum products, i.e.,
Sales Tax/VAT, CST and Excise duty only, will continue to be levied in the interim period.

3.

Centre has agreed to states demand to an additional 1 per cent origin based tax on supply
of goods in the course of inter-State trade or commerce of goods, to be collected by the
Centre for a period of two years and assigned to States. The additional tax is primarily to
assuage the producing States and will result in their collecting these taxes over and above
the GST revenues. But according to some economists this will unnecessarily complicate the
tax system and create a cascading element as it appears that this tax would be outside the
GST credit chain. This major concession of an origin-based tax in a GST scenario which is
fundamentally destination-based could have been best avoided.

Compensation
i.

The compensation clause is included in the bill thus making a constitutionally binding
commitment.

ii.

Compensation to States for any loss of revenues due to implementation of GST for a period
of five years

GST Council Task

Notes

i.

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ii.

5.

1.

To ensure that formulation of GST would not lead to non-uniform taxes across states this
would defeating a key objective of a national GST.

2.

It will have the powers to recommend base and threshold limits, taxes to be subsumed,
exemptions, model law, principles of levy, place of supply rules, floor rates with bands,
special provisions for specified States and so on.

Structure 1.

The GST council will comprise the Centre, represented by the Finance Minister as chairperson,
and State ministers in charge of finance, revenue or taxation as case may be.

2.

The council will need to have 50 per cent of its members to be present for a quorum, with the
Centre having a weightage of 33 per cent and all States combined having a weightage of 67 per
cent of the total votes cast.

3.

No decision of the council can be taken without a 75 per cent majority of weighted votes of
the members present.

Challenges - A lot will requires to be achieved in the next 15 months for this to be a reality in April
2016.
a.

States i.

Firstly there is the question of the passage of the Bill in Rajya Sabha where there could be still
being several challenges, followed by the passage of the Bill in 50 % of the States.

ii.

Reason 1.

Although various demands of the states have been accepted like excluding alcohol from its
purview,

2.

In early Dec, 2014, the meeting between Finance Minister Arun Jaitley and the empowered
committee of State finance ministers failed to evolve a consensus on the issues of
compensation to be paid to States for the loss in their revenues after the elimination of
Central Sales Tax (CST) on inter-State movement of goods, taxes levied on petroleum
products at the State level, inclusion of entry taxes and tax on real estate transactions in
GST.

iii. Implementation 1.
iv.

The readiness of the IT platform is a critical component of the GST roll-out, and is
incumbent on the readiness of GST law and rules.

Industry to understand
1.

6.

Way forward -

Notes

a.

20

Further, it's very important that industry is given a reasonable amount of time to understand
the GST structure and design for them to prepare themselves both from a perspective of
business and IT infrastructure, all of which require intense planning and time.

The tabling of the Constitution Amendment Bill in the Lok Sabha on Friday is indeed a welcome
step and signals the government's seriousness in implementing the much awaited Goods and Services
Tax (GST) in April 2016.

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b.

The GST Constitution Amendment Bill makes significant concessions to States. An April 2016
rollout is doable.

c.

The perusal of the Constitution Amendment Bill suggests that the Centre has more than met the
States' demands towards fostering the spirit of cooperative federalism.

d.

W.r.t States ' States must realize that higher growth benefits all and that delays hurt everyone's
interest, including their own. Thus they should rise above from narrow partisan and regional interests.
This is a win-win for all, and it is high time the States resized from their stubborn positions.

The legal process for imposing GST is as follows:

The Constitution Amendment Bill will need to be passed with two-thirds majority in each House of
Parliament and then be ratified by at least 15 state legislatures before getting the assent of the President.
This would enable GST to be introduced.
Following this, Parliament and state legislatures will need to pass GST Bills that impose central and state
GSTs.

Subsidy bill - (major items)

This figure was published at the time of budget 2015

PAHAL
(DBTL - Direct benefit transfer for LPG)
1)

History 1. The DBTL scheme, which was launched by the United Progressive Alliance government on June 1,
2013, covered 291 districts before it was discontinued in early 2014.
2. Following a substantial review, the NDA Govt. modified and relaunched it in 54 districts across
Himachal Pradesh, Punjab, Goa, Madhya Pradesh, Kerala, Karnataka, Andhra Pradesh, Telangana,
Maharashtra, Puducherry and Daman & Diu on November 15, 2014, in the first phase.

Notes

3. The scheme will cover the rest of the country on January 1, 2015, with 622 more districts.

21

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2)

Aim 1.

To target "subsidy to the right beneficiary" by

a.

Curbing black marketeering and diversions and

b.

Eliminating bogus connections.

BLACK MONEY
1) Overview 1.

Reasons
a.

Income from Illegitimate activities

i.

b.

c.

d.

2.

Income from legitimate activities '

i.

Even income generated from legitimate activities so as to avoid paying taxes

ii.

Reasons

Notes

1.

Excessive taxation

2.

Greed

3.

Lack of trust on Govt. (Govt. will not use for public good)

4.

Failure of agencies i.e. lack of coordination as said by SIT

Lack of seriousness on Govt. part

i.

Only committees after committees are setup, w/o concrete action

ii.

This can be seen by lack of seriousness on revealing names; SC has even told the Govt.
that are you sleeping.

Global reasons
i.

Continuation of tax heavens;

ii.

W/o global cooperation it can't continue.

Consequences '
a.

Similar to drain of wealth; earlier British did, now we are doing

b.

Affects our national security ' due to terror financing

c.

Can be used to clear external debt

i.

22

Income generated from illegitimate activities like smuggling, illicit trade in banned substances,
counterfeit currency, arms trafficking, terrorism, corruption etc.

According to GFI report India lost a total of $462 billion from 1948 to 2008 abroad. Our
external debt as of 2008 was $230.6 billion

d.

Can be used for economic development; funding infra

e.

Leads to income inequality

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2)

Names disclosed
1.

April 2014
a.

2.

3)

In April 2014, Indian Government disclosed to the Supreme Court the names of 26 people who
had accounts in banks in Liechtenstein, as revealed to India by German authorities.

Oct 2014
a.

On 27 October 2014, Indian Government submitted name of three people in an affidavit to the
Supreme Court who have black money account in foreign countries.[22] But on the very next
day, Supreme Court of India orders centre Government to reveal all the names of black money
account holders which they had received from various countries like Germany. SC also asked the
Centre not to indulge in any kind of probe and rather just pass the names to them and wait till
next direction from court.

b.

Following the order, Government of India submitted the names of 627 people in the Supreme
Court of India in a sealed envelope on 29 October 2014.

SIT on black money

1.

2.

Introduction
a.

In May 2014, a Special Investigating Team (SIT) was constituted in compliance to SC order.

b.

It is headed by Justice M.B. Shah (former SC Judge)

c.

Task ' investigation, initiation of proceedings and prosecution w.r.t black money cases + suggest
inst measures

d.

The SIT should report to the court the status of work from time to time.

e.

It submitted its 1st report in august 2014

Findings of 1st report

a.

W.r.t bodies
i.

ii.

ED as coordinator
1.

It has sought an investigation unit, with the Enforcement Directorate as the nodal
coordinating agency.

2.

At present there is lack of coordination

CAG '
1.

audit by CAG on suspicious exports

iii. Time frame for Income Tax and CBEC for completing cases.
b.

Laws ' reform it

i.

redrafting the Double Tax Avoidance Agreement (DTAA)

ii.

PMLA, FEMA to be amended

Introduce seizure of value equivalent to the assets or funds stashed abroad.

Notes

1.

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2.
4)

Include tax evasion as a predicate offence which attracts stringent punishment.

HSBC Leaks - 2015

1.

2.

Introduction
a.

In February 2015, Indian Express released the list of 1195 Indians account holders and their
balances for the year 2006-07 in HSBC's Geneva branch.

b.

The list was obtained by French newspaper Le Monde and included the names of several
prominent businessmen, diamond traders and politicians.

Revelations
a.

W.r.t Indians
i.

1195 Indians name (The number of Indian HSBC clients is roughly double the 628 names
that French authorities gave to the Indian Government in 2011.

ii.

Some prominent names

iii. The balance against the 1195 names stood at Rs. 25,420 crore.
b.

c.

5)

Overall
i.

The list which had names of dictators and international criminals, was simultaneously
published by news organisations in 45 countries including The Guardian, UK; Haaretz,
Israel; BBC, London.

ii.

Globally, the total balances are over $ 100 billion spread across 200 countries.

It means that HSBC had helped its clients evade taxes

3.

Indian government said it will probe this matter. Jaitley has also said that mere names aren't enough
and hard evidence would have to be furnished to punish tax dodgers.

4.

Implications -Will be helped by SIT

Bill w.r.t black money

Proposed recently by NDA Govt.

Its Key features are
Evasion of tax in relation to foreign assets to have a punishment of rigorous imprisonment up to 10 years
is non-compoundable, have a penalty rate of 300% and the offender will not be permitted to approach the
Settlement Commission.

2.

Non-filing of return/filing of return with inadequate disclosures to have a punishment of rigorous

imprisonment up to 7 years.

3.

Undisclosed income from any foreign assets to be taxable at the maximum marginal rate.

4.

Mandatory filing of return in respect of foreign asset.

5.

Entities, banks, financial institutions including individuals all liable for prosecution and penalty.

6.

Concealment of income/evasion of income in relation to a foreign asset to be made a predicate offence

under PML Act, 2002.

Notes

1.

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7.

PML Act, 2002 and FEMA to be amended to enable administration of new Act on black money.

CAPITAL MARKET
1.

Delhi stock exchange de-recognized

a.

2.

In Dec 2014, Delhi Stock Exchange was de-recognized on the allegations of serious irregularities in
its functioning.

Depository receipt scheme, 2014 a.

Came into effect in Dec 2014.

b.

The scheme includes new asset classes such as debentures and mutual funds, as well as unlisted firms
to raise funds abroad but was missing a crucial element of tax clarity.

c.

Under the new scheme, domestic companies as well as other persons, will be allowed to issue DRs
in all kinds of permissible securities including shares, debentures, derivatives, units of a mutual fund,
collective investment schemes and government securities.

d.

Further, they can be issued by unsponsored DRs on the back of listed permissible securities on the
condition that they "give the holder the right to issue voting instructions and are listed on an
international exchange".

e.

In India, firms can issue both American Depository Receipts as well as Global Depository Receipts
to foreign investors but their underlying value of these can only accessed through equity. Unsponsored
receipts were also not permitted.

f.

The move comes following an announcement by finance minister Arun Jaitley in the Union Budget.

g.

Earlier, a report by former SEBI member MS Sahoo on revamping the American Depository Receipts
and Global Depository Receipt schemes had also suggested the same.

h.

However, much needed tax clarity is still missing from the scheme as the Income Tax Act, 1961 does
not recognize the new asset classes. "Some of the asset classes are not recognized for tax purposes,"
said a senior finance ministry official.

i.

An enabling provision was not made in the Finance Bill, 2014 and officials indicated that it would
be allowed only next fiscal onwards

3.

IDR

a.

Budget 2014 by NDA Govt.

4.

i.

Fin min proposed to completely revamp the Indian Depository Receipt (IDR) and introduce a much
more liberal and ambitious Bharat Depository Receipt (BhDR).

ii.

Status as of Feb. 2015 - Sahoo Committee (Phase II, part I) Report on IDR has been received and
uploaded on Ministry of Finance's website for seeking public views and comments.

Forward market commission Budget 2015 -I also propose to merge the Forwards Markets Commission with SEBI to strengthen
regulation of commodity forward markets and reduce wild speculation. Enabling legislation, amending
the Government Securities Act and the RBI Act is proposed in the Finance Bill, 2015. (it was
recommended by FSLRC)

Notes

a.

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Industrial Sector
1) Problem with manufacturing sector 1.

Tax terrorism a.

Unfriendly tax regimes. FDI is possible if there is transparent law, and only if there is stability
in rules. One Vodafone case is enough to make oversees investors shy away.

b.

non-implementation of GST

c.

Retrospective tax has hit investor sentiment

d.

2)

Notes

At the vibrant Gujarat summit, fin-min called retrospective taxation "as the defining moment
against investment in India," and told the industry captains that the Centre had no intention
of levying retrospective tax.

ii.

He assured industry that the Centre was determined to bring in "perfectly non-adversarial
taxation."

List of tax cases

2.

Infrastructural constraints i.e. transportation, electricity

3.

Labor Issues a.

Archaic labor laws - Have proved a strong deterrent for any overseas company to set shop in
India. The subject of labour has often acquired political underpinnings with varied stakeholders
taking a narrow stand.

b.

Labor movements - In Feb. 2015 there was workers' agitation in the Gurgaon-Manesar belt
demanding better wages and working conditions

4.

Land acquisition problem couple with environmental problem

5.

No fast track approvals i.e. red tapism, no single window clearance

6.

Difficulty of exit,

7.

Lack of skill,

8.

Some other by eco-survey 2014-15 a.

Weak corporate balance sheets,

b.

An impaired banking system,

c.

The deficiencies of the public private partnership (PPP) model in infrastructure.

Make In India 1.

26

i.

Intro a.

It was launched in Sept 2014 to offer red carpet to investors from India and abroad to invest in
India and make the country a manufacturing hub.

b.

The program lays emphasis on some 25 sector - automobiles, aviation, electrical and electronic,
ports, railways etc.

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2.

3.

c.

The goal the Modi government has set is to make India break into the top 50 in the World Bank's
ease of business index ranking from the current 134th position.

d.

Make India a manufacturing hub; to compete with china and other SE Asian countries,

e.

Prime Minister's vision is to make India " zero defect, zero effect" by improving our manufacturing
policy and ensuring environment protection.

Why launched a.

More FDI

b.

Other points of importance of manufacturing

Steps taken a.

W.r.t investors ' (use it in steps taken to improve ease of doing business)
i.

b.

Skill India mission

i.

4.

See from notes of FDI

launched to make people here capable

world is becoming cautious

a.

In Dec 2014, RBI Governor Raghuram Rajan said that world as a whole is unlikely to be able
to accommodate another export-led China.

b.

Former Microsoft India CEO supported him and said the following - "The nature of
manufacturing is changing. Low-cost automation and robotics are making pure labour cost
arbitrage less important. Many companies to move manufacturing back closer to the big
markets, the United States and Europe. Energy is the new labour in the sense that the cost
of energy will significantly drive where things are made. Here, the U.S. with its huge new
shale gas reserves has a big advantage. Developed countries are also realizing how crucial
local manufacturing is to jobs and to having stable, prosperous societies and so there is an
attempt to reverse outsourcing and revive local manufacturing by embracing new technologies
and innovations such as 3-D printing and the "Internet of things".

3) Labor reforms by NDA Govt. 1

Unique labour identification number (LIN) will be allotted to Units to facilitate online registration.

Filing of self-certified and simplified Single Online Return by the industry instead of filing 16 separate
Returns. Amendments to 10 Rules has been taken up.

Computerized inspection Reports within 72 hours by the Labour inspectors.

Timely redressal of grievances.

Transparent Labour Inspection Scheme in Central Sphere for random selection of Units for Inspection

A computerized list of inspections to be generated randomly based on risk based algorithm.

Complaints based inspections to be determined centrally after examination based on data and evidence.

Notes

Shram Suvidha Portal

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Portability through Universal Account Number (UAN) for Employees Provident Fund

Digitization of complete database of

them.

UAN is being seeded with Bank account and Aadhar Card and other KYC details for financial inclusion.

EPF account of employee to be updated monthly and at the same time he will be informed through SMS.

Direct access to their EPF accounts and will also enable them to consolidate all their previous accounts.

W.r.t Apprenticeship

a)

Amendments in Apprentices Act -

A comprehensive Amendment Bill to the Apprentices Act, 1961 that has been passed by the parliament
by Lok Sabha and Rajya Sabha.

Trade-wise regulation of seats is to be replaced by a minimum and maximum percentage the total strength
of the workers. Within this band, apprentices can be engaged in any trade.

Industry can also engage apprentices in optional trades which are not designated, with the discretion of
entry level qualification and syllabus.

Scope being extended also to non-engineering occupations at diploma and degree level.

Penalties in the form of fine only.

Permission to outsource basic training in an institute of their choice.

Apprentices could also be from other states.

b)

Launch of Apprentice Protsahan Yojana -

Launched on 16th October, 2014.

With an outlay of Rs.346 crores, Government will support one lakh apprentices in next two and a half
years by sharing the 50 % of the stipend.

A vision to have more than 20 lakh apprentices in next few years against present number of 2.9 lakh.

Enhanced rates of stipend have been notified for trade apprentices. The minimum rate of stipend per
month payable has been indexed to minimum wage of semi-skilled worker.

5.

Revamped Rashtriya Swasthya Bima Yojana

It aims at Introducing a Smart Card for the workers in the unorganized sector seeded with details of two
more social security schemes

6.

Amendment to Labor Laws (Exemption from Furnishing Returns and Maintaining Registers by certain
Establishments) Act

The Principal Act of 1988 provides for simplified procedure for returns and registers under 9 Labour Acts
for the establishments employing up to 19 workers.

The Amendment Bill, 2011 has been passed by Rajya Sabha on 25.11.2014 and Lok Sabha on 28.11.2014.

The Amendment Bill now provides to include 7 more Labour Acts under the purview of the Principal Act.

Notes

28

4,22,99,883 EPF subscribers and allotment of UAN to each of

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Also, the coverage of Principal Act has been expanded from the establishments employing up to 19
workers to 40 workers.

The Amendment Bill also gives an option to maintain the registers electronically and to file the returns
electronically.

INFLATION
1) Slowdown in inflation 1.

Intro a.

2.

The evolution in inflation has surprised market participants and policy makers, including the RBI.
The momentum, measured as the three month average seasonally adjusted and annualized, has
declined from nearly 15 percent to below 5 %. Interestingly, the momentum of food prices has
declined even more and is at levels below overall inflation.

Reason -this momentum is likely to persist because of three striking developments in three areas that
signal a structural shift in the inflationary process in India:
a. Crude-oil i.

There is Falling demand due to continuation of euro zones troubles and issues with Chinese economy
which is seeing a slowdown in manufacturing growth But OPEC (which accounts for about 40 per
cent of global oil output) is not willing to cut production to match the demand is a major factor. It
is because cutting output will mean a loss of market share. Thus demand is low but supply is high.

ii.

Earlier Due to fed reserves, quantitative easing programme, interest rates were zero. Thus investors
need other avenues to earn profit. So surplus funds flowed into the commodity markets, notably
crude oil, driving their prices upwards. But with the Fed winding up its stimulus programme and an
interest rate hike in the U.S. possibly just round the corner, funds are now flowing out of commodities,
driving their prices down.

b. Agriculture i.

Second, in addition to oil prices, India's inflation will be shaped by pressures from agriculture, foreign
and domestic. According to World Bank projections, global agricultural prices will remain muted- a
likely decline of 4.8 % in 2015 in moderating increases in domestic support prices.

ii.

The most dramatic structural change relates to wage pressures. Wage growth has declined to about
3.6 % from over 20 %. If these trends continue, rural wage growth can continue to decelerate, further
moderating inflationary pressures.

c. Inflation expectation - not clear

i.

The third factor relates to inflation expectations. Until recently, household surveys of inflation
expectation conducted by the RBI showed that expectations have been stubbornly persistent and at
levels well above actual inflation. But in the most recent survey they dropped by nearly 7-8. Percentage
points over all horizons (Figure 1.8). If this change conveys some information, inflation expectations
will increasingly be anchored at more reasonable levels, moderating wage setting.

Concluding remark -

a.

The implication is that the economy will over-perform on inflation which would clear the path for further
monetary policy easing.

Notes

3.

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b.

RBI has already signaled a shift in the monetary policy stance when it cut policy repo rates by 25 basis
points to 7.75 percent in January 2015.

2) Flexible inflation targeting regime 1.

In March 2015, RBI adopted a flexible inflation targeting regime.

2.

For the RBI entered into an agreement with ministry of finance. It was done on the recommendation of
Urjit Patel committee.

3.

Under this flexible inflation targeting regime -

RBI will decide and declare a target for inflation within a range,

Target rate for RBI is 4% CPI-combined inflation with a range of plus, minus 2%.

4.

The agreement also incorporates failure norms for RBI

If inflation I above 6%or below 2% for 3 consecutive quarters, it is deemed to have failed

In the case, RBI is reqd. to state the reasons for its failure and remedial action it proposes.

5.

Debate -

a.

Adv -

b.

i.

i.

Transparency, accountability.

ii.

Predictability; businesses will be able to take more informed decisions and be able to predict RBI's
masses.

Arguments i.

RBI will tend to ignore country's growth due to its obsession with inflation. E.g. if a situation arises
where the inflation starts to increase then RBI will be forced to raise interest rates, even though at
that time our priority should be growth (e.g. recession scenario)

ii.

Counter-argument to above -

1.

According to many economists, central bank can never control growth and employment; banks
actual task is (or things which can control is) price level, exchange rate, money supply.

2.

Also in the long-term a stable growth of 3-4% is actually beneficial for growth in the long-term; eco.
With low inflation is stable and conducive to business and consumers.

POVERTY
1) Rangarajan Panel a) Background

According to Tendulkar committee criteria

o poverty line is at (for family of 5 per month) ' Rs. 4080 for rural and Rs.5000 for urban

Notes

o and thus according to it, the number of poor has declined to 22% from 37%

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But this line and the total number of poor came under heavy criticism.

And it was in this background to review it, Govt. in 2012 set up an Expert Technical Group under the
chairmanship of C. Rangarajan to revisit the methodology for estimation of the poverty and identification
of the poor.

In July 2014 it gave its report.

b) Report
1.

Consumption expenditure is the main criteria in measurement of poverty line. Consumption on food and
non-food items

2.

Basis of poverty line/methodology ' poverty line to be based on

a.

Food component

On the basis of average requirements of calories, proteins and fats based on ICMR norms.

b.

Non food items

Expenditure on Essential items i.e. education, for avoiding diseases, for shelter and

Behaviorally determined expenditure for other non-food items.

3.

Poverty line

Consumption exp.

Rural areas (2011-12)

Urban areas (2011-12)

Per capita per day

Rs 32

Rs 47

Per capita per month

Rs 972

Rs 1407

For a family of 5 per month

Rs 4860

Rs 7035

4.

How many poor

a.

3 out of 10. To be precise 29.5%.

b.

According to Rangarajan panel poverty declined from 38 % in 2009-10 to 29.5% in 2011-12.

c.

According to Tendulkar panel poverty declined from 38 % in 2009-10 to 22 % in 2011-12.

5.

His comment ' its right

a.

It's in consonance with the global standards. (world bank talks of USD 2 per day whereas our
estimates comes to USD 2.4)

b.

Apart from private expenditure, people also benefit from public expenditure on health, education etc

c.

Also instead of looking at "per capita per day" people should look at poverty line "for a family of
5 per month". Thus according to him it's at appropriate level.

PLANNING
1) Criticism of planning commission
1.

Problems in country (Stats etc) ' its outcome budgeting

Poverty, unemployment, income inequality, infant malnutrition at 50%, sex ratio and CSR

Notes

a.

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b.

High regional imbalance (so what has the PC done)

c.

Economic - high FD, high CAD, poor rural infra, poor land reforms

d.

Failure to utilize our manpower

2.

Reasons for these problems

a.

W.r.t structure
i. Instead of expert non-specialist bureaucrats are on it who came in it for deputation
ii. Huge no. of Part-time members
iii. Partisan politics as many politicians are its members
iv. No representatives from states
v. Overstaffed

b.

W.r.t functioning
i. Undermined the functioning of
1. Finance commission
2. Executive

3.

a.

Has taken on many functions not in its domain thanks to PM and FM being its members

b.

from advisory body it has become a directive authority

States
a. narrows the space of states to set its priorities
ii.

No accountability (as it's not a legislative body); opaque functioning

iii. Delay; another bureaucratic layer added

iv.

v.

Not in touch with ground reality

1.

Eco growth alone won't lead to inclusive development

2.

For this we have to bring about structural changes in society; have to keep in mind e.g. how caste
system dominates at ground level

3.

(instead of being realistic, PC has become idealistic)

No proper coordination between

1. PC and private sector,
2. Public and civil society (thus not in touch with ground realities)
3. Various sectors of economy at the time of plan formulation

Notes

vi. No proper monitoring and evaluation of plan; it leads to time overrun and thus cost overruns

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NITI Aayog 1.

Intro a.

Jan 1, 2015

b.

It replaced planning commission (it has ceased to exist)

c.

It is an executive body i.e. created by an executive order.

2.

Structure -

a.

Structure -

Chairman

PM

Governing council

Will comprise the Chief Ministers of all the States and Lt. Governors of Union Territories

Regional Councils

Will be formed to address specific issues impacting more than one state.

These will be formed for a specified tenure

Will comprise the Chief Ministers of all the States and Lt. Governors of Union Territories concerned

These will be chaired by the Chairperson of the NITI Aayog or his nominee.

full-time organizational framework (in addition to PM) will comprise of

1.

Vice-Chairperson: To be appointed by the Prime Minister

2.

CEO: To be appointed by the Prime Minister for a fixed tenure, in the rank of Secretary to the Government
of India.

3.

Full-time Members

4.

Part-time members: Maximum of 2 from leading universities research organizations and other relevant
institutions in an ex-officio capacity. Part time members will be on a rotational basis.

5.

Ex Officio members: Maximum of 4 members of the Union Council of Ministers to be nominated by

the Prime Minister.

Special invitees
Experts, specialists and practitioners with relevant domain knowledge as special invitees nominated by the
Prime Minister
b.

Members Narendra Modi

Vice-chairman

Arvind Panagariya, Economist

CEO

Sindhushree khullar (women)

Notes

Chairman

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Full-Time Members Shri Bibek Debroy, Economist

Dr. V.K. Saraswat, Former Secretary Defence R&D
Ex-officio members

Shri Rajnath Singh, Union Minister

Shri Arun Jaitley, Union Minister
Shri Suresh Prabhu, Union Minister
Shri Radha Mohan Singh, Union Minister

Special Invitees

Shri Nitin Gadkari, Union Minister

Shri Thawar Chand Gehlot, Union Minister
Smt. Smriti Zubin Irani, Union Minister

3.

Aim -

a.

In short -

b.

i.

A policy think-tank

ii.

It will be providing strategic and technical advice to the central and the state governments.

Detail i.

Will set national agenda in consultation with states

ii.

Policy and programs

1.

Formulating long term policy and programme

2.

Focussing on technology upgradation and capacity building for implementation of programmes and
initiatives.

3.

monitor their progress

iii. To develop mechanisms to formulate "plans at the village level" and aggregate these progressively at
higher levels of government.
iv.

Acts as a platform for resolution of inter-sectoral and inter-departmental issues

v.

Acts as a Resource Centre which will acts a repository of research and best practises on good
governance

vi. To provide advice and encourage partnerships between key stakeholders and national and international
like-minded Think Tanks, as well as educational and policy research institutions.
vii. To address the needs of national security in economic strategy.

Notes

c.

34

By this it will aim to

i.

Promote cooperative federalism

ii.

An administration paradigm in which the Government is an "enabler" rather than a "provider of first
and last resort."

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4.

Criticism by opposition -

a.

Similar to PC - not a radical change

b.

i.

The opposition Congress mocked the launch as a cosmetic relabeling exercise - the new body's
acronym-based name means 'Policy Commission' in Hindi, suggesting a less bold departure than the
English version does.

ii.

It is just an exercise to remove Nehru's legacy. PC was created by Nehru and as BJP is against
congress and Nehru thus this nomenclature.

Over-centralization
i.

Opposition described Mr. Modi's vision of "cooperative federalism" as cover for a veiled power grab.

ii.

Now NITI Aayog is under the PMO, with the pm as an active chairman setting the agenda. Earlier,
the prime minister was ex-officio chairman, who did not directly set the agenda.

iii. Also funds will be distributed by FM instead of PC.

c.

At present there is no clarity on who is responsible for the critical function of allocating Plan funds?
Hopefully, there will be greater clarity on this aspect in the days ahead.

5.

Concluding remark - let's wait and watch

a.

As rightly said by sitaram yechury that a mere change in the name would not yield the desired results.
"Mere changing this nomenclature and this sort of gimmickry is not going to serve the purpose. Let us wait
and see what the government is eventually planning.

Relevance of planning 1.

Relevance of planning at the first place is questioned because of

a.

Re-Emergence of free market economy and

b.

Even in centrally planned economy, planning is going out of fashion.

2.

But it should be remembered that in India, the role of state is not only w.r.t deciding macro-economic
policy formulation but also substantial public sector investment in production and distribution. Public
sector is very substantial part of the Indian economy and has been developed keeping in mind the DPSP.
So the need of planning arises from this fact.

3.

Ours is a mixed economy in which the role of Govt. involves (a) Market regulation and (b) public sector
initiatives. As long as our commitment to mixed economy continues the planning commission will remain
relevant.

Future of 5 yr plans - (government may eventually scrap five-year plans)

Having dismantled the Planning Commission, the Narendra Modi government may also eventually do away
with the tradition of five-year plans that the Nehru-era institution produced, advisors to the erstwhile body
felt after their first meeting with Arvind Panagariya, the vice -chairman of NITI Aayog, which has replaced
the commission.

2.

View of Arvind Panagariya - "A market economy should not be driven by plans".

3.

Indications towards it -

Notes

1.

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a.

Although Govt. hasn't abandoned 12th plan (and also cant) but it is formulating targets based on its
own policies, thus it eventually means end of the 12th plan. All of Modi government's social sector
initiatives, such as housing for all and Swachh Bharat Abhiyan, have their own deadlines, once again
signaling that this government wants to reset the targets and not follow those prescribed in the 12th
plan prepared by the previous government.

b.

The mid-term appraisal of the ongoing 12th plan (2012-17) should have been over by December
2014, going by the past practice. However, Modi government did not do undertake the mid-term
review of the plan.

c.

Modi himself has been critical in the past of the concept of five-year plans.

RAILWAYS
(Overview & Recent developments)
1) Problems 1.

W.r.t tracks - quantity

a.

How much line added since independence

i. Track length at independence '
ii. According to 12th plan ' Indian Railways have added 11,864 km of new lines since independence.

b.

Many areas still unconnected

i. It has not been able to cover major areas in many states.
ii. Also it has very little presence in the

2.

1.

North -East States and

2.

Himalayan region.

W.r.t railways coach, wagon a. Capacity, overcrowded

i.

Problem -less capacity, thus leading to shortage of seats. And in local trains it is very overcrowded.
It is common scenario that we see people travelling on the rooftop of trains.

ii.

Steps to be taken '

1.

Add more coaches '

In 11th plan, our performance in acquisition of wagons and coaches was good, so this needs to be
continued to meet the needs.

b.

According to 12th plan ' augmenting the load of existing services with popular timings and on popular
routes to 24/26 coaches would help generating additional capacity and availability of additional berths/
seats for the traveling public.

2.

Need to increase frequency of trains.

b.

Speed of trains -

i.

Present scenario

Notes

a.

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1.

Speeds of our trains is very poor. At present, speed of Mail/Express trains is below 55 kmph.

2.

And even if we see the speed of superfast trains like shatabadi and rajdhani then there speed is also
very less as compared to speed of superfast trains in world

a.

JR East ' a Japanese railway company. It operates urban, high speed and regional railways. Its average
delay is less than 1 minute including all kinds of delays, even those due to snow and typhoons. JR East
runs the famous Shinkansen high speed trains.

3.

Winters

ii.

a.

And all this gets worst in winters where train delays by many days

b.

Whereas if we compare with china then

c.

Read article titled ' train versus tortoise, is it? Date 29 Dec 2012.

Reason for low speed '

1.

Technological reasons ' Primarily because of the coaching stock in use (which is very old),

2.

Other aspects (operating reasons) 'Multiplicity of stoppages en-route; No segregation of freight and
passenger traffic,

iii. What to do
1.

Segregation of freight and passenger traffic,

a.

Dedicated freight corridors will do this.

2.

rationalization of stoppages

3.

LHB design coaches ' According to 12th plan it has been planned to have a complete switchover to new
manufacture of only LHB design coaches by the end of 12th Plan. Induction of LHB design coaches will
increase speeds of trains to more than 130 kmph.

4.

enhancing the sectional speeds,

c.

Quality of service inside train

i.

Cleanliness

ii.

Sanitation

iii. Catering
W.r.t safety

a.

W.r.t tracks -

i.

Problem - Broken at many places + vey old which leads to derailment

ii.

Solution - Thus they need to be renewed. i.e regular track renewal is reqd.

b.

Crossings -

i.

Problem -There are 10,000 + of leveled and unmanned crossings; now these are a major source of mishaps
+ leads to train delay

ii.

Solution - Provision of subway, or a flyover; manning of unmanned level crossing gates;

Notes

3.

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c.

Train collision

i.

Reason - Due to poor signaling

ii.

Solution - Use technology to solve it like Development of Anti Collision Device (ACD)

4.

W.r.t stations

a.

Problems ' Capacity (Very low), Cleanliness & Other services

b.

Solution ' Delhi metro case study; Development of model Adarsh stations; PPP (Like we used PPP mode
to develop airports, similarly we should explore PPP mode to develop railways stations).

c.

Adarsh stations scheme '

i.

The Adarsh stations scheme was introduced in 2009.

ii.

Adarsh stations are provided with basic facilities such as - drinking water, functioning toilets, catering
services, waiting rooms and dormitories especially for lady passengers, and better signage.

iii. Present status acc to eco survey 2012-13 ' A total of 976 stations have been identified for development
as Adarsh stations, of which 616 have so far been developed.
New areas get connected a) Completion of Udhampur-Katra broad gauge line - july 2014

The Udhampur-Katra broad gauge line in Jammu and Kashmir has been completed.

Four train services up to Katra have commenced from July 2014.

This has brought the state closer to the rest of the nation

b)

Meghalaya gets rail connectivity - nova, 2014

Meghalaya got its first rail connectivity with the completion of the new Dubhnoi-Mendipathar line in
August 2014.

A new route from Mendipathar in Meghalaya to Guwahati in Assam, got connected by rail in Nov, 2014.

Rail Budget - 2014

Presented by Union minister Sadananda Gowda '

Notes

1.

38

Financing
a.

Highest ever plan outlay of Rs. 65,455 crore for 2014-15

b.

No change in passenger fares and freight charges

i.

Recent fare and tariff hike to mop additional revenue of about 8000 crore rupees.

c.

Alternate sources

i.

FDI in

1.

Railway projects, except in operations

2.

Rail infrastructure

ii.

PPP ' Some stations to be developed to international standards through PPP model

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2.

3.

4.

New trains '

a.

58 new trains and extension of 11;

b.

No new increase in passenger fares and freight charges

Increasing speed
a.

Bullet train in Mumbai-Ahmedabad sector

b.

Diamond quadrilateral for high speed trains

i.

It will provide special high-speed corridors to link the four main metros.

c.

Plan to hike speed of trains to 160-200 km/hr in 9 sectors

Miscellaneous
a.

Reservation system to be revamped, ticket-booking through mobile phones

b.

Women RPF Constables to escort ladies coaches; 4,000 women constables to be inducted

c.

Feedback services through IVRS on quality of food

d.

Cleanliness

i.

Cleanliness budget up by 40 per cent over last year

ii.

CCTVs to be used at stations for monitoring cleanliness

iii. Setting up of corpus fund for stations' upkeep; RO drinking water in some stations and trains
e.

Internet

i.

Office-on-Wheels: Internet & workstation facilities on select trains

ii.

WiFi in A1, A category stations and in select trains

f.

Railways university for technical and non-technical subjects

g.

Green Initiatives

i.

Solar energy to be tapped at major stations

ii.

Use of bio-diesel up to 5% of total diesel fuel consumption.

iii. Increasing bio-toilets in sufficient numbers in trains to mitigate the problem of direct discharge of
human waste on the tracks and platforms.
5.

Target of becoming the largest friegt carrier in world.

FDI in railways Intro

a.

NDA Govt. in itsbudget announced that railways wlll be allowed in Railway projects, except in
operations

b.

Subsequently in aug 2014 Govt. allowed 100% FDI through automatic route in railways in construction
and maintenance in many areas including high speed trains.

Notes

1.

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2.

3.

c.

But proposals involving FDI over 49 per cent in "sensitive areas, from security point of view" will
be placed before the Cabinet Committee on Security (CCS) for approval on a case-to-case basis.

d.

FDI is not allowed in train operations and safety.

Why needed
a.

Railways is a capital intensive sector. It needs huge investment on regular basis for modernization

b.

But at present it is facing cash crunch.

i.

Currently it is facing a cash crunch of 30,000 crore to complete pending projects.

ii.

Even increased tariffs and increase Govt. allocation in budget is insufficient for modernization.

c.

Thus FDI is inevitable for its modernization like introducing bullet trains and fast speed trains,
expansion and thus railways will eb able to contribute an additional 1.5-2% to country's GDP.

Substantial chunk of foreign investment will come from US, China and Japan.

RAIL BUDGET 2015 - 16

1) features a) Future roadmap It presented a vision doc for the next 5 years
1.

2.

4 goals
a.

Improve customer experience

b.

To make rail travel safe

c.

Increase carrying capacity (from 21 million to 30 million), track length (by 20%to 1.38 lakh km) and
improve infrastructure

d.

To make railways financially self-sustainable

5 drivers of execution strategy to achieve above goal

a.

Adopting medium term perspective - solve immediate priorities but don't neglect long term goals

b.

Working closely with states, PSUs etc

c.

Raising addition resources-bring private investment

d.

Improve management practices - reduce operation ratio

e.

Improve governance, transparency

b) Trains

No new trains were announced.

c) Track line 1,38,000 km of tracks will be added in the next 5 years, an increase of 10%.

A push for better connectivity in the North-East India and Jammu and Kashmir was also announced.

Notes

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d)

High-speed corridor -

9 semi-high speed corridors will be introduced with speed up to 200 km/h. The carriages for such trains
will be built in India.

e)

Security of train 1.

Train collision detection systems will be introduced on selected routes.

2.

3,000 unmanned railway crossings will be removed and 917 over or under-bridges will be constructed
to replace some of them.

f)

Passenger amenities - (quality of travel)

1.

Cleanliness -A Swachh Rail Swachh Bharat program will be launched under which

2.

a.

new department for cleanliness to be crated

b.

integrated cleaning by engaging professional agencies and training our staff,

c.

'waste to energy' conversion plants,

d.

650 stations will be get new toilets.

e.

Bio-toilets - 17,000 old toilets on trains will be replaced by bio-toilets in 2015, increasing the number
of 17,388 existing ones.

Help-line a.

3.

4.

Ticketing a.

An initiative called the "Operation 5-minute" was announced which would allow ticketless passengers
to acquire tickets within 5 minutes of entering a station.

b.

Passengers will be allowed to book tickets up to 120 days in advance, an increase from current 2
months.

c.

proliferation of automatic ticket vending machines with smart cards and currency options,

d.

Hand-held terminals to Travelling Ticket Examiners (TTEs) for verification of passengers and
downloading charts;

e.

Possibility of extending facility of SMS on mobiles as a valid proof of travel for PRS tickets;

Catering a.

E-Catering to select meals from an array of choices.

b.

Ordering food through IRCTC website at the time of booking of tickets;

c.

integrating best food chains into this project;

Info to passenger about technology a.

"SMS Alert" service to inform passengers in advance of the updated arrival/departure time of trains
at starting or destination stations.

b.

Integrated customer portal as a single interface to access different services;

Notes

5.

24X7 helpline number 138;

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c.
6.

7.

8.

9.

A centrally managed "Railway Display Network" will be introduced at 2,000 stations to provide train
information.

Women's Security
a.

Toll-free number 182 for security related complaints.

b.

CCTV cameras will installed in select trains and women's-only coaches of suburban trains without
intruding into privacy.

Station facilities a.

200 stations will be brought under the "Adarsh Station Scheme" and will be given basic amenities
like toilets, drinking water, catering services, waiting rooms etc.

b.

Wi - Fi to be provided at B category stations ;

Train capacity a.

capacity in identified trains be augmented to run with 26 coaches;

b.

more General class coaches be added in identified trains;

Comfortable travel - for senior citizens, disabled and ladies

a.

NID approached to design user friendly ladders for climbing upper berths;

b.

Lower berths

i.

increasing quota of lower berths for senior citizens;

ii.

TTEs be instructed to help senior citizens, pregnant women and differently-abled persons in obtaining
lower berths;

c.

Middle part of coaches

i.

Middle bay of coaches to be reserved for women and senior citizen;

d.

Newly manufactured coaches will be Braille enabled; building wider entrances for the ease of differentlyabled passengers;

e.

Online booking of wheel chair on payment basis for senior citizens, patients and the differently-abled
passengers through IRCTC on select stations.

f.

Provision of Rs. 120 crore for Lifts and escalator which is 76% higher;

g.

Increased in sleeper class coaches.

10. Entertainment a.

project for introducing on-board entertainment on select Shatabdi trains on license fee basis launched;

b.

Mobile phone charging facilities to be provided in general class coaches

Research Four Railway Research Centers to be set up in select universities for fundamental research; 'Malaviya
Chair' for Railway Technology at IIT (BHU), Varanasi to be set up.

Strengthening of RDSO into an organization of excellence for applied research;

Notes

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RDSO - research, design and standards organization; based in lucknow

Electrification

He talked about electrification of railways i.e. no. of electric coaches to be increased.

1)

Train sets -

it proposes to introduce a very modern train system called train sets.

These are similar to bullet trains in design and can run on existing tracks without an engine to haul them.

They will reduce 20% saving in journey time.

2)

Evaluation -

1.

Good ones - Hindu's front page headline "passenger is the king"

2.

a.

Not a populist ones - thus it was unlike his predecessors

i.

have avoided the throw forward approach of introducing new trains

ii.

didn't catered to a particular state (e.g. inspite of PM and home minister of being from UP there
were no specific announcements for UP)

b.

Have focused on passengers amenities; passenger centric budget; Allocation for passenger amenities
up by 67% Y-O-Y.

c.

Have focused on key issues plaguing it like

i.

Overall security esp of women's security

ii.

Cleanliness

d.

Electrification of railways will educe dependence on crude oil whose huge import is an issue.

Challenges a.

Budget did not clarify how revenues will generated to pay for the promises. This was said by all the
critics.

i.

With operating expenses consuming 9 out of every 10 rupees earned by railways, there just isn't
enough surplus to plough back into investment.

b.

Now matter how path-reaking the budget is, ultimately it all depends on implementation.

AVIATION
1) Safety list of safety issues
Runway related
a.

The increase in number of movements affects runway safety, ramp safety, incursions and excursions,
ramp congestion, precautionary landings, aborted take offs, and other serious situations affecting
safety.

b.

+ 3 and 8 (I.E. 3 minutes after taking off and minutes before landing.85% of accidents happens
in these 11 minutes)

Notes

1.

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c.
2.

Recent case air Canada flight624 slid off the runway at Halifax Stanfield Airport in Enfield, Nova
Scotia, canada in March 29, 2015.

Due to congestion (Mid air crash/collision)

a. The congestion in the skies also poses a threat of near-misses and collision warnings.

3.

Bad weather

a.

Q8501

i.

Indonesia AirAsia Flight 8501(QZ8501/AWQ8501) was a scheduled international passenger flight,

operated byAirAsiaGroup affiliateIndonesia AirAsia, fromSurabaya, Indonesia, toSingapore. On28
December2014, the aircraft operating the route, anAirbus A320-216, crashed into theJava Seaduring bad
weather, killing all 155 passengers and seven crew on board. On20 January2015, it was reported that the
aircraft hadstalledduring an abnormally steep climb and had been unable to recover.

4.

Terrorism related
a.

9/11

b.

Kandhar hijack

5.

Due to pilots mental illness

a.

Malaysia Airlines MH 370 disappearance also involved a captain who may have been disturbed.

b.

Germanwings Flight 9525

i.

It was a scheduled international passenger flight fromBarcelonaEl Prat Airportin Spain toDsseldorf
Airportin Germany, operated byGermanwings, alow-cost airlineowned byLufthansa.

ii.

On24 March2015, the aircraft crashed in theFrench Alps. All 144 passengers and six crew members
were killed.

iii. The crash was intentionally caused by the co-pilot,Andreas Lubitz. Having previously been treated
forsuicidaltendencies and been declared unfit to work by a doctor, Lubitz kept this information
from his employer and reported for duty. During the flight, he locked the captain out of the cockpit
before initiating a descent that caused the plane to crash into a mountain.
iv.

In response to this, many countries implemented new regulations that require two authorized personnel
to be present in the cockpit at all times.

c.

Way fowd

i.

Destrigmatize mental; illness so that oilots cn share their problems

ii.

The need of the hour is to encourage pilots to be open about their medical and mental conditions
and for the Regulators and the airlines to assist in overcoming any problem.

iii. Follow rule of 2 as a precaution.

Solution any specific one, difft from above

a.

12th plans view W.r.t DGCA The implementation of Safety Program by DGCA and safety management
systems by all stake holders needs to be ensured. It is proposed to further strengthen DGCA during the
Plan.

Notes

6.

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5/20 rule
1)

This rule under the civil aviation policy mandates a carrier to be five-year-old and have at least 20 aircraft
in its fleet before being allowed to serve the international market.

2)

NDA Govt.has proposed abolishing this rule

3)

Arguments in favor if it

4)

a.

But this is opposed by existing players who argue that this will cut in their share

b.

Instead of fgoing internation go for tier-2, 3 cities, NE region

Arguments against it
a.

No such a rule anywhere else in the world.

b.

Is discriminatory against new entrants; a protectionist measure

c.

The rule wouldmean less economic activity as aviation has been a key growth generator for other
countries like Singapore and Dubai.

d.

This is the reason that the new airline operator vistara is prohibited from going international.

e.

aviation sector needs much more investment and more entrants.

Spice jet
1.

About it
a.

It is a low-cost airline.

b.

It commenced its operations in 2005

c.

It wa started by ajay singh. In 2010, media baron kalanidhi maran acquired 37.7% stake in Spicejet.

2.

Recent crisis

a.

What happened
i.

In December 2014, SpiceJet cancelled many domestic flights across the country.

ii.

In Dec 2014, DGCA issued a warning to spicejet over non payment of salaries and dues. Airport
operators moved to put the carrier on cash-and-carry mode, which means the airline can use the
facilities of an airport only upon immediate payment.

iii. On December 17, all flights were grounded after oil companies refused to refuel its planes.
iv.

Flights resumed the next day as he Govt. gave it a 600 crore lifeline in the form of loans

v.

It eventually led to an ownership change, withAjay Singh, a co-founder of SpiceJet who exited the
airline in 2010, back in control after buying it fromKalanithi Maran in Jan 2015.

vi. Now Ajay Singh is trying to revive its fortunes.

b.

Reasons
Underlying reasons common for all India continued to be a high-cost operating centre in terms of
jet fuel, airport charges and other taxes for airlines; air passenger continues to be low at mere 3%.

Notes

i.

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ii.

Specific to spicejet

c.

1.

To capture market share they hgave too much discounts, but in that process lost a lot of money.

2.

they deviated from what was essentially a low-cost model by opening up at airports across the
country. They went for breadth rather than depth. A low-cost airline needs to have multiple flights
to a station rather than opening many stations. Structurally, that was wrong.

Way fowd
i.

Over the last seven years, Indian airlines have lost about $10.6 billion, according to Centre for Asia
Pacific Aviation, or Capa. In the same period, the industry saw the closure of Kingfisher Airlines,
Air Deccan (which had merged with Kingfisher), Air Mantra, Deccan 360, MDLR Airlines, Paramount
Airways and Indus Air.

ii.

Spicejet is a symptom; solve the underlying problems otherwise its not the 1st and wont be the last.

Vistara

Vistarais anIndianairlinebased inNew Delhiwith its hub atDelhi-Indira Gandhi International Airport.

The carrier, a joint venture between Tata Sons and Singapore Airlines, commenced operations on 9
January 2015.

It carried a total of 100,000 passenger by 31 March 2015.As of April 2015, the airline operates 197
weekly scheduled passenger service across 8 domestic destinations within India with a fleet of 6Airbus
A320-232aircraft. Vistara is the first private airline to introduce premium economy seats on domestic
flights in India.

This was TATAs second foray into the aviation sector after TATA Airlines in the 1930s. Tata Airlines
later becameAir Indiaand was subsequently nationalized.

Vistara also plans to start international operations as and when the government decides to do away with
5/20 rule that mandates a carrier to be five-year-old and have at least 20 aircraft in its fleet before being
allowed to serve the international market.

ROADS
1) Road Safety
1.

Notes

2.

46

Present Scenario
a.

According to a report, one accident takes place in the country every minute and one person dies in
an accident every 4 minutes.

b.

The number of recorded road deaths in India 1.4 lakh annually is the highest in the world. In
addition, an estimated 2.2 million people are seriously injured on roads.

c.

Recently union minister gopinath munde died.

Reasons
a.

Rapid motorization due to fast paced eco. activity

b.

Public signage and lighting,

c.

No checks before giving driving licenses,

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3.

d.

No check on certification of fitness of levels,

e.

Little urgency shown by state Govt. E.g. central Govt. constituted Sundar committee in 2007 to
look into the issues. But its recommendations have not been implemented.

f.

Scientific investigation of road accidents is our weakest area today that we are unable to know
the causes and consequences of road accidents. Policemen who investigate crashes are neither
professionally trained, nor do they possess the basic tools to collect evidence, and analyse and
reconstruct the events leading to the crash.

g.

Drunker driving cases.

Consequences
a.

4.

Eco implications by some estimates 3% of GDP is lost due to carnage.

Conclusion
a.

Sundar committee (2007)

i.

Recommendation Create an apex agency. This will access all aspects of road safety and will
address the lacunas.

b.

Rakesh Mohan committee

i.

Recommendation Create national, state and local level inst to address road safety issues.

c.

Way fowd

i.

Implement recommendations by forming committees. These should be given sufficient powers,

ii.

Improvement in public signage and lighting,

iii. Sufficient checks before giving driving licenses,

iv.

Proper check on certification of fitness of levels,

v.

Overhaul investigation process. CCTVs can come handy in this process,

vi. There is high cost of treatment, so Govt. should subsidize it.

FAME India
(Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles)
1.

It was 1st announced in union budget 2015 and was subsequently launched on 1st April, 2015

2.

It is a GOI scheme under NEMMP 2020 and thus aims to achieve the target set under it i.e. increasing
domestic manufacturing and promoting its sale so that these vehicles can replace the conventional vehicles
in the coming years

3.

It tends to achieve this target by following

Increasing supply i.e. increase domestic production by

i.

Providing fiscal incentives to manufacturers

ii.

Providing necessary infrastructure and technologies to them

Notes

a.

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b.

Increasing demand i.e.

i.

by providing monetary support i.e. subsidies to the buyers (manufacturer will reduce the purchase price
of a hybrid and electric vehicle at the time of selling to the buyer, and the same will be reimbursed to them
by the Government)

ii.

Creating awareness about the benefits of electric vehicles

4.

The scheme envisages providing 795 crore rupees support till 2020 for the manufacturing and sale of
electric and hybrid vehicles.

5.

The scheme will be implemented in 2 phases. In the first phase, the scheme will be implemented over
a two year period between 2015-16 and 2016-17. The government will review the implementation of the
scheme in first phase after 31 March 2017.

6.

Overall it envisages to provide Rs 795 crore support till 2020.

7.

Dept of heavy industries is the nodal agency for the scheme.

8.

will FAME India be a game changer? Well chances are bleak

a.

firstly there are inherent universal challenges like high initial cost, lack of charging points and not
suitable for longer journey. So these need to be addressed.

b.

Also if we see Indian specific challenges then IMPT

i.

When electricity grids in India do not even have the capacity to power households, how can they
be expected to power a large population of electric vehicles? First we have to be power surplus.

ii.

Also it is only half-green. The car may be electric, but the power plants producing the electricity
are largely coal-fired, raising questions about the cars real environmental cost.

c.

Also the Indian consumer at the moment is not much interested in making the planet greener. This
is unlikely to change quickly.

The Motor Vehicles (Amendment) Bill, 2015

The Motor Vehicles (Amendment) Bill, 2015 was passed by the 2 houses of the parliament in march, 2015
and thus replaces the ordinance which was promulgated in Dec, 2014. The ordinance was promulgated to
legalise e-rickshaws which were banned in the National Capital Region by the Delhi High Court, raising
questions over their safety.
Key provisions of the bill are
It amends the Motor Vehicles Act, 1988 to bring e-carts and e-rickshaws under ambit of the parent Act,
so they can ply on roads across the country.

2.

The Bill defines E-carts and e-rickshaws as special purpose battery powered vehicles with power up to
4000 watts and having 3 wheels.

3.

Bill mentions that these vehicles can be used for carrying goods or passengers. e-rickshaws would be
meant to carry four passengers and luggage up to 50 kg, covering a distance of not more than 25 km
in a single trip.

4.

It also mentions that these vehicles should be manufactured, equipped and maintained in accordance with
specifications as prescribed by Union government.

Notes

1.

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5.

License
a.

It does the away the requirement of first obtaining a learners license and then wait for year to obtain
drivers license. Instead after filing an application, driving license will be given after 1 month. During
this month, the drivers would need to undergo a training to drive the e-rickshaws.

b.

Also the eligibility criterion of 8th standard pass would also be relaxed for grant of licenses for erickshaws and e-carts.

6.

The Bill gives powers to Union government to make Rules on the specifications for e-carts and e-rickshaws,
and the conditions and manner for issuing driving licenses.

7.

Insurance can be obtained for e-rickshaws.

WATER
1) Sagarmala (March 2015, cabinet gave in-principal approval to it)
a) Background in which it is launched (problems facing our ports)

Low capacity Volume of trade is increasing and will increase in future also. But the capacity to handle
them is not increasing proportionally.

Poor Infrastructure test laboratories, testing procedures etc.

Delay There is delay in dealing with the cargo (the average turnaround time and average pre berthing
time at major parts is increasing).

Connectivity with road and railways There is absence of seamless connectivity with other modes. And
thus difficult to reach to hinterland.

b) Timeline

The Sagar Mala Project was first announced by former PM Atal Bihari Vajpayee on August 15, 2003.
However, the project was in abeyance during the UPA rule of around 10 years.

Now the NDA Govt. after assuming power decided to revive this project and on 25th march 2015, union
cabinet gave gave its in-principle approval for the concept and institutional framework of Sagarmala
Project.

In-principle means approved but subject to fulfilling some conditions; verification.

c) Activities to be undertaken it
The Sagarmala Project aims for port-led economic development by undertaking the following activities
1.

Developing new ports with modern infrastructure and Enhancing the capacity of existing major and nonmajor ports

2.

Simplifying procedures used at ports for cargo movement and promotes usage of electronic channels for
information exchange leading to quick, efficient, hassle-free and seamless cargo movement.

3.

Aiming for multi-modal transport connectivity by linking ports with road, railways and inland waterways
so that hinterland regions can be accessed
For this it also aims for providing an institutional framework for ensuring inter-agency and ministries/
departments/states collaboration for integrated development

Notes

a.

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4.

Establishment of industries and manufacturing centres to be served by ports in EXIM and domestic
trade.

5.

Specialization of ports in certain economic activities such as energy, containers, chemicals, coal, agro
products, etc.

d) PPP

All efforts would be made to implement those projects through the private sector and through Public
Private Participation (PPP) wherever feasible.

REAL ESTATE
1) present status
a) Current regulation
Different aspects of real estate are regulated by different levels of government.
1.

Real estate projects are currently regulated by state governments under their respective state town and
country planning or apartment ownership Acts.
a.

Town and country planning Acts regulate land use and development.

b.

Apartment ownership Acts regulate individual ownership of apartments in buildings with multiple
apartments.

2.

Approvals for construction of real estate projects are primarily given at the local and state level.

3.

Certain approvals are given by the central government.

4.

Consumer grievances may be redressed through forums established under the Consumer Protection Act,
1986.

5.

Unfair trade practices may be challenged under the Competition Act, 2002.

b) Problems
1.

As we can see that at present there is absence of single regulator for real estate sector (rather we have
at center, state, locals) and multiplicity of laws

2.

And all this has led to

a.

Hindering the growth of real estate sector

i.

According to a committee reprt in 2012, around 50 approvals are required for projects, across three
levels of government, taking up to four years. Thus there should be single windo system for
clearance.

b.

Consumer harassment i.e. delays of projects, unfair buyers agreements, delays in redressing of
grievances (i.e. khosla ka ghosla), lack of transparency

c.

Others like Illegal constructions, non-compliance with building standards or contracts.

2) Real Estate (Regulation and Development) Bill, 2013

Will be introduced in budget session in 2015

Notes

1.

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Establishes agencies

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a.

RERAs (Real Estate Regulatory Authorities)

i.

It establishes state level regulatory authorities called

ii.

Functions

1.

ensuring that residential projects are registered, and their details uploaded on the RERA website,

2.

ensuring that buyers, sellers, and agents comply with obligations under the Act,

3.

advising the government on matters related to the development of real estate.

b.

Tribunal

i.

Establishes state level tribunals called Real Estate Appellate Tribunals.

ii.

Decisions of RERAs can be appealed in these tribunals.

2.

Outlines the duties of developers/promoters of real estate projects, agents and buyers in real estate sector

a.

Developers duty
i.

Residential real estate projects need to be registered with RERAs if the project is greater than 1000
square meters; hasmore than 12 appartments.

1.

Promoters cannot book or offer these projects for sale without registering them.

ii.

On registration, the promoter must upload details of the project on the website of the RERA. These
include the site and layout plan, and schedule for completion of the real estate project. Developers
have to quarterly update about the project on regulatory authrouitys website

iii. 70% earmarked for construction

b.

1.

70% of the amount collected from buyers for a project must be maintained in a separate bank
account.

2.

It must only be used for construction of that project.

3.

The state government can alter this amount to less than 70%.

Real estate agents duty

i.

c.

Buyers duty
i.

Developer and buyer must eneter into a written agreement if an advance payment of more than 10%
of the cost of property has been taken.

ii.

Buyer have to make payment on time as specified in the agreement

Penalization
a.

Developer developers have to pay 10% of the project cost if fails to register the project

b.

Buyer if delays payment then has to pay interest

c.

Agents fine of 10,000/day for violating provisions.

Notes

3.

need to register with RERAs in projects covered under the bill

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3) REITS
(Real estate investment trusts)
1.

About them
a.

REITs real estate investment trusts

b.

They are like mutual funds in the stock market.

c.

How they work

i.

REITS sells units to investors.

ii.

This money is invested in real estate projects to earn rental income.

iii. This income is then distributed to unit holders and the units are listed and traded on stock markets
like any other equity share.
2.

3.

Budget 2014-15
a.

Budget brought clarity on the taxation of REITs

b.

These units will be taxed in a manner similar to equity shares

c.

They dont have to pay corporate Tax.

d.

Sponsor (promoter) will be liable to capital gains tax only when he sells these units (not when he
exchanges these shares)

Importance
a.

These budget announcements will give a push to REITS which are impt in many ways

b.

For real estate sector

i.

Advent of REITS will usher in global best practices into an industry that is in dire need of transparency
in its business practices.

ii.

Will help in capital formation in the real estate business +

iii. Will relieve the financing burdens on banks which are stressed with NPAs.

4.

c.

Domestic investors

i.

Will help domestic investors who cant invest large sum of moneys.

d.

Promoters

i.

Will unlock the promoters capital invested in finished but idle projects.

Subsequent steps
a.

Guidelines ????????

b.

BSE has launched an advisory group on REITs.

4) INVITS

Notes

1.

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Full name Infrastructure Investment Trusts (INVITS)

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2.

It is a modified REITS type structure for infrastructure projects.

3.

It will attract long term finance from foreign and domestic sources including the NRIs

4.

Announced in budget

5.

Subsequently SEBI released draft guidelines for InvITs,

a.

An InvIT would be a trust with parties such as sponsor, investment manager, trustee and project
manager.

b.

will get tax benefits

c.

can be listed on the stock exchanges,

The proposed holding of an InvIT in the underlying assets shall be not less than Rs.500 crore, and the offer
size of the InvIT shall not be less then Rs.250 crore at the time of initial offer of units.

COAL
1) coal scam 2004-09

Notes

a) Timeline

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b) FAQs w.r.t involvement of former PM manmohan singh and former coal secretary PC parakh
(I.E. why are they charged)
1.

What is the case in which Manmohan Singh has been summoned as accused?
a.

2.

3.

What has the court said on Singhs role?

a.

That Singh, who was then in charge of the coal ministry, allowed the matter to be reopened even
though he had himself permitted the approval of the minutes of 25th Screening Committee, which
had recommended the allocation of the block to NLC.

b.

The court has also observed that Singhs approval of the proposal from former coal secretary and coaccused P C Parakh to accommodate Hindalco in the Talabira-II and III blocks, while ignoring the
notes of caution sounded by PMO officials K V Pratap and Javed Usmani regarding relaxation of
the already approved guidelines, prima facie shows a conscious effort on his part to somehow
accommodate Hindalco in the Talabira-II block. The nod, given in alleged violation of established
procedure and approved guidelines, hurt NLC, which already stood vested in it pursuant to the
recommendation of Screening Committee, and allegedly resulted in defeating NLCs efforts to establish
a 2,000 MW power plant in Orissa.

What led the investigation to Singhs door?

a.

4.

It concerns the allocation, in 2005, of the Talabira-II coal block in Orissa to Mahanadi Coalfileds Ltd,
Neyveli Lignite Corporation Ltd (NLC) and Hindalco, to be mined after the three entities formed
a joint venture.

It was pointed out from the time of the leak of the draft CAG report in March 2012 that Singh
was coal minister for at least a part of the time when the alleged inefficient allocations were made.
In May of that year, Singh said the allegations against him were unfortunate and irresponsible,
and that he would give up public life if they were proved. After the CAGs final report was tabled
in Parliament in August, Singh said the reports observations were clearly disputable. In its edition
of September 4, 2013, The Indian Express reported that the CBIs investigating officer had said there
was a requirement to examine Singh in the case, but the then CBI director Ranjit Sinha had shot
down the idea at this stage. On December 16, 2014, the special court, while rejecting the CBI
closure report, directed the agency to examine the then coal minister Singh, along with top officials
of the PMO. On February 19, 2015, the CBI informed the court that they had completed the probe
after examining Singh and PMO officials. The court fixed March 11 for consideration of the closure
report. On Wednesday, the court rejected the closure report, took cognizance of the alleged offences,
and summoned six accused, including Singh.

What are the charges against Singh?

a.

The court has take cognizance of offences under IPC Sections 120B (criminal conspiracy) and 409
(criminal breach of trust by public servant, or by banker, merchant or agent), and sections of the
Prevention of Corruption Act. The charge of criminal breach of trust carries a maximum punishment
of life imprisonment.

2) Coal Mines (Special Provisions) Ordinance, 2014

Supreme Court judgment dated 20 August, 2014 and its order dated 24 September, 2014 cancelled
allocation of certain coal blocks and issued directions with regard to them.

2.

Due to this uncertainty emerged in the coal sector. To overcome this central government issued the
following 2 ordinances

Notes

1.

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a.

Coal Mines (Special Provisions) Ordinance, 2014 on 21 October 2014 and

b.

Coal Mines (Special Provisions) Second Ordinance, 2014 on 26 December 2014.

i.

This ordinance replaced the above ordinance.

3.

The main purpose of these ordinances is to provide for allocation of coal mines to steel, cement, and
power utilities which are vital for development and, ensure smooth transfer of rights, title, and interests
in the mines/blocks along with their land and other associated mining infrastructure to the new allottees
to be selected through an auction or allotment (to government companies).

4.

The allocation of coal blocks would now be made in line with the provisions of the ordinances and rules
made under them and the auction of coal blocks would be through an eauction process in order to keep
the process transparent.

5.

The methodology for fixing a floor/ reserve price for auction and allotment of these coal mines/blocks
has also been spelt out by the government.

PETROL & GAS

1) Present fall in global crude oil prices
1.

2.

3.

Present scenario
a.

Brent crude prices have fallen by nearly 60% since middle of june 2014.

i.

In mid june 2014 prices was at $115,

ii.

On Jan 9, 2015 it price was at $50 a barrel mark

Reasons
a.

Falling demand but supply is still high

i.

Falling demand due to continuation of euro zones troubles and issues with Chinese economy which
is seeing a slowdown in manufacturing growth

ii.

But OPEC (which accounts for about 40 per cent of global oil output) is not willing to cut production
to match the demand is a major factor. It is because cutting output will mean a loss of market share.
Thus demand is low but supply is high.

b.

Quantitative easing program

i.

Earlier Due to fed reserves, quantitative easing programme, interest rates were zero. Thus investors
need other avenues to earn profit. So surplus funds flowed into the commodity markets, notably
crude oil, driving their prices upwards.

ii.

But with the Fed winding up its stimulus programme and an interest rate hike in the U.S. possibly
just round the corner, funds are now flowing out of commodities, driving their prices down.

c.

(according to eco-survey published in Feb. 2015, low prices will likely to persist for coming months
due to above reasons)

Benefits Cheaper oil is obviously good for an energy-intensive economy such as Indias, which also
depends on imported oil for meeting 4/5th of its needs
Will reduce our import bill, thus CAD has been reduced.

Notes

a.

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b.

Inflation across the economy would also drop,

c.

Cheaper fuel prices will put more money in the hands of consumers which will, in turn, be either
invested or spent elsewhere,

d.

And this will further drive eco growth,

e.

A recent IMF study says that every $10 fall in oil price adds 0.2 percentage points to global GDP
growth.

4.

What should the Govt. do

a.

Build strategic reserves for future

i.

The three strategic storage projects under development by Indian Strategic Petroleum Reserves Ltd
at Vizag, Mangalore and Padur must be expedite + launch of new strategic reserve projects.

b.

bring transparency in the way the oil markets function

i.

This is the most opportune time to form an organisation for oil importing countries led by China and
India. Its primary objective should be to bring transparency to the way the oil markets function. The
world must further recognize that prices at $45/barrel makes production of even easy oil difficult.
Without regular dialogue between exporting and importing countries, oil will continue its wild swings.

c.

The government should also ensure market prices for the oil producing PSUs ONGC and OIL
So that they can invest in exploration and production.

i.

Stop subsidized sale of domestic crude oil by ONGC and Oil India to public sector refineries.

ii.

Under a weird subsidy burden sharing scheme, the two upstream producers were forced to sell at
below $50/barrel when the world prices were above $100.

iii. Such a pricing policy leaves little surplus for exploration effort. No wonder, two-thirds of the over
three million square km of our 26 sedimentary basins remains under-explored.
d.

Build LNG capacity

i.

Falling crude have also rubbed off on global LNG prices. Thus we should commission significant
additional LNG capacities. The substitution of petrol and diesel by compressed natural gas can
generate fuel savings of 20 per cent or more to the economy. Imagine the savings if the Delhi CNG
experiment can be replicated in other cities by leveraging the current low international gas prices
through LNG imports.

e.

According to an author the government should pass on the benefit to consumers who can then either
spend the surplus elsewhere or save. But the Govt. has raised the taxes as of Jan 17 excise duty
has gone up 4 times in the last two months depriving consumers of the benefit of lower prices. Govt.
is doing it to earn more revenue to reduce fiscal deficit.

2) PAHAL
(DBTL Direct benefit transfer for LPG)
a) History

Notes

4.

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The DBTL scheme, which was launched by the United Progressive Alliance government on June 1, 2013,
covered 291 districts before it was discontinued in early 2014.

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5.

Following a substantial review, the NDA Govt. modified and relaunched it in 54 districts across Himachal
Pradesh, Punjab, Goa, Madhya Pradesh, Kerala, Karnataka, Andhra Pradesh, Telangana, Maharashtra,
Puducherry and Daman & Diu on November 15, 2014, in the first phase.

6.

The scheme will cover the rest of the country on January 1, 2015, with 622 more districts.

b) Aim To target subsidy to the right beneficiary by

Eliminating bogus connections.

Curbing black marketeering and diversions and

c) How the scheme works

ELECTRICITY
1)

problems with power sector

1.

Issues w.r.t Fuel availability

a.

Issues w.r.t power generation companies

a.

Fuel supply agreements

i.

Private developers may not be able to finance projects if coal linkage issues are not resolved

ii.

Also there have been delays in finalization of fuel supply agreements (FSA).

b.

Also their financial health is not good.

Notes

2.

At present domestic production is less and thus we are depending on imports to bridge demand
supply gap.See detail from notes of coal

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3.

Issues w.r.t Discoms

a.

Bad financial health

i.

Poor governance

ii.

Tariff structure is set according to political and social motives;not set keeping in mind economic
motives. Thus focus on areas like tariff rationalization.

iii. There is need to optimize procurement cost of power.

iv.
b.

IMPT LINE Remem that power sector cannot deliver on its social commitments unless it is
commercially and financially viable.

Huge losses in transmission/distribution due to

i.

Poor cables

ii.

Power theft

iii. no transparency (as little disclosure of commercial losses)

iv.

little monitoring ofg distribution losses.

b)(i) Deendayal Upadhyaya Gram Jyoti Yojana (DDUGJY)

1.

2.

Intro
a.

It was launched by new NDA Govt. in 2014 (Nov).

b.

The existing Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) is subsumed under the DDUGJY.

Aim
a.

3.

to provide access of electricity to rural households across the country

how to do this
a.

Separating agriculture and non-agriculture feeders to facilitating discoms in the judicious rostering of
supply to agricultural and nonagricultural consumers;

b.

strengthening and augmentation of sub-transmission and distribution infrastructure in rural areas; and

c.

metering in rural areas.

4.

Under this all discoms including private sector discoms are eligible for availing of financial support.

5.

Rural Electrification Corporation (REC) : it is the Nodal Agency for operationalization of this Scheme.

b)(ii) Integrated Power Development Scheme (IPDS)

1.

2.

Intro
a.

It was launched by new NDA Govt. in 2014

b.

It subsumes the Restructured Accelerated Power Development and Reforms Programme (R-APDRP)

Objective -

Notes

a.

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To reduce aggregate technical and commercial (AT & C) losses,

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3.

4.

How to do it
a.

strengthening of the subtransmission and distribution network in urban areas,

b.

metering of distribution /feeders/transformers /consumers in urban areas and

c.

roof top solar panels.

Power Finance corporation is the nodal agency for operationalisation of this scheme.

RENEWABLE ENERGY
1) statistics a) share of RE in total installed energy in country
Present (31st Dec, 2014)

33.8 GW out of 254 GW

7.5% share

Future target (2022)

175GW

15% share

b) Share of each sector in RE

Source

Total Installed Capacity (GW)

1.

Wind Power

22(70% of RE at present)

2.

Small Hydro Power

3.

Solar Power (SPV)

4.

Bagasse Cogeneration

2.8

5.

Biomass Power

1.3

6.

Waste to Power

107 MW (not GW)

Total

33.7 GWOr 33,790 MW

2) brief overview of Indian scenario

We all know that renewable energy is very important for India for various reasons like firstly access to
renewable energy is important to end energy poverty; our energy needs are rising, secondly, Non
renewable sources are not sustainable source of energy; they will exhaust oneday, thirdly India imports
huge amount of petrol and coal; thus shift to RNE will reduce our import bill and thus CAD and last
but not the least.Clean source of energy; will prevent climate change.

2.

But inspite of this present share of RE out of total installed capacity is very low at 7.5% inspite of having
huge potential (According to MNRE minister in march 2015, India has an estimated potential of 897 GW
has been identified from various renewable energy sources in the country which includes 749 GW from
solar, 103 GW from wind, 25 GW from bio-energy and 20 GW from small hydro power)

3.

And this huge potential is because of the Cost of the reweables have come down in last couple of years
due to R&D; Vast and varied geography with appropriate location (India has high solar insolation) and
thus can harness solar, wind, tidal; Most of the habitations are still unconnected by electricity, thus huge
scope + our energy needs will only rise in future.

Notes

1.

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3) Steps taken/schemes
Target In the budget-2015, Govt. has proposed grid power of 175 GW from various renewable energy sources
by the year 2022. This includes 100 GW from soalr, 60 GW from wind, 10GW from bio-power and 5 GW
from small hydro power
i) National Solar Mission

Its 1 of the 8 NAPCC mission.

It was Launched in 2010.

Its 2 broad objectives are

Addressing Indias energy security as by this India will depend less on non renewable energy.

Promoting ecological sustainable growth i.e. will help to address climate change.

Originally the aim to add 20GW of solar energy by 2022. But in budget 2015 the missions target has been
scaled to having total solar power of 100GW by 2022.

Although it was launched by UPA Govt. but progress remained slow. Now its adequate and aggressive
implementation is being done by NDA Govt. which has taken it literally in a mission mode.

ii) Scheme for development of Solar Parks and Ultra Mega Solar Power Projects

Launched in Dec, 2014. The scheme aims to add 20 GW of solar energy in next 5 years (2014-5 to 20189). Central Govt. will provide a financial support of Rs 4050 Crores.

It aims to do this by setting up 25 solar parks each with a capacity of 500 MW and above. (but in case
of Himalayan and hilly states this reqt of solar park to be of min 500 MW can be relaxed.All states/
UTs are eleigible for benefits under the scheme.

The solar parks will be developed in collaboration with State Governments and their agencies. At central
level implementing agency is solar energy corporation of India (SECI) on behalf of GOI and at state
level states applying under the scheme will also have to designate an agency for the development of solar
park.

iii) Scheme for Development of Grid Connected Solar PV Power Plants on Canal Banks and Canal Tops

Launched by MNRE in Dec 2014.

Aim to achieve gainful utilization of the unutilized area on top of Canals and the vacant Government
land along the banks of Canals, for setting up Solar PV power generation plants for feeding the generated
power to Grid and to set up a total capacity of 100 MW solar PV power projects. For this scheme for
12th plan period it allocated Rs. 975 crore and with Central Financial Assistance (CFA) of Rs. 228 crore.

iv) Solar water pumps

NDA Govt. scaled up the existing program of solar water pumps. It has set the target to Solarize one lakh
solar pumps throughout the country in current year. Supplementary guidelines to this effect have been
issued. Solar water pumps reduces the input costs for farmers and saves diesel which is used to power these
pumps.

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INDIA & WORLD

1) present status of current account deficit (According to Eco survey 2014-15)
1.

2.

3.

Present status
a.

The current account deficit is estimated at about 1.3 per cent of GDP for 2014-15 and less than 1.0
per cent of GDP in 2015-16.

b.

In short it has lowered down.

Reasons for lower CAD

a.

Crude oil Global crude petroleum prices averaged about US$ 47/ bbl in January 2015 and about
US$ 90/bbl for the year as a whole (April 2014-January 2015). A rule of thumb is that a US$10
reduction in the price of oil helps improve the net trade and hence current account balance by US$
9.4 billion.

b.

Gold imports Moderated gold imports will also help sustain a manageable current account deficit.
Since the elimination of restrictions on gold in November, gold imports have fallen well below the
elevated levels seen in 2013. Declining international prices as well as moderating inflation have
meant that gold imports averaged US$ 1.3 billion in December 2014 and US$ 1.6 billion in January
2015 compared with US$ 4.2 billion in October 2014 and US$ 5.6 billion in November 2014.

Factors pose risks to the external situation

a.

Muted export growth

b.

Rising non-oil, non-gold imports

c.

Developments in other countries can pose a challenge

i.

renewed financial market volatility in response to US Federal Reserve monetary tightening which is
expected later this year;

1.

Fed tightening could lead to reversal of some of these inflows, placing downward pressure on the
rupee.

ii.

possible turmoil if the viability of the Eurozone were to come into question in the event of a Greek
exit;

iii. a spike in oil prices related to geopolitical events; and

iv.

A slowly deteriorating international trade environment.

2) Mayaram Committee (on removing confusion between FDI and FII)

Background
The Union Government in March 2013 constituted a committee to clearly define the Foreign Direct
Investment (FDI) and Foreign Institutional Investment (FII). (as there is a lot of confusion that what is
FDI and what is FII)

The committee was headed by Arvind Mayaram, the Economics affairs secretary.

It submitted its report in June 2014

Broadly it gave recommendations w.r.t following 3 things

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Recommendations
1.

Removing ambiguity between FDI and FII

a.

The various forms of portfolio investments have been merged under the definition of Foreign Portfolio
Investment (FPI) and investor classes presently regulated as FIIs and QFIs are also included in these.

b.

Any investment less than 10% in an Indian company by a foreign investor shall be treated as FPI, those
more than 10% be treated as FDI.

c.

FDI reflects a lasting and long-term relationship, while under prortfolio investment the relationship between
investor and company remains anonymous.

d.

An investor can invest in a company either under the FPI route or FDI route.

2.

NRI deposits

a.

Non repatriable investment by NRIs to be treated as domestic investment and thus exempting it from
FDI related conditions.

3.

FVCI (least impt) foreign venture capital investors

a.

There is need to relook at the FVCI scheme as these investors are basically in the nature of FDI.

3) why ease of doing business is low in India

World banks Ease of doing business report published in oct, 2014 ranked India at 142 out of 189 countries.
(but it will improve in 2015 as it didnt took into account steps by modi Govt.)
a) Reasons w.r.t INDIA
1.

Tax terrorism
a.

Unfriendly tax regimes. FDI is possible if there is transparent law, and only if there is stability in
rules. One Vodafone case is enough to make oversees investors shy away.

b.

non-implementation of GST

c.

Retrospective tax has hit investor sentiment

i.

At the vibrant Gujarat summit, fin-min called retrospective taxation as the defining moment against
investment in India, and told the industry captains that the Centre had no intention of levying
retrospective tax.

ii.

He assured industry that the Centre was determined to bring in perfectly non-adversarial taxation.

d.

List of tax cases

Infrastructural constraints i.e. transportation, electricity

3.

Labor Issues

Notes

2.

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a.

Archaic labor laws Have proved a strong deterrent for any overseas company to set shop in India.
The subject of labour has often acquired political underpinnings with varied stakeholders taking a
narrow stand.

b.

Labor movements In Feb. 2015 there was workers agitation in the Gurgaon Manesar belt demanding
better wages and working conditions

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4.

Land acquisition problem couple with environmental problem

5.

No fast track approvals i.e. red tapism, no single windo clearance

6.

Difficulty of exit,

7.

Lack of skill,

8.

Some other by eco-survey 2014-15

a.

Weak corporate balance sheets,

b.

An impaired banking system,

c.

The deficiencies of the public private partnership (PPP) model in infrastructure.

b) Reasons w.r.t investing countries if not relvant now then can ignore
See whether other countries are in investing mood?
Why European countries are investing less due to euro crisis

2.

USA I guess now no such issue; due to end of quantitative easing program, interest rates are rising in
US thus investors are now investing back to US.

Notes

1.

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